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their own time and at personal expense and effort have been responsible for much of the progress that the system has made. This action is, in effect, a repudiation of their splendid efforts. No useful, practical purpose is served by such a move. There is no evidence to indicate that a decrease in the number of representatives of the members will bring better management or more successful operation. The development and progress of this system is essentially a problem for men who understand the conduct of the thrift and home financing business and who have a full-time interest in the progress and future of the savings and loan idea. The work and leadership of such men is not irreconcilable with the public interest.

5. Our organization firmly believes that the system will be most effective if a fair division of responsibility is maintained, believing that the bank system should be a decentralizing influence in the business of home financing. A change at this time will certainly discourage wider membership, use of the insurance facilities, and the general enthusiasm of the institutions for the whole Federal Home Loan Bank Board program.

6. The complete elimination of this section will meet with the complete approval of our organization and of the member institutions of the Federal Home Loan Bank System.

SECTION 4

Satisfactory in present form.

SECTION 5

Acceptable, although some may doubt the wisdom of encouraging associations to make mortgages as large as $20,000.

SEOTION 6

This perfecting amendment is satisfactory.

SECTION 7

Recommendation

Amend by striking out the entire section 7 of H. R. 5531 and S. 1771.

Explanation The Congress should continue to exercise some control over the expenditures of money by public agencies. No board or bureau should have the sole power to levy assessments and to undertake such expenditures and activities as it alone desires. A portion of the funds for operating the Federal Home Loan Bank Board are paid by the 12 banks. This amendment to the Federal Home Loan Bank Act would remove the opportunity of member institutions to be heard by an impartial legislative committee in case they feel the assessment of the Board are onerous or provide for an undue expansion of Federal personnel or activity at the expense of the banks and the member associations. While the Board has broad supervisory responsibilities, its assessments upon the 12 banks are already on a $300,000 per annum basis, and this notwithstanding the fact that it has 3 other major activities under its jurisdiction.

Our organization strongly prefers that Congress retain some jurisdiction over these funds. Such fees or charges as the Federal board must make for examinations of individual institutions should be excepted from the routine appropriation procedure.

SECTION 8

This section is satisfactory in its present form, and we especially commend the present language, which confines the use of the moneys to "applications heretofore filed.”

SECTION 9 Satisfactory in present form.

SECTION 10

Recommendation

Amend section 10 of H. R. 5531 and S. 1771 by adding the following language to the proposed section 10:

The corporation is immediately authorized to purchase shares in building and loan associations, savings and loan associations, homestead associations, and cooperative banks organized and operated under State charter or under the supervision of the Comptroller of the Currency of the United States and to make deposits or purchase certificates of deposit or investment certificates in savings banks and building and loan associations upon terms agreed upon. Such funds shall be made available without discrimination in favor of Federally chartered associations."

Explanation The purpose of investing in Federal associations is to increase the flow of mortgage money in communities around the country. There is no reason why some of the 10,000 State-chartered institutions cannot be used for the same purpose without forcing them to cast off their State charters and become Federal institutions. A program confined to Federal associations is not only an unfair discrimination in the use of public moneys, but fails to use all of the outlets in the interest of immedate mortgage-lending activity.

The Federal Home Loan Bank Board has had $100,000,000 approved exclusively for the use of Federal associations for over a year and a half, of which less than $14,000,000 has been disbursed to date. Numerically there are 688 Federal associations, in contrast to 10,727 State-chartered associations. The assets of the Federals are 242 percent of those of the State institutions. It should be noted in this connection that in the Reconstruction Finance Corporation legislation for banks, even where national banks were greater in numbers and assets, the Congress did not exclude the State banks from the privilege of receiving stock investments. It should also be recalled that the House of Representatives passed a share-purchase provision for State-chartered institutions in the last session of Congress.

State supervisory officials are unanimous in requesting equal share-purchase provisions for State-chartered institutions. Both as a matter of fairness and in the interests of getting the desired action, the share-purchase facilities should be made available to all sound thrift and home-financing institutions. Conversion to a Federal charter should not be required unless the purpose is to eliminate our whole system of State-chartered community thrift and home-financing institutions, thousands of which have made an enviable record in assisting people of small means in thrift, as well as in the building and buying of homes.

SECTION 11

Recommendation

Amend section 11 of H. R. 5531 and S. 1771 by adding at the end the following sentence:

“ Such funds shall be used impartially in the promotion and development of local thrift and home-financing institutions, whether State chartered or Federal."

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Explanation

The original section 6 of the Home Owners' Loan Act of 1933 provided $150,000 for the promotion and development of Federal savings and loan associations “or similar associations organized under local laws.” In the act of Congress approved April 27, 1934, an additional $500,000 was made available, and now a further $200,000 is proposed. Every dollar of these public funds has been used to organize Federal savings and loan associations, or to encourage the conversion of State-chartered institutions into Federals. It would seem that this work has passed the first stages in which extensive subsidy is necessary, or at least the funds should be constructively used in the interests of all institutions, as was clearly the intention of Congress in the original Home Owners' Loan Corporation Act. This is not a request for elimination of this item, but a suggestion that the use of the funds be substantially broadened in accordance with the original legislation.

SECTION 12

No comment.

SEOTION 13

No comment.

SECTION 14

Partially satisfactory, although the comments maile regarding section 7 of the bili apply to part of this amendment.

SECTION 13

Rccommendation

Rewrite the entire section 15 of H. R. 5.31 and S. 1771 to read as follows:

"SEC. 15. Section 403, subsection (b) of the National Housing Act is amended by striking out the words ten years' from the third line from the end thereof and inserting in lieu thereof the words .twenty years', and is further amended by striking out in the last two lines of the subsection the words 'or the payment of any dividends if any losses are chargeable to such reserves' and inserting a period in lieu of the preceding comma.'

Esplanation The amendments proposed in section 15 recognize that the reserve provisions in the present act are not workable. While the amended language is an improvement, it is still not satisfactory. The language in the hill requires that an association having made a legitimate charge-off of losses to reserves, must get permission in Washington from the Insurance Corporation in order to distribute earnings to its hundreds or thousands of savers. This involves delays, forms, and machinery which are totally impracticable. By means of the examination program of the ('orporation and its other general powers, it can certainly protect itself without expanding its activities to the cousideratiou and approval of dividend declarations.

SECTION

Satisfactory in present form.

SECTIOX 17

This change is in accordance with the judgment and recommendations of our organization, and we are particularly anxious that this section be enacted.

SECTION 18

Satisfactory in present form.

SEOTION 19

Not germane to our institutions or shareholders.

SECTION 20

Not germane to our institutions or shareholders.

SECTION 21

Not germane to our institutions or shareholders.

SECTION 22

The comment under section 7 is applicable to this proposal, as we feel that such matters should be within the jurisdiction of the Congress.

A NEW AND ADDITIONAL SECTION 23

Recommendation

Add a new and additional section 23 to read as follows:

SEC. 23. Section 407 of title IV of the National Housing Act is amended as follows: First, in subsection (a) strike out the last half of the last sentence, pamely, the words but the obligation of the institution to pay the premium charges for insurance shall continue for a period of three years after the date of such termination', and insert a period in lieu of the preceding semicolon, and second, in subsection (b) strike out the last half of the last sentence, namely, the words but the insured accounts of its members existing on the date of such termination shall continue as such for a period of five years thereafter, and the institution shall be required to continue the payment of the premium charge for insurance during such five-year period', and insert a period in lieu of the preceding comma.”

Explanation Mutual savings banks are permitted to withdraw from the F. D. I. C. without penalty, in fact; they are refunded a substantial portion of their premium or contribution to the F. D. I. C. funds. It seems unfair and unnecessary that the savings and loan associations, having no rights in the reserves accumulated through the annual payments, should be required to pay three additional annual premiums in case they wihdraw, or five additional premiums in case the insurance is terininated by the Corporation. Some more reasonable withdrawal privilege should be provided. Either the amendment above suggested, or, at most, a single additional annual premium. Directors and trustees of savings institutions are properly hesitant to join the Insurance Corporation and pay annual premiums unless they can reverse their action should the insurance regulations, expenses, and benefits prove onerous or unnecessary.

A NEW AND ADDITIONAL SECTION 24

Recommendation

Add a new and additional section 24, to read as follows:

" Sec. 24. Section 405 (b) (2) of title IV of the National Housing Act is amended to read as follows: '(2) at the option of the insured member, the amount of his account which is insured under this section, as follows: Not to exceed 10 per centum in cash, and 50 per centum of the remainder within one year from the date of such default, and the balance within three years from the date of such default in, and evidenced by negotiable two per centum debentures of the Corporation, issued in the name of and delivered to the insured member. The Corporation shall furnish to all insured institutions a certificate stating that the insurance of accounts in such institution is to be paid in the manner described in this subsection.'”

Explanation

The present statute is slightly obscure and does not clearly indicate that the debentures mature one and three years from the date of the default. We also feel that the Insurance Corporation, which has the income from the assets of the institution in liquidation, should pay at least nominal interest on the debentures in order that they not be discounted. It is recommended that these liquidation debentures carry a 2-percent interest rate, and the amendment so provides. Investors may have to wait months or even years before public authorities can or will declare an institution insolvent and therefore in default. After such a period those investors electing to dispose of their debentures should not forfeit too substantial a portion of their investment on account of holding a noninterest-bearing security.

A NEW AND ADDITIONAL SECTION 25

Recommendation

Add a new and additional section 25, to read as follows:

“ SEC. 25. Section 406 (b) of title IV of the National Housing Act is amended by striking out the last sentence in (b), reading as follows: 'The net proceeds which may arise from the orderly liquidation of the assets of any such association, after reimbursement of the Corporation of all amounts paid by it for such insurance, shall be distributed pro rata among the shareholders of the association.', and inserting in lieu thereof the following language: "The surrender and transfer to the Corporation of the insured account shall subrogate the Corporation with respect to the amount of such insurance and shall not affect any right which the insured member has in the uninsured portion of his account or any right which he may have to participate in the distribution of the net proceeds remaining from the disposition of the assets of the insured institution.'”

Explanation

The present language in the act is undoubtedly illegal, as it contravenes the rights existing on the part of shareholders. In effect, it provides that the uninsured accounts, in the liquidation of an institution, are available for complete reimbursement of the Insurance Corporation's disbursements to insured investors. No statute can change the right of investors to participate in the liquidation of an institution proportioned to their interest. The Corporation, having disbursed an insured account, is entitled to stand in the place of that individual shareholder to the extent to which it has repaid him. The proposed language is from the rules and regulations of the Corporation, but the matter is so extremely important and the statute so clearly in conflict with both sound principle and the regulations that the statute should be corrected.

A NEW AND ADDITIONAL SECTION 26

Recommendation

Add a new and additional section 26 to read as follows:

“ SEC. 26. Section 10 (a) of the Federal Home Loan Bank Act is amended by adding a new section 10 (b)_immediately following section 10 (a) to read as follows: 'Seo. 10 (b). Each Federal home loan bank is authorized to make advances to nonmember mortgagees approved under title II of the National Housing Act. Such mortgagees must be chartered institutions having succession and subject to the inspection and supervision of some governmental agency, having a combined unimpaired capital and surplus of not less than $100,000, of which at least $50,000 is unimpaired capital and their principal activity in the mortgage field must consist of lending their own funds. Such advances shall not be subject to the other provisions and restrictions of this act, but shall be made upon the security of insured mortgages, insured under title II of the National Housing Act. Advances made under the terms of this section shall be at such rates of interest and upon such terms and conditions as shall be determined by each Federal home loan bank, but no advance may be for an amount in excess of 90 per centum of the unpaid principal of the mortgage loan given as security.'”

Explanation It has been proposed that the Federal home loan banks might facilitate the early and effective operation of title II of the National Housing Act, providing for mutual mortgage insurance, by using some of their funds for making advances to approved mortgagees on the security of insured mortgages. Section 10 of the Federal Home Loan Bank Act, as amended, provides broad powers under which each Federal home loan bank may make advances to its members secured by such mortgages up to 90 percent of the unpaid principal of such insured mortgages. In order to assist in relieving the real-estate credit stringency and to invite further funds into the long-term amortized mortgage field, it is proposed in the above amendment that the Federal home loan banks be authorized to advance money to nonmember institutions up to 90 percent of the unpaid principal of such insured mortgage loans. This would give employment to idle funds now in the Federal home loan banks and facilitate the F. H. A. program. The qualifications of approved mortgagees are taken from the rules and regulations of the Federal Housing Administration.

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