Mr. MCALLISTER. The answer is, He does not want to move at this time, yes. Mr. WOLCOTT. When he sees fit to move, he can submit a reorganization plan to Congress. Mr. MCALLISTER. That is correct. The CHAIRMAN. It was placed in the Housing and Home Finance Agency by a reorganization plan; was it not? Mr. MCALLISTER. Yes, sir, that is true, Mr. Chairman. The CHAIRMAN. And it could be taken out the same way? Mr. MCALLISTER. Yes, sir. Mr. WOLCOTT. Usually the President has not hesitated to send a reorganization plan down here if he wanted to reorganize an agency. If he took the initiative by reorganizing, then he could leave it up to us to either approve or veto the reorganization plan? Mr. COLE. I didn't get your question. I got the statement. Mr. WOLCOTT. On repeated occasions the President has instituted reorganization proposals, and sent them down to the Congress either for approval or veto. In that respect the legislative processes are rather in reverse. We do not know whether we should accept the responsibility of initiating this plan until the President has made some suggestion as to what should be done, since he is more or less responsible. It is now a part of the executive agency. If he reorganizes it as an independent agency, unless we amended the basic law, it would no longer be a part of the executive establishment; is that right? Mr. COLE. That is a technical question, Mr. Wolcott. Mr. WOLCOTT. Did the act of 1932 make the Home Loan Bank Board a part of the executive establishment, Mr. McAllister? Mr. MCALLISTER. Yes, sir. Mr. WOLCOTT. So if we set this up under an independent basis, it would still be a part of the executive establishment? Mr. MCALLISTER. Yes, sir. Mr. COLE. That would be my judgment. Mr. WOLCOTT. And your Board reports directly to the President through the Housing and Home Finance Agency; is that correct? Mr. MCALLISTER. Yes, sir. I might point out, Mr. Chairman, that the Federal Reserve and the FDIC, which serve the same functions to the commercial banking field, are independent. Mr. WOLCOTT. The Federal Reserve is not a part of the executive establishment. Mr. MCALLISTER. I see. The FDIC is. Mr. WOLCOTT. Yes, sir, the FDIC is. Mr. MCALLISTER. And the Congress in the last 2 years made similar agencies having to deal with farm credit likewise independent agencies. Mr. COLE. Shall we proceed with the rest of our statement, Mr. Chairman? The CHAIRMAN. You may proceed. Mr. MCDONOUGH. Mr. Chairman, before Mr. McAllister leaves, I would like to ask him a question. The CHAIRMAN. Mr. McDonough. Mr. MCDONOUGH. In connection with the authorities now granted to the savings and loan associations, what is your opinion about granting them the right to finance the small-home builder in acquiring homesites as well as financing the improvements on the land? Mr. MCALLISTER. It is my judgment, Mr. Chairman, and members of the committee, that that is an authority that ought to be granted to the Board and ought to be included in the law. We proposed an amendment of that kind, which was not included by the administration in the administration housing amendments. What we proposed was that associations might be authorized to invest not to exceed 5 percent of their savings in land or improvements thereon, provided those associations had a minimum 5 percent reserve; in other words, you might say that there would be a hundred percent reserve for every dollar of risk taken in that connection. The cost of land, around the larger urban areas, has increased so markedly in the last few years that we feel that if associations are not privileged to do that, it is going to be very difficult for the small builder to have land on which to build. We feel that this is a calculated risk, and under the restrictions that we have proposed, one that can well be taken by the insured associations, and I might say to you, sir, that in 9 States, State-chartered associations now have that privilege. And in no place that I know of has objection been raised to that authority and that procedure. However, it has been used to but a very limited degree. Mr. MCDONOUGH. Would you consider a small builder one who is seeking a hundred acres of land, for instance? What do you mean by a small builder? Mr. MCALLISTER. We will take a hundred acres. In most areas around most of the larger cities, you might say that that hundred acres would cost $3,000 an acre, and that would be a $300,000 investment, and the improvements on that land would cost from $100,000 to $125,000. I would say that it would be more than a small builder who would be able to finance an operation of that kind. Mr. MCDONOUGH. So that a small builder, then, would be in the category of one who is developing 25 to 50 acres? Mr. MCALLISTER. Yes, sir. Mr. MCDONOUGH. And if the land were priced at $3,000 an acre, what percentage of the cost of that land do you think the association should finance, or should insure, or advance money for? How much should the builder be obligated for in the deal? Mr. MCALLISTER. Under this proposal, the association would be in position to purchase the land and develop the land. Mr. MCDONOUGH. The whole amount? Mr. MCALLISTER. The whole amount; yes, sir. Mr. MCDONOUGH. You say that is a calculated risk. Even if he is investing dollar for dollar his reserves, he has reserves to cover? Mr. MCALLISTER. Yes. Mr. MCDONOUGH. I don't see that there is much of a risk there. There is less risk in the financing of the purchase of land sites than there is in the financing of improvements. Mr. MCALLISTER. Yes, sir. Mr. MCDONOUGH. Because the land is always there to use for various purposes, and I think that that amendment should be included in the House bill. Mr. MCALLISTER. I might say, Congressman, that in the State of California, State-chartered associations have that right. They can buy land in California. Federal savings and loan associations cannot, however. Mr. MCDONOUGH. Federal associations cannot? Mr. MCALLISTER. That is right. Mr. MCDONOUGH. And $3,000 an acre is pretty far out, as far as residential areas in California are concerned? Mr. MCALLISTER. Yes, sir, the price there would be $6,000 an acre, instead of $3,000. Mr. MCDONOUGH. That is right. I am glad to have your views on that, and I think it is a matter the committee should consider in writing this bill. I am going to ask the Clerk to prepare an amendment to fit that situation, which I would like to introduce. Mr. MULTER. Mr. Chairman. The CHAIRMAN. Mr. Multer. Mr. MULTER. I have a few questions. Mr. Cole, do you have any view or opinion on this matter that Mr. McAllister and Mr. McDonough developed, about the purchasing of land by these associations? Mr. COLE. Mr. Multer, I am again appearing here as representative of the administration; as Mr. McAllister said in his statement, this is not in accord with the policy of the President, this proposal. Mr. MULTER. To me this sounds like a new concept for these associations, to engage in purchasing land, and my first reaction would be that it is not a good thing for them to do. Do you think, Mr. McAllister, that it would be a good thing to permit the banks to buy land, even to the extent of 5 percent of their capital? Mr. MCALLISTER. Yes, sir, I do. Mr. MULTER. And the insurance companies that are in the lending field, would you approve of their buying land for improvement, too? Mr. MCALLISTER. I cannot cite it to you exactly, but in most of the States the insurance companies are having the laws amended so that they have that right, and in many States they already have that right. Mr. MULTER. They have the right to buy land for improvement, insurance companies do? Mr. MCALLISTER. Yes, sir. Mr. MULTER. I would like to have a list of the States that have authorized that action by the insurance companies. Mr. MCALLISTER. All right, sir. Hon. BRENT SPENCE, HOME LOAN BANK BOARD, Chairman, House Committee on Banking and Currency, House of Representatives, Washington 25, D. C. MY DEAR CONGRESSMAN SPENCE: At the recent hearing before your committee on H. R. 5827, a bill to extend and clarify laws relating to the provision and improvement of housing, the elimination and prevention of slums, and the conservation and development of urban communities, during the course of my testimony a question was raised with regard to a proposed provision which would permit Federal savings and loan associations to invest a limited amount of their assets in real estate for homesites and housing and in order to assist in the rehabilitation and rebuilding of substandard residential areas. Legislation along these lines had been proposed in a hearing before the Senate Banking and Currency Committee on S. 1800, a companion bill to H. R. 5827, by one of the witnesses before the committee. The language of the amendment as proposed reads as follows: "Without regard to any other provision of law, but under such rules and regulations as the Board may prescribe, any such [Federal savings and loan] association whose general reserves, nonwithdrawable shares, surplus and undivided profits are at least equivalent to 5 percent or more of its withdrawable accounts is authorized to invest a sum, not exceeding 5 percent of its withdrawable accounts, in homesites, including the development thereof, and housing for sale or rental, including property acquired for the specific purpose of reconstructing, rehabilitating, or rebuilding residential areas to meet the minimum standards of health and occupancy prescribed by appropriate local authorities to assist in the development thereof, or in shares of a corporation wholly owned by one or more institutions insured by the Federal Savings and Loan Insurance Corporation, which is chartered for any of the specific purposes hereinbefore enumerated, and to make or otherwise invest in loans for the acquisition and development of homesites and housing." (Brackets supplied.) In discussing this provision, Congressman Multer asked for a report covering State laws with regard to the investment by banking institutions, savings banks, and insurance companies in real estate for development purposes. A study by our legal department indicates that there are no provisions in the laws of any of the States, relating to banks or savings banks, which expressly or by reasonable implication confer such power upon banking institutions. However, our research indicates that the contrary is true with regard to insurance companies. I list below some 25 jurisdictions in which insurance companies are permitted to invest in real estate for development purposes, together with appropriate references to statutory provisions wherein such authorizations may be found: Arkansas California_. Colorado_ Delaware (implied). Idaho. Kansas Louisiana Maryland Michigan (life companies). Missouri Montana. Nebraska New Jersey New Mexico__ North Dakota_. Oklahoma__. Pennsylvania. Rhode Island. Tennessee_ Virginia____ Ark. Stat. 1947, sec. 66–234. Gen'l Stat. of Kan. 1949, sec. 40-228. Rev. Stat. 1950, sec. 22-844 (G). Ann. Code of Md., art. 48-A, sec. 26. Ann. Laws of Mass., ch. 175, sec. 66 A. Minn. Stat., sec. 61.12. Miss. Code 1942, sec. 5653. Vernon's Ann. Mo. Stat., sec. 375.330 (7). Rev. Code of Mont. 1947, sec. 40-1914. Rev. Stat. of Nebr. 1943, sec. 44-311.02. N. J. Stat. Ann., sec. 17: 24-1. 1951 Cum. Supp. to N. M. Stat., sec. 60-307. McKinney's Con. Laws of N. Y. Ann., bk. 27, sec. 81. N. D. Rev. Code of 1943, sec. 26-0811, -0812. Okla. Stat. Ann., title 36, sec. 17.4a. Purdon's Penna. Stat., title 40, sec. 506. R. I. Acts and Resolves 1947, ch. 1866, p. 109. Utah Code, sec. 31-13-17. Va. Code, sec. 38.1-216. Congressman Multer also asked for the name of, and whether, in the nine States in which savings and loan associations had authority along the lines contemplated by the above-quoted amendatory language, any insured institutions were engaging in buying land for development. The States referred to, together with appropriate statutory references, are as follows: The Federal Savings and Loan Insurance Corporation has no broad statutory power over the investments of State-chartered savings and loan associations, even though they are insured by the Corporation. Unless there were a question as to legal power, under State law, concerning a purchase of a particular property for development as homesites, there would be no requirement that such type of transaction be included in our records. I make this statement to explain why I am not able to reply fully to the question of whether or not State-chartered insured institutions are engaging in this business. I can say that I personally know that it is being done in California. If we can be of any further assistance to the committee we will, of course, welcome any request you may make. Very truly yours, WALTER W. MCALLISTER, Chairman. Mr. MULTER. I think it is about the most dangerous practice in which you can permit a lending institution to indulge. They will get into competition with the builders in the purchase of land for improvement, they will get into the business of improving this unimproved land, bringing in facilities and utilities in anticipation that sometimes somebody is going to come along who will want to develop that area or that property, and then buy it from the institution or the association for the purpose of putting a dwelling on it. The same lending institution will then finance the builder who buys from it. Mr. MCDONOUGH. I think your assumption is wrong. They are not going to go out and seek tracts of land, and put in utilities and prepare it for subdivision purposes without knowing that there is an immediate improvement to be put on the land. You painted a picture of speculating in vast land areas in anticipation of improve ment. Mr. MULTER. That is precisely how it will wind up. How can you or I or anybody else sit back and say, "I know that tomorrow someone will come along who is going to build on this property"? If some builder is already there to buy the land and put up the building, he can get financing for that. He does not have to have a lending association go out and buy the land and improve it for him. Mr. MCDONOUGH. If he can get his financing from other sources, why shouldn't he? Mr. MULTER. This is a matter of having the association go into the business of buying the land and owning it and holding it until a purchaser comes along to buy it. Mr. MCDONOUGH. Financing it just the same as they do the improvements on the land. Mr. MULTER. Is this going to be any different from what we are trying to prevent the holding companies from doing? We say a bank holding company should own only banks. It should own only banks and get out of all other businesses. Now you are going to let the lending institutions go into the realty business, buy up the land, improve it in part, and wait until somebody comes along who wants to buy the land and then build upon it. Build what? Homes, factories, or garages. Mr. MCDONOUGH. The land is going to be improved and the builder seeks financial aid from the association. Mr. MULTER. All he need do today is to go in and make an application and say, "I have got an option on this property, here is what |