Sparkman. This legislation would create a Home Loan Guarantee Corporation for the insuring or guaranteeing of 90 percent of the top 20 percent of a home mortgage. We appreciate the fact that Senator Sparkman introduced the measure at the request of the United States Savings & Loan League in order to provide a more effective means for measuring the reaction of the appropriate Government agencies and private industry groups. Our association has had the so-called savings and loan plan under active consideration since May 1957, and the plan was discussed in considerable detail at the metings of the Realtors' Washington Committee in November 1957, and again in February 1958. At the latter meeting the committee recommended to the NAREB board of directors that the plan of insuring the top portion of conventional loans be endorsed in principle, and that a subcommittee be delegated the responsibility of evaluating the details of specific plans. This was subsequently approved by our directors. The proposal for insuring the top or risk portion of conventional loans meets with widespread favorable support by realtors in all areas, particularly in the smaller communities, who see in the plan a device for reducing downpayments on conventional loans. The sharply declining role of the veterans' home loan program has underscored the need for certain basic changes in existing financing mechanisms that would widen homeownership opportunities particularly in communities whose lenders have shied away from the administrative impedimenta associated with the FHA section 203 program. The latter program is tailored primarily for the institutional investor and as a result it plays its predominant role in the more populated urban areas. On the other hand, the portfolio lender such as the savings and loan association is content to employ its deposits on low ratio of loan to value mortgages and avoid the administrative rigmarole and fixed interest rates associated with the FHA program. We cannot be too critical of this because it reflects wellknown economic facts of life. Nevertheless, we cannot escape the problem which is thus posed: how can we modify this conventional financing mechanism so that it might serve a wider market by reaching down to the home seeker who cannot afford the downpayment now required by most conventional home lenders? We believe that the proposal set forth in S. 2791 provides the means for accomplishing this objective. The fact that the plan is proposed by the very people whose utilization of the plan would widen home ownership opportunities must be weighed in its favor. There are some changes which the subcommittee should consider in evaluating the details of the plan. For one thing, our association believes that the plan should lend itself to the widest possible coverage of participating lenders. Consequently, the cost of participating by lenders other than savings and loan associations should be reduced. Insuring 90 percent of the top 20 percent of a mortgage will involve a 73.8 percent exposure which is too high for many lending institutions and will preclude their participation in the plan unless State laws are changed. Perhaps the 20 percent limit should be increased to 25 percent or 30 percent in order to bring the exposure of lenders within the limits set by law. Our conventionel financing subcommittee has the plan under more detailed consideration, and we will be ready to testify on the measure when hearings are held before the housing subcommittee. Please consider this letter a request for an opportunity to testify at such hearings. Sincerely yours, JOHN C. WILLIAMSON, Director. Mr. JACK CARTER, INVESTMENT BANKERS ASSOCIATION OF AMERICA, Staff Director, Subcommittee on Housing, Committee on Banking and Currency, United States Senate, Washington, 25, D. C. DEAR MR. CARTER: This is in response to your letter to me of January 13 and its enclosures with respect to S. 2791. I have read all of the material you sent me with much interest, but I am afraid I am not in a position to be helpful by way of either constructive or critical comments thereon. As you doubtless know, our members are largely in the business of underwriting and dealing in corporate, municipal and governmental securities and take no part in the housing mortgage field. Neither I nor any of our com mittees, therefore, have had occasion to consider such proposals as that about which you inquire and have, therefore, taken no position thereon. Sincerely yours, MURRAY HANSON. Senator CLARK. We have some additional letters on this subject which will go into the record. (The letters referred to follow :) Hon. Senator JOHN A. CARROLL, United States Senate, DENVER, COLO., April 28, 1958. Senate Office Building, Washington 25, D. C. DEAR SENATOR: I represent the Capitol Federal Savings & Loan Association, as well as several builders and contractors. Therefore, I am very much interested in S. 2791, sponsored by John Sparkman of Alabama. There are many advantages to the plan as I see it. For example, the builder does not have to tie up his own capital. Costly time element in building is reduced without reducing a reasonable standard of safety. It will help to eliminate the usual second mortgage which is always expensive and sometimes dangerous. Further, in our experience, compelling second mortgage or collateral to be discounted has been the cause of bankrupting many builders. This plan is truly flexible as it contemplates the financing of existing structures as well as new improvements. From the view of the Government, it should appear attractive, as no tax money is concerned and it will not make for any new Federal liability. Under this plan, local capital will be used primarily. If savings and loan associations can operate with safety up to 90 percent, their business will increase, because of the greater number of families that can use the services offered in conventional financing. In my opinion, passage of this bill will have a most salutary effect on our socalled recession, and will avert many bankruptcies and relieve unemployment. I hope you can see your way clear to support this legislation. Respectfully, Hon JOHN A. CARROLL, United States Senate, STUART B. ST. GERMAIN, Attorney at Law. H. B. BOLAS ENTERPRISES, INC., Senate Office Building, Washington 25, D. C. DEAR SENATOR CARROLL: We have been watching with great interest any news of the progress of the United States Savings & Loan League plan for guaranteed home loans. As builders we feel that this plan will fill a great need. The great flexibility of the league plan will allow builders to build according to the needs of their community without delay. The lower downpayments possible without lowering the standards of safety will help to eliminate troublesome and costly second mortgages and promote the prompt sale of properties without tying up the builder's capital. We feel that this one plan, with little cost to the Government, will do more to stimulate the building business and the economy than any other one thing and without inflationary tendencies. Please support the league plan, S. 2791. Hon. JOHN A. CARROLL, United States Senate, H. B. BOLAS, HERBERT F. SMITH. FINCH REALTY, Denver, Colo., April 28, 1958. Senate Office Building, Washington 25, D. C. DEAR SENATOR CARROLL: I wish to ask your support of the United States Savings & Loan League plan for guaranteed home loans, S. 2791. As a real-estate broker and builder, I feel that the league plan will fill a great need. Conventional financing up to 90 percent will help eliminate expensive and dangerous second mortgages. The flexibility of this plan will make available safe, rapid, and adequate financing for existing properties as well as new dwellings. The fact that this plan involves no tax money or new Federal liabilities and yet would definitely stimulate the housing industry should make it noninflationary. Local capital would be used largely in its operation. Many brokers and builders prefer to deal in conventional financing of properties they handle through savings and loan associations where they are familiar with their methods. Being able to operate on this basis with safety up to 90 percent will open up a whole new field because this would materially enlarge the number of families that could utilize the services offered in conventional financing. Very truly yours, L.E. FINCH. THE DENVER MARBLE & TILE CO., Hon. JOHN A. CARROLL, United States Senate, Senate Office Building, Washington 25, D. C. DEAR SENATOR CARROLL: As a director of a savings and loan association, I am very interested in the United States Savings & Loan League's home loan guarantee plan, S. 2791. I feel that conventional financing up to 90 percent will help eliminate second mortgages which are both dangerous and expensive. Since this plan is very flexible it will provide safe and adequate financing for both existing and new dwellings without delay. Local capital would be used to great extent in the operation of this plan. This plan involves no new Federal liabilities or tax money, but it would very definitely stimulate the building industry, so it should prove to be noninflationary. Many builders and brokers like to deal through savings and loan associations where they are familiar with their procedures in conventional financing. Operating on this basis with 90 percent safety would increase the group of people who could use the services offered in conventional financing. Your support of the Savings & Loan League's home loan guarantee plan, S. 2791, will certainly be appreciated. Very truly yours, Hon. JOHN CARROLL, United States Senate, Senate Office Building, Washington, D. C. HUGH D. WATSON. JOHN PEEPLES REALTY, Salida, Colo., April 30, 1958. DEAR SENATOR CARROLL: I am writing this letter on behalf of Senate bill 2791 which is being sponsored by Senator John Sparkman. I am very much in favor of this bill and should you concur in my thinking, I would appreciate your support of the Senate bill. Salida is a small community and our facilities for FHA appraisals and for obtaining FHA money is very poor. Most insurance companies do not like to invest in mortgage paper in small communities but do so only if they cannot obtain enough loans to meet their requirements in larger cities. We have a very active building and loan association in Salida and it would be of inestimable value if our local building and loan association could loan 90 percent of the value of a home. This office has many calls for homes from people who could pay 10 percent downpayment but could not obtain a conventional loan because they do not have the required extra cash. I would appreciate your full consideration regarding the above numbered bill. Very truly yours, JOHN PEEPLES. THE SHERIDAN, Hon. JOHN A. CARROLL, Senate Office Building, Washington, D. C. Denver, Colo., April 28, 1958. DEAR SENATOR CARROLL: It has been called to my attention by many of my associates that they are also interested in the progress of the United States Savings & Loan League plan for guaranteed home loans. It is my opinion that this plan has the possibilities of not just one great need but many. Lower payments will help to eliminate costly second mortgages and will also help promote property sales without tying up the builder's capital. The builders will be able to fulfill the needs of their community without delay. I feel that the plan can achieve all of this and still not lower the standards of safety. This plan, with little cost to the Government, will tend to stimulate the building business and the economy of the country. Your support of league plan S. 2791 will be greatly appreciated. JOHN E. RUNYAN, Contractor. ASA T. JONES, JR., FARM LOANS, Hon. JOHN A. CARROLL, United States Senate, Senate Office Building, Washington 25, D. C. DEAR SENATOR CARROLL: We wish to express our approval of S. 2791, the bill that proposes to offer a plan for partial insurance of conventional loans made by savings and loan associations. This bill seems to be a more practical and sensible plan for the promotion of homeownership than is now in force. This bill as proposed seems to be practical, workable, and simple to make it very useful. The fairly tight money situation in the past year brought the building industry in this community almost to a stop. We believe that the passage of this bill would give the homebuilding industry in Greeley, Colo., a shot in the arm and help our general economic situation. Respectfully, CLIFFORD G. CAMPBELL, Manager. Hon. JOHN CARROLL, United States Senate, THE SALIDA BUILDING AND LOAN ASSOCIATION, Senate Office Building, Washington 25, D. C. DEAR SENATOR CARROLL: I am writing this letter on behalf of our association with regard to Senate bill No. 2791 which is sponsored by Senator John Sparkman of Alabama. As you know, Salida is a small community and our facilities for FHA appraisals and service is of very poor quality. We feel, in our institution, that such a bill as Senator Sparkman has sponsored would help many small communities such as ours throughout the United States. We find many people who do not have downpayment enough to purchase a home, but could probably raise the 10 percent necessary under this bill. As it is, someone has been taking a second mortgage on their property, which makes a hardship in the purchasers' repayment of same. The Salida Building & Loan Board of Directors wishes to advise you that we feel that your backing such a bill would be a wonderful asset for a community such as ours. It is our understanding that this bill proposes that a second mortgage cannot be made to help make the downpayment on said property, which we feel is a wonderful idea since it is sometimes so hard for people to repay same. And yet, under our conventional savings and loan plan of financing, we run into many people who cannot own a home because they do not have the downpayment to make. We hope that your feeling about this bill will be the same as ours. DEAR SENATOR CARROLL: This is just a note to tell you that we are very much interested in the passage of S. 2971 by Senator Sparkman. This is also H. R. 10637. I am enclosing an outline of the principal provisions of the bill, and ask that you support it, as being in the best interests of the housing business. Savings and loan associations find themselves at a disadvantage in making high-percentage loans, and this insurance feature would unquestionably strengthen our position. Very truly yours, H. H. MCMULLIN, Secretary-Treasurer. OUTLINE OF GUARANTEED CONVENTIONAL LOAN PLAN (S. 2791, H. R. 10637) BASIC OPERATION The fundamental idea of the plan is to permit associations to make highpercentage loans by obtaining insurance on the top portion of the loan. Thus, associations could make loans with downpayments of only 10 percent at no greater risk to the association than the present loans with 20 or 25 percent downpayments. LOAN TERMS Loans could be made for 90 percent, 25 years, for single family homes, with a ceiling of $20,000 (may be amended to $25,000). Loans, however, could not exceed the maximum permitted for FHA 203 loans in the same price bracket. The bill provides for regulations against second mortgages. PREMIUM A single premium would be paid by the borrower (could be added to his loan) and would be in an amount set by the Corporation at between 5 percent and 15 percent of the guaranteed portion of the loan, which is approximately 1 to 2 percent of the face amount of the loan. INSURANCE COVERAGE The top 20 percent (may be amended to 25 percent) of the loan would be insured with a coinsurance feature so that the lender would collect only 90 percent of the insured portion. When the loan is paid down to 50 percent of the original appraisal the insurance terminates. The plan would involve a minimum of redtape. The association would follow its ordinary procedure in making the loan and any loan made pursuant to the laws and regulations would be automatically guaranteed by the Corporation. In the case of foreclosure, the insurance would be paid on the basis of 90 percent of the final loss after disposition of the property, but the estimated loss would be earmarked and set aside for the association at the time of initial default. HOME LOAN GUARANTEE CORPORATION The insurance would be provided by the Home Loan Guarantee Corporation which would be under the jurisdiction of the Federal Home Loan Bank Board and whose initial stock would be subscribed by the 11 Federal home loan banks. (As drafted, the bill calls for $50 million; this may be amended to $20 million.) |