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The National Association of Home Builders of the United States is a professional trade organization representing the bulk of the housing industry. It has more than 51,000 members in 481 affiliated local and state associations in the United States and Puerto Rico, and 15 international affiliates.

The builder members of NAHB are large and small. They build custom homes and large subdivisions, townhouses and towering apartments, modest office buildings and complex shopping centers, homes for those in all walks of life, and schools and churches.

Associated with the builders in NAHB as members are architects, engineers, developers, financing institutions, public utilities, manufacturers, rehabilitation contractors, retail and wholesale firms, subcontractors—representatives of many professions and businesses.

NAHB presents the industry's views to the Administration, to the Congress, and to the government housing agencies. The NAHB staff of more than 145 offers its members advice and guidance on every phase of the industry, on housing for low-income families to cost data, zoning and codes, and legislation.

NAHB maintains its own large research laboratory with expert staff to develop better technologies in construction and to test and evaluate materials and systems.

Headquarters of the NAHB is in the National Housing Center in Washington, D. C. Forty-seven of the nation's leading manufacturers of building materials, equipment, and appliances hold sustaining membership in NAHB and are represented on NAHB's influential National Housing Center Council.

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1625 L STREET, N.W. WASHINGTON, D.C: 20036

Senator PROXMIRE. Our next witness is Mr. Nathaniel Keith, President, National Housing Conference.

Mr. Keith



Mr. KEITH. Good morning, Mr. Chairman. Senator PROXMIRE. Mr. Keith, happy to have you here, an old friend of the committee. Mr. KEITH. Thank you very much, sir.

I welcome this opportunity to present the views of the National Housing Conference on the various bills pending before this subcommittee relating to the critical situation in residential mortgage financing.

As the members of this subcommittee well know, the inflation in mortgage interest rates combined with the increasing shortage of funds for residential financing has created a crisis in the housing economy. Coming within a little more than a year after the passage of the Housing and Urban Development Act of 1968 with its farreaching goals to make satisfactory housing a reality for all Americans, it is ironic and tragic to see the housing economy once again become the football of fiscal and credit policies. The result has been an increasingly precipitous decline in the rate of total housing production rather than the expansion of almost 100 percent which would have been necessary to reach the objective of the 1968 housing act for an average annual output of 2.6 million dwellings, including at. least 600,000 dwellings for families of low and moderate income.

It is clear that the national policies of severe credit restraint have borne much more heavily on the housing industry than on any other major segment of the American economy. This means that millions of American families in need of housing are being denied the opportunity to fulfill those needs and, under current policy, have little prospect for a better situation in the future. This crisis has been gaining increasing recognition in the press, among organizations deeply concerned with the impact of housing shortages on urban and rural problems, and by leaders in the Congress. It has also been publicly recognized by Secretary George Romney in his recent testimony. Yet most of the substantive proposals for relief of this fiscal crisis and for providing the priority position in the allocation of financial resources necessary to achieve the established housing goals for the Nation are being rejected out of hand as inflationary by the fiscal authorities of the Federal Government, particularly 'the Federal Reserve Board, the Treasury Department, the Bureau of the Budget and the Council of Economic Advisors.

These hearings by the Subcommittee on Housing and Urban Affairs on pending legislative proposals to correct these problems are most timely. In the National Housing Conference, we have studied the bills under consideration by this subcommittee and are pleased to have the opportunity to present our comments and recommendations as well as our general proposals for assuring adequate financing for the greatly expanded housing production called for by the needs of the Nation.

With respect to S. 2958, which would authorize the Federal and National Mortgage Association to establish a secondary market for conventional mortgages, subject to certain standards, we question the desirability of such a step under prospective financing conditions. These relate to the requirements for massive expansion in FNMA commitments and purchase of FHA-insured and VA-guaranteed new housing loans. However, we support the general provisions of S. 3508 which would authorize the Federal Home Loan Bank Board to establish a secondary market for residential mortgages made by savings and loan associations, subject to the existing policies and limitations as to such mortgages. We feel that the expanded use of the secondary credit facility of the Federal Home Loan Bank System is a sound procedure to stimulate the flow of funds for cnventional residential loans. We also are in general agreement with the adninistration's proposal for a $30 million interest subsidy to the Federal Home Loan Bank Board to permit a more reasonable interest rate on advances to member savings and loan associates.

We have studied the provisions of S. 3442, the proposed Mortgage Credit Act of 1970, which would implement some of the recommendations made by the Commission on Mortgage Interest Rates last fall. As I stated in my comments to this committee on the Commission's report, the National Housing Conference has serious reservations as to the wisdom of authorizing a so-called true market interest rate for FHA-insured and VA-guaranteed home mortgages. Under current money market conditions, we feel that this proposal if enacted would encourage further inflation in residential interest rates rather than a reduction in rates which is the only long-range solution to the current fiscal crisis in the housing market. We feel that our apprehensions in this regard are supported by the current experience under the 812 percent interest ceiling established by the Secretary of Housing and Urban Development in early January. While the intent of the increase of 1 percent in maximum interest rates was to eliminate discounts, the result has been the reemergence of discounts of 4 to 5 points even at the 81/2 percent rate. The result has been an increase in average gross mortgage yields, as shown by the weekly auctions by the Federal National Mortgage Association, to more than 9 percent. In our opinion, the only basic approach to the elimination of discounts and a reduction in residential interest rates is through measures which will tap new sources of funds for residential financing.

On the other hand, we are in favor of section 2 of S. 3422 which would direct the Secretary of Housing and Urban Development and the Administrator of Veterans' Affairs to prescribe standards governing the amounts of housing settlement costs and to make recommendations with respect to legislative and administrative actions which should be taken to reduce mortgage settlement costs and to standardize these costs for all geographic areas. We also support the proposal in section 3 of S. 3422 for the establishment of a special advisory commission on housing to advise the President, the administration, and the Congress on the measures necessary to achieve housing goals. In our view, such a commission would improve the flow of public information and proposals on these critical matters. Likewise we support the proposals in S. 3422 with respect to savings and loan associations and mortgage lending by national banks.


We strongly support in principle the objectives of S. 3503, the proposed Middle Income Mortgage Credit Act, which would direct the Federal Reserve Board to purchase up to $3 billion a year in special housing certificates issued by the Federal Home Loan Bank System at a maximum interest rate of 6 percent. These funds in turn would be advanced to savings and loan associations and other regulated mortgage lenders for mortgage loans to finance middle-income dwellings at a maximum rate of interest, including all points, not to exceed 614 percent per year. The National Housing Conference has consistently advocated measures to require the Federal Reserve Board to use its credit authority to help relieve the stringency in residential mortgage credit. We, therefore, welcome this proposal in S. 3503. From the standpoint of the effectiveness of the proposal on a national basis, we recommend that this committee consider liberalization of the limitations of S. 3503 with respect to the proposed ceiling of $25,000 on the cost of housing units eligible for this financing and $10,000 on the incomes of eligible home buyers. The median price of new homes offered for sale has reached $27,000 and is still higher in the highest cost areas where the housing needs of middle-income families are equally critical. We assume that a planned objective of S. 3503 is to provide a means of financing housing at reasonable interest rates for middle-income families whose incomes exceed ceilings established under the section 235 and section 236 interest assistance programs. We, therefore, recommend that the limitations in S. 3503 be consistent with this objective.

Over and above the proposals in the various bills pending for consideration by this committee, the National Housing Conference urges the committee to consider additional measures to tap new sources of funds for housing development, especially for low- and moderate-income families. We are gratified to learn that the administration has finally determined to proceed with a major program for mortgage-backed bonds guaranteed by the General National Mortgage Association, as authorized in the Housing and Urban Development Act of 1968. While we regret the long delay in making this provision operative, we are hopeful that this program will be of long-range benefit in tapping additional sources of financing for housing and especially increased housing investments by private pension funds which generally are not interested in direct investments in individual mortgages.

There are further important steps which, in our opinion, would greatly expand the flow of funds into housing development and which we recommend for consideration by this committee. First, we recommend enactment of legislation requiring governmental trust funds to invest a portion of their loanable funds to finance housing, particularly for low- and moderate-income families. These investments would include mortgages insured or guaranteed by FHA or VA or bonds guaranteed by FNMA under the 1968 Housing Act and further secured by pools of insured mortgages. Second, we recommend consideration of measures, including legislation if necessary, to secure increased investments in housing funds by private pension funds, insurance companies, and funds of other financial institutions which' benefit from Federal support or assistance.

I appreciate this opportunity to present the views of the National Housing Conference on these important matters.

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