4. The above measures relate to direct Government support of the mortgage market. We have also been developing ways to increase support from private sources. In the past 2 weeks, the Treasury Department, on behalf of the administration, has held a series of preliminary meetings with representative investor groups, including the life insurance companies, leading members of the Business Council, some of the most important commercial bank managers of pension funds, and leaders of the commercial banking system with a view toward enlisting their voluntary support for the mortgage market this year. In 1969, banks, insurance companies, and private pension funds as a group made a net investment of $3.3 billion in residential mortgages, though by the fourth quarter the annual rate of flow was down to only $1.3 billion. Almost all of this total came from commercial banks. In other words, the insurance companies were pretty well out of it and the pension funds have not been brought into this mortgage market in any significant way. The Treasury has been talking to leaders in each of these lender groups in terms of the need to move as quickly as possible to restore the volume of private funds available for housing. It is difficult to translate new commitments into precise timing for the take down of funds. But if these three major diversified lenders-commercial banks, life insurance companies, and private pension funds would as a group increase their mortgage activity to about $6 billion, this would be of considerable help. Voluntary support from State and local government retirement funds will be sought to supplement this flow. Through the voluntary program we hope to obtain about 30 percent of the total amount of residential mortgage money needed for the year. In view of the preliminary nature of the conversations held so far, it is obviously not possible to give any assurance on specific targets at this time. But each of the groups contacted expressed full awareness of the gravity of the housing situation, and a desire to help reverse the trend. Leaders of the life insurance industry, for example, plan to make an intensive survey of the probable size and direction of their investment flows in 1970 and 1971. If this survey indicates inadequate flow of funds into housing from the industry, they will take affirmative steps to help meet the goals referred to earlier. My own view is that the goal for increased residential mortgage lending by these groups of institutions is attainable on a voluntary basis. In other words, I am hopeful it will be attained. The amount of money sought, while substantial in relation to recent experience, is within the range of what these institutions have done previously. Treasury and HUD officials intend to follow the industry efforts closely. By the beginning of May, we should know whether this kind of voluntary approach is eliciting a significant flow of new mortgage commitments. We will carefully review the situation at that time to see whether additional measures are needed. I think the fact that Congress gave the President a blank check on credit control should be very useful in getting voluntary action on the part of these groups. It may be, if we don't get the needed voluntary action, that other forms of action would be recommended other than credit control. But in any event, we think that these organizations should be given an opportunity to respond voluntarily, particularly in light of the fact that we have only recently been able to get the mortgage-backed security on the market and we will have the mortgage-backed bond available for these investment purposes in the very near future. These are new instruments for investment in the mortgage market and should be particularly attractive to the pension funds. I should indicate that I view the coming months as a testing ground. This Nation needs housing. One way or another that housing will be built and financed. Now that the economy is beginning to cool off, lenders have good reason to support this effort and begin shifting more of their assets into mortgages. The extent to which that shift does or does not take place voluntarily will be a significant indication of what-if any-further steps the Government must consider to deal with the mortgage market problem. 5. To make it as simple as possible for the various institutions to invest funds in the mortgage market, we are now prepared to go ahead with a major program for mortgage-backed bonds guaranteed by GNMA. I will submit regulations governing these bonds for publication in the Federal Register shortly. After 30 days for comment and resolution of any technical details, we hope to see an issue in the market by midspring. The Federal Home Loan Bank Board is prepared to accumulate a pool of $200 million of mortgages to back the sale of a bond issue at the earliest possible time, and I am confident other pools can be assembled as necessary. The stimulus from our voluntary program will help the market for all mortgage-backed securities. 6. To provide still further flexibility to the mortgage market, legislation will shortly be proposed, as I stated previously, to create secondary market facilities for conventional mortgages in both the Federal home loan banks and FNMA. 7. Through other provisions of our 1970 housing bill, we will seek increased flexibility and strength in the FHA-VA sector of the mortgage market. These include the experiment with a dual market system for FHA-VA mortgages previously discussed; and also legislation to exempt FHA and VA mortgages from the interest ceiling imposed by State usury laws. Many States already provide such exemptions and others are moving to do so, recognizing that FHA and VA procedures provide adequate consumer protection. In some cases, however, State legislatures will not meet this year and their present low usury ceilings are preventing borrowers from obtaining FHA and VA loans. I do not believe that the people of such States should be denied the opportunity to obtain FHA or VA loans. Mr. Chairman, this has been a long statement about complicated programs because the problems we are dealing with are serious and complicated. Let me summarize briefly what I believe needs to be done. For the long run, we need To push HUD's Operation Breakthrough to the hilt; New actions to encourage more orderly urban development; New ways of encouraging maintenance and rehabilitation of existing housing; Prompt action to increase the supply and training of construction workers; Enactment of the National Forest Timber Conservation and Management Act; Legislation eliminating barriers to truly open communities so that all people can live within a reasonable distance of their jobs and daily activities; and incidentally that would take care of the school problem, too; and A comprehensive consolidation of HUD programs. To meet the more immediate financial problems of the housing sector, we need to Continue the extensive support by FNMA and the home loan bank system and provide a subsidy for the bank system to do so; Transfer $1.5 billion of FNMA special assistance to a more flexible authority; Provide $25 million each in supplemental contract authority for sections 235 and 236; Enlist voluntary support for the mortgage market from commercial banks, life insurance companies, private pension funds, and State and local retirement funds; Proceed as fast as possible to bring mortgage-backed bonds guaranteed by GNMA into the market; Enact legislation providing a secondary market for conventional mortgages; and Enact further legislation providing increased flexibility for FHA-VA interest rates. As these steps are taken, I am confident we will have made a major start toward solving both the current and the longrun housing problem. (The charts and tables accompanying the Secretary's statement are reproduced as follows:) |