So we have virtually no program for the poor, virtually no program for lower or middle or moderate-income families, no program for the great middle American families who are priced out of the market, and the abandonment of the housing goal.

The only people who can afford housing are the very well-to-do. That is the reality of the housing message.

All of this is justified by a series of "specious arguments" to try to cover up HUD mismanagement by blaming the programs; which imply that we should not construct housing for some of the poor or moderate income housing unless we supply new construction for everybody; and which tell us that we should push the rehabilitation of existing structures after this administration abandoned the programs to upgrade existing structures last January.

If they are such good programs, and I believe they are good programs, why did HUD suspend them.

The conclusion is clear. The historic pledge of a decent home in a suitable living environment has been abandoned by the administration. This is the sad, brutal fact. That is what these hearings are all about. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you. Let us insert copies of the bills being considered in the record.

[Copies of the bills may be found in the appendix at p. 379.] The CHAIRMAN. Mr. Secretary, we are very glad to have you.

STATEMENT OF JAMES T. LYNN, SECRETARY, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; ACCOMPANIED BY FLOYD H. HYDE, UNDER SECRETARY; MICHAEL MOSKOW, ASSISTANT SECRETARY FOR POLICY DEVELOPMENT AND RESEARCH; JAMES MITCHELL, GENERAL COUNSEL; SHELDON LUBAR, FHA COMMISSIONER; DAN KEARNEY, DEPUTY TO MR. LUBAR; H. R. CRAWFORD, ASSISTANT SECRETARY FOR HOUSING MANAGEMENT; DAVID MEEKER, ASSISTANT SECRETARY FOR COMMUNITY PLANNING AND DEVELOPMENT; GLORIA TOOTE, ASSISTANT SECRETARY FOR EQUAL OPPORTUNITY; SOL MOSHER, ASSISTANT SECRETARY, LEGISLATIVE AFFAIRS; AND AL KLIMAN, DEPUTY DIRECTOR, OFFICE OF THE BUDGET

Secretary LYNN. Thank you, Mr. Chairman.

The CHAIRMAN. This is the time we get a chance to state our position and now we are going to invite you to state yours. I want to say that I am more optimistic than I may have sounded in my statement. I have said all along that I believe we could work out a good housing program. I realize that there will have to be a good bit of struggling around verbally, but I am hopeful that we would come up with a bill, based by the way, not only on these 3 days of hearings sometimes I think that housing just being such an important matter and being in such a bad shape, as we have explained, that 3 days of hearings would probably not be sufficient.

But these 3 days of hearings are based upon the President's, the administration's bill.

As I pointed out, we have had several weeks of hearings in the course of the year, 5 weeks altogether, I am told, and that was on housing. That includes the community development legislative hearing and the oversight hearings that I mentioned, which was in fact a review of the entire program, in the earlier part of the year.

We felt that with 3 days of hearings, based upon this present bill that has been submitted by the President, and Mr. Lynn's statement, both by him and by his aides who are with him, that we will be ready to start next Monday and I hope all of us will keep our decks clear so that we can devote full attention to the marking-up of a comprehensive housing bill, including community development.

So, I think we will have time to do that, to get the bill to the floor of the Senate, hopefully, before the end of the month.

In fact, I hope we will get it passed through the Senate by the end of the month.

Senator TOWER. Mr. Chairman, would you yield for an observation? The CHAIRMAN. Yes.

Senator TOWER. I hope we can avoid the error of falling into a narrow dogmatism that holds that when a congressionally conceived and enacted program fails, it is the fault of the administration. I think we should be reexamining our own concepts from time to time, because I think we are fully capable of making mistakes and I would hope we would not prejudge the Secretary's testimony before he has had an opportunity to give it.

The CHAIRMAN. I think that is a very good statement. In fact, in my statement I pointed out that we needed a housing bill badly, because some things have gone wrong, some have been outworn, and we are badly in need of a comprehensive housing bill, such as I hope will come out of these sessions.

Senator PROXMIRE. Mr. Chairman, I hesitate to prolong the dialog up here but I cannot resist, because I think that, possibly Senator Tower had my statement in mind when he said that.

Senator TOWER. That is all together, probable.

Senator PROXMIRE. Let me respond to Senator Tower by saying there is no question that there are things wrong with the housing programs, but my point is that we should not close down the entire program for years until 1976 while we design another model. It is like asking General Motors to go out of business for 3 years because they have something on the line that will be different 3 years from now.

I do not think there is anything wrong with the programs. I would point out that then where they are well-administered, as they were in Milwaukee, we have no complaints.

Senator TOWER. The private sector is still active, I understand.

The CHAIRMAN. All right, Mr. Secretary, and for the benefit of the record, will you identify the gentlemen who accompany you?

Secretary LYNN. I would be pleased to do that. I have on my left, Mr. Hyde, my Under Secretary; next to him, Mr. Mike Moskow, who is the Assistant Secretary for Policy Development and Research and who bore the brunt of the main work on the housing study.

I have on my immediate right, Mr. James Mitchell, my general counsel, Mr. Sheldon Lubar, FHA Commissioner, and next to him we have Dan Kearney who is the Deputy to Mr. Lubar.

I have with me Mr. H. R. Crawford, Assistant Secretary for Housing Management, Mr. Meeker, Assistant Secretary for Community Plans and Development, Dr. Gloria Toote, my Assistant Secretary for Equal Opportunity, Mr. Sol Mosher, Assistant Secretary for Legislative Affairs and Mr. Kliman, Deputy Director, Office of the Budget. It is a pretty full complement, but we wanted to be as best prepared as we could.

The CHAIRMAN. Very well.

Glad to have all of you.

Secretary LYNN. You might ask who is watching the store, and that is a good question.

Senator PROXMIRE. The HUD officials are occupying the press table, so the press is standing over there. How about that? I see a distinguished reporter up against the wall.

Secretary LYNN. That is the first time you have seen a reporter up against the wall.

Mr. Chairman, and Members of the subcommittee. This is my fourth appearance this year, before your subcommittee. During each of my three previous appearances, I alluded to an extensive study of our housing programs being conducted at the Department, and in his March community development message to the Congress, the President stated that he would have policy recommendations based on this study to the Congress within 6 months.

On September 19, those policy recommendations went forward, followed in 10 days by specific legislative proposals. In addition, as the President promised, a draft bill of the Responsive Governments Act has also been sent to the Congress.

Today you have asked me to discuss S. 2182, an omnibus housing bill introduced at the chairman's request on July 14, along with S. 2507, the administration's draft bill and S. 2490, which is the Responsive Governments Act.

In addition, S. 2508, the Private Mortgage Insurance Guarantee Act of 1973, has also been introduced on behalf of the administration to provide a basis for discussing ways of allowing holders of privately insured mortgages to obtain additional protection.

Before discussing the details of similarities and differences in approaches among these bills, a few words about the study are in order. The National Housing Policy Review was conducted over approximately 6 months. It utilized the research of more than 100 people on the study teams, as well as over 100 private contractors. Very helpful assistance was received from members of Congress and congressional staff in a series of briefings and individual meetings. In addition, more than 500 responses were received from public and private groups and individuals, and the various reports prepared by contractors aggregate more than 10,000 pages.

A report of the results of the study and the contractors' reports will be available to Members of Congress and the public shortly.

In his message to the Congress, the President focused primarily on two challenges, the problems of providing adequate mortgage credit for housing and the needs of lower income families who still live in substandard, overcrowded, or dilapidated housing.

Two actions to relieve the presently tight mortgage credit situation which could be taken administratively have already been initiated. The Federal Home Loan Bank Board has announced a program of forward commitments covering some $2.5 billion in loan commitments to savings and loan institutions. At our Department, Ginnie Mae has been authorized to buy up to $3 billion of residential mortgages carrying interest rates somewhat lower than current interest rates.

The President's additional policy recommendations in mortgage credit require legislation. Accordingly, title II of S. 2507-a revised national housing act-contains five proposals which can make it easier for home buyers to obtain mortgages.

First, and this is vitally important to ease the current tight mortgage credit situation, is a requested increase in the permissible mortgage amounts of FHA-insured mortgages.

Set at their current levels in 1969, these amounts have become obsolete through the effects of both higher real incomes and inflation. Changes in these levels are particularly important in a number of States whose usury laws exempt federally insured loans from interest ceilings. At the same time, authority is being requested to enable me to vary the loan-to-value ratio in FHA-insured mortgage loans to meet credit conditions. Because of the extreme importance of keeping FHA in operation with realistic mortgage amount limits and loan-to-value ratios during this period of tight mortgage credit, I urge the subcommittee to consider seriously the possibility of separate, expedited action on these requested changes.

S. 2182 is in accord with the administration's 1971 request for flexible authority to set maximum mortgage amounts based on prototype development costs. But because of the President's decision to urge redirection of our efforts for low-income families away from subsidized new construction, because even to the extent subsidies would be available, far greater reliance would be placed on private developers of conventional projects and because prototype costs have not worked well administratively, we do not believe it appropriate to undertake the effort and expense of developing prototype costs for construction of units when the limits derived would apply only, as a practical nature, to the unsubsidized mortgage insurance programs. Moreover, within the mortgage amount limits, I would still have discretion to use prototype costs if that course of action became desirable.

Second, we are requesting authority to permit homebuyers to pay market interest rates on FHA- and VA-insured mortgages and we are seeking to prohibit the charging of points by lenders. S. 2182 does not go this far but rather follows the more tentative 1971 administration. bill which would have made permanent the Secretary's temporary authority to set maximum interest rates and would permit use of market rates on an experimental basis. However, in our view, the current tight mortgage credit situation is further evidence that a complete shift to market interest rates is appropriate. Just as we cannot legislate for or against rain, we have found that we cannot, by law, compel lenders-who can secure higher rates of return from competing investments-to make their funds available to homebuyers at artificially low rates.

At the same time, we are seeking to do away, once and for all, with the charging of points by lenders. As the President pointed out in

his message, the practice of charging points can increase the overall price of the home with concomitant increases in insurance costs, property taxes and, indeed, in monthly mortgage payments. This prepaid interest also often results in a higher effective interest rate on the mortgage when a home is resold before the mortgage term has run its course. S. 2182 also recognizes the problems caused by points in prohibiting the practice where the experimental, market rate authority was implemented.

Third, we are seeking flexible interest rates, longer repayment terms, and higher loan amounts for title I, redesignated title III of the proposed Revised National Housing Act, which would cover mobile home purchases, home improvement loans, and historic preservation efforts. S. 2182 also provides for increases in the mortgage amounts and grants market interest rate authority but it does not lengthen permitted maturities.

We believe, however, that the title I program should allow longer maturities in view of the importance of preserving existing housing stock and to permit taking advantage of changes in technology improving the durability of mobile homes.

At the same time, secretarial discretion to set interest rates to reflect changing credit market conditions combined with the existing coinsurance feature of title I can result in significantly lower interest rates as much as 3 percentage points-for mobile home purchasers from the rates of uninsured loans. Continuation of the present law forces buyers to borrow conventionally since lenders simply will not lend at the rate Congress has set.

A fourth request would permit the experimental use of more flexible repayment plans on FHA-insured mortgages. Just as FHA itself was once an experiment, and probably the most successful experiment in the history of the Federal Government participation in housing—we now see additional possibilities in repayment plans more carefully tailored to the changes in income of our families. This requested authority has not been requested in any previous administration bill nor is it contained in S. 2182.

Finally, we are requesting authority to implement the technique of coinsurance, which has been successfully used by the Veterans' Administration. The use of coinsurance offers substantial possibilities for allocating more responsibility for the viability of projects to lenders and for cutting down FHA processing time. Before the authority would be implemented, I would intend to study thoroughly the techniques of the Veterans' Administration as well as to consult extensively with lenders.

In many, many other respects the consolidation and simplification of the Revised National Housing Act in title III of S. 2507 is identical to that contained in chapter 1 of S. 2182. We hope, however, that the subcommittee will give careful consideration to the recommended changes and additions I have described.

The President has also submitted a separate bill, the Private Mortgage Insurance Guarantee Act of 1973, to provide a basis for discussion of ways to encourage the continued development of private. mortgage insurance. Federal guarantee of private mortgage insurance could provide added protection to the owners of mortgages insured by private mortgage insurance companies, thereby enhancing the accept