That is an unacceptable effect of the housing policy, and I think there is a desperate need for more human coordination of various Federal and State programs.

May I also address the point that you raised with regard to incentives for high priorities?

Governor, I agree with you but I am concerned about our setting priorities here. It seems to me that one of the problems, again, in terms of housing policy is that we have tried to establish national priorities when, in effect, they are not the priorities of Tennessee or other States. If we are going to have incentives built into the Senate bill, it would seem to me the priorities might best be determined by the Governors of the respective States.

Would you not agree with that?

Governor DUNN. I certainly respect that observation, Senator Brock, and it is quite in line with exactly what my philosophy has developed into being, having been a Governor now for a little more than 21⁄2 years.

The community developments we are making in my State are unique, they are historical. They have not in the past been approached on the long-range planning basis that we are presently approaching them, and I think with all the information in hand and the background and knowledge that is being accumulated by our State through our new department of economic and community development, we are going to be able to take programs that have Federal support and make them work effectively for our people and that, of course, is the whole thing.

It certainly relates to housing as well as other areas of planning and development.

Senator BROCK. You mentioned one other problem that I have been particularly concerned about. The chairman often points out the fact that I was the only vote against the housing bill of 1972. The CHAIRMAN. You just halfway voted against it.

Senator BROCK. That is about the truth. I was halfway opposed to it, but I responded by saying that I did not oppose the national housing objective.

I did not oppose the national housing responsibility. I did not and I do not, but I thought somebody had to draw focus to the fact that we needed to begin to rethink our housing goals, and honestly reevaluate these programs to be sure that people were benefiting from them.

We do not do enough of that in State Government or National Government. One of the comments you made which particularly caught my attention was that you feel that there are some good elements of 235 and 236.

I do, too. You have found at least in some instances, that some of the problem has been improper or inadequate administrative practices on the part of the people who control that program.

That points up, again, the argument that you were making for local and State involvement.

Governor DUNN. Yes.

Senator BROCK. We simply are not going to have enough people in Washington to administer these programs and find out the details they require from the local level. If we can involve more people in the communities in these decisions, they will be better programs.

I very much appreciate your remarkably fine statement. It is very helpful. We are not going to all agree here, but there is going to be more gained by working together than there is by working separately.

As the Senator from Wisconsin points out, if we pass a bill and it is vetoed, we have to override it. I do not want to get to that point. Governor DUNN. I do not, either.

Senator BROCK. I think we can work in cooperation with the administration on a program that will benefit the American people. I think that is what you are suggesting.

Governor DUNN. Thank you.

The CHAIRMAN. Senator Brooke.
Senator BROOKE. Thank you.

Governor, you endorse the matching-funds concept. I am very pleased to see that you do endorse that.

For example, if the State of Tennessee were to choose to match Federal funds for housing, do you envision hard cash matching funds or goods and services?

Governor DUNN. As a Governor, trying to squeeze every single dollar I can from one activity into another where I find the priority demanding, I would think in-kind matches would be the preferable approach.

Perhaps that is a little unkind from your point of view, but from my point of view it is a practical one. However, let me suggest to you that either way, I think that the suggestion has considerable merit, and it should be I hope it will be given evaluation as the legislation is developed.

Senator BROOKE. I feel very strongly about the program, the concept, and I am glad to see that you are endorsing it, but I just wanted to know what you actually meant by asking us to take this under consideration. I appreciate your response.

I will ask you this question, which I would like to ask of some of the others, also.

The administration's proposals seem to create mortgage money for new construction, but it is silent so far as existing housing is concerned.

Now, we have a lot of people in my State who, because of the closing of the Boston Naval Yard and other bases are moving to other States and locations, into existing housing, and they have a very serious problem as to credit.

They cannot obtain it. Did the Governors' Conference take into consideration the proposals creating money for existing housing?

Governor DUNN. Indeed, the Governors' Conference is very much aware of the fact that existing housing and the need for improvement is very basic, a basic ingredient in the overall concern, and does support programs which make available money for the making of livable, existing facilities.

Senator BROOKE. If people live anywhere, they have to live in existing houses, and it seems to me that ought to be a priority, freeing money for existing housing rather than for new construction.

Governor DUNN. A very major piece of legislation in my State, which was passed this past session, deals with that area of public concern, and we are moving in that direction in Tennessee, to make those funds available.

Senator BROOKE. I note an absence in your statement as to any real reference to public housing.

Are you aware of the proposal of the administration for minimum rental of public housing to be 40 percent of income.

Governor DUNN. No, I am not familiar with it, Senator.

Senator BROOKE. In other words, a tenant, living in public housing, would be required to pay 40 percent of the operating costs.

Governor DUNN. I see. I am not familiar with that. I think everybody ought to pay something for what they get.

I would assume that a low-income housing development would be built under the most reasonable of circumstances as far as overhead and operating costs are concerned, and I would just as soon-while 40 percent may be a totally impractical figure, the concept of paying something seems to me to be a very valid one.

Senator BROOKE. You want to endorse some payment?

Governor DUNN. I do not necessarily endorse 40 percent. I have no basis on which to believe that that would be an accurate or fair figure.

Senator BROOKE. You think there should be some minimum rent paid?

Governor DUNN. Absolutely.

Mr. LINCOLN. Senator, if I might add to that, in the past the Governors' Conference has supported the series of so-called Brooke amendments, which have established the rent ceilings. We have not specifically taken any kind of organized formal position on the particular administration proposal to substantially raise that potential contribution to 40 percent of the tenant's income.

Senator BROOKE. The conference has no position on it?

Mr. LINCOLN. Not a formal one.

Governor DUNN. I should have stated that was my personal opinion a few moments ago.

Senator BROOKE. Your personal opinion that you would not necessarily endorse the proposal of 40 percent of operational costs, but your personal opinion is that you think some minimum rent should be paid?

Governor DUNN. Perhaps that is a philosophical observation; but yes, I do believe that.

Senator BROOKE. I understand the conference has taken no position at all.

Mr. LINCOLN. As I said, Senator, we have in the past supported the intent of the legislation which has set the tenant payment level at approximately 25 percent.

Senator BROOKE. So, since you have taken no action on it, I take it the position of the Governors' Conference is that you are still on record as supporting the so-called Brooke amendment, to establish a ceiling, but no floor?

Mr. LINCOLN. We have taken no step to negate that previous position.

Senator BROOKE. Thank you.

Governor DUNN. Thank you.

The CHAIRMAN. Are there any further questions?

We certainly are indebted to you, Governor, for your presentation.

Governor DUNN. You are very kind, Senator Sparkman. I want to thank the members of the committee for their kind attention, and Senator Proxmire, we are glad you are all in one piece.

Senator PROXMIRE. Thank you very much, Governor.

The CHAIRMAN. The next witness is Mr. Norman Strunk, vice. president, United States Savings and Loan League. Mr. Strunk, we are very glad to have you, sir, and you may go right ahead with your statement as you see fit. It all will be printed in the record.

STATEMENT OF NORMAN STRUNK, VICE PRESIDENT,
UNITED STATES SAVINGS AND LOAN LEAGUE

Mr. STRUNK. Thank you. Before I start my statement, Mr. Chairman, I want to express my appreciation to each member of this committee and its hard-working staff for passing Senate Joint Resolution

160.

We regard that as a vote of confidence in the savings and loan business, and we will promise not to let you down.

The CHAIRMAN. I suppose you noticed that it was passed by a substantial margin.

Mr. STRUNK. And very promptly on both sides.

The CHAIRMAN. Unanimously. Very well. Thank you.

Mr. STRUNK. My name is Norman Strunk, and I am executive vice president of the United States Savings and Loan League. I appreciate this opportunity to appear before this committee and express the views of the savings and loan industry on the administration's housing message.

As the committee understands, we have not had an opportunity to actually study the legislative language to be submitted by HUD, since that material was not available at the time this statement was prepared. We will be happy to respond further for the record, if appropriate.

We have reviewed the housing message, and appreciate the administration's careful examination of existing housing programs. Some of the proposals advanced are consistent with our views as expressed in our testimony in April before this subcommittee.

For example, we have recommended substituting market rates of interest on FHA loans in lieu of a statutory maximum interest rate and we have supported an expanded section 23 leased public housing program. However, Mr. Chairman, to us the significant feature of the housing message is its recognition of the need to, in its words, "alleviate the immediate housing credit problem."

The Congress took a very important step earlier this week to alleviate the immediate housing credit problem by approving Senate Joint Resolution 160, which directs the Federal banking agencies to place ceilings on all types of consumer savings accounts and certificates under $100,000.

We are most appreciative of this action and in particular applaud the initiative of the members of the Senate Committee on Banking, Housing, and Urban Affairs.

The most important thing that the Congress or the administration can do to alleviate the immediate housing credit problem is to get money flowing back into savings and loan associations. It should be

noted that the very first proposal in the President's housing message was addressed to the savings and loan industry. The President announced a $2.5 billion forward commitment program by the Federal home loan bank system to support new residential housing, with the actual disbursement of funds 6 months or more from now.

But frankly the action that the Senate took on Monday can be much more significant. Elimination of the "wild card" certificate and the rate war between commercial banks and savings and loan associations could produce $2.5 billion in additional funds for home lending each and every month.

In addition, your action should provide funds for housing at reasonable rate levels-levels much lower than the 81⁄2 percent advances of the Federal Home Loan Bank Board program.

In connection with the savings rate war, we recommend that the Congress carefully oversee the implementation of Senate Joint Resolution 160. It is important that the banking agencies not ignore congressional directives and intentions. In this regard, we recall that in December 1965 the Federal Reserve decided to in effect ignore the law and to raise regulation Q ceilings so high that they would be ineffectual in controlling cutthroat rate competition.

Indeed in the future Congress itself might want to create a mechanism whereby it could directly participate in decisions as vital to housing as the determination of rate ceilings for savings.

Our problem on the savings side of our business in recent months has actually come from two directions. As you well know, there is the "wild card" competition from banks, until the agencies take appropriate action.

Another problem is what is now known as disintermediation; that is, money leaving financial institutions, financial intermediaries, for direct investment in market instruments. Treasury bills, Treasury notes, agency obligations, commercial paper, and bankers' acceptances have increasingly attracted small savers.

These are packaged by some dealers into $10,000, or even smaller, units for purchase by the small saver. We are hopeful that the trend in money market rates of recent days continues and there will be some relief from this threat to consumer savings.

We believe that the three phases of the President's program to ease immediate credit restrictions-the forward commitment program through the Federal Home Loan Bank system, tandem plan subsidy assistance to FHA/VA loans, and increasing the insurance coverage for FHA mortgages will be helpful, although not as important in impact as the President's message suggested.

With respect to recommendations for long-term improvements in the credit system, we agree that the recommendation to permit market level interest rates on FHA loans should be implemented.

We think the best idea there is one that would authorize the socalled dual rate program for FHA loans, with fixed rates on the one hand-with discounts permitted-and market rates on the otherwithout discounts. Greater flexibility in repayment plans for federally insured mortgages would be appropriate as well, particularly if it would be a step toward the variable rate mortgage plan which so often has been advocated as part of a necessary broad reform for the mortgage market.