by the House Banking and Currency Committee. Several additional matters were treated by amendment in the House, relating to Home Owners' Loan Corporation, which are not germane or important to our thrift and homefinancing activities. More reasonable withdrawal privileges from the Federal Savings and Loan Insurance Corporation are proposed in our petition re S. 1771 and we would like to see a proper amendment to H. R. 6021, if it is reported instead of an amended S. 1771. H. R. 6021 contains the most important recommendations urged by the United States Building and Loan League and the State supervisory authorities. who joined with our organization in making suggestions regarding the original bills. This analysis compares and relates each section of S. 1771 with H. R. 6021. Section 3 of S. 1771 was replaced, as noted in this memorandum, and section 22 of S. 1771 was completely eliminated. All other changes are noted in the memorandum. COMMENTS AND RECOMMENDATIONS RE H. R. 6021 (SECTION BY SECTION) Section 1: Satisfactory in present form. Language identical with S. 1771. Section 2: Satisfactory in present form. Language identical with S. 1771. Section 3: Satisfactory in present form. This gives statutory existence to an Advisory Council, similar to the one provided for banking institutions in section 12 of the Federal Reserve act. The savings, building, and loan associations heartily support this section and feel that such a council can be of greatest service if provided by statute and if selected by the membership of the Federal Home Loan Bank System. The council involves no cost to the Federal Government. The section follows the language of the Federal Reserve statute, as regards meetings, except that it provides for a minimum of two meetings, where the bank statute sets a minimum of four. Other provisions are strictly similar. There is one additional provision, which causes the recommendations of the Advisory Council to be printed in the annual reports of the board to Congress, thus making the conclusions of the group available to the legislative bodies, the public, and to the institutions who support the Federal Home Loan Bank Board through bank membership and insurance premiums. This section replaces section 3 in S. 1771, which proposes to eliminate three directors representing the membership from the board of each Federal homeloan bank. The savings, building, and loan associations are, without exception, opposed to a change in the original Federal Home Loan Bank Act, under which they joined the system and have invested over $22,000,000 (the members' investment has doubled in the past year), as regards representation on regional boards. Section 4: Satisfactory in present form. Language identical with section 4 of S. 1771, except that an amortized loan maturing in 6 years is given collateral loan value as an amortized mortgage. The original Home Loan Bank Act provided an 8-year minimum. Section 5: Satisfactory in present form. Section and language identical with S. 1771. Section 6: Satisfactory in present form. This section was proposed by the building and loan interests in the spirit of cooperation with the Federal Housing Administration's program. It permits the 12 Federal home-loan banks to function to a limited extent after the manner of national mortgage associations. Nonmember mortgagees, who are approved by the F. H. A., may borrow on title II insured mortgages up to 90 percent of their unpaid principal. Section 7: Satisfactory in present form. Language identical with section 6 of S. 1771. Section 8: Satisfactory in present form. This language was a floor amendment and goes farther than had been urged by our organization. We did clearly desire that the assessments levied on the 12 Federal home-loan banks for the support of the activities of the Federal Home Loan Bank Board should be handled as Government funds and appropriated moneys. Examination fees and the like might very properly be excepted from the regular procedure. Section 9: An H. O. L. C. amendment, not directly important to savings, building and loan associations, and apparently satisfactory. Section 10: This section replaces section 8 of S. 1771. Both sections have our approval. It is the duty of Congress to determine how much additional bonding power is to be given to the H. O. L. C., although we believe that the lower figure will be sufficient to service applications now on file. We strongly feel that in the interest of business recovery and the resumption of lending activities by existing institutions, these funds should be confined to "applications heretofore filed." There is no great objection, of course, to the additional suggestion in H. R. 6021 that some persons, who have attempted to file since the Corporation ceased taking applications, be served. If the Corporation is open to new applications in general private mortgagelending activities will be confused, if not completely thwarted for the next 6 months or year. Section 11: This section does not appear in S. 1771, and deals with the personnel of the H. O. L. C. It involves a policy which is not germane or of interest to our institutions. Section 12: This is a new section and does not appear in S. 1771. We understand that the wholesale work in refinancing mortgages in closed banks has been accomplished. We have always taken the position that the granting of loans by the H. O. L. C. should be determined entirely by the distress of the mortgagor and we therefore see no objection to the amendment. Section 13: This section was not in S. 1771 and its inclusion or exclusion is not a matter of importance to savings, building and loan associations. Section 14: A new section, not found in S. 1771, providing that H. O. L. C. collections may be made through post offices and substations, in addition to H. O. L. C. branches. This matter is not of importance or concern to savings, building and loan associations. Section 15: Satisfactory in present form. This language is identical with section 9 of S. 1771. Section 16: Satisfactory in present form. This language is identical with section 10 of S. 1771, except that the privileges of share purchase proposed for Federal savings and loan associations are authorized for State-charter institutions without discrimination. The United States Building and Loan League is strongly in favor of the revised section 16 found in H. R. 6021. If the principle and objective is to get mortgage money flowing, it would seem that the 10,000 State-chartered institutions, now doing over 97 percent of the savings, building and loan association business, are appropriate vehicles to achieve this important end, especially if the H. O. L. C. activities are to be tapered off at this point. The precedent established in the R. F. C. stock purchases in banks further suggests that these privileges be made available to State-chartered as well as to Federally chartered institutions. Section 17: Satisfactory in present form and is identical with section 11 of S. 1771, except that the proposition in the original Home Owners' Loan Act of 1933 that these funds be used in the development of existing institutions, in addition to organizing new federally chartered institution, is restated. Section 18: Satisfactory in present form. Language is identical with section 12 of S. 1771. Section 19: Satisfactory in present form. Language is identical with section 13 of S. 1771. Section 20: This section is, in part, similar to section 14 of S. 1771. Either section is satisfactory from the point of view of savings, building and loan associations. Section 21: Satisfactory in present form. It is, in part, identical with section 15 of S. 1771, although the savings, building and loan associations much prefer the elimination of the unworkable and unnecessary requirement regarding dividends in case of charge-offs to reserves, to the impractical proposal of the Federal Board that dividend declarations under such conditions be approved by the Corporation in Washington. Section 22: Satisfactory in its present form. Language is identical with section 16 of S. 1771. Section 23: Satisfactory in present form. This language is identical with section 17 of S. 1771. The United States Building and Loan League has made considerable study of this question and strongly urges the approval of this section. Section 24: Satisfactory in present form. This section is not included in S. 1771, but is to correct an illegal and unworkable provision of the original National Housing Act. The language inserted in lieu of the existing law is taken from the rules and regulations of the Corporation. Section 25: Satisfactory in present form. Language is identical with section 18 of S. 1771. Section 26: This is identical with section 19 of S. 1771 and is not of direct concern or interest to savings, building and loan associations. Section 27: This is identical with section 20 of S. 1771 and is not of direct concern or interest to savings, building and loan associations. Section 28. This is identical with section 21 of S. 1771 and is not of direct concern or interest to savings, building and loan associations. Note that the final section 22 of S. 1771 was completely eliminated by the House Banking and Currency Committee. Section 29: This is a new section and is not germane or of interest to savings, building and loan associations. A PROPOSED NEW SECTION Recommendation.-Amend H. R. 6021 or S. 1771 by adding a new and additional paragraph as a section: "SEC. Explanation. Mutual savings banks are permitted to withdraw from the Mr. BODFISH. Mr. Chairman, in the development of our suggestions we went over these matters very closely with the State supervisory authorities. To be frank, there is great concern on the part of a number of the State supervisory authorities that undue pressure and influence is being used to develop the Federal Savings and Loan System to the detriment of the existing State chartered system of building and loan associations. I personally am not unfavorable, and our organization is not unfavorable, to the development of the Federal Savings and Loan System. We have them in our membership. We want to encourage them. On the other hand, we do want the largess and encouragement of the Federal Government to be made available equally as to those two different sets of institutions. The House hearings on this bill were quite full, and the committee gave a great deal of study to it. I will say that they embodied the major suggestions in the bill that were made by our organization and by the State supervisors. I want to comment a little further regarding the section 3 matter, which involves two issues: First, the change in the directorates of the 12 Federal Home Loan Banks; and second, the replacing of that section with a section dealing with an advisory council. Our people feel rather strongly about this change in directors. This system was set up with voluntary membership. Nearly 3,000 of them have come in. A program was laid out in the legislation whereby the Government stock was to be ultimately retired and the members own these 12 banks. They now have over $22,000,000 in vested. That is approximately twice what they had invested a year ago. Last year it was about $11,000,000. We feel that they have come in on the basis of the existing legislation, and unless there is some very strong reason, it should not be changed. I do not think the Federal Reserve precedent is compelling, Senator Bulkley, for this reason. In the case of the Federal Reserve banks, you have turned over to those banks-properly so, no doubt-a most important responsibility, namely, the control of the issue of the currency of this country. It is much more of a public function than it is a business function. These 12 home-loan banks function exclusively as business organizations under the supervision and control of a Federal board. The law gave very broad powers to the Federal board. As a matter of fact, they have more power over these twelve banks than any other financial board in Washington has over its constituent financial institutions around the country. There are some who feel that perhaps we gave too much power, but I do not share that belief. I do feel, however, that the system would be best in the long run if we have a strong central board with broad powers, and ultimately get the control and management of these 12 banks predominantly in the hands of the membership of the system. I believe rather strongly in the decentralization of control of these things. You could spend 15 minutes here listing all the various powers the board has. They control the rate at which the banks lend. They can remove personnel. They have to approve the officers before we can finally appoint them. They select the chairman and a vice chairman the leaders of the board. They select two public-interest directors on each board, and they lay down the whole procedure for examination twice a year. I do not think they need any additional influence to coordinate and carry the system along. It would have a very bad psychological reaction among the membership of the system if a change were made. With regard to the advisory council, we are very anxious for that statutory recognition of the principle that the membership of the system should have some orderly way in which to express its judgment as to the operations of the system. The proposal was originally made by our organization. Our original proposal was for a council which was selected by the membership of the system rather than from among the appointees of the central board. We patterned our proposal originally, and we do now on the Federal Reserve advisory council, in section 12 of the Federal Reserve act. As a matter of fact, we take practically the identical language regarding meetings and the set-up of the thing. We were very happy when the House concurred in our judgment on the matter, and we hope you will concur also. The next section that probably merits any comment from me in this bill Senator TOWNSEND. Referring now to the House bill? Mr. BODFISH. I am referring to the House bill. That is section 8. Mr. Friedlander discussed it briefly, and I would like to try, for the record, to further clarify our exact position. He brought out very satisfactorily the fact that we have no desire to place the examination 122165-35--3 fees of this Board under the appropriation machinery. On the other hand, the board levies assessments on the 12 Home Loan Banks. This year they total $300,000 on these 12 banks, which are paid out of the earnings of the 12 banks. There is no variation, particularly, in those expenses, except as the Board expands its personnel and its activity, and we see no reason why they should not go through the regular routine or procedure of Congress. In fact, we would feel very much better if it did. We have no particular complaint regarding the assessments, but, as the banks have to pay the bill, we would feel a little better if we had an impartial place to go if we felt that the assessments were becoming unduly high in relation to the earning capacity of the banks. We have no taste, however, for the broad language in H. R. 16021. The House went too far on the question, in our judgment. Commenting on section 10, involving further applications in the Home Owners' Loan Corporation, the only further comment that I should like to make there is this, gentlemen. It is impossible for private lending institutions to get borrowers when the Government is actively lending in the mortgage field. The public just will not apply, and sooner or later you have to say "We are going to stop here, and let private institutions take it up." They cannot take up the load while you are still lending. Senator BUCKLEY. Nobody is contesting the position that we are going to stop sooner or later, and say so. The most extreme suggestion that has been made is that there should be 60 days allowed for additional applications. Mr. BODFISH. I think that should be considered very carefully. We enrolled all the man power of the country in 2 days for the draft once. I think, if you open it up for 60 days, the Corporation will take 2 or 3 billion dollars worth of applications, and you gentlemen will have to give them another one or one and a half billion to service them. Senator BULKLEY. What do you say about the provision as it was written in the House? Mr. BODFISH. I think the House attempted to do a middle ground, and rather fair thing. After all, if an applicant came and he said he wanted a loan, and the Corporation was out of money; it seems only fair to taper it off by giving him a further opportunity. People who were in distress would have 24 months' opportunity to make their applications. I think it is a middle-ground provision. The State supervising authorities feel very strongly regarding section 16, and we do also. That provides for the purchase of shares in State-chartered institutions. 1 Senator ToWNSEND. As written in the House. Mr. BODFISH. As written in the House, it is entirely satisfactory. That was language that we worked out with that group. In section 21 I want to invite your attention to the fact that the language providing for the original F. H. A. had an unwise and unsound provision in it that if an association had to make any charge-offs to its reserves that it had accumulated to pay losses, it could not pay any dividend. That might be all right in shares in a bank or something of that kind, but in our institutions they are all |