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I do not believe that this spread of one-fourth to one-half percent is sufficient to induce savings and loan associations to use this mortgage fund.

If it is necessary to reorder our national priorities and to facilitate thereby a reallocation of financial resources to the residential mortgage market, then it is difficult at least at this early stage of my study to find a valid basis for opposition to using the discount window of the Fed to contribute to this reallocation.

We have sent copies of the bill and the Senator's remarks on introduction to the members of the Realtors' Washington Committee for their study and recommendations during our spring legislative conference in Washington later this month. We will then be in a position to state the official policy of our association on the bill when hearings are held on housing legislation later in the session.

Gentlemen, that concludes my testimony.
Senator PROXMIRE (presiding). Thank you.
The chairman will be right back, he just stepped out for a minute.
Senator Bennett, would you like to start?
Senator BENNETT. Let me have a minute or two.
Senator PROXMIRE. All right, fine.

Let me ask, on page 7 of your statement towards the end of the statement you say:

If it is necessary to reorder our national priorities and to facilitate thereby a reallocation of financial resources to the residential mortgage market, then it is difficult at least at this early stage of my study to find a valid basis for opposition to using the discount window of the Fed to contribute to this reallocation.

I was intrigued by your use of the word "if" with reference to the need for reordering our national priorities. In my view there is no doubt that we need to reorder our priorities in view of what has happened to housing, particularly, and allocate more funds to housing. În view of the current depressed level of the housing industry, is there any doubt in your mind as to reordering, that it is long overdue ?

Mr. LANDr. No, sir; and I cannot give you a reason why I used the word “if." I think you are absolutely correct. The whole name of the game is to get money from over here and reallocate it towards housing, one way or the other.

Senator PROXMIRE. One part of the bill you say you want to analyze further, but one part does give you pause that you provide incentive for

Mr. LANDT. Yes, sir, I do.

Senator PROXMIRE. We certainly want to make it adequate because there is no point in providing this if we are not going to get any action out of it. We would certainly do everything we have to do to provide incentive to get it moving.

As you know, the administration is proposing an appropriated subsidy to the Home Loan Bank Board in order to bring down their advance rate to savings and loan associations. This proposal could prove helpful, but it will take months to put it into effect. In the meantime the Home Loan Bank Board already has the power to borrow from the Treasury at a substantially reduced rate. We passed a bill last year to increase the amount from $1 million to $1 million.

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Would you favor the use of this borrowing authority enacted last year, or do you think the administration should wait until the subsidy funds have been authorized and appropriated ?

Mr. LANDT. We supported that bill, Senator, and we certainly agree that the administration should utilize it.

Senator PROXMIRE. Now is the time because this is an emergency right now and you feel they should act now?

Mr. LANDI. Yes.

Senator PROXMIRE. Thus far the administration has shown great reluctance to use the credit control authority given to them in the same bill last year. What are your views on this? Should this authority be used!

Mr. LANDr. My personal views would be that that is the very last resort and I personally would not be ready for it.

Senator PROXMIRE. You say those are your personal views

Mr. LANDT. We have debated that every time we have met but we think it is an extreme measure and we just do not support it at this time, although there is certainly no objection to giving the President standby authority.

Senator PROXMIRE. We did have some encouraging words from Secretary Romney yesterday when he indicated the credit controls might be invoked and used if they don't get action out of the financial institutions. HUD may feel it is necessary to recommend to the President that the bill be put into effect. That is the position you take, if

you have to use them, use them, but you don't think the time has come yet.

Mr. LANDr. Yes, sir. Let's try everything we can think of first.
Senator PROXMIRE. One other question.

Chairman Burns of the Fed testified before the Joint Economic Committee 2 weeks ago and said he didn't think credit controls were necessary, that things were getting better. I take it that isn't quite your view, that things are getting better. You think the time has not come to use credit controls but it might very well come if they don't get better, is that correct?

Mr. LANDT. Senator, I do not pretend to be an economist. I have read all of the economists that I have faith in and that is a lot of them, but they all differ, as you well know. I personally believe we may be reaching the peak, but I don't think that is any reason for us to let up on trying to correct something.

Senator PROXMIRE. There are undoubtedly some elements in the administration's economic strategy in slowing down the economy. It is the first step in slowing down the prices but it is going to be a long road for housing to improve substantially because after the economy begins to slow down you have to get a price lowering and you already had a drop in interest rates on Treasury bills but it is going to take longer.

The predominance of opinion is that housing is likely to have some trouble for some months.

Mr. LANDT. Well, our entire housing program of 26 million units is on a 10-year program and I cannot see any appreciable easing of the money situation for housing for 10 years, unless aid is given in one form or another.

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Senator BENNETT. Following up the comment Senator Proxmire just made, there was a front page story that indicated there has been a drop in the interest that has to be paid on tax-free State bonds. Maryland just sold a big bond issue. I think there are many evidences that we have passed the peak in terms of high-interest rates and the rates are beginning at least to level off, if not come down, and this is one of the steps you have been hoping for.

The one question I wanted to ask you, you are the second witness today who has suggested, to my surprise, the creation of a tax-free status for savings. Would you include the savings in commercial banks?

Mr. LANDT. Yes, sir, I would. Any morgage oriented thrift institute.

Senator BENNETT. What would you do with credit unions which are not "thrift” oriented from the point of view they exist chiefly to serve the mortgage market ? What do you think is going to happen politically if you cut the credit unions out of this tax exemption, because their members buy shares just like savings and loan associations do, but they don't exist to serve the mortgage market.

Nr. WILLIAMSON. It is an extraordinary measure but I think the situation dictates

Senator BENNETT. Is this temporary, then?

Mr. WILLIAMSON. No, but the affluent saver has an advantage in the market. Today we appeal to the small saver to buy savings bonds and I think the interest rate is 5 percent, but the affluent saver can invest his money in 7- and 8-percent obligations.

We are now trying to avoid this disintermediation by increasing the minimum denomination. We think that is necessary.

Senator BENNETT. A step has been taken, you say it is inadequate and it has been attacked very vigorously by many people who say this step deprives the little man of an opportunity for income equality on his savings.

Mr. WILLIAMSON. So, we want to balance that to give the small saver some advantage.

Senator BENNETT. If it were a tax exemption I don't see how it would favor those with limited savings. In any event have you caleulated the loss of revenue to the Federal Government?

Mr. WILLIAMSON. No, we haven't. The reason we haven't calculated it is because only the Treasury in our opinion is competent to do so, and bills have been referred to the Treasury Department, but they haven't come up with an answer. But I agree, it would be substantial.

Mr. LANDT. We were merely trying to reply to possible criticism of not protecting the small saver.

Senator BENNETT. Have you ever tried to calculate how much it cost the small saver to acquire a $1,000 treasury bill?

Mr. LANDT. It isn't very much.

Senator BENNETT. In some instances, it could be more than the difference between the interest he would make on the treasury bill and the interest he would make on his savings in an intermediary institution because you just don't go down the street and pick one of them up. You have to apply for them at a Federal Reserve Bank, deposit cash or a certified check, provide safekeeping, and redeem them when they mature. Many individuals end up buying them through a broker for a fee.

Mr. LANDt. There are other disadvantages in the ownership of these treasury bills, too. Senator BENNETT. You mentioned them in your statement. But you

. missed the fact that it is inconvenient and costs money to acquire a treasury bill and it doesn't cost any money to take your check down to the savings and loan association and deposit it. They will begin the interest the first of the last month in order to attract your deposit.

No further questions.

The CHAIRMAN (presiding). You said something about closing costs in your statement. I get complaints from time to time about the heavy closing costs. Has your organization ever thought about the possibility of developing some kind of new electronically controlled system to handle the various steps involved and thereby perhaps, cut down some of the closing costs?

Mr. WILLIAMSON. There are so many different State laws and this is what makes it difficult. For example, in some jurisdictions you have to have a lawyer--the real estate broker can't even help his client execute a sales contract without a lawyer bing present and, of course, in those States that means another $25 or $50.

Different jurisdictions have different rules relating to settlements and this is what causes the pyramiding, I think.

The CHAIRMAN. Of course we run into that problem many different ways when we come to this proposition of getting institional investors to invest in mortgages. Unless we work out some plan of packaging mortgages and issuing some kind of certificate of indebtedness against them, we never will be able to get funds in the market because of the diversity of mortgage forms, notes, foreclosure, price of redemption, and all of the things that go into it.

Well anyhow, thank you very much, gentlemen, for your testimony. It will be helpful. Mr. LANDT. Thank you,

Senator. (The full prepared statement of Mr. Landt follows:)

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Mr. Chairman and members of the committee, I appreciate this opportunity to testify before the Subcommittee on behalf of the National Association of Real Estate Boards. Our Association consists of approximately 91,600 Realtor's who are members of more than 1,570 local Boards of Realtors. Realtors are engaged primarily in the business of brokerage, appraising, and management of all types of residential, commercial, industrial, and farm real estate. The interests and activity of these members extend to all real estate-related fields including mortgage banking and home building.

This Subcommittee is painfully aware of the sharp decline in home building and the widening gap between necessary additions to the housing inventory and our national housing goals. The existing house market has suffered a simultaneous decline with more and more home owners forgoing the upgrading process because of mortgage money scarcity and unprecedented high interest rates.

The consequences for middle income Americans, those families whose earnings are above eligibility levels for housing subsidy programs are most apparent. When one considers that each percentage point of interest adds about $16.50 to monthly payments on a $20,000 mortgage, it is not difficult to understand the plight of many families whose earning levels have traditionally been adequate for home ownership. While a number of factors have contributed to this situation, we believe that inflation and its by-products-shortage of mortgage credit and high interest rates have been the major culprits.

We are convinced that a major shortcoming in our national housing effort for the past two decades has been our preoccupation with short-range solutions which touched on the symptoms but not the causes of our difficulties. We have almost totally disregarded the fundamental reasons why our highly technologically advanced society cannot produce systems of home financing without crises which come every time it is necessary, for economic reasons, to impose fiscal and monetary restraints. All of us familiar with the problem realize that housing is the principal user of credit which has been forced to do with substantially less during these periods of stringency. It is fundamentally wrong that the housing industry so vital to the welfare of the people is the one least able to compete in tight money periods. Given the present financial structure of our nation's credit markets, it is a fact which we cannot escape that housing cannot compete with governmental and commercial users of credit for the savings dollars when demand is high in the capital market.

The conclusion seems almost inescapable that total savings dollars in this country will not in the foreseeable future provide enough money to meet all the demands of all credit users. For the past several years it has been housing, almost exclusively, that has been deprived. Structural changes in our arrangements for residential financing are necessary to help housing compete on more even terms with its major competitors for savings dollars. Long-term solutions that are going to prove effective will have to be directed at achieving a more equitable flow of credit for housing.

We are encouraged by Secretary Romney's recent statement that the Adminis. tration has urged three major sources of investment money, which in recent years have avoided or sharply reduced home mortgage investments, the commercial banks, the insurance companies, and the pension funds, to voluntarily allocate approxmiately $6 billion to the residential mortgage market. This action would significantly help to redistribute savings dollars on a more equitable basis, and is responsive to the basic long-term problem.

Before proceeding with specific recommendations, I want to express our position generally that long-term savings can be increased only if there is confidence in the future value of the dollar. Inflation, and more significantly the expectation of, or national resignation to, inflation generates pressures on the capital market not only because of the presence of borrowers less sensitive to soaring interest than home buyers, but also because there is reluctance to save in the first place when the dollars that might otherwise be saved are expected to buy more at present than in the future. We must end the inflation psychology that now grips this country.

Last November, the National Association of Real Estate Boards approved an eight-point program which is attached to this statement for insertion in the record at this point. I shall now comment briefly on some of the recommendations which are directed at the primary objectives of achieving long-range solutions to the structural problems of the mortgage market. They also bear directly on the bills pending before this Subcommittee.

One of the most important of these solutions, in our opinion, is the creation of a national secondary market for conventional loans. Various proposals have been introduced that would authorize either the Federal National Mortgage Association or the Federal Home Loan Bank Board, or both, to establish such a market.

While we believe that the Federal National Mortgage Association is eminently qualified to serve this vital need, we appreciate the advantage of a parallel secondary market in the Federal Home Loan Bank Board which is equipped primarily to serve the savings and loan associations.

Our Association has contended for many years that we must take steps to make the conventional mortgage a nationally marketable commodity. Once a national secondary market is created, whether in FNMA, or in the Federal Home Loan Bank Board, or both, it will be necessary to develop national standards relating to appraisals as well as the mortgage instrument itself. Thus a conventional secondary market in FNMA would act as a catalyst for the necessary changes in state laws to rid the conventional mortgage of the legal rigidities and impediments which make its marketability across states lines almost impossible at present. Such an institutional reform should prove beneficial in attracting money to the mortgage market which has been going to competing users of credit.

We are heartened by the recent statement of Secretary Romney that he supports a national secondary market for conventional mortgages, and we also note references to advantages of such a market recently published in the Annual

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