any type of financial institution, with or without financial responsibility, to participate. It would seem wise, if not essential public policy to confine the operations to institutions which are subject to some form of public inspection and regulation of accounts and business activities.

Amendment. On page 4, strike out all of lines 23, 24, and 25, and on page 5, strike out line 1, and insert in lieu thereof the following: "insure such financial institutions as are subject to inspection and regulation under the banking laws or under similar laws of the State or of the United States, including the Federal Home Loan Bank Act, as may apply for credit insurance and be approved."

Page 5, after line 21:

II

Proposal.-In some of the discussions of the alterations, repair, and improvement program, it was suggested that no institution be permitted to make additional advances to present borrowers. This is a wholly impractical suggestion and also would prevent building and loan associations all over the country from making any advances other than upon unencumbered properties, as they are by State and Federal statutes prevented from making junior liens unless they hold the senior obligation.

Amendment.-On page 5, at the end of line 21, add the following sentence: "The Corporation shall insure mortgage loans and advances of credit made by present mortgagees to present borrowers willing to make alterations, repairs, and improvements."

Page 6, line 8-25, and page 7, lines 18:

III

Proposal.-Section 5, title I, is the most far-reaching proposal in the entire bill. It embarks the Federal Government directly into the guaranteeing of mortgages, receipt of foreclosed real estate, and will injure, if not ultimately destroy, the local mortgage-lending activities of savings and loan associations, homestead associations, cooperative banks, mutual savings banks, Federal savings and loan associations, and the like.

The proposal is in two sections, one dealing with construction loans and the other with existing mortgages. The insurance of home loans, as provided, is a partial duplication of present Home Owners' Loan Corporation facilities and a Government competitive device aimed straight at existing mortgage institutions. Substantial time would be required to establish this program and it is at cross-purposes with the present Home Loan Bank System and the whole program for establishing and encouraging Federal savings and loan associations, in addition to the 11,000 existing local building and loan associations. The justification for the Government insuring 80 percent construction loans grows out of the need of employment in the building trades. The operations of this arrangement are not only unsound when tested from a practical standpoint, but would involve few economies for the borrower and substantial expense to the Government. It is appalling when one thinks of the proposal that a Federal insurance corporation in Washington will appraise, supervise, inspect, and qualify home construction mortgages located in every part of the country. In the judgment of experienced persons, this effort would involve a substantial staff of men and would be more damaging than beneficial in its effects, through frightening and discouraging private capital and local institutions.

Incidentally, practically no trust companies, savings banks, insurance companies, or building and loan associations can make 80 percent loans without the enactment of State enabling legislation, which legislation would be passed reluctantly, if at all, by most State legislatures.

The whole program is not included in the bill, but section 5 is a broad authorization permitting the Federal Government, if it desire, to take over and underwrite the entire urban mortgage business of the country. Certain mortgage practices and types of institutions have survived the depression and it is these practices and principles which should be established and encouraged, rather than those contemplated under the powers of this section. For the purpose of making certain that some 15,000 existing institutions have funds to finance such nonspeculative, legitimate home-building as is needed, funds can be placed through the existing agencies who are experienced in and are willing to make home-mortgage advances. The plan proposed involves

the furnishing of substantial funds by the Government at this time. This can be done by increasing the authorized bonding powers of the H.O.L.C. by half a billion dollars.

It is our judgment that such a procedure is better public policy, namely, that the Government make safe advances through existing institutions on condition that the money be reloaned, and arrange that they will receive a return of principal, plus sufficient income for debt service, rather than to embark upon an experimental program and assume a liability which in later years may be colossal in the form of repossessed real estate and the bonded indebtedness incurred in refunding it for the insurance corporation.

Amendment.-On page 6, lines 8 through 25, and on page 7, lines 1 through 8, strike out all of present section 5 and insert in lieu thereof the following: "SEC. 5. The Home Owners' Loan Act of 1933 as amended is further amended by inserting after section 5 a new section, as follows:

"SEC. 51⁄2 (a). In order to contribute to the employment of labor, particularly in the building trades, the Home Owners' Loan Corporation is authorized to subscribe for shares, stock, make deposits, buy certificates of deposit, investment certificates, or make loans as follows:

"(1) To subscribe from time to time for any amount of full-paid income shares of Federal savings and loan associations.

"(2) To subscribe for any amount of shares in building and loan associations, savings and loan associations, homestead associations, or cooperative banks organized and operated under State charter or under the supervision of the Comptroller of the Currency of the United States and which are members of a Federal home-loan bank: Provided, That no share shall be subscribed for if such institution accepts deposits or has any other shares which are preferred as to dividends or in liquidation to such shares so subscribed: And provided further, That the institution in which such shares are subscribed is in such financial condition as to be able in the judgment of the board of directors of the Corporation to pay dividends at a rate of at least 3 per centum per annum.

"(3) To make deposits or purchase certificates of deposit or investment certificates in savings banks and building and loan associations, provided such institutions are members of a Federal home-loan bank and provided the same are in such financial condition as in the judgment of the board of directors of the Corporation to be able to earn and pay on such deposits, certificates of deposit, or investment certificates at the rate of at least 3 per centum per annum.

"(4) To make loans to insurance companies which are members of a Federal home-loan bank to bear interest at the rate that such companies earn on their investment capital, provided such companies are in such financial condition as to be able to earn in the judgment of the board of directors of the Corporation at a rate of at least 3 per centum per annum.

"(b) The funds authorized by this section to be invested, deposited, or loans shall be invested, deposited, or loaned in the discretion of the board of directors of Home Owners' Loan Corporation so as to contribute to the employment of labor and the maintenance, repair, modernization, enlargement, building, and financing of homes, and combinations of homes and business properties and so as to promote thrift and strengthen the savings and home-financing institutions receiving and administering such funds.

6

"(c) Such funds shall not exceed $500,000,000 and shall be invested, deposited, or loaned for the full term of 5 years and thereafter to be withdrawn, repurchased, or mature as the case may be at the discretion of the board of directors of Home Owners' Loan Corporation but not to exceed an amount equivalent to 10 per centum of the original amount of any such investment or deposit or loan in any one year.

"(d) The Home Owners' Loan Act of 1933 as amended is hereby further amended by striking out from section 4, subsection (c), thereof, "$2,000,000,000", and inserting in lieu thereof, "$2,500,000,000.'

Section 6, page 7:

IV

Section 6 provides very extensive powers for the Home Credit Insurance Corporation, including the issuing of notes, debentures, and bonds which are fully and unconditionally guaranteed as to principal and interest by the United States and which are unlimited as to amount.

If the home-building program is to be financed through an increase in the bonding powers of the Home Owners' Loan Corporation by half a billion dollars. it would seem prudent to rewrite section 6 with careful limitations. It probably would not need a bonding power beyond $200,000,000 to carry out the program projected in section 4 of the act.

Title II, page 11:

V

Title II proposes chartering of federally sponsored national mortgage associations with a minimum of capital of $5,000,000, and who are privileged to make mortgage loans and to borrow money through the issuance of bonds and debentures. Experience with nation-wide lending operations has been bad and, in the judgment of experienced students of home-financing, such operations are neither sound nor economical. They are essentially in conflict with existing local institutions and it was this type of nation-wide operation that brought the first great mortgage debacle in this country in the panic of the nineties and, to a substantial extent, led to the mortgage crashes of the present depression.

As the national mortgage associations are inextricably tied up with the Government insurance or guarantee of individual mortgages and acceptance of foreclosed or distressed properties, as proposed in section 5 of title I, it is recommended that title II be eliminated entirely from the bill.

This proposal has to do with long-time mortgage policy and reform and will not contribute anything to the solution of the immediate situation. The proposal could be used only by now-embarrassed guarantee mortgage companies and possibly the banks or insurance companies in three or four of the largest cities, particularly New York. The proposal may further lead to stock promotion and further discouragement and uncertainty in the minds of not only the public but thousands of directors and trustees and leaders in going thrift and home-financing institutions, such as building and loan associations, mutual savings banks, and the like.

Section 212, which provides a sweeping exemption from taxation now or hereafter imposed by the United States, also provides an inhibition against the imposition by any State or political subdivision upon such associations or their franchise, capital, reserves, surplus, loans, or income "greater than that imposed by such State on competing financial corporations, domestic or foreign." Such exemption will likely bring about further vexing controversies between Congress and the tax authorities of the various States similar to that which has been before committees of Congress for the past several years involving amendments to section 5219 of the Revised Statutes.

Amendment.We therefore recommnd that title II, commencing on page 11, line 15, and running through line 17 on page 19, be stricken from the bill and the subsequent title numbers adjusted accordingly.

Page 21, lines 9 to 15:

VI

Proposal. The Federal Savings & Loan Corporation is in operation very similar to the Federal Deposit Insurance Corporation. Its decisions and policies will be of great importance to thrift and home-financing institutions, as a number may have to have their assets written down, be reorganized, or be denied insurance, and have other vital dealings with the corporation.

It would seem particularly necessary that the work be coordinated closely with that of the Federal Home Loan Bank Board but that, nevertheless, several men have the prime responsibility for the conduct of this operation. The present Federal Home Loan Bank Board has full responsibility for the twoand-a-half-billion-dollar Home Owners' Loan Corporation operation, including repairs of properties, and has the full Federal home loan bank and Federal savings and loan program on its hands. It is not believed that it can give the time necessary to this operation without almost complete delegation of authority and responsibility to subordinates.

We therefore propose to somewhat parallel the management arrangement of the Federal Deposit Insurance Corporation in this operation.

Amendment. On page 21, strike out lines 9 through 15, and insert in lieu thereof the following:

"The management of the Insurance Corporation shall be vested in a board of trustees consisting of three members, one of whom shall be the chairman of the Federal Home Loan Bank Board and two of whom shall have had five

years' experience in thrift and home-financing institutions and who shall be citizens of the United States to be appointed by the President of the United States by and with the advice and consent of the Senate. The President shall designate one of the appointed members as chairman of the trustees and not more than two members of the trustees shall be members of the same political party. After this Act takes effect the President shall delegate one of the said appointed members of the trustees for a term of three years and the other for a term of six years and their successors shall be appointed for terms of six years. Any vacancies shall be filled for the unexpired term. Each appointed trustee shall receive compensation at the rate of $10,000 per annum, payable monthly out of the funds of the Insurance Corporation, but the Chairman of the Federal Home Loan Bank Board shall not receive additional compensation for his services as a trustee."

Page 23, line 16:

VII

Proposal. Savers in building and loan associations, as a rule, embark on a monthly thrift program covering a period of years, with the objective of accumulating a substantial sum for home purchase or some other worthy purpose. Frequently these savings run as high as $25 or $50 a month, with an ultimate objective ranging anywhere from $3,000 to $5,000. It would, therefore, seem proper to protect this type of saver as completely as possible and, therefore, a maximum insured account of $5,000 is recommended. This amount is of importance in connection with many associations where loan payments are made in share accounts in anticipation of repaying a home loan.

Amendment. On page 23, line 16, strike out "$2,500 ", and insert in lieu thereof "$5,000."

VIII

Page 23, line 25, and page 24, line 1:

Proposal. Much of the effectiveness of the guarantee of solvency (not of immediate payment or liquidity) grows out of the issuance of debentures to insured account holders, maturing in 1 year and 3 years, thus financing a part of the period of liquidation of a defaulted institution. The Corporation should be in position to pay modest interest on these debentures and if it does not, they will immediately sell at a substantial discount. The recommendation of the executive committee of the United States league in connection with this legislation is that 3 percent debentures be issued by the Insurance Corporation.

Amendment. On page 23, strike out line 25, and on page 24, strike out line 1, and insert in lieu thereof the following: "negotiable debentures of the Insurance Corporation bearing interest at the rate of 3 per centum per annum for the remainder. Insurance Corporation

Page 25, at end of line 2:

IX

The

Proposal. It would seem fair and prudent to avoid duplication of examinations by the insurance corporation if adequate periodic examinations are made by either State supervisory authorities or the Federal home-loan banks. This is especially important if the principle of classifying insure institutions into three classes as to risk in determining insurance premiums, is followed.

Amendment. On page 25, beginning at the end of line 2, add the following: "All examinations shall be made by the Federal home-loan bank of which the applicant or insured institution is a member. The report of such examina

tion may be reviewed by the trustees and an additional examination at the expense of the insurance corporation may be ordered if the trustees find the information or the examination unsatisfactory or inadequate.”

X

Page 25, lines 20 to 24; page 26, lines 1 to 19:

Proposal. Many institutions, by requirements of State laws or by prudent management, have accumulated reserves against losses which amply protect the investors. Applying a true principle of insurance, such institutions, representing preferred risks, should not he called upon to make the contributions to the loss fund in the form of premiums that are made by institutions without reserves, as determined by the Insurance Corporation. Such an arrangement is not only equitable, but would increase the participation of the best-managed institutions.

This principle has had careful study by building and loan managers and research workers and the program here suggested is not only adequate to amply cover all losses which experience and present conditions indicate are possible, but also would have the approval of the managements of thrift and home-financing institutions. At the time the schedule was devised it was expected that mutual savings banks, who are more comparable in their insurance risks to building and loan associations than to commercial banks, might participate in this insurance program, rather than in the Federal Deposit Insurance Corporation. Such a premium arrangement would certainly be more fair to those organizations, although it is a matter for Congress and their leaders to decide whether they should be included in this legislation.

Amendment.-On page 25. strike out lines 20 through 24, and on page 26, strike out lines 1 through 19, and insert in lieu thereof the following:

"(b) The Insurance Corporation shall fix an initial and annual premium for applicants for insurance of their accounts as follows:

"1. All eligible institutions having a surplus of more than 5 per centum of the total of the accounts of their insured members and their creditor liabilities shall pay an annual insurance premium of one-fifth of 1 per centum of their total insured accounts, plus any other creditor obligations. Newly organized Federal Savings and Loan Associations, excepting all converted or companion institutions, shall pay an insurance premium of one-fifth of 1 per centum of their total insured accounts, plus other creditor obligations, for the first four years of their existence and thereafter shall be classified as are other eligible member institutions.

"2. All other institutions having a surplus of more than 2 per centum and not more than 5 per centum shall pay an annual insurance premium of twofifths of 1 per centum of the total of their insured accounts, plus any other creditor obligations.

"3. All other institutions having a surplus of not more than 2 per centum shall pay an annual insurance premium of three-fifths of 1 per centum of the total of their insured accounts, plus any other creditor obligations."

Further amending section 305 of title III, on page 26, add a new subsection (c) after the above subsection (b) as follows:

"(c) Insurance premiums may, under regulations made by the Insurance Corporation, be paid on a semiannual basis, and the Corporation shall carry all premiums collected in a reserve account for the payment of losses. When said account shall equal 5 per centum of the total insured accounts, plus all creditor liabilities in all insured institutions, the annual premiums of insured institutions shall be suspended until said reserve account is reduced below 4 per centum of the total insured accounts, plus all creditor liabilities in all insured institutions, at which time said insurance premiums shall be resumed until said account again reaches 5 per centum."

The following changes will be necessary in the lettering of the subsections following the above amendments:

Subsection (c), page 26, becomes (d); subsection (d), page 27, becomes (e); subsection (e) becomes (f), and subsection (f) becomes (g).

XI

Page 28, lines 24 and 25, page 29, lines 1 through 18:

Proposal. If institutions are carefully admitted to the Federal Home Loan Bank System and if the proper standards are maintained by the trustees of