Mr. BODFISH. I think there will be fairly constant borrowing from the system. I think we have got a period ahead of us in which funds are not going to be as plentiful in the home financing channels as they have been in the past 20 years, and I think we are going to need some of the funds from the system with regularity to carry on our normal business.

Mr. WILLIAMS. The question of what dividends would be paid by the institution would depend, of course, upon the extent to which it loaned money and the extent to which it borrowed?

Mr. BODFISH. I think, Mr. Williams, once this system is in operation there is no question but what there would be sufficient demand for services to give the 12 banks that return which will support their activities and pay a reasonable dividend to shareholders.

Mr. WILLIAMS. To what extent do you finally anticipate the institutions of the country would go into this bank?

Mr. BODFISH. You mean the amount of capital they will contribute. Mr. WILLIAMS. Yes; finally. Have you an idea as to that?

Mr. BODFISH. My judgment, offhand, would be $450,000,000 to $500,000,000.

Mr. WILLIAMS. And in order to make a return on that there would necessarily have to be rather consistent and constant borrowings on the part of members to pay any dividends at all?

Mr. BODFISH. That is true. If the building and loan associations alone borrowed all of the $150,000,000 they would be borrowing less than 5 per cent of their resources.

Mr. WILLIAMS. But if there should come a period of prosperity which we all hope for in this country, when the borrowing would not be necessary, then where would your capital investment be?

Mr. BODFISH. I think your capital is there, and these banks will continue to employ it if necessary at lower rates, which will influence and lower the general cost of capital in the home financing field, which is one of the desirable things that this banking system should bring about.

Mr. REILLY. Do you expect $500,000,000 capital to be paid into this bank? Was not that your former statement?

Mr. BODFISH. I would say, considering the institutions that are included and that will probably participate, I anticipate that when this thing is really under way and steady going there will probably be $500,000,000 capital.

Mr. RELY. The Federal banks have taken $1,100,000,000 of bonds on $63,000,000 capital. How could you use that much capital? Mr. BoDFISH. I think that is one of the reasons that the Federal land banks are where they are.

Mr. Renty. You have the other provision. You only give 60 per cent and they give 100 per cent.

Mr. B. Drish. I think that is one of the reasons that their bonds are down. Their underlying bank structure does not have the funds and the resources to support the market for their bonds. I think that there will be many periods in which this bank system will be operating without any volume of bond issue outstanding. The bond issue is the expanding device to get more funds in times of unusual demands or great need.

Mr. Retry. Is it your idea this bank will operate largely on capital and not the sale of bonds!

Yes; I think there will be many periods, Mr. Chaire principal capital employed will be the capital of than any large volume of bond issue.

witness appeared here the other day who said herea necessity for a billion dollars to loan to the instild borrow from this bank.

There is right to-day. Of course, I consider this a uation; at least I hope it is. But we could use a the small mortgage field to-day and it would be to he small home owner almost entirely, as he has no at the present time.

The greatest part of that will have to be gathered will it not?

Absolutely, but I think that volume of bonds would e got into a prosperity period.

at has been the experience of the Federal reserve >t?

Yes.

here was a time about five or six years ago when the the committee worried about the fact that the Fedem might not pay its expenses, and there was a great nce over that. It fluctuates, does it not, according to lation of the country?

Yes; very much so.

also want to get a chance to bring in here the fact that cording to local conditions. The Senate hearings disation, numerous witnesses saying, "We do not need I numerous other witnesses saying, "We do need this er, a study of the reports of the answer to the quesut by the Department of Commerce indicates the same y vary according to the local situation, and they vary me, and I have supposed that this system would work way. There was one witness who went through the business cycles, and he seemed to show that about once there would be an important need for this sort of it would go down and come up again.

I think sometimes they could get all the money they

. I have about two minutes in which I want to make ment. I notice again that the Glass bill provides for nd without return to the Government of the capital. was originally paid into the Government, I suppose, s of the Federal reserve banks.

Where does it go?

. It goes to this closed bank pool.

tal amendments are further suggested, Mr. Reilly, we opportunity to discuss them, because we are very much he details and structure of the bill. Beyond that I mony is complete at this point.

x asked me a question the other day which I would like the record, and that is this: He asked where and how ould be used, and I enumerated several things to him: of withdrawals, remodeling, and making alterations to

buildings where needed, and there is a very substantial need for funds to purchase some of these vacant houses that some of the opposition witnesses are so concerned about.

On behalf of the president of the United States Building and Loan League, I wish to submit a brief statement of perfecting amendments which we would urge you to consider in your final deliberations on the home loan bank bill. I have discussed several of these amendments in my testimony this morning. Undoubtedly the legislative drafting counsel can and will make great improvement in the language which we have submitted and we will be quite satisfied with those that you approve being placed in such form and language as he advises.

SUGGESTED PERFECTING AMENDMENTS

The home loan bank bill in its present form has been submitted to a large number of building and loan associations and their State and local organizations. A number of amendments have been advanced which will assist in perfecting the bill. In the main, the suggestions which follow do not concern or affect the policies or principles established in the bill.

I. Some comment has been made regarding the portions of the bill describ ing the institutions eligible to become members. It is assumed that sound principles of finance and banking should be observed in this important section (sec. 4). Real estate loans to home owners and home buyers should be longterm loans. Further, banking institutions should have a reasonable amount of time deposits to warrant their making loans which can not be called in times of distress or periods of contraction to atta'n liquidity. Their second line of defense should be the Federal reserve system. Commercial banks which have no time deposits should use the Federal reserve system entirely rather than the home loan bank system.

Building and loan associations make nearly all their investments in long-time home mortgage loans. Insurance companies, to be eligible, should similarly be such as make home-mortgage loans.

In section 4, page 4, strike out lines 4 through 11 and insert in lien thereof: "(1) Building and loan associations, savings and loan associations, coopera tive banks, and homestead associations, which in the judgment of the board make long-term home mortgage loans and whose financial condition is satisfactory to such board.

* (2) Any of the following whose time deposits and financial condition, in the judgment of the board, warrant their making such home-mortgage loans as, in the judgment of the board, are long-term loans: Savings banks, trust companies, and other banks; and

“(3) Insurance companies which, in the judgment of the board, make longterm home mortgage loans and whose financial condition is satisfactory to such board."

II. Building and loan associations in Maryland, although not under supervision, are anxious for recognition in the measure and their representatives in the Senate and House have advanced amendments to the bill to permit their part cipation. This will necessitate the recognition of the ground-rent system, which is very widespread in Baltimore, as well as some device for permitting participation without supervision, or permitting participation for a period until supervision of building and loans, similar to that existing in 46 other States, can be obtained.

In order to recognize the ground rent feature, the following amendment seems satisfactory and in keeping with the spir.t of the measure:

Section 2, page 2, subsection (6), line 12, insert after the word "estate," the following:

“In fee simple, or leasehold under a 99 year renewable lease providing for the payment of a definite ground rental, and "

III. Building and loan offie als and attorneys have studied carefully the definition of unpaid principal" and feel that it is fairly satisfactory, although some additional language will make absolutely clear the recognition of the condition that prevails in most States, in which borrowers accumulate credits on shares, which shares are ultimately used to retire the loan.

2, subsection (7), after line 24, insert the following: the contract of loan such shares at maturity cancel the

ion of "amortized home-mortgage loan" is desirable. on 2, page 3, after line 2, add a new subsection (8), as

ed or installment home-mortgage loan shall, for the pura home-mortgage loan to be repaid or liquidated in not 5, by means of substantially equal regular periodical payaccount of shares or shares of stock pledged as collateral f such loan, or (2) on account of the principal debt." of States, particularly in New York State and the State ding and loan associations are almost exclusively known an associations." As the three important names, under loan associations are incorporated and conducted, appear and 5, it would seem wise to avoid any confusion or misluding the term "savings and loan associations."

ion 4, page 4, subsection (1), line 4, after the word assofollowing:

a associations."

appearing on page 4, lines 12 to 16, has raised considerable nt as to the effect and desirability of the phrase "or of the adjoining such district." Building and loan officials have rtant possibility of undesirable institutions joning out of itutions most familiar with their practices. To a certain hs the proximity, or convenience, argument.

guage might be added to the sentence ending line 16, page convenience and then only with the consent and approval of

subsection (e), page 6, lines 15 and 16, there appears to be ambiguity of language, which could be remedied.

5, subsection (i), page 10, line 2, the words "to be" should the word "amount," to achieve the intent sought to be

m in keeping with the policy of the bill that a member, with board, should be permitted to dispose of its stock not only but also to an eligible subscriber.

suggested that to section 5, subsection (j), page 10, line 7, ember," be added the words "or eligibile subscriber."

subsection (d), page 11, some question has been raised as to ly accomplishing the intent of the section. The intent was groups all of the members without regard to the nature of e grouping to be determined entirely by the size, and the size ntirely by the sum of the unpaid principal of the home-loan the member. Some slight rearranging or additional study of eliminating any possible misinterpretation.

“unpaid principal" has been defined as used throughout the wise to rely upon the clearness of meaning of that term ude a new term, "net value."

tion 6, subsection (d), page 11, line 14, strike out the word 15, the word "value," and insert in lieu thereof the wordsf the unpaid principal."

3, subsection (d), page 11, line 15, the term "home-loan mortIn the definition appearing on page 2, line 9, the term is ans." Apparently this is a transposition.

n advanced that, in section 8, particularly in subsection (b), e language eliminates certain long-term amortized mortgage I being that during stress periods real-estate values may be ed, causing current appraisals to rather closely approach the although 50 per cent of the unpaid principal can very safely

to the long-term monthly-repayment amortized mortgage, outdent, and the protection of the bondholders can be achieved ral sections. This is most clearly shown by reproducing in a completely revised page 15. Some additional language tion (1), in order to care for the building and loan practice

which accumulates credits on shares, to be used for the ultimate retirement of the mortgage loan.

"limitations as the board may prescribe. Any such advance shall be subject to the following limitations as to amount

(1) If secured by a home mortgage given in respect of an amortized homemortgage loan which was for an original term of eight years or more, or in cases where shares of stock, which are pledged as security for such loan, mature in a period of eight years or more, the advance may be for an amount not in excess of 60 per centum of the unpaid principal of the home-mortgage loan; in no case shall the amount of the advance exceed 40 per centum of the value of the real estate securing the home-mortgage loan.

(2) If secured by a home mortgage given in respect of any other home-mortgage loan, the advance shall not be for an amount in excess of 50 per centum of the unpaid principal of the home-mortgage loan; in no case shall the amount of such advance exceed 30 per centum of the value of the real estate securing the home-mortgage loan.

(b) No home mortgage shall be accepted as collateral security for an advance by a Federal home-loan bank if, at the time such advance is made (1) the home-mortgage loan secured by it has more than 20 years to run to maturity; or (2) the unpaid principal of such home-"

In order to have clearly before committees and drafting counsel the principles and wishes of the President in the above matter the following is quoted from the published text of President Hoover's statement on the proposed establishment of home loan discount banks of November 13, 1932:

"(f) The maximum amount to be advanced against the mortgage collateral not to exceed more than 50 per cent of the unpaid balance on unamortized or short-term mortgage loans and not more than 60 per cent of the unpaid balance of amortized long-term mortgages, and no advance to be made on mortgages in default. Such loans are to be made on the basis that there are sound appraisals of the property upon which such mortgages have been made. In other words, given sound appraisals, there will be advanced in the case of short-term or unamortized loans 25 per cent of the appraisal, and in case of amortized longterm loans 30 per cent of the appraised value of the property."

XV. In section 8, subsection (d), page 17, lines 19 to 21, there remains some language that is apparently carried over from an earlier draft of the bill, when the theory in regard to the subscription for capital stock was different. In the present bill the assumption is that members purchase stock in the same fashion as the banks purchase stock in their Federal reserve bank and remain members rather than retire their stock and cease to be members of the system as borrowings are repaid or discontinued.

It would seem wise, therefore, to strike out, in line 19, the language after the word "therefor" and substitute a period for the comma; also all of lines 20 and 21.

XVI. Section 9 deals with the general powers and duties of the banks. Subsection (b) of section 9, on page 18, deals with the board's power to prescribe regulations for the assignment, deposit, and custody of collateral securing bonds. It has been suggested, and with some wisdom, that a specific provision be inserted at this point providing for a "registrar" and duties with regard to the handling of collateral, or a specific provision authorizing the board to act as trustee and to carry out the duties of trusteeship.

XVII There are a number of States in which home mortgages of building and loan associations are nonnegotiable or nonassignable. Where all sums paid in by members on shares in associations in such States do not sustain a creditor liability and borrowed money is a first lien upon all its assets, a shortterm loan could safely be made, under such conditions, upon the direct note of obligation of such association.

on page 21. subsection (3) of (1), section 9, line 18, after the word "prescribe," add the following:

"Provided, however. That such advances may be made without collateral security to members whose creditor liabilities, exclusive of all advances from Federal home loan banks, do not exceed 5 per cent of the assets of the member receiving such advance or advances under the provisions of this subsection." XVIII. There is one State which has a State agency similar in principle and procedure to the proposed Federal home loan banks. Two others have such agencies before their State legislatures at the present time. It has been wisely proposed that these agencies be permitted to affiliate as members with the