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(b) The board shall determine the amount of stock which shall be subscribed by such an organization for the purpose of becoming a member. In all other respects, but subject to such additional rules and regulations as the board may provide, any such organization shall be a member for the purposes of this act.

SEC. 24. Each Federal home-loan bank shall have succession until dissolved by the board under this act or by further act of Congress.

SEC. 25. Whenever the board finds that the efficient and economical accomplishment of the purposes of this act will be aided by such action, and in accordance with such rules, regulations, and orders as the board may prescribe, any Federal home-loan bank may be liquidated or reorganized, and its stock paid off and retired in whole or in part in connection therewith after paying or making provision for the payment of its liabilities. In the case of any such liquidation or reorganization, any other Federal home-loan bank may, with the approval of the board, acquire assets of any such liquidated or reorganized bank and assume liabilities thereof, in whole or in part.

SEC. 26. Any institution, except a national bank, organized under any law of the United States, including the laws relating to the District of Columbia, shall be authorized to subscribe for stock of a Federal home-loan bank if otherwise eligible to make such subscription under the terms of this act, any provision in any such law to the contrary notwithstanding.

SEC. 27. If any provision of this act, or the application thereof to any person or circumstances, is held invalid, the remainder of the act, and the application of such provision to other persons or circumstances, shall not be affected thereby.

Sec. 28. The right to alter, amend, or repeal this act is hereby expressly reserved.

The CHAIRMAN. Mr. Reilly, the committee will hear you now on your bill, H. R. 12280.



Mr. REILLY. Mr. Chairman and gentlemen, the title of this bill, H. R. 12280, is "to create Federal home loan banks, to provide for the supervision thereof, and for other purposes.”

Last fall President Hoover called a conference of the people of this country who were engaged in the farm-loan construction work. That conference met in Washington. At that time he outlined to the conference proposed legislation looking to the providing for this country of 12 Federal home loan banks, designed to furnish to the home mortgage-making institutions of this country the discount privilege now afforded by the Federal reserve system to the banks of the country.

Now, this idea of furnishing a discount bank for the home-loan institutions is not new. In 1919 or 1920 Secretary Wilson, in President Wilson's Cabinet, prepared a bill, the same bill that was introduced in the Senate by Senator Calder, of New York, and in the House by Representative Nolan, of California. That bill provided for the doing of this kind of work under the same plan as the Federal farm loan act sets up, provided that the home owners would get together and organize in various ways through building and loan associations and others. That bill did not pass, but since that time the matter has been up several times.

Now, the home-loaning institutions in this country are very large institutions. There are something like $18,000,000,000 in the homeloan building and home-loan associations, and there are something like $15,000,000,000 in other home-loan mortgage institutions. The

usual home-loan mortgage is a mortgage that is amortized, and that goes on for at least 8 years and may go on for 15 years, and that provides that every time a man makes a payment on it part of that payment goes to the principal. That is considered the most desirable mortgage for home-loan building, because it reduces the amount of the mortgage.

Now, the building and loan associations find themselves in this situation-just like every other institution in the present depression. I am speaking about the building and loan association people particularly, because they are the people that are in distress and need relief. There are something like 12,000,000 members of building and loan institutions in this country; 10,000,000 members are investors, and 2,000,000 members are borrowers; that is, there may be from 10,000,000 to 12,000,000 of people who are interested in building and loan associations.

Now, of these 10,000,000 people who have put their money in the building and loan associations and have not borrowed, a great many of them are in distress and want to get their money out of the building and loan associations in order to live on it. I received a letter last week from the head of a building and loan associaton down in Louisiana that had $10,000,000 of building and loan bonds. And he said:

I have on my list a demand for $500,000 of money from people who want to take it out, who have put it in, and we can not satisfy them.

So that is the situation all over the United States. That situation has resulted because a great many people during these hard times are unale to make their payments of principal and interest, and the institutions can not function.

Now, there were very extended hearings held on this bill both in the Senate committee and the House committee. The Senate had hearings lasting six weeks. The House committee did not hold such long hearings, because we could not see why we should call all the men who appeared before the Senate committee; and the House subcommittee and the full committee read the testimony before the Senate committee in both hearings.

The building and loan people, almost to a man appeared in favor of the bill. The only opposition came from the life-insurance companies, from the bankers of the country, and from what might be called the mortgage brokers, the men who loan life-insurance money and sell their mortgages.

Now, this bill provides that every building and loan association, homestead association, cooperative association, savings-banking association, or any kind of an institution in this country that does business in home financing, can become a member of this organization.

It provides for the appointment of a board in Washington, to be known as the Federal home-loan bank board, consisting of five members appointed by the President of the United States. This board is authorized, when the bill becomes a law, to divide the United States into not less than 8 nor more than 12 districts. My recollection of the Federal reserve law is that it provides for not less than 9 nor more than 12 Federal reserve districts. Nobody knows how many banks there ought to be; because nobody knows how many institutions there might be that would want to take advantage of this.

The capital stock of this bank is made up of contributions by the United States, through the Secretary of the Treasury, and by subscriptions by the member banks. The bill provides that there shall be allocated from the amounts allotted to the Reconstruction Finance Corporation $125,000,000, which is to be made available to the Secretary of the Treasury to enable him to pay the subscription of the United States to the capital stock of the Federal home-loan banks. When the bill came to the Banking and Currency Committee, it provided that this money should be provided by the Treasury of the United States. I might say that this bill came from the Administration; it came from the Department of Commerce. One bill was handed to Senator Watson, a member of the Committee on Finance of the Senate; the other bill was handed to Mr. Luce, of the Banking and Currency Committee of the House.

That bill provided that this $125,000,000 should come from the Treasury of the United States. We changed that provision, so as to provide that that $125,000,000 should come from the Reconstruction Finance Corporation, for the reason that when the Reconstruction Finance Corporation bill passed the House it was believed that the building and loan people would receive a benefit from those funds. Up to the present time the Reconstruction Finance Corporation has advanced about $10,000,000 to the building and loan people.

Mr. BANKHEAD. How is it that if these people are entitled under the present law to get money from the Reconstruction Finance Corporation they can not get it?

Mr. REILLY. I will come to that in a moment. At the present time they have advanced to the building and loan associations about $10,000,000. And there are two reasons why the Reconstruction Finance Corporation can not handle this situation. It was testified to by men who know what they are talking about that if this law functions, if it is possible to sell the bonds and the debentures, they will need from $1,000,000,000 to $1,500,000,000 to give them sufficient liquid funds to function as they want to function. So that it is absolutely beyond the resources of the $1,500,000,000 Finance Corporation to expect them to supply a large sum like $1,000,000,000 for the use of the building and loan associations and the mortgage institutions.

Now this will not cost the Reconstruction Finance Corporation a dollar more than it would under the old system, because if they should proceed lending at the rate they are proceeding now they would have loaned to those people $100,000,000 or $125,000,000 but would not have satisfied the demands or necessities in any way of these organizations, although they would have taken away from their funds the same amount of money.

General Dawes appeared before the committee and testified in favor of this bill, and he said it ought to be enacted into law. Of course, it would be putting him in a delicate position for him to come up and say that the Reconstruction Finance Corporation could not handle it, but as a matter of fact, that is the situation. They do not have enough money to meet the demands of the building and loan people.

I might say also that the requirements of the Reconstruction Finance Corporation are for short-time loans. Now the short-time

loans are not good for the building and loan people or the homemortgage institutions, as they have to deal with loans for a long period of time.

Now, as I said, when this Federal home loan bank board is appointed and organized it will divide the country into not less than 8 nor more than 12 home-loan bank districts and will proceed to establish a Federal home-loan bank in each district. Thereupon the institutions which are eligible to become members of that bank may join, and they will pay a subscription to its capital stock of 1 per cent of their aggregate unpaid principal of home-loan mortgages, but not less than $1,500; every institution which is a member of this Federal home-loan bank must have subscribed $1,500 in this bank at least. They can make payment of 25 per cent of their subscription at the time they subscribe for stock and then make payments every four months thereafter.

Now the question has been raised, Why not make those banking and home-loan institutions put up all the money for the capital stock? The answer is that they simply have not got it, and can not do it.

Another thing is this: The amount that can be advanced to any member on these mortgage loans can not exceed twelve times the amount of capital subscribed by that member. The Federal farm land bank is authorized to issue loans up to twenty times the amount that the member puts up; in this bill they are limited to twelve times the amount subscribed; so that they will have to acquire more capital stock.

I might say that the Federal farm land bank has something like $11,000,000,000 worth of bonds issued by those institutions; whereas these building and loan association people now hold about $8,000,000,000 worth of bonds, and the total amount of home-loan mortgages in the country is between $20,000,000,000 and $25,000,000,000.

So that that will give you some idea of the tremendous size of this home-financing mortgage system of this country that this bill is intended to function for.

Mr. PURNELL. The whole program under the bill is patterned on the Federal reserve system, is it not?

Mr. REILLY. The system is patterned on the Federal farm loan system and also on the Reconstruction Finance Corporation law.

Mr. GREENWOOD. This bill does not simply contemplate new construction, does it?

Mr. REILLY. I will come to that in a moment. The big argument used against this bill is it: Somebody gave out an interview with President Hoover in which it was announced that we would build 3,000,000 new homes in this country in five years, and of course protests came up immediately that we have enough homes already in this country,

Now this bill is going to be used, as I said in my report, for several purposes. One of the purposes is to pay off the banks. These institutions are all being pressed by their banks for payment. Up to the time the panic began these small institutions used to go to the banks and borrow all the money they wanted. But the banks have not only shut down on them but they have begun calling their loans. I am informed that there are $2,000,000,000 of the loans of the building

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and loan people that have recently been called by the banks of this country.

Now this will also help the Reconstruction Finance Corporation, because it will relieve them of the necessity of helping those banks that they have been helping.

Now I take it that the functions of this bill will not be to promote unduly home building. And if you gentlemen were sitting around a table as a board of directors of a building and loan association and I came in and asked you for a loan for new-home construction, you would not give me a loan unless you believed that more construction was necessary. You would probably tell me to make use of the house I already have before you would finance another house.

Now one of the objects of this bill is to refinance homes. For instance, one man wrote me that if they could get the money, his association would refinance all their mortgages; he said they have $14,000,000 of mortgages paid down to $10,000,000, and that if they could afford it, they would refinance all those mortgages for an extended period of time and cut out $40,000 a year that the men now pay and that would be spread over. Now that is the refinancing. It would also help to pay taxes. Some of the building and loan association people are having trouble in paying their taxes. They can not get money at banks or at any other place.

Mr. PURNELL. May I ask you, Mr. Reilly, if this proposed legislation would be helpful to the building and loan associations that are in process of liquidation ?

Mr. REILLY. Do you mean any of them that are in process of liquidation ?

Mr. PURNELL. Yes; I have a number of them in my district that are in process of liquidation.

Mr. REILLY. It would not help those unless they can bring them back and take their mortgages.

Now I will develop how they get money. Where a building and loan association is organized, the Government puts in all the capital up to $5,000,000 for each district. Five million dollars is the minimum limit. The books are opened for 30 days for subscriptions and the members come in and subscribe. The Government puts in the rest of it.

Now when a member desires to borrow money from that bank, whether a mortgage loan institution or a savings bank, or whatever it is, it brings its mortgages to that Federal home loan bank, and it can borrow from that bank not to exceed 40 per cent of the realestate value of those mortgages at that time-or 60 per cent of the unpaid principal of that mortgage, provided it does not exceed 40 per cent of the value of the real estate.

Now, as to any institution going into a receiver's hands, I do not know what they could do, unless the receiver might take those mortgages and put them over there if he could join and get the money. But there are very few of those at the present time; and those that have been driven to the wall, most of them, have been forced to do so because they could not realize on their mortgages; and this bill will prevent a great many institutions from going into the hands of receivers.

Mr. MARTIN. Probably one of those institutions which was in liquidation could not qualify under this bill?

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