opened for business on December 15, they should have within a few days after that, begun to refer currently delinquent accounts to the State office, for personal contact. That work should have begun in January, at least, should it not?

Mr. DELANO. Yes; I would say so, sir.

Senator BULKLEY. So that they ought to get reports back in February as to what progress was made by the State office on those accounts?

Mr. DELANO. That is right.

Senator BULKLEY. Now, when would you get anything from them in Washington; or would you get it at all?

Mr. DELANO. Well, we only get that through the returns that we establish through our contacts with the regional office. We have managerial contacts; and those come up to us in the form of figures, which figures you have seen in the form of delinquencies.

Senator BULKLEY. Well, for the present, I shall leave it at this, and then we can decide what is to go into the record later, to show me what reports you have here in Washington of delinquencies that were referred by the Cincinnati office to the State office in Columbus during the month of January-just as an example of what is going on.

Mr. FAHEY. We do think, Mr. Chairman, that the questions involved in this legislation are really of very great importance-not as affecting alone the Home Owners' Loan Corporation, but in its relation to the solution of the entire mortgage problem.

Senator BULKLEY. Of course.

Mr. FAHEY. And, in turn, the mortgage problem has a very direct relationship to the entire financial and banking problem of the country. It is not a thing apart; it is a part of the whole financial set-up of the country.

Senator BULKLEY. We shall set, as the time of the next meeting of the subcommittee as 10:30 tomorrow, tentatively. (Thereupon, at 12:20 p. m., Tuesday, Mar. 26, 1935, an adjournment was taken until the next day, Wednesday, Mar. 27, 1935, at 10:30 a. m.)

OWNERS' LOAN AND NATIONAL HOUSING ACT

WEDNESDAY, MARCH 27, 1935

UNITED STATES SENATE,

SUBCOMMITTEE OF COMMITTEE ON

BANKING AND CURRENCY,
Washington, D. C.

bcommittee met at 10:30 a. m., pursuant to adjournment sday, March 26, 1935, in room 301 of the Senate Office Buildtor Bulkley (chairman of the subcommittee) presiding.

: Senators Bulkley (chairman of the subcommittee), McAdoo, and Townsend.

r BULKLEY. Now, Mr. Fahey, we are ready for your stateyour own way, reviewing everything in the bill.

R STATEMENT OF JOHN H. FAHEY, CHAIRMAN FEDERAL HOME LOAN BANK BOARD

HEY. Mr. Chairman and gentlemen, before getting down to ion of the details of the bill, it occurs to me that you would be interested in the summary of the problem that is before

sent.

of all, you gentlemen will remember that this Corporation nized just after the bank holiday in June 1933. And it had go very great pressure. It took about 10 or a dozen weeks t; it began to get under way in the fall of 1933.

the 1st of December of that year it had something more than pplications for loans, and before the 1st of January 1934 it to three-quarters of a million.

g 1934, and particularly in the early part of the year, the ons increased very rapidly. The peak was along in the n March. In March and April we were receiving applicahe rate of better than 40,000 a week. They began to decrease er in the early summer of 1934, and when we stopped, the new applications had dropped down to about 6,000 or 8,000

s very evident from our experience that by the fall of last great bulk—indeed, practically all-of what could be legitilescribed as "distress applications" had really been placed Corporation, and there was very little left. That impression ted rather strongly by the fact that following the suspension eceipt of new applications, in November, we have received e State managers practically no indications of protest. I

nents of 1932, and continuing into 1933, the pressure was naturally extreme in the first 7 or 8 months of operation of the Corporation. The urban mortgage debt of the country at that time was estimated at approximately 212 billions of dollars-the largest single block of ndebtedness which we have in the country's balance sheet outside of Government, State, and municipal debt.

As of March 15, the corporation had received 1,744,073 applicaions, representing mortgage claims of $5,671,348,110. The average pplication was $3,252. As of the same date, the loans closed were 30,315, amounting to $2,506,226,133.

Senator BULKLEY. What date is this?
Mr. FAHEY. March 15.

The average loan closed is $3,014. And the difference, or saving, pread between the average indebtedness represented by the appliation, and the loan finally closed, was $238, representing an apparent reduction of indebtedness, as between the application originally filed and the loan as refinanced by us.

As a matter of practical saving to the average borrower, it was omething more than that. We cannot say exactly what it was, because the application did not disclose the total indebtedness of the borrower, because it did not include taxes, and in many instances t did not include accrued interest and defaults and other allowances, all of which had to be taken into consideration before the loan could be closed.

Following your suggestion, because of the necessity of some of the embers of the committee being obliged to get away, perhaps it would be desirable to come down, directly, to a discussion of the bill; although what I had in mind was this: That some features of he bill do involve consideration of developments so far as the Inurance Corporation is concerned, the Federal Savings and Loan, and he banking system. And what I should particularly like to do, when we get around to those particular subjects, would be to ask Mr. Catett and Dr. Hoagland and Mr. Russell, who have been following hem very closely, to supplement what I have to say. However, if you think it is preferable to turn directly to the legisative program, we can do that very easily.

First of all, dealing now with the House bill, H. R. 6021, and in omparison with the Senate bill, section 1 of both bills amends the et so as to make mortgages on properties of not more than four amilies, eligible as collateral in the Federal Home Loan Bank sysem-instead of three, as has been the case, up to date. That is a nere incident, and merely makes the situation a little more consistent han it has been in the past.

Senator BULKLEY. I do not think there is any controversy about

hat.

Mr. FAHEY. No; there is no controversy on that.

Senator TOWNSEND. Right there, we ought to go into the matter
of bungalow courts, that they have all through the West.
Senator MCADOO. Do you mean in California?

[EY. MT. Catlett reminds me that this deals with bike feu

Loan Act, and not with the Home Owners' Corporation

MCADOO. I think it would come under both acts. I do not we shall deal with it at the proper place. I only wished ention in passing.

BULKLEY. As a matter of fact, we are amending both ay; so I think it would be very appropriate to consider. McADOO. I did not mean to interrupt you, but only wished ention to that consideration.

HEY. Very well.

3 of H. R. 6021 provides for the establishment of a Federal nd Loan Advisory Council, to consist of as many members re Federal home-loan bank districts-each Federal home, by its board, to elect annually a resident of the bank dismember of the council; this council to be advisory to the lirectors to the Federal Home Loan Bank Board.

endment, which was inserted in House bill is offered, and s proposed, by the National Building and Loan League. MCADOO. That is just patterning it after the Federal Ret not?

HEY. Yes; after a fashion. We did not think it was necescorporate such a provision in the law, inasmuch as we ave such a council, the league some time ago having put uch a suggestion and the Board promptly acquiescing in it, a board was organized.

BULKLEY. What is the difference between the manner of members of the board, according to your present practice, eway proposed by the House section?

HEY. The only difference is that the Board appoints the of the council.

BULKLEY. Your Board does?

HEY. The Board has appointed them; yes. This would to the members of the bank boards the authority of naming

e pursued that course, and did not recommend the other, in place, because we felt it was highly desirable, in getting the advice from such a counsel, that we should be certain of ation in it of a liberal proportion of directors of these

boards now consist of 11 members. But two of them are y the Board; the other 9 are elected by the institutional The 2 are the so-called "public-interest directors." nasmuch as this business is certainly charged with a very blic interest, and inasmuch as we have another advisory e, consisting of the 12 presidents-the operating officialst regularly with the Board, and with whom, also, we are y in close touch, we felt that when it came to the considof broader problems involving the public money probably ery much better to have the opportunity of selecting a bal

the qualifications for membership on the board is that the candidate shall be a resident of the bank district, and interested in thrift and the financing of homes.

How do you interpret that language? Does that mean he has to be connected with some thrift institution?

Mr. FAHEY. That would be as I take it and as we interpret it, that he must necessarily be interested in the building and loan associations.

Senator BULKLEY. Do you mean by that that he must be financially interested? This just says "interested in thrift."

Mr. FAHEY. Well, it is difficult to say. Of course, our publicinterest directors, generally speaking, are prominent citizens of broad business and financial experience, and having social interests, and all that sort of thing, and who are not necessarily directly interested in this business.

Senator MCADOO. Senator, I should like to ask one question, and then I must go.

This advisory board that you have, to be useful to you, must be composed of men who have some knowledge of the particular work that you are doing. It is in the nature, really, of an executive staff, and therefore it would seem to me that if you are going to get any effective advice from such a board, you ought to have, or the Commission should have, the power to select it with reference to the skill and ability of the men who are familiar with the problems which concern you. Therefore, it would seem better to me to allow you to select this advisory council.

Mr. FAHEY. Well, frankly, we think it is better, Senator, too. You cannot avoid a certain amount of internal politics in these things. Senator MCADOO. Well, if each institution selects a man, they may select some men entirely unfamiliar with the problems with which you are dealing, and for reasons wholly apart from the fundamental things which you are trying to do. And therefore he is incapable of giving you, so I would think, the kind of advice you need to have.

Mr. FAHEY. The council has worked very well. It has included in its membership men of broad public interest. They give their time very freely to these banks, merely as a matter of public service. And it has also included a substantial proportion of the men most active in the business, and certainly skilled in it.

And there has certainly been no discrimination on the part of the Board-which, I think, is evidenced by the fact that the president of the United States Building and Loan League is a member of it, and is acting as chairman of that council at the present time.

aving a than trave Mr. FRE Board). Y that we a

So, we feel that, as it has been organized, there is a very good balance of interest there.

Mr. FA

line, the d

Senator McADOO. I am frank to say that my attitude here is somewhat influenced by my experience as Director General of the Railroads during the war. At that time I selected for my staff men widely skilled in that operation. If I had been required to select for my staff men representing the various interests governed by the