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This file contains material relating to Ginnie Mae, GNMA Tandem Plan, Financial Institutions Act, MIT Study of Variable Payment Mortgage Loans, HUD Study of Costs of Cyclical Swings in Housing Production.
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5/12/75 - National Association of Mutual Savings Banks, Boston
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5/12/75 - National Association of Mutual Savings Banks, Boston
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This file contains material relating to Ginnie Mae, GNMA Tandem Plan, Financial Institutions Act, MIT Study of Variable Payment Mortgage Loans, HUD Study of Costs of Cyclical Swings in Housing Production.
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Carla A. Hills Speeches
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The original documents are located in Box 1, folder "5/12/75 - National Association of
Mutual Savings Banks, Boston" of the Carla A. Hills Speeches at the Gerald R. Ford
Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
FINAL
NATIONAL ASSOCIATION OF MUTUAL SAVINGS BANKS
BOSTON, MASSACHUSETTS
MAY 12, 1975
AT MY SWEARING-IN CEREMONIES BARELY TWO MONTHS AGO,
PRESIDENT FORD STATED THAT THEREAFTER ANYONE WHO HAD A
COMPLAINT ABOUT HOUSING SHOULD "HEAD FOR THE HILLS". THAT
BIT OF PRESIDENTIAL ADVICE HAS BEEN WELL-HEEDED. IN THESE
PAST 8 WEEKS I CAN TELL YOU THAT THE COMPLAINTS HAVE NOT
ONLY HEADED FOR, BUT HAVE ARRIVED AT "THE HILLS". BUT,
THE SOLUTIONS ARE TAKING A SOMEWHAT SLOWER PATH. I AM GLAD
TO BE HERE WITH YOU TODAY TO SHARE MY THOUGHTS ON THE PROBLEMS
OF THE HOUSING INDUSTRY,
THE HOUSING INDUSTRY FACES BOTH LONG AND SHORT-TERM
PROBLEMS, OUR SHORT-TERM PROBLEM IS THE CURRENT SLUMP IN
HOUSING STARTS AND MORTGAGE LENDING, OF WHICH YOU ARE ALL
TOO WELL AWARE.
THAT SHORT-TERM PROBLEM, AS PRESSING AS IT MAY BE, IS
ONLY A SYMPTON OF THE REAL ILLS OF THE HOUSING AND MORTGAGE
FINANCE SECTORS OF THE ECONOMY.
GENALD A. FORD LIBRANT
Digitized from Box 1 of the Carla A. Hills Speeches at the Gerald R. Ford Presidential Library
-2-
HOUSING IS A CAPITAL INTENSIVE INDUSTRY. THUS, WHEN
INTEREST RATES RISE, MONEY FLOWS OUT OF THRIFT INSTITUTIONS
LIKE YOUR OWN, CREATING A SCARCITY OF MORTGAGE FUNDS AND A
RESULTING DECLINE IN HOUSING STARTS. THE CURRENT DOWNTURN
IN THE HOUSING INDUSTRY IS ONLY THE LATEST MANIFESTATION OF
THIS CYCLE, THUS, THE REAL PROBLEM OF THE HOUSING INDUSTRY
IS NOT ITS CURRENT SLUMP, BUT ITS VULNERABILITY TO ECONOMIC
CYCLES,
WE ALREADY HAVE THE BASIC TOOLS TO ALLEVIATE THE SYMPTONS,
THE EMERGENCY HOME PURCHASE ACT OF 1974 GAVE THE SECRETARY
DISCRETIONARY AUTHORITY, THROUGH THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION, AFFECTIONATELY CALLED GINNIE MAE, TO
OPERATE A TANDEM PROGRAM. UNDER THIS PLAN, GNMA MAKES
COMMITMENTS TO PURCHASE, THEN PURCHASES FROM LENDERS, MORTGAGES
WRITTEN AT AN INTEREST RATE DETERMINED BY A STATUTORY FORMULA,
WHICH, TODAY, IS 8 PERCENT.
GERALD R. FORD LIRRARY
-3-
GNMA THEN SELLS THESE MORTGAGES TO THE FEDERAL NATIONAL
MORTGAGE CORPORATION, AFFECTIONATELY CALLED FANNIE MAE, OR
TO PRIVATE INVESTORS, AT AUCTION, ABSORBING THE DIFFERENCE
BETWEEN THE PURCHASE AND SALE PRICE AS A SUBSIDY. THE TANDEM
PROGRAM THUS NOT ONLY PROVIDES A SHALLOW SUBSIDY FOR MORTGAGE
LOANS, BUT ALSO INCREASES THE TOTAL AMOUNT OF FUNDS AVAILABLE
FOR MORTGAGE CREDIT.
DURING THE PAST YEAR, GINNIE MAE MADE COMMITMENTS TO BUY
$12.5 BILLION DOLLARS IN TANDEM PLAN MORTGAGES AT BELOW MARKET
INTEREST RATES. To DATE, WE HAVE PURCHASED ABOUT $2.5 BILLION
DOLLARS OF MORTGAGES LEAVING OVER $9.5 BILLION STILL IN THE
PIPELINE FOR PURCHASE,
A GOOD PROPORTION OF THE COMMITMENTS HAVE BEEN ALLOCATED
FOR SPRING AND SUMMER HOUSING STARTS, WHICH SHOULD GIVE A
DESIRABLE BOOST TO THIS YEAR'S HOUSING CONSTRUCTION.
HUD SUPPORTS PENDING LEGISLATION WHICH WOULD INCREASE
OUR TANDEM AUTHORITY AND EXTEND ITS AVAILABILITY FOR ANOTHER
YEAR, TO OCTOBER 1976. HUD ALSO FAVORS EXTENSIONS OF THE Act
TO AUTHORIZE THE PURCHASE OF MORTGAGES COVERING MULTI-FAMILY
PROJECTS, AND INDIVIDUAL CONDOMINIUM UNITS, WHICH ARE NOT
FHA-INSURED.
GERALD ?
-4--
THAT EXTENDED AUTHORITY SHOULD GIVE US A FLEXIBLE AND
LOW-COST MEANS TO ASSIST THE MORTGAGE CREDIT MARKET, WITHOUT
SIMULTANEOUSLY SETTING THE STAGE FOR FURTHER INFLATION-INDUCED
MORTGAGE CREDIT SHORTAGES.
THE VIRUTE OF THE TANDEM PLAN IS THAT IT IS A MORE SIMPLE,
AND INEXPENSIVE MEANS OF INJECTING MONEY INTO THE MORTGAGE
MARKET THAN VARIOUS SUBSIDY PROPOSALS CURRENTLY BEING CONSIDERED.
AND, MOST IMPORTANTLY, IT CAN BE QUICKLY IMPLEMENTED. HENCE,
IT IS WELL ADAPTED TO THE RAPIDLY CHANGING MARKET CONDITIONS
WHICH CHARACTERIZE THE HOUSING INDUSTRY.
IN CONTRAST, CONGRESS HAS REACTED TO THE CURRENT SLUMP
WITH A MASSIVE OMNIBUS HOUSING ASSISTANCE BILL, CONTAINING
A WIDE VARIETY OF NEW, COMPLEX AND EXPENSIVE INTEREST SUBSIDIES
FOR HOME PURCHASERS, IN WASHINGTON, A CONFERENCE COMMITTEE
IS HAMMERING OUT THE DETAILS OF THIS MASSIVE NEW SPENDING
MEASURE. BETWEEN THEM, THE HOUSE AND THE SENATE HAVE PASSED
PROVISIONS WITH A PRICE TAG WHICH COULD EXCEED $2.4 BILLION
DOLLARS.
QUEATO R. FORD
-5-
WE DO NOT BELIEVE THAT SUCH MASSIVE NEW SPENDING IS
REQUIRED. To THE CONTRARY, WE FEAR THAT SUCH SPENDING
THREATENS THE INCIPIENT RECOVERY OF OUR ECONOMY AND, MORE
IMPORTANTLY, HOLDS THE PROMISE OF ANOTHER INFLATIONARY
CYCLE THAT WILL EXACERBATE THE HISTORICAL SWINGS OF THE
HOUSING INDUSTRY.
FORCING TREASURY BORROWING ABOVE A TOLERABLE LEVEL
WILL DEPLETE AVAILABLE CAPITAL, AND DRIVE UP THE COST OF
MONEY TO THE POINT WHERE THE ECONOMY WILL AGAIN PLUMMET.
LEADING THE PLUNGE, AS ALWAYS, WILL BE HOUSING. IT IS
FEAR OF ANOTHER SUCH PLUNGE THAT ACCOUNTS FOR PRESIDENT
FORD'S GREAT CONCERN WITH THE PROSPECT OF AN UNRESTRAINED
BUDGET DEFICIT.
CONGRESS' REACTION TO THE HOUSING CRISIS REMINDS ME
OF THE AIRLINE PILOT WHO PROUDLY ANNOUNCES TO HIS PASSENGERS,
"WE HAVE A GOOD TAILWIND, PERFECT WEATHER, WE ARE BREAKING
ALL COMMERCIAL SPEED RECORDS." "BUT WE'RE LOST." THE BILL'S
LACK OF FOCUS MAKES ONE WONDER IF CONGRESS REALLY KNOWS WHERE
IT'S GOING, ALTHOUGH IT'S GOING THERE FULL SPEED AHEAD.
GERALD R. FORD CIBRANTY
-6-
To ILLUSTRATE, THE SENATE BILL AUGMENTS IIUD's TANDEM
AUTHORITY WITH AN AUTOMATIC "TRIGGER" MECHANISM, WHICH
GOES INTO EFFECT WHENEVER HOUSING STARTS FALL BELOW A 1.6
MILLION ANNUAL LEVEL FOR 11 CONSECUTIVE MONTHS.
IF THAT PROVISION HAD BEEN IN EFFECT OVER THE PAST 11
YEARS, THE TRIGGER WOULD HAVE BEEN PULLED IN S OF THOSE 11
YEARS. AT WHAT COST TO THE TAXPAYERS, I CANNOT SAY -- NOR
CAN I SAY WITH PRECISION HOW MUCH WORSE OUR INFLATION RATE
WOULD HAVE BEEN BY NOW AS A RESULT. BUT I CAN SAY WE WOULD
HAVE OFTEN UTILIZED THIS RESOURCE WHEN IT WAS NOT NEEDED.
THE TRIGGER WOULD ROB THE "TANDEM PLAN" OF ONE OF ITS GREATEST
ASSETS -- ITS FLEXIBILITY, WHICH ALLOWS IT TO ADAPT TO RAPIDLY
CHANGING MARKET CONDITIONS,
BEYOND THAT, THE "TRIGGER" IS ATTACHED TO A LOADED GUN
-- WHICH MAY BACKFIRE. SUCH A "TRIGGER" MECHANISM WOULD
ENCOURAGE CONSUMERS IN A WEAK MARKET TO DELAY CONTEMPLATED
HOME PURCHASES -- THUS DRIVING DOWN STARTS AND CAUSING THE
TRIGGER TO GO OFF AND FIRE A SUBSIDY AT PROSPECTIVE BUYERS.
GERALD R. FORD
APART FROM SUCH GIMMICKS, THE PENDING PROPOSALS PROVIDE
FOR VARIOUS DIRECT GOVERNMENT MORTGAGE INTEREST SUBSIDIES.
As A GENERAL PROPOSITION, I AM CONVINCED THAT TEMPORARY INTEREST
SUBSIDIES WILL NOT SOLVE THE CYCLICAL PROBLEMS OF THE HOUSING
INDUSTRY.
THE SUBSIDY DISRUPTS THE FINANCIAL MARKETPLACE WITHOUT
INCREASING THE TOTAL AMOUNT OF CREDIT AVAILABLE FOR RESIDENTIAL
CONSTRUCTION.
IN TIMES OF SCARCE CREDIT, AN INTEREST SUBSIDY FOR ONE
SEGMENT OF THE HOUSING MARKET ONLY SUBSTITUTES THOSE WHO
RECEIVE THE SUBSIDY FOR THOSE WHO WOULD HAVE BUILT OR BOUGHT
IF THE PRIVATE MARKET HAD OPERATED WITHOUT INTERFERENCE.
DESPITE THEIR COSTS, THE PENDING BILLS CURRENTLY PROVIDE
FOR ONLY 400,000 HOME PURCHASERS TO RECEIVE INTEREST SUBSIDIES.
THE MOST PESSIMISTIC PREDICTIONS FOR THIS YEAR ARE FOR THREE
TIMES THAT NUMBER OF STARTS, so THE SUBSIDY MAY NOT ONLY FAIL
TO INCREASE BUT MAY ACTUALLY DETER NEW STARTS. SOME HOME
BUYERS MAY WELL DELAY PURCHASES IN THE HOPES THAT NEXT YEAR
THEY WILL BE ONE OF THE LUCKY FEW TO RECEIVE AN INTEREST SUBSIDY.
P. FORD
-8-
THE DEPTH OF THE PROPOSED SUBSIDY IS ALSO OF CONCERN.
THE 6 PERCENT INTEREST RATE PROVIDED FOR IN BOTH THE HOUSE
AND THE SENATE PROPOSALS IS UNREALISTICALLY LOW, CONVENTIONAL
MORTGAGES HAVE NOT BEEN AT THAT LEVEL SINCE 1966. THRIFTS
ARE FORCED TO PAY INTEREST ON LONG-TERM ACCOUNTS AT 7 PERCENT
CR HIGHER. THERE IS NO WAY THEY CAN COMPETE WITH 6 PERCENT
MORTGAGES. HENCE, PRESSURE WILL BUILD TO EXTEND THE PROGRAM,
AND THE FEDERAL GOVERNMENT WILL HAVE ALL BUT TAKEN OVER THE
PRIVATE MORTGAGE CREDIT MARKET.
THE PROGRAM IS TERMED "TEMPORARY". BUT, AS WE ALL KNOW,
ONCE A "GIVEAWAY" PROGRAM IS ENACTED INTO LAW, THE PRESSURE
FOR INDEFINITE CONTINUANCE IS ALMOST IRRESISTIBLE,
AND, IT SHOULD BE NOTED THAT THE HOUSE VERSION ALLOWS
THE ALTERNATIVE OF A 7 PERCENT INTEREST RATE THROUGHOUT THE
ENTIRE LIFE OF THE MORTGAGE. IN OTHER WORDS, THE PUBLIC
COULD BE PAYING FOR THE COST OF A SO-CALLED "EMERGENCY TEMPORARY"
MEASURE FOR THE NEXT 30 YEARS.
GERALD FL FORD
-9-
THESE INTEREST SUBSIDY PROGRAMS ARE NOT ONLY UNWISE,
BUT ALSO UNNECESSARY IN VIEW OF RECENT EXPERIENCE. THE
RECORD SUGGESTS THAT VERY HIGH LEVELS OF DEMAND AND PRODUCTION
-- WELL OVER 2 MILLION ANNUAL STARTS -- CAN BE SUSTAINED WITH
INTEREST RATES RANGING FROM 7-1/2 TO S PERCENT. MORTGAGES
BEARING ALMOST THAT RATE ARE NOW AVAILABLE UNDER THE TANDEM
PLAN.
ANOTHER DANGER I SEE IN THE PENDING PROPOSALS IS THAT
THEIR IMMEDIATE EFFECT MAY BE TO STOP -- RATHER THAN STIMULATE
-- HOME BUYING. IT WILL TAKE A CERTAIN AMOUNT OF TIME FOR
THE MEASURE TO BECOME LAW; AN ADDITIONAL PERIOD IS NECESSARY
TO DRAFT REGULATIONS TO IMPLEMENT THE LAW; FURTHER TIME IS
NEEDED FOR APPROPRIATIONS. HENCE THE PROBABLE TIME FRAME
FOR IMPLEMENTATION IS NEXT FALL -- OR PERHAPS EVEN WINTER.
IN THE INTERIM, POTENTIALLY ELIGIBLE FAMILIES CAN BE
EXPECTED TO POSTPONE HOUSING PURCHASES UNTIL THE CHEAPER
MORTGAGES COME INTO BEING. DURING THAT HIATUS, HOUSING
CONSTRUCTION COULD GO FROM DEPRESSED TO ALL BUT NON-EXISTENT.
R. FORD LIBRAIR
-10-
FINALLY, CONGRESS' PROGRAMS, DESIGNED TO RELIEVE THE
CURRENT DOWNTURN, COULD END UP ACTUALLY TAKING EFFECT DURING
AN IMPENDING UPTURN WHICH CURRENT FORECASTS PORTEND -- JUST
IN TIME TO DO THE MOST HARM, BY CAUSING ANOTHER INFLATIONARY
SPIRAL IN HOUSING COSTS,
CONGRESS HAS DIAGNOSED THE PROBLEM OF THE HOUSING INDUSTRY
AS BEING HIGH MONTHLY MORTGAGE PAYMENTS, UNFORTUNATELY,
CONGRESS SEEMS LIKE THE DOCTOR WHO ANNOUNCES THAT HE HAS
SUCCESSFULLY TREATED THE PATIENT'S SYMPTONS, ONLY TO CONFESS
THAT THE PATIENT HAS DIED OF THE UNDERLYING DISEASE IN THE
INTERIM. THAT UNDERLYING DISEASE MAY BE A HUGE FEDERAL DEFICIT
AND AN EXACERBATED MORTGAGE CREDIT CRISIS.
WE DO NOT BELIEVE THAT WE CAN SPEND OUR WAY OUT OF THE
HOUSING SLUMP, WITHOUT INVITING A NEW AND MORE CRIPPLING
INFLATIONARY SPIRAL -- IN WHICH HOUSING WOULD BE THE FIRST
TO SUFFER,
OZRALO R. FORD
-11-
THERE IS MUCH THAT IS COUNTERPRODUCTIVE IN THE BILLS
NOW UNDER CONSIDERATION. WE FEEL THAT THERE IS ADEQUATE
FLEXIBILITY IN OUR CURRENT AUTHORITY TO PERMIT US TO ENCOURAGE
AND GUIDE THE RECOVERY OF THE HOUSING INDUSTRY. AND, THE
PENDING BILLS SIMPLY DO NOT REACH THE LONG-TERM CONDITIONS
WHICH GAVE RISE TO THE CURRENT HOUSING SLUMP.
THE ADMINISTRATION is, HOWEVER, LOOKING FOR SOLUTIONS
TO THE UNDERLYING LONG-TERM PROBLEM OF CYCLICAL FLUCTUATIONS
IN MORTGAGE CREDIT AVAILABILITY.
WE ARE URGING PASSAGE OF THE FINANCIAL INSTITUTIONS ACT,
WHICH CONTAINS MANY PROVISIONS AIMED AT REDUCING THE SEVERITY
OF FUTURE HOUSING CREDIT CYCLES,
THE ACT WOULD PERMIT A DIVERSIFICATION OF SERVICES AND
INVESTMENTS BY INSTITUTIONS, SUCH AS YOURS, HEAVILY INVOLVED
IN MORTGAGE FINANCE, REDUCING THEIR VULNERABILITY TO ECONOMIC
CYCLES,
THRIFT INSTITUTIONS WILL BE PERMITTED, FOR THE FIRST
TIME ON A NATIONAL BASIS, TO OFFER CHECKING AND NOW ACCOUNTS
AND TO ENGAGE IN CREDIT CARD TRANSACTIONS.
GERALD R. FORD LIBRARY
-12-
THRIFT INSTITUTIONS WILL ALSO HAVE BROADENED LENDING
AND INVESTMENT POWERS, TO INCREASE THEIR INCOME AND LIQUIDITY.
THIS INCREASED AUTHORITY WILL INCLUDE NOT ONLY CONSUMER
LOANS, COMMERCIAL PAPER AND CORPORATE DEBT, ON A LIMITED BASIS,
BUT ALSO CONSTRUCTION LOANS WHICH IS AN AREA OF PARTICULAR NEED
TO THE HOUSING INDUSTRY. THIS DIVERSIFICATION SHOULD ALSO
RESERVE THE FINANCIAL COMMUNITY OF MUCH UNNECESSARY GOVERNMENT
REGULATION, AND INCREASE EFFICIENCY THROUGH THE PRESSURES OF
INCREASED COMPETITION.
THE FINANCIAL INSTITUTIONS ACT ALSO LOCKS TOWARD A POSSIBLE
ABOLITION OF INTEREST RATE CEILINGS, WITHIN 5-1/2 YEARS OF
ENACTMENT, THERE WILL BE A THOROUGH STUDY OF THE FINANCIAL
MARKET AND THE WAY IN WHICH THE ACT HAS OPERATED. ONLY THEN,
AND ON THE BASIS OF THE FINDINGS OF THAT STUDY, WILL THE
ADMINISTRATION RECOMMEND TO CONGRESS WHETHER OR NOT TO ABOLISH
INTEREST RATE CEILINGS.
To ENCOURAGE BROADER INVESTMENTS IN RESIDENTIAL MORTGAGES
THE ACT PROVIDES A TAX CREDIT OF BETWEEN 1-1/2 PERCENT AND
3-1/2 PERCENT OF THE INTEREST INCOME RECEIVED FROM MORTGAGE
ASSETS, WHERE AT LEAST 10 PERCENT OF AN INSTITUTION'S PORTFOLIO
IS MAINTAINED IN QUALIFIED RESIDENTIAL MORTGAGE LOANS,
FORD a LIBRARY GERALD
-13-
BECAUSE THE CREDIT IS SIMILAR TO THE TAX TREATMENT
CURRENTLY ENJOYED BY THRIFT INSTITUTIONS IN CONNECTION WITH
BAD DEBT RESERVES, A TRANSITION PERIOD IS PROVIDED.
INSTITUTIONS SUCH AS YOURS WILL BE GIVEN UNTIL 1979 TO SWITCH
OVER TO THE CREDIT METHOD OF TAX TREATMENT.
THE TAX CREDIT SHOULD ALSO BE AN INCENTIVE TO THE
SECONDARY MARKET INCLUDING GNMA's MORTGAGE BACK SECURITY
PROGRAM.
FINALLY, THE MORTGAGE INTEREST TAX CREDIT HAS A COUNTER-
CYCLICAL EFFECT BECAUSE THE RATE ADVANTAGE OF MORTGAGES WILL
RISE DURING TIMES OF TIGHT MONEY MAKING MORTGAGES RELATIVELY
MORE ATTRACTIVE TO INVESTORS WHEN CREDIT IS SCARCE.
THE FINANCIAL INSTITUTIONS ACT HAS BEEN CRITICIZED BOTH
FOR DOING T00 MUCH AND FOR DOING TOO LITTLE. SOME SAY IT
CHANGES COMPETITIVE POSITIONS IN THE INDUSTRY WITHOUT GOOD
REASON, BUT WE SEE THE ACT AS SEEKING TO PROVIDE FOR A LESS
REGULATED MARKET IN WHICH ALL BANKING INSTITUTIONS CAN COMPETE
MORE EFFECTIVELY.
THE BENEFITS TO BANKING FROM THIS
DEREGULATION SEEM TO ME TO FAR OUTWEIGH ANY FEATURES WHICH
ARE SEEN ON A SHORT-TERM BASIS TO FAVOR ONE GROUP OF INSTITUTIONS
OVER ANOTHER.
FORD a LIBRARY GERALD
-14-
DEREGULATION WILL HELP PROVIDE A MORE CONSTANT AND MORE
ADEQUATE SUPPLY OF MONEY WHICH IS ESSENTIAL TO A HEALTHY AND
STABLE HOUSING INDUSTRY. A FREER MARKET IS WORTH SEEKING,
THOSE WHO SAY THAT THIS ACT DOES NOT DO ENOUGH MUST
REMEMBER THAT WE HAVE NOT AS YET PASSED THIS AcT. WE CAN
ONLY PROCEED ONE STEP AT A TIME. TAKE THIS STEP, AND IF
THE RESULTS ARE AS WE ANTICIPATE, WE CAN TAKE THE NEXT STEP.
IT IS NOT EASY TO REVERSE THE TREND TOWARD HEAVIER REGULATION.
MODEST AS SOME MAY THINK THE PROPOSED ACT MAY BE, IT IS A
STEP IN THE RIGHT DIRECTION.
WE ARE TAKING OTHER STEPS WITHIN OUR EXISTING AUTHORITY
TO EXPAND AND STABILIZE MORTGAGE CREDIT.
FIRST, WE ARE LOOKING FOR WAYS TO ENTICE INTO MORTGAGE
FINANCE NEW SOURCES OF INVESTMENT FUNDS WHICH ARE LESS SUBJECT
TO CYCLICAL PRESSURES, FOR EXAMPLE, LESS THAN 5 PERCENT OF
THE $217 BILLION UNION PENSION FUNDS IS INVESTED IN HOUSING.
WE WOULD LIKE TO SEE THAT INVESTMENT INCREASE.
GERALD R. FORD LIBRABY
-15--
SECOND, WE WILL ASSIST IN THE DEVELOPMENT OF NEW KINDS
OF MORTGAGE INSTRUMENTS TO SEE IF THERE ARE ALTERNATIVES TO
THE LONG-TERM STABLE PAYMENT MORTGAGE WHICH COULD INCREASE
MORTGAGE INVESTMENT AND BE LESS VULNERABLE TO THE EFFECTS
OF ECONOMIC CYCLES,
THE PURCHASE OF A HOME IS, FOR MOST AMERICAN CONSUMERS,
THE LARGEST BUSINESS TRANSACTION OF THEIR LIFETIME. THE
TERMS OF THIS PURCHASE HAVE A SIGNIFICANT IMPACT UPON CONSUMERS
AS WELL AS THE FINANCIAL MARKETS THAT SUPPLY CREDIT FOR HOUSING.
TODAY, MOST OF US TAKE FOR GRANTED THE FULLY AMORTIZED
LOW DOWN PAYMENT, LOW MONTHLY PAYMENT, LONG-TERM MORTGAGE USED
TO FINANCE HOME PURCHASES. IT WAS THE FHA MORTGAGE INSURANCE
PROGRAM THAT BROUGHT ABOUT MARKET ACCEPTANCE OF THAT INSTRUMENT
IN THE 1930's.
THIS INSTRUMENT ASSISTED THE NATION TO RECOVER FROM THE
DEPRESSION AND SUBSTANTIALLY CONTRIBUTED TO THE DRAMATIC
EXPANSIONS IN HOUSING PRODUCTION AND HOMEOWNERSHIP WHICH WE
HAVE EXPERIENCED OVER THE PAST 40 YEARS,
FORD a LIBRARY GERALD
-16-
TODAY, WE HAVE ENTERED ANOTHER PERIOD DURING WHICH
FUNDAMENTAL CHANGES ARE OCCURRING IN THE ECONOMY, WE DELIEVE
IT APPROPRIATE TO ASK WHETHER THERE ARE OTHER FORMS OF
FINANCING TO COMPLEMENT THOSE TRADITIONALLY USED.
A GOVERNMENT INSURANCE COMPONENT MAY BE USEFUL TO
ENCOURAGE NEW FORMS OF FINANCE THAT WILL AMELIORATE CYCLICAL
FLUCTUATIONS IN MORTGAGE CREDIT AVAILABILITY,
To THAT END, WE HAVE UNDERWAY A STUDY BY THE SLOAN
SCHOOL OF MANAGEMENT AT MIT ANALYZING A WHOLE RANGE OF
VARIABLE PAYMENT MORTGAGE FORMS,
WE ARE IMPLEMENTING THE AUTHORITY CONTAINED IN SECTION
245 OF THE NATIONAL HOUSING ACT, AS REVISED IN 1974, TO
EXPERIMENT WITH MORTGAGES AND LOANS WHICH PROVIDE FOR "VARYING
RATES OF AMORTIZATION CORRESPONDING TO ANTICIPATED VARIATIONS
IN FAMILY INCOME." THE DEPARTMENT WILL ISSUE IN JUNE AN
INVITATION TO INTERESTED PARTIES IN THE PRIVATE SECTOR, INCLUDING
THE FINANCIAL COMMUNITY, TO SUBMIT PROPOSALS FOR INNOVATIVE
MORTGAGE INSTRUMENTS WHICH INCLUDE, FOR EXAMPLE, GRADUATED
PAYMENT MORTGAGES; DEFERRED AMORTIZATION MORTGAGES; OR "SKIP-
PAYMENT" PLANS, IT IS OUR HOPE THROUGH THIS PROCESS TO HARNESS
THE EXPERTISE WITHIN THE PRIVATE SECTOR TO DEVELOP FINANCING
DEVICES APPROPRIATE TO THE NEEDS OF THE CONSUMER AND LENDER TODAY.
GERALD R: FORD LIBRARY
-17-
FINALLY, HUD IS INITIATING A MAJOR STUDY FOCUSING ON
THE COSTS, ECONOMIC AND SOCIAL, OF CYCLICAL SWINGS IN HOUSING
PRODUCTION. SUCH A STUDY WOULD BE AN IMPORTANT COMPLEMENT
TO OUR RESEARCH STUDIES ALREADY UNDERWAY. THESE STUDIES
REPRESENT AREAS WHERE YOUR INDUSTRY CAN CONTRIBUTE VALUABLE
INSIGHTS AND EXPERIENCE,
GOVERNMENT CANNOT REVITALIZE OR RESTRUCTURE THE HOUSING
INDUSTRY ALONE. THE COOPERATION, COUNSEL, AND CONSTRUCTIVE
CRITICISM OF THE PRIVATE SECTOR ARE INDISPENSABLE TO THESE
ENDEAVORS. I WILL NOT HESITATE TO CALL UPON THE MUTUAL SAVINGS
BANKS ASSOCIATION FOR ASSISTANCE IN THE COMING MONTHS.
THANK YOU,
GERALD R. FORD LIBRANA