In our statement last fall on the Report of the Commission on Mortgage Interest Rates, we expressed our opposition to the proposed dual system which S. 3442 would implement.

In that statement, we pointed that the Commission's report hardly mentioned the plight of rural housing although the statistics show that more than 50 per cent of the substandard housing is to be found in rural areas. This omission serves to emphasize that the rural housing problem still remains largely invisible. Few of our nation's leaders seem to understand the dimensions of the rural housing shortage. If all of the substandard housing in the cities and urban areas could be replaced fully, half of the job would remain to be done. Nor did the Commission's report recognize that such programs as 235 and 236 are having little impact in rural areas and that they are not likely to until the Department of Housing and Urban Development takes steps to see that 235 and 236 do not remain almost exclusively urban programs. The amount of funds earmarked for 235 in rural America cannot even be classified as "tokenism." For 236, the situation is even more discouraging.

The dual interest system for FHA-VA mortgages which the Commission recommended and which S. 3442 seeks to put into effect, is in our opinion, a single system that will result in the highest interest rate the traffic will bear. It would remove the ceiling on interest rates entirely. The claim that the increase in interest rates, which is what S. 3442 would permit, would supply additional large sums of mortgage funds has been dramatically discredited during the past year. After each of the two increases in the FHA ceiling, the number of housing starts decreased significantly. And the discount points remained high.

Although the FHA-VA loans account for only a small share of mortgages, ther have traditionally exerted "yardstick" influence on interest rates. Conventional loan rates have tended to remain at competitive level. Therefore, we believe that the abolishment of this "yardstick" would increase the rates on all mortgages which even now are considered usurious under the laws of many states,

As a result of the "laissez faire" approach, millions of people, particularly middle-income families, have been virtually priced out of the housing market. And the number of Federally subsidized units for low-income families has been substantially reduced. It is indeed ironic that the Government could actually make an outright gift of a home to a family and save the taxpayers several thousand dollars. For instance, the testimony brought out last summer at the hearings on HUD appropriations before the Senate Subcommittee, the subsidy of the interst rate by HUD on a $15,0000 home over the 30-year life of the mortgage under the Section 235 program amounted to approximately $23,000. At that time, the FHA ceiling was 72 percent. With the subsequent increase to 82 percent, the cost to the Government is higher.

The chief beneficiaries are the money lenders, who are apparently never satisfied that the return is high enough. And, if unfortunately, the dual system becomes law, the last vestige of restraint on lenders will be removed.

The way to get more housing is not to increase the interest rate, but instead to decrease it by making alternative sources of financing available. To do this, the Government should be in a position to make direct loans to borrowers who can not obtain credit from private sources at the statutory rate. As a result, we believe, interest rates would decrease and discount points would be eliminated. Legislation to implement a direct loan program has been introduced by Rep. Leonor K. Sullivan of Missouri. This is an eminently logical proposal and one that already has been proved extremely successful by the Farmers Home Administration which has been making direct housing loans from a revolving fund since 1965. In our opinion, the amount of capitalization of such a revolving fund would not need to be more than $1 billion. Perhaps half that amount would be sufficient depending upon the rate of revolvement that could be achieved. Ten times a year would seem a conservative expectation. Thus, with a billion in capital, $10 billion in mortgages could be financed. An even higher rate of turnover is possible, particularly if GNMA, FNMA, the Federal Reserve were all directed to cooperate fully. Moreover, the purchase of mortgages from the revolving fund could be encouraged by pension funds which represent a potential of billions of dollars for housing.

A provision of S. 3442 which we would support is that in Section 2 authorizing the Secretary of HUD and the Administrator of Veterans Affairs to prescribe standards governing the amounts of settlement costs allowable and to submit recommendations to Congress on legislative and administrative actions which

should be taken to reduce mortgage settlement costs and to standardize these for all geographical areas.

The creation of a special advisory commission on housing provided for in Section 3 is something which we would support in principle and feel that it could make a worthwhile contribution if it were to carry out the responsibilities enumerated in Section 3. However, we would hope that a reasonable number of the commission members would be representatives of rural areas so that the problems of rural housing are not overlooked as has been the rule rather than the exception when national housing goals and recommendations have been considered. We feel such a request is reasonable since, as we have previously pointed out, more than 50 percent of the nation's bad housing is rural.

We very much appreciate the opportunity to express our views on this important subject.

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In our statement last fall on the Report of the Commission on Mortgage Interest Rates, we expressed our opposition to the proposed dual system which S. 3442 would implement.

In that statement, we pointed that the Commission's report hardly mentioned the plight of rural housing although the statistics show that more than 50 per cent of the substandard housing is to be found in rural areas. This omission serves to emphasize that the rural housing problem still remains largely invisible. Few of our nation's leaders seem to understand the dimensions of the rural housing shortage. If all of the substandard housing in the cities and urban areas could be replaced fully, half of the job would remain to be done. Nor did the Commission's report recognize that such programs as 235 and 236 are having little impact in rural areas and that they are not likely to until the Department of Housing and Urban Development takes steps to see that 235 and 236 do not remain almost exclusively urban programs. The amount of funds earmarked for 235 in rural America cannot even be classified as "tokenism." For 236, the situation is even more discouraging.

The dual interest system for FHA-VA mortgages which the Commission recommended and which S. 3442 seeks to put into effect, is in our opinion, a single system that will result in the highest interest rate the traffic will bear. It would remove the ceiling on interest rates entirely. The claim that the increase in interest rates, which is what S. 3442 would permit, would supply additional large sums of mortgage funds has been dramatically discredited during the past year. After each of the two increases in the FHA ceiling, the number of housing starts decreased significantly. And the discount points remained high.

Although the FHA-VA loans account for only a small share of mortgages, they have traditionally exerted "yardstick" influence on interest rates. Conventional loan rates have tended to remain at competitive level. Therefore, we believe that the abolishment of this “yardstick" would increase the rates on all mortgages which even now are considered usurious under the laws of many states,

As a result of the "laissez faire" approach, millions of people, particularly middle-income families, have been virtually priced out of the housing market. And the number of Federally subsidized units for low-income families has been substantially reduced. It is indeed ironic that the Government could actually make an outright gift of a home to a family and save the taxpayers several thousand dollars. For instance, the testimony brought out last summer at the hearings on HUD appropriations before the Senate Subcommittee, the subsidy of the interst rate by HUD on a $15,0000 home over the 30-year life of the mortgage under the Section 235 program amounted to approximately $23,000. At that time, the FHA ceiling was 72 percent. With the subsequent increase to 82 percent, the cost to the Government is higher.

The chief beneficiaries are the money lenders, who are apparently never satisfied that the return is high enough. And, if unfortunately, the dual system becomes law, the last vestige of restraint on lenders will be removed.

The way to get more housing is not to increase the interest rate, but instead to decrease it by making alternative sources of financing available. To do this, the Government should be in a position to make direct loans to borrowers who can not obtain credit from private sources at the statutory rate. As a result, we believe, interest rates would decrease and discount points would be eliminated. Legislation to implement a direct loan program has been introduced by Rep. Leonor K. Sullivan of Missouri. This is an eminently logical proposal and one that already has been proved extremely successful by the Farmers Home Administration which has been making direct housing loans from a revolving fund since 1965. In our opinion, the amount of capitalization of such a revolving fund would not need to be more than $1 billion. Perhaps half that amount would be sufficient depending upon the rate of revolvement that could be achieved. Ten times a year would seem a conservative expectation. Thus, with a billion in capital, $10 billion in mortgages could be financed. An even higher rate of turnover is possible, particularly if GNMA, FNMA, the Federal Reserve were all directed to cooperate fully. Moreover, the purchase of mortgages from the revolving fund could be encouraged by pension funds which represent a potential of billions of dollars for housing.

A provision of S. 3442 which we would support is that in Section 2 authorizing the Secretary of HUD and the Administrator of Veterans Affairs to prescribe standards governing the amounts of settlement costs allowable and to submit recommendations to Congress on legislative and administrative actions which