Senator BENNETT. What would this do to the Federal Government savings bond program? Mr. STRUNK. Part of the problem in this question is that you do not know where to stop and you get into the major costs or major budget deficits as a result. We estimated that tax incentive for savings and loan savers could cost anywhere from $1 to $2 billion depending on where you put the limit. If you extend that to commercial banks you get that figure up to 3 and in savings bonds you get it up to 4 and it is a question of where this money is going to come from. Senator BENNETT. You would kill the saving bond program completely. Mr. STRUNK. That is right. If you have one class of people in the market offering tax-exempt saving accounts and the other class does not have it, you substantially upset the whole thing. You either have a different rate structure or give it across the board. I agree. Senator BENNETT. No further questions. Senator PROXMIRE. I want to congratulate both you and Senator Bennett for that colloquy. It was very useful and able colloquy. I think it emphasizes the fact that there are some people who feel very strongly that housing is in a desperate condition, that it must have and should have a massive movement of resources into it if we are going to move ahead. Some people don't agree with that and you obviously feel very strongly that is the case. I thought on page 5 you expressed it well when you said: The general monetary controls as administered by the Federal Reserve have had a very selective impact and housing is carrying far more than its fair share of the burden of the anti-inflation program of this country. In the absence of selective credit controls and the use of other anti-inflation weapons, we believe the proposal such as embodied in S. 3503 is most appropirate although the Committee has head the strong objections of the Administration and the Federal Reserve which, of course, were not unexpected. Furthermore, the consideration of S. 3503 is effective in stimulating the development and discussion of other alternatives. That impact is so great that as I understand it more than half of the impact or the slowdown in the economy has been visited on this relatively small sector, 3.5 or 3 percent of the GNP is just taking it on the chin. So I think it is a very logical position you have taken and I very much appreciate Senator Bennett's able questioning of you on the details. I think he made some points which we have to take into consideration in modifying the bill. I would like to ask you, have you had a chance to review the sevenpoint program that Secretary Romney gave us yesterday? Mr. STRUNK. No, sir, I have not. Senator PROXMIRE. I thought it was very inadequate but I would appreciate it if you could look it over. In general, do you think the proposals of the administration are adequate to the immediate problems of the housing market in 1970? Mr. STRUNK. Well, we have been disappointed, at least until very recently, at the administration's attitude toward housing, its determination to pursue the inflation problem only with fiscal and monetary means. I think in more recent days the administration has come forward for example with a subsidy program and others and we feel quite encouraged. Whether I is adell: know. So much is needed and it is gett Senator PROXMIRE. You strongly FIT sidy program that would bring gor you are highly optimistic ir vent or 40 days. It would be almost a mont fast, but we haven't gotten it VET Mr. STRUNK. I know th... S. very simple. Senator PROXMIRE. It is sm to get through the House an thority to make availabie S passed into law and the Prese three-quarters of a percent Mr. STRUNK. Yes, I won program tomorrow and pit. : moves it through. Senator PROXMIRL. Just a number of mortgage re Mr. STRUNK. Yes. " ington special reloaned encourage idea that idual instinizing a so it seeks from group of black pro quo, we will I would represent ,e this, I would cerendation where it has i some of the members san. Everything should been taken by your assoease funds from the FedIlion to $4 billion? with our own agency and sions with the Treasury and directly gone to the Treasury considered. acted. I think it helps to have from the private sector. or their failure to make such addiauthorized them? e our relationship with them on the ok 6 months of discussion on raising They kept telling us they were considernouncement. Now they are in the same us they are considering it. We can write your question that is the thing to do, to get money on the security of these mortgages. Money obtained in that way won't show up on the balance sheet, it isn't money that has to be repaid or money where the interest rates would go up from here. So I think it was immediately helpful, sir. Senator PROXMIRE. Just one other question. I want to read a statement by your past president on the need of selective credit controls to see if you concur: The monetary economists around President Nixon have been advising him that monetary restraints and high interest rates will curb inflation. There is only one thing wrong with this policy: it hasn't worked and it won't work-at least it won't work unless it is carried on so long and to such an extreme that the country will face a serious and prolonged depression. If that happens the "silent majority" will become the "sullen majority" by the time the November elections roll around. For some months your U.S. League has been urging a more diversified attack on inflation. Specifically, we think the Administration should impose controls on business and consumer credit. The Congress, thanks in great part to the urging of the U.S. League and the home builders, gave the President this authority; now we must get the Congress to persuade the President to use these powers. Do these reflect your sentiments, too? Mr. STRUNK. Yes, sir. I might say we addressed a letter to President Nixon about December the 8th urging this kind of approach. This is before he got the law to do it. I am not sure at this point-all kinds of consumer credit controls for example on automobile credit and appliances would be needed because we don't have a bill up in that area. Our concern is the buildup of long-term corporate credit. This is putting the pressure on the housing market more than consumer credit. Senator PROXMIRE. Thank you. Senator SPARKMAN. Mr. Percy. Senator PERCY. Mr. Strunk, I wanted to be here to present you to the committee as a constituent, but we had the Secretary of the Army downstairs. I am delighted to have you here, and I would like to say that I think the savings and loans have done an outstanding and exceptional job throughout the years. I don't know what we would have done without them. My only intention is to see if we can expand authority and knowhow and get them into new markets. You did comment on credit controls and the next step is wage and price controls, which in peacetimes I think are literally impossible to enforce. They are also difficult in times of all-out war. Would you care to state where you stand on wage and price controls? Mr. STRUNK. Maybe credit controls leads automatically to wage and price controls, I don't know that they do. But I share the President's distaste for wage and price control. I don't share the distaste for credit control. The two of them are quite different. I would agree that wage and price controls in peacetime would be a horrible situation. Senator PERCY. I rather look at credit controls as part of the whole package. It is taking one segment of it and saying we are going to have some sort of artificial control on that, but the rest goes free. It would be difficult. Mr. STRUNK. The economy is cooling off but we haven't seen the price level cooling off. As long as we have the inflation situation we are going to have low- and high-interest rates. Senator PERCY. In looking at future markets for savings and loans, I look at the low-income areas of our principally urban centers. Here you have a dearth of commercial banks, you have a dearth of financial institutions, and yet today industry is promoting heavily in this area. They discovered a whole new market, and their apple is very great, and the market growth is great. Incomes can only go one way: up. It is a national policy that we try to elevate low-income areas. Is there any way we can increase the presence of savings and loans in low-income areas so they can better serve these areas and get a real foothold there? Since the geographical lending would be extended if S. 3442 is enacted, should we not couple this with some requirement that savings and loans extend a part of their credit opportunities to lower income people, particularly considering they now have a Government subsidy and guarantee under section 235, the home ownership provision? Mr. STRUNK. In connection with those programs, we have been encouraged by the extent to which we are getting involved. We had three clinics, one in Chicago, one in San Francisco and one in Washington later in March. The Federal Home Loan Bank System has a special 10-year guaranteed rate advances for money that would be reloaned in these programs. The Federal Home Loan Bank Board is encouraging the establishment of ghetto branches, so-called. With the idea that some of these might be spun off eventually into an individual institution. There is an association in Cleveland that is organizing a socalled ghetto branch. Recently in terms of considering its applications that it seeks from black institutions the Board has been working with a group of black institutions. Whether the Board should make a quid pro quo, we will give you this providing you do that, I am not sure I would represent that unless I could see the nuts and bolts of it. Senator PERCY. To the extent we can encourage this, I would certainly be happy to draw up a statement of commendation where it has been done and I am sure Senator Sparkman and some of the members on the other side would want to make it bipartisan. Everything should be done to implement this. What steps have been taken by your association to encourage Congress' action to increase funds from the Federal Home Loan Bank System from $1 billion to $4 billion? Mr. SLIPHER. We have had discussions with our own agency and they have indicated they have had discussions with the Treasury and progress was being made. We have not directly gone to the Treasury because we were told that this was being considered. Senator PERCY. Well, Congress has acted. I think it helps to have it come from the Congress as well as from the private sector. Have they given you any reason for their failure to make such additional funds available once we have authorized them? Mr. SLIPHER. It is sort of like our relationship with them on the Treasury denominations. It took 6 months of discussion on raising the minimum denominations. They kept telling us they were considering it and they made the announcement. Now they are in the same posture, they are assuring us they are considering it. We can write them. Probably in view of your question that is the thing to do, to get on the record. You are right. We haven't made a public record of it. Maybe we should do that right today. Mr. STRUNK. In the context that can be done today and fill in the gap between today and when the Congress might implement the more basic administration proposals for a subsidy. Senator PERCY. Existing legislation or that proposed or discussed by Senator Proxmire permits money to be made available to savings and loans during tight market conditions. In addition to any ideas you have given today, are there any other thoughts that you could suggest as to how deposits could be encouraged and the decline arrested in deposits in savings and loans? Mr. STRUNK. Our deposit flows are influenced by the general rate at which people save money, when they save or spend. Deposit flows are then influenced on whether they put this money into securities or mutual funds or into fixed dollar institutions. Our savings and loan deposit flows are influenced by the competition we feel from the commercial banks and the savings banks. The ideal situation as far as we are concerned would be for savings and loan associations to be given a real advantage over the rate we pay or the terms of the instruments we offer. Now, under the new ceilings we are giving about a quarter-point spread over the rate paid by the commercial banks. Until yesterday we had a better deal with respect to the terms of the certificate but I `read in this morning's paper, quite to my surprise, that the FED and the FDIC have changed the terms under which the banks issue the 51%- and 534-percent certificates. They are able to have the automatic renewal type certificates so that makes the banks somewhat more competitive today than it did yesterday. Senator PERCY. How long would you say it takes FHA to process a loan application now, on the average? Mr. STRUNK. I am not able to answer that question. Senator PERCY. Have you heard complaints that the length of time is excessive in many cases? Mr. STRUNK. No, I have not heard complaints but the processing time-I think mortgage lenders always think the time is too long. Whether it is a reasonable complaint or not, I don't know. Our people are not, insofar as my contact with people-I am just not able to answer that question. Senator PERCY. I have heard a great many complaints through the years about the procesing time. I heard the same thing about SBA. They were taking between a year and a year and a half many times to process an application, and the need for action was gone or the business failed in the meantime. We put together in Chicago with SBA most of the top bankers, and they developed a Chicago plan whereby the bank is given the responsibility to go right ahead if after 3 days there hasn't been a denial of the credit. They assume a joint responsibility. I wonder if S & L's couldn't be authorized pursuant to having adequate compensation and as a standard to perform many of the loan application responsibilities and thereby speed up the processing of such |