Statement

of

William L. Reynolds, Executive Director

of the

National League of Insured Savings Associations

to the

Subcommittee on Housing and Urban Affairs

of the

Senate Committee on Banking, Housing and Urban Affairs

of the

United States Senate

on the

Administration's Housing Proposals

October 4, 1973

The National League of Insured Savings Associations is a

trade association composed mainly of savings and loan associations around the country. It also includes in its membership many associate members that have an interest in the operation of savings and loan associations. The National League appreciates the opportunity to express

to the Subcommittee on Housing and Urban Affairs the following observations

in connection with the Subcommittee's current hearings on housing

and the Administration's Housing Proposals.

Perhaps my first comment should be directed to the

$2.5 billion in loan commitments the President has authorized the

Federal Home Loan Bank Board to make.

It will be noted that not one cent of a taxpayer's dollar

is involved in the commitments. The Federal Home Loan Bank Board

through the Federal Home Loan banks and backed by the stockholders, mainly savings and loan association's equity in such banks, for permanent home financing, has gone to the money market for the funds to be used. The savings and loan associations, the specialized

housing finance institutions, will be authorized to borrow those funds at 8 1/2% interest and at an additional cost of one quarter percent non

refundable commitment fee.

This advance is in fact a short-term, two-year advance,

but the savings and loan association will be investing in a long-term commitment and management must make a judgement that funds will be available to pay off the advance when due.

The $2.5 billion advance for permanent financing of housing

only is possible because Congress has developed over the past four

decades a truly remarkable financial structure dedicated to housing

Americans.

The National League supports the $2.5 billion commitment

but feels that it would not have been necessary if the Federal Reserve's

monetary policy had been more moderate and not relied upon as the only tool with which to fight inflation.

It should also be remembered that the $2.5 billion is

just 1 percent of the approximately $230 billion now held by insured

savings and loan associations.

Permissible FHA Mortgage Amounts

The National League favors an increase in the permissible

mortgage amounts of FHA insured mortgages as being warranted due to rises in land and construction costs and the unchecked inflationary push

on prices.

Flexible Repayment Plans Experiment

More flexible repayment plans in FHA and VA insured

mortgages on an experimental basis seem to be feasible. The purpose is to permit young people to make smaller payments in the earlier years of the mortgage and larger when their income is expected to be greater

than at the time of purchase of a home.

Removal of the FHA Interest Rate Ceiling

The FHA interest rate ceiling has long been looked on as

a rate below the market rate due to insurance of the funds loaned. The

difficulty of obtaining FHA clearance, the myriad of regulations and red tape involved has allowed private insurers to develop because they were

more efficient in putting the insurance into effect and afforded the same

coverage.

FHA insurance also encouraged the long-term mortgage development in that an extended length of time risk was insurable. The low down payment mortgage was also aided in its development through the FHA insurance program.

Private insurance, low down payments and long-term mortgages are now commonplace and the risk-taking covered by the insurance does not appear to warrant or demand a ceiling on FHA interest rates. The National League favors lifting of the ceiling on

FHA insured loan interest rates.

Establishing of Mortgage Interest Tax Credit of Up to 3 1/2%

Although alluded to by Mr. Lynn, Secretary of Housing and Urban Development, in his October 2, 1973 statement before the Subcommittee on Housing and Urban Affairs, the President's "proposals for a mortgage interest tax credit of up to three and one-half percent on interest earnings to financial institutions which invest a certain percent of their investment portfolio in residential mortgages" has not been sent to Congress and is not before your Committee at this time but a few remarks are pertinent.

The housing finance structure for America developed during

the past forty years has been successful to such an extent that even those

men of vision who contributed to its development would be and are amazed

at its success.

The structure has caused an allocation of funds of the people

to be directed into housing. The long-term mortgage money necessary to house Americans amounts to over $200 billion in insured savings and loan

associations. These institutions were formed to encourage thrift and to invest that money in residential mortgages.

The issue to be presented to Congress either as a package

or piecemeal is basically this: Should Congress continue to see that funds are collected through thrift and savings and invested in residential mortgages or should such structure be abandoned so as to leave the American family in the position of competing for long-term mortgage money in the open market against what is now truly the World?

There is an economic issue involved but there is overall

the social issue, the basic fundamental concept of decent living standards for our people, and Congress must decide whether there will be structure designed to guarantee an opportunity to all to be properly housed or accept the "free play of competitive forces" in the economy with funds always going to the highest bidder.