Mr. NIXON. We have not had any actual experience, but we have taken figures on a large institution, to see what would happen if you insured those loans. All of them are not 80-percent loans. They were 60-percent loans, but they were average loans in that particular institution. If we had charged 1-percent premium, and had accumulated the fund at 3 percent, it would have paid out in 171⁄2 years, after covering all the other losses.

Senator BULKLEY. Is it your view that that explanation answers the criticism?

Mr. NIXON. No; I would not say that it did. It is just a matter of expediency. They fixed a rate which was supposed to be an average over the whole life of the loan. Not having anything to base it on, they just put 1 percent on the original amount. Senator MCADOO. Why should not that be made flexible, by regulation?

Mr. NIXON. It would undoubtedly be an advantage.

Senator BULKLEY. You think it would improve the law to make such an amendment?

Mr. NIXON. Yes; I believe it would. Really, as it now stands, it is, deferred amortization.

Senator BULKLEY. Mr. Moffett, we would be very glad if you would consider the subject a little further with your counsel and your actuaries, and see if you want to submit something in the way of an amendment along that line. I think it has been indicated that the committee would receive such a suggestion very favorably.

Senator STEIWER. Changing the subject, Mr. Chairman, because I have to leave shortly, I wanted to ask Mr. Moffett's attention to section 6 of the House bill 6021. I wanted to ask whether the Housing Administration has any objection to the amendment of section 10-B.

Mr. MOFFETT. I think it is desirable.

Senator STEIWER. You think it is desirable?

Mr. MOFFETT. Yes.

Senator STEIWER. Although it refers to certain mortgages approved under the National Housing Act, it affects the Federal homeloan bank more than it does your institution, does it not?

Mr. MOFFETT. Yes.

Senator STEIWER. Thank you.

Mr. FERGUSON. It furnishes another outlet for our mortgages. Senator McADOO. Does Mr. Fahey think well of that? Mr. Fahey, do you think well of this section 10-B?

Mr. FAHEY. Loaning up to 90 percent of value.

Mr. MOFFETT. By nonmembers?

Senator BULKLEY. That is, the advances to nonmember mortgagees.

Mr. FAHEY. We have no objection.

Senator GORE. Ninety percent of the value of what?

Senator BARKLEY. That is not all there is in that section. That is part of it.

Mr. FERGUSON. It means that the home-loan banks may lend the mortgagees 90 percent of the face of the mortgage.

Senator GORE. The home-owners' bank?

Senator MCADOO. Under the Housing Act.

Mr. FERGUSON. Yes; on an insured mortgage, under the Housing Act.

Senator GORE. How would it do to have the mortgagee stand between the Government and the mortgagor, and try to help collect these mortgages-make him underwrite it?

Mr. MOFFETT. Senator, as I understand it, the act now provides that member institutions may borrow up to 90 percent of the face value through the Federal home-loan bank on insured mortgages. This amends the existing act and permits nonmember institutions to do the same thing.

Senator GORE. What would that include? I do not quite follow

you.

Mr. MOFFETT. In the event of an emergency the member institutions of the Federal home-loan bank may borrow on insured mortgages up to 90 percent of the face value. That is correct, is it not, Mr. Fahey?

Mr. FAHEY. Of the mortgage.

Mr. MOFFETT. Of the mortgage.

Senator GORE. Have you considered at all the proposition of requiring the mortgagee to stand surety, in a way, for these advances or loans that take up his mortgage and substitute another for it? Senator BARKLEY. The law does not relieve the property owner from any of his obligations.

Senator GORE. That is not the point. As I understand it, the situation is this. Take the home owners' loan bank, as well as the farm land bank. They have taken over a good many mortgages from private lenders, such as insurance companies and banks, and even individuals, for that matter. The mortgagee has gotten his money, and he bows out of the picture when he gets his money. If you would make him indorse the paper and stand sponsor, he would help collect this money from the mortgagor. You are going to have a lot of trouble collecting this money. Some of these banks have collected only 40 percent of these loans in some places, 40 percent of the installments that are due on these home owners' loans.

Mr. MOFFETT. This is dealing with insured mortgages under the National Housing Act, where the lending agency, in time of emergency, may need liquidity, and it permits him to borrow on the collateral of these insured mortgages up to 90 percent of the face value in an emergency.

Senator GORE. It does not relate to the kind of mortgage I have been discussing?

Mr. MOFFETT. No. It is an insured mortgage, under the National Housing Act.

Senator GORE. If we had required that in the first instance, all these cases would have had a lot better collection.

Mr. MOFFETT. He does not sell this mortgage. He uses it as collateral in an emergency, to gain liquidity.

Senator BULKLEY. Have you covered the matters in which you are interested, Mr. Moffett?"

Mr. MOFFETT. Yes.

Senator BULKLEY. Thank you very much, indeed.

Senator Bankhead is proposing a very important amendement to this bill. We would like to hear from him. As a matter of fact

he has several amendments. They will be printed in the record at this point.

(The amendments referred to are as follows:)

[H. R. 6021, 74th Cong., 1st sess.]

Amendments intended to be proposed by Mr. Bankhead to the bill (H. R. 6021) to provide additional home-mortgage relief, to amend the Federal Home Loan Bank Act, The Home Owners' Loan Act of 1933, and the National Housing Act, and for other purposes, viz:

On page 8, line 13, after "real estate." insert the following sentence: gional offices are hereby abolished and shall not be reestablished."

Senator BANKHEAD. My amendment, Mr. Chairman and gentlemen, is to abolish the regional organizations. Senator BULKLEY. Do you have it there?

Senator BANKHEAD. I introduced it in the Senate, and asked for its reference here.

Senator McADOO. To abolish what?

Senator BANKHEAD. Regional offices of the Home Owners' Loan Corporation.

Senator BULKLEY. Those are the offices set up to service the collection of loans?

Senator MCADOO. Merely for that purpose?

Senator BANKHEAD. Yes.

Senator McADOO. You do not want the loans collected, is that the idea?

Senator BANKHEAD. Yes; but I want them collected in the proper

way.

Senator BULKLEY. This amendment is very short. It says:

On page 8, line 13, after "real estate" insert the following sentence:"Regional offices are hereby abolished and shall not be reestablished."

Senator McADOO. That would concentrate everything here in Washington.

Senator BANKHEAD. No, sir.

Senator GORE. It would decentralize it to the States.

Senator BANKHEAD. I want to send it back to the States. They have 11 regional offices, a very large and substantial organization. At this point I want to request the committee to ask the organization to send up a list of the number of employees in each regional office, and the total pay roll of each office.

Senator MCADOO. And what functions those offices perform?
Senator BANKHEAD. Yes.

Senator MCADOO. That is the Home Owners' Loan Corporation?
Senator BANKHEAD. Yes.

Senator MCADOO. You are not speaking of abolishing the State offices?

Senator BANKHEAD. No, sir.

Senator BULKLEY. Let me ask, are those figures available right here, Mr. Fahey? Could you tell us the number of employees in the regional offices, and the amount of the pay rolls, or would you have to look that up?

Mr. FAHEY. I would have to look that up. I do not happen to have those figures at hand, Mr. Chairman.

STATEMENT OF JOHN H. FAHEY, CHAIRMAN FEDERAL HOME LOAN BANK BOARD

Mr. FAHEY. I think Senator Bankhead and some others are under a misapprehension as to what these regional offices are, and their relation to our operation. The regional offices do not conduct the servicing. They do not have to do with the detailed operations in the States.

Some reports have been circulated to the effect that it is the plan of the Board to gradually eliminate the State offices and conduct this business entirely from the regional offices. As a matter of fact, such a thought has never been considered by the Board, and would be absolutely impracticable.

Senator GORE. Åre they not designed, in a way, as collecting agencies?

Mr. FAHEY. No; merely as supervising agencies, Senator, so far as collections are concerned. The work done in these regional offices was previously done here in Washington.

Senator GORE. I think it is wise to take it from here.

Mr. FAHEY. It is the overhead and supervisory work. While the Corporation was handling a comparatively small volume of loans it could be started and organized and developed from here. But after the volume grew to 100,000 or more, that was absolutely impossible from a physical standpoint; and not only that, but it would have the effect of slowing up operations, delaying decisions on moot questions which are constantly arising, and from every standpoint it would paralyze the operations of the Corporation. So, gradually, as the volume rose, we moved out the key groups that were in charge of this work here in Washington to the most available centers, the most convenient centers. What happened here was this. As the work was organized it was carried forward by crews of men who devoted themselves to this supervisory and overhead work for certain groups of States, and those men thus became thoroughly familiar

Senator BULKLEY. Mr. Fahey, I do not think you are quite clear as to the exact difference in jurisdiction between the State office and the regional office, and the plan under which you are working now.

Mr. FAHEY. The jurisdiction of the regional office is merely the jurisdiction of Washington headquarters transferred into regions for greater convenience and flexibility. That is the only difference. Senator BULKLEY. What about the collection of delinquencies? Is that in the hands of the State offices?

Mr. FAHEY. The collection of delinquencies has to be carried forward through the State offices. What happens is this: A large portion of the collection is made by mail. Fully 60 percent of all our money comes in merely on mail billing, and obviously it is the cheapest and most efficient way to handle it."

Senator BANKHEAD. That is handled from the regional offices.
Mr. FAHEY. Yes. It was handled from here.

Senator GORE. That is the cheapest way, but is it the most efficient, Mr. Fahey?

Mr. FAHEY. By all means it is the most efficient.
Senator GORE. You think so?

Mr. FAHEY. Yes; so far as you can go with it. That has to be followed up with the slower accounts, by the direct action of the State and the district offices, and that is what happens.

Senator BARKLEY. You speak of delinquencies. Are the ordinary collections that are not delinquent, but in the regular process of amortization, made direct to the State director, or the State officer, or to the regional office, or how is that handled?

Mr. FAHEY. The State office; and, everywhere where there is a considerable congestion of business we open cashier offices in the State or district offices, so that people may come in and pay that money direct.

Senator BARKLEY. They pay it in the district offices into which the States are divided.

Mr. FAHEY. That is right.

Senator MCADOO. Mr. Fahey, may I ask you to give us a little outline of the organization as it now exists? Let us take the regional offices first. You have 11 of those in the country.

Mr. FAHEY. That is right.

Senator MCADOO. Where are they situated?

Mr. FAHEY. There is 1 in Boston, 1 in New York, 1 in Baltimore, 1 in Detroit, 1 in Cincinnati, 1 in Chicago, 1 in Memphis, 1 in Atlanta, 1 in Dallas, 1 in Omaha, and 1 in San Francisco.

Senator BANKHEAD. What work do the regional offices do?

Mr. FAHEY. The regional offices carry in their offices the accounting and auditing, the appraisal supervision, legal supervision, and the checking of these files as they come in, just as was done here before the breakdown of these units was made.

Senator BULKLEY. You mean appraisals for new loans?

Mr. FAHEY. No; only the supervision of the field appraisals. They do not make the appraisals at all.

Senator BANKHEAD. In other words, they are just servicing

Mr. FAHEY. They simply supervise the work, and settle moot questions promptly as they arise, instead of bringing them to Washington.

Senator BANKHEAD. What do you mean by moot questions?

Mr. FAHEY. Questions as to eligibility of this, that, or the other loan are coming up constantly. Not only that, but there always has been, and still is in many of the State and district offices, confusion as to the exact application of regulations of the Corporation. Of course, it is impossible to conduct an operation of this kind except on a basis of standards throughout the country. In other words, you cannot have one basis of conducting the business in one State, and another basis in another. Some general principles have to be laid down. Exceptions have to be made to those principles in some cases, depending upon local conditions, and a great variety of questions arises under the laws of the different States, and as to appraisal conditions in different States; but, in general, of course, we attempt to standardize the whole practice. One of our greatest difficulties, however, has been to maintain a standardized practice in the States so that there was no discrimination, and so that we were doing the same thing everywhere, as nearly as it could be done under the terms of the law.