might have the same authority to make loans in the Virgin Islands as we now have in the United States, Alaska, Puerto Rico, and Hawaii. Section 5. This section amends section 203 of the 1947 act by adding a new proviison dissolving the Federal National Mortgage Association. Mr. BROWN. The Federal National Loan Association created a secondary market for the Federal Housing Administration mortgage loans. Does this bill do away with this?

Mr. GOODLOE. Yes, sir.

Mr. BROWN. I think we ought to have a secondary market for the purpose of helping in the case of GI loans. I would like to have your comment on the effect of doing away with this secondary market for Federal Housing Administration loans.

The CHAIRMAN. I think perhaps, Mr. Brown, that Mr. Goodloe might not want to answer that question for the reason that the Senate obviously dissolved the Federal National Mortgage Association in anticipation of setting up a secondary market through the Housing and Home Finance Agency, which is a provision in another bill. I do not know whether Mr. Goodloe would want to comment on whether the secondary market should be provided by the Housing and Home Finance Agency or as now set up in the National Housing Act.

Mr. BROWN. Well, I think he might comment on it.

Mr. GOODLOE. I will be glad to discuss what we have done, and why we did it, and what the results were.

Mr. BROWN. That is all right.

Mr. GOODLOE. Of course, the ultimate decision as to whether there is to be a secondary market for the so-called GI mortgage and where it should be is a matter which, in the last analysis, must be determined by the Congress and is one with respect to which there is quite a difference of opinion, obviously.

Mr. GAMBLE. The Federal National Mortgage Association cannot buy GI loans, can it?

Mr. GOODLOE. No, sir.

Mr. GAMBLE. It can buy Federal Housing Administration loans, but not GI loans?

Mr. GOODLOE. That is right.

Mr. BROWN. This bill does away with the Federal Housing Administration loans.

Mr. GAMBLE. That is right.

Mr. GOODLOE. The Federal National Loan Association was the Federal National Mortgage Association which was set up under the National Housing Act and its purpose was to provide a secondary market for Federal Housing Administration insured mortgages and under its charter, which was issued pursuant to the Housing Act and it has no authority to deal in the so-called GI mortgage paper.

We made a secondary market for the Federal Housing Administration mortgages, and during early years we bought quite a large amount of that paper, as I recall, something in the neighborhood of $3,000,000. After the Federal Housing Administration program got well under way, and there was sufficient experience with respect to it, and the investment houses and insurance companies knew what the mortgages were, most of the mortgages were taken by private investment houses. Indeed, some 2 years or more ago, we sold, at a substantial premium, practically all of the Federal Housing Administration insured mort

gages that the Federal National Mortgage Association held in its portfolio. We retained only about, as I recall it, $5,000,000 in such mortgages, solely for the purpose of having in the Federal National Mortgage Association-which we affectionately refer to as "Fannie May" because of its initials-enough income from the mortgages to cover its expenses, to maintain it as a stand-by agency in the event there should be a change in conditions.

As you perhaps know, there has been a recent and fairly substantial change in conditions with respect to the investment houses taking the 4 percent Federal Housing Administration paper, and within the last 90 days the Federal National Mortgage Association has been called on either to purchase or make commitments to purchase within a period of one year, if the construction is completed, if it is approved by Federal Housing Administration, if the permanent mortgage comes into being, and if the Federal Housing insures it-both on the 603 mortgages, which are the individual units up to 4 families, and more recently, even quite a little demand for that type of service with respect to the 608 mortgages, which are the multiple units in excess of 4, the fairly substantial projects of rental housing.

The secondary market which was made with respect to the so-called GI insured mortgages was made under a statutory authority which was given Reconstruction Finance Corporation, I believe, in 1945. That authorized Reconstruction Finance Corporation to do it directly or through a subsidiary, and during that period, when we made the secondary market on GI insured mortgages, that was handled through The RFC Mortgage Company, which subsidiary has been terminated and all of the activities, assets, and so forth, transferred to the Reconstruction Finance Corporation.

You will recall that last year the authority to continue that operation was terminated by the Congress effective July 1.

I will be very glad to insert in the record at this point, if you desire, a fairly current report-indeed, it is as of March 17-a letter to Senator Buck, a copy of which I believe I sent Mr. Fink at the time, which shows the total GI insured mortgages that we had purchased on June 30, 1947, when our authority to purchase expired, as well as the number and amount of such mortgages for which we had made commitments to purchase, together with a statement showing, through February 1948, how many of the mortgages, with respect to which we had made commitments to purchase, we had, in fact, purchased.

The CHAIRMAN. I think it would be helpful to have that inserted in the record, and without objection, it will be done. (The letter referred to is as follows:)

Hon. C. DOUGLASS BUCK,

MARCH 17, 1948.

Chairman, Subcommittee of the Senate Committee on Banking and Currency, Senate Office Building, Washington, D. C.

DEAR SENATOR BUCK: Last week you indicated you would like to have some current figures regarding the purchase by RFC of veteran home mortgages guaranteed by the Veterans' Administration under the so-called GI bill of rights.

As you will no doubt recall, the authority of RFC to make a secondary market for such VA-insured mortgages directly or through its subsidiary, the RFC Mortgage Company, was terminated as of the close of business on June 30, 1947, by Public Law 132, Eightieth Congress, approved June 30, 1947. The following tables will show you the status of the mortgages actually purchased as of June 30, 1947,

together with the outstanding commitments as of that date as well as the liquidation of such commitments through February 29, 1948:

We trust that the foregoing information will be satisfactory for your purposes and any additional information you may desire will be furnished promptly upon request.

Sincerely yours,

cc: Sen. Sparkman

Mr. Orman Fink

JOHN D. GOODLOE, Chairman.

MARCH 18, 1948.

Hon. C. DOUGLASS BUCK,

Chairman, Subcommittee of the Senate Committee on

Banking and Currency, Senate Office Building, Washington, D. C DEAR SENATOR BUCK: This will supplement the letter I sent you yesterday giving you certain information you had requested regarding the purchase by RFC of veteran home mortgages guaranteed by the Veterans' Administration under the so-called GI bill of rights.

It occurred to me that it might be of interest if not assistance to you when our bill (S. 2287) comes up on the floor to have the following additional information: Paragraph numbered 10, page 3 of the final Majority Report of the Joint Committee on Housing (pursuant to H. Con. Res. 104) reads as follows:

"The present secondary home mortgage market activities of the Reconstruction Finance Corporation should be liquidated and there should be established within the Housing and Home Finance Agency, on a carefully restricted basis, a Government-sponsored secondary market, for a 2-year period. This secondary market should be authorized to purchase both FHA-insured and VA-guaranteed loans on a limited basis where such purchases do not contribute to inflationary pressures and are necessary to sustain the volume of residential construction. "In order to encourage continued or initial participation in the GI loan program by private lending institutions, the committee feels that consideration should be given to amending title III of the Servicemen's Readjustment Act to add an incontestability clause with respect to loans guaranteed by the Veterans' Administration. In this way, provision could be made that after 1 year from the date of issuance of evidence of guaranty or insurance or from the date of final disbursement of the proceeds of the loan, whichever is later, any evidence of guaranty or insurance issued by the Veterans' Administrator shall be conclusive evidence of the eligibility of the loan for guaranty and insurance and of the amount of such guaranty or insurance, with appropriate safeguards against fraud or material misrepresentation."

Section 201, title II, page 16, of S. 2317, introduced yesterday by Senator McCarthy of Wisconsin, provides for the establishment within the Housing and Home Finance Agency of a new corporation to provide on a restricted basis a secondary market both for FHA-insured and VA-guaranteed loans. It also provides for the transfer to that new agency for servicing, etc., the present FHAinsured and VA-guaranteed mortgages held by RFC and Federal National Mortgage Association.

With best wishes, I am

Sincerely yours,

JOHN D. GOODLOE, Chairman.

Mr. SUNDSTROM. Mr. Goodloe, have you had authority in the past year to purchase 603 and 608 mortgages? Mr. GOODLOE. Yes, sir.

Mr. SUNDSTROM. Have you purchased any since June 30, 1947?
Mr. GOODLOE. Yes.

Mr. SUNDSTROM. Could you tell us to what extent, approximately? Mr. GOODLOE. I believe I would like to get that figure and insert it in the record.

Mr. SUNDSTROM. That is agreeable to me. That is what this section 5 does away with, and I would like to see the effect of it.

Mr. GOODLOE. May I supply that for the record? Mr. SUNDSTROM. Yes; that will be satisfactory. (The information referred to is as follows:)

FNMA during the third and fourth quarter of 1947 did not purchase or commit to purchase any section 608 FHA-insured mortgages. During the first quarter of 1948 it has committed to purchase 29 such mortgages aggregating $13,215,700. No purchases pursuant to such commitments had been effected as of March 31, 1948.

During the last quarter of 1947 FNMA committed to purchase 111 section 603 mortgages aggregating $752,200. During the first quarter of 1948 it executed commitments to purchase 6,400 section 603 mortgages aggregating $43,575,000. Of the outstanding commitments to purchase section 603 FHA insured loans, the Association purchased during the first quarter of 1948, 764 such loans aggregating $5,677,400.

Mr. BROWN. Did you sustain any losses on the Federal Housing Administration mortgages which you purchased?

Mr. GOODLOE. No; the experience in the Federal Housing Administration secondary market has been a very satisfactory and, indeed, a very profitable one from our standpoint.

Mr. PATMAN. I want to ask you a question or two about this report, Mr. Goodloe, of February 29, 1948, presented by the Reconstruction Finance Corporation. I notice you have listed here loans of 621 million dollars plus for Rural Rehabilitation, and no balances outstanding. How was that paid off?

Mr. GOODLOE. That was paid off by those loans being transferred to the Secretary of the Treasury, pursuant to law, approved by the Congress last year, and a corresponding amount of our notes to the Secretary of the Treasury were canceled. In other words, it was just a bookkeeping transaction.

Mr. PATMAN. Did the same thing happen with reference to the Farm and Tenants Act?

Mr. GOODLOE. Yes, sir.

Mr. PATMAN. What about Rural Electrification?

Mr. GOODLOE. The same thing. As a matter of fact, all of our interagency financing has been terminated in that way.

Mr. PATMAN. I notice that the railroads still owe 141 million dollars out of 933 million dollars. Are they paying that off regularly, without default?

Mr. GOODLOE. Yes, sir. We had at one time outstanding in railroad loans, as I recall, something in excess of a billion dollars.

Mr. PATMAN. It says here 933 million dollars plus.

Mr. GOODLOE. Well, then, I may be a little confused. We had several hundred million dollars of railroad securities which were taken over from Public Works Administration, which gave us a portfolio in railroads in excess of a billion dollars.

Mr. PATMAN. I notice the banks still owe 935 million dollars plus on advances. It occurs to me that the banks, having been rather profitable institutions in the last few years, might have paid that off.

Mr. GOODLOE. As I said earlier, I included in my statement for the record the amount that had been liquidated in preferred bank stocks since June 30 last, as well as the steps that we have taken since then to accelerate the liquidation, starting first with the letters to the supervisory authorities, and then more recently with the letters to the banks themselves.

I might state that the bulk of that investment in capital stock in banks is in New York and New Jersey, and I think there are one or two fairly substantial amounts in Ohio. In those cases, they are fairly large banks, and are doing very well now. However, it is going to be a long pull on the basis of present earnings before they will be in a position to retire their preferred stock.

Mr. PATMAN. I was here in 1932 when the Reconstruction Finance Corporation was created. To the best of my recollection, it only applied to banks, insurance companies, and railroad companies. Is that correct? Originally, in 1932, when the act was passed?

Mr. GOODLOE. I think it included some other categories, but, generally speaking, it was confined to railroads and financial institutions. It included trust companies, banks, insurance companies, mortgage loan associations, and, I think, credit unions

Mr. PATMAN. Credit unions? I notice you have extended loans to credit unions of $600,000, but they have all been paid back.

Mr. GOODLOE. That is correct.

Mr. PATMAN. You have had no losses on loans to credit unions?
Mr. GOODLOE. No, sir.

Mr. PATMAN. Those are all the questions I have at this time.
Mr. SPENCE. What was your peak of loans to banks?

Mr. GOODLOE. Peak to banks?

Mr. SPENCE. Yes. After the depression, how much did you have outstanding in loans to banks?

Mr. GOODLOE. The largest amount we ever had disbursed and outstanding to banks and bank receivers, by way of loans, was $2,198,000,000.

In addition to that, we had preferred stock of banks, at one time, outstanding of $1,170,000,000, or a total of, in round figures, $3,300,000,000.

Mr. SPENCE. How many banks did that include?

Mr. GOODLOE. I ought to know that figure offhand, but I do not recall it.

Mr. SPENCE. If it is too much trouble, let it go.

Mr. GOODLOE. It is my recollection that it was a very large number. Mr. PATMAN. Would you yield on that point, Mr. Spence?

Mr. SPENCE. I yield.

Mr. PATMAN. Mr. Goodloe, is it not a fact that that amount was almost equal to the total amount of capital stock of all banks at that time? In 1933?

Mr. GOODLOE. I would not know about that, Mr. Patman.

Mr. SUNDSTROM. Mr. Goodloe, how much of the bank-stock liquidation has taken place since June 30, last year?

Mr. GOODLOE. Full retirement, 216 banks, since June 30, or a total for 1947, 372 banks, $24,000,000.

Mr. SUNDSTROM. Is that from June 30 to January 1, this year? Mr. GOODLOE. Yes.

Mr. SUNDSTROM. Through what date?