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(b) The Board shall determine the minimum amount of capital stock of the Corporation and is authorized to increase such capital stock from time to time in Such amounts as may be necessary, but not to exceed in the aggregate $200,000,000. Such stock shall be subscribed for by the Secretary of the Treasury on behalf of the United States, and payments for such subscriptions shall be subject to call in whole or in part by the Board and shall be made at such time or times as the Secretary of the Treasury deems advisable. The Corporation shall issue receipts for payments by the Secretary of the Treasury for or on account of such stock, and such receipts shall be evidence of the stock ownership of the United States. In order to enable the Secretary of the Treasury to make such payments when called, the Reconstruction Finance Corporation is authorized and directed to allocate and make available to the Secretary of the Treasury the sum of $200,000,000, or so much thereof as may be necessary, and for such purpose the amount of the notes, bonds, debentures, or other such obligations which the Reconstruction Finance Corporation is authorized and empowered under section 9 of the Reconstruction Finance Corporation Act, as amended, to have outstanding at any one time, is hereby increased by such amounts as may be necessary.

(c) The Corporation is authorized to issue bonds in an aggregate amount not to exceed $2,000,000,000, which may be sold by the Corporation to obtain funds for carrying out the purposes of this Act, or exchanged for home mortgages as hereinafter provided. Such bonds shall be issued in such denominations as the Board shall prescribe, shall mature within a period of not more than eighteen years from the date of their issue, shall bear interest at a rate not to exceed 4 per centum per annum, and shall be fully and unconditionally guaranteed as to interest by the United States, and such guaranty shall be expressed on the face thereof. In the event that the Corporation shall be unable to pay upon demand, when due, the interest on any such bonds, the Secretary of the Treasury shall pay the amount thereof, which is hereby authorized to be appropriated out of any money in the Treasury not otherwise appropriated. Upon the payment of such interest by the Secretary of the . Treasury the amount so paid shall become an obligation to the United States . of the Corporation and shall bear interest at the same rate as that borne by the bonds upon which the interest has been so paid. The bonds issued by the Corporation under this subsection shall be instrumentalities of the United States and shall so state on the face thereof, and shall be exempt, both as to principal and interest, from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States or any Territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority. The Corporation, including its franchise, its capital, reserves and surplus, and its loans and income, shall likewise be exempt from such taxation; except that any real property of the Corporation shall be subject to State, Territorial, county, municipal, or local taxation to the same extent, according to its value, as other real property is taxed.

(d) The Corporation is authorized, for a period of three years after the date of enactment of this act, whenever requested to do so, to negotiate with home mortgagors and mortgagees for the exchange of its bonds for home mortgages executed and recorded prior to such date and, in connection with any such exchange, to make advances in cash to pay taxes or assessments on the mortgaged property, or to provide for necessary maintenance or repairs; but the face value of the bonds so exchanged plus accrued interest thereon and the amounts so advanced shall not exceed in any case 80 per centum of the value of the property securing the home mortgage as determined upon an appraisal made by the Corporation. In any case in which the amount of the face value of the bonds and accrued interest accepted by the mortgagee upon any such exchange is less than the amount of the unpaid obligation of the mortgagor to the mortgagee, the Corporation shall credit the difference between such amounts to the mortgagor and shall reduce his obligation under the mortgage to that extent. Each home mortgage so acquired shall be refinanced or carried by the Corporation on the basis of the price paid therefor by the Corporation, and shall be amortized by means of monthly payments sufficient to retire the interest and principal within a period of not to exceed fifteen years; but the amortization payments of any mortgagor may be made quarterly, semiannually, or annually, if in the judgment of the Corporation the situation of the mortgagor requires it. Interest on the unpaid balance of the obligation of the mortgagor to the Corporation shall be at the rate of 5

per centum per annum. The Corporation may at any time grant an extension of time to any mortgagor for the payment of any installment of principal or interest owed by him to the Corporation if, in the judgment of the Board, the circumstances of the mortgagor and the condition of his mortgage justify such extension; but the amount of the payments so extended shall not exceed at any one time the amount of the payments required during a three-year period. (e) The Corporation is further authorized, for a period of three years from the date of enactment of this act, to make loans in cash for the same purposes for which cash advances may be made under subsection (d) of this section, in cases where the property is not otherwise encumbered ; but no such loan shall exceed 80 per centum of the value of the property securing the same as determined upon an appraisal made by the Corporation. Each such loan shall be secured by a duly recorded home mortgage, and shall bear interest at the same rate and shall be subject to the same provisions with respect to amortization and extensions as are applicable in the case of Obligations refinanced under subsection (d) of this section. (f) The Corporation shall have power to select, employ, and fix the compensation of such officers, employees, attorneys, or agents as shall be necessary for the performance of its duties under this act, without regard to the provisions of other laws applicable to the employment or compensation of officers, employees, attorneys, or agents of the United States. No such officer, employee, attorney, or agent shall be paid compensation at a rate in excess of the rate provided by law in the case of the members of the Board. The Corporation shall be entitled to the free use of the United States mails for its official business in the same manner as the executive departments of the Government, and shall determine its necessary expenditures under this act and the manner in which they shall be incurred, allowed, and paid, without regard to the provisions of any other law governing the expenditure of public funds. The Corporation shall pay such proportion of the salary and expenses of the members of the Board or of its officers and employees as may be equitable, and may use the facilities of Federal home-loan banks, upon making reasonable compensation therefor as determined by the Board. (g) The Board is authorized to make such bylaws, rules, and regulations, not inconsistent with the provisions of this act, as may be necessary for the proper conduct of the affairs of the Corporation. The Board is further authorized and directed to retire and cancel the bonds and stock of the Corporation as rapidly as the interest of the Corporation will permit. Upon the retirement of such stock, the reasonable value thereof as determined by the Board shall be paid into the Treasury of the United States and the receipts issued therefor shall be canceled. The Board shall proceed to liquidate the Corporation when its purposes have been accomplished, and shall pay any surplus or accumulated funds into the Treasury of the United States. The Corporation may declare and pay such dividends to the United States as may be earned and as in the judgment of the Board it is proper for the Corporation to pay.

\ ^ FEDERAL SAVINGS AND LOAN Associations

SEc. 5. (a) In order to provide local mutual thrift institutions in which people may place their savings and invest their funds, and in order to provide for the financing of homes, the Board is authorized, under such rules and regulations as it may prescribe, to provide for the organization, incorporation, examination, operation, and regulation of associations to be known as “Federal Savings and Loan Associations”, and to issue charters therefor, giving primary consideration to the best practices of local mutual thrift and home financing institutions in the United States; but no such association shall be incorporated by the Board unless in its judgment the community to be served is insufficiently served by local thrift and home-financing institutions. Such association shall be authorized to make loans upon homes secured by duly recorded home mortgages and to invest their funds in obligations of the United States and in Federal home-loan bank bonds.

(b) Each such association, upon its incorporation, shall become automatically a member of the Federal home-loan bank of the district in which it is located, or if convenience shall require and the Board approve, shall become a member of a Federal home loan bank of an adjoining district. Such associations shall qualify for such membership in the manner provided in the Federal Home Loan Bank Act with respect to other members.

(c) The Secretary of the Treasury is authorized on behalf of the United States to subscribe for preferred shares in such associations which shall be preferred as to the assets of the association and which shall be entitled to a dividend, if earned, after payment of expenses and provision for reasonable reserves, to the same extent as other shareholders. It shall be the duty of the Secretary of the Treasury to subscribe for such preferred shares upon the request of the Board; but the subscription by him to the shares of any one association shall not exceed $100,000, and no such subscription shall be called for unless in the judgment of the Board the funds are necessary for the encouragement of local home-financing in the community to be served and for the reasonable financing of homes in such community. Payment on such shares may be called from time to time by the association, subject to the approval of the Board and the Secretary of the Treasury; but the amount paid in by the Secretary of the Treasury shall at no time exceed the amount paid in by all other shareholders, and the aggregate amount of such shares held by the Secretary of the Treasury shall not exceed at any time the aggregate amount of such shares held by all other shareholders. To enable the Secretary of the Treasury to make such subscriptions when called there is hereby authorized to be appropriated, out of any money in the Treasury not otherwise appropriated, the sum of $100,000,000, to be immediately available and to remain available until expended. Each such association shall issue receipts for such payments by the Secretary of the Treasury in such form as may be approved by the Board, and such receipts shall be evidence of the interest of the United States in such preferred shares to the extent of the amount so paid. Each such association shall make provision for the retirement of its preferred shares held by the Secretary of the Treasury, and beginning at the expiration of five years from the time of the investment in such shares, the association shall Set aside one third of the receipts from its saving, investing and borrowing shareholders to be used for the purpose of such retirement. In case of the liquidation of any such association the shares held by the Secretary of the Treasury shall be retired at par before any payments are made to other shareholders. (d) Such associations, including their franchises, capital, reserves, and surplus, and their loans and income, shall be exempt from all taxation now or hereafter imposed by the United States, and all shares of such associations Shall be exempt both as to their value and the income therefrom from all taxation (except Surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States; and no State, Territorial, county, municipal or local taxing authority shall impose any tax on such associations or their franchise, capital, reserves, surplus, loans, or income greater than that imposed by Such authority on other similar local mutual or cooperative thrift and home financing institutions. (e) Any member of a Federal home-loan bank may convert itself into a Federal savings and loan association under this act upon a vote of its stockholders as provided by the law under which it operates; but such conversion shall be subject to such rules and regulations as the Board may prescribe, and thereafter the converted association shall be subject to examination and regulation to the same extent as other associations incorporated pursuant to this act. ENCOURAGEMENT OF SAVING AND HOME FINANCING

SEC. 6. To enable the Board to encourage local thrift and local home financing and to promote, organize, and develop the associations herein provided for or similar associations organized under local laws, there is hereby authorized to be appropriated, out of any money in the Treasury not otherwise appropriated, the sum of $250,000, to be immediately available and remain available until expended, subject to the call of the Board, which sum, or so much thereof as may be necessary, the Board is authorized to use in its discretion for the accomplishment of the purposes of this section without regard to the provisions of any other law governing the expenditure of public funds.

PENALTIES

SEC. 7. Whoever makes any statement, knowing it to be false, or whoever willfully overvalues any security, for the purpose of influencing in any way the action of the home owners’ loan corporation or the Board or an association upon any application, advance, discount, purchase, or repurchase agree

ment, or loan, under this act, or any extension thereof by renewal, deferment, or action or otherwise, or the acceptance, release, or substitution of security therefor, shall be punished by a fine of not more than $5,000, or by imprisonment for not more than two years, or both.

(b) Whoever (1) falsely makes, forges, or counterfeits any note, debenture, bond, or other obligation or coupon, in imitation of or purporting to be a note, debenture, bond, or other obligation or coupon, issued by the home owners' loan corporation or an association; or (2) passes, utters, or publishes, or attempts to pass, utter, or publish, any false, forged, or counterfeited note, debenture, bond, or other obligation, or coupon, purporting to have been issued by the home owners' loan corporation or an association, knowing the same to be false, forged, or counterfeited; or (3) falsely alters any note, debenture, bond or other obligation, or coupon, issued or purporting to have been issued by the home owners' loan corporation or an association; or (4) passes, utters, or publishes, or attempts to pass, utter, or publish, as true any falsely altered or spurious note, debenture, bond, or other obligation, or coupon, issued or purporting to have been issued by the home owners' loan corporation or an association, knowing the same to be falsely altered or spurious, shall be punished by a fine of not more than $10,000, or by imprisonment for not more than five years,

both. (c) Whoever, being connected in any capacity with the Board or the home owners' loan corporation or an association (1) embezzles, abstracts, purloins, or willfully misapplies any moneys, funds, securities, or other things of value, whether belonging to it or pledged or otherwise intrusted to it; or (2) with intent to defraud the Board or the home owners' loan corporation or an association, or any other body politic or corporate, or any individual, or to deceive any officer, auditor, or examiners of the Board or the home owners' loan corporation or an association, makes any false entry in any book, report, or statement of or to the Board or the home owners' loan corporation or an association, or, without being duly authorized, draws any order or issues, puts forth, or assigns, any note, debenture, bond, or other obligation, or draft, mortgage, judgment, or decree thereof, shall be punished by a fine of not more than $10,000, or by imprisonment for not more than five years, or both.

(d) The provisions of sections 112, 113, 114, 115, 116, and 117 of the Criminal Code of the United States (U.S.C., title 18, secs. 202 to 207, inclusive), insofar as applicable, are extended to apply to contracts or agreements of the home owners' loan corporation and an association under this act, which, for the purposes hereof, shall be held to include advances, loans, discounts, and purchase and repurchase agreements; extensions and renewals thereof; and acceptances, releases, and substitutions of security therefor.

SEPARABILITY PROVISION

SEC. 8. 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.

Senator BULKLEY (chairman of the subcommittee). We will first hear from Mr. Russell, the counsel for the Federal home-loan bank board, who was one of the group that participated in the drafting of the bill.

STATEMENT OF HORACE RUSSELL, GENERAL COUNSEL FEDERAL

HOME LOAN BANK BOARD, ATLANTA, GA.

Senator BULKLEY. Mr. Russell, will you explain the purposes of the bill, the draft of it?

Mr. RUSSELL. Mr. Chairman, I will read a short statement that I have prepared and answer any questions that I can, if I may.

This act repeals_section 4 (d), the provision for direct loans to home owners by Federal home-loan banks, of the Federal home loan bank act for the reason that the same has proved to be utterly

unworkable. The reason the same has proved to be unworkable is that the Federal home loan bank act was very carefully framed and enacted as a conservative reserve system for home financing institutions and for the purpose of the conservative and sound expansion of their resources for home financing, and the direct loan provision was inserted at the last moment without adequate provision for its administration, and it has proved to be and is impracticable of administration in the act. Furthermore, it is economically and financially unsound for a reserve bank system, based upon the privately subscribed capital and private assets of home financing institutions, to lend money direct all over the Nation to home owners. Furthermore, it is impracticable for such a reserve system, with a capital of $134,000,000 to undertake to serve with direct loans the home mortgage market of this country, consisting of about 20 billion dollars of home mortgages. If that system is compelled to make direct loans it will require inconceivably large appropriations from the Federal Treasury and, as a practical proposition, it will be proper for the sound home financing institutions of the country to withdraw from the system, as such direct lending and a consevative reserve system are inconsistent. The home owners’ loan act of 1933 is an effort to give special relief to the small home owners of the Nation. Its operations are confined to homes having a value not exceeding $10,000 and used by the owner as his home. Senator CouzFNs. At that point, it would not make any difference how many families lived there, whether it was a 2-family flat or what, as long as it was not in excess of $10,000? Mr. RUSSELL. It is limited to one and three families, not exceeding $10,000. It is estimated that this class includes at least three fourths of the owner-occupied homes of the country, or about 8 million homes. This group of homes are mortgaged today for several billions of dollars. Senator Townsend. You have no correct estimate of what that amount is? You say it is “several.” Mr. RUSSELL. No, sir; I have not an exact estimate. The best figures we have are the Federal census, and approximately one half of the homes are under $5,000 in value, and there is no estimate there as to the exact number within $10,000 value. Senator TownseND. You have no exact amount of mortgages? Mr. RUSSELL. There are about 10% million owned homes in the country, and that is the way we have arrived at the estimate of 10,000,000 here that are within $10,000 of value. Senator BULKLEY. Can you tell us how many more homes would be included if that were increased to $15,000? Mr. RUSSELL. Well, I could not tell, but I could estimate that it would take another one and a half million homes, something like that. Senator BULKLEY. And then how many more on top of that if it were increased to $20,000? Mr. RUSSELL. That would take nearly all the homes in number, exclude some of course, but I should say that that would include

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