Mr. BLANDFORD. Congress has provided that the temporary housing we started building in 1942 in order to save materials and money, shall be demolished. They are clearly duration houses. They would be a liability to any community, if left standing permanently. They would adversely affect the real-estate market if left, and it is our intent to demolish those houses as rapidly as possible. Senator BUCK. What do you feel shall be done with those built on concrete foundations, with concrete streets and sidewalks running through the developments? Is it your plan to do away with them? Mr. BLANDFORD. As often as possible during the last 2 years we have leased sites because it was more economical, and the sites will be vacated as we only intended them to be temporary. There is a provision in the leases that the property will be turned back to the owners. The remaining properties will have to be sold and arrangements made for restoring them to their proper condition.

Senator BUCK. That does not answer my question. What will happen to the most of the permanent work on the ground? Will you take it up and remove it, or are they going to build on it again? What I have in mind is this: That there is one of these large developments near my home, and I want to know what will be done with the permanent parts of that development.

Mr. BLANDFORD. We assume that the property will be built upon again, and to the extent that the Government has a considerable investment in the improvement of the property, that will be a part of our assets to be realized upon after the war To that extent it will improve the value of the property.

Senator BUCK. Then the roads will be left, but the foundations will be knocked down and that site will be left for private builders. Mr. BLANDFORD. Yes, sir.

Senator Buck. All right.

Senator RADCLIFFE. We thank you, Mr. Blandford.

Mr. BLANDFORD. And I thank you for the opportunity of making a very brief statement.

Senator DANAHER. Mr. Blandford, there are two categories in which the Government has operated in this housing field, one being under the lease theory to which you have directed your attention, and the other has to do with properties where the fee title is owned by the Government.

Mr. BLANDFORD. That is right.

Senator DANAHER. What are you going to do with the property to which the Government actually owns title?

Mr. BLANDFORD. Sell it.

Senator DANAHER. And there is that type of temporary housing that resembles barracks. Is it your plan that that type of property will be sold, leaving the barracks there?

Mr. BLANDFORD. No, sir. We have attempted to make our position in that matter very clear to the communities, and have asked the Congress, by legislation, to verify our objectives. And that is that all of that temporary housing, built at such substantial economy of dollars and critical materials, will be demolished. We will not sell it, but it will be torn down. That is in the interest of the community. Senator DANAHER. I agree with you on that "interest of the community."

Mr. BLANDFORD. It is very clearly wartime or duration housing.
Senator DANAHER. Thank you.

Mr. BLANDFORD. And I wish to thank you for hearing me.
Senator RADCLIFFE. We will now hear Mr. Fahey:

STATEMENT OF JOHN H. FAHEY, COMMISSIONER, FEDERAL HOME LOAN BANK ADMINISTRATION, WASHINGTON, D. C.

Mr. FAHEY. Mr. Chairman and gentlemen of the committee, the bills before you, S. 756 and S. 757, are brief, nontechnical, and comparatively simple. They are intended to perfect existing legislation and to strengthen the present organic structure of the Federal Home Loan Bank System so that it may better serve the needs of local institutions engaged in home mortgage finance, and encourage the accumulation of savings.

S. 1034, which I would like to deal with separately following the discussion of S. 756 and S. 757, provides for a readjustment of the premiums paid to the Federal Savings and Loan Insurance Corporation by the institutions, whose shares it insures up to $5,000, and for clearing up questions as to dividends which have accumulated to the credit of Home Owners' Loan Corporation in the treasury of the Insurance Corporation. If it is agreeable to the committee, may I take up S. 1034 after presenting to you explanations of S. 756 and S. 757.

No legislation requested by us affecting the Federal Home Loan Bank System has been enacted since May 28, 1935. In the 9 years which have elapsed many changes in Federal and State legislation have affected directly all thrift and home-financing institutions. As a result of the war, as you know, there has been a practical suspension of home building except for the accommodation of war workers in the war-production areas. A great shortage of housing is developing and the prompt resumption and steady progress of house building in the period after the war will have a very great influence on employment and sound economic conditions.

The strength of the Federal Home Loan Bank System and its capacity to serve will be a most important factor in dealing with the acquisition and construction of homes in every section of the country in the years ahead of us.

When Congress created the Federal Home Loan Bank System in 1932 with 12 regional banks, it provided for a home mortgage reserve system which was planned to exercise a constructive influence in curbing the evils of real-estate booms and preventing depressions and to assist in the stabilization of home-mortgage finance. As you know, the mortgage debt on urban homes is the largest single item of private debt in this country. It involves the savings of millions of our people. and has a fundamental relationship to the health of our whole economic system.

Membership in the Bank System is open to thrift and home-financing institutions which because of their resources and the dependable character of their management are equipped to safely conduct the trustee responsibilities of such a business. Although each institution which has become a member of the bank system is required to own stock in its regional bank, the Federal Government owns and always has owned more than two-thirds of the capital stock of the banks

through its ownership of the capital stock of the Reconstruction Finance Corporation.

Both by virtue of this stock ownership and its statutory responsibility for supervision of member institutions, the Federal Government occupies a relationship to the bank system which invites public confidence and strengthens cooperation on the part of its member institutions.

Amendments to the original Federal Home Loan Bank Act of 1932, enacted between that date and the end of May 1935, have enabled the 12 regional banks and the member institutions to perform a public service in connection with home ownership in the United States which had hitherto been impossible. Under the authority given in 1933 new federally chartered associations were created which combined in their charter provisions the best practices of local savings and homefinancing institutions and provided financial facilities to communities in which institutions of this character were either wholly lacking or inadequate to meet community needs.

The creation of Federal associations and the strengthening of institutions operating under State charter has had a most salutary influence in lowering mortgage costs, increasing the security of home ownership, and improving both the quality and safety of individual investments in home mortgages.

While this notable progress was being made the regional banks and member institutions grew steadily in strength and usefulness. During the past 11 years the assets of member institutions have increased from $202,915,000, on January 1, 1933, to $6,345,449,000, on January 1, 1944.

You will observe that S. 756 contains five sections, the fifth being merely the customary separability provision. The first four sections contain the essence of the bank system's needs.

Section 1 authorizes the regional banks on approval of the Federal Home Loan Bank Board or the Federal Home Loan Bank Administration, to make advances to member institutions on any mortgage or obligation which is insured by the Federal Housing Administration or for which a commitment to insure has been made, or as to which the member has insurance under any title or provision of the National Housing Act. It does not seem reasonable that there should be any limitation on advances which a Federal home-loan bank can make on mortgages or loans of. any type which are insured by the Federal Housing Administration. Curiously enough, however, the present law does not permit the banks to accept as collateral for advances loans which the members have made with the insurance protection provided in title I of the National Housing Act, but for which the institutions have not taken mortgage security. As you will remember, title I was designed to encourage modernization and repair of homes. Title I loans of this type have proven very helpful to home owners under normal conditions and in connection with the war-housing program. Because of the limitation on securing construction materials a great backlog of housing repairs, rehabilitation, and modernization is accumulating. It is important that it should be dealt with promptly after the war. Inasmuch as the safety of loans of this type is protected by Federal Housing Administration insurance there is no good reason why the Federal home-loan banks should be unable to accept them as collateral.

There is another limitation on the power of the Federal home-loan banks to make advances on mortgages insured under the National Housing Act which should be eliminated. At present the banks have no authority to accept as collateral in connection with advances, mortgages insured under title II of the National Housing Act which have more than 20 years of unexpired maturity. The Federal Housing Administration now insures loans on new construction up to 25 years under title II and title VI. Under the insurance contract, lending institutions are guaranteed against loss on such loans and it is obviously illogical that the bank system should not accept as collateral loans carrying such guaranties by another Government agency.

Section 2 of S. 756 enlarges the debenture base of the bank system by including in it all secured advances to members, plus all direct Government obligations or those fully guaranteed by the United States, which are owned by the banks. The original legislation establishing the bank system provided for the issuance of debentures based upon collateralized loans made to member institutions including obligations of the Federal Government held by members. Through some oversight, however, the authority to issue debentures did not include as collateral Government obligations purchased and directly owned by the 12 regional banks. This limitation has tended to prevent the full participation of regional banks in the purchase of obligations issued or guaranteed by the Federal Government. The provision now proposed under section 2 would include in the debenture base all secured advances made by the banks to their members.

Senator DANAHER. Mr. Fahey, what is your understanding of the reason Congress imposed that limitation in the first place? Mr. FAHEY. I do not know of any good reason. really overlooked.

I think it was

Senator RADCLIFFF. Was it overlooked as a major policy?

Mr. FAHEY. Not as a major policy. It would seem entirely illogical that the bank system should utilize mortgages as collateral and make them the base for the issuance of debentures, and Government bonds, which are guaranteed as to both principal and interest, should not be eligible when owned by the 12 regional banks. Senator RADCLIFFE. Loans on homes is a very important feature of the program.

Mr. FAHEY. That is right.

Senator RADCLIFFE. And any restriction or limitation upon them does not seem to fit into the general picture.

Mr. FAHEY. That is quite true. In the same way since, of course, there is no better collateral in the world than Government bonds, it would seem that they certainly ought to be eligible in connection with the issuance of debentures.

Senator RADCLIFFE. I understand that their holdings of Government bonds are now very large. Have you any figures in regard to that matter?

Mr. BLANDFORD. I believe it is as of April 30, 1944, $185,217,910. Senator BUCK. You mean the regional banks?

Mr. FAHEY. Yes, sir; the 12 regional banks.

Senator RADCLIFFE. At the time this act was passed that was never contemplated.

Mr. FAHEY. We never contemplated Government financing on any such scale as we now have in order to deal with this problem.

Senator RADCLIFFE. You may resume your statement. Mr. FAHEY. The most important section in this bill is section 3. It authorizes the Secretary of the Treasury, acting upon his own judg-· ment, to purchase obligations of the Federal home-loan banks and the Federal Savings and Loan Insurance Corporation up to a limit of three times the capital stock, reserves, and surplus of the banks or the Insurance Corporation, as the case may be. The obligations of the bank system which are now insured are the debentures which from time to time it sells in the open market to investors and financial institutions. The funds thus obtained are utilized by the banks to meet the temporary borrowing needs of member institutions.

Since its organization in 1932 the Bank System has made total advances amounting to $1,179,008,839. The balance of such outstanding advances on May 1 of this year was $82,645,140.

The debentures of the Federal Home Loan Bank System have a well-established market position and have always been oversubscribed many times on every public offering. They command low interest rates and we do not anticipate that there will ever be occasion for the Secretary of the Treasury to take over any of these obligations. This amendment is therefore a precautionary measure but a most important one. The Federal Government, through the agency of the Reconstruction Finance Corporation, owns $124,741,000 of the stock of the Federal home-loan banks, or 67.5 percent. The balance of its $184,754,300 capital is owned by the member institutions. It is a vital matter that in the event of an unexpected emergency arising in the money market at the time of maturity of any debenture issue and if it was impossible to refinance any part of such maturity on a reasonable basis in the open market, the Government should be in a position not only to protect its own investment but to prevent the development of incidents which would seriously disturb the financial machinery of the country. The member institutions of the Federal Home Loan Bank System with over $6,000,000,000 of assets finance approximately one-third of the home mortgages of the country and particularly serve the needs of people in moderate circumstances. They will play a most important part in financing our home-mortgage demands in the post-war period. If at any time the bank system should be unable to readily market its debentures on an economical basis, it would create a most unfortunate situation which would certainly disturb our entire financial structure.

As you know, the Government supports the commercial banking system of the country through the power of the Federal Reserve System to issue currency which is an obligation of the United States. Our farm credit system is supported through the Federal Farm Mortgage Corporation, which has authority to issue Governmentguaranteed bonds.

The Secretary of the Treasury also has authority to purchase the obligations of the Federal Deposit Insurance Corporation, and to support the insured mortgages of the Federal Housing Administration by purchasing the debentures of that agency, which are guaranteed as to principal and interest by the United States. Each of these four provisions of law places the Federal Government solidly behind the financing of these Federal instrumentalities.

The Federal Home Loan Bank System, on the other hand, must under existing law rely entirely on its own power to issue and market