Now, if that is not going to be done in the way that I propose in H.R. 34, how is it going to be done? That is what I am interested in finding out.

Of course, foreclosure is not an agreeable or necessarily an efficacious process for lending institutions, but there must come a point at which there is little alternative, and I want to find out in real detail, Mr. Bomar, exactly how those regulations work. Who would pick up the slack? What would the cost be at the time of foreclosure, and who would bear the cost? Then, we would have some positive alternatives. against which to weigh the present legislation.

Mr. BOMAR. We will supply that, Mr. Chairman, for the record in full.

Let me just tell you briefly that we have, I believe it is approximately seven regulations that go to what we refer to as a scheduled item, and a scheduled item, generally, is a loan that is more than 90 days delinquent. It has certain additional ramifications, but basically that is it. Under the terms of our regulations, there are certain sanctions imposed on savings and loan institutions who have more than 4 percent of their assets in what we call the scheduled items category, and then things happen to them. For instance, they are required to put up reserves against these. They are required to curtail certain of their lending activities, and there are various other kinds of negative business inducements. We have the capacity, where that kind of scheduled item problem is caused not by negligence or mismanagement on the part of the lender but by economic problems within their area-we have the capacity either in general or individually-and we do it individually now-to lift those kinds of sanctions and say. "Mr. Lender, these problems you have are not of your own making. They are not of the kinds of things that we are intending to curtail by these regulations, and therefore, you can break these regulations, and we will not impose sanctions against you."

But these regulations--I will get you a memorandum, Mr. Chairman, on what each of them are, how they work, and the kind of exceptions that we have made to them.

[The information submitted for the record by Chairman Bomar in regard to the request of Mr. Ashley may be found on page 193.]

Mr. ASHLEY. I can see how those might be helpful, but I still have difficulty believing-perhaps Mr. Scott and McClatchy can help with this in due course-that there comes a point at which the income from the amortization of mortgages now in default becomes a matter of importance to the lending institution. Would that not be so?

Mr. BOMAR. Yes.

Mr. Chairman, there is a point at which some kind of assistance would be essential. I could not at this particular time even pull a number to tell you what that particular point might be.

Mr. ASHLEY. I can understand that, because we really have not had 8.1 percent unemployment in recent years as has been suggested, so I cannot expect you to go back just in the past years. You can compare with depression data, certainly. That is one thing, but inasmuch as we do not really have that data, it seems to me that we should at least consider at least standby authority to meet a situation which may

become much more serious than any of our previous experience, much more critical than our immediate previous experience might indicate. Mr. Mitchell?

Mr. MITCHELL. Thank you, Mr. Chairman, and I appreciate the opportunity from my colleagues for letting me raise some questions out of order.

First of all, Mr. Bomar, I take issue with the argument that you advance on page 5 that H.R. 29 would be unfair because the program would be available only to upwardly mobile families.

Well, that is essentially the issue. The crux of the problem is, that here you have families who are upwardly mobile but due to double digit inflation and a whole host of other factors, simply cannot afford to purchase a house. They are or were upwardly mobile but have been arrested in their upward mobility because of cutbacks on the job and that kind of thing.

So, I do not think that this is at all unfair legislation. I think it just makes good sense, and I just wanted to raise that issue with you.

The Chairman has already touched on an area that concerned me a great deal, and that was the comprison of the 1933, 25 percent of all loans were in default, as compared with the present foreclosure rate. Now, obviously, there is a relationship, but I do not think that is a fair comparison.

Mr. BOMAR. Mr. Mitchell, could I just interject that I was comparing it both to the current foreclosure rate and, as well, to the slow loan rate, and I indicated that neither of these is up very much.

Mr. MITCHELL. Well, although maybe that is what you were doing, it does not exactly say that, unless I am misreading it. It is 1933 properties which were in default, and then you talk about the current situation regarding foreclosures, and that is not a good comparison, I do not think.

Mr. BOMAR. Well, I would agree with that. What the sentence says is that the present foreclosure rate on conventional loans is less than 1 percent, and the rate of delinquent loans is only slightly higher. Mr. MITCHELL. What is that rate, do you know?

Mr. BOMAR. In terms of numbers of-at the present time, I believe, it is 1.28 percent of the numbers of loans outstanding are delinquent 60 days or more, and that is only a few tenths of a percent up from what it has been.

Mr. MITCHELL. Right, but are you still bearing in mind the time. factor that the chairman alluded to, the time factor between default and eventual foreclosure. So that 1.28 figure might be very misleading when you look at it over the next 6 months in terms of further defaults and further foreclosures.

Mr. BOMAR. Yes; that is correct. It does not forecast what delinquency may be. But if we look at the delinquency rates we have had, let us say, over the 12 months, there has been a very slight increase. The economic problems just have not shown themselves in that form yet. Hopefully, they will not.

Mr. MITCHELL. All right, one last comment, and that is with reference to your proposal on page 6, the lump sum subsidy. You indicate that the mortgage loan would be made at market interest rates. Then you indicate precedents for this type of mechanism, by referring to

the HID section 115 program, which involves a grant of up to $1,500 to homeowners. Is that made at market interest rates?

Mr. BOMAR. The $1,500 has to do with the rehabilitation program, and it is a grant. The other terms and conditions of an accompanying loan, Congressman, I am not familiar with.

Mr. MITCHELL. Well, that is why I raised the question, because, once again, I think you have a not too good a comparison. I do not think that under the 115 program the loans are made at the market interest rates. They are made at a substantially lesser amount to encourage home improvement and, therefore, I would suggest that your lump sum subsidy proposal perhaps could be reconsidered in terms of something less than market interest rates. It is merely an idea for you to kick around.

Mr. BOMAR. Congressman, the only point I was trying to make there was that it might simplify things and make for a better program, if Congress decides that the appropriate thing to do is subsidize middle income homebuyers, is simply to give them the money and let them reduce the principal amount of their loan and their payments over the life of the loan.

Due to the complexities of giving someone, a family, a substantial subsidy for 3 or 4 years, that just cuts off abrubtly-that can be very harmful-and also has inadequacies that we have seen. It is just replete with them, if the Federal Government is involved in running these kinds of subsidy programs. It just operates so ineffectively.

Mr. MITCHELL. I understood precisely where you were going in terms of your proposal. My only question was how efficacious can that proposal be if the lump sum loan is made at market interest rates? I simply ask whether or not it might be more effective to make that lump sum subsidy, if you will, at something less than market interest rates? That was my only concern.

Mr. BOMAR. I do think there is no question about that sir. If you reduce the interest rate and, as well, reduce the downpayment, it would just accelerate the amount of reduction in the payments. The question you gentlemen have to decide is how much of the taxpayers' money should be spent on that sort of program.

Mr. MITCHELL. Thank you very much.

Thank you, Mr. Chairman.

Mr. ASHLEY. Thank you, Mr. Bomar.

If you will stand by, the others will certainly have questions for you. Mr. Scott?

STATEMENT OF TOM SCOTT, JR., PRESIDENT OF UNIFIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF JACKSON, MISS., AND LEGISLATIVE CHAIRMAN FOR THE U.S. LEAGUE OF SAVINGS ASSOCIATIONS

Mr. Scorr. Thank you, Mr. Chairman. My name is Tom Scott, Jr., and I am president of Unifirst Federal Savings & Loan Association of Jackson, Miss., and legislative chairman for the U.S. League of Savings Associations.

The U.S. League appreciates this opportunity to testify before the subcommittee and express our views with regard to the emergency

housing assistance bills currently under consideration. Since this is our first appearance in the 94th Congress, Mr. Chairman, I am particularly pleased to see you and many familiar faces once again. I am also privileged to appear before the new members of the subcommittee; this subcommittee has a fine tradition, and I know you will find it a most challenging assignment.

The savings and loan business, as the principal source of residential mortgage credit in our country, is keenly aware of the dismal situation in housing and real estate. As I am sure other witnesses have detailed for the subcommittee, new home construction is at its lowest level in nearly a decade and far short of meeting our Nation's housing needs. Unemployment in the construction trades has now soared to an appalling 22.6 percent, and the market has accumulated large inventories of unsold and unoccupied homes. While economists continue to look to housing to lead our general economy out of the recession, homebuilding and financing have suffered crippling blows over the last 12 to 18 months. The likelihood of new and massive Government borrowings threatens renewed disintermediation and new uncertainties in the flow of funds needed to sustain any significant housing recovery.

Thus, we applaud this subcommittee's quick action in seeking legislation now to stimulate home production and sales, and its concern for homeowners faced with unemployment.

Two weeks ago the U.S. League's Annual Legislative Conference endorsed H.R. 29-Chairman Reuss' bill to provide mortgage assistance by subsidizing the difference between 6 percent and the interest rate required by current market rates. As you know, the legislation limits the subsidy to homes appraised at $38,000 or less, and terminates the Federal assistance after 4 years, while restricting the program to borrowers with incomes of no more than 120 percent of the median in their area.

We share the view that middle income homebuyers have been buffeted by a whole series of factors which seriously impair their opportunity to own their first home or to purchase a new home. Rapid inflation in wages and materials, and ultimately home costs, have priced almost half of the U.S. families out of the new single family housing market. The increase in the cost of credit has deterred some home purchases as well. These developments, together with the overall lack of consumer confidence and the uncertainty about jobs and future income have created the severe depression in the housing industry.

H.R. 29 should be particularly useful to those young families with reasonable expectations of rising earnings. In view of the price of available housing in many markets, however, we would suggest that the bill retain as much flexibility as possible in accommodating middle income buyers in high cost areas, while retaining the overall objective of limiting the Federal assistance to modestly priced homes. One such suggestion would give the HUD Secretary discretion to raise the $38.000 figure in high cost areas, and we would agree that this is probably a needed modification of the bill.

We also see merit in the approach of H.R. 2900 introduced by Congressman Brown, which is designed to help reduce the overhang

of unsold and unoccupied units. As we understand it, that bill would provide an interest incentive to lenders of up to 112 percent-for the life of the loan-for families buying new, but unoccupied, homes with 7-percent loans within 90 days following enactment. The bill restricts the number of discount points which may be charged and limits the subsidy to 250,000 units. The carrying costs and exposure for builders and financial institutions created by today's extraordinarily large unsold inventory-450,000 single family units or more is a major source of concern in the housing business and a serious deterrent to a resumption of normal building activity and the reemployment of significant numbers of construction workers and skilled craftsmen. We would expect, of course, that your subcommittee would set limits on the income of borrowers and the cost of homes eligible for this special emergency Federal assistance.

Our support for these special assistance bills is due in part to our recognition of the emergency situation which now exists in the housing market. But we also recognize that these are not perfect or lasting solutions, and we do wish to express some reservations about these approaches. For one thing, past experience has shown that subsidized interest rates do discriminate against families in comparable economic circumstances; the home buyer whose income falls just above the maximum permitted for the Federal assistance does not understand why he must pay a market interest rate 2 percent to 3 percent in excess of the rate available to the qualifying family that is his neighbor.

We must also not forget that many families wishing to buy a new home must first sell their existing house. Federal programs largely restricted to new constructions sometimes do not work as efficiently as we would like because of the discrepancy created in the financing of existing and new housing, and the resulting inability of existing homeowners to sell their present house to take advantage of the new construction program.

Our legislative conference did not take an official position on H.R. 34, Congressman Ashley's bill to provide short-term financial assistance to families unable to make their mortgage payments because of unemployment. Speaking for myself, however, I believe that the extraordinarily rapid rise in the unemployment rate suggests that legislation of this type may, indeed, be necessary.

My own experience has been that our home borrowers make every effort to maintain their monthly mortgage payments, since owning a home is more than just a major investment-it is one of the greatest sources of strength in family life. For humanitarian reasons alone, I make every effort to accommodate our borrowers suddenly faced with a hardship situation. And, obviously, it does not make good business sense to accumulate a sizable number of foreclosed properties in a recessionary period.

I have attached as an addendum an article by the U.S. League's research director, John Stafford, indicating that loan delinquencies at savings associations are at a very manageable level-88-hundredths of 1 percent-according to the latest figures.

Mr. MOORHEAD [presiding]. Without objection, that addendum will be made a part of the record.

[The material referred to follows:]