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

ance of mortgages insured by private mortgage insurance in secondary markets.

The President also promised in his message to submit to the Congress a proposal for a mortgage interest tax credit of up to 32 percent on interest earnings to financial institutions which invest a certain percentage of their investment portfolio in residential mortgages. I expect that this proposal will be submitted to the Congress shortly.

I turn now to titles I and III of S. 2507, which are directed to the other major challenge addressed by the President-the needs of our low-income families who still live in substandard housing.

S. 2182 would continue, basically unchanged, the current programs of new construction for low and moderate income families found in sections 235 and 236. In contrast, the Revised National Housing Act of the administration contains no such authority.

If there is one point that the housing study made abundantly clear it is that the principal root cause of families living in substandard housing is plainly and simply-lack of income to afford standard units, either newly constructed or existing. And the fundamental issue between the philosophy of S. 2182 and that spelled out in the President's message is whether it is preferable to continue the emphasis on new construction for lower income families or whether it is desirable to shift emphasis to providing cash assistance directly to these families to assist them in obtaining housing in safe and sanitary units.

S. 2182 would continue in force the goal of building 6 million new or substantially rehabilitated units over a 10-year period to provide for the needs of low-income families. In contrast, title I of S. 2507 would amend that goal in calling for "maximum use of the Nation's existing housing stock."

The study found the existing subsidized housing programs wanting in many respects:

They restrict freedom-of-choice and mobility, concentrate people in projects and disrupt neighborhoods.

They are inordinately costly, $65 to $85 billion having already been spent or committed to be paid over 30 to 40 years to provide approximately 2.7 million units.

They have served, even at such cost, only about 1 family in 15 eligible under the law.

They serve primarily those with incomes well above the low-income level of $4,275 a median income level in 1972 of $6,750 in the case of Section 235, and $5,450 in the case of Section 236 projects.

They will result in foreclosures over the next decade estimated at 19 percent of Section 235 housing and 20 percent for Section 236 projects.

They require the Government to pay 15 to 40 percent more for the additional housing provided by the subsidy than the people themselves would have paid if they had acquired a comparable improvement in housing in the private market. They have resulted in many Section 236 projects which simply do not work— tenant rents plus interest and tax subsidy produce cash flow that can neither service debt nor provide adequate services for the tenants.

In surveying this situation, the President has turned from any hope that these programs can, at acceptable costs, achieve decent housing for substantially all our low-income families to consideration of a more promising principal focus.

"Right now, in my judgment," said the President, "our principal efforts should be directed toward determining whether a policy of direct cash assistance-with first priority for the elderly poor-can be put into practical operation."

By providing qualified recipients with an appropriate housing payment, instead of providing a place to live, direct cash assistance has the advantages of allowing families the freedom to select their own housing without the stigma of living in a "project" and at the same time permitting maximum utilization of existing housing, which involves substantially lower costs than the costs of new construction.

This last point-lower costs-is worth emphasizing. To provide housing for all eligible families under existing construction-oriented programs would cost the Federal taxpayers, according to our estimates, $34 billion annually. But by placing families in existing safe and sanitary housing where available, the costs are estimated to be in the range of $8 to $11 billion annually.

There is no question but that we have built some good subsidized housing for lower income families across the Nation over the last 4 years. But in the midst of the hundreds of ribbon cuttings, project namings, and shovel turnings that take place every year for shiny new projects, the long waiting lists for units in subsidized housing projects many good and some bad-offer a silent reminder of the vast number of families whose needs are not being met at all. And, I would submit, these needs simply cannot be met, at realistic budget levels, under any program that emphasizes the highest cost approach— new construction. As the President said, we need a "policy that will work-not a policy where success will always be a mirage.

Accordingly, in title I of S. 2507 we are requesting authority to broaden our testing program now underway to formulate and evaluste different operational approaches to cash assistance to see whether any are practical and authority to put in place the mechanisms necessary to determine the costs of obtaining safe and sanitary housing in various market areas.

It is true that we do currently have authority for an experimental housing allowance program. However, in order to focus "our principal efforts determining whether a policy of direct cash assistance" is appropriate, we believe that we need the elimination of certain restrictions contained both in the current experimental program and in the section 23 leasing program which is used in the experiments. With the basic information from a broadened experimental program in hand, we would expect to be in a position to report to the Congress the specifics and final evaluation of an operational program by late 1974 or early 1975. Accordingly, we are suggesting that authority under title III related to low income housing expire on December 31, 1975.

During the period in which a new approach is being developed, there will be a need for a limited construction program, for in some areas of the country there will simply not be a sufficient supply of safe and sanitary housing for the foreseeable future.

Accordingly, in section 8(g) of the U.S. Housing Act of 1937, as amended in title III of S. 2507 we are proposing a new approach to construction which would offer developers the opportunity to make newly constructed units available at special rents for low-income families, and the Government in turn would pay the developer the difference between such rents and fair market rents, perhaps with a premium where that appears justified. Only with a true shift in responsibility from the Federal Government to private builders can we expect to provide any incentive for cost savings in construction or for longer

term viability of projects. We seek to replace an investor mentality of "take your tax deductions and run" with a focus on "longer term availability of cash flow and an appreciation of value" and to replace a current lender mentality of "the Federal Government will bail me out-totally" with a feeling that "I have got the principal stake in this project." We do not plan to build each year as many projects as we did, for example, in 1971. But we are going to be a part of far fewer white elephants which, as they slide into foreclosure, hurt tenants who become increasingly subject to deteriorating services and undermine the confidence of the public in the Federal Government to discharge its housing responsibilities without scandal and waste.

For the present, we shall complete the job of honoring bona fide commitments for new construction under the existing programs. Beyond that, we intend to use the existing section 23 construction-forleasing program for new construction in a way which carries out some of the principles of direct cash assistance and can provide valuable information on this new approach. In doing so, we shall be attempting to eliminate abuses from the program.

For the remainder of the fiscal year 1974 we would intend to process applications for an additional 200,000 units, 150,000 units of which would be new construction. This will be more than adequate to take care of all the bona fide commitments I have mentioned. Moreover, this is the maximum number of units for which the Department could give quality processing during this fiscal year. In addition, 50,000 existing units would be available under the section 23 leasing program, and we would intend to administer the program in a way that maximizes freedom of choice.

Title III also contains recommended changes concerning public housing. The President directed me in his message to give particular attention to three problem areas.

First, the President has asked me to give attention to the problem of rent income ratios-now subject to a ceiling of 25 percent but not a floor-and to the present definition of income-which in certain respects is unrealistic.

Our response to this problem is contained in title III of S. 2507 and in most respects does not differ materially from S. 2182.

Both contain the idea that all tenants in public housing should pay some rent and both eliminate unrealistic, double deductions from the income definitions.

Of particular concern to me, and I am sure to this subcommittee, is the manner in which tenant rent increases are implemented. Following S. 2182 we have provided for a phase-in of these increases but I am not yet satisfied that this phase-in deals adequately with very large increases which the changed formula may visit on some families nor that it realistically imposes relatively small increases soon enough.

I have instructed the Assistant Secretary for Housing Management promptly to provide me with all obtainable data on this issue so that we may work with the subcommittee in devising a phase-in formula which is equitable.

Second, the President has asked me to investigate ways of improving management and efficiency of public housing projects. This will involve not only a reevaluation of the formula by which operating