through an oversight, when we provided for the consolidated debentures that was not included. And we feel it is important to correct that. It is agreeable to the Treasury and it has been approved by the Interdepartmental Loan Committee and by the President.

The House bill has a new section, which amends the Federal Home Loan Bank Act by inserting a new section, section 10 (e), authorizing the Federal home-loan banks to lend to nonmember institutions, upon the security of insured mortgages, up to 90 percent of the unpaid principal.

This proposal is offered in the belief that it will facilitate the use of insured mortgages by nonmember institutions, and provide them with credit on the security of such mortgages. The insured, nonmember institutions, under present conditions, of course, cannot offer mortgages insured by the Federal Housing Administration and the home-loan banks, as collateral for loans. This simply broadens their opportunity to borrow against such mortgages; and we all feel that it is highly desirable. And this extends, of course, to nonmembers, and would be under regulations and rates to be fixed by the Board.

Section 9 of S. 1771, and section 15 of H. R. 6021, increase from $300,000,000 to $400,000,000, the amount of bonds which the Home Owners' Loan Corporation is authorized to sell, in order to provide funds for repairs and improvements.

The purpose of this provision is to make sure that the Corporation will have adequate funds to take care of modernizations and repairs.

Senator BULKLEY. That relates only to authorizations to sell for cash, as distinguished from exchanging the bonds?

Mr. FAHEY. That is right.

Senator BULKLEY. It does not increase the total amount of the authorization?

Mr. FAHEY. It does not.

Of course, such repairs and modernization work have to be paid in cash. The sums are comparatively small; but we have to have the cash available for that purpose.

Senator BULKLEY. That was originally $200,000,000; and then it was increased to $300,000,000?

Mr. FAHEY. Yes; increased to $300,000,000, when the bond authorization was increased; and now it is increased to $400,000,000, keeping that relationship of about 10 percent to the loans made. And we are confident we can take care of it, readily, within that limit.

Since Senator Barkley indicated his interest with reference to collections through post offices, it would probably be wise to put that in there.

Senator BULKLEY. That is a later section, is it not?

Mr. FAHEY. Yes.

Senator BULKLEY. I do not think we had better go beyond section 10 today.

Mr. FAHEY. All right.

Senator BULKLEY. If there are no further suggestions with respect to matters up to and including section 10, we shall adjourn until 10:30 tomorrow morning.

Mr. FAHEY. Very well, Senator.

(Thereupon, at 12:40 p. m., an adjournment was taken until tomorrow, Thursday, March 28, 1935, at 10:30 a. m.)

HOME OWNERS' LOAN AND NATIONAL HOUSING ACT

THURSDAY, MARCH 28, 1935

UNITED STATES SENATE,

SUBCOMMITTEE OF COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The subcommittee met at 10:40 a. m., pursuant to adjournment from Wednesday, March 27, 1935, in room 301 of the Senate Office Building, Senator Bulkley (chairman of the subcommittee) presiding. Present: Senators Bulkley (chairman of the subcommittee), Barkley, McAdoo, Steiwer, and Townsend, members of the committee. Present also: Senators Hayden and Schwellenbach.

Senator BULKLEY. Senator Hayden is here this morning and wants to talk to you about an amendment that he has introduced.

STATEMENT OF HON. CARL HAYDEN, UNITED STATES SENATOR FROM THE STATE OF ARIZONA

Senator HAYDEN. Senator Schwellenbach joined with me in the introduction of the amendment yesterday, and I believe you have the testimony here. It is an amendment on page 6, line 25, after the figures "$20,000", insert the following:

or upon which there is located a dwelling for not more than two families, whose income or subsistence is derived from the use of such property as farm land and from other sources, and the remainder of which property, not to exceed 10 acres in area, shall be used for agricultural purposes, the value of which shall be appraised as agricultural land and not as an adjunct to the dwelling, all of which property, including the dwelling, having a value not exceeding $20,000.

Now, whether or not we have been particularly fortunate in the selection of the language, the idea is, as I have stated some little time ago in a letter to the Home Loan Board-and perhaps we can best save the time of the committee by reading the text of it, and give the purpose of the amendment in that way. The substance of the letter is as follows:

A recent ruling of the Board of Directors of the Home Owners' Loan Corporation has affected many suburban home owners. Your Board has held that an applicant living on a small acreage from which he has heretofore derived his living is not entitled to relief under the Home Owners' Loan Act, but must look to other Federal agricultural relief agencies for assistance.

I refer to persons owning, living on, and operating small citrus orchards, small suburban farm lands, and gardens, and poultry raisers. All of the acreage in question is less than 20 acres, but in many cases, during good times, the owner was able to make a fair and reasonable living from his operation of the orchard, farm, garden, or poultry plant.

As you know, or will find upon investigation, Federal loan agencies designed for the relief of agriculturists rarely, if ever, extend assistance to owners of acreages less than 20 acres, and require that the applicant make a definite and

positive showing that he can make a living and maintain himself on the acreage on which relief is sought. Under present conditions, no such showing can be made. Therefore, the applicant is immediately declared ineligible.

He then applies to the Home Owners' Loan Corporation for assistance, and under the rule as laid down by your Board is not eligible, because he has at some time in the past made his living from the land. Thereupon, the applicant is denied relief from any Federal agency and is cast into "no man's land."

The cases that have been brought to my attention show that the applicants are bona fide home owners, occupying their premises as their home, and that in each case they would be glad to obtain employment elsewhere to augment the income from their small acreage. Of course, this employment is hard to secure, and the applicant honestly states in his application that he is not otherwise employed-that he tries to make his living from the premises upon which application is made. Thereby he immediately becomes ineligible, under the ruling.

This situation not only affects Arizona but California and other western States, since the lands in these States are highly productive of noncompetitive crops; and when conditions are normal a good living can be gained from a very small irrigated acreage.

Some relief must now be had for this class of home owners. As I said before, the home is the dominant factor in most cases, and these people are surely entitled to consideration. This consideration must be forthcoming without delay, else many home owners in Arizona will be ejected from their property under foreclosure proceedings. I venture that the same condition will prevail in California and other States where irrigation is practiced.

You can judge from what I have said that the man is passed from the Home Owners' Loan Corporation to the Farm Loan Organization and passed back and forth, and he gets no relief anywhere. And it is particularly true in our irrigated areas in the Southwest, where a man will have a small citrus orchard, where he raises oranges and grapefruit, or has a poultry plant, and in the Northwest it may be an apple orchard or a peach orchard, something of that kind. I think Mr. Catlett, perhaps, is more familiar than anyone else with that particular area, but as was pointed out here just a few moments ago in private conversation, with the absence of good roads, many people who have employment, part time, at least, in town are going out into the country and acquiring acreages of land. They can buy 8 or 10 or 20 acres of land a short distance in the country, within an hour from town for as small a price as they would located in the town. And they do supplement their income and sometimes make a complete living, in good times, from a poultry plant or an activity of that sort.

With the advent of low prices and poor markets, they couldn't make an income from the land, but at least prior to this time, if the primary source of their income was from the land, then it was not eligible to a Home Owners' Loan. It was farming land. On the other hand, the Farm Loan organization, holds that if the productivity of the land is not such as to justify the loan it will not be made.

Senator BULKLEY. Senator, here is the point I would like to have made clear: If the principal income is from the land, isn't it in fact a farm, and ought we not rather amend the Farm Loan Act than to amend this act for the purpose?

Senator HAYDEN. Well, it is just the same old story. If we go to the Home Owners' Loan Corporation, they send us to the Farm Loan organization.

Senator BULKLEY. I understand that, but you are proposing now legislation to amend the Home Owners' Loan Act.

Senator HAYDEN. Yes.

Senator BULKLEY. I am asking you whether it should be the Home Loan Act which should be amended if the property is in fact a farm? Wouldn't it be more appropriate to amend the Farm Loan Act?

Senator HAYDEN. Well, in any event, it will have to be an amendment to some bill. I doubt if we could pass this as a separate piece of legislation and, at the present time, we feel that this bill is likely to become a law.

Senator BULKLEY. We could amend the Farm Loan Act in this bill. There is no question of committee jurisdiction. It will come to the same committee anyway.

Senator HAYDEN. That may be. I have a letter from Mr. Fahey, which I would like to read:

The test of eligibility for a loan on farm land by the Home Owners' Loan Corporation is based upon the following ruling: "The property may have some farm land, but ordinary farm property is not eligible. The test is whether the applicant is primarily a farmer or derives his livelihood from some other source than the land." It will appear from the above that where the farm is incidental to the homestead the applicant is eligible for an H. O. L. C. loan. Under such conditions we also have instructions, issued through our appraisal department, as to methods of arriving at the value of the home use of the property, but there is no rule or regulation which prevents such a loan being made. The principal difficulty seems to be in "no man's land", where there is an uncertainty as to whether or not the property is a farm or merely the home of the applicant. Under this condition there have been cases where neither this Corporation nor the Farm Credit Administration would take action. It is to such instances you are evidently referring in the third paragraph of your letter.

As a

Our Appraisal Department has been in constant touch recently with the Federal land bank, and particularly with Mr. John A. Smith, Chief Mortgage Loan Examination Unit, Farm Credit Administration, and Mr. Smith states that there has never been any ruling issued by that Corporation whereby loans to owners of farms comprising less than 20 acres could not be made. matter of fact, they have made hundreds of loans on tracts as low as 5 acres, These latter involved farms where intensive farming was carried on, the profits of which would be commensurate, in many cases, with the profits from large farms of a hundred acres or more. Mr. Smith is of the opinion that the owners of property referred to in the third paragraph of your letter would, in many instances, be eligible for farm land-bank loans. The fact that during the past year or so the farm has not been self-sustaining does not preclude the applicant from securing relief from the land bank, provided the farm under normal conditions would maintain the family of the applicant and pay installments on the bank loan.

The Farm Credit Administration also makes loans, known as "land-bankcommissioners' loans", where the farm in itself is not self-sustaining, but the owner in normal times is able to supplement his income by obtaining work outside his farm property. There are instances, however, where the owners of farm property are not eligible for relief by either the Home Owners' Loan Corporation or the Farm Credit Administration, and a program is now being worked out by the latter whereby they hope to liberalize their regulations so that this particular group may be given relief. The Home Owners' Loan Corporation hopes to be able to tie up with them and take care of cases that should probably come under the regulations of this Corporation.

I thank you for bringing this question to my attention, and I have reason to believe that any inequities which might have existed in the past will be eliminated by the steps now being taken. I will advise you of later developments.

Senator BULKLEY. Now, let us concede that we want to go with you and make it possible for your hypothetical borrower to get a loan, and let us leave out the question of which amendment is more expedient from the point of view of getting it through, I would like to have your judgment as to which is the more logical place, which is the correct place to put the amendment?