watch for in inspecting and purchasing a home. Mortgage companies neglected the precaution of scrutinizing the potential mortgagor's credit rating or the accuracy of the appraisal of the home involved, apparently because they relied on FHA's commitment to insure the mortgage. As a result of all these factors, mortgage loans were made to mortgagors of sometimes questionable credit to purchase overpriced homes that developed serious problems requiring expensive repairs soon after the mortgagor occupied the home. Unable or unwilling to make the necessary repairs, the mortgagor moved out, leaving FHA to pay the mortgagee the full insured mortgage value on the home. (page 17)

The report went on to list these additional factors, among others, noted by FHA Commissioner Sheldon B. Lubar as being responsible for defaults on mortgage payments, foreclosures and losses to FHA on its home mortgage insurance program.

FHA "instructions that did not effectively deal with the unusual problems of lending in inner-city areas to low-income families; personnel untrained for the special problems of this type of lending; families unsuited to become borrowers; overzealousness on the part of some offices in carrying out the assumption that more housing could turn around neighborhoods; and corruption on the part of a very limited number of HUD employees and those doing business with HUD." (page 19)

It is significant that none of these factors leading to foreclosure was attributable to unemployment.

Therefore, it seems fair to assume that of the mortgages in foreclosure, many were brought to that status by factors other than either unemployment of the mortgagor or other serious economic reverses suffered by him.

But unfortunately, although this qualitative analysis of the problem leads to the conclusion that foreclosures are caused by several factors other than unemployment of the mortgagor, it does not lend itself to irrefutable quantitative conclusions that enable dividing the number of foreclosures with precise mathematical accuracy among the various causes of foreclosure at different points on the national economic cycle. Nevertheless it is believed that the assumptions stated in the National League testimony form an acceptable basis for fixing upon the general magnitude of funds that should be authorized to be appropriated initially to carry out the program H.R. 34 would provide.

Mr. MCKINNEY. Chairman Bomar, I am very interested in I.R. 34. I spoke to the chairman-I do not think you were here this morningwe had some discussion this morning with Jim Mitchell on the subject of H.R. 34. It seemed to me that his ex-boss, Jim Lynn, could probably qualify for mortgage assistance under the bill, having dropped from $60,000 to $12,500. I was also a little concerned that this might become the Bank Relief Act of 1975 for fear that banks could get rid of a lot of their turkeys in the direction of the Federal Government.

What I proposed for HUD, and I would love your feelings on, in writing, because we probably will not have the time, is that instead of thinking I do feel-let us put it that way--that none of us know precisely where the economy is going. Perhaps some kind of standby legislation is valuable. It seems to me that if we key it to the individual mortgageholder, to people that we most want to help, it would probably be those people that would be the most confused and the least able to get through the involved paperwork. What I suggested to the Acting Secretary this morning was that we think in terms instead of institutional support. In other words, say we chose an average trend in foreclosure-that we pick a trigger point for any one area that we consider to be dangerous. Mrs. Boggs mentioned Boeing, Seattle, I believe--I will mention Bridgeport, Conn., for the record-that we pick a trigger point for any one given area where the banks can then turn around to the Federal agencies.

You know and I know that if there is no housing market-the mere fact that a house becomes an asset of a bank does not mean a thing ex

cept it is written in there on paper. I do not know of any bank that wants to be in the real estate business. In fact, bankers are notoriously the worst real estate people in the world, next to colleges and universities.

What if we set this trigger point and stated that when foreclosure in an area became that high, the institution could appeal to the Federal Government for interest relief on those mortgages on which they thought they had no choice but to foreclose. This would be open to the regular examination of the books of the bank by the examining agencies that now examine them, so that we would not, in turn, be getting bilked.

For instance, in Bridgeport, Conn., or Seattle, Wash., a foreclosure rate triggered itself up to whatever this point is, wiser heads than I would figure that out, that we would then-you obviously are going to answer in the record because I have run out of time. I am sorry. But you would then have the Federal Government come in and give the institutional relief rather than the individual relief.

If you have any ideas of a bill along this way, I think the chairman would like to see it, and I think I would like to see it, and I think the staff would probably like to see it. Thank you very much.

[The information submitted for the record by Chairman Bomar in regard to the request of Mr. McKinney may be found on page 193.] Mr. MOORHEAD. Mr. Stephens, Mr. Patterson has graciously let me call upon you first.

Mr. STEPHENS. Thank you. I feel like he could have gone first since he has stayed here the whole time and I have not. When people come from out of town and happen to be from your district, well, you have to go there instead of here sometimes.

But I do appreciate the testimony that has been given by you gentlemen. All of us know that we have got real problems in the housing industry, and we need to do everything that we can to stimulate building, to hold the mortgages that savings and loans have so that people can pay the mortgages and not turn them back. This is not exactly in line with the particular bills that you all have analyzed here for us. I would have the opportunity to cover in more detail when I read them

over.

But if we follow through with what has been proposed, with a $30 billion public works program to stimulate the economy sometime in the fall, where are we going to get the money from? Are we going to sit by and let the Federal Government issue $1,000 obligatories and empty the savings and loans, take all the moneys out, with people thinking they are going to get 9-percent interest? I think we ought to be looking ahead into the future as to where this $30 million is going to come from, and I have no objection to selected public works projects to be done, but I think we have got to find out where the money is coming from and whether to keep that imbalance from happening.

By July of last year, some of the people I know of in savings and loans, like in my hometown, one of the savings and loans lost $500,000 in net withdrawals. In a relatively small savings and loan, that is a lot to lose as a net. It left them faced with the stark reality, as you may know, that if they had no savings money coming in, but a loss, and if people cannot pay their mortgages, they were out of business. And they were just in a situation of real frustration.

I hope that we can look into that situation. The other thing I might mention is that I am sorry I did not have the opportunity to meet with you, Mr. Bomar, when I met with the other two members of the Board, in respect to the new regulations that your group is putting forward; that is, the Board is. I would wish that you would postpone putting in those drastic regulations at the present time, when there is already enough unrest and insecurity in the savings and loan industry. The ideas expressed there indicated some of the thoughts that were put forward really were just not justified-like making loans to affiliates and letting everybody decide who should represent the borrower. And, as I expressed it at that time and will express it to you now, we did ask HUD to make a study again and come back with an idea about settlement cost. Your proposals are just part of the settlement cost study. We asked HUD to do it, not you. I thought, and expressed it to the other two members of the Board at that time, that it was very unusual for us to give a mandate to HUD and for you all to turn around and do it. I wish you would take that into consideration.

I know that I have gotten a feeling from the people of my home State that it needs to be studied a little further, and it all boils down to one real basic factor in respect to the guts of your new regulations that you are proposing. We asked for a study to be made on who should pay which part of the fees in settlement costs. I feel that coming at the present time with already great uneasiness in this industry where all are trying to salvage what they can that this is not the time to bring those regulations out. I hope you would take that into consideration. Mr. BOMAR. Yes, sir.

Mr. STEPHENS. Thank you.

Mr. MOORHEAD. Thank you, Mr. Stephens. Mr. Grassley.

Mr. GRASSLEY. I would like to make just a little statement before I ask a question of Mr. Scott.

I think that it is legitimate that housing be a high priority as far as national policy is concerned, but I think that sometimes when we put it in the area of top priority for the public, we take away the responsibility of putting it in top priority for the private category. I mean from this standpoint. I think we need a public policy that is only triggered when the individual himself, has an incentive to put his own private priorities in order and specifically, it seems to me like it is wrong. I would like to have a comment from any of you on this. It is wrong to have a public policy triggered upon a specific income level in which the public will pick up part of the cost of housing, either in an emergency, or in a planned circumstance, when the recipient himself, maybe has not put his own personal finances in the order of having his housing at the top of his priority list.

For instance, I would suggest that until we see that the individual is not a member of the country club, that he is not a member who spends a large portion of his income on entertainment, that these are the things that we have a right, on the part of the public, to ask of people before we step in.

Now, there is nothing in this legislation that guarantees that those sort of things be checked before public agencies step in.

Mr. SCOTT. I believe you addressed that question to me, and I could not agree more. The testimony of the U.S. League generally is to the philosophy advanced by legislation, not necessarily to the details of

how it would be accomplished. There are a variety of ways to stimu late. Chairman Bomar has suggested a good one. That is, a one-time cash stimulant to the individual, a person that we would hope would be moving upward and perhaps, made in the way of a loan. At the end of 5 years, he could start paying that loan back to the Government. That sort of approach would be acceptable.

Mr. GRASSLEY. What would you think of an approach making an individual pay a certain minimal amount of his income for housing before these programs would be triggered?

Mr. SCOTT. I have no objection to that at all. We do get into real difficulty where a man making $12,000 a year, with say, six to eight children, has an entirely different problem than a man making $12,000 with two children. We have tried to deal with this.

Mr. GRASSLEY. Well, there are categories on sizes of families in which that would be possible to bring about, but none of these programs, or none of your suggestions in support of these, would tend to see that the individual's own finances are in order and his own personal priorities are put into order before the Government steps in. It seems to me our public policy ought to demand that the taxpayers' money is going to be channeled in the right and needed directions. Mr. Scort. I would not disagree with that at all.

Mr. GRASSLEY. Would you have any suggestions then in supporting moves like that?

Mr. SCOTT. Well, as I say, we were just speaking to the philosophy and not to the technical terms of the legislation. We will be glad to furnish this subcommittee with any kind of language that it wants in those kinds of areas.

Mr. GRASSLEY. I would like to have your suggestions along that line.

Mr. SCOTT. You want some safeguards insofar as the recipient is concerned; is that right?

Mr. GRASSLEY. Yes.

Mr. MOORHEAD. Do any other members of this subcommittee have any further questions? Mr. Stephens.

Mr. STEPHENS. I just have one clarification I would like to make. When I spoke to Chairman Bomar about the meeting that we had with the other two members, I want to make it very clear that he was perfectly willing to be there. It might appear from what I said that I might have some criticism about his not being there, but I did not means that at all. I understood that you had a conflict.

[The following is a written question submitted by Chairman Barrett to Mr. Scott, along with Mr. Scott's answer:]

Question. Mr. Scott, I would like you to provide the subcommittee with the detail of the procedures that you use in your association in a normal foreclosure proceedings. Also, I would like for you to outline briefly on a State-by-State basis. the foreclosure proceedings that savings and loan associations take in each of these States?

[The information submitted by Mr. Scott in regard to Chairman Barrett's question is retained in the subcommittee's file:]

Mr. MOORHEAD. Well, we thank you very much, gentlemen, Chairman Bomar, Mr. Scott, Mr. McClatchy. The subcommittee appreciates

your help as we face these extremely difficult problems in this very difficult economic situation. When the subcommittee adjourns, it will adjourn to meet tomorrow, Wednesday, February 19, at 1:30_p.m., at which time we will hear from representatives of the National Forest Products Association, the National Association of Building Manufacturers, and the National Mineral Wool Insulation Association. The subcommittee is now adjourned.

[The following letter with attachments was received from Chairman Bomar in regard to supplying information for the record requested by the following members of the subcommittee: Mr. Ashley on page 164; Mr. St Germain on page 185; and Mr. McKinney on page 190:]

Hon. WILLIAM A. BARRETT,

FEDERAL HOME LOAN BANK BOARD,
Washington, D.C., February 28, 1975.

Chairman, Subcommittee on Housing and Community Development,

2129 Rayburn House Office Building, Washington, D.C.

DEAR Mr. CHAIRMAN: This is in response to the requests made by you and other members of the Subcommittee, during the hearings on Tuesday, February 18, 1975, for information to supplement the Board's statement.

You requested information on our regulations relating to delinquent loans which could have an effect on foreclosure by the institutions subject to our supervision. Mr. Ashley and Mr. St Germain asked how much forebearance from foreclosure the savings and loan industry could safely afford or, in other words, to what extent can we rely on forebearance before some method of assistance would be necessary. Mr. McKinney asked whether a program could be developed which would avoid the bureaucratic tangles of a direct home owner assistance program by providing assistance directly to the lending institutions which have lost income due to their forebearance. He also asked for further information regarding our experience in the Seattle area which is attached (Attachment A). At the outset, I would like to restate the Board's view that the present and foreseeable economic situation does not justify a program such as would be established by H.R. 34, nor do circumstances call for any legislative alternative to the H.R. 34 program. I stated that the restrictions imposed by the Board's various regulations relating to delinquent loans can be wavied or modified if they are brought into play by adverse economic conditions rather than by poor management decisions. Foreclosure can thereby be discouraged. I must emphasize before proceeding further that the economic situation-and the data we are receiving from savings and loan associations on a monthly basis-do not indicate that any such supervisory action is required at this time.

In the Board's view, its close monitoring of the situation, the flexibility of its regulations, the net worth of the industry, and the resources the Board controls adequately provide it with the means to encourage forebearance in the event of any foreseeable economic situation. Should the present situation deteriorate significantly, these factors also will enable the Board to respond promptly and, if necessary, seek legislation, perhaps along the lines suggested by Mr. McKinney. We are not proposing or supporting any such legislation at this time.

The Board has several regulations which either restrict savings and loan activities or require additions to required capital when delinquent loans exceed four percent of non-liquid assets. These regulations are attached (Attachment B). The Board is and has been watching the delinquency situation carefully. If the rate of delinquency increases significantly the Board will act to alleviate restrictions, as it has in the past in connection with delinquencies caused by natural disasters and by economic problems such as in the Seattle situation 1 referred to in my testimony. We would encourage the associations to forebear from foreclosure. Beyond that, if it seems that the Board's regulations are causing lenders to be harsher than necessary with individuals temporarily disadvantaged due to general economic circumstances, the Board will modify its