In order to take care of the estimate made as to what is going to be the needs for the defense effort for in-migrant workers, and in some situations in military installations, and just a free flow of credit for whatever type of housing, particularly when we find we have to limit the total amount of housing that may be built nationally, would not in our experience, or in the judgment of almost anybody that we have discussed it with, give us any assurance that the housing that would be produced in that way would take care of special needs of the in-migrant workers.

For one thing, it would probably not produce the large percentage of housing that necessarily will have to be offered at least for a time for rent.

Mr. BLISS. Well, we must respectfully express our dissent with that view.

Mr. FOLEY. I wanted to make the reasons clear to the rest of the meeting here.

Mr. BLISS. We believe that the housing is provided, the people shuffle themselves around, and we further point out that the paper work and the red tape of securing the permits that are necessary under an allocation such as you describe, and such as have, is an impediment upon housing construction and activities in that field.

Mr. FOLEY. I would not want to carry on a debate on the subject, Senator Sparkman, but just to point to one thing. In none of the years since World War II, when there was a complete and strict con-trol of housing production has there been anywhere to my knowledge the production of the type of housing required for these in-migrants of the for-sale type since we are like yourself anxious to get as large a percentage of home ownership as possible, of the for-sale type voluntarily offered by the building industry to be held for a period for rent, and that is one of the essentials of the programing that we are doing.

Senator FREAR. I wonder if any of the members of Mr. Bliss' association have need for secondary money markets, and if so, do they use the facilities of FNMA?

Mr. BLISS. The savings and loan associations came to Congress in 1931 and 1932, and sought legislation to establish the Federal Home Loan Bank System, and the facilities of the Federal Home Loan Bank System provide the savings and loan associations of the country not with a secondary market but a central credit agency and facilities: for flowing surplus moneys in one area to other parts of the country where there is a need for funds, and that has worked out as planned, and very successfully, and the savings and loan associations as a group have sold a very small portion of their mortgages to FNMA. They are not any large customers of FNMA.

Senator FREAR. But, in effect, does not FNMA act in the same respect to other financing agencies as the Home Loan Bank Board does to your agency?

Mr. BLISS. We would suggest if there is a further need that the place to make the investigation is through expansion and development of the Federal Home Loan Bank System, which is a privately owned and operated agency run at no expense or cost to the Government. Senator FREAR. That is true of commercial banks, is it not?

Mr. BLISS. It is true of the commercial banks in the short term credit field with respect to the Federal Reserve System, and it can be for the savings institution with respect to the Federal home-loan bank. I am pointing out that the facilities here, if there is a need for expansion, could be done on that basis without increased cost to the Government.

Senator SPARKMAN. The Federal Government originally underwrote the home-loan-bank operation.

Mr. BLISS. The Federal Government provided the home-loan banks with an initial capital of $125,000,000, as it did with certain other operations, which sum has been fully repaid, with earnings.

Senator SPARKMAN. Now, if that was true, why do you say that it would not be perfectly in line for the Government to underwrite a central mortgage corporation to be owned by private industry in the same manner, with the stock to be repaid?

Mr. BLISS. Because in the first place, the $125,000,000 used to provide initial capital is, in comparison with other figures that have been mentioned, a very nominal sum, as compared with the billions which are being referred to with respect to FNMA.

Senator SPARKMAN. I think you must have misunderstood. I think Mr. Pratt's idea was right in line with the home-loan bank, completely. In other words, my understanding of it is that a central corporation would be set up with Government help, subscribing to the original stock, but the money that would handle the mortgages would come from the private institutions."

Mr. BLISS. With respect to that, Senator, we would suggest the machinery is already here, the $125,000,000 which sparked that was advanced and has been repaid, and an expansion within the framework of the Federal Home Loan Bank System could accomplish that end without any further expenditure on the part of the Government. Mr. HELD. May I make a couple of comments on FNMA. Of course, the savings banks have never used FNMA at all, but I made up a tabulation from the Housing Statistics Bulletin of November 1951, that from 1938 to November 1951 FNMA's authorizations and commitments totaled $3,619,500,000. There were cancellations in there of $725,600,000, representing 20 percent of those authorizations and commitments which, in effect, represented loans which originally were intended to go into FNMA, but were taken by the private market.

The net purchase was $2,803,200,000, and they had sales of $763,200,000, representing 27 percent. That again went into the private market.

Of that, their purchases net of sales was $2,040,000,000, of which 17 percent were FHA, and 83 percent were VA loans. There I think we get the picture of the differential in the interest return, or yield. The total principal amount of VA loans closed from 1944 to 1951 was $15,189,000,000, and the FNMA purchase of VA loans was 16 percent of that total.

The total principal amount of FHA residential, from 1934 to 1951, was $20,392,000,000, and the FNMA purchases of FHA loans was 1.7 percent.

(The tabulation referred to follows:)

Federal National Mortgage Association activities, 1938 to November 1951

Total principal amount VA, closed 1944-October 1951__
Total principal amount FHA residential loans, 1934-October
1951.

$2, 310, 700, 000 331, 000, 000 1,979, 700,000

3 1,978, 500, 000 6 290, 000, 000

8 1, 688, 500,000

$15, 189, 000, 000

20, 392, 000, 000 Percent of total amount

16

1.7

Mr. HELD. Now, I might say this, that I believe that if FNMA takes in these loans on a par basis, if they had been realistic in their selling policy, rather than putting a premium of a half of 1 percent on a GI loan, and as high as 112 percent on FHA loans, that your $2,500,000,000 fund might have been sufficient to take care of these needs without anything further, and I think that the crux of the situation has been, as Mr. Morgan pointed out, somewhat in an unrealistic selling price policy.

Senator SPARKMAN. Mr. Held, you may know, or you may not know that when the proposed transfer of FNMA was up before the Senate, I made some suggestions on the Senate floor, somewhat along the same line, in which I said I did not think the disposal of mortgages had been handled in a very realistic manner, and that of this $2,750,000,000 I was hopeful that perhaps a billion dollars might be worked out to return to the Treasury.

I have felt, too, that they ought not be marketed on a required profit basis, that their real purpose is to serve as a secondary market to handle these mortgages, and to get them back into the private field as much as possible. I do not believe, as someone suggested, that they ought to be required to operate at a loss.

I have felt that perhaps if they could sell their mortgages on a packaged basis, I do not know enough about it, I do not know enough about the technicalities to be able to discuss it as well as I should, but certainly instead of putting it up for a certain profit level, it would be much better to get them back into private hands without loss to the Government, and not necessarily with the profit to the Government. Mr. HELD. I agree with that, and I might make this observation, that out of present existing funds, there are funds earmarked for defense, or funds earmarked for flood purposes, and there is another

earmarked fund, disaster. This all comes out of that $2,500,000,000, so that actually the amount available for the normal mortgage market is much less than is shown in the total amount of FNMA commitments, sales, purchases, and so forth.

Mr. BLISS. Senator, I am reluctant to labor the interest rate question which has been heavily dwelt on here, but it seems to me that the statistics Mr. Held cited again indicate that a realistic approach to the interest rate question on VA loans, GI loans, would eliminate a large part of the participation which FNMA has had in that market. Mr. FOLEY. May I make one remark with respect to sales policy? Senator SPARK MAN. Yes, Mr. Foley.

Mr. FOLEY. Of course, as you know the transfer was made to the Housing and Home Finance relatively recently, and the history to which you referred in your comments on the floor. At that time the national mortgage association undertook an active liquidation program, actively disposing of mortgages, and were having a considerable degree of success in disposing of its portfolio, rapidly reducing it until the market situation of last year.

Generally speaking, while I do not have the figures here, I would say that we were selling at below, most of the period, below premiums that were being paid in the market for new initiation. We were not offering at the market, generally speaking.

Apropos of this suggestion that we buy at a discount, sell at market or sell at par, generally speaking of the purpose of the present management as to liquidate, and also to carry out the other purposes for which the FNMA was established.

It is interesting to note in connection with that attitude that in the advance commitment operation, where the Congress either suggested or required-I forget which-that we make a commitment fee charge, we have had the most strenuous protests from the mortgage banking fraternity at our even making that charge to get the mortgages into our portfolio.

Senator FREAR. It has generally appeared to me that the emphasis has been placed upon the needs of the buyers, in most of the comments that have been expressed here.

I would like to ask Mr. Divers of the Home Loan Bank Board if he does not think also that there is a responsibility by the holders of the savings and thrift accounts to their shareholders.

Mr. DIVERS. Yes, Senator, I do, and I am very glad that you asked me that question. We have about four savers for each borrower. Senator FREAR. I think that is very interesting.

Mr. DIVERS. And we are trying to go down the middle of the road in our trustee capacities as between the interests of both of them.

A lot of time has been devoted here to the interest of the borrowers, but very little has been said about the savers, the people who have their money invested in insurance policies, your policyholders, the de positors in the mutual savings banks, the savings account holders in the savings and loan associations.

We have drummed thrift into the people of the country, and we have asked them to save their money, and it is the investment of their money that we are talking about here, and I think that all of us in our considerations should take into account the interest of the millions and millions of savers who have accumulated this money through these financial institutions.

Mr. BROCKBANK. Mr. Chairman, could I ask Mr. Divers if he considers that his investors are risking capital when they invest in FHAinsured mortgages and guaranteed VA loans?

Mr. DIVERS. I would say in the first place that most of the money is placed by these institutions, the only ones that I am attempting to speak for, the savings and loan associations, most of it is placed in conventional loans within a 50-mile radius, shall I say, of the institution.

As far as the GI loans are concerned, I think they have large investments in them. Even if the risk was negligible, you would still have the question of what rate of return should be paid to the savers in order to accumulate capital, which does not come out of thin air. Senator SPARKMAN. That completes the list of those who desired to make statements.

I realize that there are many subjects that we have not discussed, which I would like to hear discussed, and many of those we have discussed we have not exhausted by any means-in fact on some of them we have barely scratched the surface. I wish we could hear more discussion, for instance, on regulation X. I certainly believe that we lack a whole lot of having studied in our own minds what the solution is to this very vexing defense-housing problem that we are right up against.

I wonder if I might ask this question: Is there anyone here representing any institution that has handled any title 9 mortgages? Mr. TAPP. We have, as I stated.

Senator SPARKMAN. You stated yours. I mean on the long-range basis; I do not mean just handling them until they are constructed. Of course, you handled two that you hope to convert to title 2.

I wonder how we are going to handle defense housing, how are we going to get it built.

Mr. CLARKE. Senator Sparkman, if I may inject again my usual comment, an effective rate of interest, pure and simple.

Senator SPARKMAN. I know you want that on the debentures.
Mr. CLARKE. Oh, no; I am talking about the actual rate.

Senator SPARKMAN. Most of you who spoke on it suggested better debentures, but it seems to me that is kind of a defeatist attitude. You are assuming they are going to be foreclosed.

Mr. CLARKE. No; I am talking about a rate on the mortgage.
Senator SPARKMAN. You mean better than 414 percent?

Mr. CLARKE. Yes, sir. There is no reason why it should not be tried, as I see it.

Senator SPARKMAN. Of course, you would make that applicable to all housing.

Mr. CLARKE. Not necessarily. At the moment, the subject under discussion is defense housing. Now, in defense housing, Mr. Richards has stated that he is perfectly willing to have an effective rate. The indication seems to me, from.the question which you have just asked, and the lack of answer that you have received, that there is not an effective rate, and I would like to see the rate go up to see whether it would be effective or not. If that does not work, then there may be some other solution.

Mr. FOLEY. Senator, apropos of the Federal mortgage question, and where these mortgages are coming from, I think it would be interest