Partially satisfactory, although the comments made regarding section 7 of the bill apply to part of this amendment. SECTION 15 Recommendation Rewrite the entire section 15 of H. R. 5531 and S. 1771 to read as follows: "SEC. 15. Section 403, subsection (b) of the National Housing Act is amended by striking out the words 'ten years' from the third line from the end thereof and inserting in lieu thereof the words twenty years', and is further amended by striking out in the last two lines of the subsection the words or the payment of any dividends if any losses are chargeable to such reserves' and inserting a period in lieu of the preceding comma." Explanation The amendments proposed in section 15 recognize that the reserve provisions in the present act are not workable. While the amended language is an improvement, it is still not satisfactory. The language in the bill requires that an association having made a legitimate charge-off of losses to reserves, must get permission in Washington from the Insurance Corporation in order to distribute earnings to its hundreds or thousands of savers. This involves delays, forms, and machinery which are totally impracticable. By means of the examination program of the Corporation and its other general powers, it can certainly protect itself without expanding its activities to the consideration and approval of dividend declarations. Satisfactory in present form. SECTION 16 SECTION 17 This change is in accordance with the judgment and recommendations of our organization, and we are particularly anxious that this section be enacted. Satisfactory in present form. SECTION 18 SECTION 19 Not germane to our institutions or shareholders. SECTION 20 Not germane to our institutions or shareholders. SECTION 21 Not germane to our institutions or shareholders. SECTION 22 The comment under section 7 is applicable to this proposal, as we feel that such matters should be within the jurisdiction of the Congress. A NEW AND ADDITIONAL SECTION 23 Recommendation Add a new and additional section 23 to read as follows: "SEC. 23. Section 407 of title IV of the National Housing Act is amended as follows: First, in subsection (a) strike out the last half of the last sentence, namely, the words 'but the obligation of the institution to pay the premium charges for insurance shall continue for a period of three years after the date of such termination', and insert a period in lieu of the preceding semicolon, and second, in subsection (b) strike out the last half of the last sentence, namely, the words 'but the insured accounts of its members existing on the date of such termination shall continue as such for a period of five years thereafter, and the institution shall be required to continue the payment of the premium charge for insurance during such five-year period', and insert a period in lieu of the preceding comma." Explanation Mutual savings banks are permitted to withdraw from the F. D. I. C. without penalty, in fact; they are refunded a substantial portion of their premium or contribution to the F. D. I. C. funds. It seems unfair and unnecessary that the savings and loan associations, having no rights in the reserves accumulated through the annual payments, should be required to pay three additional annual premiums in case they wihdraw, or five additional premiums in case the insurance is terminated by the Corporation. Some more reasonable withdrawal privilege should be provided. Either the amendment above suggested, or, at most, a single additional annual premium. Directors and trustees of savings institutions are properly hesitant to join the Insurance Corporation and pay annual premiums unless they can reverse their action should the insurance regulations, expenses, and benefits prove onerous or unnecessary. A NEW AND ADDITIONAL SECTION 24 Recommendation Add a new and additional section 24, to read as follows: "SEC. 24. Section 405 (b) (2) of title IV of the National Housing Act is amended to read as follows: '(2) at the option of the insured member, the amount of his account which is insured under this section, as follows: Not to exceed 10 per centum in cash, and 50 per centum of the remainder within one year from the date of such default, and the balance within three years from the date of such default in, and evidenced by negotiable two per centum debentures of the Corporation, issued in the name of and delivered to the insured member. The Corporation shall furnish to all insured institutions a certificate stating that the insurance of accounts in such institution is to be paid in the manner described in this subsection.'" Explanation The present statute is slightly obscure and does not clearly indicate that the debentures mature one and three years from the date of the default. We also feel that the Insurance Corporation, which has the income from the assets of the institution in liquidation, should pay at least nominal interest on the debentures in order that they not be discounted. It is recommended that these liquidation debentures carry a 2-percent interest rate, and the amendment so provides. Investors may have to wait months or even years before public authorities can or will declare an institution insolvent and therefore in default. After such a period those investors electing to dispose of their debentures should not forfeit too substantial a portion of their investment on account of holding a noninterest-bearing security. A NEW AND ADDITIONAL SECTION 25 Recommendation Add a new and additional section 25, to read as follows: 66 SEC. 25. Section 406 (b) of title IV of the National Housing Act is amended by striking out the last sentence in (b), reading as follows: 'The net proceeds which may arise from the orderly liquidation of the assets of any such association, after reimbursement of the Corporation of all amounts paid by it for such insurance, shall be distributed pro rata among the shareholders of the association.', and inserting in lieu thereof the following language: 'The surrender and transfer to the Corporation of the insured account shall subrogate the Corporation with respect to the amount of such insurance and shall not affect any right which the insured member has in the uninsured portion of his account or any right which he may have to participate in the distribution of the net proceeds remaining from the disposition of the assets of the insured institution." Explanation The present language in the act is undoubtedly illegal, as it contravenes the rights existing on the part of shareholders. In effect, it provides that the uninsured accounts, in the liquidation of an institution, are available for complete reimbursement of the Insurance Corporation's disbursements to insured investors. No statute can change the right of investors to participate in the liquidation of an institution proportioned to their interest. The Corporation, having disbursed an insured account, is entitled to stand in the place of that individual shareholder to the extent to which it has repaid him. The proposed language is from the rules and regulations of the Corporation, but the matter is so extremely important and the statute so clearly in conflict with both sound principle and the regulations that the statute should be corrected. A NEW AND ADDITIONAL SECTION 26 Recommendation Add a new and additional section 26 to read as follows: 66 SEC. 26. Section 10 (a) of the Federal Home Loan Bank Act is amended by adding a new section 10 (b) immediately following section 10 (a) to read as follows: SEC. 10 (b). Each Federal home loan bank is authorized to make advances to nonmember mortgagees approved under title II of the National Housing Act. Such mortgagees must be chartered institutions having succession and subject to the inspection and supervision of some governmental agency, having a combined unimpaired capital and surplus of not less than $100,000, of which at least $50,000 is unimpaired capital and their principal activity in the mortgage field must consist of lending their own funds. Such advances shall not be subject to the other provisions and restrictions of this act, but shall be made upon the security of insured mortgages, insured under title II of the National Housing Act. Advances made under the terms of this section shall be at such rates of interest and upon such terms and conditions as shall be determined by each Federal home loan bank, but no advance may be for an amount in excess of 90 per centum of the unpaid principal of the mortgage loan given as security.'' Explanation It has been proposed that the Federal home loan banks might facilitate the early and effective operation of title II of the National Housing Act, providing for mutual mortgage insurance, by using some of their funds for making advances to approved mortgagees on the security of insured mortgages. Section 10 of the Federal Home Loan Bank Act, as amended, provides broad powers under which each Federal home loan bank may make advances to its members secured by such mortgages up to 90 percent of the unpaid principal of such insured mortgages. In order to assist in relieving the real-estate credit stringency and to invite further funds into the long-term amortized mortgage field, it is proposed in the above amendment that the Federal home loan banks be authorized to advance money to nonmember institutions up to 90 percent of the unpaid principal of such insured mortgage loans. This would give employment to idle funds now in the Federal home loan banks and facilitate the F. H. A. program. The qualifications of approved mortgagees are taken from the rules and regulations of the Federal Housing Administration. A NEW AND ADDITIONAL SECTION 27 Recommendation Add a new and additional section 27 to read as follows: SEC. 27. Section 13 (a) of the Federal Reserve Act is amended by adding at the end of section 13 (a) the following paragraph: "Any Federal Reserve bank may also, subject to regulations and limitations to be prescribed by the Federal Reserve Board, discount notes payable to and bearing the endorsement of any Federal home-loan bank, covering loans or advances made by such bank pursuant to the provisions of sections 10 and 10 (a) of the Federal Home Loan Bank Act as amended, which have maturities at the time of discount of not more than nine months, exclusive of days of grace. Any Federal Reserve bank may also buy and sell debentures and bonds issued by any Federal home loan bank and consolidated Federal home loan bank debentures and consolidated Federal home loan bank bonds issued by the Federal Home Loan Bank Board.'" Explanation A substantial portion of the funds of the Federal home loan banks are loaned to members for their short-term requirements. The development and expansion of the bank system would be assisted by an additional source of low-cost, shortterm capital. Following the precedent established in section 13 (a) of the Federal Reserve Act in the provisions which make the Federal Reserve facilities available to Federal intermediate-credit banks, it is proposed that similar service be made available to the 12 Federal home loan banks. A NEW AND ADDITIONAL SECTION 28 Recommendation Add a new and additional Section 28 to read as follows: "SEC. 28. The Federal Home Loan Bank Act is amended by inserting a new Section 9, following section 8, and renumbering the subsequent sections accordingly, as follows: 'SEC. 9. There is hereby created a Federal Savings and Loan Advisory Council which shall consist of as many members as there are Federal Home Loan Bank districts. Each Federal Home Loan Bank, by its board of directors, shall annually elect a resident of such bank district interested in thrift and the financing of homes as a member of said Council, to serve without compensation other than travelling expenses. The Federal Savings and Loan Advisory Council shall meet at Washington, District of Columbia, at least two times a year and oftener if requested by the Federal Home Loan Bank Board. Said Council may meet at other times and other places as it may deem necessary and may select its own chairman and vice chairman and secretary and adopt its own method of procedure. The directors of the Federal Home Loan Banks shall elect members of the Council for a one-year term and shall fill vacancies that may occur. The Federal Savings and Loan Advisory Council shall have power— 1. To confer with the Board or the Trustees of the Federal Savings and Loan Insurance Corporation on general business conditions or special conditions affecting the Federal Home Loan Bank System or its members or the Insurance Corporation. 2. To make representations concerning matters within the jurisdiction of the Board and the trustees. '3. To request information and make recommendations in reference to the Federal Home Loan Bank System or its members, or the Insurance Corporation. 4. To recommend the elimination of all necessary routine and procedure in the conduct of the Home Loan Bank System or the Insurance Corporation and make suggestions in the public interest as to the program and policies of these two operations. The recommendations here directed shall be printed as a part of the Annual Reports to Congress of the Federal Home Loan Bank Board and the Insurance Corporation.'" Explanation Such an Advisory Council, with statutory existence and responsibilities, was requested at the time the National Housing Act was under consideration. The set-up we propose is exactly parallel to the advisory committee which represents the point of view of member banks in the Federal Reserve System. (See sec. 12 of the Federal Reserve Act.) It is felt that such a committee can do much constructive service in working with the agencies of the Federal Government and bringing to them a practical managerial and operation point of view. The banks will pay the entire expense of such meetings as the Council would have, thus involving no outlay whatsoever to the Government. The annual recommendations of such a group would be helpful to the Congress, as well as to the administrative board. We are here merely asking the same recognition privileges in the home-fiinancing reserve system that have been accorded to member banks in the Federal Reserve System through the Federal Reserve Advisory Council. CONCLUDING STATEMENT These proposals have had consideration of the proper committees of the United States Building and Loan League and the National Association of Building and Loan Supervisors and are respectfully submitted.1 UNITED STATES BUILDING AND LOAN LEAGUE, MORTON BODFISH, Executive Vice President. Chairman Federal Legislative Committee. IRA A. MCBRIDE, Chairman Executive Committee. Senator BULKLEY. Thank you, Mr. Bodfish. The committee will stand in recess until 10:30 tomorrow morning, when the hearing will be resumed. (Whereupon, at 12 o'clock noon, the subcommittee recessed until tomorrow, Thursday, March 21, 1935, at 10:30 a. m.) 1 As some of the proposals included in the petition approved by our Executive Committee have been included in H. R. 5531 and S. 1771, they are omitted from this draft of the petition. |