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Mr. HOAGLAND. Three.
Mr. BODFISH. Texas, Oklahoma, and Missouri.
Mr. HOAGLAND. That is right.
Mr. Fahey. There it is a matter of case decision, Mr. Bodfish,

Mr. BODFISH. In Nebraska there is an institution at Fremont which has been operating State-wide for many, many years, and there is the Aetna, at Topeka, which operates over Kansas, and to some extent in Oklahoma. About half their loans are in Oklahoma. Frank McWilliams, in Spokane, has many of his loans in Seattle.

Senator BULKLEY. I think we are getting into too much detail. Mr. Fahey. There is nothing else so far as we are concerned, Mr. Chairman.

STATEMENT OF A. H. FERGUSON, ASSISTANT GENERAL COUNSEL,

FEDERAL HOUSING ADMINISTRATION

Mr. FERGUSON. Mr. Chairman, I will first take up section 26, which is the section which increases the loans for repair and modernization from $2,000 to $50,000, in connection with certain classes of buildings. You will recall that when Mr. Moffett was making his statement Senator Steiwer suggested that the last clause be amended in some way to make sure that it applied to both groups of loans. In connection with that, and since Mr. Moffett made his statement, it has been called to our attention that the clause "including the installation of new equipment and machinery” would, by the peculiar phraseology of the section, apply only to manufacturing plants, and I am sure that that is not the intention, because one of the biggest outlets for these.loans, as we understand it, is going to be in small stores, where they will want to modernize their stores, put in refrigerating systems, and things of that sort.

Another suggestion came to us, that we had not included in this $50,000 group

churches, which must be about the only class of buildings that is not included. Churches were mentioned before the House committee, and we think that they probably should be included.. Inasmuch as orphanages, colleges, schools, and hospitals are included,

think churches should be included. I understand that they are, as a rule, very good risks.

With the help of, and at the suggestion of, your efficient legislative counsel, we have redrafted this section 26 in such a way as to clarify it, in the opinion of both Mr. Wood and myself, and we have shortened it very considerably. The first thing we have done is to take that clause including the installation of new equipment and machinery” and put it into the first sentence of the section, which is the general clause. We have asked that the first sentence of section 2 of the National Housing Act be amended by inserting at the end of said sentence and before the period the following: including the installation of new equipment and machinery, which makes it apply to the whole section, as was clearly the intention.

In lieu of this section 26 we have reconstructed the sentence, which does not change the sense of it or broaden it in any particular. It simply clarifies it. This is Mr. Wood's language:

No insurance shall be granted under this section to any such financial institution with respect to any obligation representing any such loan, advance of credit, or purchase by it (1) unless the obligation bears such interest, has such maturity, and contains such other terms, conditions, and restrictions, as the Administrator shall prescribe.

That is, putting the clause about which you made some comment right at the first, so that it covers them both.

Senator STEIWER. That is the language of the existing law. That is the last of the paragraph.

Mr. FERGUSON. That is the language of the existing law, but it was last in that, and now we are putting it first. [Continuing reading :) and (2) unless the amount of such loan, advance of credit, or purchase is not in excess of $2,000, except that in the case of any such loan, advance of credit, or purchase made for the purpose of such financing with respect to real property improved by apartment houses, hotels, offices, or other commercial buildings, hospitals, orphanages, colleges, schools, churches, or manusacturing or industrial plants, such insurance may be granted if the amount of the loan, advance of credit, or purchase is not in excess of $50,000. Which is the same thought much better expressed. I suggest that that be used instead of the clause which is in the House bill, H. R. 6021.

In connection with the suggestion that the chairman made the other day, as to the amendment of 203 (c), I talked to Mr. Moffett before he went away—and he is unavoidably out of town now—and he asked me to say to the committee, in the first place, that we have had little or no complaint about the present basis on which the premium is fixed; that is, on the original face value of the mortgage; and, in the second place, that if the basis is changed to the monthly balances of the mortgages, it will very substantially reduce our income unless the maximum rate that we may charge for the insurance is increased.

As I understand from the statisticians at the Federal Housing Administration, the 1 percent on the original face of the mortgage actually amounts, over the period of time, to about 134 percent. You see, we charge the 1 percent on the original face value, and it is paid down all the time, so that actually it runs about 134 percent. If we were to increase the maximum rate that may be charged to 134 per cent, it would substantially take care of that difference, and we are somewhat afraid that there may be quite a selling resistance to insured mortgages by reason of the larger rate to begin with.

We are simply giving these as thoughts to the committee. The suggestion that Mr. Moffett made was that if there is going to be any change in the section, his thought is—and he asked me to express it to the committee—that the question as to whether or not it should be based upon the original principal or on the monthly outstanding balances, be left to the discretion of the Administrator.

I have prepared an amendment on that basis, which changes the act as it stands to read:

The Administrator is authorized to fix a premium charge for the insurance of mortgages under this section (to be determined in accordance with the risk involved) which in no case shall be less than one-half of 1 per centum nor more than 134 per centum per annum, which shall be payable by the mortgagee at such times and in such manner as the Administrator may prescribe.

The act, as it stands now, says that the mortgagee shall pay the premium annually in advance; but, of course, when you are paying on the reduced amount, it is pretty hard to definitely state in advance just what it would be, so the Comptroller says that he can work out some method by which it can be computed, but the only way it can be practically done is to leave it to the discretion of the Administrator as to how and when it shall be paid.

Mr. Moffett's suggestion as to the amendment is:

Said premium shall be computed either on the original face value of the mortgage or on the amount of the unpaid principal of the mortgage outstanding from time to time, as the Administrator shall determine.

However, I have prepared another amendment which definitely provides that in no case shall the premium be less than 1 percent nor more than 134 percent upon the amount of the unpaid principal outstanding from time to time. That is a definite commitment

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Senator STEIWER. The Administrator could operate under either amendment. It is just a question of what is best to do from a legislative standpoint.

Mr. FERGUSON. That is right. If the permissible maximum premium is increased from 1 percent to 134 percent, and he charged 134, it would bring substantially the same revenue that we get now, but what we are afraid of, as I said a moment ago, is that that 134 percent would bring considerable resistance in the selling of insured mortgages at the start. That is what we are afraid of in that feature of it.

The last suggestion I want to make to the committee is this: Under section 6 of House bill 6021 it is provided that each Federal homeloan band is authorized to make advances to nonmember mortgagees approved under title 2 of the National Housing Act. Then it goes on to give certain qualifications, but that, we think, is a highly desirable amendment from our standpoint, because it gives an outlet for these loans to banks and other chartered institutions which may want some outlet for them pending the organization of national mortgage associations or some other outlet. I understand that there is a provision in the so-called “Eccles Act” which makes them eligible for loans with the Federal Reserve. As I say, we think that is very desirable, but there is a provision in the Federal Reserve law, which is known as “section 5202 of the Revised Statutes", which provides that:

No national-banking association shall at any time be indebted or in any way liable to an amount exceeding the amount of its capital stock at such time actually paid in and remaining undiminished by losses or otherwise, except on account of demands of the nature following.

Then there are 10 exceptions to that. There has been written into that section as an amendment an exception in the case of all of these so-called “emergency lending institutions", where the rediscount and lending facilities are granted. One of the exceptions is liabilities incurred under the provisions of the Reconstruction Finance Corporation Act, and another is the Federal Farm Loan Act, and the last one, which was exception no. 10, was enacted in the act which Congress passed last June, known as the “act authorizing direct loans to industries ", which permitted the Federal Reserve banks 'to advance money on loans made by banks for the purpose of supplying working capital.

Senator STEIWER. Do you want to suggest another exception?

Mr. FERGUSON. I want to suggest an eleventh exception, which excepts the liabilities incurred under this provision.

I think that is all I have to bother you with, Senator.
Senator STEIWER. Very well, Mr. Ferguson. Thank you.

Mr. FERGUSON. However, if there is any assistance we can render to the committee, I am sure you will not hesitate to call upon us.

Senator STEIWER. We will let you know if there is anything further.

Mr. FERGUSON. Thank you very much.

(Mr. Ferguson submitted the following matter for printing in the record :)

Section 30. Subsection (c) of section 203 of the National Housing Act is amended to read as follows:

"(c) The Administrator is authorized to fix a premium charge for the insurance of mortgages under this section (to be determined in accordance with the risk involved) which in no case shall be less than one-half of 1 per centum nor more than 134 per centum per annum, which shall be payable by the mortgagee at such times an in such manner as the Administrator may prescribe. Said premium shall be computed either on the original face value of the mortgage, or on the amount of the unpaid principal of the mortgage outstanding from time to time, as the Administrator shall determine. If the Administrator finds upon the presentation of a mortgage for insurance and the tender of the initial premium charge that the mortgage complies with the provisions of this section, such mortgage may be accepted for insurance by endorsement or otherwise as the Administrator may prescribe; but no mortgage shall be accepted for insurance under this section unless the Administrator finds that the project with respect to which the mortgage is executed is economically sound.”

Section 30. Subsection (c) of section 203 of the National Housing Act is amended to read as follows:

"(c) The Administrator is authorized to fix a premium charge for the insurance of mortgages under this section (to be determined in accordance with the risk involved) which in no case shall be less than one-half of 1 per centum nor more than 134 per centum per annum on the amount of the unpaid principal of the mortgage outstanding from time to time, and which shall be payable by the mortgagee in accordance with rules and regulations prescribed by the Administrator. If the Administrator finds upon the presentation of a mortgage for insurance and the tender of the initial premium charge that the mortgage complies with the provisions of this section, such mortgage may be accepted for insurance by endorsement or otherwise as the Administrator may prescribe; but no mortgage shall be accepted for insurance under this section unless the Administrator finds that the project with respect to which the mortgage is executed is economically sound.”

Section 6 (b): Section 5202 of the Revised Statutes of the United States, as amended, is hereby amended by adding at the end of said section the following new paragraph:

“Eleventh. Liabilities incurred under the provisions of section 10b of the Federal Home Loan Bank Act, as amended."

Section 26a : The first sentence of section 2 of the National Housing Act is amended by inserting at the end of said sentence and before the period, the following: “including the installation of new equipment and machinery.”

Section 26b: The last sentence of section 2 of the National Housing Act is amended to read as follows:

no insurance shall be granted under this section to any such financial institution with respect to any obligation representing any such loan, advance of credit or purchase by it (1) unless the obligation bears such interest, has such maturity, and contains such other terms, conditions, and restrictions, as the Administrator shall prescribe; and (2) unless the amount of such loan, advance of credit, or purchase is not in excess of $2,000, except that in the case of any such loan, advance of credit, or purchase made for the purpose of such financing with respect to real property improved by apartment houses, hotels, office or other commercial buildings, hospitals, orphanages, colleges, schools, churches, or manufacturing or industrial plants, such insurance may be granted if the amount of the loan, advance of credit, or purchase is not in excess of $50,000.”

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(Whereupon, at 4:15 p. m., the subcommittee adjourned subject to call of the chairman.)

UNITED STATES SENATE,

March 21, 1935. Senator ROBERT J. BULKLEY,

Washington, D. C. DEAR SENATOR : The attached telegram from Nat Rogan, of San Diego, suggests some changes in the Home Owners' Loan Corporation bill which I think should be made.

Mr. Rogan is in charge of the Home Owners' Loan Corporation agency at San Diego and is one of the ablest men, I think, in the service.

Will you please advise me if you concur in my views that Mr. Rogan's suggestions should be effected? Cordially yours,

W. G. MCADOO.

[Telegram]

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SAN DIEGO, CALIF., March 21, 1935. WILLIAM G. MCADOO,

Senate Building, Washington, D. C.: Instead of flats, apartments, and duplexes common throughout the East, California's climatic conditions make bungalow courts and separate cotta Ves more desirable. Under act H. R. 6021, section 2 (c), four-family flat or apeztment is eligible for loan but not bungalow court of four units nor even stale residence with small rental cottage on same lot. This is discrimination against Pacific coast and other States where separate rental units are used instead of four units under single roof. Also payments should be made through district offices only to avoid confusion; see section 14.

NAT ROGAN.

UNITED STATES SENATE,

March 22, 1935. Hon. DUNCAN U. FLETCHER, Chairman Committee on Banking and Currency,

United States Senate, Washington, D. C. MY DEAR SENATOR FLETCHER: I had hoped that I would have an opportunity to get in touch with your committee personally in connection with Senate bill 1771, which would amend the law having to do with the Home Loan Bank Board, the Home Owners' Loan Corporation, etc. I wanted to present to the committee objections raised by building and loan associations in Kansas to certain provisions of this measure. I find that other committee work is going to make it impossible for me to appear before your committee, and I am, therefore, writing you this letter and transmitting the accompanying letters which I have received from Kansas building and loan associations, commenting on the various features of the bill now pending before your committee.

You will notice that the present objections raised by these associations have to do with sections 3, 7, and 10. It is understood that sections 3 and 7 would provide for a reduced number of members of the board of directors of the Home Loan Bank Board. These associations feel that a reduction in the number of the members of the Board would restrict Nation-wide representation on the Board.

These associations likewise express the opinion that if the Home Owners' Loan Corporation is to be authorized to buy shares in Federal savings and loan associations that authority should likewise be granted for the purchase of shares in properly conducted private building and loan associations.

It seems to me that the position taken by these associations on the provisions of the legislation to which they refer is well founded, and I am hopeful that their suggestions may have the very best consideration of your committee. Cordially yours,

ARTHUR CAPPER.

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