partial and temporary. It is our firm belief that the best way of stimulating a reasonably active flow of investment capital into the GI loan program would be to make the loans sufficiently attractive to private investors in relation to competitive investments. This would necessitate statutory auhority which would permit the Administrator flexibility in fixing the interest rate at a compeitive level. The President in his budget message on January 18, 1960, recommended that the Administrator be given authority for fixing the interest rate similar to that which has been granted the Federal Housing Commissioner. A renewed recommendation to this effect has just been sent to the Congress. The other provision of the bill which would affect the loan guaranty program is contained in section 14. This would require originating mortgages to report to the FHA or VA the amount of any fees, charges, or discounts, other than the origination fee charged to the mortgagor, paid in connection with or for the purpose of arranging the mortgage loan. Undoubtedly this provision is motivated by the reports of substantial discounts on Government underwritten loans. We, too, deplore a market condition in which the origination of VA-guaranteed loans is dependent upon the willingness and ability of the seller or builder to absorb a very substantial discount. Under these conditions it is not possible to have the program function in the manner intended. However, the requirement that the discount be reported will not correct the basic cause. The discount is employed as a mechanism to bring the yield on a submarket rate security in line with that obtainable on comparable investments. The most effective way of reducing the discount but augmenting a flow of investment funds is by increasing the interest rate which the security instrument bears. The requirement that the discount be reported will not make available any increase in the supply of mortgage funds. Nor is it likely that the discount charged will be reduced. An investor who would be concerned about reporting the price for which the mortgage is acquired would not be likely to reduce the discount, but rather would probably invest in other securities yielding the higher return. The future activity in the GI loan program depends upon either an increase in the supply of investment funds which will result in the GI loan with a 5 percent interest rate again attracting investor appeal, or the Administrator being given flexibility in the matter of fixing a competitive interest rate. Although there have been some signs of an easing in bond and mortgage rates recently, the first alternative seems unlikely in the months immediately ahead. Even assuming an improvement in the available money supply, the authority to fix a flexible interest rate would be highly desirable since it would afford leeway as called for by market demands to raise and lower the GI loan interest rate in order to meet prevailing conditions. In view of the foregoing, we are unable to recommend favorable consideration of H.R. 10213 by your committee. Advice has been received from the Bureau of the Budget that there is no objection to the presentation of this report to the committee and that enactment of the proposed legislation would not be in accord with the program of the President. Sincerely, SUMNER G. WHITTIER, Administrator. NATIONAL AERONAUTICS AND SPACE ADMINISTRATION, Hon. A. WILLIS ROBERTSON, DEAR SENATOR ROBERTSON: I refer to your letter dated May 3, 1960, in which you request a report of this Administration on H.R. 10213, a bill to amend the National Housing Act. The only part of the bill pertaining to NASA is section 15 which amends section 809 of the National Housing Act. Section 15 is identical to another bill, S. 3226, concerning which we have previously submitted a report to you dated April 27, 1960. In general our comments with respect to S. 3226 apply as well to section 15 of H.R. 10213. In that reprot we suggested an amendment to the bill adding language at the end of it which would expressly provide the Administrator of NASA with authority to guarantee and indemnify the armed services housing mortgage insurance fund in cases where so required. Since submitting our report the staff of the Senate Committee on Banking and Currency has informally suggested alternative language as follows: "The Administrator of the National Aeronautics and Space Administration, or his designee, is authorized to guarantee and indemnify the armed services housing mortgage insurance fund against loss to the extent required by the Commissioner in accordance with the provisions of subsection (b) of this section in the case of mortgages insured under this subsection." It is our understanding that the alternative language is intended to have the same effect as our original proposal and that the difference in wording is merely a technical difference in drafting. NASA would favor enactment of section 15 of H.R. 10213 amended as suggested above. The Bureau of the Budget advises that it has no objection to the submission of this report. Sincerely yours, JAMES P. GLEASON, Assistant Administrator for Congressional Relations. Senator SPARKMAN. Any statement by anyone before we start with the witnesses? Senator BUSH. Mr. Chairman, I will take exception to your statement about the lack of interest of this administration in housing and simply say, without attempting to debate it here further, that at no time in the history of this Government has housing been so generously subsidized as it is at the present time by the Federal Government. The fact that it is not as greatly subsidized as others might wish does not indicate a lack of sympathy or interest in the subject by the President of the United States and his administration. That is all. Senator SPARKMAN. I related it to his message of May 3, Senator Bush, in which as I pointed out Senator BUSH. My statement relates to the overall attitude and to the whole present situation affecting the general subject of housing in all its facets. Senator CLARK. If I could interject just one sentence, it would seem to me the fact the administration does not want a housing bill this year would tend to confirm the views of the chairman. Senator SPARKMAN. Very well. We will get started. Our first witness is Mr. Mason, Administrator of the Housing and Home Finance Agency, flanked by the heads of his several constituent agencies. Mr. Mason, it is always a pleasure to have you and your associates with us. You proceed in your own way. STATEMENT OF NORMAN P. MASON, ADMINISTRATOR, HOUSING AND HOME FINANCE AGENCY Mr. MASON. Senator Sparkman, it is always a pleasure to be here, and it is a pleasure to be here today to review with you the legislation pending before your committee on the subject of housing. I have with me today Commissioners Davern, Zimmerman, Walker, Hazeltine, and Mr. Baughman of FNMA, to help you in any way we can in your consideration of the housing bills you have before you. We naturally wish to handle our discussion of these bills in whatever way will be most helpful to you. I have a prepared statement which touches on some important points in the bills, and the others with me will discuss in more detail the bills which have a direct bearing on their programs. Of course, we will submit to questioning at any time. If it is agreeable with you, we will proceed with the prepared statements. Senator SPARKMAN. Go right ahead, sir. S. 3379-NATIONAL HOUSING GOALS Mr. MASON. The first section of S. 3379, introduced by your chairman, would require that the program of the President, as expressed in his annual message to the Congress, include statements and recommendations concerning a residential construction goal. He would also be required to transmit to the Senate and the House of Representatives an annual report which would include: (1) a statement of the minimum number of housing units that should be started during the year, (2) an indication of the manner in which "the law will be administered by the executive agencies to achieve the number of housing units specified," and (3) any recommendations for legislative action necessary or desirable in order that the construction of that number of housing units may be started. I believe statements of national housing policies and objectives are desirable and helpful. The "Declaration of National Housing Policy" enacted in 1949 sets forth the very desirable objective of providing decent home in a suitable neighborhood for every American family with maximum dependence upon private enterprise. However, I do not recommend goals expressed in terms of the number of housing units which should be started in a specific 1- or 2-year period. So much more is involved than the number of houses to be built. We must consider the income groups for whom the housing is provided, the quality of the housing, and the special needs of our people, such as elderly families and minority groups. The amount which should be built during a particular year will depend upon many factors affecting our people and our economy. The requirement in the bill seems to assume that we have the precise tools with which to estimate housing demands and industrial capacities so that a fixed housing production goal could be set within a framework of economic growth and stability. As a practical matter, the House Appropriations Committee has declined to give us research funds so that we could, among other things, better estimate the amount of housing that should be built and that would be supported by the market during a year yet to come. I would particularly recommend against the requirement that the President indicate how the law will be administered by executive agencies to achieve a specified number of housing starts. This would seem to amount to a commitment by the President that he would assure the starting of a specific number of housing units during the year. Any such assurance would imply some Government regulation of the economy if that is necessary to produce the number of units specified. The requirement would involve judgments by the executive branch not only on housing production but on appropriate production levels in other segments of the economy affecting housing, which in turn may require Government controls in order to be effective. Whatever our goals, I believe Federal assistance should be in a form that permits them to be pursued within a framework or a free market with due consideration for stable economic growth. HOUSING RESEARCH Section 2 of the chairman's bill is designed to authorize the Housing Administrator to identify and undertake research on problems in residential construction, so that the quality of housing can be improved without increased costs. He would also be authorized to encourage others in such research and studies and, when requested, provide technical advice and guidance to them. The Housing Agency strongly favors the objectives of this provision of the bill. However, there is broad general authority now for the Housing Administrator to undertake a research program under existing law, title IV of the Housing Act of 1949. This is not being done because no funds are available for such a program. In the budget of the United States for the next fiscal year, the President recommended $600,000 for housing research, but no amount is included for this purpose in the bill carrying appropriations for our Agency next year the independent offices appropriation bill, 1961, which is presently before the Senate Committee on Appropriations. Of course, certain studies are being carried on in the Agency, but they are only what is necessary in our day-to-day operations. ADVANCED TECHNIQUES IN FHA HOUSING We understand that section 3 of the chairman's bill is intended to permit greater use of ideas for advanced design and technology in housing with FHA mortgage insurance. Our Agency would have no objection to a provision for this purpose, but we do believe substantial changes in section 3 would be necessary to make it useful. It will be discussed more fully by the Federal Housing Commissioner. H.R. 10213-EMERGENCY HOME OWNERSHIP BILL I will commit briefly on H.R. 10213, known as the emergency home ownership bill, which was recently passed by the House of Representatives and referred to your committee. The testimony of Mr. Baughman and Mr. Zimmerman will discuss specific sections of the bill, including provisions not covered in my statement. As you undoubtedly know, the Housing Agency recommends against the enactment of this bill, and I have been authorized to advise that its enactment would not be in accord with the program of the President. This bill has as its purpose a sharp increase in housing production, and is primarily intended to avoid a feared drop in production. It includes the authorization of $1 billion of expenditures by the Federal National Mortgage Association for the purchase of mortgages on new housing under its "Special assistance functions." Mortgages in amounts up to $13,500 would be eligible for these purchases, and in high-cost areas, mortgages up to $14,500 would be eligible. The bill would make other major changes in operations of both the Federal National Mortgage Association and the Federal Housing Administration. 55869-60 I firmly believe that this legislation is not desirable, and particularly so at this time when the housing and overall economic situation is entirely different from that prevailing in the spring of 1958 when another emergency housing bill was enacted. The annual rate of housing starts, seasonally adjusted, averaged about 1,150,000 starts during the first quarter of 1960 and was 1,115,000 in the last 2 months of that quarter. In contract, the housing starts were running at a rate well below 1,000,000 at the time that the 1958 Emergency Housing Act was under consideration. Then the economy was in a recession. Now we are in a time of prosperity, and there are strong indications that this will continue. This anticipation is reflected in the latest McGrawHill survey on plant expenditures, which indicates that businessmen expect to increase these expenditures by 16 percent in 1960 over 1959. Recent increases in automobile and department store sales show that consumers also are in a mood to buy at a level which will permit a satisfactory level of homebuilding during 1960. The latest available date on the flow of savings into financial institutions show greater net savings growth in March of this year than in March 1959 at savings and loan associations, at commercial banks, and at mutual savings banks. This is in contract with a previous lag in savings behind the 1959 rate. I understand that although business expenditures for plant and equipment are increasing, they are being financed to a large extent from the liquid resources of the corporations themselves. Thus far in 1960, long-term corporate security offerings have been about 10 percent below the 1959 level. The same is true of State and local government security offerings. The Treasury's marketable debt was reduced by $3 billion in the first quarter, the largest first-quarter reduction since 1956, and there was some reduction of yields on Treasury securities. In the mortgage market, an increased availability of mortgage funds has been reflected in reduced offerings of mortgages to the FNMA secondary market, a substantial reduction in outstanding Federal home loan bank advances to member savings and loan associations, reductions of rates charged on advances by a number of home loan banks, and redemptions of large amounts of Federal home loan bank notes. There has been a sufficient increase in availability of funds to allow the lower downpayment terms for FHA-insured loans to be put into affect. We believe that funds for such loans will be available, and more families with modest accumulations of savings will be able to purchase homes. The increased availability of funds has resulted in a small reduction of mortgage discounts. As of May 1, the average pressures. This sort of program would not seem to best serve the homemortgages was 3.4 percentage points, compared with 3.7 points on February 1. The proposed expenditure of $1 billion under the FNMA special assistance functions over and above what is already contemplated in the President's budget for fiscal 1960 would place an added burden on the whole financial structure of the Government. The President's budget already contemplates an investment of about $1.9 billion in FHA and VA mortgage loans, including purchases in FNMA programs. This amounts to about one-fifth of the total of such loans made during the year. To increase this expenditure as the bill provides |