We believe this data represents an equitable relationship between our borrowing and savings members. The difference between the interest received and dividends paid is (1) set aside for reserves against losses on a total mortgage portfolio composed of 77 percent conventional mortgages; (2) used to pay premiums on insurance to the Federal Savings & Loan Insurance Corp.; and (3) used for operating expenses which, needless to say, have increased substantially during the period 1943-56, and are continuing to increase.

MORTGAGE INSURANCE CONVENTIONAL LOANS (S. 2791)

Over the past several years we have felt that there should be a place in our system of mortgage credit for an intermediate position between self-insurance on the one hand, represented by the conventional loan, and on the other, the social insurance represented by the FHA and VA. Our original approach to this problem was materially influenced by the success British building societies, comparable to our savings and loan associations, have had with mortgage guaranties by private insurance companies.

Under the Building Societies Act a building society is permitted to increase the normal loan-to-value ratio if additional security is provided in one of several permitted forms. One form of additional security permitted by the act is a guaranty given by an insurance company, whereby if the lender should sustain any loss on the sale of property following default by the borrower, the insurance company would refund to the lender that part of the loss which is attributable to the excess amount advanced. The loan-to-value ratio is 95 percent for lower cost homes and 90 percent for those in a higher category, and the premium for a first-class risk is 72 percent of the excess loan, which cannot exceed 15 percent of the total loan. Senator BUSH. That is a one-payment premium?

Mr. BENT. Yes.

Senator BUSH. A single payment?

Mr. BENT. Yes.

Senator SPARKMAN. And that is made a part of the mortgage. It becomes a part of the mortgage.

Mr. BENT. I would assume it would be a part of the closing costs. The fees are like legal fees. I assume that is the way it is handled. I am not certain of that.

The system has worked well in England. In 1955, our National League membership directed that we seek similar arrangements with American companies. We found, however, that the insurance companies either could not, or were not generally interested in writing policies on loans above 80 percent and we think a 20-percent equity by the owner is sufficient insurance of itself.

As the committee may recall, last year we sought authority for our associations to invest in a private service corporation designed primarily to tap pension funds, but with the thought that the powers of the corporation might be later extended to include the furnishing of other services to the savings and loan system. Here again we ran into difficulties in the form of an inherent conservatism of corporate trustees. Generally speaking, they are not particularly interested in new forms of private securities. We are, however, continuing our

work toward creating an interest on the part of corporate trustees in bonds or debentures secured by home mortgages. We do believe the idea of a private service corporation is a good one and if the committee so desires, its powers could be specifically limited to providing mortgage guaranties on conventional loans.

We are supporting the bill currently before the committee which in effect apportions risk of loss between the individual lender and those who participate in a group arrangement for spreading the risk. That support, however, is tempered by a fear grounded in experience that Government assistance, however remote, is usually accompanied by detailed regulation which necessarily introduces rigidities in the mortgage credit structure. One of the remarkable features in the pattern of postwar housing starts has been the comparative stability of conventionally financed housing. One reason for this stability in conventional financing is its ability to adjust to changing market conditions. We could not agree to any amendment to this bill which would have the effect of introducing rigidities into the conventional system.

A great majority of our member associations believe that a 90percent mortgage on a low-cost home is a sound investment without additional forms of security. The experience of the Home Owners Loan Corp., the VA and FHA, plus our own experience with conventional mortgages, adequately supports this belief. We are now trying to convince the Federal Home Loan Bank Board that a higher percentage loan on a limited scale on homes under $15,000 is entirely in keeping with our charter objectives of providing sound and economical home financing, and should be permitted by regulation.

INVESTMENT POWERS, FEDERAL SAVINGS AND LOAN ASSOCIATIONS

Under section 5 (c) of the Home Owners Loan Act the investment powers of Federal savings and loan associations are limited primarily to "first liens upon homes or combination of homes and business property." In addition, these associations may make loans on the security of first mortgages on "other improved real estate" not exceeding 20 percent of assets; in Government bonds and bonds of the Federal Home Loan Bank and Federal National Mortgage Association. All other financial institutions including State-chartered savings and loan associations are given much broader powers to diversify their investments. For example, in at least 14 States, State-chartered associations may make equity investments in housing; 37 States authorize investments in State obligations, and approximately half the States authorize the purchase of bonds issued by municipalities and other political subdivisions. In most cases the authority to make these investments is limited to a percentage of assets or left to the discretion of State supervisory authorities.

We recommend that this committee consider authorizing similar powers for federally chartered associations. Diversification is, of course, important to investment institutions. But even more important from the standpoint of housing is the need to bring more private capital into the development of community facilities. We are falling further and further behind in producing schools, streets, water, and other facilities that are a necessary part of housing expansion.

As holders of 37 percent of the home-mortgage debt, we have a vital interest in community development. We want to be of assistance.

Our cities and towns, in a large part, must finance these needed facilities by borrowing in the capital markets where the lenders' interest is limited to soundness and yield on the investment. These factors are, of course, important to any financial intermediary investing the savings of individuals. In addition, our associations have a stake in these communities.

As a pilot program we would like to see the board given authority to permit Federal associations to make limited investments in bonds issued to finance community facilities in the area where the association is located. If the committee thought advisable the exercise of such authority could be put on a prior approval basis.

Under our statutes we cannot make equity investments in housing, or make any loans on the security of unimproved property. Yet one of the biggest problems in housing today is finding adequate capital to purchase and develop sites for homebuilding. The problem grows more acute as we move out from the larger metropolitan areas. Our associations could do much to alleviate this problem if we were permitted to make limited equity investments in land for development and sale. We should also be permitted to make loans on the security of unimproved property that is to be developed for home sites.

REMOVAL OF LIMITATION ON INSURANCE OF ACCOUNTS

The removal of the $10,000 ceiling on savings account insurance would, in our judgment, produce a substantial increase in funds available for home financing with only a negligible change in the contingent liability of the Federal Savings & Loan Insurance Corporation. About 97 percent of all accounts in insured savings and loan associations are covered by insurance. Removal of the limit would, therefore, increase the contingent liability of the insurance corporation by only 3 percent.

The present ceiling presents no problem to the great majority of our members. It is an impediment to the large investors such as the pension fund trustees. We cannot effectively compete yield-wise for these funds. Our main inducement is insurance, but the large investor is not particularly interested in a $10,000 investment. Consequently, the insurance ceiling is a block to an indirect investment of funds in mortgages through savings accounts.

We are assuming that this committee would have jurisdiction through these hearings to consider a recommendation for removal of the limitation. In any event, we believe such an amendment would increase by one-half billion dollars annually the amount of money available from our institutions for financing homes.

CONVERSIONS, STATE MUTUAL TO STATE STOCK (S. 2872)

The subject covered by S. 2872, namely, conversions and insurance of accounts in State-chartered stock associations, is now under consideration by the House Banking and Currency Committee as a part of the Financial Institutions Act. As you know, this act passed the Senate and hearings on the measure have been concluded in the House. It is our understanding that the House committee has agreed upon

language in marking up the bill that covers the same subject as S. 2872. We would urge this committee, therefore, to defer action on the bill at this time.

MAXIMUM MORTGAGE AMOUNTS, SECTION 203 HOUSING (SECTION 101, S. 3399)

We question the wisdom of increasing the maximum mortgage amounts under section 203 housing to $30,000 for a single-family dwelling. Despite the postwar inflation in housing, the $30,000 home is still in the luxury class and we are opposed to extending the benefits of the FHA insurance program to those who can afford this type of housing.

Senator SPARK MAN. Thank you very much, gentlemen.

Mr. BENT. Senator Sparkman, we also have prepared what we call a Blueprint for the Future, which is a program sponsored by the National League. I would like to submit it for inclusion in the record, if it meets with your approval.

Senator SPARKMAN. Thank you very much. We would be glad to have it. (See p. 375.)

Senator SPARKMAN. Mr. Braman, do you have a separate statement? Mr. BRAMAN. No, sir. I am just here accompanying Mr. Bent. Senator SPARKMAN. All right. Senator Capehart.

Senator CAPEHART. I do not believe I have any questions.

Senator SPARKMAN. Senator Bush.

Senator BUSH. Mr. Bent, on page 2 you have an interesting table showing how the interest rate return on mortgages had remarkable stability through periods of easy money and tight money. In fact, in 1943, the interest rates generally were very low, as they were all throughout the war. They were actually suppressed by the action of the Government at that time. Yet the interest rates at the end of 1956, which was a very active business year with a great demand for money, were just about the same as they were in 1943.

Have you any comment on that? How do you maintain that high degree of stability in buying mortgages?

Mr. BENT. Well, Senator Bush, that is a very fine situation which exists in our institutions, but at the same time it creates a considerable amount of difficulty. If you will note as a comparison between the interest rate and the dividends, the variation is more radical, which is one of the problems that our institutions have been confronted with.

Senator BUSH. But even the latter has a good deal of stability to it. Mr. BENT. Yes, they do. It may vary from time to time. These rates are pretty stable, because as an institution goes, it has a portfolio of 20- to 30-year loans, and as rates vary in relation to Federal Reserve policy, etc., they will vary very radically. When I say radically I mean as much as 1 percent in a period of a very short time. Those rates, however, apply only to loans made. The portfolio of any institution does not change radically over a period of years. It takes 5 or 10 years to radically change average rates.

Senator BUSH. What is your experience in new accounts and addition to old or thrift accounts? What do you call them? Mr. BENT. Our savings accounts.

Senator BUSH. Yes. You call them savings accounts?
Mr. BENT. Yes.

Senator BUSH. What is the experience in the first 4 months of this year, as against last year?

Mr. BENT. I would say nationally it is much improved over what it was last year. In my own institution, for example, up in Hartford, contrary to the general economic picture in New England we showed substantial increases last year, in contrast to every institution in New England, without exception. This year we are actually doing better. Senator BUSH. So you are doing better in accumulating savings accounts and adding to them?

Mr. BENT. Yes. But the loan volume is a little different. We are having difficulty in generating home loans on a proper basis.

Mr. BRAMAN. May I say that in the first 4 months of this year, Senator Bush, savings were up 35 percent over last year.

Senator BUSH. In the whole system?

Mr. BRAMAN. In the whole system.

Mr. BENT. May I speak to your interest-rate question for a moment, Senator? I will speak of my own institution.

During this money crisis that started a couple of years ago, the interest rate went from 4 percent, which was the base rate 2 years ago in our institution, to a 6-percent average rate, about 5 or 6 months ago. It has now gone to 52 percent, and will probably be at 5 percent very shortly. But even with that radical change from 4 to 6 and back to 5, the average rate of our portfolio did not vary more than two-tenths of 1 percent. It is currently 4.9 percent. That is the mortgage portfolio in our institution.

Senator BUSH. Going to page 5, do I understand you are limited now to 80 percent of the value-to-loan?

Mr. BENT. On conventional mortgages.

Senator BUSH. And you think that limitation ought to be raised to 90 percent?

Mr. BENT. If it were raised to 90 percent we would certainly be able to serve a very much larger portion of the market. Experience has indicated that the risk is not as great as we assumed it might be in going over 80 percent.

Senator BUSH. Is that 80 percent currently fixed by the board, or by law?

Mr. BENT. It is fixed by our association. The 80 percent is fixed by the board and by regulation. The institutions themselves, of course, fix that 80 percent as an amount for appraisal, and it has nothing to do with the sales price.

Senator BUSH. Does the board have authority to make that increase from 80 to 90 percent under existing law?

Mr. BENT. They do.

Senator SPARKMAN. Senator Bush, you may not have been here when I asked Mr. Robertson of the board if they were giving consideration to increasing it, and he said it was under consideration by the board. He pointed out there was a tendency toward increasing it. He used as an example the law just passed by New York State, which does raise the level on which State associations may operate. Mr. BENT. Yes. They already do.