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to us.

Historically, our association has always favored proposals for new legislation which will advance, in a sound manner, new ideas for improvement of the mortgage markets.

There are some very good reasons why we are interested in an improved mortgage market, including better conventional lending. Clearly, a stronger conventional loan market would assist some of the specialized types of housing, such as vacation or second homes, homes in smaller towns and similar rural areas, home improvement loans.

And I was interested to note that Senator Javits questioned whether this would help in oversea housing market. I do not think it does, but certainly we need some help in this area.

We believe that the improved conventional mortgage system would result in more mortgage funds being made available in areas where even today investment funds are used for other purposes and are not available for long-term mortgages.

We are also interested in reducing the cost of mortgage financing through a more efficient operation of the mortgage market. Improvements in the conventional segment would definitely be of assistance

Finally, we think efforts such as embodied in S. 810 to make it possible for the small lending institutions to enter into the mortgage market in a more substantial way will be of help to communities with limited supplies of mortgage capital.

I am happy to say that I had the privilege of serving on a national mortgage market committee of the American Bankers Association which then developed the basic ideas now in this proposal. Also, as individuals, our former NAHB President Thomas P. Coogan, with me today, Richard G. Hughes, served on this committee, together with Dr. Nathaniel Rogg, our director of economics, and Joseph B. McGrath, our director of governmental affairs.

In Chicago in our annual convention last December, our board of directors, composed of some 500 builders, approved unanimously a resolution of general support, with the objectives and purpose of the proposals advanced by the American Bankers Association. A copy of this resolution is attached to my prepared statement.

We are deeply committed to explore all avenues of improvement for conventional as well as FHA-VÀ mortgages. I was particularly instructed by our board's resolution to establish a special subcommittee within our association to study the details of the proposals which now appear in S. 810.

To assist the officers of our association and our executive committee, I appointed a special task force on private mortgage insurance, headed by a good friend of your committee and a former president of our association-Mr. Thomas P. Coogan.

With your permission, I should like to turn the rest of this testimony on S. 810 over to Mr. Coogan. He will supplement my statement with a report to your committee from his notes on the activities and meetings of his task force.

Mr. Coogan has been a homebuilder of high standing in the State of Florida and is currently active in mortgage financing as president of Housing Securities, Inc., of New York City.

Following Mr. Coogan's statement, we will be happy to answer any questions which may arise.

I appreciate the opportunity to give our views to this committee, and I am pleased now to introduce Mr. Tom Coogan.

Senator Javirs. Mr. Buchanan, before you quit, with the Chair's permission

Senator SPARKMAN. Yes, surely.
Senator JAVITs (continuing). May I just reiterate to you the

question that I made of Mr. Semer; that is, that we would like very much, I would like very much a statement as part of your testimony on the two major points:

(1) How the middle-income housing special mortgage provisions have been working out as compared with some standard of judgment, as, for instance, you gentlemen might think would be so many middleincome housing units, and these that this mortgage loan provision has provided, and so on.

And, secondly, your view of the New York plan, which is the New York State Housing Agency plan in which they float debentures, based on a consolidation of middle-income housing mortgages. I just make that request.

Mr. BUCHANAN. Thank you. We noted your previous request, and will give you that.

Senator Javits. Fine. And you will try to help us out on that?
Mr. BUCHANAN. Yes, sir.
Senator JAVITs. Fine. Thank you.
(See p. 115 for the requested information.)
Senator SPARKMAN. Nr. Coogan.

Mr. Coogan. Mr. Chairman, members of the committee, thank you very much for this opportunity to appear at this morning's hearings. We are hopeful that they will contain some solid information on the operational details of the proposal which you have before you in S. 810.

Earlier this year, I was asked, for the homebuilding industry, to examine as carefully as possible the chances of a private insurance program for conventional mortgages.

Very frankly, we were thinking at the outset in terms of an insurance plan which would not involve the Federal Government, but we did not confine our discussions in any way on this point. We held two meetings, the first in March and the second in July, both well attended by committee members and other experts in the mortgage financing field.

In addition, I was present, together with others, in a general meeting between officers of the National Association of Home Builders and leaders from the mortgage financing industry at a 3-day meeting in Nassau last April. I am satisfied that we explored as fully as possible a good many, if not all of the possibilites of a privately operated mortgage insurance plan.

In the general discussions of the proposals which are now before you in S. 810, the question arose as to whether it is possible to accomplish the same objectives without Federal supervision and without a Federal charter.

Opinions of informed observers are divided somewhat, but the general consensus of those at our meetings is that a Federal charter and some Federal supervision seem to be necessary.

Without a Federal charter, the main stumbling block is the difficulties which lie before any private operation in obtaining a uniform acceptance and authority to do business in all the 50 States or even in the major States; and the impossibility of quickly amending the various banking laws in order to make these privately insured mortgages acceptable as investments under various State and Federal laws.

We have explored the possibility of using existing companies or insurance plans. For example, at our latest meeting we had the benefit of advice from an informed and experienced official of a major casualty insurance company. As you know, these companies are authorized to do business in most of the States already. And we questioned whether it would be possible for them to enter the mortgage insurance field.

Frankly, we received a discouraging answer. They are simply not interested in mortgage insurance unless it would be feasible to draw support from all types of lending institutions, and these institutions would have to have a full willingness to participate in and use private mortgage insurance over a long haul into the future.

It seems clear that the secret of success for any private insurance plan and for the plan as proposed in the legislation before you is that it must be very broadly based so as to cover a very wide strata of insurance risks, in order to be considered sound from an actuarial point of view.

I think this is especially important for the committee to consider in relation to the insurance plan proposed in S. 810. If a company is chartered to insure conventional mortgages, it ought not to operate solely for the benefit of a particular class of mortgages or mortgage lenders.

We also considered the possibility of an expansion of the operations of the existing Mortgage Guaranty Insurance Corp. This is a company located in the Midwest which has been successful in issuing insurance in the upper portion of conventional mortgages. We hope to meet with the officers and directors of MGIC sometime later this fall to explore further their operations and what can be done to expand them.

There is, of course, one major consideration to be taken into account with respect to private insurance of mortgages. This is the dollars-and-cents consideration. Can a private company compete successfully over the long run against the FHA system?

A private insurance company will necessarily have to provide recognizable advantages over doing business with FHA and to make a profit it will have to be able, if necessary, to take business away from FHA.

This is the reason why I stated earlier we are looking forward with interest to the operational details which will be discussed before your committee tomorrow by other witnesses who are proponents of the bill.

It seems clear that the problems of servicing, processing, and general bureaucracy can be solved with greater ease in a private company, even though FỦA may be able to correct some of these problems within its own system. Whether this is a sufficient advantage in favor of a private company remains to be seen.

As a general matter, we support the ideas advanced in the plan before you, in S. 810, because if it can be operated successfully, it would provide a market liquidity for conventional mortgages which does not now exist. It would also provide for a higher ratio of loan for mortgages on a conventional basis and do away with the continuation of growth of the second mortgage problem which has continued to develop in this country.

FHA and other Government programs are keystones in the mortgage lending system, and they are not likely to disappear in the future. Nevertheless, they may well be inadequate for the future, and certainly we favor an expansion and improvement of the mortgage devices which already exist.

There is a need to convert mortgages into instruments which are as liquid in the market as possible, similar to the way in which stocks, bonds, and other securities have become liquid and marketable throughout the United States.

Fixed obstacles exist because of our federalized system and because of history. It would be very difficult to eliminate the kinds of State laws which impede mortgage lending.

In addition, the mortgage instrument itself is a limited and static device. There are a number of signs which indicate that the time is ripe for basic improvements in the mortgage instrument and the mortgage marketing system. If possible, Congress ought to work out a plan which will have inducements that will cause all types of mortgage lenders to participate.

I stress, again, it is important that any insurance or marketing plan for conventional loans be supported by all the elements in the sending industry as a matter of use and practice.

For these same reasons, as an individual, I can see definite advantages in a judicious expansion of the authority of FNMA to cover conventional loans. I am not sure I agree completely with the provisions of S. 2130 or the way they are drafted, but I do believe there is a step in the right direction. If FNMA is given authority to enter into the conventional financing field, I would still hope that it would concentrate upon new construction rather than mortgages on existing homes. FNA has been of the greatest use to the country in supplying funds for new housing projects.

To summarize: although we intend to continue to explore the possibilities of improving the conventional mortgage market by a purely private mortgage insurance corporation or other device, our general conclusion is that a Federal charter is necessary. Moreover, we agree with the general outline of the proposals as contained in S. 810, and we intend to study with great care all the testimony presented here so that we can return next spring with detailed comments on the proposal.

Thank you, Mr. Chairman.
Senator SPARKMAN. Thank you very much.
Senator Javits.

Senator Javits. Mr. Chairman, knowing something about business as these gentlemen make it their life study, I would like to again make a request of you.

I think you should go further than giving us some general principles and general ideas. I think you have got enough lawyers and enough interest to redraft any one of these three bills that you think is a suitable vehicle for the purposes you have in mind, and then to bring us a completely drafted statute of what you want in order to establish an insurance company for conventional mortgages.

Now, my recollection is—and I am drawing on it—that not very long ago the stock of a mortgage insurance company was floated in

the New York market. And if memory serves me correctly, the company was established in the Middle West. I call that to your attention, because there may be some lessons that can be learned from any existing activity.

I also call to your attention the activity of a group of life insurance companies in guaranteeing export credits under the aegis of the Export-Import Bank. And Harold Linder there is an extremely competent banker. That comes under our jurisdiction, too, generally, in the Banking and Currency Committee. And again, I would like you to check with them as to how they put that together and what happened as a result.

For myself, I have a feeling that S. 810 is better than 2130, whatever its number is. I do not think FNMA ought to get in this business. I think every time you try to make one of these agencies do something it was never set up to do you get in a lot of complications; and, in addition, it would hardly be private enterprise.

I think it is possible here to make a private enterprise activity under Federal supervision, and even with a Federal charter. And I think that is your best bet. And perhaps also it should be regionalized. This is an awful big business. That is what I was trying to bring out, and the chairman helped me in getting a breakdown as to how much was conventional and how much was Government guarantee.

I think this is a real thing for you, and I would hope that you would bring us a bill, that you will do very adequate research, that you will pick the bill, not leaving it to us, and we may not agree with you, and if so, we have the power; but you are citizens and with a great interest. If you will bring us the bill which is the vehicle that you think is the best for the purpose, that you will consult others who have had experience in this field; and I hope you will accelerate your timetable and give it to us in January, instead of next spring.

Mr. BUCHANAN. Thank you for that opportunity.

Mr. Coogan. We are planning to do that. This whole policy is in a state of flux at the present time, and we are looking forward to these hearings as part of our education in the

program. Senator JAVITs. I would spend a little money on this if I were you fellows. I think it would be well worth it in getting the necessary legal advice to really do a job on this and give us the real sense of direction on the part of industry.

Mr. COOGAN. Thank you, sir.

Senator SPARKMAN. Is it fair to summarize your presentation in this way—that you believe there is a need for developing a secondary market for conventional mortgages?

Mr. BUCHANAN. Yes, sir.

Senator SPARKMAN. And that it is helpful for us to explore the three measures that have been presented, as well as other suggestions that may come along, try to work out the best we can?

Mr. BUCHANAN. Yes, sir.

Senator SPARKMAN. And we may be assured of your continued assistance and support?

Senator SPARKMAN. Thank you very much.
Mr. BUCHANAN. Thank you.
Mr. COOGAN. Thank you, Mr. Chairman.

(Mr. Buchanan subsequently submitted the following letter and statistics :)

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