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 612 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.

Senator PROXMIRE. Thank you very much, Mr. Keith. This is a fine statement and you certainly covered the grounds well and concisely.

I especially appreciate, of course, your support for the bill I introduced. And you do have some constructive suggestions on providing more flexibility in the bill.

I think these are suggestions we want to take into consideration. In general you appear to approve, which I do, too, the constructive proposals of the administration.

Some of them you say will be helpful, and you think they are useful. Overall, do you think they are enough, are they adequate?

Mr. KEITH. No; I don't think they are extensive enough to meet the real crush we are in at the moment.

Senator PROXMIRE. Do you think they fall short?

Mr. KEITH. Yes.

Senator PROXMIRE. How far short? One measure might be that they project 1.4 million housing starts for the coming year.

Mr. KEITH. Yes; that is what I was going to call attention to, Senator, which Mr. Barba said may turn out to be an optimistic projection under current conditions. But even if it is achieved, I certainly hope it will be, that is still a long distance away from the overall level of housing production activity that is called for by the housing goals. Senator PROXMIRE. On page 2, you say in your first sentence in the third paragraph, with respect to S. 2958, which would authorize the Federal National Mortgage Association to establish a secondary market for conventional mortgages, you say subject to certain studies we question the desirability of this step under prospective financing conditions.

Would you expand on that, the reason why you question that? Mr. KEITH. What we have in mind there, Senator, is the very large volume of commitments that FNMA will be required to take to support the existing sphere of operations; namely, FHA-insured and VAguaranteed loans.

We do know that normally the intervention of FNMA, to the tune of about $8 million in commitments last year, has supported that market. I think what we would be somewhat apprehensive about from the standpoint of broadening FNMA to include conventional mortgages would be the demands for purchases of conventional mortgages might well become so large as to limit the financial capability and the staff capability for FNMA to carry out their present charge.

Senator PROXMIRE. It has been suggested that Congress pass emergency legislation within the next 30 days to cover the immediate problems for housing while postponing until later in the year for establishing secondary markets for conventional mortgages and so forth. Do you agree we should act quickly on the emergency legislation to try to provide a basis for prompt action?

Mr. KEITH. I would agree on that. I think it would be at the same desirable to move as promptly as possible on the longer term legislation. I realize that the administration has not yet set up their own legislative program.

I would assume that would be forthcoming very shortly. I don't know whether Secretary Romney spoke to that point before the subcommittee or not. I didn't notice it in the statement.

Senator PROXMIRE. Well, he said, I am informed, that he had completed his work but that orders in the Government were reviewing it and he repeatedly complained about the fact that he had to deal with a committee, while in every other similar Government operations the Government puts one man in charge. It seems to me we have to act now to meet the emergency.

Mr. KEITH. I would agree.

Senator PROXMIRE. Senator Bennett.

Senator BENNETT. I am not going to engage in the discussion of S. 3503, but I have one question to ask for my information outside of your testimony.

Do you think it would help the availability of funds for housing if Congress should provide for, say, a 5-year review of mortgage rates, so instead of the rate being set for the life of the mortgage, that the mortgage holder would have an opportunity every 5 years to determine whether or not he wished to change the rate? Isn't part of your problem today the fact that a mortgage is an instrument of such a long life that many people who might otherwise be willing to invest for a shorter period of time, particularly in view of inflation, don't wish to commit their funds for 25 or 30 years?

Mr. KEITH. I certainly appreciate that has been an important factor, particularly as I understand it, in the life insurance company field in curtailing their mortgage investments, because of the long term.

I am familiar with some proposals, Senator, along those lines. As far as our organization is concerned, we haven't arrived at any definite impression of this. It would present a problem to the homeowner, if he lacked the assurance of a fixed interest rate over the life of the mortgage, of course.

On the other hand, the figures indicate that the typical homeowner changes homes every 6, 7, or 8 years, so even though his mortgage may be

Senator BENNETT. If the mortgage rates are going down the homeowner usually can refinance at his will at a lower rate.

Now, our problem is to get more money into the mortgage market. Do you think this might be an effective device?

Mr. KEITH. I certainly think it is worth exploration, Senator.
Senator BENNETT. I believe it is used in Canada.

Mr. KEITH. Yes. I believe it is used in some Scandanavian countries. Of course, it has been used in South America, but there the inflation is so much more severely, this is the only way they could get any money at all, to provide for an annual review.

Senator BENNETT. While we are looking at all kinds of devices and ideas to increase the volume of money available to the mortgage market, I wonder if we shouldn't be looking at this, too.

Mr. KEITH. I would think so.

Senator BENNETT. No further questions.

Senator PROXMIRE. Thank you very much, Mr. Keith.
Our next witness is Mr. Nat Rogers.

STATEMENT OF NAT S. ROGERS, PRESIDENT, THE AMERICAN BANKERS ASSOCIATION AND PRESIDENT OF THE FIRST CITY NATIONAL BANK OF HOUSTON, TEX.

Mr. ROGERS. Thank you very much, Mr. Chairman, and Senator. Bennett.

In the interest of conserving your time, I would like to take the liberty of summarizing the comments which would be submitted to the committee in full and I trust could be made a part of the record (see p. 277).

Senator PROXMIRE. Without objection, yes.

Mr. ROGERS. I would like to testify on the four bills already commented on by other witnesses this morning, all of which intend to increase the flow of funds into mortgages.

We all know there are vexing and difficult problems in the area of home financing. The extent of the search for effective solutions is clearly indicated by these bills and the many others now before the Congress.

We all know the root cause of our problems is inflation-an inflation in which housing prices have increased faster than most other prices. For example, the price of an average section 203 single-family home has risen 29 percent over the past 5 years. In comparison the cost of living as measured by the Consumer Price Index increased 19 percent over the same period.

The fight against this inflation has been waged almost entirely by monetary restraint rather than by fiscal responsibility. This greatly unbalanced reliance on monetary stringency has induced the highest levels of interest rates in over a century. It is an environment in which demands for mortgage credit cannot compete successfully, in which the word "disintermediation" has become all too familiar. In arriving at solutions, therefore, our first and foremost task is to check inflation convincingly.

Yet even with this, there will always be competing demands for resources and credit. In the face of these demands a high order of priority for housing must be recognized. Positive measures are called for and the American Bankers Association intends to help meet the challenge.

Accordingly, we have organized a task force comprised of bankers with great expertise in the realty investment and mortgage field. These men have met at an organization meeting and have already developed some constructive and innovative ideas for increasing the supply of mortgage funds.

The task force will meet with and seek the ideas of other lending institutions: savings and loan associations, mortgage companies, mutual savings banks, and life insurance companies. They will also cooperate with the National Association of Homebuilders, the National Association of Real Estate Boards, and other groups to solve the many interrelated problems of making more credit turn brick and steel and lumber, and all the other countless products required, into dwellings at prices and rates today's families can afford.

In its initial organization meeting a week ago today, the American Bankers Association housing task force set as a 1970 goal for commercial banks a net increase of $4.3 billion in residential mortgage holdings, $1 billion or 30 percent, more than the $3.3 billion net increase in such lending in 1969.

Taking into account repayments, this means about $14 billion in newly acquired home mortgages.

Turning now to the specific legislation before this subcommittee, the American Bankers Association endorses much of what is proposed, but we have reservations about some provisions.

Concerning S. 2958, as indicated in testimony on a number of occasions, the association has long been in favor of a secondary market for conventional mortgages and we heartily endorse Senator Sparkman's bill.

Nearly three-fourths of commercial bank residential mortgages, and over seven-eighths of those held by savings and loan associations, are in conventional loans. These tie up institutional funds for lack of an effective secondary market.

S. 2958 establishes the proposed facility in the Federal National Mortgage Association, where it belongs. We believe that FNMA, with its experience in operating a secondary market for VA and FHA mortgages, would be the most logical institution to operate a similar market for conventional mortgages.

Another bill before your subcommittee, S. 3508, would also establish a secondary market for conventional mortgages but would do so through a new corporation established within the Federal Home Loan Bank Board rather than the FNMA.

It would only cover savings and loan associations. We see no reason for a limited proposal such as this. It would be far preferable to establish a market covering all mortgage lenders, and we therefore favor S. 2958 over S. 3508.

With respect to S. 3442, covering some of the recommendations of the Commission on Mortgage Interest Rates, the American Bankers Association generally favors this legislation, although we do have some reservations about one of its provisions.

This is to grant trust powers to Federal savings and loan associations for Smathers-Keogh (H.R. 10) self-employed pension funds purposes. We do not think it desirable to grant such trust powers to savings and loan associations even for the limited purpose of permitting them to serve as trustees for retirement plans for the selfemployed.

Basically, the reason is that these associations are not subject to the same type of regulation and supervision as are trust companies and the trust departments of banks. However, we have what we believe is an effective alternative.

We suggest that a new subsection be added to section 405 of the Internal Revenue Code similar to that covering U.S. retirement bonds. Nontransferable certificates of deposit could be issued by savings and loan associations and by banks for an indefinite period of time, not redeemable until age 591/2 or death.

Interest would be due and payable only upon redemption. The conditions and restrictions necessary to qualify the savings certificate for