Mr. HUNTER. I will let Dr. Schwartz, my economist, speak to this. Senator PROXMIRE. But there is this direct conflict. You seem to be about $2 billion above.

Mr. SCHWARTZ. Our figures are in the annex of the President's budget, and are not part of the formal budget. We show a $6 billion purchase rate for fiscal 1970, and a $5 billion purchase rate for fiscal 1971. Of course, those figures are made up late last fall or just before the budget went to press and we did not expect quite the surge we had in the last month or so. We expect the economic assumptions on which the President's budget was predicated would come into being and the figures we have in the annex of the Federal budget of $6 billion in purchases.

Senator PROXMIRE. It does seem to be a contradiction. The figures our staff gave me also comes from the annex budget.

Mr. SCHWARTZ. We prepared those figures. We had put in $6 billion for fiscal 1970 and $5 billion for fiscal 1971.

Senator PROXMIRE. Well, we will double check that. At any rate you say the difference is because of a later estimate?

Mr. SCHWARTZ. I am sorry, Senator, one of my colleagues tells me that I have been quoting gross figures. The $6 billion and $5 billion are the gross rates and the figures you are quoting for purchase rates are the net figures. However, we had to raise our estimate because of developments since last fall.

Senator PROXMIRE. Which is correct?

Mr. SCHWARTZ. The figures you read for net purchases are correct. I was giving you the gross purchase figures and not the net purchase figures which are $5.7 billion for fiscal 1970 and $4.75 billion for fiscal 1971.

Senator PROXMIRE. The purchases, then, are around $5 billion? Mr. SCHWARTZ. It appears now with the events that have occurred since we made up the budget that we will be at a higher rate.

Senator PERCY. Mr. Chairman, I am sorry I couldn't be here earlier. However, I am delighted to welcome our witnesses here this morning. A week ago today Mr. Hunter was with me in Chicago or I was with him, I am not sure which at the mortgage bankers annual meeting. At that time I proposed and am now in the process of drafting legislation to extend the 235 concept through FHA, GNMA, and FNMA to subsidize families with incomes below $10,000 to $12,000 when interest rates climb over the 612 percent levels, squeezing many families out of the market.

I wonder if the proposal I made at the time we were together in Chicago, which is designed to put a lesser burden on the budget annually and permit us to work with existing institutions rather than setting up new governmental agencies, in your judgment offers some promise. You encouraged me to go ahead and draft this legislation. Mr. HUNTER. Speaking for myself, I think you described a very reasonable approach. As you say, it can be done without proliferating additional entities, organizations, or agencies. It also will help at a time of very severe distress a group of people that are hurt by this and are not being helped under present programs and yet constitute a very important group in terms of character and size of our society. Senator PERCY. In order to encourage builders to become more interested in 235 and 236 programs, do you think it would be possible

to provide that FHA, GNMA, and FNMA assume all points that may be charged during periods of high tight money? Is this a possibility we should consider?

Mr. HUNTER. It is true that as the discounts mount the developer is more and more discouraged as far as getting into these programs. For that reason there is always a need to find some way to either fund or reduce these discounts.

As far as FNMA is concerned, in this area the difference between market prices and par would have to be absorbed by GNMA such as it is doing under the Tandem plan for section 236 and rent supplement mortgages.

Inasmuch as FNMA has became a private corporation it must pay its way, at least over a long period of time that is to say, the income from its portfolio must exceed its money cost. It is not in a position to subsidize. But we could take part in an enlarged Tandem plan. The vital determination is one to be made by the Department of Housing and Urban Development.

Senator PERCY. There have been two areas of need indicated to get the housing industry moving again. One is to appropriate enough money so that we can do our job in stimulating it. The other is to reorganize and make more efficient government housing operations.

Complaints have been leveled at FHA for the redtape, the long procedures, the delay from the time an application is made until such time as it comes out the other end. We have had similar complaints against SBA. It is for this reason which I mentioned in Chicago, that the Chicago plan developed. SBA delegates responsibility to the banks. If they don't get a reply back in 3 days the loan is approved. They have gone ahead with great success.

Do you feel something similar could be done with FHA? Could a more automatic type of procedure be developed where FHA would accept the judgment of the mortgage bankers, urban development corporations, financial institutions, or other groups which have demonstrated a perspicacity for good sound judgment, and see whether they can't break the barriers of the procedures and protective devices that government employees build in, and get more of the efficiency of the private sector at the same time coupled with good sound judgment?

Mr. HUNTER. Again I would have to say my remarks in this field are personal. I think this is definitely an area that can be explored. Naturally I cannot speak for the FHA.

As you know from my previous appearances before this committee, as a representative of developers, I have, let's say, spoken as a borrower rather than a lender. My career as a lender is less than 2 months old. But in my experience as an attorney and consultant for developers working in this field of federally assisted housing, particularly the FHA programs, there has been a great concern with the ability of government to be able to process rapidly enough to make economically feasible the increased number of applications and projects that are going to be coming in because of this new emphasis and greater concern for our housing needs.

As you know, the Department is doing a great deal at the present time in bringing about a reorganization of the regional offices, the FHA field offices and the like, and the purpose of that, of course, is to improve and accelerate the processing.

But again, this is a subject which is not properly my area for discussion.

Senator PERCY. You mentioned the regional field offices. We certainly do want to emphasize that the best programs don't come from Washington down. They come from the community up. The people will be far more responsive to them if they feel the programs are theirs.

The 235 program has grown out of the experience I and others have had in seeing developments around the country where the community got together. People have gone about rehabilitating buildings, screening families, moving them in and getting the money for them and letting them become homeowners and seeing what happens to that community as it upgrades itself through home ownership. The community supports the National Home Ownership Foundation. This was designed to create community participation, help find and screen groups, get people together and offer them technical assistance and guidance on how they can do much of this.

I am concerned we will not get enough of this into the community until we have a mechanism. Would you feel an organization like the National Home Ownership Foundation would be helpful if we can get the House to fund it? I think the Senate will create many moremaybe several hundred-neighborhood organizations as against a dozen we now have working effectively.

Mr. HUNTER. Senator, I am aware and have been for some time of your, you might call it, crusade for home ownership. I think the fact that the Congress has enacted section 235 and the Department is so deeply into it now, has in large measure come about because of your interest and persistence.

With regard to the particular organization of which you speak, I feel that it can serve a purpose, and again I would personally favor seeing it activated. As far as the Federal National Mortgage Association is concerned, we stand ready to buffer the market for FHA loans to the extent of our ability. We will continue to do so.

Senator PERCY. Well, I appreciate that. Your judgment as a person is just as good to me as speaking officially on behalf of FNMA, because you are here as an expert in a field where we need counsel and guidance. We very much appreciate that.

How high a priority, Mr. Hunter, would you place on housing as against many of our other domestic needs as a means of national building, building dignity into people and upgrading our life. We have a number of problems-hunger, health, and so forth. In your judgment how high on the list of priorities is housing, good adequate housing for all Americans, as a means for giving people a sense of fulfillment in life?

Mr. HUNTER. I would say the overall problem of environment is the No. 1 domestic social problem, and, let's say political issue.

I believe that housing, the problem of housing, stands as the keystone to this overall problem because without decent housing in a suitable environment, the other problems of transportation, air pollution, crime, education, and the like, can never truly be solved. There has to be a decent place for each American family to live before the overall problem can ever be resolved in a satisfactory fashion.

Senator PERCY. In other words, to the hundreds of thousands of people who live in urban ghettoes, it would be awfully nice for them to know that the streams of the country are clear and clean but probably many of them have never seen a stream and never will see a flowing river.

It is nice to have clean air but if you live in a rat-infested tenement and are paying more than it is worth, or if you are living in a condition beneath human dignity, you can't get too excited about pollution and pollution control. Housing is very important to those people.

Considering our budget of $200 billion, do you think we are really putting enough resources behind housing at the Federal level? Are we in the appropriations we make, using the guarantee power effectively. Let's say that is not costing us too much in dollars, are we putting enough priority in appropriations for housing which can be used to back up, guarantee an interest supplement and other things in light of all of our national priorities?

Mr. HUNTER. Let me answer it this way. I think it depends on your definition of "enough." I would say we need more funds if we are to meet our announced housing goals. However, our country has a number of problems, and the administration has serious fiscal problems, which go far beyond the problems of environment. But in order to meet these announced goals, there will have to be aditional funding.

As you are aware, Secretary Romney announced he was requesting a supplemental appropriation of $25 million for the section 235 program and $25 million for the section 236 program. The reason for that is that all the money appropriated heretofore is committed and there are thousands of applications for feasibility outstanding throughout the United States with no funding available.

Senator PERCY. Mr. Chairman, I would like to express my appreciation to Mr. Hunter. I imagine outside of this committee there are very few people who realize he is one of the biggest tycoons of industry in America. I think FNMA has passed Ford Motor Co. in size now. I think it carries $11 billion in assets. It is a tremendous enterprise and the work is performed in a magnificent way.

I was tremendously impressed with the statements in Chicago, and I commend the Board and President for the exceptional job they are doing under exceedingly difficult circumstances. No one could be working under worse conditions than you are in trying to carry out your objectives, and I can assure you as a member of this committee I want to give you all the help I possibly can, seeing what we can do to break through in this crisis.

Dr. Schwartz, I apologize for monopolizing Mr. Hunter so much but our time was limited. I would like at some time to have a good chat with you.

Senator PROXMIRE. Before I call on Senator Cranston I would like to say the reason we were both late for the committee is that we were clashing on independent research and development and I know the Senator of California took the contrary viewpoint very ably.

I am delighted to say on the subject he is about to engage you I am wholly and enthusiastically in support of him.

Senator CRANSTON. I regret I was unable to be here because we did have to be before another committee. I am particularly sorry that I

couldn't be here when my fellow Californian was appearing. I understand and I am glad that you fully recognize the quite remarkable accomplishments of another fellow Californian, your predecessor Ray Lapin during the period he served as President of FNMA.

I may say I take strenuous exception to the way in which he was removed from his post. I take exception with the fact that the vacancy was filled with an interim appointment. I must turn around and say I take no exception to the fact that you were the man chosen to fill this position because your background qualifies you to carry that. I really don't propose to enter into any points.

I also want to say that I am glad you indicated the transition of FNMA to full private status will be completed in the month of May. I am also glad you feel it is necessary and I hope you will do all you can to achieve the full independence that the law requires FNMA to achieve.

Mr. HUNTER. Thank you, Senator.

Senator PROXMIRE. Thank you, Senator, very much.

The committee will recess until tomorrow morning at 10 o'clock when we hear from Secretary Romney.

(Whereupon, at 12:35 p.m., the committee was recessed, to reconvene at 10 a.m., Tuesday, March 3, 1970.)