The subcommittee met, pursuant to notice, at 10:15 a.m., Hon. John J. Sparkman (chairman of the subcommittee) presiding.

Present: Senators Sparkman, Douglas, and Javits.

The CHAIRMAN. Let the subcommittee come to order, please.

Other Senators have indicated that they would be here. Some of them will be late. I think we better get started.

Hearings are being held today by the Subcommittee on Housing to receive testimony on pending bills, S. 810, S. 811, and S. 2130, all of which relate to establishing new facilities for a secondary conventional mortgage market.

The legislation proposed by S. 810, called the Mortgage Market Facilities Act of 1963, would authorize (1) the Federal chartering of corporations to insure conventional mortgages, (2) the Federal chartering of corporations to buy and sell such insured mortgages, and (3) a Joint Supervisory Board for Mortgage Insurance and Marketing Corporations to charter and regulate these corporations.

The legislation proposed by S. 811, called the Home Mortgage Corporation Act, would create a new corporation under the Federal Home Loan Bank Board to buy and sell participations in conventional home mortgage loans. Such participations would be limited to mortgages originated by members of the Federal Home Loan Bank System.

S. 2130 would empower the Federal National Mortgage Association to deal in conventional mortgages and to provide otherwise for its further development as a secondary market facility.

The central theme of the bills before us is the improvement of the market for the buying and selling of conventional mortgages to make them more attractive instruments of credit and thereby increase the overall supply of home mortgage funds.

Keeping in mind the national housing policy of a decent home for our American families, the purposes of these bills can hardly be questioned. The question before this committee is whether passage of proposed legislation would satisfy this objective or, alternatively, whether there are other devices for accomplishing the same thing. This subject is not a new one to the Congress. The concept of Federal charters for secondary mortgage market facilities was first enacted into law 29 years ago in the National Housing Act of 1934. The intent of title III of that historic act, which also authorized the

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establishment of the Federal Housing Administration and the Federal Savings and Loan Insurance Corporation, was to charter privately owned national mortgage associations designed to assist directly in satisfying the need for home construction credit. This authority covered both FHA and conventional mortgages, but it was intended primarily to provide liquidity for the newly created FHA-insured mortgages and thereby help generate a greater degree of confidence in the new FHA program. Although several attempts were made to encourage private enterprise to organize such mortgage associations, no private associations were ever formed under this law and, in 1948, the authority was repealed.

Since that time, three different legislative proposals have been advanced to revive the authority but with no success. Of course, we must keep in mind that one very good result of the 1934 initial proposal was the establishment of the Federal National Mortgage Association which has been a tremendous success in the Government-assisted field.

This committee has conducted several extensive hearings on the subject. In 1950, hearings were held on a bill, S. 3746, introduced by Senator Maybank, but no action was taken because of considerable difference of opinion about the necessity of establishing private national mortgage corporations and also about their economic feasibility. In 1954, the Federal National Mortgage Association Charter Act was amended to require sellers of mortgages to purchase FNMA common stocks with the purpose of eventually converting it into a privately owned and capitalized institution. Although it now has $90 million of outstanding common stock, there is considerable doubt whether it will ever become a private corporation.

During the mid-1950's, when mortgage credit was very scarce, we heard a great deal about a "central mortgage bank." It was almost a byword of the mortgage-hungry homebuilders and building suppliers. But no agreement could be reached on the format of such a bank and nothing came of it.

In 1960, the Subcommittee on Housing completed a study of the mortgage requirements for the decade of the 1960's and concluded that some positive action should be taken to insure adequate credit, particularly for the last half of the decade when family formation would spur home construction to an estimated 2 million units a year. According to the study, financing requirements for new home mortgage loans would double from about $11 billion in 1961 to $21 billion in 1970. Monographs and testimony before the committee at that time supported the development of new facilities for the marketing of mortgages at the secondary level.

At the present time, with personal savings at their highest level in history, the financial institutions have plenty of mortgage funds and there seems to be little necessity for the creation of new facilities. However, it is a good time for rational thinking and to get ready for the future. The President's Commission on Money and Credit gave strong support for action at this time and, if some consensus on a specific proposal could be reached, I see no reason why we should not go right ahead with whatever legislation is needed.

The three bills before us provide a broad framework for a full consideration of the subject. S. 810 is by far the most comprehensive in that all home mortgages regardless of the type of lending institution would be eligible for insurance as well as for purchase by the secondary market corporations.

It is obvious that S. 811 would create a facility much more limited +han S. 810. Only members of the Federal Home Loan Bank System would be eligible to do the trading and only participations rather than whole mortgages would be traded.

Under S. 2130, which would give FNMA new authority, the buying and selling of all mortgages, Government assisted and conventional, would be under one Government agency which has proven its skill in this activity.

There are many fundamental questions involved in the proposed legislation including, for example, the proper role of the Federal Government in a field of activity which has been traditionally under private enterprise and to what extent the passage of any of these bills might adversely affect the traditional pattern of mortgage lending among the various types of institutional lenders. I am looking forward to the testimony of the many outstanding witnesses that are scheduled to come before us.

May I say that, without objection, we shall have printed in the hearings copies of the three bills, a section-by-section analysis of each of the bills, and the reports on the bills by the agencies.

(The material mentioned follows.)

88TH CONGRESS

1ST SESSION

S. 810

IN THE SENATE OF THE UNITED STATES

FEBRUARY 18, 1963

Mr. SPARKMAN introduced the following bill; which was read twice and referred to the Committee on Banking and Currency

A BILL

To authorize the chartering of organizations to insure conventional mortgage loans, to authorize the creation of secondary market organizations for conventional and other mortgage loans, to authorize the issuance of debentures upon the security of insured or guaranteed mortgages and to create a joint supervisory board to charter and examine such organizations, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 TITLE I-SHORT TITLE, STATEMENT OF PURPOSE,

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AND DEFINITIONS

SHORT TITLE

SEC. 101. This Act, divided into titles and sections ac

7 cording to the following table of contents, may be cited as 8 the "Mortgage Market Facilities Act of 1963".