In section 2, page 2, subsection (7), after line 24, insert the following: 66 or where under the contract of loan such shares at maturity cancel the loan," IV. A clear definition of "amortized home-mortgage loan" is desirable. Therefore, in section 2, page 3, after line 2, add a new subsection (8), as follows: "(8) An amortized or installment home-mortgage loan shall, for the purposes of this act, be a home-mortgage loan to be repaid or liquidated in not less than eight years, by means of substantially equal regular periodical payments made (1) on account of shares or shares of stock pledged as collateral for the repayment of such loan, or (2) on account of the principal debt." V. In a number of States, particularly in New York State and the State of Washington, building and loan associations are almost exclusively known as "savings and loan associations." As the three important names, under which building and loan associations are incorporated and conducted, appear in section 4, lines 4 and 5, it would seem wise to avoid any confusion or misapprehension by including the term "savings and loan associations." Therefore, in section 4, page 4, subsection (1), line 4, after the word ' ciations," insert the following: "savings and loan associations." asso VI. The provision appearing on page 4, lines 12 to 16, has raised considerable question and comment as to the effect and desirability of the phrase "or of the bank of a district adjoining such district." Building and loan officials have suggested the important poss.bility of undesirable institutions joning out of range of those institutions most familiar with their practices. To a certain extent, this outweighs the proximity, or convenience, argument. The following language might be added to the sentence ending line 16, page 4, subsection (b): "if demanded by convenience and then only with the consent and approval of the board." VII. In section 5, subsection (e), page 6, lines 15 and 16, there appears to be an indefiniteness or ambiguity of language, which could be remedied. VIII. In section 5, subsection (i), page 10, line 2, the words "to be" should be inserted after the word "amount," to achieve the intent sought to be conveyed. IX. It would seem in keeping with the policy of the bill that a member, with the approval of the board, should be permitted to dispose of its stock not only to another member but also to an eligible subscriber. Therefore, it is suggested that to section 5, subsection (j), page 10, line 7, after the word "member," be added the words "or eligibile subscriber." X. In section 6, subsection (d), page 11, some question has been raised as to the language exactly accomplishing the intent of the section. The intent was to group into three groups all of the members without regard to the nature of the institutions, the grouping to be determined entirely by the size, and the size to be determined entirely by the sum of the unpaid principal of the home-loan mortgages held by the member. Some slight rearranging or additional study will suggest a way of eliminating any possible misinterpretation. XI. As the term "unpaid principal" has been defined as used throughout the act, it would seem wise to rely upon the clearness of meaning of that term rather than to include a new term, "net value." Therefore, in section 6, subsection (d), page 11, line 14, strike out the word "net," and in line 15, the word "value," and insert in lieu thereof the words-"total amount of the unpaid principal.” XII. In section 6, subsection (d), page 11, line 15, the term "home-loan mortgages appears. In the definition appearing on page 2, line 9, the term is home-mortgage loans." Apparently this is a transposition. 46 XIII. It has been advanced that, in section 8, particularly in subsection (b), subsection (2), the language eliminates certain long-term amortized mortgage loans, the thought being that during stress periods real-estate values may be somewhat depressed, causing current appraisals to rather closely approach the unpaid principal, although 50 per cent of the unpaid principal can very safely be advanced. The preference to the long-term monthly-repayment amortized mortgage, outlined by the President, and the protection of the bondholders can be achieved by rewriting several sections. This is most clearly shown by reproducing in this memorandum a completely revised page 15. Some additional language appears in subsection (1), in order to care for the building and loan practice which accumulates credits on shares, to be used for the ultimate retirement of the mortgage loan. limitations as the board may prescribe. Any such advance shall be subject to the following limitations as to amount (1) If secured by a home mortgage given in respect of an amortized homemortgage loan which was for an original term of eight years or more, or in cases where shares of stock, which are pledged as security for such loan, mature in a period of eight years or more, the advance may be for an amount not in excess of 60 per centum of the unpaid principal of the home-mortgage loan; in no case shall the amount of the advance exceed 40 per centum of the value of the real estate securing the home-mortgage loan. (2) If secured by a home mortgage given in respect of any other home-mortgage loan, the advance shall not be for an amount in excess of 50 per centum of the unpaid principal of the home-mortgage loan; in no case shall the amount of such advance exceed 30 per centum of the value of the real estate securing the home-mortgage loan. (b) No home mortgage shall be accepted as collateral security for an advance by a Federal home-loan bank if, at the time such advance is made (1) the home-mortgage loan secured by it has more than 20 years to run to maturity; or (2) the unpaid principal of such home-" In order to have clearly before committees and drafting counsel the principles and wishes of the President in the above matter the following is quoted from the published text of President Hoover's statement on the proposed establishment of home loan discount banks of November 13, 1932: "(f) The maximum amount to be advanced against the mortgage collateral not to exceed more than 50 per cent of the unpaid balance on unamortized or short-term mortgage loans and not more than 60 per cent of the unpaid balance of amortized long-term mortgages, and no advance to be made on mortgages in default. Such loans are to be made on the basis that there are sound appraisals of the property upon which such mortgages have been made. In other words, given sound appraisals, there will be advanced in the case of short-term or unamortized loans 25 per cent of the appraisal, and in case of amortized longterm loans 30 per cent of the appraised value of the property." XV. In section 8, subsection (d), page 17, lines 19 to 21, there remains some language that is apparently carried over from an earlier draft of the bill, when the theory in regard to the subscription for capital stock was different. In the present bill the assumption is that members purchase stock in the same fashion as the banks purchase stock in their Federal reserve bank and remain members rather than retire their stock and cease to be members of the system as borrowings are repaid or discontinued. It would seem wise, therefore, to strike out, in line 19, the language after the word "therefor" and substitute a period for the comma; also all of lines 20 and 21. XVI. Section 9 deals with the general powers and duties of the banks. Subsection (b) of section 9, on page 18, deals with the board's power to prescribe regulations for the assignment, deposit, and custody of collateral-securing bonds. It has been suggested, and with some wisdom, that a specific provision be inserted at this point providing for a "registrar" and duties with regard to the handling of collateral, or a specific provision authorizing the board to act as trustee and to carry out the duties of trusteeship. XVII. There are a number of States in which home mortgages of building and loan associations are nonnegotiable or nonassignable. Where all sums paid in by members on shares in associations in such States do not sustain a creditor liability and borrowed money is a first lien upon all its assets, a shortterm loan could safely be made, under such conditions, upon the direct note or obligation of such association. On page 21, subsection (3) of (i), section 9, line 18, after the word "prescribe," add the following: "Provided, however, That such advances may be made without collateral security to members whose creditor liabilities, exclusive of all advances from Federal home loan banks, do not exceed 5 per cent of the assets of the member receiving such advance or advances under the provisions of this subsection." XVIII. There is one State which has a State agency similar in principle and procedure to the proposed Federal home loan banks. Two others have such agencies before their State legislatures at the present time. It has been wisely proposed that these agencies be permitted to affiliate as members with the Federal home loan bank system. The following amendment will accomplish that purpose with due recognition of the needs of the Federal system: "SEC. -. Organizations, the membership of which is confined exclusively to (1) building and loan associations, savings and loan associations, cooperative banks, or homestead associations; or to (2) savings banks, trust companies, or other banks; or to (3) insurance companies, if the membership therein composes more than a majority in number of the institutions of such class organized under the laws of a State, if such organizations are organized for the purpose of providing sources of credit for members and if such organizations are subject to inspection and regulation under the banking laws or under similar laws of the State, shall be eligible to become members under this act by subscribing and paying for such an amount of stock as the board may determine. In all other capacities they are members for the purposes of this act and subject to any additional rules and regulations as may be prescribed by the board relating to such State organization or agencies." Several other items which are not essential to the effective functioning of the system might be given attention. For example, the limitation on salaries other than members of the board; a separate limit upon the banks with regard to their power to issue bonds; a provision authorizing the Treasury to prepare forms of bonds and act as custodian of the plates and dies; a distinct procedure in connection with membership applications, etc. Mr. WARREN. I do not want to testify, but may I ask as to whether or not the brief that was submitted by Judge Stickle on behalf of the New Jersey Building and Loan League at the Senate hearings is to be printed, and, if not, may I have the privilege of having it printed in the record of this committee? My State has 14 per cent of the building and loan assets of the country, and we are in disagreement with the bill in its present form; and a brief has been filed on behalf of the league by Judge Stickle, and we would like very much to have that considered by your committee. I think Mr. Luce has had a copy of that brief sent to him by Judge Stickle. Mr. LUCE. Is it in the record? Mr. WARREN. It is not in the printed pamphlet. I do not know whether it will be included in a subsequent volume, but I would like to have you have that brief before you. Mr. REILLY. How large a brief is it? Mr. WARREN. I think it is about 20 pages of typewriting. Mr. REILLY. Can you not come before the committee and give us the substance of it? Mr. WARREN. Can you not do it, Judge? Mr. STICKLE. I can furnish a copy to each one of the members of the committee, if you want it. Mr. REILLY. I think you better furnish a copy to all members of the Banking and Currency Committee. Mr. WARREN. We are in disagreement with the building and loans asking a dole from the Government. We see no reason why the capital furnished by the Government and the capital furnished by the associations up to the time of repayment should not get the same return. Mr. LUCE. Loan or dole? Mr. WARREN. It certainly is a dole if it does not bring a return. Mr. REILLY. Is not that information in the Senate committee. hearings we will be here at 2 o'clock; will you be back then? Mr. WARREN. I did not come to testify; but if you gentlemen deme, I will do so, and Mr. Stickle will come with me. sire Mr. LUCE. I am told it may be printed in another volume. Mr. REILLY. I know, but I would like to ask these gentlemen some questions, and if convenient they may return at 2 o'clock. (Thereupon, at 12.30 o'clock p. m., the committee recessed until 2 o'clock this afternoon.) AFTER RECESS Upon the expiration of the recess, the hearing was resumed at 2 o'clock p. m. STATEMENT OF FRED G. STICKEL, JR., REPRESENTING THE NEW JERSEY BUILDING AND LOAN LEAGUE Mr. REILLY. We will hear you for a short time on this bill. I understand that you have testified at the other hearings? Mr. STICKEL. I did. Mr. REILLY Give us sort of a résumé of the high points as you view this bill, and its defects, if any, as you view them. Mr. STICKEL. I have been in this building and loan business as lawyer, director, and stockholder for over 20 years. I filed a brief with the Senate committee, and I shall try to epitomize what I said therein. The purpose of this bill, as I see it, is a dual one; first, to take care of an emergency, and second, to provide for the future-for future building, for emergent purposes, and for expansion purposes. The emergent need arises out of the fact that some of the eligible member institutions, like the banks, made mortgage loans-short-term mortgage loans—during that hectic period when we all tried to get rich, and when their liquidity needs arose they found it necessary to call their mortgages to increase their liquidity, and that produced, foreclosures and some hardship among the home owners. The building and loan situation does not arise for the same purpose. The building and loan mortgage is a noncallable, selfcancelling, and a profit-sharing mortgage, the kind of home-loan mortgage that we should have, and that is one function of the building and loan. The other function is to teach systematic thrift for a rainy day; and if you are to teach systematic thrift you must recognize as an inherent part of that teaching the fact that when a man saves he wants to be able to get his money when the rainy day arrives that he saved for and that has resulted in the recognition of the right of an investing shareholder to withdraw his money on reasonable notice. In our State it has been recognized for over 30 years as part of the legislative policy of the State, and it has been recognized to the extent that after 30 days' notice the associations may apply half of their monthly receipts, and after that period of 5 months it is possible that a suit may maintain if a withdrawing shareholder is not then paid, and there are such suits pending. Consequently, in our State the needs are more emergent and more emphatic, perhaps, than in other States, because a withdrawing shareholder whose shares are not paid after six months may sue, with the attendant conse quences, one of which must be obvious to you, and I do not think I ought to state it. A maturing shareholder, one who has paid in his shares, and with profits, his shares having now arrived at a maturity value, also may be said to become a creditor. Therefore you have those two potential creditor obligations, and in our State they are substantial to-day, very substantial. We think that this agency should, as one of its chief functions, seek to meet the emergent demand of the banks which causes it to foreclose if it can not liquidate upon short-term paper, and we think the emergent needs of the building and loans should be met, namely, with money to meet withdrawals and maturities, so as to avoid applications for liquidation of associations, and also to do social justice in that those who are applying for withdrawal in many cases need their money as much as the man who has his money in a bank that has become defunct. These emergent needs, as I conceive it, can only be met through this agency. I do not think the Reconstruction Finance Corporation has anywhere nearly enough money to meet the needs of the building and loan associations throughout the United States. Certainly that has been our experience, so far as the building and loan associations in New Jersey are concerned; and, indeed, as I understand it, the Reconstruction Finance Corporation was not organized for the purpose of helping building and loan associations so much as it was for helping banks and railroads, and such aid as the building and loan associations are to get, I imagine, is incident to the desire to maintain the banking institutions and because the relationship between the building and loan associations and the banks is such that danger to the building and loan associations reflects on similar financial institutions like banks. Therefore this agency, it seems to me, should supplement the temporary character of relief that may be given by the Reconstruction Finance Corporation, and therefore it seems to me that as an expression of legislative policy this bill should indicate that its primary and dominant purpose is to take care of the existing emergency, and when that emergency has been taken care of, there may then be need for taking care of other needs that may arise or exist in the country. To use or to divert the funds of the bank, such as was proposed, for new construction, at the expense of existing agencies, certainly would neither be wise nor sensible. The existing agencies, all of them, whether banks or building and loan associations, have a considerable quantity of real estate on hand, the necessary result of the times, and until that has been liquidated and disposed of, new construction in such territories would probably not be necessary. So, I repeat, that it seems to me that the dominant and primary purpose of this bill should be to meet the conditions that have arisen in these eligible member institutions to enable them to meet their immediate needs and purposes. I have gone over the bill with considerable care in its various stages, particularly the original, but the very much improved bill which was evolved in the Senate Mr. LUCE. In the Senate? That is not giving us much credit. Mr. STICKEL. I will be very glad to amend that, because I understand that the credit is due to the House; but the point that I wanted to make was, whatever its source, it is a big improvement over the |