Our recommendation, therefore, is that the Congress extend permanently the authority of the Secretary of HUD to set maximum interest rates for FHA-VA mortgages at whatever level is necessary to meet the mortgage market. Together with the extension of authority, the law should also be amended to provide that mortgage discounts are an allowable cost of financing`and should be included in the mortgage.

The CHAIRMAN. May I ask a question? I am going to have to leave in just a minute.

Mr. Barba, as I explained to you earlier, I would like to ask a question about that last paragraph. As you say, I enjoyed your statement very much throughout, and I regret that I have to leave. You would give to the Secretary of HUD, that is, you would give him continuous authority to set interest rate ceilings and you say that the law should also be amended to provide that mortgage discounts are an allowable cost to financing and should be included in the mortgage. Would you recommend that we place in the hands of the Secretary the right to determine the extent of discounts, if that is to be considered as part of the interests?

Mr. BARBA. I would not suggest that the Secretary of Housing be given that right to set discounts because, for instance in the past month, we have seen quite a fluctuation in the points. I have forgotten what the FNMA offering was, but they were considerably higher than they were 2 weeks ago.

If the Secretary of Housing were to set those rates, they would become rigid for a longer period, whereas with the market setting the rate, there would be more flexibility.

The CHAIRMAN. I realize the interest rate is set usually for a period of time during which it is rigid, why couldn't the Secretary of HUD determine on a day by day basis, if necessary, what the points should be. They do that in FNMA, do they not?

Mr. ROGG. They do it on an every 2 weeks basis when they hold the auction. This could be handled by some kind of limit on it, by allowing no more than three or four points to be included.

The CHAIRMAN. If you write that into the laws, that would be the number of points. You know, we never have discounts or points, you know that. We discussed that many, many times, and we discussed it in the Commission, you will remember, many times.

It seems to me if we are going to legalize points, when as a matter of fact through the years we have been trying to get rid of them, we ought to set a formula that would prevent what I would consider an unfair allowance of points.

If it is to be recognized as part of the cost of the mortgage just like interest is, then it seems to me someone ought to have the right to determine what the maximum points really should be.

Mr. ROGG. It is part of the house cost, one of the intangibles, just as you pay costs for transportation of materials. It is an actual cost of producing the house rather than a financing charge per se.

The CHAIRMAN. Mr. Barba read this statement and I imagine he probably discussed it with you. The law should also be amended to provide that mortgage discounts are an allowable cost of financing and should be included in the mortgage.

Mr. ROGG. Conceptually, though, we were aiming it at part of the house cost. If the house cost $20,000 and you had a three of four point discount, we would increase the cost of the house by that amount and relate the mortgage to it.

The CHAIRMAN. I still believe if we are going to write in as the basis of the law that discounts are allowed and we don't like them at all, we need some control. I hope you will give some thought to that. I ́am sorry I have to leave now.

Senator Proxmire has kindly agreed to carry on.

Senator PROXMIRE. (Presiding.)

Go right ahead, Mr. Barba.

Mr, BARBA. Yes, sir. The other bill pending before the committee is S. 3503, introduced by Senator Proxmire. This bill is entitled the Middle Income Mortgage Credit Act. It would authorize the Federal Home Loan Bank system to issue up to $3 billion a year of special housing certificates to be purchased by the Federal Reserve system at an interest rate not in excess of 6 percent. These funds would in turn be made available to home buyers with incomes of $10,000 or less to purchase homes at a cost not in excess of $25,000. These would bear an interest of not more than 612 percent.

We endorse the bill. In today's mortgage credit situation, it is the middle income family which is losing out. It is far easier for the low income family with HUD subsidy assistance available to finance the acquisition of a home. The bill recognizes that the key to today's problem form many middle income families is that they cannot afford a home because of the current high rates of interest.

It has been suggested at these hearings that a better approach to this problem would be the administration's proposal to set aside $300 million to be used over a period of years to bring down the cost of Home Loan Bank system advances to individual savings institutions.

While we endorse this proposal, we also think it does not get at the problem to which S. 3503 is directed-extremely high interest rates which in themselves are depriving people of housing. Additionally, the administration's proposal seems to depend upon appropriations and S. 3503 does not. We do believe, however, that the bill which results from these hearings should include whatever legislation is necessary to accomlish the administration's plan.

A further extremely desirable feature of S. 3503 is that it directly, and for the first time, involves the Federal Reserve system in assuming a minimal amount of responsibility for helping to house the citizens of this country.

For too long the FED has refused to accept any responsibility for alleviating the unequal burden that falls upon housing in periods of tight money. S. 3503 would give housing, the prime victim of the Federal Reserve's tight money policies, a means of withstanding, to some extent, the heavy impact of these policies.

In recent years housing has shared a smaller and smaller segment of our gross national product. From a high of approximately 61/2 percent in 1950, it has dropped to about 312 percent today. It is our firm belief, as enunciated by the Commission on Mortgage Interest Rates, that an additional 1 percent of the gross national product should be allocated to housing. This can only be accomplished if this Nation consciously decides to do so. This entails a continuous recognition by the Congress

of the need to follow through on its commitments of 1968, as well as a complete willingness on the part of the administration to use fully and imaginatively the authorities given it by the Congress.

The proposals now before this committee will not by themselves solve the present housing crisis or meet the future housing needs of the Nation. However, they are principal components in the broad, correlated efforts necessary to give the housing of our people the priority it deserves. We urge prompt and favorable action on these bills.

On the point of prompt consideration, I would like to state that, for any action of Congress to be helpful to the 1970 building season, it must happen quickly. There is not sufficient time to await consideration of the administration's general housing legislation proposals. It is our firm belief that the Congress must act within the next 30 days to really help housing this year.

Thank you for this opportunity to present our views.
Senator PROXMIRE. Thank you very much, Mr. Barba.

I think that the timing of your appearance here is most appropriate. There is no industry in my view that is more urgently in need of action than the housing industry. We have a great need in housing. For one thing if you had a diminution in demand and not much need, you would have another kind of problem.

No we have one of the worst housing shortages in our entire history. In spite of the fact that we have this tremendous need, we have heavy and growing unemployment in the housing industry. We have available resources, lumber and steel and all the other things that go into housing construction and as you pointed out, housing starts in January were down to a very, very low level. As a matter of fact, the permits were down to below a million annually so there is no indication of any kind that the situation is improving.

What really concerns me particularly now is the fact that this monetary practice with regard to your industry is not really having any effect in reducing prices. One might think, because there is so little production and the industry is stagnating, prices would begin to come down but they are not. As we know, wages are going up sharply.

One of the arguments that the construction unions use is they are afraid they will only be working 8 or 10 months and they are going to have to preserve their annual income.

In the Wall Street Journal, in the related industry of real estate sales, it is pointed out the sales picture is especially bad in some cities. January volume in St. Louis was off 21 percent, 15 percent in New York, 15 percent in Dallas. It says in the past slumping home sales resulted in lower prices but this is not the case now. They say full-time employment is dropping and is almost sure to drop in coming months. Then they have these interesting observations, that to boost revenues firms in Chicago, Pittsburgh, and Cleveland recently raised their commission to 7 percent from 6 percent.

So any notion this is getting at the inflationary problem and is going to reduce costs in home real estate and building, it seems is pretty farfetched.

I would like to ask you in light of all that whether you think the proposed legislation by the administration, whether this short-range program is adequate to meet the short-range problem?

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Mr. BARBA. Are you talking about Secretary Romney's testimony the other day?

Senator PROXMIRE. That is right.

Mr. BARBA. We generally agree with the statements he made the other day. We disagree with some of the statements concerning FNMA such as the 3 years and the 80 percent.

Senator PROXMIRE. I find a lot of agreements, too.

What I am getting at is that it seems to be an inadequate program to do the job. He indicated that we have no hope that the Treasury will make available the $4 billion for housing that the Congress suggested. Mr. BARBA. As I recall he did not support your bill and we do. We strongly urge support of that bill. We think your bill gets directly to the matter quickly.

Some of these other measures will be fine for 1971, perhaps. But what happens to 1970?

Senator PROXMIRE. That is my question. Is this program adequate for 1970, the Romney program, the administration program?

Mr. BARBA. As I recall they have moved the Federal programs up to a production level of about 400,000 units, which is fine. They have not necessarily addressed themselves to the broad American needs of housing beyond the Federal program, where about 85 percent of the housing action is. The Federal programs are now accounting for, as I recall, somewhere from 15 to 20 percent of the total production.

Now, what about the rest of that, the major portion of whichSenator PROXMIRE. Along that line Secretary Romney projected a situation this year in which we would have, according to his projection, 1.4 million housing starts.

Mr. BARBA. That is not enough, sir. That is a recession level. We are not sure that that testimony is even going to support the rate of 1.4 million units.

Senator PROXMIRE. So, No. 1, you are not sure this would enable us to get 1.4 million units; even if we did get it, it would fall far short of what we need.

Mr. BARBA. It is too little, too late. To reach that level of production we would have to produce housing come September and October at the rate of 1.8 million, 1.9 million, making it totally dependent on the last quarter of the year to build the volume.

Senator PROXMIRE. If the administration would put much of the $4 billion of the standby money the Treasury has available for housing into action, if we should pass my proposal that would trigger another $3 billion, do you think the resources are sufficiently available so that this would not result in an inflationary impact in the housing industry?

Mr. BARBA. Unquestionably, sir. Getting back to your proposal, you are asking for action by the Fed. This is the one system which has crucified our industry. It was a system organized in 1913 and dealt simply with the commercial banks. There was no housing industry in 1913 when the Federal Reserve was created.

Here we are in 1970 without any recognition by the Federal Reserve of an industry which is the second largest in the country. We have a totally different economy than we did in 1913.

Senator PROXMIRE. To paraphrase William Jennings Bryan, you are being crucified on a cross of gold by the money authority.

Mr. BARBA. That is ably put.

Mr. ROGG. Lack of gold.

Senator PROXMIRE. Yes; that is much better.

If Congress doesn't take prompt action, what is your estimate of the housing starts that will be obtained this year? Do you have an estimate on that?

Mr. BARBA. For the last 3 or 4 years we have been falling behind at the rate of approximately 500,000 units a year. This past year, 1969, we fell farther behind. There is a feeling among our membership that at the present rate, unless the thrift institutions are able to obtain some funds; unless the credit restraints are loosened to some extent, at least as they apply to our industry; and unless action is taken by the Congress and by the administration, as we say, within the next 30 days, it would be almost utterly impossible to meet the 1.4 million which the administration has suggested. It is more likely to be a disastrous year again, where we would add up the totals come January 1, 1974, and find that we are about 1,250,000 or 1,300,000.

That is unless prompt action is taken by the administration or the Congress within 30 days. It takes about 4 to 5 months for our industry, our builders to crank up and get that motor running to the point of producing houses.

There are planning boards and zoning boards and all matters of concern before the actual production of housing gets started.

Senator PROXMIRE. Of course we could get those Treasury funds out today, they are available today. By a stroke of the pen the President could make them available.

Mr. BARBA. That would be welcome news.

Mr. RoGG. One of the problems that bothers me is that, absent any change of policy, we do foresee the kind of thing to which he referred. The resource which the industry itself constitutes, is increasingly being diminished in the last couple of months.

Senator PROXMIRE. To a very low level. As you pointed out you were 612 percent of the GNP in 1950 and now you are 312 percent. Mr. ROGG. That is right; and builders are going to have a hard time to respond 6 months from now if the legislation is going to take that long. So we find these are the crucial months.

Senator PROXMIRE. Could I ask you about the way in which Secretary Romney modified the 26 million goal housing starts which we wrote into the bill in 1968? He gave us a chart in which he projected for the next decade, and he had mobile homes as a substantial part of these housing starts. He has more than 4 million over the next decade with conventional nonmobile homes being 21 and a fraction million. So it seemed to be a pretty drastic and dramatic change from what Congress intended.

Mr. BARBA. Well, we do not grind mobile homes into our figures. It would be my suggestion that a number of people have turned to mobile homes for two reasons: first, they happen to be lower priced and, secondly, there is nothing else available on the selection scale.

I would suggest that the latter is the primary reason, because there is nothing else available. As a matter of fact, I personally look upon mobile homes for two reasons: First, they happen to be lower priced becomes available.