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For release on delivery

Statement of
William McChesney Martin, Jr.,
Chairman, Board of Governors of the Federal Reserve System

before the
Housing Subcommittee
of the
Senate Banking and Currency Committee

July 29, 1959

The vital social importance of accommodating the needs of
the public for good housing is unquestionable. A decade has alreadypassed since the Congress underlined this fact by declaring that
"the general welfare and security of the Nation and the health and
living standards of its people require ... the realization as soon
as feasible of the goal of a decent home and a suitable living
environment for every American family . . ."
A basic question, however, raised by S. 57, the "Housing
Act of 1959," is this: How far and how fast we can move toward that
objective and at the same time meet without undue strain the many
other pressing demands upon our economy?
We have already made considerable housing progress in the
postwar years. Since 1950, well over 11 million dwelling units have
been placed under construction. This is an impressive achievement
— a total exceeding the inventory of all housing in existence at
the turn of the century.
Progress has been recorded, too, in conserving and improving
the older habitable portions of our housing stock which comprise an
important share of our national wealth and in which the majority of
our households live. As a result of the construction of millions of
new dwellings and marked improvements to existing ones, our housing
supply today consists of more units than ever before. The average
quality of these homes is the highest in history.

-2Despite the fact that we have moved closer in recent years
to the goal of decent housing for everyone, the number of persons
quartered in inadequate accommodations is still a matter of serious

Here again, the question arises: To what extent can we

accelerate our progress further in the present period of broad
economic expansion and mounting inflationary pressures and
Unfortunately, the rapid growth and improvement of the
housing supply in the postwar period has been accompanied by a
sharp rise in costs. For the entire period since World War II,
prices of building materials, as well as prices of homes, have
risen more than general wholesale prices or prices of all consumer
goods and services•

The relative inflation of building materials

prices and of residential construction costs has intensified
over the past year.
This inflationary advance in housing costs and prices,
coupled with a liberalization in lending terms, has been associated
with unprecedented demands for mortgage credit to help finance the
purchase of new houses and the transfer of existing ones.


mortgage needs have dominated the capital markets since World .
War II and represented the largest single use of capital funds.
In the postwar period, nonfarm home mortgages have accounted for
over one-third of the over-all increase in outstanding net debt,
including all mortgages, securities, and other obligations. Since

the end of 1949, the volume of nonfarm home mortgage debt outstand¬
ing has more than tripled to well over $120 billion presently.
To preserve the integrity of this debt structure as well
as to meet housing needs in the future requires more than ever before
the maintenance of sound standards of mortgage finance, as well as
stability of prices and capital values generally in the economy.
Overdrafts upon capital markets for home mortgage funds or overstimulation of building activity under currently developing boom
conditions in the economy could precipitate or intensify a later
downturn. Even now, the Federal Government has assumed a huge
volume of commitments in underwriting FHA-insured and VA-guaranteed
home mortgage loans and in insuring deposits and shares in financial
institutions which hold a major portion of all mortgage debt.
In the light of these general observations, I should like
to examine some of the provisions of S. 57 which have a significant
bearing upon mortgage finance and economic growth and stability.
The Board believes that certain features of the bill are desirable
and necessary at this time to the continuance of vital housing
programs under way. Among such provisions are the extension of the
FHA Title I property improvement loan insurance program, the FHA mortgage
insurance program for armed services housing, the Voluntary Home Mortgage
Credit Program, and the increase in general mortgage insurance
authorization for the Federal Housing Administration.

With regard

to the latter, it would be preferable to remove all limits on FHA

-4insurance in force. Such limitations serve no useful purpose.
Moreover, should that step be taken, Congress would still have
an opportunity, through the appropriations process, to review
annually the standards under which the program is carried on.
Raising maximum interest rates on insured mortgages
under several FHA programs, as authorized under certain sections
of S. 57, would also be a desirable step.

Complete flexibility

of interest rates might be even better. Mortgage insurance reduces
investment risk to lenders. Experience suggests that under flexible
interest rates, market forces would set a lower rate on insured than
on uninsured mortgages with otherwise similar terms.

Interest rates,

fluctuating freely according to market conditions, would in fact be
desirable for all housing programs.
Certain other features of S. 57 appear to the Board to
be inappropriate for enactment at this time when mortgage lending
and housing starts are at or near record levels and when growing
pressures in the capital markets are being reflected in high and
rising interest rates.

I refer specifically to provisions which

would provide discretionary authority to reduce again minimum downpayments on homes with FHA-insured mortgage loans, and to extend
further the maximum terra on Federally-underwritten home mortgages.
The former proposal, if put into effect, would permit a
5 per cent reduction in the downpayment on a $14,000 house with an

FHA mortgage, to a minimum of $455. On an $18,000 house, the
reduction would be 38 per cent, to a minimum of $855 . You will note
from the attached table that minimum downpayments proposed in S. 57
are well below the ones authorized by statute in earlier years, but
exceeded from time to time by administrative regulation. On a new
$14,000 house with an FHA-insured mortgage loan, for example, the
minimum downpayment requirement enacted early in 1950 was $2,8OO.
This statutory limit was reduced in 1954 to $1,700, in 1957 to $900,
and in 1958 to the present figure of $480. As mentioned earlier,
S. 57 would reduce the limit further to $455.
The latter proposal would extend the maximum term on
FHA-insured and VA-guaranteed home mortgages and on VA direct home
loans to 35 years from the present limit of 30 years. If effective
in the market, such an extension would tend to increase the amount
of outstanding mortgage debt by lowering repayment rates, even
though the number of credit transactions and the amounts loaned
remained unchanged.
This is no time for measures to encourage additional
borrowing either by home buyers or by the Treasury that would place
additional demands upon our strained capital markets. During the
first half of 1959, nonfarm home mortgage debt outstanding climbed
an unparalleled amount. In only six months it rose about $7 billion
compared with an increase of $10 billion in the entire year of 1958,
and $12-l/2 billion in the record year of 1955» The current threat

to sustained housing activity is not that mortgage lending terms are
too strict, but that savings may be inadequate to accommodate the
volume of housing demanded under current financing terms.
The unprecedented growth so far this year in nonfarm home
mortgage debt outstanding has been sustained in part through a high
level of mortgage warehousing, a record volume of mortgage purchases
by the Federal National Mortgage Association, and a record amount
of outstanding Federal Home Loan Bank advances. To place capital
markets under additional pressure through any further reduction in
downpayments or any further extension in maturities would be untimely
and unwarranted. Now is the time to encourage a higher rate of
saving--not a higher rate of borrowing.
Now is the time, in fact, for the Federal Government of
this, the most advanced country in the world, to continue to demon¬
strate its capacity for leadership by exercising financial discipline.
This would make clear to all peoples that its economic policy is
wisely directed to the maintenance of economic stability as well as
economic growth. As a nation, we must continue to serve as an
anchor to which other democracies can tie without any doubt about
the strength of that anchor to hold firm against the tides of
inflationary forces.
Nearly a century ago, Benjamin Disraeli said; "The best
security for civilization is the dwelling, and upon proper and
becoming dwellings depends more than anything else the improvement

-7of mankind. Such dwellings are the nursery of all domestic virtues,
and without a becoming home the exercise of those virtues is
That statement is as true now as it was then. In striving
toward the end of "proper and becoming dwellings,," however, we must
be certain that the means we use and their timing are also "proper
and becoming" to our over-all goals of long-run economic stability
and sustained economic growth. That is what the Board has tried
to keep in mind in considering some of the provisions of S. 57.


Minimum Statutory Downpayments on New Homes with
Mortgages Insured by the FHA under Sec. 203 (b) (2) of the
National Housing Act, 1950 to date
value of
new home


Date of Enactment

in S. 57









































Note: Statutory minima have been exceeded at times by highar
minimum requirements imposed by administrative regula¬
tion. Limits given in the table exclude Presidential
discretionary authority, authorized at certain times,
to permit certain further reductions under specified
circumstances. Recently, the statutory minima given
in this table have also applied to existing houses.