gage markets. Therefore, when the proposals which are now before this committee, in the bill, S. 810, were first presented in preliminary form to our association, we gave them every consideration and the tentative support of our industry. There are some very good reasons why we are interested in an improved mortgage market, including better conventional lending. Clearly a stronger conventional loan market would assist some of the specialized types of housing, such as vacation or second homes, homes in smaller towns and semi-rural areas, etc. We believe that an improved conventional mortgage system would result in more mortgage funds being made available in areas where, even today, investment funds are used for other purposes and are not available for long-term mortgages. We are also interested in reducing the costs of mortgage financing through a more efficient operation of the mortgage market, which improvements in the conventional segment would definitely assist.

Finally, we think efforts, such as embodied in S. 810, to make it possible for small lending institutions to enter the mortgage market in a more substantial way will be of real help to communities with limited supplies of mortgage capital. At present and in past years, even with an excellent supply of mortgage funds, many smaller lending institutions are simply afraid to enter the mortgage market in any major way because they believe they cannot afford to tie up their capital funds in a long-term, nonliquid investment.

I am happy to say that I had the privilege of serving on the National Mortgage Market Committee of the American Bankers Association which then developed the basic ideas now in this proposal. Also, as individuals, our former NAHB presidents, Thomas P. Coogan and Richard G. Hughes, served on this committee together with Nathaniel H. Rogg, our director of economics, and Joseph B. McGrath, our director of governmental affairs.

In Chicago at our annual convention last December, our board of directors, composed of some 500 builders, approved unanimously a resolution of general support for the objectives and purpose of the proposals advanced by the American Bankers Association. A copy of this resolution is attached to my statement. (See attachment A.)

There is little doubt in our minds that a substantial improvement in the flow of conventional mortgage funds and in the marketing of conventional mortgages would be of real assistance to the construction of new housing. This is especially true in those areas of the country, particularly those in the South, Southwest, and Far West, where, periodically, mortgage funds are in short supply.

As you might expect, we have no established policy on the related proposal contained in S. 2130, introduced for the first time last week. As I understand it, this would enable the Federal National Mortgage Association to expand its operations. The bill would authorize FNMA to include certain classes of conventional mortgages which are insured privately or otherwise meet market standards set by FNMA.

Without committing NAHB on the details of S. 2130, I can say that our association has never been opposed to the concept of expanding the FNMA to include conventional mortgages. On the other hand we need more time to consider carefully what limitations and safeguards are necessary for such a proposal, as well as the results in the general mortgage market which might spring from its adoption by Congress.

We think S. 2130 is certainly a worthwhile proposal to be considered at this time in addition to, or independently of, S. 810. It seems to be a supplementary proposal which might beneficially improve the usefulness of FNMA. In much the same manner, we would like to reserve judgment with respect to the proposal before you in the bill, S. 811. As we understand it, this would expand the usefulness of the Federal home loan banks and their member institutions. It would do this by establishing, in effect, a secondary marketing facility for participations in conventional home mortgage loans. Our association has adopted no specific policy with respect to this bill and we will examine the testimony now being presented on it with interest.

We find ourselves in much the same position as those of you on the Senate committee; we are anxious to learn more about and examine carefully all of the operating details of these proposals as they are presented to you in testimony given at these hearings. It is our intention to study all of the statements presented before this committee and to be prepared to give our detailed views next year, when we understand further hearings on mortgage finance and housing legislation will very likely take place.

We are deeply committed to explore all avenues of improvement for conventional as well as FHA-VA mortgage financing. I was particularly instructed by our board's resolution (attachment A) to establish a special subcommittee within our association to study the details of the proposals which now appear in S. 810.

To assist the officers and executive committee of our association, and to carry out the resolution of our board of directors, I appointed a special task force on private mortgage insurance headed by a good friend of your committee and a former president of our association, Mr. Thomas P. Coogan.

With your permission I should like to turn the rest of this testimony over to Mr. Coogan. He will supplement my statement with a report to your committee from his notes on the activities and meetings of his task force. As you know, he is one of our association's distinguished past presidents, he has served as an adviser on housing matters to a number of governmental agencies, and he has testified before this committee on many prior occasions.

Mr. Coogan has been a homebuilder of high standing in the State of Florida and is currently active in mortgage financing as president of Housing Securities, Inc., of New York City. Following Mr. Coogan's statement we will be happy to answer any questions which may arise. I appreciate this opportunity to give our views to the committee and I am very pleased indeed to present to you Mr. Thomas P. Coogan.

[Attachment A]

RESOLUTION ADOPTED BY THE BOARD OF DIRECTORS OF THE NATIONAL ASSOCIATION OF HOME BUILDERS AT ITS ANNUAL CONVENTION, CHICAGO, ILL., DECEMBER 1962 Whereas we are in favor, generally, of all sound proposals to improve and enlarge the existing systems of conventional mortgage finance; and

Whereas there is now pending a proposal advanced by the American Bankers Association, which would set up a private insurance system, federally chartered, for conventionally financed mortgages and also one which would set up a secondary mortgage market for such conventionally financed mortgages: Now, therefore, be it

Resolved, That we favor generally the purpose of the proposal advanced by the ABA, and that we believe a subcommittee within this organization should be appointed to study the details of the proposals as presented to the new Congress so that a complete report on its details can be presented to this committee and to the board.

Senator SPARKMAN. This concludes the hearing for this morning. The committee will stand in recess until 10 o'clock tomorrow morning.

(Whereupon, at 12:25 o'clock p.m., the subcommittee adjourned, to resume at 10 a.m., Wednesday, September 18, 1963.)

The subcommittee met, pursuant to adjournment, at 10 a.m., Hon. John J. Sparkman (chairman of the subcommittee) presiding. Present: Senators Sparkman and Douglas.

Senator SPARK MAN. Let the committee come to order, please.

We expect some other Senators to come. Due to the pressure of time, I think we had better get started. We are working under some difficulty having a committee meeting at this time with the Senate already in session. We have permission of the Senate to hold these hearings.

Our first witness this morning will be Mr. Richard C. Farrer, chairman of the Washington Realtors' Committee.

We are glad to see you, and to have you with us. We have a copy of your statement. You may present it in any way you see fit.

STATEMENT OF RICHARD C. FARRER, VICE CHAIRMAN, REALTORS' WASHINGTON COMMITTEE, NATIONAL ASSOCIATION OF REAL ESTATE BOARDS

Mr. FARRER. Mr. Chairman, I appreciate this opportunity to present the views of the National Association of Real Estate Boards with respect to S. 810, a bill to authorize the Federal chartering of (1) privately owned and financed mortgage insuring companies and (2) privately owned and financed secondary market corporations. Representatives of our association served on the industrywide National Mortgage Market Committee which developed the essential elements of the proposal incorporated in S. 810. However, while our association endorses the bill in principle, we do have some reservations with respect to certain provisions. We will bring these out in the course of our testimony and recommend modifications or specific amendments.

S. 810 has as its primary objective the shaping of the conventional residential mortgage market to meet the demands which will be made on this market in future years.

We shall not attempt to expand on the persuasive arguments already advanced by the American Bankers Association for new tools needed to organize more effectively the conventional mortgage market.

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MORTGAGING INSURANCE COMPANIES

The bill proposes the Federal chartering and supervision of mortgage insuring companies organized by at least five incorporators with a minimum subscribed capital of $25 million in stock having a par value of $100 a share.

These corporations would insure 100 percent of the principal and interest on mortgages for 1- to 4-family houses. We recommend that this be changed to "up to 100 percent.

Our idea here in this area, Senator, is in order to meet the market, and particularly in relation to the overall availability of housing, that it might be important that they might want to only insure say the top portion of loans, or they may only want to insure portions of participations. Again they might want to go up to the maximum of 100 percent.

We believe that 100 percent insurance is excessive in the light of other provisions of the bill providing for cash payment which would include interest and allowances including foreclosure costs-from time of default. We recommend that this be changed to require the payment of such interest and allowances from time of default in the form of a certificate of claim to be redeemed if and to the extent that the sale of the foreclosed property brings a price greater than the unpaid principal balance due on the mortgage at the time of acquisition. We believe that this assumption of some risk by the mortgagee would materially strengthen the financial integrity of the insurance companies.

Also, S. 810 contemplates that the property will be conveyed to the mortgage insurance corporation, and the certificate of claim would facilitate the carrying of these properties by the corporation. This is necessary in the light of FHA's experience which establishes a minimum reserve for acquired property of 22 percent with losses running about 15 percent. For example, the average loss on 4,406 units sold by the FHA for 6 months ending December 31, 1961, was $1,728 per property, or a 15.8 percent loss.

These mortgage insurance corporations could be in serious difficulty if they had to realize, upon the sale of acquired properties, more than the unpaid principal balance due on the mortgage.

During the development of this legislation the argument was advanced that it was not necessary to provide for a Federal charter and Federal supervision of these corporations. Proponents of this argument point to the existence of several private mortgage insurance companies, organized under State charters, which, at least in the case of one, are beginning to make a substantial impact on the conventional mortgage market.

We believe the Federal chartering of these corporations is vital to their success because of the archaic State laws which have compartmentalized the residential mortgage market. The conventional mortgage needs a degree of uniformity in order to achieve necessary mobility of funds from capital-abundant areas to capital-scarce areas. This can be accomplished more readily by a Federal charter. A mortgage market facility, whether it provides for mortgage insurance or a secondary market, needs the sponsorship of the Federal Government in the form of a charter to overcome the statutory restrictions in a majority of the States.