Mr. HORNE. But I'll be glad to discuss it here, sir, if you wish. Senator ALLOTT. Well, let us take these up as we come to them, and then I think it will be fresh in my mind.

Mr. HORNE. All right, sir.

Senator ALLOTT. I am a little bit surprised, considering the information I have received from my own people in the savings and loan business in Colorado, that there would be an increase in assets of $6.5 billion, with all the pressures that are on the savings and loan people for competition with money.

For the sake of the record and my own information, would you discuss this a little?

Mr. HORNE. Yes, sir.

I should also ask the members of the staff to feel free, if I may, sir, to add anything to what I have to say.

Senator ALLOTT. I would be very happy to have them do so.

EFFECT OF CD'S ON SAVINGS

Mr. HORNE. You have two things of importance here: One is the assets and the other is the total amount of savings. It is the savings primarily that is being affected directly by the CD's. This would indirectly affect the assets, also.

Also, it wasn't until the latest action taken by the Federal Reserve Board in December of 1965, at which time the Board not only increased the discount rate to 4% percent, but also put a ceiling of 5% percent on the maximum that could be paid for CD's.

At the same time, there has been developing and the Feds' action in December contributed to it-a greater and greater participation or play in the CD's. You see, it started out several years ago with the use of CD's restricted primarily by practice to large amounts. Now they are transacted in all sorts of sizes, from $19, $25, $50-you name it, you can get it. They also have become automatically renewable.

It is all of these fancy ways that are being used that have, since December 1965, begun to have an effect on the savings flowing into, and also flowing out of, the savings and loan associations.

Senator ALLOTT. Yes; but as you point out, your statement here reflects the assets, but indirectly this situation which directly affects the savings affects the assets.

Mr. HORNE. Yes. This took place, as I say-the figures I am talking about here are primarily figures that were developed prior to the Federal Reserve Board's action in the latter part of 1965: that is, in December 1965.

Senator ALLOTT. Now, in the next paragraph-and we will go into this further when you get into it in your statementMr. HORNE. All right, sir.

OTHER SOURCES OF MORTGAGE FUNDS

Senator ALLOTT (continuing). You speak of 43 percent of the Nation's home financing activities. Where is the other 57 percent?

Mr. HORNE. It comes primarily, I think, from about three other sources; a great deal of it where mutual savings banks are in existence—and this is in the Northeast primarily, with some throughout the Midwest and Northwest.

Mr. HORNE. The commercial banks have also contributed in this area, Senator Allott, and the life insurance companies are a source of lending in this area. There are also private individuals, but the three sources I have named besides the savings and loan associations constitute most of it: the insurance companies, the commercial banks, and the mutual savings banks.

Mr. Schwartz, do you have any comment on that?
Senator Allott. Do you have any percentages on that?

Mr. SCHWARTZ. We can submit them for the record. I don't have them here today. But it is about 14 percent from the mutual savings banks and about the same percentage from the commercial banks and the insurance companies. Then the remainder would be individuals, what we call individuals and others.

Senator ALLOTT. Would you also supply those figures for the record?

Mr. SCHWARTZ. Yes, sir. We have a regular table on that, sir. (The information follows:)

FEDERAL HOME LOAN BANK BOARD, WASHINGTON, D.C., ESTIMATED HOME

MORTGAGE DEBT, 1965 Preliminary estimates of outstanding home mortgages at the close of 1965 are presented in this report. “Home” loans include all mortgage loans on one-to-four family nonfarm residences, regardless of occupancy status (owner-occupied, rented, and vacant).

The net increase in home mortgage debt amounted to $15.3 billion in 1965, slightly under the previous-year figure of almost $15.4 billion. All types of lenders except savings and loan associations increased their outstanding loans in greater amounts than during 1964. Of the total net gain, savings and loan associations accounted for $6,575 million or 42.9 percent, in contrast with $7,981 million and 51.9 percent a year earlier.

Commercial bank portfolios rose $2,758 million or 18 percent of the total 1965 addition, up from $2,310 million and 15 percent. Mutual savings banks' home mortgage holdings increased $2,780 million, compared with $2,677 million in 1964, raising their share of total net gain from 17.4 percent to 18.1 percent. Life insurance companies added $1,602 million or 10.5 percent of the overall increase, up from $1,375 million and 8.9 percent. Individuals and others accounted for $1,242 million of debt expansion as against $1,213 million in 1964 and their share of the total debt increases rose from 7.9 percent to 8.1 percent. Federal government agencies showed a net increase of $362 million, in contrast to a net decline of $168 the year before. Comparable figures for the last quarter of 1965 are shown in Table 2.

At December 31, 1965 estimated mortgage debt on nonfarm homes was about $213 billion. Savings and loan associations held 44.0 percent of this amount; at the other extreme federal government agencies accounted for 3.0 percent. Holdings of individuals and others represented 10.5 percent, and the remainder of outstanding debt was divided almost equally among life insurance companies, mutual savings banks and commercial banks, each type of lender holding approximately 14 percent.

63-054—66—pt. 2-10

Table 1.-Estimated mortgage loans outstanding on 1- to 4-family nonfarm homes,

December 1925-December 1965

1 Covers all operating savings, building and loan associations, homestead associations, and cooperative banks. Based on reports of FHLB members and of State supervisory authorities. Source: Federal Home Loan Bank Board (FIILBB).

2 Covers all legal reserve life insurance companies. Based on mortgage investment data reported by life insurance companies to the FHLBB and the Institute of Life Insurance. Source: FHLBB.

3 Based on summary call report data for all mutual savings banks reported by FDIC and Comptroller of Currency, residential financing survey of the Bureau of the Census, FHA and VA records, and supple. mentary information. Source: FULBB.

Based on summary call report data for State and National banks. Source: Board of Governors, Federal Reserve System.

TABLE 2.-Estimated mortgage loans outstanding on 1- to 4-family nonfarm homes

[Dollar amounts in millions]

ASSETS OF INSURED SAVINGS AND LOAN ASSOCIATIONS

Mr. HORNE. We think it may be of interest to the committee, too, that while the 4,500 insured savings and loan institutions represent only 72 percent of all savings and loan associations in the country, they hold-numberwise, they hold over 96 percent of the assets of all savings and loan associations. These institutions also increased their reserve for losses in fiscal 1965 to $7.9 billion, an increase of 11 percent over fiscal 1964. Such reserves represent 7.7 percent of the total savings accounts.

Senator Allott. Now, could I ask a question?
Senator ELLENDER. Yes.
Mr. HORNE. Yes, indeed.

Senator Allott. We still have never been able to blanket all these people in, and I am not sure we want to blanket them in by law. But generally speaking you have covered by the Savings and Loan Insurance Corporation all but 4 percent? Mr. HORNE. Yes,

sir. Senator ALLOTT. This may be the reason that remaining 28 percent is so small in numbers.

Mr. HORNE. That is right.

REASONS FOR NON-INSURED ASSOCIATIONS

Senator ALLOTT. What is the basic reason that these small insurance people, these small savings and loan people do not come in?

Mr. TREVAS. Some of these aren't in full time operation. They may meet once a week, they may be on the second floor of a building.

Mr. HORNE. Or they may be run as an association in connection with other activities that could very well constitute a conflict of interests, such as a real estate person who also runs a little savings and loan operation, or a banker, or somebody else who has a direct interest in the tying together of the operations. Senator Allott. Would most of these be precluded by law by one

or another Mr. HORNE. Not necessarily by law, Senator. But they are precluded by the regulations that we have, in which we try to avoid a conflict of interest. When they get to a certain size, we want them to have an independent operation, want them also to have a ground floor location, and full-time, expert management.

Many of these are run, as Mr. Trevas has pointed out, purely on a part-time basis. We had one that came to our attention just a few days ago, that came to my personal attention, for example, in which it is open only one night a week. I believe it has eight directors, and each of these directors takes his turn in handling its affairs on this one night a week when it is open. So they come around every eighth week; each one would be in charge of the evening operation of this particular savings and loan association.

Senator AllOTT. All right; thank you.

Mr. TREVAS. The only other thing I can add to this, Senator, is that State-chartered institutions come in and apply for insurance, whereas Federals are required to. If a State-chartered institution doesn't choose to carry insurance for one reason or another, there is no way to compel them to do so.