The second question, as I understand it, is whether under S. 2246, if the village should decide to offer fair value for the land and improvements, wouldn't the present physical condition of the improvements and the Federal Government's present obligation to remove them play an important part in determining the fair value of the Federal Government's interest in the premises? The answer is, "Yes; it certainly would."

Senator BRICKER. Where is this project?

Mr. FOLEY. In Deming, N. Mex.

Senator MAYBANK. Did you get the letter Senator Anderson wrote? Mr. FOLEY. Yes.

Senator MAYBANK. I would like to have the record show Senator Anderson's interest in these matters.

I would like for the committee, Mr. Chairman, properly to advise Senator Anderson that Mr. Foley states that the present legislation and the amendments pending will cover that situation.

Senator SPARKMAN. We will see that he is given notice of the statement Mr. Foley made here today. I recall that you suggested this to Mr. Foley at the beginning of the hearing this morning, and I knew you wanted it as a matter of record, and I thought now would be the proper time to receive the testimony.

Senator MAYBANK. I appreciate it. I would like for Senator Anderson to be notified of the situation.

Senator SPARKMAN. Mr. Foley, I want to ask just one other question:

I suppose this is as good a time as any to ask it. You said something this morning, in answer to a question by Senator Douglas, that a careful study was going to be made, or had to be made, of the Federal National Mortgage Association, looking toward needed changes, perhaps. Did I understand you correctly?

Mr. FOLEY. Yes. Substantially that. Do you mind if I expand on that?

Senator SPARKMAN. No. I particularly wanted to ask if you mean by that that there may be legislation later affecting FNMA?

Mr. FOLEY. There will be, I think, with particular reference to the matter of authorization. A question raised by Senator Douglas this morning had to do, as I understood it, with the general effect of the operation of the Federal National Mortgage Association in the present mortgage market; and undoubtedly he was concerned, as I believe, with the volume of operation, the volume of call upon the public to finance a secondary market.

The nature of the Federal National Mortgage Association as originally established was that it would be a stand-by, secondary avenue of liquidity, and a general aid in establishment of a private national mortgage market. There has been some concern expressed, in and out of Government, over the present volume of offerings, particularly of offerings under the Veterans' Administration homeloan-guaranty program, and wherein the secondary market privately financed will absorb them at the rate of speed that will give the desirable turn-over in this authorization without further impact in a budgetary manner. Those matters, of course, have always been under observation and are presently under particular study.

I am not at this time in a position to say when possible legislative suggestions would come forward.

Senator MAYBANK. Following up the question of the so-called FNMA mortgage: it is now continuing?

Mr. FOLEY. Yes.

Senator MAYBANK. For how long?

Mr. FOLEY. As long as the authorization granted by Congress in the last session should continue-which, according to present estimates, would last until approximately the end of the fiscal year, if the volume of commitments and offerings, which was evidenced as recently as November, should continue.

Senator MAYBANK. I asked that because when we continued it, it was rather excessive at the time, and we were told at that time the necessity for continuing it, and if we did, and the people were certain that it was the law, that there wouldn't be so many that the Government would have to take up.

Am I right in that?

Mr. FOLEY. I think you are right in the general expression. The point now in mind, no doubt, is as to what is the evidence with respect to that at this time?

Senator MAYBANK. Yes.

Mr. FOLEY. I don't have-and there are not yet available figures for operations during December; figures for November are indicated, but I am sorry that I can't remember the exact figures.

Senator MAYBANK. Will you supply them?

(The material appears in the tables on p. 50.)

Mr. FOLEY. It represents a considerable falling off in the amount of commitment purchases, but an increase in the purchases resulting from previous commitments.

One of the chief questions now to be considered is whether the falling off is a trend resulting from the very factors that you cite as having been quoted in the previous session.

Senator MAYBANK. In general, I was led to believe at the time that if we continued this there would be quite a considerable decline in the Government's necessity for taking up the mortgages, because it was the fear of the bankers and the people at that time that the expiration of the law was at the back door, and they rushed in.

Has there been that decline?

Mr. FOLEY. There has been a decline in commitments as of the month of November. Whether it has continued in December, I do not have the figures on that, and I do not know.

Senator MAYBANK. Wouldn't there be more houses built in November?

Mr. FOLEY. It wouldn't necessarily follow.

It is true whenever we are confronted with a dead-line date, whether in insurance authorization or something else, we do get a piling-up in advance of that.

Senator MAYBANK. There has been no appreciable decline in the Government's necessity for buying these Fanny May mortgages?

Mr. FOLEY. No, sir. One month's experience, I submit, is too little. There is also, and was, I think, advanced by some, in other hearings or formal discussions with members of the committee in the last session, the belief on the part of some private lenders that there would be a greater activity in the privately financed secondary market.

Senator MAYBANK. Yes. My information is that up until November there hadn't been any decline in the Government's necessity for buying those mortgages.

Mr. FOLEY. Yes.

Senator BRICKER. Do you have any figures on the amount of secondary market available through private money? Has that been increasing?

Mr. FOLEY. I do not have figures available at the moment. I think we could have some.

(The material appears in the tables on p. 50.)

Whether they would be sufficiently comprehensive, I don't know. The major problem, it seems, is not presently in FHA mortgages, but in the GI loans.

Senator BRICKER. How much money is yet available in "Fanny May' of the last authorization?

Mr. FOLEY. As of the end of November, my recollection is $960,000,000; something in that neighborhood.

Senator MAYBANK. Let me ask this question:

Do you know exactly the number of mortgages the banks put in; the amount?

Mr. FOLEY. As distinguished from other types of lending institutions?

Senator MAYBANK. Yes.

Mr. FOLEY. I do not have that break-down. I have asked for it through our relationship with the RFC, and they are attempting to give that break-down to us.

Senator MAYBANK. I asked that question to see whether or not the banks are gaining confidence in these mortgages.

Mr. FOLEY. The question is a good one, Senator, because of the differing motives that actuate lenders. Those who lend for maintenance of the mortgages in their portfolio have, of course, a different motive and guiding policy than that type of mortgagee which is not buying for his portfolio, such as the mortgage company, which makes. them to sell.

Among the facts we need to know is the break-down of percentage of the sale of mortgages to the public secondary market by types of lending institutions.

All of that information is information which we are seeking to obtain. Senator BRICKER. What is the servicing charge?

Mr. FOLEY. I think it continues at a half. I think so, Senator. Senator MAYBANK. Is it your understanding that when the Government makes a direct loan to veterans it is predicated upon what the Amercian Legion put in the record; that the veteran has exhausted any opportunity to have a private loan? Loans are not made if a bank would be willing to make them; are they?

Mr. FOLEY. You are referring to the provisions of S. 2246? Senator MAYBANK. Yes; on which the American Legion testified that they want to protect whatever private banks there were.

They wanted to use those loans where there was no possibility for the veteran getting a loan privately.

Mr. FOLEY. That is my understanding of the provisions of the bill. Senator MAYBANK. The American Legion, the VFW, and these other organizations asked for loans only upon the condition that a.

veteran would be where he could not finance it from a bank, and where he was a good risk.

Mr. FOLEY. Yes. I understand that is the legislative history, and intent, as expressed.

Senator MAYBANK. I understand the bill. I wanted to refer back to the hearings.

Mr. FOLEY. That was my recollection of the legislative history, sir. Senator BRICKER. Will you describe for the record just what a "good risk" would be that couldn't get a loan from the present market with the availability of money that there is in the country?

Mr. FOLEY. I will be glad to try to give you my opinion:

You recall the administration of that activity is not within my agency. Consequently, I can't speak authoritatively for their application of standards or their processing.

I will try to give the best information that I can:

The problem that many veterans appear to be confronted with, according to reports, is not that they do not have a sufficient credit worthiness in themselves, to be allowed credit, or to be allowed a loan, on that basis. In other words, it is not that they would be unworthy of any loan; but rather it is composed of two major factors: one is the interest rate, and the other is quite commonly the ratio of the loan. You will recall that the GI Act permits a maximum of 100 percent as against sales price. The sales price, of course, can be controlled by what is called in the act, I believe, "a reasonable value," which is considered as an appraisal but which is an appraisal in a somewhat different definition than long-term economic value than found by the Federal Housing Administration for mortgage purposes.

For a variety of reasons many institutions, especially small ones, are unable in their own belief and their own practice, to take as many 4 percent loans and still maintain the average of earnings that they believe they need; as might be required to meet the demand of veterans in their community.

Also, many such institutions are unwilling to make loans up to the full 100 percent. Those are the two factors, outside of absolute credit unworthiness in the individual, that according to my best information create the picture.

Senator BRICKER. What about the interest rate?

Mr. FOLEY. Offhand, that might be the answer, although I don't know that I can say for sure.

Senator BRICKER. Yes?

Mr. FOLEY. There are other collateral factors; one being the question of appraisal, on the definition and formula, that the present GI bill seems to require, and the other——

Senator BRICKER. You mean the provision being too strict?

Mr. FOLEY. No; that there it might possibly be construed as too liberal in determination of value.

In other words, what it is, is a permitted sales price, in effect. The other and I have no way of knowing to what extent or how generally this might affect the situation-is the question of other standards that apply to the property.

The recent legislation with respect to that operation required, for eligibility in the secondary national mortgage market, application of construction standards, I believe. They were generally required, in

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connection with GI loans, only when they were offered the Fanny May market. But those are construction standards as distinguished from the other standards, credit standards, and so forth.

That, I think, covers the major factors in the situation.

Senator BRICKER. That is all that I have. Thank you, Mr. Chairman.

Senator MAYBANK. I have heard talk about wanting to raise the veterans' interest. Of course, I am

Senator BRICKER. About wanting to do what?

Senator MAYBANK. Raise the interest rate on the veterans' loans. Senator BRICKER. That is, on the present 4-percent GI loan? Senator MAYBANK. Yes.

I am wondering if Mr. Foley has any ideas on that. Those rumors have come to me. I would be opposed to that.

Mr. FOLEY. I am sure you understand and appreciate, Senators, that regardless of my personal position or views, the position that I occupy as Administrator of the Housing and Home Finance Agency lends a certain amount of perhaps unjustified weight to anything that I might say formally and publicly. Any such expressions that may be construed as official predictions, would therefore have considerable effect on the course of lending, either one way or the other, and possibly on other fiscal matters. While I have already indicated in this morning's discussion that the question of what is an adequate interest rate, and a proper one, to maintain the necessary high volume of residential construction, is and always is under study by us, I think at this time I would ask to be excused from further discussion on that topic.

Senator MAYBANK. I wanted to make myself clear: that I have no intention of seeing any veteran's interest raised. I do think the veterans are entitled to some preference.

I would express my personal opinion, as being opposed to anything of that nature. That is all.

Senator SPARKMAN. The trend of interest rates has been downward, has it not, for the last 6 or 8 months?

Mr. FOLEY. You mean in the general market?

Senator SPARKMAN. Yes; in the general market.

Mr. FOLEY. I think there has been some decline; yes.

Senator SPARKMAN. About 6 months ago it was up to practically 2.5 percent, and now it is down to a little less than 2.25 percent. Mr. FOLEY. Yes.

Senator SPARKMAN. I am not sure in talking about good credit risk whether or not you include this as one of the factors; that there are some areas in which the money simply would not be available. Mr. FOLEY. On any terms?

Senator SPARKMAN. Yes.

Mr. FOLEY. Yes; I think you will always find that to be true.

Senator MAYBANK. The American Legion, as I recall, last year practically said in places, as the chairman has said, they wouldn't get any money at any price.

Senator SPARKMAN. Yes.

Mr. FOLEY. Yes; I think there are a limited number of areas.
Senator BRICKER. Where would some of them be?

Mr. FOLEY. I would think normally you would find them in sparsely settled districts; very small communities, not served by local lending