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The CHAIRMAN. What effect is this confusion incident to the policy of Congress with respect to a secondary market having upon your programing for home construction?

Mr. NEEL. I think it is having some effect, Mr. Chairman. It is difficult to analyze it in terms of dollars and cents. If you say, for instance, that the confusion, among other things, is as to whether Fannie May will be continued—that certainly is to some extent the confusion, nobody knows whether present operations are going to be continued. There are a good many lending companies, mortgage bankers, who have gone out and who have put in applications and made efforts to finance the construction of rental housing units. Because we all know that rental housing is what is desperately needed. All those loans today, under section 608, bear a 4-percent interest rate, and, as you gentlemen know, in some areas it is more difficult today to dispose of a loan bearing a 4-percent interest rate than it was a number of months ago.

However, those loans are still being made, and they are still being sold. But it takes more effort on the part of the man who makes them to go out and dispose of them. As long as he knows that this limited Fannie May market is available to him, and that in the end, if he cannot dispose of it anywhere, he could dispose of it to the Fannie May, without a profit, but so that the loan could be made, and the project of rental housing completed, people would go ahead and try to get the housing built. They have been worried to a certain extent recently that Fannie May was going out of business. And, therefore, they have gotten and paid for a commitment from Fannie May to pay for their loan, even though they do not want to sell it to Fannie May.

So one aspect has certainly been, Mr. Chairman, that Fannie May has issued more commitments recently, and their figures apparently show a greater demand than would have been the case if this confusion had not existed.

The CHAIRMAN. Are there further questions?

Mr. SMITH. In other words, it brings uncertainty into the picture; is that what you mean?

Mr. NEEL. Yes, sir; it does, Mr. Smith.
Mr. SMITH.

They do not know what to do.
Mr. NEEL. That is correct.
Mr. SMITH.

And how to plan for the future. Mr. NEEL. These projects, particularly the rental housing projects, Dr. Smith, take a long time to plan and to build, and where people do not know from day to day whether they can count on a current situation existing for a month or 2 months or 3 months, it is very difficult for them to know how to proceed. They need to look a year ahead if they can.

The CHAIRMAN. Are there any surveys to show what the current volume of home production is, compared to what it was last year?

-Mr. NEEL. I can supply that very easily, Mr. Chairman, I do not have it with me this

morning. The CHAIRMAN. Just for the record, is it as great as it was last year, or is it less or is it more?

Mr. NEEL. The specific part of the program with which our association deals are the figures on mortgage financing and I know that the

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figures for the first 3 months of this year show that new mortgages recorded are in excess of the same period last year. But I could supply those figures accurately for the record and, as a matter of fact, I would be glad to acquire and supply to you the construction figures also, if you would like to have them.

The CHAIRMAN. I think they would be helpful to the committee. Mr. NEEL. I will be very glad to supply them. (The information referred to is as follows:)

TABLE I."—New mortgage recordings (mortgages of $20,000 or under)

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The CHAIRMAN. Are there further questions?
Mr. TALLE. Mr. Chairman.
The CHAIRMAN. Mr. Talle.

Mr. Talle. What do you think of the wisdom of having a Government institution which accepts nonrecourse loans?

Mr. NEEL. Well, sir, I think that the association which I represent has felt all along that it should not be necessary, and it would be more desirable if there were no such organization in existence. In other words, private industry would be better off the less Government is in the picture. "Fannie Nay" was created originally because of an uncertainty as to the validity or the degree of security that a Federal Housing Administration mortgage had. It was a new thing at the time. Experience has shown, however, that "Fannie May” performed a useful function in those days because it was willing to lead people along, to show them that these mortgages were good mortgages. And, as a result of their ability and willingness to take the initiative,

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the Federal Housing Administration mortgage really became prominent and received wide acceptance. Actually as I mentioned, all the Federal Housing Administration mortgages which “Fannie May” bought in the early days have subsequently been sold by them at a substantial profit. So that the operation on the part of the Government resulted in a profit to the Government.

Our own position is that it ought to be held to the minimum. That is, that a Government secondary market should be held to the minimum amount necessary, and it would be desirable, in our point of view, if conditions permitted it, if it could be done away with altogether. To a certain extent, however, we feel that the real answer to the problem, speaking about a subject which might not be very popular, when you get down to specific consideration, means that interest rates on mortgages or any other commodity ought to be allowed to follow the market. They are allowed to follow the market down, but in a period of rising interest rate, where you have a commodity on which the rates are controlled, you do get a situation which puts it out of balance with the income which an investor can receive from other securities of equal value.

So if we had free choice in the matter, sir, we would prefer to see the Government out of this market entirely. But at the same time, that the mortgages which are insured by the Federal Government would have to be allowed to meet the competition of other types of investment in the money markets, and, of course, that is a very difficult thing for them to do, and a thing which they cannot do under the present status of the legislation.

Mr. TALLE. Does your organization have an alternative proposal to take care of the situation under present conditions, or has your organization simply accepted the inevitability of the Government being in that business?

Mr. NEFL. No, sir; our organization has made several proposals. We have sent them unofficially to a good many people on the Hill, and I believe that at a meeting which we had with the chairman of this committee, we submitted our informal proposals to him.

They are as follows: We recommended that title II of the National Housing Act, under which Federal Housing Administration operates, be revised to bring it into line with today's costs. In other words, that loan limits under title II be revised.

If that were done, the rate of interest which is payable on title II mortgages, if the loan limits were up, people could operate under title II and it would not be necessary, in our opinion, to continue operations extensively under title VI. We think title VI would die à natural death, which we think would be desirable.

In addition to that, we have supported the bill which was introduced by your chairman, H. R. 5854, which would permit the Commissioner of Federal Housing Administartion to authorize an increase in the interest rate of title VI loans if, in his opinion, that was necessary in order to make mortgages insured under title VI salable. We beJieve that if title II were revised, operations under title VI would gradually die out and that it would not be necessary to have a secondary market. Until that is done, however, we do believe that the interim continuation of Fannie May is a desirable thing.

Mr. TALLE. That is all for the moment, Mr. Chairman.

Mr. NEEL. I would also be glad, sir, to submit, when I give you these other figures, those recommendations in detail, because we have made them in detail.

Mr. TALLE. I would appreciate it if you would supply them for the record.

Mr. NEEL. I will be glad to do so.
(The information referred to is as follows:)

RECOMMENDATIONS OF THE MORTGAGE BANKERS ASSOCIATION OF AMERICA

COVERING

I. A revision of section 203 of the National Housing Act.
II. The extension of section 608 of the National Housing Act.
III. An amendment to the Servicemen's Readjustment Act of 1944, as

amended.
IV. A Government-supported secondary market for home loans.

MEMORANDUM

It has become evident that the demand for funds at the interest rates established under the Servicemen's Readjustment Act and title VI of the National Housing Act exceeds the supply of funds available now for investment at these rates.

In a free and uncontrolled economy the ultimate cure for this condition would be a realistic adjustment of interest rates to meet the competitive conditions of the money market.

It is important, however, that immediate relief be furnished lenders who have invested heavily in veterans' home loans and who have secured commitments for loans for rental housing insured under section 608 of the National Housing Act. It is also important that an adequate flow of mortgage credit be maintained in order that the construction of new housing may not be limited by an inadequacy of funds but may be continued to the limit of the men and materials available to the construction industry.

To this end the following recommendations are made as four parts of an integrated program. Recommendation 1-A recision of section 203 of the National Housing Act

Title II of the National Housing Act establishes what is frequently called the permanent or long-range system of insurance of home loans by the Federal Housing Administration. Title II has a great many safeguards surrounding the insurance of loans. In this regard title II is in contrast to title VI of the National Housing Act which was enacted to meet an emergency wartime situation and which was designedly made more liberal than title II.

While the extension of title VI may be necessary again for a limited period (and especially is this true to provide for rental housing-see recommendation II below) it is highly desirable to return as rapidly as possible to safeguarded operations under title II, especially for the construction of houses for single occupancy. Lenders would readily convert operations to title II except for two situations which need revision. First, the loan limits under title II were estab. lished before the war in a period of much lower costs. It is apparent that we shall never revert entirely to such drastically lower costs and therefore we consider it appropriate to increase the loan limits in section 203 to some extent to provide for construction of the same house today as could have been covered before the war. Second, it is important that builders be able to secure construction advances under title II in a sufficient amount to enable them to carry on the construction of lower-priced houses in quantities. To accomplish this it seems desirable to remove the limitation appearing in section 203 (b) (2) (B) of the act which requires that the mortgagor shall be the owner and occupant of the property insured at the time of the insurance of the loan.

To accomplish the above, it is recommended that: 2. Section 203 (b) (2) (C) of the National Housing Act be revised as follows:

(a) Delete the figure "$5,400” and insert in lieu thereof the figure "$8,100".

(b) Delete words at end of section as follows: Provided, That with respect to mortgages insured under this paragraph the mortgagor shall be the owner and occupant of the property at the time of the insurance and shall have paid on account of the property at least 10 per centum of the appraised value in

cash or its equivalent.” 2. Section 203 (b) (2) (C) of the National Housing Act be revised as follows:

(a) Delete the figure “$8,600” and insert in lieu thereof the figure “$11,300".

(6) Delete the figure “$6,000" where it appears twice in said section and insert in lieu thereof the figure "$9,000”.

(c) Delete the figure “$10,000” and insert in lieu thereof the figure "$13,000”. Recommendation II.-Extension of section 608 of the National Housing Act

During the continuance of the present extraordinary need for rental housing, we consider that the extension for 1 year of section 608 with its liberal inducements for the construction of rental housing is necessary. We do not believe any further liberalization of section 608 is either necessary or desirable, but sufficient authorizations should be made available to make this section work for the next year.

To accomplish the above, it is recommended that:

1. Section 603 (a) of the National Housing Act, as amended, be revised as follows:

(a) Delete the words "March 31, 1948," where they appear and insert in lieu thereof “March 31, 1949”.

(6) Delete the figure “$4,450,000,000” and insert in lieu thereof “$5,950,000,000”.

(c) Delete the figure "$4,950,000,000" and insert in lieu thereof “$6,950,

000,000”. Recommendation III.-An amendment to the Servicemen's Readjustment Act of

1944, as amended It is the feeling of many lenders that the basic legislation under which the Veterans’ Administration guarantees and insures loans to veterans should contain a provision stating that once a loan is guaranteed or insured by the Veterans Administration it is incontestible except for fraud or misrepresentation. A similar provision is contained in the National Housing Act (sec. 203 (e) and sec. 603 (d)) for loans insured by the Federal Housing Administration. The regulations issued by the Veterans' Administration have endeavored to cover this situation and the Veterans' Administration maintains that once a guaranty is issued it is, in fact, incontestible except for fraud.

However, inclusion of a provision of the law itself would reassure many in-vestors, and to that extent would increase the salability of veterans loans. The Veterans' Administration is understood not to be opposed to such an amendment,

To accomplish the above, it is recommended that:

Title III of the Servicemen's Adjustment Act of 1944, as amended, be further amended by the addition of a new subsection as follows:

“SEC. 500. (f) The issuance of a certificate of guaranty or other evidence of guaranty or insurance covering any loan guarantee or insured under the provisions of this title shall be conclusive evidence of the eligibility of the loan for guaranty or insurance, and the validity of any certificate of guaranty or other evidence of guaranty and insurance so executed shall be incontestible from the date of the execution thereof except for fraud or misrepresentation on the part of the holder thereof." Recommendation IV.-A Government-supported secondary market for home loans

To some extent, private secondary investors will still, under today's conditions, be unable to furnish a market for all loans guaranteed or insured by the Veterans' Administration or by the Federal Housing Administration. To make a market for these loans it appears necessary that a Government-supported secondary market be established for the purchase of loans guaranteed or insured under sections 501 and 505-A of the Serviceman's Readjustment Act, and title I (class 3) of the National Housing Act, and that the present secondary market being maintained by the Federal National Mortgage Association for loans insured under titles II and VI of the National Housing Act be continued.

In considering the manner in which this market shculd be established and in making specific recommendations with respect thereto, the Mortgage Bankers Association has been strongly influenced by the following considerations :

1. The market when established should be available to the same extent and on the same terms to all types of lenders, banks, building and loan associations, life insurance companies, and mortgage companies.

2. The Government-supported market should only be made available in those sections of the country where such a market is considered necessary in order to

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