fact that the ability of d lender to collect the required escrows may be severely hampered by the language of this proposal. I am also interested in the effect this section will have on my city and state.

Answer. First, I would like to point out that mortgage bankers and other lenders typically operate their escrow accounts in a manner similar, if not identical, to that detailed in Section 908. For this reason, I have personally received no complaints concerning the intent of this section. It is the practical application of the provision that has generated great concern among all lenders. Considering the multitude of taxing authorities across the country and their varied method of taxing property it is not unusual to find both postpaid and prepaid property tax laws and different times for paying taxes within a single state. The factor common to all jurisdictions is that of property tax reassessments and the shortages often created in individual escrow accounts. Lenders owning mortgages often advance their own money to pay these shortages, thereafter, collecting these funds from their borrowers by adding this new debt to the principal of the mortgagor's note or, in the case of mortgage bankers, who only service mortgages, the mortgagor's debt is spread over a number of months (not exceeding twelve) and added in equal installments to the borrower's monthly escrow payment. Both methods are beneficial to borrowers in that they do not have to repay the deficit in a lump sum.

We believe the language in Section 908(b)(2) would prohibit our usual practice of handling deficits in that it limits the amount of escrow which a mortgagee can deposit to the current payment plus one-twelfth of the total amount of the taxes and insurance of the tax year. In the event of a property tax increase which results in a deficit in the escrow, the mortgage banker who pays this deficit for the benefit of the mortgagor will find it impossible to spread the repayment of this new debt over the next 12 months because he will be limited to an excess over the normal escrow amount of only one-twelfth and the new debt payments will exceed this limit.

We are presently holding discussions with mortgage bankers across the country in an effort to develop substitute language which will permit sufficient flexibility in estimating escrow payments in order to avoid the deficit problem or, in the event of a deficit, permit a lender to spread the new debt over a number of months in order to avoid a lump sum payment being required of the borrower. Mortgage bankers in Chicago are working on this problem with particular reference to the Illinois property tax situation. They are hopeful that satisfactory substitute language can be developed which will be acceptable to other jurisdictions. I will forward this language to you as soon as it is received.

Question 3. Mr. Jackson, I gather from some reports I have heard, that Title IX, Section 906, which prohibits kickbacks has created some problems for lenders. Would you mind elaborating on this? Also, I understand that FHA has issued an effective regulation dealing with this problem of kickbacks. Has this been effective?

Answer. The problem of kickbacks has been reduced or eliminated with respect to FHA insured loans by the recent FHA regulation prohibiting this nefarious practice. Additional FHA instructions to all approved mortgagees have carefully defined the types of activities which are considered to fall within the purview of the regulation. Insofar as government insured and guaranteed housing programs are concerned I believe the kickback problem is now under control. Attached is a copy of the FHA regulation and related materials issued during the past six weeks.

Our concern with Section 906 stems from its vagueness. Its sweeping prohibitions and its criminal penalties may well apply to activities which the Committee did not intend. We would suggest that the provision leave the definition of what a "kickback" is to the discretion of the Secretary in order to avoid confusion and assure adequate implementations.

Mr. ST GERMAIN. Mr. Waranch, I have a great deal of respect for homebuilders who are established homebuilders operating in communities, counties, States, over a number of years, who are concerned about their reputation, have integrity, and build a good home and give value. By the same token, I do not think anybody can deny that our establishing 235 and 236 programs gave rise to the opportunists, the connivers, the overnight operators, who are in many instances merely

so-called developers that hire subs to build the houses or the apartments, and are here today and gone tomorrow.

We can quote all kinds of statistics about the wonderful results of 235, and I happen to agree with them, but when you quote that statistic to the purchaser of a home that was not built properly, to the purchaser of a home who cannot get satisfaction because the opportunist is gone, then that does not help.

We are concerned about the integrity of the homebuilding industry. The warranty requirement was adopted the way it was, the requirement for escrow or a bond, because it was felt that the legitimate builder could comply with this requirement, whereas the fly-by-night conniver and operator could not and would not because he could not get

the bond.

Now, while I did not go through your entire statement yet, I am certain that we all want to protect the integrity of the homebuilding industry and get rid of these opportunists. How do we do so? Give us, as Mr. Ashley asked earlier about one of the other objections, give us an alternative. The committee staff went out, committee members went out and saw new construction that was not worth a straw hat in the winter. It is not going to last. You have to give us an alternative to protect the purchaser and to protect the integrity and reputation of the homebuilding industry.

Mr. WARANCH. Mr. St Germain, I am very sorry that in order to abide by the chairman's rules that I was not able to read my entire statement in toto, but if I had been able to, you would find on page 10 I said we are concerned about the consumer since he is our customer and it is difficult to stay in business very long with dissatisfied

customers.

This morning, had I been in San Francisco and not here before this committee. I was scheduled to introduce Mrs. Virginia Knauer the President's Consumer Adviser, with whose staff we have been working, and while there I was going to announce expanded efforts by the National Association of Homebuilders to assure that all of its members provide the same high quality of construction that the great majority now do.

Mr. ST GERMAIN. Let me interrupt you there. That is fine for your members, Mr. Waranch, and I go along with that, I feel they are doing that already. But, you know, you do not have to be a member of the National Association of Homebuilders to build 235 and 236 housing.

Mr. WARANCH. I would like to say if you put it in the act, perhaps they would be, I would be able to say I have more than 62,000 members. But I agree. But the question is that there are no surety bonds now available and nobody knows what the cost would be for those people who would have to put up a surety bond in order to comply.

I believe that as soon as you got into a requirement, you heard about, you would see abuses.

Mr. ST GERMAIN. Let me interrupt you.

Would you go for an amendment that would state that in the case of a builder who is found by the Secretary to be an established builder who has been building for a period of 3 to 5 years or more, the Secretary may grant an exemption to this requirement.

Mr. WARANCH. I am not prepared to say I would.

I would think it would be extremely helpful if that were to be in the bill. It would certainly be better than it now is. The question is, though, if you were to say that builders who have an established reputation would be exempt, instead of saying they may be, I think that you would have a different kettle of fish. But the permissive aspect of it really means that the Secretary does not do this, it's delegated all down the line, and by the time you finish

Mr. ST GERMAIN. It's the local FHA office.

Mr. WARANCH. If I were the local FHA Director and I got put in that box, and I had to start making determinations as to who did and who did not have to put up bonds or escrows, I believe that I would be very, very prone to say I am not going to put my neck in the noose for the builder, I am going to make everybody do it. So I believe that though it would be permissive that you would get in a problem of how it would really be worked. I think, Mr. St Germain, that if you would check with the FHA builders in Rhode Island, the Ferlands and the others that you and I know there, you will find they will tell you that the warranty has really not been used for its intended congressional purpose, and, that is to assure that you comply with plans and specifications. It's been a maintenance warranty and we cannot see extending that for 3 years.

Mr. ST GERMAIN. My time has expired.

The CHAIRMAN. Mr. Brown.

Mr. BROWN. Thank you, Mr. Chairman.

First, I would like to make a parliamentary inquiry. Does the chairman intend to continue these hearings when the House starts consideration of the Higher Education Conference report?

The CHAIRMAN. Under the 5-minute rule we would have to discontinue.

Mr. BROWN. There is no 5-minute rule on the conference report and I understand there will be an hour or 2 hours of debate on the House floor.

The CHAIRMAN. We will check on what should be done, what should not be done, and comply with the rules.

Mr. BROWN. Very good, thank you.

Gentlemen, I assume all of you have had an opportunity to analyze, maybe in greater or lesser degree of carefulness, all of the provisions of the subcommittee bill.

Would each of you indicate to me the degree of concurrence in the provisions of the bill that you have on a, say, 1-to-10 scale? Let's start with the gentleman at the far end."

Mr. ROESSNER. Would you mind repeating the last part of the question?

Mr. BROWN. To paraphrase my question, I have asked each of you to indicate on a scale of 1-to-10 your concurrence in the provisions of the committee bill.

The CHAIRMAN. This is very interesting.

Members of the committee, let us have attention please.

Mr. BROWN. Otherwise, do you agree with it 100 percent, which would be 10? Do you have only nine-tenths concurrence, eight-tenths concurrence, two-tenths concurrence?

Mr. ROESSNER. About eight.

Mr. BROWN. The gentleman from the Homebuilders.

Mr. WARANCH. We have about 14 points that concern us, Mr. Brown. Mr. BROWN. You are speaking about 14 points that concern you. I am saying on a 1-to-10 scale for the whole bill, is that a five or six or four or what?

Mr. WARANCH. The way the bill came out, I would have to give you about a three.

Mr. BROWN. Mr. Jackson?

Mr. JACKSON. Here again are you measuring by the page or by the substance? If you talk about pages

Mr. BROWN. I am talking about substance.

Mr. JACKSON. There are only about 10 pages that cause us concern, and frankly, I think we need to explain this. You did not have an opportunity to hear my opening statement. We are basically for the bill but we think there are some technical changes needed in the draftsmanship of certain sections that would improve their effectiveness and workability.

Mr. BROWN. Mr. Jackson, you are talking almost like a politician. Looking at the bill as a whole, putting the emphasis on that which you want to, weighting the provisions as you want to weight them, what is your concurrence with the bill?

Mr. JACKSON. I would be for it.

Mr. BROWN. Eight, seven, nine?

Mr. JACKSON. Eight to nine. There is relatively little basically wrong with the bill.

Mr. ZEISER. Officially, I would have to limit my comment to title IX. My answer on title IX is we are in support of the entire title if the suggested changes are made that I outlined in my testimony and which are in our written statement.

We have some other technical matters which we would take up with staff and all of these in our opinion would make the bill a better bill with respect to title IX. I cannot officially answer your question with respect to the rest of the bill, but in listening to what I heard today I would rate you well over 50 percent.

Mr. BROWN. Well, I realize that your testimony went primarily to a relatively limited area. But on that I suppose then you would rate it at eight or nine on a 1-to-10 scale, that title?

Mr. ZEISER. It sounds, because here I suppose I look at the fact that for a year and a half I was with the Federal Housing Administration and I am basically sympathetic with the type of thing that you are trying to do in this legislation.

Mr. BROWN. Let me pose one further question to all of you. Have you or will you submit to us your total review of the bill with your appropriate comment, criticism or commendation?

Mr. ROESSNER. We have; yes, sir.

Mr. WARANCH. Yes, sir.

Mr. BROWN. I assume you have not as yet but you will?

Mr. WARANCH. We have.

Mr. JACKSON. Well

Mr. WARANCH. And we will submit any further information you desire.

Mr. BROWN. Mr. Waranch, Mr. Ashley criticized vou of the Homebuilders for objecting to his proposal for local jurisdiction over placement of subsidized housing. Previously Mrs. Sullivan cited the ex

ample of Mount Morris Township in Genessee County, Mich., in which an excessive number of subsidized units were placed.

The CHAIRMAN. We will dispense in just a minute.

May we have attention, members of the committee? Go ahead. Mr. BROWN. Mrs. Sullivan neglected to say that the testimony of Mr. Krapohl, the township supervisor of Mount Morris Township, his testimony was to the effect this unfortunate situation occurred because there was inadequate control and supervision at the local level; that is, township government.

In view of the Mount Morris experience, I certainly would submit that the Ashley proposal, and I trust you would agree, would have been of little help in avoiding the problem described by the gentlewoman from Missouri, and in all similar circumstances, would you not agree?

Mr. WARANCH. Yes, I would.

Mr. BROWN. Turning to a rather limited area. The closing cost provisions in the bill by and large provide for lending institutions to police the seller-buyer relationship, for example, the lending institution must guarantee that the specific number of days of leadtime for furnishing a sales history of the secured property or proposed security have been given.

Is this a proper way to get to the problem or are we only using the foot in the door of a Government-insured loan for doing it?

on

Mr. JACKSON. If I may speak to that. The section for insurance

The CHAIRMAN. The time of the gentleman has expired. Would you mind extending your remarks in the record when you look over your testimony?

Mr. JACKSON. Yes, sir: we would be pleased to do that.

The CHAIRMAN. Will that be satisfactory?

Mr. BROWN. Fine.

(In response to the request of Mr. Brown, the following letter was received from Mr. Jackson :)

MORTGAGE BANKERS ASSOCIATION OF AMERICA,

Washington, D.C., June 15, 1972.

Hon. GARRY E. BROWN,

House of Representatives,

Washington, D.C.

DEAR MR. BROWN: In the course of the June 8 hearings on the 1972 housing legislation you requested all witnesses to submit a total review of the Housing Subcommittee's proposal to the full Banking and Currency Committee with appropriate comments for each aspect of the proposal.

Although mortgage bankers have an interest in many of the titles in the Subcommittee's bill, detailed review of the legislation has been limited to those provisions which would directly affect our industry. It was unfortunate that we did not have time to prepare a statement for presentation at the hearings, but I believe the material which we have subsequently prepared for inclusion in the record is responsive to your request and I have enclosed a copy of these remarks for your consideration. On the whole, there is really very little that must be changed in the bill and I believe I would still give it a rating of 9 on a 1 to 10 scale.

Should there be additional provisions on which you would like us to comment please contact Lee Holmes, MBA's Legislative Counsel, and I am sure you will have a prompt response.

Sincerely,

PHILIP C. JACKSON, Jr.,
President.