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from the usury provisions of State or local laws. We have proposed such a provision in the Housing and Urban Development Act of 1970 which has been submitted to the Congress. The D.C. Government has also requested the Congress to pass legislation providing this exemption specifically for the District of Columbia.

Question 5. With regard to public housing could you please supply me with information as to the backlog of applicants?

Answer. Our current national backlog of families actively seeking low-rent public housing accommodations is in excess of 450,000. Every year, the backlog grows because of population increases and the shortage of available funds to finance additional units. For example in 1965, the total backlog was in excess of 392,000 families; by 1968, it had increased by 11.5% to almost 438,000 families.

Question 6. Could you supplement your response concerning the report of life insurance industry on insurance protection for home mortgagors against the hazards of disability, unemployment and death?

Answer. Subsequent to the submission of the Department's interim report in mid-January 1969, the insurance industry advisory group submitted to the Department a very thorough and informative report on the actuarial and administrative aspects of providing insurance protection for home mortgagors against hazards of unemployment, disability, or death,

An intensive review of this report has been completed, and tentative conclusions and recommendations on these matters have been formulated for discussion with the other federal agencies involved.

A report of the Department's conclusions is expected to be available in the near future.

Senator PROXMIRE. I notice in your statement on page take pride and rightfully so in the accomplishments of FNMĂ, for FNMA developed the tandem plan.

All of these achievements, as you know, were under the leadership of Ray Lapin who was dismissed by the President for pursuing policies contrary to the objectives of the law.

Now, I am not a legal authority, but it seems to me that Ray Lapin did exactly what Congress intended. Moreover, your statement would seem to agree.

Secretary ROMNEY. Mr. Chairman, I am sure it was not that he was pursuing policies contrary to the law. I don't recall any such statement being made. He was discharged for other reasons.

Senator PROXMIRE, Policies not consistent with the law.

Mr. UNGER. I believe if I remember the President's letter it said perhaps not consistent with administration policies. Perhaps if we had the letter we can determine the wording.

Senator PROXMIRE. Yes, we will get it.

What I can't understand is how the administration can have it both ways. On the one hand, it dismisses Ray Lapin for not pursuing proper policies; then on the other hand it takes the credit itself for those very policies.

What were the policies which Mr. Lapin was pursuing which were contrary to law?

Secretary ROMNEY. No. 1, what FNMA was able to do was the combined effort of the Department and FNMA.

As the Secretary of HUD, I have to authorize FNMA's borrowing limits and I have to establish the rules and regulations and there has to be a very close working relationship between the two organizations.

Basically the problem that developed was a problem in the organizational concept of the two organizations. Mr. Lapin seemed to feel that FNMA should operate as a completely separate autonomous organization without keeping us informed about day to day things that affected our operation.

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Let me give you an example. He cut off the District of Columbia without mentioning it to us. He was threatening to cut off several States without letting us know about it. It was basically this different sort of philosophical concept with respect to the relationship between the two organizations that made it necessary to make a change and to get a head who recognized that there had to be a creative partnership between the two organizations.

Senator PROXMIRE. Then the problem with Mr. Lapin was not working as a team man and not actions which were inconsistent with the law.

Secretary ROMNEY. I didn't say they were inconsistent with the law.

Senator PROXMIRE. No, here is what the President said to Mr. Lapin when he dismissed him:

This action is taken because in my judgment the policies and practices pursued by you in that office are inconsistent with the objectives of applicable law and to the standards expected of officials holding positions of trust and competence under the laws of the United States.

Secretary ROMNEY. That is different because that talks about the objectives. I think one of the congressional objectives was to have a close working relationship here between the two organizations.

Senator PROXMIRE. It is my understanding also that Mr. Lapin indicated he was never invited to any staff meetings of HUD.

Secretary ROMNEY. This is not correct, sir. I invited Mr. Lapin to come in and see me and I invited him to meetings. He never initiated any contact with me to speak about and he didn't seem to recognize that I had to rely on him to bring to my attention matters affecting FNMA of importance that needed my action.

It is not true that I did not invite him to meetings. I did. I did not include him on my small policy group.

Let me go back to the question of the relationship between the two organizations. Congress certainly intended a different relationship than the relationship that normally exists between an independent private organization and a Government agency. Otherwise you wouldn't give the Secretary of HUD the responsibilities he has in connection with FNMA. The problem really arose over the question of the need for the close working partnership between the two organizations. I never at any time took the position that FNMA should be subject to the direction of the Department because it should not. We are carrying through on the congressional mandates with respect to the creation of the private organization and as far as I know the organization will be private to the extent Congress has specified as a result of it.

Senator PROXMIRE. The only point I had is that Mr. Lapin did seem to be a successful head of FNMA and you have indicated that in your testimony.

Secretary ROMNEY. I went down to the dedication of the building and I expressed appreciation of what he had done. As a matter of fact, I did that after he came in to tell us that he wanted to get out of FNMA and expected to do so between September and January 1st. He indicated that he felt he ought to be replaced by someone. As a matter of fact, he recommended five men to replace him and the man who replaced him is one of the five men he recommended.

The problem arose over this concept of what the relationship should be between the organizations. The problem doesn't exist today because there is a recognition that there is a mutuality of interest here that we have to work cooperatively to execute.

Senator PROXMIRE. I would like to ask you about my bill, S. 3503, that is a bill which would enable the Federal Reserve Board to discount mortgages by people held with incomes less than $10,000. I would hope you would take another look at this bill because it seems to me this meets a lot of objections you made to some of the other proposals. Here is something that won't affect the budget, would enable the Federal Reserve Board to balance this injection of funds by selling more Treasury securities in their open market operation.

In principle Mr. Burns seemed to think it was a good idea to be able to discount mortgages, although he didn't necessarily support my bill. In fact he did not support it. But I think this does have a lot of solid merit in that it would provide substantial funds for housing and the monetary authority that is responsible for seeing monetary policies are effective.

So, to the extent more funds go into housing, they are in a perfect position to see that doesn't upset the general monetary policy of this country.

Secretary ROMNEY. I will be glad to take a further look at it. But at this point my areas of concern are these: No. 1, if the Federal Reserve Board took in the mortgages and added them to the reserves that will increase the monetary supply and you have to deal with them from that standpoint. If they sell Treasury bills in the market then this increases the demand on the market and to some extent reduces the amount of money that would go from the private market into the housing market.

Senator PROXMIRE. Well, there is no other way you can avoid that. Secretary ROMNEY. You don't get a net gain.

The other thing is this: In the case of the Federal Reserve Board, currently they have one basic responsibility and that is to maintain the integrity of the dollar and protect it. If you begin to give that agency special purpose responsibility such as supporting housing and if you got housing in there you would soon get other things in there, you begin to dilute the Federal Reserve responsibility for protecting the integrity of the dollar.

Another way to do what you are talking about is to change the limits on 236 and 235. It can be done that way and more economically, in my opinion, because those programs are designed to grant the subsidy to families needed on the basis of income and so on. Whereas if we just granted it across the board through your approach, families who don't need it are going to have it as well as families who do need it.

Senator PROXMIRE. These are families with less than $10,000 and they cannot now buy a home without some kind of assistance. The trouble with 235 is that it is an expensive program; No. 2, it is stringently limited because of the budget restraints we have. We are all

very conscious and aware of that. The program can help and I hope we can get 60,000 starts or more in this area but it is a program which is limited.

Secretary ROMNEY. We will have many more starts than the 60,000 in that area.

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Senator PROXMIRE. I know. You are talking about the additional amount. I think this is a good supplement, but I don't think it meets it. It would be additional and helpful.

Secretary ROMNEY. Yes.

Another comment. In the case of 235 and 236, as the incomes change the amount of subsidization changes whereas under yours once they get it they keep it permanently. I think if you take a look at them it protects the public interest in this relationship better than the other way.

Senator PROXMIRE. There is nothing in the Federal Reserve Act about the functions or the responsibilities of the Federal Reserve with respect to the integrity of the dollar. There is in the Employment Act of 1946 a clear provision for the Federal Reserve Board to pursue a policy of economic growth, minimizing unemployment consistent with a stable dollar. It seems to me this kind of action would be consistent with that.

Mr. Burns and so many others are so conscious that housing takes it right squarely on the chin, not only this time but it did in 1966 and whenever monetary policy is tightened. We have to do something, it seems to me, to overcome this or we are going to go through the same devastation for housing, maybe not next year or the year after but periodically.

You know, you are the outstanding expert in the Nation on how tight interest rates have destroyed housing to this serious extent.

Secretary ROMNEY. I don't say what is recommended here is going to be the ultimate solution to the problem. But I know what we are proposing here will go some distance in this area and will put us in a more favorable position. By getting FNMA and the Home Loan Bank Board in the conventional market, this would be very helpful. No. 1, by adding securities much more salable to the pension funds is going to be an important aspect of the situation because the biggest new source of savings is in the pension fund. The mortgage backed security and bonds lend themselves to tapping new sources of money for housing.

Now, in addition the experience we have had in making more effective use of FNMA and the Home Loan Bank Board this time contributes to this. I think the fact that we have developed a greater degree of cooperation on the part of many departments I have mentioned here as being responsible in the housing field at this time can have a carryover effect here. I don't think it was recognized a year ago or previously—the interrelationship between the decisions.

Senator PROXMIRE. These things will help, but the fundamental fact remains because housing is paid for over 25 or 30 years and because the money has to be borrowed almost entirely for housing you are going to have a monetary policy restricting housing severely even though the other measures you propose are good and will be helpful and will somewhat ease it. You still have the serious problem. We are going to inhibit monetary policy because of what is going to happen to housing, even though these measures you propose are going to help some.

During your testimony before the House Banking and Currency Committee you talked about the shortage of savings we are likely to have and if we want more money for housing we will have to take it

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from somewhere else. For example, on page 987 of the transcript you” said:

We are going to be in a capital shortage anyway because of the credit demands which are coming through the credit cards which we haven't any particular controls on yet.

Am I correct in assuming that you regard the widespread proliferation of credit cards as a factor in decreasing the available supply of credit for housing?

Secretary ROMNEY. I don't recall having talked about credit cards. Maybe I did. In any event, they are a part of the picture. I don't question the fact, the credit cards do constitute part of this total picture.

Senaor PROXMIRE. The reason I raise that is that we have credit card legislation in front of us right now, reported out of this committee and we are going to expect to act on that in a few days. Your position on this as the man more responsible for housing than anybody else would be most helpful.

Secretary ROMNEY. The kind of restraint you are talking about would be most helpful.

Senator PROXMIRE. Well, thank you very much, Mr. Secretary. Let me ask you to respond to this question for the record. House & Home—you may be familiar with this article-has a very interesting article and it is quite persuasive. It is a letter to you and to me and the President and all the members of Congress, you particularly, on Operation Breakthrough. It says Operation Breakthrough will not reduce building costs or help increase technology, et cetera. I think an answer should be made because this is widely circulated.

Secretary ROMNEY. It is an interesting article but it starts from the wrong premise. It doesn't deal with the breakthrough program as we are undertaking it. It deals with it as they conceive it and they don't conceive it the way we are undertaking it. So they arrive at erroneous premises.

Senator PROXMIRE. Would you give us an answer to that for the record?

Secretary ROMNEY. Yes.
(The following information was received for the record :)

ANSWERS TO QUESTIONS SUBMITTED BY SENATOR PROXMIRE Question. Would you respond to the criticism of Operation Breakthrough which appeared in the February issue of House and Home?

Answer. As I pointed out in my very brief comment on the question, the House and Home cover article of February 1970, is based on certain erroneous assumptions. The article assumes that (1) Operation Breakthrough alone is intended by this Department to overcome all problems of our housing crises; (2) that "the real problems have been virtually ignored, and it is all too possible that in the flood of publicity Operation Breakthrough is receiving, they will continue to be ignored until the crisis has turned into a disaster.”

The statement I presented to the Senate Banking and Currency Committee on March 3, 1970, and a reading of the full content of that hearing, demonstrate that we fully recognize the seriousness of the problems that we face, the basic causes of those problems, and the actions necessary to overcome them.

Operation Breakthrough is only a part of this Department's overall effort to improve the entire process by which housing is produced and provided to all of our people. The House and Home article does not discuss the program as it is, and its goals. The program is not directed at any one economic level, nor does it focus solely on production methods. It aims, rather, by using concepts suitable

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