The Federal Home Loan Mortgage Corporation (FHLMC) has announced a program which will provide $10 to $20 billion in increased liquidity to the thrifts in 1982. NAHB supports the provision of S.1703 and S. 1720 which would remove the limitation on the number of mortgages more than one year old that the FHLMC could purchase; The Federal Home Loan Board recently issued regulations for new accounting procedures which will allow S&Ls to amortize the loss from the sale of below market rate loans over a longer period; Sales of All Savers certificates met or exceeding expectations at most thrifts across the country during the first week of their offering. These certificates should lower the net cost of funds to the thrifts; and The availability of alternative mortgage instruments such as the adjustable rate mortgage (ARM) should ensure that the thrifts can offer mortgages in the future which reflect current market rates. We would like to see the regulatory agencies and the secondary market lead the effort to standardize the ARM investment in order to increase consumer and market confidence. (See Attachment A) WHAT ABOUT HOUSING? At a time when housing is at its lowest levels of production since World War II, there appears to be an uncoordinated but real political attack on housing and housing finance - just when a record number of young families are about to enter the housing market. What are the elements of this attack? A broadside against the basic FHA insurance and VA guarantee An attack by the Office of Management and Budget on the federal The Treasury Department's position opposing legislative changes essential to allow for a workable tax-exempt revenue bond program for single-family and multi-family housing. O Recent critical examination of the basic homeownership interest deductions, which represents the most significant Federal encouragement of homeownership. Continued assertions that too much credit is going to housing even though the most critical problem facing housing in this decade is lack of an adequate and stable supply of affordable credit. Over reliance on a tight monetary policy which has helped to create extremely volatile financial market conditions and a catastrophe for the housing industry and the housing consumer. And now...the Financial Institution Restructuring Act. The only recognition by Treasury Secretary Regan in his written statement on Monday of the impact of this proposal on housing finance is his assertion that "providing thrift institutions with new asset powers need not diminish their contributions to housing finance." If, as the Treasury Secretary states, thrifts "are likely to continue expanding" their real estate lending activity, why is there a need for unlimited expansion of their powers? If Congress is now running the beach crying "shark" about thrifts' mortgage investments and the need to diversify, when will you tell the thrifts that it is "safe to get back in the water?" And will the housing consumer be the first... and only...victim of JAWS? In addition, what assurance is there that it is in the interest of thrift institutions to diversify into consumer or commercial loans? Secretary Regan indicates that "their area of greatest-expertise" is real estate lending. Federal Reserve Board Vice-Chairman Frederick Schultz has observed that such an expansion of powers could greatly endanger the financial stability of the thrifts because of their lack of expertise and the great pressure on the thrifts to hastily move into these new areas. Mr. Chairman, we recognize the need for adjustment to new realities in the financial system. And we would support the transition to any new system which would lead to a more efficient, equitable, adequate and stable flow or mortgage credit. However, the thrust of this bill is in the opposite direction, and no consideration has yet been given to the development of an alternative mechanism for providing housing credit. SAVINGS AND LOAN SERVICE CORPORATIONS NAHB opposes the provisions in S. 1703 and S. 1720 which would increase from 3 to 5 percent the portion of assets which thrifts can invest in their service corporations. There should not be any increase in the power of S&L service corporations unless it is ascertained that service corporations are not involved in anti-competitive business practices and are not in violation of anti-trust law. NAHB's members across the country have noted an increase in anti-competitve business practices by service corporations engaged in direct development, construction and sales of new housing. We are most disturbed by the practice of S&Ls offering below market rate mortgages to consumers purchasing new homes from in-house corporations, while purchasers of resale housing or new homes built by independent contractors are denied financing or are forced to pay much higher rates of interest. The legislative history of S&L service corporations indicates a desire by Congress to permit S&Ls to pool resources for the purchase of data systems and the establishment of processing centers, not for real estate development activities. NAHB has documented evidence in Saginaw, Michigan; Greenville, South Carolina; and Wheaton, Illinois of anti-competitive activities lots. by service corporations such as refusals to deal with unaffiliated builders and lending at differential interest rates. In some instances, builders have been driven out of business. In Saginaw, service corporations controlled approximately 75 percent of the buildable NAHB was able to rectify the situation by bringing this issue to the attention of the offices of the state Attorney General and the state bank regulators. The service corporation activities were found to be in violation of Michigan state anti-trust law. In Greenville, four service corporations control over 2800 lots in the two county metro area. Lenders are reported to refuse to deal with builders who are not in joint venture or otherwise affiliated with service corporations. We The Greenville situation has not been resolved. believe that this issue has not been adequately dealt with by the Federal Home Loan Bank Board. And such activity does not create the so-called "level playing field" which was discussed most recently when Treasury Secretary Regan proposed even further expansion of direct real estate investment by thrift institutions and commercial banks in his testimony on Monday. We must remember that some Romans believed that the Christians and the lions were competing on a "level playing field" at the Colosseum. COMMERCIAL BANKS-REVENUE BONDS I would like to express our support for Section 301 of S. 1720, which would authorize commerical banks to underwrite municipal revenue bonds. NAHB has had policy supporting similar legislation for several years and believes that it is important that this legislation be enacted. While high interest rates and inflation have sharply restricted our ability to produce needed housing, the homebuilding industry has for many years been confronted by soaring land prices. This has been largely brought about by a shortage of sufficient developable land with utilities and other public facilities available to serve prospective residents. These utilities and facilities are provided by local governments who must turn to the capital market to finance their construction. Most often, local governments issue revenue bonds which banks are ineligible to underwrite. The expanded competition that banks will give for these bonds will help bring down their cost and, therefore, make it easier for local governments to provide the infrastructure needed to support housing in their communities. CONCLUSION Mr. Chairman, some have said that the future of housing is not tied to the future of the thrift industry. And that may be true. We recognize the need to tap new resources in the credit market and we know that pension funds represent the single largest part of longterm investment capital today with assets of $600 billion. Public and private pension funds are expected to reach a level of $1.3 trillion by 1985. We may be willing to shop at Sears; we are as bullish and the long-term prospects for housing on America - as Merrill Lynch. But in the atmosphere of chaos and uncertainty in the financial markets today, please do not alter the path we have followed successfully for the last 50 years. We stand ready to work with this Committee to chart the path of if that is what is necessary. a new direction for mortgage finance - We would strongly urge that these hearings be broadened to discuss the long-term need for mortgage credit and how that need would be |