I AM TODAY announcing a series of actions to reinforce the welcome recovery of housing construction that is already underway. These actions can be safely taken because inflationary pressures have now subsided. They have been recommended by the Secretary of Housing and Urban Development, the Acting Secretary of the Treasury, the Chairman of the Council of Economic Advisers, and the Director of the Bureau of the Budget.
In particular, these actions are aimed to encourage the construction of housing for families of low and moderate incomes. They should demonstrate to mortgage lenders, home builders, and home buyers the Government's firm purpose to help achieve a vigorous expansion of the housing industry in the months ahead.
1. I am releasing an additional $300 million of the new "special assistance" funds voted by Congress last year. These funds will be used by the Federal National Mortgage Association (FNMA--"Fannie Mae") to buy FHA and VA mortgages on new low cost houses. This is in addition to the $250 million of such funds I released last December. Builders of FHA-insured and VA-guaranteed houses selling for $15,000 or less ($17,500 in certain high-cost areas) can apply for commitments from FNMA to buy these 6 percent mortgages at par. These funds will finance construction of nearly 20,000 new low-cost homes.
2. I am also releasing $80 million of funds for two other FNMA "special assistance" programs:
--$50 million for cooperative housing programs, section 213); 1
--$30 million for sales housing for low and moderate income families in urban renewal areas ( section 221 (d) (2)). 2
1 See 12 USC 1715 e.
2 See 12 USC 1715 l.
These funds will finance nearly 7,000 more housing units.
3. FNMA will increase by one "point" the price it will pay for eligible insured mortgages. This higher price will make it more attractive for mortgage lenders to sell existing mortgages to FNMA, and to use the funds to make new mortgage loans.
In addition to these actions, the Federal Home Loan Bank Board will announce tomorrow a reduction from 5 3/4 percent to 5 1/2 percent in the rate of interest it charges on additional loans to savings and loan associations beyond the amount of such loans already outstanding. Reducing the cost of loans to savings and loan associations will encourage the associations to grant mortgage commitments to builders. The Board had already, on January 9, lowered the rate on these loans from 6 percent to 5 3/4 percent.
The Federal Home Loan Bank Board has also greatly liberalized the conditions under which savings and loan associations can get loans, to make it easier for builders to get mortgage commitments from savings and loan associations.
The Board is also urging member associations to provide construction financing for FHA moderate-income rental housing under section 221(d)(3) Of the National Housing Act and for rent supplement program housing.
Housing was cut back seriously last year by a severe shortage of mortgage money. Because high rates of interest were available on open-market securities, many savers who would normally have deposited their savings in thrift institutions bought securities instead. Some savings were withdrawn to buy securities. As a result, the funds available for new mortgages practically dried up in many areas.
Since last fall, the situation has improved substantially. The fiscal program we are pursuing and the monetary policy of the Federal Reserve Board--as again evidenced by its action this week--have led to easier monetary conditions and a sharply increased flow of savings into thrift institutions. I expect this improvement to continue.
With the further assistance of the measures I am announcing today, my advisers tell me that the home buyer, the home builder, the construction worker, and the supplier of building materials can all be assured of a steadily expanding housing industry in 1967.