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Senator SPARKMAN. Thank you very much.
Senator CAPEHART. I want to think it through.
Mr. BUBB. We appreciate

Senator SPARKMAN. I have the same reaction, as I said a minute ago. It rather intrigues me.

I will say that it comes to me as a new suggestion, and I think it is one that we do need to look at carefully, but my first impression is that it can serve America.

Mr. SLIPHER. Of course, the Home Loan Bank Board would put out regulations that would cover it in detail, too.

Senator CAPEHART. You didn't comment on anything else?

Mr. BUBB. Just the independence of the bank system and this were the main amendments we were interested in, yes.

Senator SPARKMAN. Thank you very much. Mr. BUBB. Thank you, sir. (The prepared statement of Mr. Bubb, and attachments, follow :)

STATEMENT OF HENRY A. BUBB, TOPEKA, KANS. I am Henry A. Bubb, of Topeka, Kans., president of the Capitol Federal Savings & Loan Association of Topeka and chairman of the board of directors of the Federal Home Loan Bank of Topeka. I appear as chairman of the legislative committee of the United States Savings and Loan League.

On behalf of the officers and members of the league, I wish to express my appreciation to the committee for the opportunity to state our views on legislation dealing with housing, and with the Federal statutes which affect our savings and loan institutions. The league is the 63-year-old nationwide organization of the savings and loan institutions. Its membership consists of some 4,100 local savings and loan associations, cooperative banks, homestead associations, and building and loan associations. In addition, we have affiliated with us 49 State, District, or Territorial leagues of savings and loan institutions and 13 regional groupings of this type of financial institutions. All in all, the league's membership comprises 85 percent of the assets of the savings and loan system in the United States and its Territories, and I should like to emphasize that I am including in this total both the State charteded and the federally chartered associations.

Last year Congress did a comprehensive rewriting of the basic laws relating to the Government's participation in housing, and the league testified in detail at that time. To save the committee's time we plan to present our comments as briefly as possible at this time. Extension of title I of the National Housing Act

The league favors the extension of the title under which the FHA insures home repair and modernization. Provisions relating to FHA mortgage insurance

At the request of Housing Administrator Cole and FHA Commissioner Mason, the league presented on March 25 its views on the proposals regarding FHA made by the Hoover Commission on Organization of the Executive Branch of the Government as reported to the Congress. The statement which we presented to Mr. Cole and Mr. Mason is attached, and with your permission, Mr. Chairman, I submit it with this testimony to become part of the record. Low-rent public housing

As the senior members are well aware, the league has repeatedly and consistently presented its view of unalterable opposition to public housing. When restrictions on public housing were placed in the legislation last year, the league was heartily in favor of them and we do not want to see them repealed. Savings and loan sections of S. 1800

Besides the provisions of S. 1800 which relate to Government activity in housing, the bill contains certain proposals relating to the statutes governing the Home Loan Bank Board and its activities in relation to the savings and loan associations, both federally and State chartered. These proposals are of immediate concern to the savings and loan institutions which I represent and the league generally favors them. Over the years, Mr. Chairman, our legislative committee and other standing committees, made up of the men who actually operate savings and loan associations, study possible improvements in the Federal statutes which have a bearing on our operations. The provisions in this legislation have had the substantial study made possible by this continuing program of the United States League. I understand that the Chairman of the Home Loan Bank Board has presented a general summary of the provisions and what they would accomplish. What I shall add is, of course, from the industry itself and should, therefore, give the committee a well-rounded picture of the effect of the proposals. In referring to these portions of the bill, my testimony will identify the various provisions by their section numbers in S. 1800.

Section 14 (1): Reduction of the stock in the Federal home-loan banks.It has been evident for several years that the Federal home-loan banks, all 11 of them which make up the System, are increasing their capital at an excessive rate under the formula now provided by the law. The growth of the savings and loan business has been very rapid, as you gentlemen are doubtless aware, and their substantial additions to their mortgage loan portfolios in recent years, as they have continued to do one-third of all the home financing in the country, has brought about an unanticipated rapid increase in their stock in the Federal home-loan banks. This is due, of course, to the fact that the associations are required to have 2 percent of their mortgage loans outstanding in Federal homeloan bank stock. We feel that the provision in S. 1800 would afford a reasonable formula for slowing up the accretion of home-loan bank stock by the members to a degree far beyond any need or prospective need.

Section 14 (2): Termination of bank membership. This provision is in line with the substance of the provisions for conservatorship and receivership which the Congress wrote into the Federal savings and loan statute last year. Its provision's were generally favored by the league and we favor this new proposal for State chartered members of the bank system.

Section 14 (4): Increase in number of elected directors in Federal home-loan banks.This proposal would enable the Home Loan Bank Board to correct what seems to be an inequity in the present provision for elected directors in the Federal home-loan banks where the bank's district comprises an unusually large number of States.

Section 15: Removal of $2,500 limitation on property-improvement loans by Federal associations.—This proposed amendment would merely clarify the situation regarding the power of federally chartered associations to make propertyimprovement loans insured by FHA or VA in amounts of $2,500 where the property is a multifamily one.

Section 16: Admission fee to the Federal Savings and Loan Insurance Corporation.The Federal Savings and Loan Insurance Corporation has now been in operation for 20 years and the original provisions for admission fe for associations newly availing themselves of the Corporation for protection can appropriately be determined by factors other than those governing the formula when the Insurance Corporation was younger and in the building-up stage.

These items, as can be seen, are primarily technical or internal matters which have relatively little effect on the basic savings and loan operation or our ability to serve the savings or home-owning public. I would like to propose to the committee certain amendments to the bill which I feel sure will have a much more far-reaching effect, both from the point of view of savings and loan associations and of the national housing program.

We understand that the committee is giving consideration to various pending housing measures and we would urge that the substance of H. R. 5945 recently introduced by Representative Spence, chairman of the House Banking and Currency Committee, be added to the overall housing bill. This would be accomplished by enacting the attached amendment No. 1 which would restore the independence of the Home Loan Bank Board and immediately retire the $66 million of Treasury funds now invested in the Federal Savings and Loan Insurance Corporation.

Independence of the Home Loan Bank Board has been one of the major legislative objectives of the United States Savings and Loan League for many years. I feel that this committee and this Congress could do nothing which would add more to the prestige and effectiveness of the Home Loan Bank Board or be more pleasing to the savings and loan business, than the enactment of this amendment.

The Federal Home Loan Bank Act, which became law in 1932, created the Federal Home Loan Bank System to be the central banking system for the thrift and home-financing institutions of the country, following the broad pattern previously established with the Federal Reserve System as the central banking system for commercial banking and the Federal Land Bank System as the central banking system for farm-mortgage credit.

The legislation followed the generally accepted principle that where Government agencies are created to supervise in the public interest the operation of privately owned business corporations, such supervision should be exercised by nonpartisan boards or commissions, the members of which are appointed for specific and overlapping terms. Only in this fashion is there provided a continuity of policy so essential to the operation of the institutions under supervision. This principle is well demonstrated in the case of such bodies as the Federal Reserve Board, the Interstate Commerce Commission, the Federal Communications Commission, the Federal Trade Commission, and others.

Insofar as the grouping of related governmental operations is concerned, it may be pointed out that the Home Loan Bank Board, in addition to its original function, has since been charged with the further responsibility of supervising the Federal Savings and Loan System and of operating the Federal Savings and Loan Insurance Corporation. In the administration of its duties in these three areas, the operations of the Home Loan Bank Board are conducted without expense to the Government, all of its costs being apportioned to and paid by the institutions it supervises.

The institutions that are supervised and that pay the costs of operation of the Federal Home Loan Bank System, of the Federal Savings and Loan System, and of the Federal Savings and Loan Insurance Corporation, raised no objection when, as a wartime emergency measure, in 1942, a Presidential directive placed the Home Loan Bank Board under the supervision of a single administrator, along with certain other unrelated activities of Government-reliance being had on the statute which provided that such directive would expire with the termination of the war emergency. Nevertheless, under another statute, this consolidation was made permanent in 1947.

The Federal Home Loan Bank System is now owned entirely by its member institutions. There are no Federal funds in its capital structure and no appropriation of Federal funds is made for its operation. The Board exercises administrative, legislative, and judicial powers and supervises a three-phase financial operation. There is no community of interest or advantage served by placing it under the supervision of an administrator--and indeed, the continuance of such a program does injustice to a basic philosophy of governmental supervision of private business operations.

The independence of the Home Loan Bank Board was recommended both by the Hoover task force and by the Hoover Commission report itself. It is endorsed by every organization of savings and loan associations that I know of and according to the American Banker is endorsed by the American Bankers Association. The language of this measure which was worked out by many elements of the savings and loan business is very simple. The Board is simply restored to its original independent status and the $66 million of Treasury funds are retired and replaced by an investment by the 11 Federal home-loan banks. The investment by the banks requires only 6 percent of the Federal home-loan banks' assets, but even so the committee might want to consider laying aside for the time being the proposal to reduce the minimum required stockholdings of member associations in Federal home-loan banks.

The second amendment we are offering is one which would permit Federal associations with reserves, surplus and undivided profits equal to at least 5 percent of withdrawable accounts to invest up to 5 percent of their withdrawable accounts in the development of homesites and in the assistance of urban renewal projects.

The amendment would assist the national housing program in two vitally important ways. First, by assisting small home builders to overcome the serious problem of land acquisition and secondly by providing urgently needed funds for housing in urban renewal areas.

The cost of raw land and site development has climbed steadily to the point where small home builders are unable to finance further operations. Unless small home builders are assisted in acquiring suitable land there will either be a growing concentration of home building among a few very large builders, or the small home builder will go far out out into the country to build in areas where sewerage, streets, and water are not required—and this would be a step backwards. If Federal associations can acquire the land, develop it and install the necessary facilities for the small builder, the project will be well planned, adequately developed and the economies of large operation will be passed on to the purchaser. FHA Commissioner Mason, in recent speeches, has referred to land as a “number one housing problem ;" we believe this amendment is one effective answer to the problem. It has the enthusiastic support of many small home builders.

At least nine States have enacted specific legislation permitting this type of investment by State savings and loan associations. The results have proven very successful. This amendment provides ample safeguards for such investment as the money loaned would be backed by a mandatory 100 percent reserve. Further, the amount that could be so invested is only a small portion of the association's savings.

The second purpose of the amendment is to permit Federal associations to participate in the urban renewal program. Although urban renewal and urban redevelopment are key parts of our national housing program, Administrator Cole and all others concerned have admitted that their number one obstacle is lack of adequate private financing. In fact, at this committee's recent round table session, both Administrator Cole and James Follin, head of the Urban Renewal Administration, stated quite flatly that they just can't find any private money available for rebuilding slum neighborhoods. Federal savings and loan associations are uniquely suited to provide a portion of the funds necessary to rebuild declining neighborhoods. Several associations have specific tracts in mind and need only the enactment of this amendment to go ahead with their projects. Inasmuch as the total amount invested under both phases of the amendment may not exceed 5 percent of withdrawable accounts and must be less than the total reserves, there could be no weakening of the association's strength nor any appreciable change in the association's overall operating function.

Mr. Chairman, here is a chance to solve at least partially, two tough problems, land acquisition for small builders, and private financing for urban redevelop ment, and I certainly hope your committee will adopt the amendment.

Our third recommended amendment would permit Federal associations to purchase certain restricted securities as approved by the Home Loan Ba Board. The purpose of this amendment is to permit associations in areas where the home mortgage market is limited to continue to accept savings from the public and to invest these savings in securities other than Government bonds, such securities to be approved by the Home Loan Bank Board. Mutual savings banks have been successfully investing in such securities for many years.

In this connection, just last Thursday a representative of the American Municipal Association appeared before this committee and pointed out the great difficulty that most cities, particularly the smaller ones, are experiencing in financing local improvements such as sewerage, roads, etc. It is anticipated that municipal securities would be included on the approved list.

In closing, Mr. Chairman, let me assure this committee that the savings and loan associations are continuing and accelerating our part in financing home ownership in America. As the largest source of home financing credit, we take pride in the fact that the tremendous activity in home building of the past year is now credited by many economists with preventing a national recession. We feel our contributions will be further improved if this committee restores the Home Loan Bank Board to its independent status and grants authority for our associations to assist the small builder to overcome the severe financial difficulties of acquiring and developing homesites.



I. Add at the end of Section 14 of S. 1800 the following new subsection :
“(5) Renumber Section 17 to read Section 17 (a).
“(6) Add at the end of Section 17 a new subsection (b) as follows:

««•(b) The Home Loan Bank Board which was, pursuant to Reorganization Plan Numbered 3 of 1947, established and made a constituent agency of the Housing and Home Finance Agency shall, from the effective date of the Housing Amendments Act of 1955, cease to be such a constituent agency and shall be an independent agency (including the Federal Savings and Loan Insurance Corporation) in the executive branch of the Government: Provided, That the functions vested in the Chairman of said Board under clause (2) of the last sentence of subsection (b) of section 2 of said reorganization plan are hereby transferred to said Board. Notwithstanding any other provision of law, said You will recall that during discussion of the procurement of military family housing and the bill, S. 1501, introduced by Senator Capehart, one of the objections suggested by me with respect to the bill was that the bill provided for an FHA-insured mortgage where the mortgage amount would be predetermined by competitive bid. I then commented on testimony before the committee which suggested that notwithstanding the competitive bid nature of the program as outlined in S. 1501, if the amount of the mortgage (which was to equal the amount of the bid) exceeded the actual cost, the contract would be subject to renegotiation in order to prevent any excess profit or "windfall." I then expressed the opinion that such requirement would deter private builders from participating in the program.

Senator Capehart then expressed considerable concern that the builders might not enter into a program for military family housing which was subject to renegotiation. The Senator contended that all other persons having contracts with the Government had to submit to renegotiation and cited the manufacturers of tanks as an example. He also expressed his concern that the builders, by not submitting to renegotiation in contracting for military family housing, were placing themselves in a preferred position over that of all other industries producing material and services for the Government. I wish to emphasize that this whole discussion was related to the renegotiation of a contract where the contract amount was to be determined on a competitive bid basis as provided in S. 1501.

We believe that a misunderstanding as to purpose of the Renegotiation Act may have resulted in some unfortunate conclusions drawn from this colloquy between Senator Capehart and myself. An examination of the Renegotiation Act (act of May 21, 1948, 62 Stat 259, 50 USCA 1193) reveals that renegotiation shall not apply to any of the contracts or subcontracts specified in section 1191 (i) (1) of the Renegotiation Act of April 28, 1942, as amended (50 USCA 1191).

Section 1191 (i) (1) lists, among several others, the following type of contract which is exempt from renegotiation:

“(E) any contract with a Department, awarded as a result of competitive bidding, for the construction of any building, structure, improvement, or facility."

I wish to emphasize that my discussion with Senator Capehart on this point related specifically to the renegotiation of a contract where the contract amount had been previously determined on a competitive bid basis. Our objections to such renegotiation were apparently considered by previous Congresses who in turn specifically exempted similar competitive bids from renegotiation.

I would greatly appreciate your inserting this letter into the record of the hearings in order that our position with respect to the renegotiation of the contracts for military family housing arrived at by competitive bids might be clarified. Respectfully yours,

John C. WILLIAMSON, Secretary-Counsel. Senator SPARKMAN. Just go ahead, Mr. Secretary, in your own way.

Military housing



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Secretary FLOETE. All right, Mr. Chairman and gentlemen of the committee. I would like to discuss this matter under three general subjects. One, our requirements—the need that we have for this housing; secondly, the methods that we have considered heretofore to meet that need; and, third, specifically concerning S. 1501.

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