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to regulate the fees and charges that lenders may impose against builders, sellers, or other parties interested in the transaction. As a consequence, lenders, builders, sellers, and other parties in interestexcept the veteran borrower-would be at liberty to bargain freely in connection with the charges to be paid incident to the extension of both construction and permanent financing. In this situation competitive factors or considerations would operate to determine the fees and charges payable. The Veterans' Administration is of the opinion that this is desirable both from the standpoint of the lending and building industries and from an administrative standpoint as well.

Section 201 (5) of the proposed bill authorizes the President to establish maximum ratios of loan to value and maximum maturities for home loans guaranteed or insured under the Servicemen's Readjustment Act. Currently, VA may guarantee or insure 100 percent 30-year home loans. Under section 201 (5) of the bill the VA may continue to guarantee or insure 100 percent 30-year loans until such time as the President exercises the authority in the proposed section 201 (5) and establishes lesser maxima. We consider the proposed section 201 (5) to be in the nature of a standby authority insofar as GI loan program is concerned. Such authority presumably would be exercised by the President only in the event an inflationary situation develops, but it is not clear whether the Congress contemplates that such power shall be exercised merely to coordinate the terms of the FHA and VA loans.

In this connection, it is desired to bring to the committee's attention that the proposed section 201 does not include specific statutory authority which would enable the President, when establishing shorter maturities and reduced loan-to-value ratios for GI and FHA loans, should such action become necessary, to establish a preference for veterans seeking to purchase under GI financing. The committee may wish to consider the desirability of including language in the proposed section 201 (5) which would enable the President to maintain veterans' present preferred position in the acquisition of new or existing housing. Section 202 of the bill adds a new section 515 to the Servicemen's Readjustment Act which will enable the Administrator of Veterans' Affairs to make such rules and regulations as may be necessary to carry out the limitations established by the President pursuant to section 201 of the bill. This amendment to the Servicemen's Readjustment Act is of a technical nature to accompany the provisions of section 201 of the bill.

Title III of the bill concerns the Federal National Mortgage Association. In this connection it is desired to state that the Veterans' Administration favors the concept of a privately financed secondary market facility. Historically the Congress has made specific provision from time to time for the support of the GI loan program by the Federal National Mortgage Association. The preferential treatment thus afforded to veterans loans has ranged from unrestricted support down to a maximum eligibility of 50 percent of total originations.

Currently the FNMA is not given any over-the-counter support for GI loans.

In the reconstitution of the Federal National Mortgage Association provided under title III of the bill there is no indication as to whether

it is the will of the Congress that preferred treatment continue to be afforded to GI loans. As the bill stands it would appear to negate any legislative intent that preferred support be given to GI loans under the reconstituted secondary market facility. It may be mentioned in this connection that GI loans are not enumerated among the special assistance programs authorized by section 301 (b) of the bill. The committee may therefore desire to consider the desirability of broadening the provisions of section 301 (b) to authorize special assistance for GI loans.

Mr. Higley will be glad to supply for the information of this committee, Mr. Chairman, any supplemental data which it may require pertinent to this testimony, or to the GI loan program.

Thank you very much, Mr. Chairman.

The CHAIRMAN. Thank you, Mr. King.
Are there questions?

Mr. PATMAN. Mr. Chairman.

The CHAIRMAN. Mr. Patman.

Mr. PATMAN. You mentioned the 314 percent bonds, that they probably should be excluded from consideration in determining the maximum interest rate. That is due to the fact, I assume, that you consider them out of line with the interest rates on long-term securities generally?

Mr. KING. It is not so much the disparity in the yield factor on those bonds, Congressman, that is adjusted very readily by the market. But they are 30-year bonds.

Mr. PATMAN. I know, but that is a different situation. They will adjust themselves, those particular bonds will. But they will not adjust the veterans' loans based upon those bonds?

Mr. KING. Basically, what we attempted to say here, Congressman, is that you perhaps do not have the more desirable pattern facing the President if you prescribed for him a 21⁄2-percent margin to work under.

Mr. PATMAN. Over and above?

Mr. KING. Yes, sir. And if you also indicate that the Secretary of the Treasury should look at specific types of issue.

We point out that the 30-year 314 issue, and the 15-year issues, as well, should not necessarily be the guiding line. We point out that— Mr. PATMAN. I think your words of caution are well taken there. I agree with you.

Now, Section 201, subparagraph (1), would give the President authority to set maximum interest rates on VA and FHA mortgages. That is the point you brought out.

Mr. KING. Yes, sir.

Mr. PATMAN. Heretofore Congress has always done that, has it not? Mr. KING. There was prescribed by the Congress several years back authority which permitted the Administrator of Veterans' Affairs, with the concurrence of the Secretary of the Treasury

Mr. PATMAN. But it was for a definite amount, was it not?

Mr. KING. Well, it featured a margin.

Mr. PATMAN. That is right.

Mr. KING. It featured a margin, but the margin was more restrictive than the one proposed here.

Mr. PATMAN. This permits a 22 percent increase in addition to the long-term rate?

Mr. KING. Yes, sir; it contemplates that the market may need as high as a 22 percent spread.

Mr. PATMAN. Isn't it a fact that in the past 12 percent was the the normal spread?

Mr. KING. That is a point on which the Veterans' Administration insisted, until everybody got a little bit tired of hearing us insist on it, Congressman.

Mr. PATMAN. I beg your pardon?

Mr. KING. We maintained that point at considerable length, over the years.

Mr. PATMAN. One-and-a-half percent?

Mr. KING. Yes sir. We were adverting primarily to the situation, the market situation, which was in vogue, or which was experienced, prior to the March 1951, accord between the Treasury and the Federal Reserve Board.

Mr. PATMAN. So this is about a 75-percent increase?

Mr. KING. No, sir; the point is that that 12 percent has not been. reflected by experience since March 1951.

Mr. PATMAN. Do you mean it should be more?

Mr. KING. I say the market has demanded more.

Mr. PATMAN. It should be more?

Mr. KING. I say that under conditions which have been facing the lending industry, and due to the supply-and-demand factors which have obtained since March 1951, one would be hard put to insist that that 12 percent pattern always would be adequate and should be maintained.

Mr. PATMAN. The point I was attempting to make, though, was that regardless of the merits or demerits, an increase from 12 to 22 percent is about a 75-percent increase, is it not?

Mr. KING. Yes, sir.

Mr. PATMAN. Roughly?

Mr. KING. Yes, sir.

Mr. PATMAN. Now, in the case of public housing bonds, that is a similar situation, I assume. The Treasury established a rate of 2% percent as the average yield on long-term Governments.

Mr. KING. That is right.

Mr. PATMAN. That rate we are discussing is 22 percent above the long-term yield, isn't it?

Mr. KING. Yes, sir.

Mr. PATMAN. On this basis, the Veterans' Administration mortgages could go to about 512 percent, and FHA mortgages could go to 61⁄2 percent. FHA can charge between one-half and one percent premium for instance. Conventional mortgages under that condition would be about 7 percent, wouldn't they?

Mr. KING. I think they probably wouldn't be making as many conventional mortgages, Congressman.

Mr. PATMAN. If they did they would be at 7 percent, would they not? Mr. KING. Yes; usury laws in many States would hold it down to that.

Mr. PATMAN. This looks like a sort of a heads I win and tails you lose deal, since when the interest rates on Government bonds are rising, this provision can be used to force up interest rates on mortgages. But if the yield on Governments drops, mortgage rates would not

necessarily reflect that drop, because section 201 (1) does not govern the action of the FHA Commissioner. Under the authority we are giving him in title I of this bill, he could keep the rate on FHA mortgages at 6 percent, plus 1 percent for insurance, no matter how far the yield on Governments dropped. With such a rate on FHA mortgages, of course, no VA loans would be made. Do you agree with that?

Mr. KING. Yes, sir.

I would point out, Congressman, however, that as we sit here today I believe these 15-year Governments yield 212.

Mr. PATMAN. At this particular time.

Mr. KING. Yes, sir.

Mr. PATMAN. Just the last few days, you might say, recently.

Mr. KING. Well, it has been close to that for some time. Now, if you took this margin of 211⁄2 you would only be up to 5 percent.

Now, we know full well that as we sit here today that FHA and VA loans at 42 percent interest are not generally selling at or above par, although the trend is favorable.

Mr. PATMAN. Well, there are two things about this that disturb me. One is that the banks are insisting on more and more Governmentguaranteed paper, and are insisting more and more on doing a riskless business, and thereby getting out of the normal functions of real commercial banking. That is one that bothers me very much.

The other is a diversion of income of the normal average family, more and more from the purchase of the comforts and necessities of life, and maybe a luxury now and then, the diversion of that small income to interest and service charges. In other words, the more we take out of that man's income and make him pay in the way of interest and service charges, and for discounts on mortgages, the less and less he will be able to buy, and the more and more money will be taken from the bloodstream of business and commerce.

Those two points worry me considerably about this bill. But I will not ask your comments on that because I do not want to take up too much time.

I would like to ask, Mr. Chairman, without taking up any more time-the gentlemen's testimony is very interesting, it is thought provoking, it is comprehensive, and it is very fine for consideration. There is one point, however, which I believe should be covered here that will require additional information. I should like to ask, Mr. Chairman, that the Secretary of the Treasury be requested to file a statement at this point in the record setting forth the facts in regard to those 314-percent bonds, the date they were issued, the amount issued, and the classes of investors or purchasers, with the amounts purchased opposite each category.

In other words, insurance companies, savings accounts, banks, independent individual investors, and so forth. I particularly want to know how much was allocated to the private commercial banks. I ask consent, Mr. Chairman, that that statement be filed in the record by someone in the Treasury who has the knowledge of the facts.

The CHAIRMAN. Are you addressing an inquiry to the Treasury as to whether that is available?

Mr. PATMAN. I am sure it is available. It was published at the time.

The CHAIRMAN. I think we should find out about it. I just do not offhand see the relevancy of the question as to who bought 314 bonds. Mr. PATMAN. Oh, yes, sir. You see, you had to apply for them. The CHAIRMAN. I do not see where that could be of interest to this study.

Mr. PATMAN. It is of interest for this reason. The commercial banks are making a terrible mistake and will eventually put themselves out of business doing it, because they are getting out of the commercial banking field. I do not want anything to continue here that will encourage the commercial banks, which really manufacture the money to buy these bonds. I do not want to encourage them further in deals of this particular kind.

The CHAIRMAN. Although I see it is an ancilliary problem, Mr. Patman, I think it is so remotely connected with this that I do not think we would be justified in asking the Treasury, with respect to these studies, for that information.

Mr. PATMAN. I ask consent to place in the record a statement which I shall get from the Secretary of the Treasury, because I know he will give it to me.

The CHAIRMAN. Without objection, that may be inserted.

(The information referred to is as follows:)

On April 13, 1953, the Treasury offered for cash subscription 34-percent fully marketable long-term Treasury bonds dated May 1, 1953, maturing June 15, 1983, callable on and after June 15, 1978.

The following excerpts are taken from the Treasury statement regarding the operation as printed in the May 1953 Treasury Bulletin.

"It was stated further that the bond was designed to attract people's savings as they accumulate, especially in such institutions as life-insurance companies, savings banks, pension funds, etc. *** Subscriptions from commercial banks were limited to a percentage of their time deposits


"Cash subscriptions to the 34-percent Treasury bonds of 1978-83 amounted to $5 billion, and total allotments were $1,188 million. Subscriptions in amounts up to and including $5,000 were allotted in full. All other subscriptions were allotted 20 percent, subject to adjustment to the next higher $500, but not less than $5,000 on any one subscription. The allotment total included $117.8 million to Government investment accounts.

"Allotments by investor classes were as follows:

Investor class

Individuals, partnerships, and personal trust accounts.
Savings banks..

Allotments (in millions) $254.6 102. 2 97.4

Dealers, brokers, and investment houses..

Insurance companies-

[blocks in formation]

158. 2





State and local governments....

Federal agencies_


Government investment accounts.
Grand total___.

Mr. KILBURN. Mr. Chairman.

The CHAIRMAN. Mr. Kilburn.

1, 187.6"

Mr. KILBURN. I do not know of the pertinency of this thing, but some of the statements made by Mr. Patman, I don't believe, are correct. Do you want them refuted here, in this testimony, or not?

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