Mr. BONIN. All of them?

Mr. MORRISON. Yes, sir.

Mr. BONIN. Does he pay even for the preparation of the deed?

Mr. MORRISON. Yes. Those contracts in this area are so drawn that the purchaser pays everything. I came from the Chicago area, where we split the thing up a little bit.

Mr. AYRES. Do you think the market will level off so that the lending institutions will be anxious to get into the field? I am not asking you to make a prediction, but what, in your opinion, is going to happen? You gentlemen in the lending business have to plan ahead.

Mr. MORRISON. Nobody can tell that. I would just like to say the present indications in this area appear to have a built-up or a more nearly built-up condition than we have had since 1933, let us say. For that reason, there are not as many houses being put under construction. I noticed the statistics the other day in the papers that bear that out. In that sense, the indications are that the market is settling down a little bit.

Mr. EDMONDSON. There are a lot more houses with "For Sale" signs on them now than there were 6 months ago.

Mr. MORRISON. That is right.

Mr. BONIN. A lot of people moved out of Washington.

Mr. MORRISON. That raises a good question-how many are going

to move out.

Mr. TEAGUE. Are you recommending the removal of the ceiling on the interest rate; would you favor a Government program where there was no ceiling on the interest rate?

Mr. MORRISON. I do not believe so.

Mr. TEAGUE. Are you recommending a ceiling as a just method and means of limiting the amount?

Mr. MORRISON. I say if you are going to have a volume of GI lending, either you are going to have to have the authority to determine the interest rate, or some of the other abuses you are talking about are going to spring up in some form or other, or you will not have money for GI lending.

Mr. TEAGUE. Do you think there is any possibility of removing the interest ceiling?

Mr. MORRISON. No; I do not think so.

Mr. TEAGUE. Then what would you suggest we do?

Mr. MORRISON. I am not going to make a suggestion.

Mr. TEAGUE. We would like to help the situation in some way.

Mr. MORRISON. If you are going to have section 504, you are going

to have a dislocation in mortgage money.

Mr. TEAGUE. Then you recommend that we take out section 504 or repeal it?

Mr. MORRISON. I am saying if you are going to have it, you are going to have a dislocation. If you are going to have it, you still have to take the peg off the interest rate.

Mr. AYRES. Do you think you can delete or amend section 504 and still get realistic appraisals in those sections of the country where they are going to use the discount?

Mr. MORRISON. I could answer that this way: Appraising is not an exact science. You are going to find disclocations in appraisals. As Mr. Russell indicated, three people can appraise the same property and come out with different answers and not be too far apart. So

Some

there is really nothing in appraisals. There is going to be a difference of opinion, and in some cases people are going above others. will be conservative, and some are too enthusiastic.

Mr. TEAGUE. This is a comment from a particular area by a man who has had a lot of experience. He says

No out-of-State GI money in this area at all. Savings and loan associations have some, but it is very selective-requires 10 percent down payment, 20-year mortgage or less, and goes to select customers for select real estate.

There is no lending activity whatsoever in local commercial banks. The life insurance companies allocated some money to this area but told them to warehouse it until January. This money is being doled out to old customers on a very selective basis. There is no lending activity at all in rural areas.

If the May 18 regulation stands, no out-of-State money will move in this area. Average rate has been about 500 per month. June will be about 400, composed mostly of old commitments outstanding prior to May 18. July will be still lower. As soon as old commitments expire, there will be very little activity.

That is from an area where the population is increasing and there has been a terrific amount of building.

Mr. MORRISON. Is not the uncertainty answered on account of the bond market going up and what the final rate on money is going to be? I think the secondary market has been sitting back waiting. That does not apply to savings and loans, because we are not too concerned with the secondary market. I think that is what happens. Mr. AYRES. If there are no further questions, thank you very much. Mr. MORRISON. Thank you.

Mr. AYRES. Is there a representative here from the Mortgage Bankers Association?

STATEMENT OF SAMUEL E. NEEL, GENERAL COUNSEL, MORTGAGE BANKERS ASSOCIATION OF AMERICA, ACCOMPANIED BY JAMES W. ROUSE, PRESIDENT, MOSS-ROUSE CO., BALTIMORE, MD.

Mr. NEEL. My name is Samuel E. Neel. I am general counsel of the Mortgage Bankers Association of America. With me is Mr. James W. Rouse, of Baltimore, president of Moss-Rouse Co. and chairman of our association's GI committee.

The Mortgage Bankers Association is an association composed of about 1,800 different types of institutions. The basic type of institution that belongs to the MBA is the mortgage banker who in the community originates the loan, uses his own money to close the loan, and then disposes of that to an investor either in the same community or in a different community. In other words, he is the middle man in the transaction. There are also many members who are life insurance companies for whom these mortgage bankers act as correspondentssavings banks, commercial banks, and every other type of institution. But the basic type of institution comprising the membership of our association is this mortgage originator in the locality who services the loans for out of State investors and the person who in a community like Dallas, Tex., originates loans for the Metropolitan Life Insurance Co. of New York City.

I have with me a memorandum which I would like to go over briefly but leave with the committee which you can examine at your own leisure, because it seems to me in discussing this whole problem one of the questions before the committee is the general state of the

money market, and it seemed to us the committee might like to have some statistics for their examination at their leisure. I would like to leave this with you and also to pass around to you a statement of our suggestions and recommendations for your later examination, but I would not like to take the committee's time at present to discuss this with you unless you have some questions about it.

If you will look briefly at the memorandum of statistics which you have available to you there, you will see we discuss in part 1 the mortgage activity this year for the market as a whole and, although it may be somewhat surprising, when you have a chance to examine the paragraph at your leisure you will see that the mortgage recordings and mortgage activity for the first 4 months of 1953 is ahead of the mortgage activity in the first 5 months of 1952. For example, for 40 major life insurance companies, the mortgage activity for 1953 through the first week in June was 16 percent ahead of last year. That does include residential loans as well as business loans and, of course, it does include conventional loans.

The second paragraph in this statistical presentation will discuss for you the FHA and VA portion of recordings. You will see that FHA's relative share of recordings during the first 2 months of 1953 was higher than any of the months of 1952, and during the first third of the year, the first 4 months, accounted for 13 percent of the total mortgage recordings compared with 10 percent for the first third of last year. So the FHA recordings are up this year over last year.

The VA's share, going over to page 2, dropped in January and February from 20 percent in 1952 of total recordings to 17 percent, and for the 4 months of January, February, March, and April this year, the total recordings are 16 percent as against 19 percent for last year. That is only 3 percent down.

I might also say at this point the types of institutions represented by MBA-although, as I understand, you will have witnesses actually from particular types of lending institutions-that if, as Mr. Russell has indicated, the savings and loan associations represent 27 percent, roughly, of the total portfolio of VA loans made to date, these other kinds of institutions have probably made something like 73 percent or almost three-quarters of them. So the total volume of loans you are talking about made by these kinds of institutions is a much larger percentage of the total number than VA and FHA loans made by savings and loan associations.

Then we have paragraphs which will show you the statistics as they are available on FHA applications and VA applications and appraisal requests. For example, FHA applications during May were almost at the April level, which was the highest point of any month of FHA activity since October 1950. You will see that VA appraisal requests during May for new houses total 25,300, which is a higher figure than any month since the fall of 1950.

Mr. AYRES. What percentage of those 25,300 do you think will eventually become guaranteed loans?

Mr. NEEL. I cannot say. In fact, I do not believe the VA could answer that question with any certainty.

The other figure available for the VA-that is, the May applications-shows they had 16,000 applications in May, which was off about 2,000 from April, although the May applications this year are ahead of the May applications last year. To a certain degree, in the

percentage of VA applications, statistics represent not what is actually happening now but what has happened in the past few months. That limits the scope of any statistical analysis. But it occurred to us that you would like to have available for discussion these figures as a basis for some analysis.

Paragraph 2 of this analysis will show you what the May housing starts are. You will also see the chart showing the nonfarm housing starts in 1952-53 compared by months for 1952 and 1953.

Paragraph 3 of this compilation will show you a chart comparing the relationship of VA loan activity with the yield on long-term Government bonds, so that it is a very interesting compilation, because you will see, as this memorandum points out, that the VA business has been most active when the basic long-term bond rate was under 2.4 percent, leaving better than a 1.5-point spread between the basic rate and the VA rate. This indicates, as it always has, that the VA activity is tied directly in with the money market in other types of securities, and this chart is interesting for the years represented as showing how closely it is tied in.

Again dealing with the money market, you will see in chart IV an analysis of bond yields for 1952 and 1953 broken down by months and then long-term Government bonds, municipal high-grade bonds, and corporate bonds.

Chart No. V will give a comparison between the VA home loans closed and the yield on long-term United States Government bonds. (The matters above referred to are as follows:)

MEMORANDUM ON SOME HOUSING STATISTICS, SUBMITTED BY THE MORTGAGE BANKERS ASSOCIATION OF AMERICA

Activity in the mortgage market as a whole continues to expand and continues to maintain a large lead over 1952.

Recordings of nonfarm mortgages of $20,000 or less increased about 5 percent, March to April, are considerably above last April, and for the first third of the year are ahead of the same period last year by about 13 percent.

Mortgage lending by savings and loan associations follows the same pattern, with loans during the first third of the year almost 25 percent ahead of those in the first third of last year.

Life insurance company lending during April was down a little bit from March; acquisitions during the first third of the year, however, were 8 percent ahead of those for last year. And for 40 major companies, activity for the year through the first week in June was 16 percent ahead of last year. (Note that business as well as residential loans are included in these life figures.)

VA and FHA portion

As to recordings: FHA's relative share was higher during the first 2 months of the year than during any of the months in 1952, and during the first third of the year accounted for 13 percent of total recordings compared with 10 percent for the first third of last year. However, during March and April, there was some falling off in the proportion of total recordings that were accounted for by the FHA sector: January, 15 percent; February, 14 percent; March and April, 12 percent. The actual dollar amount of FHA loans insured, however increased during March and April and is considerably above the level of 1952 (for the first 4 months, loans insured exceeded last year by 45 percent).

VA's share of the total recordings has dropped from 17 percent and 20 percent for January and February of this year respectively to 14 percent during both March and April. For the first 4 months, VA's share has been 16 percent, compared with 19 percent for last year. In terms of dollars, VA loans closed during the first 4 months have fallen off only 4 percent from 1952; this was due to a high

first month in 1952; for the succeding 3 months, VA activity this year has been 2 percent above 1952, and, after a large February to March decline, rose somewhat in April.

Life insurance company lending for the first third of the year exceeded last year by 23 percent in the conventional sphere, by 13 percent for FHA's but were off 48 percent for VA's. (The position of both the FHA's and VA's relative to last year improved a percent or two during the first third as compared with the first quarter, while that of the conventionals remained the same.)

FHA applications and VA applications and appraisal requests

Total FHA applications during May for insurance on new construction were almost at the April level, which was the highest point since October 1950; while applications on new home mortgage units exceeded April's and were exceeded only by those during the fall of 1950. The increase in home applications over April was due to increases in both sections 203 and 903 applications. (Note that applications under 903 are in excess of the number of programed units and therefore a certain number will be rejected.)

VA appraisal requests during May totaled 25,300, a higher figure than for any month since the fall of 1950. For the first 5 months of this year, this activity is 6 percent ahead of the same period last year. However, May applications for VA guaranties on new and proposed construction, totaling 16,000, are off about 2,000 from April, although they are greater than last May. For the year to date the current year is ahead by 10 percent.

II. May Housing Starts

May's housing starts totaled 107,000, or 2 percent below those of last May and 3,000 units below April. However, private starts, totaling 104,200, exceeded last May by 3 percent, although they were 2,300 units below April. This is the first postwar year that May starts fell below those for April.

The seasonally adjusted rate for May is 1,067,000, the lowest rate for any month thus far this year. For the year to date, total starts are less than 1 percent ahead of those for last year, while private starts are up 4 percent. Public nousing is off more than a third for the year.

The attached chart shows the relationship between VA loan activity and the yield on long-term Government bonds.

You will note: (1) That VA business has been most active when the basic long-term rate was under 2.4 percent, leaving better than a 1.5 point spread between the basic rate and the VA rate; (2) that increases in activity have generally been accompanied with a decline in the basic rate; and (3) that decreases in activity have followed a stiffening of the basic rate.

An apparent exception occurs in late 1952 and early 1953. This, however, was the period during which substantial discounts became a feature of the market and disguised the deterrent effect of a submarket mortgage rate. The granting of advance commitments by FNMA in defense areas and the purchase on an overthe-counter basis of VA loans in other areas has also been a source of support during this period.

Data for recent months is not yet available.