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Mr. PATMAN. After they get the money somebody has to guarantee these things. At least they have got to have something behind them. Mr. MASON. They start with Government money.

Mr. PATMAN. How much money will be put up?

Mr. MASON. $70 million dollars.

Mr. PATMAN. $70 million dollars?

Mr. MASON. Yes, sir.

Mr. PATMAN. And that is as a starter, and then, of course, the mortgages will be added as assets, and they accumulate, I assume.

Mr. MASON. The plan, as I understand it, is that these mortgages would be sold after they are acquired and not held.

Mr. PATMAN. Not like the RFC used to do; keep them?

Mr. MASON. The idea is to find an area-these are areas in this country, you know, where there are excess funds.

Mr. PATMAN. Yes, sir. All right. Suppose, though, that they accumulate a lot of these mortgages and cannot sell them as rapidly as they would like to, and there is a loss of more than $70 million. Who stands that loss?

Mr. MASON. Well, that is a pretty farfetched conclusion, which could originate all right. It is a Federal corporation.

Mr. PATMAN. A Federal corporation?

Mr. MASON. Yes, sir.

Mr. PATMAN. And, of course, the Government would be behind it, I guess, just as it is behind, really, all the other housing agencies. Mr. MASON. That is right. Certainly to start with it would be. Mr. PATMAN. The full faith and credit of the Nation is behind it, then? That is correct, isn't it?

Mr. MASON. Well, certainly the reputation of the Nation would be behind it to start with.

Mr. PATMAN. And the Congress could not afford not to appropriate the money to take care of any losses. So it is a Government institution. It would be in effect, for all practical purposes, Governmentguaranteed paper?


Mr. MASON. It is as proposed in the legislation; yes, Mr. PATMAN. It is Government-guaranteed paper? Mr. MASON. No. I don't know that the Government guarantees the paper. That is not in there. But it is a Federal corporation, with Federal funds. The President's Advisory Committee did not make that recommendation, however. But that is the legislation. Mr. PATMAN. Beg pardon?

Mr. MASON. The President's Advisory Committee did not recommend Federal funds, but that is the recommendation in this bill, and we are supporting this recommendation.

Mr. PATMAN. If one like this X National Bank at Texarkana gets this Joe Doaks' $9,600 mortgage financed through this secondary mortgage association in Washington, doesn't the bill say something about putting up 3 percent?

Mr. MASON. Yes; it does.

Mr. PATMAN. Where does that 3 percent go?

Mr. MASON. The 3 percent goes into stock of the corporation to retire the Government funds.

Mr. PATMAN. Who will ultimately pay that? Will Joe Doaks pay it, or will the national bank pay it or the Government? What happens to it?

Mr. MASON. Well, the chamber is opposed to that provision. Mr. PATMAN. I know; but notwithstanding that, you see, it is in the bill.

Mr. MASON. It is in the bill; that is right.

Mr. PATMAN. And you are advocating the bill.

Mr. MASON. We are advocating the bill but we are recommending that you look at that section and leave it out, sir.

Mr. PATMAN. Leave out the 3 percent?

Mr. MASON. No, leave it out as a nonrefundable charge.

Mr. PATMAN. In other words, the bank could make him pay the 3 percent and not refund it?

Mr. MASON. We say he should be able to get that money back when the mortgage is sold by the corporation to the bank or insurance company, or whoever is going to hold it.

Mr. PATMAN. And Joe Doakes will be out that money for good under this bill; is that right?

Mr. MASON. Well, it would appear that the bank would be the one who would pay the 3 percent.

Mr. PATMAN. Well, you know they are not going to pay it. You don't know of a banker in this country that would do that, do you? Mr. MASON. That is why we do not favor this proposal, because we believe it will work to his disadvantage also, and also this means won't be used. It is too costly.

Mr. PATMAN. I would just like to clear up that one thing and then I will be through. That is, what happens to this 3 percent?

Under this bill, which, of course, you are not in favor of-this particular part-you think that 3 percent should go back to Joe Doakes when that mortgage is sold. But it is all right for Joe Doakes to put up the 3 percent but it ought to come back to him when the mortgage is sold. But under the bill what happens to it?

Mr. MASON. Could I say there that under the provision Mr. Doakes should not have to pay that 3 percent at all. That 3 percent should be paid by the bank.

Mr. PATMAN. Well, Joe Doakes is the borrower. He is John Q. Public. He is the fall guy.

Mr. MASON. The point is that the bank pays that for the privilege of doing this business.

Mr. PATMAN. The banks pays it?

Mr. MASON. Yes, sir. And it should only have to invest those funds for a period, and then get them back. And then it is all right.

Mr. PATMAN. They certainly would not be out any 3 percent just for that privilege, not for good. But I want to know, and it is still not clear to me; if it is to the other members I will stop.

But I don't know what is going to happen to this 3 percent under this bill. Let us talk about your provision. You do not agree with that. Under this bill what happens to the 3 percent?

Mr. MASON. Under the bill this becomes the capital of the Federal National Mortgage Association.

Mr. PATMAN. Permanent capital?

Mr. MASON. Yes.

Mr. PATMAN. Joe Doakes is out that money?

Mr. MASON. The bank in Texarkana is out that money.

Mr. PATMAN. Well, you know the bank in Texarkana is not going to be out that money. Or any other bank in any other town in the United States. You know that. That is idle talk.

Well, that 3 percent that Joe Doakes is going to be out, is part of the permanent capital, and instead of him paying interest on $9,600 he will be paying interest on $9,600 and also 3 percent that he does not get, won't he?

Mr. MASON. You are presuming something which I cannot agree to.
Mr. PATMAN. Well, you don't have any idea that any bank――
Mr. MASON. I fear it, but I cannot agree to it.

Mr. PATMAN. You do not claim, do you, Mr. Mason, that any bank in the United States, any one bank in the United States, will pay that 3 percent?

Mr. MASON. And have their funds tied up permanently? No, sir; I do not believe they would.

Mr. PATMAN. Or temporarily, either?

Mr. MASON. I think they would temporarily. I am sure they would. Mr. PATMAN. Well, yes; if it is returned when the mortgage is sold. Mr. MASON. In 6 or 8 or 4 months.

Mr. PATMAN. But as it is now, this new FNMA, this New Look, it will be capitalized at $70 million by Uncle Sam, and then all the Joe Doakes of the Nation will put in 3 percent every time a mortgage is put up and that builds up the capital of FNMA.

Mr. MASON. It is the Texarkana banks that will put up the 3 percent. Where they get it I don't know.

Mr. PATMAN. Well, you are just spinning your wheels on that. We are not getting anywhere. I know the Texarkana bank is not going to pay it, and as smart a man as I know you are I know you don't believe it.

Mr. MASON. I don't think the provision should be in there; no, sir. I agree with you in that respect.

Mr. PATMAN. So I don't see too much in that. It looks to me like it is going to be pretty expensive for that poor Joe Doakes, you know. He has to pay interest on that $9,600 and 3 percent of that he won't even get. Three percent of it is contribution to the Great White Father, here in Washington.

Mr. MASON. Now, Mr. Patman

Mr. PATMAN. For permanent capital.

Mr. MASON. If the recommendation of the Chamber of Commerce of the United States is taken, that won't come out of Joe Doakes, and everybody will be happy.

Mr. PATMAN. That is all, Mr. Chairman.

The CHAIRMAN. Are there further questions?

Mr. O'BRIEN. Mr. Chairman.

The CHAIRMAN. Mr. O'Brien.

Mr. O'BRIEN. What is the rate of interest going to be under this program for these long-term mortgages, these 30- to 40-year mortgages on $7,000 homes? What will the rate of interest be?

Mr. MASON. Are you talking about the section 221 program? Mr. O'BRIEN. Give me the whole thing. What would the range of interest rates be under all of the program?

Mr. MASON. They would follow the market on money. That is, the President would change this rate so that we would not get into

the position we were in last year, when we had a time when housebuilding slowed down because builders could not get mortgage funds. Mr. O'BRIEN. Do you contemplate now what the range would be? The range of interest rates, that is?

Mr. MASON. Right now the rate is adequate. What it may be in the future will depend upon the demand for money, as I see it. Mr. O'BRIEN. Will there be any maximum?

Mr. MASON. We have suggested that a range of 22 percent, as provided in the bill, is a safeguard against the President raising that rate unreasonably.

Mr. O'BRIEN. I mean the rate of interest the mortgagor pays. Mr. MASON. That is right, the rate of interest the mortgagor pays, sir, is set by the President, under the new legislation.

At the present time it is set by the Congress.

Mr. O'BRIEN. Well, if we pass that authority to the President, would that give him authority to supersede maximums under State laws?

Mr. MASON. No, it would not, I don't believe.

Mr. O'BRIEN. Well

Mr. MASON. Also the usury laws certainly would apply.

Mr. O'BRIEN. That is certain?

Mr. MASON. Yes.

Mr. O'BRIEN. Well, could you give, in figures, what the range of interest rates approximately would be under this bill, if passed, for the different features or sections? The interest rates paid by the mortgagor, that is?

The CHAIRMAN. At the present time it would be 1% plus 22, wouldn't it?

Mr. MASON. I cannot give you the figure.

Mr. O'BRIEN. Is this the first time in this sort of legislation that the rates have been made discretionary?

Mr. MASON. Yes, sir.

Mr. O'BRIEN. It is the first time?

Mr. MASON. They have been fixed by the Congress, so far as I know, in the past.

Mr. O'BRIEN. Do you envision any particular range of interest rates resulting from this discretionary power, in figures?

Mr. MASON. Well, it would be all the way from 4 percent to 5 or 514 percent.

Mr. O'BRIEN. Could it be 6 or 7 percent?

Mr. MASON. No, that is the kind of stop that is on there. Of course, the President, in our estimation, isn't going to be too liberal, anyway. Mr. O'BRIEN. Then what charge to the mortgagor is there in addition to those interest rates? Is there any service charge for the mortgage?

Mr. MASON. For Federal Housing Administration mortgages there is; yes, sir.

Mr. O'BRIEN. What is that?

Mr. MASON. It is a half of 1 percent.

Mr. O'BRIEN. A half of 1 percent?

Mr. MASON. Yes, sir; that is the insurance premium.

Mr. O'BRIEN. And that is added to whatever interest rate the President fixes for a particular program?

Mr. MASON. That is correct.

The CHAIRMAN. Are there further questions of Mr. Mason? If not, thank you very much, Mr. Mason, for your presentation. Mr. PATMAN. Just a minute, I want to ask one other question, Mr. Chairman.

The CHAIRMAN. Mr. Patman.

Mr. PATMAN. You stated that this would follow the market. You know who makes the market, don't you? Doesn't the Federal Reserve Open Market Committee make the market?

Mr. MASON. Well, it helps to, sir, but I believe they told us that they did not make the market, that they only feel the market and make their loans accordingly.

Mr. PATMAN. Feel it? You mean there is no understanding or anything, you just kind of accept the market as they accept the pattern? Is that what you are saying, Mr. Mason?

Mr. MASON. I say that they claim to us that they do not set the market, but that they plan their borrowings so that it goes along with the market.

Mr. PATMAN. Well, you know last year, in the first half of the year, when they were not buying any bonds, and didn't buy any at all, that made money hard?

Mr. MASON. That is correct.

Mr. PATMAN. And interest rates high. You realize that, don't you? Mr. MASON. That is correct; yes.

Mr. PATMAN. And in the last half they loosened up and made it easy.

Well, in the first half they made it hard and in the last half they made it easy, didn't they?

Mr. MASON. That is right.

Mr. PATMAN. So the Federal Reserve made the market, didn't they? Mr. MASON. Well, they influenced the market, sir.

Mr. PATMAN. The Open Market Committee-well, they made it? Mr. MASON. Well, that is a matter of opinion.

Mr. PATMAN. Yes. The Open Market Committee did that. So when you say the rate will follow the market, you mean it will follow the market that is made. Now, I understand that they are going to reduce the rediscount rate again. They reduced it the other day for the first time in 10 years. The only thing about that, the banks don't borrow from the Federal Reserve, so that is purely psychological, isn't it? In other words, it is the Federal Reserve fixing a pattern, notifying the banks "We are going to have easier money." Is that the way you look at it?

Mr. MASON. Well, I know the effect on the housing market, sir, and I know that we can have, under a flexible interest rate, as this bill envisions, lower interest rates as well as higher ones.

Mr. PATMAN. And don't the banks follow this pattern, fixed by the Federal Reserve Open Market Committee, and if they raise rediscount rates that means harder money, and if they lower them that means easier money, doesn't it?

Mr. MASON. The amount of mortgage funds that are available in the essence sets the rate.

Mr. PATMAN. I am talking about the Federal Reserve fixing the rate and the way I think there is a kind of an unconversional under

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