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5-man Federal Home Loan Bank Board, and in the appointment of at least 2 members, the President should have due regard to a fair representation of the savings-and-loan industry. 3. It is the desire of

the Federal Government to liquidate its investment in the Federal Savings and Loan Insurance Corporation. It is recommended that all members insured by the Corporation be required to pay an insurance premium for a 3-year period in advance, each member association to set up as an asset account the advance premiums, charging only the first year's premium as an expense account, and the additional funds received by the Corporation to be used to liquidate the Federal Government's investment in full. Upon the completion of this program, it is further recommended that the insurance premium be adjusted periodically in keeping with the experience of the Corporation and the creation of adequate reserves for the protection of member institutions.

4. Since the Federal Home Loan Bank Board is an important segment of the economy of the country, it should be represented on any intra-agency councils or other similar bodies dealing with financial, monetary, or housing problems of the country. The Federal Home Loan Bank Board should be afforded the opportunity for formal liaison with the Treasury Department, the Council of Economic Advisers, and such other Federal agencies as may have an effect or impact upon the operations of our System.

5. The Federal Home Loan Bank System is a 3-part organization created under 3 separate sets of laws:

(a) The reserve functions of the Federal Home Loan Bank Board were established under the Federal Home Loan Bank Act of 1932;

(6) The supervisory functions of the Board under the Home Owners' Loan Act of 1933; and

(c) The insuring functions under the National Housing Act of 1934; The reserve functions of the Federal Home Loan Bank Board under the Federal Home Loan Bank Act, the supervisory functions under the Home Owners' Loan Act, and the insuring functions under the National Housing Act should be kept separate and distinct in their administration by the Federal Home Loan Bank Board, but for the purposes of economy and centralization of Government agen should be retained under the administrative control of the Federal Home Loan Bank Board. With a five-man Board, there should be a division of assignments so that supervision, insurance, etc., would be handled separately from the overall Board operation. Supervision and insuring functions should be removed, within a reasonable time, from the regional Federal home-loan banks and placed under direct control of the Federal Home Loan Bank Board in Washington, with adequate provisions for the supervising officer for compensation commensurate with his duties and responsibilities. The banks would be more effective in resolving credit problems and would be creative in presenting a better basis for improvement in the System in other phases of savings-and-loan operations.

6. The Federal home-loan banks should have more autonomy and independence of action from the Board. The Federal home-loan banks should have complete freedom of action to provide credit within limits and at rates prescribed by the respective banks to take care of lending requirements, subject to the liquidity requirements established by the Federal Home Loan Bank Board in Washington. Extraordinary demands by one or more banks for funds out of the general financing should be adjusted by a differential in rate when the overall rate is increased by excessive demand. Increased demand for funds in any area should not restrict allocation to that area, since one of the purposes of the Bank System is to secure the distribution of funds from plentiful areas to sparse areas. Excess use of funds by savings institutions should be controlled by imposition of tests as to safety and soundness and under supervisory authority. There should be no credit control over Federal home-loan banks. Controls to limit housing should not be imposed unless and until comparable controls are imposed on all other major types of institutions making mortgage loans, including insurance companies, pension funds, trust companies, banks, etc., and unless similar controls are imposed on VA, FHA, direct lending, etc. Controls to stop inflationary tendencies should rest with only one Federal agency and should be exercised in a manner to affect the entire economy.

7. The facilities of the Federal Home Loan Bank System should be used to expedite the purchase and sale of mortgages between members, including conventional loans, without geographical limitation. Provisions should be created to provide for warehousing of mortgages out of long-term funds and the creation of a secondary market within the Federal Home Loan Bank System, and any other facility that might aid the home-ownership program as approved by the administration. The Federal Home Loan Bank Board should consider a financing policy of raising funds on a long-term basis for the purpose of making contractual loans to members when such loans to members are a contractual long-term advance for investment in mortgage loans. Savings-and-loan associations should be free to procure funds from pension trusts or other similar funds on a contractual basis entirely separate from the normal savings procurements.

8. It is recommended that a restudy be made of the membership of the Federal Home Loan Bank System and the election and appointment of directors to the various Federal home-loan bank boards of directors. Membership in the Federal Home Loan Bank System should be conditioned upon membership in the Federal Savings and Loan Insurance Corporation. Public-interest directors should be required to attend Board meetings on a regular basis and should have their appointment terminated upon extended nonexcused absences, and should be appointed from outside the savings-and-loan industry. Elected directors should have terms limited to not more than two consecutive terms and State representation should be within the control of each State electing such representation.

9. It is recommended that the Federal Savings and Loan Advisory Council be strengthened by the assignment to that body by the Federal Home Loan Bank Board of secretarial and clerical assistance in order that their findings and recommendations may be more properly presented to the Board for consideration. Hearings should be held on all recommendations made to the Board by this body, and any decisions made by the Board on these recommendations should be made public.

10. There should be an extension of liquidity requirements for all insured savings-and-loan associations within the present statutory

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limits of 4 to 8 percent, or a reasonable equivalent formula, and it should be varied as economic conditions dictate. There should be additional liquidity requirements imposed. To the minimum liquidity requirements it is recommended that the following should be added as additional liquidity requirement:

1. Five percent of all borrowings due within 18 months.

2. One hundred percent of all escrow (tax, insurance, etc.) accounts held for others.

3. One hundred percent of commitments (including loans in process) in excess of the total of the following:

(a) Nine times the preceding 12 months average repayment of principal on all mortgage loans;

(6) Plus or minus the preceding month's net increase or

decrease in savings. 11. The banking field, the Congress, and Washington supervisory authorities have insisted on a dual system of State banks and national banks and that the Federal Government should take no action which would interfere with or impair the State-chartered banking system. It is recommended that a similar position should be insisted upon with reference to the savings and loan system. Actions and regulations of the Federal Savings and Loan Insurance Corporation should be limited to those necessary for the safety, soundness, and protection of the Insurance Corporation.

12. There should be a workable and practical two-way street between State and Federal associations and stock and mutual associations. Conversion procedure should be one that will withstand scrutiny from Congress and the public. Care should be exercised to see that the shareholders are fully and adequately informed and protected as to the fair value of stock resulting from their rights and privileges, if any, upon which stock a fair value approved by the Federal Home Loan Bank Board shall be established by the converting association and announced by appropriate written notice mailed to all parties entitled to stock rights. In addition, the reserves of the mutual association should be kept intact upon a conversion into a stock association and not be depleted. These recommendations are intended to apply only to conversions initiated in the future.

13. The savings and loan industry should insist on a free competitive private enterprise economy with a minimum of government regulation or control, except that necessary to assure safety and soundness of the business. "Regulations for the purpose of limiting or restraining competition or regulations of a public utility nature to control rates should be rejected. · 14. The savings and loan industry should favor the extension of the savings and loan business where it will be in the public interest and provide additional service and benefits for the public and not be in conflict with the safety and soundness of the business. The National Savings and Loan League recommends that authorization be granted to permit the following practices which would provide better service to the members of the communities which are served by the member institutions and in keeping with the basic principles following the best practices of local thrift and home-financing institutions:

(a) It is recommended that members of the Federal Home Loan Bank System be authorized to establish variable dividend rates on

area.

savings accounts within their institutions, provided that accounts of the same classification receive the same rate. This proposal is recommended on the basis that in various sections of the country, different types of accounts receive greater competition from outside investments, and, further, that small, active accounts are more costly to handle than stable, long-term accounts.

(6) It is recommended that authorization be granted on an optional basis to pay dividends on savings share accounts on a quarterly basis or such other procedure in the payment of dividends which may be considered necessary to meet services offered by other local institutions.

(c) It is recommended that authority be granted to member institutions to make capital investments not to exceed 20 percent of share capital in land and/or buildings for the purpose of slum clearance, community rehabilitation, minority housing, and such other real estate developments that are in the interest of community development and public welfare. This recommendation is made because it is recognized that the savings and loan industry has an obligation to the community to improve the standard of living of the citizens of the

(d) It is recommended that member associations be authorized to purchase conventional mortgage loans in areas outside of their normal sending area on a direct basis or a participating basis, so long as such loans are serviced by another member institution and the total of such loans does not exceed 20 percent of their mortgage loan portfolio. This recommendation is made in recognition of the differences in funds available between the geographic areas of the country.

(e) There should be attempts made to provide a self-insurance program within the Federal Home Loan Bank System in connection with life insurance on mortgage loans to retire the indebtedness in the event of the death of the principal mortgagor.

(f) It is recommended for the purpose of relieving a hardship on many of the savings members of associations in the lower economic levels that authority be granted to make personal loans to any member of a Federal savings and loan association not to exceed $500 for a term not exceeding 3 years, such loans not to exceed 10 percent of the savings accounts of the association.

(g) It is recommended that the policy of the Board with regard to the issuing of authorization for branch offices of Federal savings and loan associations be relaxed. Careful consideration should at all times be given to the possibility that a branch office might serve the needs of the community better than a newly chartered association. Areas not presently served with adequate financing facilities and localities not able to be served by branch facilities of existing nearby institutions should be granted new charters where public need is indicated.

15. In order to provide a sounder savings and loan system for the furtherance of thrift and home financing, the National Savings and Loan League recommends a broader base of investment powers for Federal savings and loan associations which would authorize in vestment in such municipal and other bonds or obligations as are authorized from time to time by rules or regulations of the Federal Home Loan Bank Board. This authority would extend to savings and loan associations investment powers now held by savings banks and many State-chartered institutions in the savings and loan field.

16. The National Savings and Loan League favors striking the words "and Loan” from the name "Federal Savings and Loan Insurance Corporation" since loans are not insured and the inclusion of that word in the title is not properly descriptive.

17. On the subject of international relationships, it is recommended that the Federal Government and the Congress be urged to channel through the Federal home-loan banks such funds as may be appropriated for assistance to housing in foreign countries, particularly with emphasis upon aid to housing to be provided in the foreign countries through counterparts of savings and loan associations.

18. In the international field, it is further recommended that the Federal Government undertake the study of the possibilities for direct investment in housing in Latin American countries by savings and loan associations through the medium of a guaranteed or insured mortgage. In view of the fact that commercial banks of the United States have branches in many of the Latin American nations, it is believed that there is no justifiable reason for barring savings and loan associations from having offices in such countries if the countries themselves permit foreign banking and mortgage institutions.

JAMES E. BENT, Chairman, Federal Home Loan Bank System Committee.

UNITED STATES SAVINGS AND LOAN LEAGUE,

Washington, D. C., October 1, 1956. Senator John SPARKMAN, Chairman, Subcommittee on Housing, Senate Banking Committee,

Senate Office Building, Washington 25, D. C. DEAR SENATOR SPARKMAN: Attached is the response of the United States Savings and Loan League to your questionnaire regarding the organization of the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation. This reply was developed by a special committee consisting of the past presidents of the league and represents that committee's official action. For practical pur-. poses, this can be considered the official view of the United States League, although it is subject to confirmation by the league's execu-tive committee at the annual convention.

As you know, our committee spent 2 days developing these answers : after each committee member had been given an entire file of background information for careful study prior to the meeting. We were delighted to have the opportunity to consult with Mr. Percival Brundage, Director of the Bureau of the Budget, and bis associates, and Mr. Jack Carter, staff director of your subcommittee, and we also had the benefit of consultation with Mr. Preston Delano, former Comptroller of the Currency. I can assure you that the committee was honored and inspired by your personal interest as evidenced by your attendance at luncheon.

We believe that the answers in our reply provide the basis for substantial improvement and strengthening of the Government agencies dealing with the savings and loan business. We are firmly convinced

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