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feel quite encouraged. Whether it is adequate to do the job, I don't know. So much is needed and it is getting late.

Senator PROXMIRE. You strongly support the administration's subsidy program that would bring down interest rates 1 percent. I think you are highly optimistic if you think that could go into effect in 30 or 40 days. It would be almost a month. We hope it can go through and fast, but we haven't gotten it yet.

Mr. STRUNK. I know that, sir. The enabling legislation would be very simple.

Senator PROXMIRE. It is simple but these things would take a while to get through the House and Senate. Meanwhile the Treasury has authority to make available $4 billion for funds for housing. It has been passed into law and the President has it. This would reduce the rate three-quarters of a percent.

Mr. STRUNK. Yes, I would think it would make sense to start that program tomorrow and pick up the other program when Congress moves it through

Senator PROXMIRE. Just a couple of other questions. As you know, a number of mortgage credit proposals have been introduced in the House which would establish a direct Federal lending program. I have a lot of sympathy with these proposals but I also believe we ought to try first to work within our existing financial institutions.

With that in mind I introduced the Middle Income Mortgage Credit Act which would channel low-cost mortgage credit from the Federal Reserve and the Home Loan Bank Board to existing mortgage lending institutions. If such a proposal were adopted, do you believe savings and loan associations would make widespread use of it in order to meet the mortgage credit needs of middle income families? Mr. STRUNK. I think so.

Senator PROXMIRE. Do you think it would be useful from a practical standpoint ?

Mr. STRUNK. Yes. I think we would have to take a look at some of the hard numbers with respect to how much the association would be reimbursed for putting a loan on the books and how much they would be reimbursed for servicing the bank. This would be special money to be handled in a special way. But our communities are so desperately short of money that savings and loan people have some 6- and 6.5-percent money, I am sure we would get it out.

Senator PROXMIRE. I would like to ask you about S. 3508. I am not sure I understand your thoughts on that bill. Are you in favor of such an approach this year or do you have some other basis in mind for that?

Mr. STRUNK. Is that the one Senator Sparkman introduced relat-
ing to the Federal Home Loan Bank System?
Senator PROXMIRE. That is right.

Mr. STRUNK. This is an idea we have had for a long time. I think it would be immediately helpful because savings and loan associations are not borrowing money, some of them, most of them now, and they are up to their own limits, not legal limits but their own limits as to how much they will borrow. So the alternative way of getting Home Loan Bank credit to these institutions is to let the associations sell mortgages to the Home Loan Bank System instead of borrowing

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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.

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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

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you would

applications while cutting down FHA redtape and expenses and have some income for overhead absorption by S & L’s that would help them out?

Mr. STRUNK. We have some people in our office that know a whole lot more about that than I do and I would appreciate it if give me a memorandum.

Senator Percy. I would appreciate that because we are trying to cut down the big overhead structure of the Government. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, gentlemen. We appreciate your help.

(The full prepared statement of Mr. Strunk follows:)

STATEMENT OF NORMAN STRUNK, EXECUTIVE VICE PRESIDENT, U.S. SAVINGS AND

LOAN LEAGUE 1 It is a pleasure to appear here today before the Senate Subcommittee on Housing and Urban Affairs with respect to secondary market and other proposals relating to mortgage credit. In view of the tightness of the money market and the precipitous decline in housing starts, it is certainly timely to develop and improve any facility that will increase the availability of housing credit.

S. 3442 relates to the implementation of the recommendations of the Commission on Mortgage Interest Rates which reported to the Congress last August. In connection with that report, a number of the recommendations with respect to the savings and loan business already have been implemented. The new liquidity law passed in 1968 follows the spirit of the Commission's recommendations with respect to a variable liquidity reserve for the savings and loan business and the rate control extension bill, signed on December 23, increased the socalled pipeline from the United States Treasury to the Federal Home Loan Bank System from $1 billion to $4 billion. This implements that recommendation of the Commission so far as legislative authorization is concerned but it is yet to be made operative by the Administration.

The Federal Home Loan Bank System is moving into long-term financing as recommended by the Commission. Two issues of five-year advances have been satisfactorily processed this past year and we are confident that the Federal Home Loan Bank Board intends to move aggressively with respect to providing long term capital to member associations. The Housing Act of 1969 amended Section 5. of the Federal Home Loan Bank Act to provide needed flexibility in connection with the interest that members of the Bank System may charge on mortgages as recommended by the Commission.

S. 3442 would implement three other specific recommendations of the Com-mission with respect to savings and loan laws. First, it would amend Section 5(c) of the Home Owners' Loan Act (the federal savings and loan law) to put in the Federal Home Loan Bank Board the discretion as to the upper limit on loans that qualify under the law as a one- to four-family mortgage. This would avoid the need to repeatedly adjust this statutory maximum limit as inflation and as the needs of the business suggest an adjustment in this particular legal distinction between mortgages that qualify under one section of the law versus those that qualify under another section.

Secondly, it would amend the Home Owners' Loan Act and also the National Housing Act to broaden the lending area for our institutions as recommended by the Commission and by various other studies of our business. The language beginning on line 9 of page 8 and going through page 9, is fairly complex, but it

1 The United States Savings & Loan League has a membership of 5.000 savings and loan associations representing over 95% of the assets of the savings and loan business. League membership includes all types of associations—Federal and state chartered, federally insured, uninsured, stock and mutual. The principal officers are: John H. Randolph, Jr., President, Richmond, Virginia ; Lewis S. Eaton, Vice President, Fresno, California : C. R. President, Chicago, Illinois; and Stephen Slipher, Legislative Director, Washington, D.C. Mitchell, 'Legislative Chairman, Kansas City, Missouri ; Norman Strunk, Executive Vice President, Chicago, Illinois : and Stephen Slipher, Legislative Director, Washington, D.C. League headquarters is at 221 North La Salle Street, Chicago, Illinois ; and the Washington Office is maintained at 425 13th Street, N.W., Washington, D.C.—Telephone : 638–6334.

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