of the FHA rate has encouraged investors to return to the FHA market to such an extent that there are more than adequate funds for these loans today. The national market has truly come into its own.

The repeated trial by fire which FHA undergoes each time its authorities to operate expire seems to us totally unnecessary, and, in a situation such as the mortgage market is now experiencing, totally irresponsible. While it is true that the average price of a new house in the United States today exceeds the present $33,000 limit which FHA can insure, it is not true that there are no houses available at that price and below and it is this market which FHA has traditionally served. This is not a subsidized market and it is not a small market. A great number of credit-worthy Americans of moderate means suffer each time FHA undergoes the legislative gyrations that surround the extension of its insuring authorities. Certainly, if the Congress does nothing else, it should assure that these authorities are made permanent in any legislation which it passes.

One additional point should be made relative to FHA's single family unsubsidized loan program. To be truly effective to today's market the basic 203(b) program must be able to serve an even broader range of people that it now can. Prompt Congressional attention should be given to increasing FHA's maximum loan ceiling and altering its loan-to-value ratio on the 203(b) program in order to enable it to better assist the beleaguered conventional lenders in serving the public. All housing proposals before the Congress envision an increased FHA single family mortgage ceiling, therefore,

this recommendation is merely an interim measure to accomodate the present market difficulties until final passage of a major housing

bill.

In testimony two years ago, the MBA urged consideration of a broadened housing allowance program. Since that time there have been a variety of HUD programs testing this concept across the country. Since final results are not yet available, and will not be for some time, it is difficult for the Association to have any more specific comments as to the success of this program than does HUD. We do support an experimental housing allowance program, however, we very strongly recommend that it be accompanied by a comprehensive counseling program that will help the uninformed, low-income family find adequate housing. The housing allowance program, or direct cash assistance program, cannot, in our view, hope for success without this additional ingredient.

The great cost of the Section 235 program is offered as one of the principal reasons for its suspension. We believe it must be assumed that the proposed direct cash assistance program will also require massive outlays of federal funds if it is expanded to encompass a broad range of truly low-income people. All of us must acknowledge the necessity of the high cost of sheltering a larg number of low-income families and be prepared to pay the bill.

We believe that housing the poor will require a range of subsidy programs designed to meet different requirements of the low-income family, programs which may well go far beyond the Administration's

direct cash assistance proposal.

For example, direct cash assistance

will be troublesome in areas where vacancies are low and more workable where they are high. In order to not simply push up housing prices, some housing production may need to be subsidized in areas where vacancies are low. This suggests that a limited and adequately monitored subsidized program should probably be continued, even past the time when the direct cash assistance program might be adopted.

The revisions proposed to the National Housing Act are in many cases sweeping and deserve more detailed response than we are presently able to provide the Committee. Given time, we would have hoped to carefully analyze each provision and its impact on the affected industries and individuals. We hope that no injustice is done by our brief analysis and response.

It is unclear what is meant by "experimental financing" in Section 101 of the Revised National Housing Act. We cannot criticize experimenting with novel approaches to financing housing and would like to see more detail concerning the proposal so that we can intelligently comment.

The success of private mortgage insurance in the marketplace has been most welcome, and it would appear that this success has

been carefully studied by HUD with regard to the provision found in Section 102 which deals with a variety of FHA insuring concepts. A number of insuring approaches are suggested in Section 102(b) which would indicate that the Secretary could establish any degree

of insurance that he deemed necessary, i.e., 100% insurance for high risk areas, 95% insurance, 60% insurance, and so on. The Veterans Administration's successful home loan program in which they guarantee only a portion of a home loan suggests that variations in FHA's insuring scheme may be acceptable.

These variations would, however, destandardze the FHA mortgage and probably limit secondary market purchase of these government insured loans to the fully insured instrument. It is doubtful that the nationwide market for government insured loans will be able to cope with the confusing purchasing problem which will be presented by a variety of insured loans.

A far better approach would be to keep the present 100% insurance system and vary the insurance premium rather than to vary the risk and maintain a fixed premium. To vary both would produce a nightmare in the secondary market where variances in yield create sufficient chaos.

already

Much has been written in past MBA statements before this Committee on the matter of a free interest rate with no discount points. Discounts are a part of almost every money market transaction, including the conventional mortgage market as well as the FHA insured and VA guaranteed market. It is common in conventional loans for the buyer and seller to share discount points.

The "discount problem" is the problem of large discounts that become necessary at time when the fixed rate is far below the

market rate. But a small discount, up to perhaps four points, is not a problem. It serves a different purpose--to make the

fine adjustments necessary to meet individual variations, i.e., size of loan, downpayment, location of property and so forth. Such small discounts are consistent with a free market rate and if the interest rate is permitted to fluctuate with the market, discounts will be, as a matter of course, four points or less.

It should also be noted that if the rate is freely determined and and some discount is available and if the parties to the transaction are permitted to negotiate as to who pays the discount, the market is given considerably more freedom and ability to attract investors in periods where interest rates are high and rising and borrowers become reluctant to pay the high nominal rate.

During the past year the MBA had a great deal to say about the

need to strengthen the FHA's unsubsidized, market-oriented programs. Fundamental to this concept is the existence of a properly underwritten sound FHA insured single family mortgage program. To the extent

that Title II of the Revised National Housing Act does away with the Mutual Mortgage Insurance Fund this concept is impaired. The effect is to eliminate FHA's most essential ingredient. If this provision is enacted into law it is imperative that the distinction between actuarilly sound and unactuarilly sound loans be maintained or the Mutual Mortgage Insurance Fund's successor, General Insurance Fund will become merely a guarantee program with a poor lossratio, constantly in need of appropriations to keep it solvent.