of flexibility to it that you couldn't obtain in either a fixed interest rate or in even having the privilege of setting the interest rate different from day to day. You just can't change it from day to day.

Mr. Schwartz?

Mr. SCHWARTZ. I think in terms of flexibility of ceilings on FHA and VA mortgages, I happen to subscribe to the fact that there ought to be somewhat greater administrative discretion there, because you do find the FHA and VA in the position where the markets have outrun them and the instruments they have to offer or have to insure or guarantee are not too practical.

But the Secretary mentioned a point I would like to revert to, which has to do with ceilings in a sense. The Federal home loan bank system faces no ceilings, and the Secretary may recall that last year the Federal home loan bank system on several occasions floated issues so large that people were startled and didn't thing the market could take them. On one occasion we came close to a billion dollars on one issue. And we were able to get money out of the market. But if you are talking about the dimensions of the problem in 1966, and the gap in funds going into the mortgage market was probably on the order of some $6 billion to $7 billion, it would have taken a lot more, a much higher price tag on Federal home loan bank issues.

We would have had to preempt a lot of money going into corporate and Government securities. And I think we just would have escalated the rate pattern because of the size and type of borrower we are. If we have to combat a situation like this, with current market funds, then we are just an awfully big borrower, and if we attempted to do it, we would move that market in a way that everybody would be uncomfortable.

Mr. BARR. I would agree with that, Mr. Chairman. The borrowings of the farm banks were of much smaller proportions than would be those of the Bank Board. There was another factor, too. It seemed a lot of country banks didn't run out of funds as quickly as the city banks. They had money up until August or September, when the city banks were out, and by that time they had met a lot of the seasonal needs of the farmers.

The CHAIRMAN. Let me ask you one more question and then we will have to quit.

I am a little reluctant to put this proposition because I have put it so many times in the past. I have quarreled a great deal with some of our people in the past on the ground that housing is one thing that seems to be regarded as expendable or disposable, deferrable, whatever term you want to use. That is not true with everything. In fact we consider some fields of business and industry so important to our economy that we were willing to give them a tax incentive. Yet instead of giving any kind of tax incentive-I am not asking for that-for housing, it always gets hit first and hardest when we have these tight-money situations.

Now, why can't we do something positive and something constructive to give it the protection we have given to industry and to business? Mr. BARR. Are you talking about a tax incentive, Mr. Chairman? The CHAIRMAN. No, I have said I am not proposing a tax incentive. I am just suggesting an idea. I don't know that I will ask a question of you, but just throw it out as a thought, to regard housing as being

one of the essentials of life, like so many other things are. And I use the illustration that we regard industry and the continuing expansion of industry as being so important that we were willing to give them a 7-percent tax incentive.

Mr. BARR. Mr. Chairman, I can speak for the administration in this regard. I think that housing is a top priority item.

Mr. Maisel has demonstrated the concern that has been expressed at the meetings every 2 months of the Housing Committee. Î think that until last year, Mr. Chairman, we did give housing in this country a priority position. That position was stripped away last year by an extraordinary set of circumstances. Maybe because of the legislative history we developed last year, giving the regulatory agencies the right to restrain some of this fierce competition, we have in a sense restored that priority position. At least it has been the announced intention of this administration and every administration since the end of World War II, that housing should have a priority position in the United States, and we haven't changed that intention.

Up until last year I think it did have a good insulated position. The CHAIRMAN. I could discuss that with you a little bit, but I won't. Mr. Schwartz?

Mr. SCHWARTZ. I would like to reinforce the Secretary's remarks to this extent: In previous economic expansions, if you look back to the middle 1950's, if you look at the 1955-57 economic expansion, the upswing in housing was of fairly short duration. In this expansion housing started up in 1961, and continued strong until 1965. Even before there was tight money, we had a downturn because there was a decline in demand, and there was some overbuilding, particularly in apartment houses. But housing continued to expand quite strongly from 1961 to 1964, even though the economy was moving up.

So I think to some extent the situation has improved. I think we got into a very peculiar situation in 1966, a conjunction of forces that really make the situation extremely difficult.

Mr. MAISEL. Mr. Chairman, one thing, as long as you have asked the question, I would like to set the record straight.

In the compendium on page 453 I am quoted to the exact opposite of a statement I actually made. I have rarely been as misquoted as in this particular case. I wrote the man who quoted me and asked for the reference. He referred me to a speech. I went back to the speech and it said exactly the opposite of what this paper claims I said. I don't know what could have led to such a wrong impression.

Let me just say one thing. I have been working at this problem for a long time and feel as you do. But it isn't enough just to feel this way. There are logical institutional reasons why the mortgage market and the housing market get hit when credit is tight. Housing is a large user of credit. When other users of credit increase their demands, if the mortgage market is not protected in some way, then it does lose funds to the other markets.

What we need is really some type of institutional change. The ideas that I listed in my original statement deal with possible institutional changes. I doubt if they would make a complete difference or anything like that. But we do feel that they are steps along the right way. Unless institutional changes take place in the way in which this market operates, and in its relationship to the general capital market, then

we will be faced with this problem of shortages over and over again. Those who believe that housing ought to have a more protected position, or one that at least is neutral with respect to the capital market, must advocate some further institutional changes.

At the end of the war we had a large number. FNMA has been an important one. But additional progress is necessary as last year made evident.

The CHAIRMAN. Thank you very much. I am glad to hear you say that. That is a good note for us to adjourn on. It is almost 3:30, so I have to leave anyhow.

Thank you very much, gentlemen.

The committee will resume these hearings on the 26th.

(Whereupon, at 3:30 p.m., the committee was adjourned, to reconvene on Monday, June 26, 1967.)

MORTGAGE CREDIT

MONDAY, JUNE 26, 1967

U.S. SENATE,

COMMITTEE ON BANKING AND CURRENCY,

SUBCOMMITTEE ON HOUSING AND URBAN AFFAIRS,

Washington, D.C. The subcommittee met at 10 a.m. in room 5302, New Senate Office Building, Senator John Sparkman, chairman of the committee, presiding.

Present: Senators Sparkman and Proxmire.

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

I hope some other Senators come in. We have a rather heavy schedule and we must finish before 12. The Senate is already in session, and we have a bill coming up soon that we have to handle. So we will move right along.

I understand that all of those who are listed are to appear together as a panel. Mr. John A. Gilliland, president of the Mortgage Bankers Association, accompanied by Dr. Oliver H. Jones, director of research, and Mr. John de Laittre, executive vice president.

Is Mr. Gilliland here?

Mr. DE LAITTRE. Mr. Gilliland can't be here. So Dr. Jones and myself, John de Laittre, will appear.

The CHAIRMAN. Very well.

Mr. Richard W. Baker, Jr., vice president in charge of mortgage loans of the New York Life Insurance Co.; Professor Jack M. Guttentag, Wharton School of Finance, University of Pennsylvania; Mr. Julian Zimmerman, Lumbermen's Investment Corp., Austin, Tex.; Mr. Raymond T. O'Keefe, senior vice president of the Chase Manhattan Bank, New York

Mr. O'KEEFE. I will be accompanied by John Grinch, a vice president.

The CHAIRMAN. Very well. Do you want him at the table?
Mr. O'KEEFE. Yes, sir.

The CHAIRMAN. And Mr. C. E. McCarthy, vice president, Real Estate Loan Department, Bank of America, San Francisco.

All right, is everyone at the table? If we get all of you on our side, we ought to have plenty of mortgage money available.

Gentlemen, we are glad to have you. We have copies of the statements that have been prepared. You may present your respective statements as you see fit, but regardless of how you present them, the entire Statement will be printed in the record.

Mr. de Laittre, we have you first, if you will proceed.