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The Federal Home Loan Bank Board and Its Agencies

THE

HE Federal Home Loan Bank Board, created by Congress in 1932 to administer the Federal Home Loan Bank System, has been charged with a number of additional functions in subsequent years. In 1933, when the Home Owners' Loan Act was passed, the Federal Home Loan Bank Board was designated to serve as Board of Directors of the Home Owners' Loan Corporation. By the same Act, the Board was authorized to charter, organize, and supervise Federal savings and loan associations. In 1934, the Federal Home Loan Bank Board was directed to act as the Board of Trustees of the Federal Savings and Loan Insurance Corporation, created to insure the accounts of investors in thrift and home financing institutions.

SIGNIFICANCE OF HOME OWNERSHIP AND HOME FINANCE Despite these several functions, the Federal Home Loan Bank Board is primarily concerned with one field of the country's economic and social life: the field of home ownership and the related activities of home finance and thrift. The importance of this field in our national economy springs from deep sources. Americans have always cherished the goal of home ownership, and the rise of large industrial and commercial centers has brought but little change in this respect. Home ownership in this country is not confined to a small wealthy class, but is widespread among all classes of the population.

The vast majority of our nonfarm families live in one- and twofamily houses. In 1930, approximately 70 percent of all existing occupied dwelling units in nonfarm areas were single-family houses. Another 15 percent of the existing dwelling units were in two-family houses, and only the remaining 15 percent in multifamily and apartment houses. Likewise, about eighty out of each hundred dwelling units built since 1930 were in one- and two-family houses.

The aggregate value of small houses in the United States represents the largest single item of our national wealth. Naturally, the credit structure built around these properties constitutes a great portion of our total private long-term debt. With an estimated amount of

$17,721,000,000 in 1938, the mortgage debt on one- to four-family dwellings is the largest single block in the private long-term debt in the United States.

The safeguarding of the wealth invested in our homes, and the smooth functioning of credit which serves to finance the building and purchase of homes have only recently become matters of national concern. For a long time the rapid growth of the country in territory, population, and resources had tended to obscure existing defects of our home-financing system. It was only during the depression from 1929 to 1933 that serious weaknesses were exposed and recognized as national problems. It is unnecessary to recite the experience of these years in detail. The mounting number of home owners who lost their properties or were threatened by foreclosure, the freezing up of credit, the break-down of confidence, runs on home-financing institutions, the collapse of the real estate market-all this is still fresh in our minds. While the distress of the mass of home owners was due in part to the particular severity of the depression, Congress realized that much of it could have been prevented if better safeguards had been placed around home ownership and thrift, which affect so large a portion of our population. The Federal Home Loan Bank Board and its agencies were brought into existence to provide such added protection.

ORIGIN OF AGENCIES UNDER THE BOARD

The Federal Home Loan Bank System was created in 1932 to serve as a permanent credit reservoir for thrift and home financing institutions. It assists both borrowers and investors in such institutions through the supply of money to maintain liquidity or to provide for mortgage lending when local funds are insufficient. With the establishment of the Federal Home Loan Bank System, a basic weakness of the American home-financing structure-the lack of any credit. reserve facilities-has been eliminated.

However, before the Federal Home Loan Bank System began its actual operation, the financial disaster had assumed such proportions that emergency action was needed. In June 1933, Congress established the Home Owners' Loan Corporation to help distressed home owners directly by refinancing mortgages on owner-occupied one- to four-family homes. This was strictly a temporary expedient and in June 1936, the Home Owners' Loan Corporation closed its refinancing operations.

To strengthen the home-financing structure, the Home Owners' Loan Act provided for the creation of a national system of thrift and

home financing institutions, the Federal savings and loan associations. These institutions, including newly established associations in areas theretofore and then inadequately served, and existing associations which applied and were approved for conversion from State to Federal charter, operate under a uniform national charter which seeks to combine the best policies and practices developed by the savings and loan industry as a whole. Today, Federal savings and loan associations represent one of the most progressive and serviceable units of the home-financing system.

Finally, successful operation of insurance for bank deposits by a Federal agency, introduced in 1933, led to the extension of a similar service to home-financing institutions in the following year. To restore and maintain public confidence in savings and loan associations, Congress created the Federal Savings and Loan Insurance Corporation which protects the savings held in such institutions to a maximum of $5,000 for each investor. Insurance of accounts reduces the danger of mass withdrawals of funds in general or local panics and thus fortifies the home-financing system against unusual hazards. This protection represents another permanent safeguard placed around home ownership and thrift.

SUMMARY OF OPERATIONS

The operations of the various agencies under the Federal Home Loan Bank Board during the fiscal year 1939 are set forth in subsequent chapters of this report. However, in order that their achievements, measured against the predepression defects of our thrift and homefinancing system, may be more fully understood, a summary of activities from the inception of the agencies to date is given at this point.

1. Federal Home Loan Bank System

In the seven years of its existence, the Federal Home Loan Bank System has become an integral part of the American financial structure. To the credit reserve systems for commercial banks and for farm finance provided by the Federal Reserve System and the Federal Land Banks, the Federal Home Loan Bank System has added a national credit reservoir for another important sector of our credit mechanism: home mortgage finance.

On June 30, 1939, the Federal Home Loan Bank System served 3,946 home-financing institutions, with aggregate resources of approximately $4,600,000,000, located in all the 48 States and in the District of Columbia, Alaska, and Hawaii. At the same date, member institutions were operating in 1,963 cities and towns which contain

about 85 percent of the urban population of the United States. As most of the members, although strictly local institutions, are empowered to make loans within a reasonably wide radius of their home office, it is evident that by and large, thrift and home financing institutions in the entire nonfarm area of the country are provided with the services of the Federal Home Loan Bank System. These services now extend into every sizable community in the United States.

Member institutions of the Federal Home Loan Bank System serve an estimated number of 6,500,000 individuals, either savers or borrowers or both. Since most of these individuals are heads of families, it may be roughly estimated that six million out of the some twentythree million nonfarm families in the United States receive the benefits of the facilities offered by the Federal Home Loan Bank System.

On June 30, 1939, the membership of the Federal Home Loan Bank System comprised 3,897 savings and loan associations, building and loan associations, homestead associations, and cooperative banks; 9 savings banks; and 40 insurance companies.

Within the field of savings and loan association-the only type of specialized home-financing institution in the country-the Federal Home Loan Bank System today comprises the bulk of the total industry. The assets of the member savings and loan associations represent over 66 percent of the total assets of all savings and loan associations operating in the country, and their mortgage loans outstanding are equal to 72 percent of all mortgage loans held by this type of financial institution. With such a degree of representation, the Federal Home Loan Bank System, in the field of home finance, has attained a place similar to that occupied by the Federal Reserve System in the field of commercial banking where member banks hold approximately 70 percent of the total deposits in commercial banks. In terms of number of member institutions, the Federal Reserve System comprises 41 percent of all banks; the Federal Home Loan Bank System, 47 percent of all savings and loan associations and similar thrift and home-financing institutions.

The chief function of the Federal Home Loan Banks is to supply, primarily on first mortgage collateral, funds required by member institutions in order that they may meet the home-financing needs in their communities and withdrawal demands of savers and investors. From October 15, 1932, when the twelve Federal Home Loan Banks first opened for business, to June 30, 1939, advances to home-financing institutions totaled $523,023,390, of which $354,061,827 has been repaid. This indicates the extent to which the Federal Home Loan Bank System has been called upon to serve as national credit reservoir. Through the Federal Home Loan Bank System, thrift