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as nonvoting stock. We have gone along on the idea of a capital contribution instead of stock, both because it is so set up in the bill, and because we think it makes a little clearer to identify and understand the plan we propose for the Treasury to receive all of the earnings up until such time as the capital contribution certificates mature into stock.

However, we would have no objection to using stock instead of convertible certificates having the same terms and conditions. My understanding is that such proposal is being recommended to this committee by the National Association of Real Estate Boards.

(d) The Association should eventually operate on private financing, retiring the federally provided initial capital within a reasonable time. However, because of its fundamental importance it should not be turned over to private operation and control-suggested amendment No. 6, schedule B.

(e) Until such time as the initially provided capital is repaid the Treasury should be entitled to all earnings of the Association. Thereafter, the Association should retain its earnings suggested amendment No. 2, schedule B.

Mr. Chairman, with your permission, I would like to explain these charts. I could give you our idea of how FNMA can be transferred from a Government-operated, Government-financed organization, to a Government-operated or supervised but privately financed organization completely in a 10-year period.

This is FNMA as it operates now, FNMA providing all of the money and supervising the buying and selling of mortgages.

I want to say that as we understand FNMA, or the provisions of the Central Mortgage Bank or new Federal National Mortgage Association, it is divided into three parts:

No. 1 is the liquidation of FNMA's existing portfolio. We agree with that, because we understand it is supposed to be liquidated on a basis that will not upset the mortgage market, either by the sale of its loans direct or by the issuance of debentures against the loans. As I will mention later, it should have a stop-gap 1-for-1 plan incorporated into its liquidation provisions.

No. 2. The second division is special assistance for special programs. With that we also agree, adding perhaps the request that consideration be given to special buying of minority loans, provided that 221 is changed so that it can handle minority loans.

But the third function is the secondary mortgage function, and that is the part which we want to deal with here at this time.

You have on your desk the tables of prospective FNMA operations as shown in these charts. They show the figures that we projected and the amount of business we proposed that this organization would do. We think we have been conservative in making our projections. We are proposing that the United States Treasury furnish the $70 million original capital stock, that the users put up 2 percent in the stock accumulation fund every time they sell mortgages to FNMA; that FNMA issue debentures against those mortgages direct, and sell those debentures to private buyers; that FNMA pay 22 percent to the Treasury for dividends on this stock, while the private users are accumulating the money to buy the stock from the Government, and we also propose that FNMA pay the buyers of the stock during the

period of accumulation the same 22 percent that it pays the Government.

We have projected that this company would do $300 million worth of business the 1st year, $400 million the 2d, $450 million the 3d, $450 million the 4th, $450 million the 5th, $450 million the 6th, $450 million the 7th, $450 million the 8th, $400 million the 9th, and $350 million on the 10th year.

We propose that it have an outstanding debenture in approximately the same amount as its outstanding portfolio. It starts out at $200 million. It is shown there outstanding at the end of the year, down on the chart. I won't read those figures unless you can't find yours.

At the end of 5 years of operation, projecting those figures for doing that amount of business, the users of the facility would have paid into the stock accumulation fund $41 million.

The bank would have outstanding debentures at that time of $650 million, would have earned surplus of $18 million, after it paid the $32 million income tax to the United States Treasury. At the end of 10 years the users would have accumulated $83 million from the 2 percent subscription, $70 million of it paid to the Treasury, and $13 million kept as additional surplus.

In the meantime, the bank would have paid $88 million income tax, and would have $56 million earned surplus, and we propose at the time of transition that the capital and the surplus both be paid back to the Government, so that the sale will be clear and clean cut.

In the meantime, during the 10-year period, the 22 percent on the $70 million would have amounted to approximately $17.5 million. After that we have a bank that is supervised by the Government with private capital, the stock being owned by private individuals, and the debentures being sold to private individuals.

The association should be authorized to continue to make advance contracts under the 1-for-1 plan by extending such plan to the mortgages held for liquidation in FNMA's existing portfolio. Under the bill as written, the 1-for-1 plan can be used only with respect to the prospective portfolio to be accumulated under the new secondary mortgage-market function. But there will be no new portfolio accumulated in FNMA's hands for at least a year to form a base for a new 1-for-1 operation. During that time construction would cease in those many areas which presently depend on 1-for-1 as their sole source for the advance commitments which are essential to home building. Our suggestion would bridge the gap until the effect of the new legislation could be felt.

Incidentally, I would like to compliment this committee on its wisdom in enacting the 1-for-1 suggestion into law last year. The operation of that plan has kept home building from collapse in many areas, while at the same time upgrading FNMA's portfolio and substantially assisting to improve the price of mortgage money. Its lapse at this time would seriously disrupt the mortgage market and housing starts in many areas.

(g) The limitation of debenture-issuing authority to 10 times capital and surplus would provide sufficient funds for reasonably foreseeable needs during the first years of operation. However, at such time as the Treasury is repaid and the entire surplus turned over to it this limit may temporarily be too restrictive. Our estimates indi

cate about $83 million private capital at that time as against $1 billion in debentures. Until such time as the association accumulates additional capital and surplus it will have to curtail operations. We suggest eliminating the 10 times limit or, at least, amending it to 12 times, pending actual experience.

(A) The $12,500 limit on eligible loans will continue to discourage construction of 3- and 4-bedroom houses in many areas, although the market requires such larger homes. It should be eliminated..

To make these changes, the wording of the bill before you should be amended as is set forth in schedule B at the end of this statement.

Mortgage finance is the lifeblood of building. Title III is by far the most important part of this bill. It is vital to our $12 billion industry and to the welfare of the entire economy that the revised FHMA work well, fairly, and soundly. With it and the other suggestions I have made, we believe we can do much to solve the Nation's housing problem and, at the same time, expand the industry to a gross volume of approximately $18 billion.

The CHAIRMAN. Without objection, the schedule accompanying the statement will be inserted.

(The information referred to is as follows :)


1. Section 104, page 3, commencing at line 22, strike the colon and the proviso that follows and insert a period.

2. Section 105, page 4, line 10, strike the colon and the proviso that follows and insert a period.

3. Section 115, page 11, line 18, strike the colon and the proviso that follows and insert a period.

4. Section 120, page 14, line 7, strike the colon and the proviso that follows down to and including the word "amount" in line 15.

5. Section 123, page 19, line 18, strike the colon and the proviso that follows down to and including the word "amount" in line 25.

6. Section 123, page 21, line 19, strike everything after the word "exceed" down to and including the word "exceed" in line 25.

Suggested amendment No. 2:

Amend section 104 by (1) inserting at page 3, line 18, following the figures "$8,000," the following: "And provided further, That closing costs and prepaid mortgage expenses paid in cash at the time of closing shall be included in ‘appraised value' for the purpose of determining the maximum permissible mortgage under this section," and (2) striking the figures "$8,000" at page 3, lines 16 and 18 and substituting the figures "$10,000" in both places. Section 125, page 19, lines 15 and 18 should be correspondingly amended.

Suggested amendment No. 3:

Amend section 104, page 3, by inserting, following the word "principally" at line 12, the following: "(Whether or not it may be intended to be rented temporarily for school or other community purpose)".

Suggested amendment No. 4:

Section 103, commencing at page 2, line 23, insert the following: "The Commissioner shall establish under section 203 of the National Housing Act, as amended, special standards appropriate to properties with respect to which the mortgage does not exceed $6,000 and may permit a service charge with respect to such mortgages."

Suggested amendment No. 5:

Amend section 123, page 25, line 5 by (1) striking the word "relocating" and inserting in lieu thereof the following: "Meeting the needs of low income families that are not and cannot be met from the existing supply of all other private financing and to provide preference to," and (2) striking the words "to be so displaced" at page 25, line 15, and (3) commencing at line 21, striking the words

"the relocation of families to be so displaced and who would be” and inserting in lieu thereof "low income families."

Suggested amendment No. 6:

Amend section 123, page 26, line 18, by striking the figures "$7,000” and inserting in lieu thereof the words and figures: "7,600 (except that such amount may be not in excess of $8,600 in any area in which the Commissioner shall determine such higher figure to be necessary, by reason of cost levels in such area, to attain the purposes of this section)".

Suggested amendment No. 7:

Section 201, page 42, commencing at line 18 through page 43, line 18, strike numbered clause (5).


Suggested amendment No. 1:

Amend section 301 (a) by inserting at the end thereof (page 45, line 7) a comma, and the following: "and to assist in providing an adequate and stabilized market for the financing of homes in the volume, in areas, of the kinds, and at the prices that the market for homes from time to time may require." Suggested amendment No. 2:

Amend section 303 (a) by inserting at the end of such subsection (page 48, line 6) the following: "At such time as the capital stock held by the Secretary of the Treasury has been fully retired the then balance of the general surplus account and of the reserves of the Association shall be paid to the Secretary of the Treasury."

Suggested amendment No. 3:

Amend section 303 (b) (page 48, commencing at line 7) so that the first sentence thereof reads as follows: "The Association shall accumulate funds for its capital surplus account from private sources by requiring each mortgage seller to make payments of nonrefundable capital contributions equal to not more than 2 percent of the unpaid principal amount of mortgages involved in purchases between such seller and the Association."

Suggested amendment No. 4:

Amend section 303 (c) by inserting following the sentence which ends at page 49, line 10, the following: "Such certificates shall be entitled to cumulative dividends at the same rate as determined by the Secretary of the Treasury under subsection (a) of this section with respect to capital stock held by him, but no dividends shall be paid upon such certificates if dividend payments on the capital stock held by the Secretary of the Treasury are at the time in arrears."

Suggested amendment No. 5:

Amend section 304 (a) (p. 52), (i) by striking the words "of such quality, type, and class as to meet generally the purchase standards imposed by private institutional mortgage investors" and substituting in lieu thereof the words "inherently sound and of a type and general class which will assist in constituting a prudent base for the issuance of debentures to private investors"; and (ii), commencing at line 14, strike the words "at or below the market price for the particular class involved, as determined by the Association" and substitute in lieu thereof the following: "at a reasonable price level, as determined by the Association, taking into consideration the market price for the particular class of mortgage involved, the reasonably foreseeable market for mortgages of the same general class, and current yields on, and reasonably foreseeable price trends of, long-term Government bonds and other forms of long-term investment".

Suggested amendment No. 6:

Delete all of section 303 (g) (p. 51, line 16 to and including p. 52, line 3). Suggested amendment No. 7:

Amend section 304 (d) by inserting at page 56, line 1, following the word "Association", the words "(including mortgages purchased out of the portfolio of the Association which is subject to management and liquidation under sec. 306 hereof)".

Suggested amendment No. 8:

Amend section 304 (b) commencing at page 53, line 12, by striking all following the word "but" through and including the word "and" at line 16.

Suggested amendment No. 9:

Amend section 302 (b) commencing at page 47, line 3, by striking everything following the word "instrumentality".

TABLE I.-Proportion of consumer expenditures for selected goods and services

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TABLE II.-Percentage servicing charges of disposable income (by years)

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Source: Estimates based on data from U. S. Department of Commerce, HHFA, and other sources.

TABLE III.-Housing needs to 1960

(a) Replacement or rehabilitation needed by 1960:

Urban and rural nonfarm units reported as delapidated, or
lacking private bath or toilet in April 1950-


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19, 125



(b) Increase in number needed by 1960:

Nonfarm families needing housing 1960_.
Allowance for 3 percent effective vacancy-

Total effective supply needed in 1960_.
Effective supply in 1950----

Total increase in number needed___

Replacement or rehabilitation needed.
Increase in number needed__

Total need.

Average per year for decade____

1 Based on 1950 census adjusted for census estimates of underreporting.

2 Using standards explained in HHFA study, How Big?

3 New census data indicates this figure may be too low. Assuming 5.5 million farm, 52.5 total families.


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