the supply picture, I think, is maybe not meant; and it certainly is unwarranted.

Senator MUSKIE. In other words, that statement

Mr. WEAVER. This is a selective situation; yes, sir.

Senator MUSKIE. Well, what housing markets were overbuilt?
Mr. WEAVER. Well, there were some on the west coast-

Senator MUSKIE. I wasn't speaking so much of the geographic

areas

Mr. WEAVER. Multifamily housing.

Senator MUSKIE. Now, in your paper, you were very careful to point out that you were making projections and not predictions. A wise, cautious approach.

Mr. WEAVER. Well, it seems to me if you look at the long-range problem-by this I mean the problem of the next decade-the first thing to decide is whether or not under any set of circumstances that might occur, could we fiind enough money, enough savings to meet our capital formation needs and our investment needs, and in that exercise, we came up with making certain assumptions which seemed to be possible. We concluded that, with those assumptions, the answer was yes, we could do it.

Then we went back and looked at the short range, the cyclical type of thing, saying that even under those circumstances we might still get into difficulty. But if we had come to a negative answer to our first input, there would be no reason for the second.

Obviously you would have to have done something basic for that

purpose.

Now, this is not caution so much as just an orderly way, it seemed to us, approach to this problem, because there were many people saying that under no circumstances could we hope for adequate funds.

Senator MUSKIE. Now, in terms of housing needs, are there any market areas which you think are well-served over the long range?

Mr. WEAVER. I think I would yield to Secretary Brownstein here, but my guess would be at the present time the higher rental apartment and the higher priced home-individual home-would fall in that category, in general.

I think Secretary Brownstein

Mr. BROWNSTEIN. The heavy pent-up demand, Senator Muskie, is in the low and moderate income group. As a matter of fact, the heaviest of all is in a group that can't afford the housing unless there is some form of subsidy built into it.

Senator MUSKIE. So that the cyclical problem lies in the same areas as the second problem lies; is that a fact?

Mr. BROWNSTEIN. In large measure, yes.

Senator MUSKIE. Now, to what extent in dealing with the cyclical problem do we need to address ourselves to the second problem? And to what extent would the measures dealing with the latter moderate the former?

Mr. BROWNSTEIN. Well, of course, the Congress did address itself to the latter in providing the rent supplement program, for example. This is an area of tremendous need, one that really has gone unattended for a good many years. We are very hopeful that the Senate will restore the rent supplement authorization that we have asked for this year. This is the area, really, of the greatest need.

Senator MUSKIE. Now, most of the pressures that this Senator received last year did not come from institutions dealing with the moderate or low income problem, but from institutions dealing with that market area which you say is well served, long-range, by

Mr. BROWNSTEIN. I don't think, Senator Muskie, we say it is well served. I think we say it is better served, although I do believe, also, that we are reaching the point where we may develop housing shortages in certain localities in the higher ranges as well as in the lower. Unless we can assure an adequate flow of mortgage credit, I think that this could become quite serious.

Senator MUSKIE. So what we need is a fundamental rearrangement? Mr. BROWNSTEIN. Yes. We need

Senator MUSKIE. All housing markets.

Mr. BROWNSTEIN. We need a reform which will serve all of the housing markets.

Senator MUSKIE. I would like to ask Mr. Dervan one or two questions. I didn't get a chance to read your statement thoroughly, but it seems to me I noted in glancing over it that despite the sharp drop in VA loan activity in the first half of 1966, the second half recovered very well, and also the first half of 1967; is that correct?

Mr. DERVAN. We were hard hit during the first 4 months of 1966. A recovery was made from that point through the end of December of 1966, but this recovery, Senator, was due primarily to the fact that a new body of veterans; namely, the post-Korean veterans, totaling some 4.3 million, became eligible for the GI loan, and with this wider body of eligibility, naturally more loans were made than had a lesser number of veterans been eligible. As a matter of fact, beginning in April and running currently, about 70 percent of our present loan volume are loans to veterans of the post-Korean era, rather than loans to veterans of World War II, or the Korean war.

Senator MUSKIE. So actually there was no real recovery?

Mr. DERVAN. No. As we analyze it, there was a very substantial decline.

Senator MUSKIE. Now, with respect to your overall program, what income level do you cover most?

Mr. DERVAN. Well, our average loan to purchase a newly constructed home in 1966 was in the area of $18,000: and the average loan to purchase an existing, previously occupied property was roughly $16,000, in that level.

Senator MUSKIE. Is this true of both the guarantee and direct loan programs?

Mr. DERVAN. No, sir. In the direct loan program it is considerably lower. As you know, the direct loan program is in the rural areas and small cities and towns, and I would say that currently our average direct loan is running around $12,800.

Senator MUSKIE. Even with that program, you are not really hitting the low income market?

Mr. DERVAN. No, sir.

Senator MUSKIE. What can you do to reach the low income veteran? To what extent is there a low income problem?

Mr. DERVAN. Well, I would say this, Senator. The terms on which GI-by that, I mean loans which we would guarantee, made by private lenders, and direct loans are available, are the most liberal possible;

namely, no down payment, that is 100 percent financing, and 30-year term, thus any problems is solely a problem of income with these individuals.

Senator MUSKIE. Have you made any analysis of the incomes of the people that are served by that building program?

Mr. DERVAN. Well, we have an analysis, of course, of the income of those who have applied to us for loans and have received loans, and roughly after taxes, I think it was about $600 a month.

Senator MUSKIE. That group doesn't approach the poverty level

at all.

Senator PROXMIRE. Would Senator Muskie yield?

Senator MUSKIE. Yes.

Senator PROXMIRE. It is my understanding that the rate used to be 4 percent. Is it now increased? Is it now 6?

Mr. DERVAN. Yes. The rate originally, when the program started, Mr. Chairman, was 4 percent. It currently is 6 percent, the same as the rate of FHA-insured homes.

Senator PROXMIRE. Does this have any effect-I presume it has some effect; does it have a substantial effect in eliminating veterans from the market?

Mr. DERVAN. Well, I would think at whatever level a rate is set, for example, 534 as opposed to 6, as an increase occurs, you necessarily force an ineligibility of a number of veterans; or alternatively, you force the home buyer to seek a lower cost house than perhaps he might desire.

Senator MUSKIE. Now, is that an advisable, identifiable effect that you are describing? Or is it simply theoretical?

Mr. DERVAN. Well, I think to some extent it is theoretical, but as a practical matter, I also think that it is a tangible factor, Senator, Senator MUSKIE. How much of a rate increase would you need to detect and measure that kind of impact?

Mr. DERVAN. Well, certainly, to take a figure the chairman used, if you were to move overnight from 4 percent to, say, 6 percent, then very definitely the influence would be much more apparent than when you moved from 534 to 6 percent.

Actually I would say I would conjecture in this respect-that when you move from 534 to 6, only a quarter percent move, that the rate is more negligible than substantial.

Senator MUSKIE. But still noticeable?

Mr. DERVAN. Yes, sir.

Senator MUSKIE. What is the source of GI loan funds?

Mr. DERVAN. Well, the prime investors in the GI loan funds, Senator, are mutual savings banks, savings and loan associations, life insurance companies, and more lately, commercial banks. And I use the term investors in the sense of the ultimate lodging place for these loans. The originators are primarily real estate and mortgage loan companies with savings and loans associations, and mutual savings banks doing some origination.

Senator MUSKIE. To what extent, if any, did the members drop out of the program in 1966?

Mr. DERVAN. Well, I think there was a general dropping-out by all of those who are mortgage-oriented, primarily mutual savings banks, savings and loans, and life insurance companies, to some extent. The

principal decline, I think, was in the purely mortgage-oriented institutions, such as the mutuals and the savings and loans.

Senator MUSKIE. Would you say the drop is out of proportion to the general decline of available funds?

Mr. DERVAN. Well, I don't have figures which would establish this. but I would suppose that an investor looking at his situation might be more inclined to drop first on the hundred percent financing than he would from the conventional financing, which involves as much as a 20 to 30 percent downpayment.

Senator MUSKIE. I have some questions I might ask of the Farmers Home Administration, if they are not raised by the other members of the committee, but I will yield to Senator Mondale at this point. Senator PROXMIRE. Senator Mondale.

Senator MONDALE. Thank you, Mr. Chairman.

Mr. Secretary, in your testimony on page 6, you recited some of the general national statistics, showing the adverse impact of the tight money situation on housing. I wonder if you have figures to help us better understand the impact of this tight money market upon low-income people seeking housing? I think we can presume private lenders are seeking the low-risk mortgages. This makes it difficult for the lower income families who are considered high risks to obtain housing mortgages, particularly when they live in the older and less attractive neighborhoods. These conditions being constant, and then adding to them this extremely tight money situation, we have a quantified picture of what its impact was upon the very poor in our country.

Mr. WEAVER. Well, two things I think should be said there. As far as the very poor are concerned, it is impossible to have-as far as I have been able to discover-a program of homeownership without some form of subsidy. We had one program there which was not one of homeownership, it was one of rental housing which Secretary Brownstein has spoken about. This was set up to be financed in the private market, but since the rates were going up so high and the mortgage money was drying up, we had to go through FNMA special assistance in that program, or else the program would have ground to a halt. There were the opportunities of higher interest rates on somewhat riskier loans, while these loans have much of the risk taken out of them because of the rent supplement guarantee. Also, a large proportion of FHA insured mortgages today are utilized for existing housing, and an increasing amount of that is going into income groups and areas where it hasn't gone before.

Maybe Mr. Brownstein will want to add to that.

Senator MONDALE. I appreciate that there are some in America whose income is so low that the FHA insurance program is not available to them in any event

Mr. WEAVER. Millions of them.

Senator MONDALE. But there are some at the margin, who I assume, because of tighter credit and higher interest rates, were no longer in a position where the FHA insurance program was no longer available to them.

Do we have any figures on the impact of tight money? Last year on the basis of tight money how many people were suddenly out of the

Mr. BROWNSTEIN. There are no precise figures on this, Senator Mondale. However, I think of even perhaps greater significance is the fact

that in a tight-money period, such as the one we experienced in 1966, the funds which are available become available on very selected terms and to very selective people, and here again, your low-income people are placed at a further disadvantage, because the limited supply of funds which is available can be put out on higher downpayments, shorter terms, and to better credit risks. This places those who are already competitively disadvantaged to an even greater disadvantage. Senator MONDALE. Well, would it be possible to quantify the impact of tight money on the availability of FHA insured housing for the lower income groups so we can get some idea of what the cost has been of this drastic situation on the poor in America?

Mr. BROWNSTEIN. I doubt that we could supply anything very meaningful. We could supply-I don't know what this would show, really— data that would demonstrate what the price range is for, say, a period of 4 or 5 years, including the 1966 period. The income levels of the mortgagors during that same period and the downpayments that were made-we could supply this for the record.

Senator MONDALE. Mr. Chairman, I would like to let that question stand, and see if the officials can come up with some good estimates to include in the record.

Senator PROXMIRE. Yes; indeed.

(The following information was subsequently provided for the record:)

INCOME AND VALUE DATA FOR FHA-INSURED HOME MORTGAGES, 1963-66 Tables are provided which show, in numbers and in percentages, the distributions by total family income and by property valuation for the new and existing home cases insured annually since 1963.

Attention should first be directed to the fact that a persistent secular trend toward higher incomes in the Nation (reflecting increased productivity as well as inflation, and possibly redistribution of income shares) is evident in the upward shift in income distributions of FHA home-buyers. With respect to Senator Mondale's questions, the decline in size of the lower income intervals in 1966 was disproportionately great for new home cases but disproportionately small for existing home cases.

Similarly, with respect to valuation distributions, presistent national trends toward production of higher value homes (reflecting both cost increases and higher quality homes) and higher prices for existing homes (largely inflation) are evident in value distributions for new and existing FHA homes. The decline in importance of lower value groups from 1965 to 1966 was disproportionately great for new home cases but disproportionately small for existing construction cases in comparison with previous annual changes.

The most significant of these annual changes in distribution are as follows: