on such matters. This is vital if FNMA is to serve as a secondary market and not as a lender of first resort.

In summary, we cannot support the special assistance program for FHA-insured and VA-guaranteed mortgages provided by the bill, because we believe it would have undesirable effects on the housing industry and on the economy in general, and because we believe that no emergency exists at present. We oppose some of the other measures contained in the bill because we think it undesirable to replace administrative discretionary powers by rigid laws. This would tend to make the market mechanism ineffective.

S. 3541

FNMA short-term loans secured by FHA-insured or VA-guaranteed mortgages Title I of S. 3541 authorizes FNMA to make short-term loans on security of FHA-insured or VA-guaranteed mortgages. Such loans would be for 12 months and renewable for an additional 12-month period. Loans may not exceed 90 percent of the unpaid principal balance of the mortgages pledged and shall bear interest at a rate consistent with the loan policies established by FNMA's Board of Directors.

With regard to this legislation, we would like to restate the position taken by the American Bankers Association before this committee last year on a similar proposal. This proposal is a definite departure from the original purpose of the secondary market function of FNMA which was to provide supplementary assistance to the private mortgage market. This proposal would place FNMA in direct competition with banks which are providing interim financing to mortgage dealers and project builders. We do not believe that it was ever contemplated that FNMA would engage in operations which compete with any group of private lenders.

Some contend this provision would merely be a substitute for a present practice which accomplishes the same result. It is claimed that under present practice, when FNMA purchases mortgages, the seller can have an option to repurchase the mortgages at the same price at which the mortgage was sold to FNMA. It is contended that the only difference between this procedure and the new procedures proposed in S. 3541 is that in the first case he obtains funds temporarily from FNMA under a "sale and repurchase agreement" while under the new proposal he would borrow the money from FNMA secured by a pledge of similar mortgages. To the extent that the present practice is used an an indirect means of interim financing or "warehousing" of mortgages for the sellers, we deem it subject to the same objections as the procedure proposed in this bill.

Federal mortgage investment companies

Title II of S. 3541 authorizes the incorporation of Federal mortgage investment companies. These companies are to be privately owned. Their chief function is to be the origination, purchase, and servicing of mortgages which are insured by the National Housing Act or insured or guaranteed under the Servicemen's Readjustment Act.

The funds with which these companies are to operate are to come from capital and the sale of debentures which cannot exceed 20 times the amount of the company's capital stock. Although the chief function of these companies is to invest in Government-backed mortgages, they may also invest in conventional mortgages up to the amount of their capital equity.

The major aim of this act appears to be the creation of a mortgage bond which is expected to appeal to certain investors such as pension fund trustees, who at present do not consider individual mortgages a desirable form of investment.

This bill was only recently introduced, and we have not had a chance to examine it very carefully or to discuss it in the appropriate committees. A preliminary examination of this bill indicates, however, that the creation of the proposed Federal mortgage investment companies would unnecessarily complicate an already very complex financial system. By selling bonds to the public these mortgage companies would compete with existing financial institutions which are already engaged in stimulating savings and in the investment of such savings in real estate mortgages.

Since the chief aim of this bill seems to be to create an instrument of credit that would prove desirable to certain potential investors, it appears to us that it may be preferable to dvelop a stronger mortgage or an instrument of credit backed by mortgages within the present framework of the financial system.

We have not had time, however, to study S. 3541 carefully, and before we can give a constructive appraisal of that bill, we will need time to evaluate it and discuss it in the appropriate committees.

S. 3500

S. 3500 would make the FHA title I home repairs and improvement program permanent and would remove the ceiling on the insurance authorization. We recognize that if the title I program should be made permanent Congress could still review its operations and change or terminate it at any time.

Nevertheless, we believe it is advisable that there be an automatic review whereby Congress periodically would reevaluate the program to determine whether improvement could be made or whether there is need for continued insurance of this type of loan. In the absence of an automatic review it seems quite possible that Congress might become occupied with its other duties and not appraise this program at regular intervals. We, therefore, recommend that Congress consider a temporary extension of title I rather than making it permanent.

S. 3504

We recommend approval of S. 3504 which would remove the limitation on the aggregate amount of FHA general mortgage insurance authorization. If this limitation is removed homebuilders, the home financing industries, and home buyers will no longer have to speculate as to whether mortgage insurancewill be available. This would permit more intelligent advance planning by the homebuilding industry and would aid in stabilizing this important segment of our national economy.

S. 3276

S. 3276 extends the direct home loan program for veterans of World War II and Korean veterans to February 1, 1965, and continues the existing provision of law which increases the direct loan authorization by $150 million annually.

The VA direct loan program like the VA-guaranteed loan program at its inception was predicated on the belief that returning veterans needed assistancein purchasing a home during a period of readjustment to normal civilian life. Sufficient time has elapsed to meet the basic purpose of the VA direct loan program.

We feel that the program should be permitted to terminate on July 25, 1960, as presently provided since veterans like other citizens can achieve good housing through FHA insurance or ordinary conventional mortgages.

S. 1342

S. 1342 creates a new government-owned Federal Limited Profit MortgageCorporation with authority to make 50-year term loans for construction of housing for moderate income families (who cannot obtain new housing financed otherwise) and for housing for the elderly.

These loans would be at subsidized interest rates. The Corporation would obtain most of its funds from issuance of tax-exempt obligations.

Although we are in agreement that housing for the elderly presents special problems, we do not believe that the time has come for the Federal Government to solve these problems through the establishment of a corporation that would serve as a lender of first resort. We believe that the role of government should be to strengthen the private mortgage market rather than to replace it.

Facilities already exist which in our opinion have not yet been fully exhausted for finding solutions to problems in the area of moderate income housing and housing for the elderly. We feel that better use can be made of sections 207 and 213 of the National Housing Act. We believe that the urban renewal program can also be used more effectively in this connection.

In the past, improved housing conditions were brought about by a movement of families into newer and better quarters as they reached higher economic levels. The quarters which they vacated were then occupied by a movement of families in the lower economic ranges. This seems an intelligent approach when it is considered that our ability to produce housing as well as anything else is limited by very practical, physical factors. If such a corporation as proposed in this bill is established with its primary purpose to finance moderateincome housing as well as housing for the elderly, it would seriously interfere

with the historical method which we believe was a more practical one. The approach proposed in this bill would result in vacancies and shortages at the same time, since the funds that would be used for new construction of moderate income housing and housing for the elderly would compete with other housing demands for the available supply of mortgage credit.

PUBLIC FACILITY LOANS

S. 1955, S. 3278, S. 3498

S. 1955 would radically change the objectives of the community facilities program by expanding the functions of the program, liberalizing its terms and by changing the formula for computation of interest rates so as to produce a rate as low as 4% percent. As amended, this program would now make the Government a lender of first resort rather than a lender of last resort.

It is our view that the role the Government should play in respect to community facilities is to provide necessary financing if private capital is not available at reasonable rates. If the Government rate, however, is artificially below the market rate private enterprise would be deprived of the opportunity to finance such facilities. The enactment of S. 1955, coulld result in nearly $1 billion worth of general obligation bonds and revenue bonds being purchased by the Federal Government. If this occurred then the Government would merely be competing with private financing rather than complementing it on a reasonable basis.

Since during the last 5 years only $74 million of the revolving fund was used up, it seems to us that the evidence is against increasing the fund by $900 million to $1 billion as proposed in S. 1955. This is substantiated by the administration's proposal that the loan fund authorization should be increased by $100 million, a figure which is also proposed in S. 3498. We are especially concerned about the large increase in loan funds proposed in S. 1955, because we feel that with the artificially low interest rates communities will be encouraged to provide facilities which do not reflect legitimate needs.

S. 3278 amends the existing public facility loan program by authorizing $100 million for the purpose of constructing mass transportation facilities in metropolitan areas. This bill revises the interest rate formula in such a way that the rate charged would be tied to certain interest-bearing obligations of the U.S. Government. The resulting rate would be about 3% percent for the balance of 1960. Although we favor the encouragement of mass transportation facilities as proposed in S. 3278, we believe the program would be better served if the interest rate charged were commensurate with average interest rates on currently issued Government obligations of similar maturity. If funds are made available for the construction of mass transportation facilities they should be made available via a reasonable interest rate. Otherwise such funds will be used up very quickly, not because they are not available in the private :sector of the economy, but because the private sector cannot compete with interest rates that bear no relationship to the condttions of supply and demand.

S. 2911, S. 2950

S. 2911 would make an additional $250 million available for direct college housing loans. S. 2950 makes an additional $500 million available for such loans. We recognize the need for an adequate supply of college housing but believe that private lenders should be encouraged to supply the financing of such housing at reasonable rates insofar as practicable. We are not opposed, however, to direct Government loans for college housing provided that such loans are made at interest rates which are commensurate with the prevailing interest rates at which the Government is borrowing on obligations with similar maturities and are not made at a subsidized interest rate. Also, we believe that the direct loan program should be carried out in a manner consistent with the maintenance of overall economic stability.

S. 3292

S. 3292 would establish a Department of Housing and Metropolitan Affairs. We believe that the objective of this proposal has merit but we are not prepared without further study to comment on the specific provisions of the bill.

Senator SPARKMAN. Next, is Mr. R. Manning Brown, Jr., vice president in charge of real estate and mortgage loans, New York Life Insurance Co., and chairman of the Subcommittee on Housing and Mortgage Lending of the American Life Convention and Life Insurance Association of America. He is accompanied by Dr. James J. O'Leary, director of economic research, Life Insurance Association of America. Since getting your statement, I notice you are accompanied by my longtime friend and young schoolmate, Ehney A. Camp of Birmingham.

We are glad to have all of you gentlemen with us.

STATEMENT OF R. MANNING BROWN, JR., VICE PRESIDENT IN CHARGE OF REAL ESTATE AND MORTGAGE LOANS, NEW YORK LIFE INSURANCE CO., AND CHAIRMAN, SUBCOMMITTEE ON HOUSING AND MORTGAGE LENDING OF THE AMERICAN LIFE CONVENTION AND LIFE INSURANCE ASSOCIATION OF AMERICA; ACCOMPANIED BY DR. JAMES J. O'LEARY, DIRECTOR OF ECONOMIC RESEARCH, LIFE INSURANCE ASSOCIATION OF AMERICA; AND EHNEY A. CAMP, JR., VICE PRESIDENT AND TREASURER, LIBERTY NATIONAL LIFE INSURANCE CO., BIRMINGHAM, ALA. Mr. BROWN. Thank you, Senator Sparkman.

Senator SPARKMAN. We have your statement, and as I have stated to others, it will be printed in full in the record. You proceed as you wish to summarize it or discuss it.

Mr. BROWN. We thought we would just read the early part, which has to do with some observations in the capital market and then ask your permission to file the rest, if that meets with your approval. Senator SPARK MAN. Very good; it will be printed in full.

Mr. BROWN. Fine.

I am R. Manning Brown, vice president in change of real estate and mortgage loans, New York Life Insurance Co. My associates. are Ehney A. Camp, Jr., vice president and treasurer, Liberty National Life Insurance Co., Birmingham, Ala., and Dr. James J. O'Leary, director of economic research, the Life Insurance Association of America, New York City. This statement is being made in behalf of the American Life Convention and the Life Insurance Association of America. These two associations have a combined membership of 284 life insurance companies which hold 98 percent of the assets of all life insurance companies in the United States. We welcome the opportunity to express our views on some of the bills before this committee.

The vital interest which the life insurance companies have in sound housing and mortgage policy can best be illustrated by the fact that life insurance companies since 1946 have made a total of $46 billion of residential mortgage loans, of which $13.5 billion were FHA mortgages, $10.5 billion VA mortgages, and $22 billion were uninsured mortgages. On the basis of this $46 billion total, if we assume an average mortgage of $10,000, the life insurance business since 1946 has provided the financing for the purchase of 4,600,000 homes by the American people.

The funds flowing from these companies into the mortgage market represent the savings of 110 million policyholders, and these savings in turn have contributed much to the enormous growth of homeownership in this country. As managers of these savings, the life insurance companies are vitally concerned with the soundness of the mortgage market, and even more so with the stability of the purchasing power of the dollars represented by life insurance policies. A decline in the value of the dollar penalizes the millions of policyholders because their claims are in fixed dollar amounts. Accordingly, inflation tends to reduce the flow of saving through life insurance. This means, of course, that it reduces the availability of residential mortgage credit from life insurance companies. I would like to emphasize this point strongly, and we would be glad to document it for the committee if you desire. There is a real danger that Congress, in its efforts to stimulate residential construction, may undertake programs of an inflationary nature that may actually contribute to a reduction in the availability of private saving going into home mortgage loans. We believe that a number of provisions in bills before this committee are inimical to a sound home mortgage market and have serious inflationary implications, and our statement will be directed to them. Most of our remarks will be addressed to H.R. 10213.

THE ISSUES RAISED BY H.R. 10213

The title given to H.R. 10213 in section 1 is the "Emergency Home Ownership Act," and the purpose of the bill is "to halt the serious slump in residential construction, to increase both onsite and offsite job opportunities, to help achieve an expanding full-employment economy, and to broaden homeownership opportunities for the American people." Toward this general purpose, the bill provides for an additional $1 billion for mortgage purchases under FNMA's special assistance program, as well as the creation of a $50 million special assistance fund for the purchase of mortgages insured under section 203 (i). It also provides for a number of changes in the operation of FNMA which are aimed at making FNMA funds more readily available and at lower cost to users of FNMA facilities.

The basic issues which are raised by the bill are

(1) Is there an "emergency" in home building or in the general national economy which makes another billion-dollar injection of FNMA funds in the broad public interest?

(2) Would the changes in FNMA operation, as provided in the bill, jeopardize its sound operation?

We do not believe that this legislation should be enacted because there is not now, or in the foreseeable future, any emergency in home building or in the national economy which would make another billiondollar injection of FNMA funds in the broad public interest. Rather, present indications are that the volume of residential construction will be at a substantial level this year without any new appropriation of funds for FNMA. To provide FNMA with large additional funds this year would be harmful to the public interest because it would be inflationary. Furthermore, we believe that the various changes in FNMA operation, as provided in the bill, would jeopardize its sound operation. The reasons for this general position are set forth in the following discussion.