Half a Remedy

Congress came to the aid of the loan-starved housing industry last week with a $4.76 billion package of federal mortgage money. Responding to Administration urging and the lobbying of 700 home builders who flew into Washington five weeks ago, the legislators approved a. bill to funnel the funds into FHA and VA home loans through the Federal National Mortgage Association, a partly private, partly Government-owned corporation that is best known by its nickname, Fannie Mae. If all the money is used as intended, it should finance construction of about 320,000 homes, or nearly one-third of the housing industry's annual output at today's depressed rate.

Raiding the Treasury. Popular as the largesse is with builders, even its strongest advocates admit that it is inflationary. Though President Johnson was considered certain to sign the bill, he objected to $1 billion tagged as a "special assistance fund" to enable Fannie Mae to make about 60,000 FHA and VA mortgage loans of less than $15,000 on extra easy terms. It was not the favoritism that bothered the President. His worry was that half the $1 billion would come from his emergency funds and the other half from a direct raid on the Treasury, thus adding to the federal deficit. Congress provided the other $3.76 billion by authorizing the Treasury to buy $110 million more of Fannie Mae preferred stock (also deficit inflating) and by raising the agency's authority to borrow private money from ten to 15 times the value of its capital.

Not even the U.S. Senate could fathom all the intricacies of the bill's formula. "I think the Senator is partly mixed up with the next amendment to be discussed," said Delaware Republican John Williams last week during the final debate. Replied Vermont Republican George Aiken: "I am thoroughly mixed up, not partly."

Fannie Mae's new power to borrow, when added to its existing plans to do so, means that the agency may pour some $7 billion of debentures and other financial paper onto the private bond market by mid-1967, driving interest rates up considerably. The resulting mortgage money will still be limited to FHA and VA loans, now so unpopular with builders that they account for only about 15% of this year's housing. Fannie Mae's aid to housing may thus be only half a remedy.

The Balance Wheel. Controversial activity is a long tradition with Fannie Mae. A 28-year-old New Deal creation, the agency has become the world's largest mortgage banking facility by buying $15.7 billion of loans to finance 1,586,000 homes and apartments. Basically, it aims to lend heavily when home loans are scarce, sell part of its portfolio to private lenders when funds are plentiful. So well does the agency perform this balance-wheel job that private mortgage men consider it indispensable. Precisely because of Fannie Mae's high standing in the financial community, Congress often gives it unsought extra duties handling programs of dubious soundness. This year Fannie Mae has become the conduit to unload assorted government-owned financial assets on private borrowers to further President Johnson's goal of holding down the apparent level of federal spending.

Irksome though he finds it to be party to such legerdemain, Fannie Mae's taciturn president, J. Stanley Baughman, explains simply: "We do what we have to do." Pittsburgh-born Baughman, an up-through-the-ranks federal careerist since 1933, made his mark among mortgage men by turning the depression-born Home Owners' Loan Corp. from a money loser into a profit maker. Taking over Fannie Mae in 1950, he tightened up loose operating procedures, chopped his staff while the work load doubled, won a reputation as an administrator who could say no without ruffling too many tempers. Today, at 68, Baughman waves aside talk of retiring. He runs Fannie Mae so efficiently that it regularly shows a substantial profit ($603 million since its birth), and pays the equivalent of corporate income taxes besides. Baughman even says no to the Government--and gets away with it. He will not buy any FHA or VA loan he considers unsalable to private investors.

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