Evening star. [volume] (Washington, D.C.) 1854-1972, 1954-01-25
howers Message Uqes More Federa Housing Assistance

nomic conditions. the permits
sihle terms on Government
guaranteed and insured mort
cages. ! urge the Congress to
broaden this authority to cover
all loans insured by the Fed
eral Housing Administration
and guaranteed by the Vet
Grams Administration. Such
authority would permit adjust
ments, within appropriate
statutory limits. in maximum
interest rates and In loan-to-
value ratios and maturities.
This action by the Congress
would materially strengthen
our ability to stabilize eco
nomic activity and high levels
Of production and employ
ment. A fuller discussion Of
the Importance Of this recon-
mendation will be included In
the economic report to be SUBJ
mitted to the Congress on JAM
uary %.
VII
Secondary Mortgage Market
In recent years the Federal
National Mortgage Association
has functioned as q primary
lender rather than as q second
airy source Of mortgage credit.
As q result the Federal Gov
eminent now finds itself with
substantial frozen investments
in guaranteed and insured
mortgages. Because Of the
terms on which these mort
cages were written and the
prices at which they were pur-
chased. they are not readily
salable in the private market.
The following changes should,
therefore, be made:
/. The Federal National
Mortgage Association should be
reorganized to require the users
of the facility to invest funds
on a basis which would even
tually permit the full retire
ment of Government funds
from secondary mortgage mar
ket operations. The Federal
Government should be enabled
to purchase the initial stock of
the reorganized association, but
private capital funds supplied
by the users of the facility
should be built up to speed the
retirement of the Govern
ment's initial investment.
2. The reorganized Federal
National Mortgage Association
should be given three basic
responsibilities:
First, it should be authorized
to issue its own non-guaran-
teed debentures on the private
market. With the funds so OBJ
tanned, it can perform a desir-
able service by buying mort
cages at market rates in areas
where investment funds are
scarce, for resale in areas
where there is surplus Of
funds. There is need for an
organization to carry out this
true function of a secondary
market.
Second, the new association
should be authorized to man
age and liquidate present
mortgage holdings which are
aforementioned assets. 1t
should be made clear that such
liquidation is to be accom-
plished in an orderly manner
and in such a way as to pro-
tect the interests Of the in
dividual borrower. Since
Treasury funds were used in
the acquisition of these assets.
all proceeds of this liquidation
should be returned to the
Treasury.
Third. the President should
be enabled to authorize the
Federal National Mortgage
Association to borrow directly
from the Treasury for the sole.
purpose of purchasing certain
kinds and types Of insured and
guaranteed loans when the
President determines such &C
ton to be necessary in the
public interest. For this pur-
pose the borrowing authority
of the association should be
limited to a reasonable amount
to be made available from the
present Treasury borrowing
authorization of the associa-
ton. Although outright pri-
mary support for certain types
of loans may be desirable in
the public interest from time
to time. this support should
be clearly identified as the di-
rect use of Treasury funds for
mortgage purchasing. and the
extent Of such support should
be closely controlled.
Approval of these recon-
mendations will correct the
most serious defects of the
present mortgage purchasing
operations of the Federal Gov
eminent and will authorize an
effective secondary market
facility, relying primarily on
private financing. It will also
provide flexible authority UNI
der which the Federal Govern
ment could directly purchase
mortgages. should economic
conditions and the public in