Immediate funding of the rural housing insurance fund at $100 million will enable the insured program to get underway at the estimated 1966 program levels. This will help substantially in closing the tremendous rural housing credit gap and, at the same time, decrease the burden on the Federal Treasury by substituting private capital for Government funds in financing these loans.

Reasons why the Farmers Home Administration needs $100 million to capitalize the rural housing insurance fund.—There is a lapse of time between the date the insurance fund issues the loan check and the date the loan is closed and the note is ready for sale. To assure that adequate funds will be available in the loan insurance fund $100 million is needed at all times to permit the orderly processing of applications. For the past several years the backlog of rural housing applications has been at least $100 million. On June 30, 1965, we had on hand 16,153 applications. We anticipate that under the new legislation the flow of applications will increase sharply.

An estimated $35 to $40 million will need to be available in the fund to permit the accumulation and blocking of loans by terms and types of loans. Rural housing loans will have varying repayment periods. To sell them without loss for the maximum term consistent with good administration, it will be advantageous to group them in blocks. For example, those under 20 years might be one group and those repayable in more than 20 years another. Also, certain investors have indicated an interest in certain type of loans; for example, labor unions have indicated an interest in labor housing loans. Many large banks have several branch banks and will purchase through the branch bank all loans from the State in which the branch operates. This will require blocking of loans by location. The estimated average monthly volume under the new authority will be around 3,000 loans or a minimum of $30 million per month in new activity. This will fluctuate due to the seasonal variations in building operations, particularly in the Northern States. Also, the amount required from the fund will fluctuate from $40 to $100 million, depending on actual cash demands and the ability to advantageously move the loans into private financing.

The estimated sale of loans per month is $30 million. This also will vary, depending on the then current money market conditions. The money market fluctuates from time to time. We need to test the market from time to time and may find that at a particular time no ready market exists for rural housing loans at acceptable terms. Adequate capital must be available to provide sufficient latitude to continue operations and not have to sell in a disadvantageous money market.

There will be fewer investors interested in the longer term loans than in loans made under the existing farmownership program. By selling housing loans for longer terms than we have been selling farmownership loans, we anticipate there will be few local lenders making insured rural housing loans. It will be necessary, therefore, to make most of the loans out of the fund for later sale.

Insured housing loans will be a new commodity in the money market; consequently, they may not be as readily salable as better known paper. This is another reason for having adequate assets in the fund to permit orderly marketing of insured loan paper.

This fund will insure rural housing loans that are expected to be fully repaid.

14 Receipts and reimbursements from non-Federal sources: Sale of loans.. 24.98 Unobligated balance available, end of year..

-260,000

60,000

Salaries and expenses, Farmers Home Administration, 1966

Budget estimate 1966 fiscal year..

Request (for 10 months from Sept. 1, 1965).

"For an additional amount for 'Salaries, and expenses,' $4,000,000."

EXPLANATION OF LANGUAGE

$44,692, 000 $4, 000, 000

5, 675 500

The language for salaries and expenses would provide an additional appropriation of $4 million to be added to the amount contained in the Department of Agriculture and Related Agencies Appropriation Act, 1966, for the Farmers Home Administration to initiate and administer the new insured rural housing loan program.

PURPOSE AND NEED FOR FUNDS

It is expected to use $4 million to employ additional personnel and to meet costs in connection with the estimated $350 million insured rural housing loan program for 1966 authorized by Public Law 89-117 approved August 10, 1965.

Justification for supplemental estimate, fiscal year 1966, for "Salaries and expenses"

At the time the 1966 budget estimates for Farmers Home Administration were submitted to the Congress, no provision was made in the estimates for salaries and expenses to cover the additional cost for administering the proposed $350 million insured rural housing loan program. Public Law 89-117, extends the present rural housing authorities and authorizes an annual insured rural housing loan program estimated for 1966 at $350 million. Supplemental funds of $4 million for salaries and expenses will be needed to make and service loans in 1966 related to the new insured rural housing loan program.

The 1966 supplemental appropriation of $100 million required to establish the rural housing insurance fund is covered by a separate supplemental request.

1966 program level for the new insured rural housing loan authority.-A $350 million level of insured rural housing loans is anticipated for the insured rural housing loan program for the remainder of fiscal year 1966. Families in the lowincome levels would require an estimated $300 million for modest housing and an estimated $50 million would be needed for other applicants. In addition, the rural housing insurance fund will be used to insure farm labor housing loans totaling about $10 million and insure rental housing for the elderly loans totaling about $15 million which are presently insured through the agricultural credit insurance fund. It is estimated that in 1966 approximately 36,000 loans for modest housing averaging about $8,300 each will be made to low or modest income families in rural areas at a 5-percent interest rate. In addition, 4,000 loans averaging about $12,500 each will be made to other rural applicants at a 54-percent interest rate. Administration of loan program under new authorities.-The supplemental estimate of $4 million is needed (1) to provide real estate appraisal and engineering assistance required to process the additional insured rural housing loans, (2) to strengthen the county office staffs working directly with applicants for loans, (3) to meet the added cost of county committee expense involved in reviewing applications, and (4) to meet the other related administrative costs. Pyramiding workload increases each year have more than absorbed manpower and management savings and created tremendous workload burdens on all Farmers Home Administration personnel. The Farmers Home Administration is without capacity to absorb any of the added administrative costs within the regular salaries and expense funds provided for fiscal year 1966.

Engineering and appraisal services.-The volume of insured rural housing loans estimated under the new rural housing insurance authority will require engineering and appraisal assistance from the State office to bolster the engineering and appraisal services now available for making appraisals, checking housing and farm building plans for conformity to accepted building standards, and to inspect construction. This estimate includes funds to strengthen the engineering and appraisal requirements of the expanded program. An estimated 50 engineers and appraisers will be required primarily at the State office level to assist in this work throughout the State.

County offices. The principal portion of the supplemental estimate will be used for additional county supervisory and county office clerk employees urgently needed to process applications. Present county office employees are fully occupied with the tremendously increased volume of loan activity authorized in the appropriations for 1966 and are unable to absorb any of the additional workload involved in processing the added number of applications and loans that will result from the $350 million insured rural housing authority. Rural families and farmers applying for Farmers Home Administration credit assistance in recent years have increasingly complicated financial problems which require county office employees to devote much more time to the individual applicant and loan making and loan servicing processes than heretofore. It is estimated that an additional 200 supervisors and 200 clerks will be required at the county office level.

Additional employment.-The $4 million supplemental increase is needed for administration of the new rural housing insured loan program. An estimated additional 500 in average annual employment for 1966 with 460 additional yearend employment will be required by the Farmers Home Administration. Temporary and committee employment will represent about 180 of the man-year needs.

Mr. WHITTEN. Mr. Bertsch, we are glad to have you. I think you might give us your general statement, following which I wish you would provide the committee with a listing of the various programs that you handle and the amount of funds that you have and from what source, with a brief description of each of these programs.

This committee in years past has done its part in trying to direct many of these new programs to your agency feeling that you were by background and training better able to handle them than any other. As a result I know you have to say grace over a wide variety of programs which makes it not only difficult for you to handle them, but also leads to a considerably increased overhead cost. It is also difficult for the committee and the Congress to keep straight just what you do.

I would be glad to have your prepared statement and then I wish you would address yourself to these points that I raised.

GENERAL STATEMENT

Mr. BERTSCH. Thank you, Mr. Chairman.

I appreciate the opportunity to appear before this committee to discuss the supplemental appropriation requests of the Farmers Home Administration. The supplemental needs are for $100 million to capitalize the rural housing insurance fund and $4 million for salaries and expenses to administer the insured rural housing loan program provided by title X of the Housing and Urban Development Act of 1965. I emphasize that the $100 million capitalization of the insurance fund is a one-time item, not a recurring expenditure.

The testimony presented when title X was being considered by the Congress included evidence on the compelling reasons why these insured rural housing loans should be made available to rural families as soon as possible. These reasons are:

1. The quality of housing in rural areas is greatly inferior to housing in larger cities. A third of our population lives in rural areas. This third of our Nation has as many substandard homes as the two-thirds living in cities.

2. Housing credit is more difficult to obtain on farms and in small rural towns than in the larger cities. This credit gap is one of the main reasons for the inferior quality of so much of our rural housing. In addition to housing credit generally being more difficult to obtain, in rural areas the downpayment is usually higher, the time given for repaying is shorter, and the interest rate is higher than in urban areas. 3. There is a vast difference in the extent to which families in the cities have benefited from Federal housing programs compared to those in the country.

To more adequately meet the housing credit needs of rural families, Congress wisely authorized an insured loan program under which most of the rural housing loans now will be made.

The insured loans will be backstopped by the rural housing insurance fund. We anticipate that some loans may be made by local lenders but most of the loans will be made out of the fund and then sold to investors.

The law permits up to $300 million in new loans being made each year to families with low or moderate incomes. Additional loans may be made to families with incomes above the moderate level. The