Treasury purchases of obligations of the Federal home-loan banks appear definitely objectionable, however. The proceeds of such purchases could be used by the home-loan banks only in order to permit their members either (1) to extend mortgage loans beyond the amount of funds provided by their shareholders or (2) to permit the withdrawal of share accounts when funds would not otherwise be available. Neither of these purposes is a suitable use of Treasury funds, and their authorization would appear particularly unfortunate at this time when every attempt should be made to concentrate all of our available resources on the war effort. The Department has been advised by the Bureau of the Budget that there is no objection to the submission of this report to your Committee. Very truly yours, D. W. BELL, Acting Secretary of the Treasury. In re S. 757. Hon. ROBERT F. WAGNER, NATIONAL HOUSING AGENCY, Washington, D. C., February 25, 1943. Senate Office Building, Washington, D. C. MY DEAR SENATOR WAGNER: Let me acknowledge your letter of February 23, requesting the views of the National Housing Agency concerning S. 757, introduced by yourself on February 22, to amend section 5 of the Home Owners' Loan Act of 1933, as amended. The purpose of this bill is to provide that a Federal association may invest its funds in any mortgage or obligation as to which the association is protected by insurance under the National Housing Act. This would enable Federal associations to make use of the provisions of title I of the National Housing Act insuring financial institutions with respect to alteration, repair, and improvement loans made without the expense and delay incident to title searches and the taking of mortgage security. In addition, the bill contains a clarifying amendment of a minor character designed to remove any doubt as to the capacity of Federal savings and loan associations making certain types of loans on homes as well as on business properties. The National Housing Agency believes that the enactment of this bill at this time will be beneficial to the war-housing program, and is authorized to state that the Bureau of the Budget has no objection to the submission of these views. Sincerely yours, Hon. ROBERT F. WAGNER, JOHN B. BLANDFORD, Jr., Administrator. TREASURY DEPARTMENT, Chairman, Committee on Banking and Currency, United States Senate. MY DEAR MR. CHAIRMAN: Further reference is made to your letter of February 23, 1943, requesting an expression of the views of the Treasury Department on S. 757, a bill to amend section 5 of the Home Owners' Loan Act of 1933, as amended. The bill would clarify the restriction imposed in respect to the character of the real estate upon which Federal savings and loan associations may make loans and also would provide that such restrictions be waived, upon approval of the Federal Home Loan Bank Board or the Federal Home Loan Bank Administration by regulations or otherwise, in respect to mortgages insured under the National Housing Act. The Treasury Department has no comment to make concerning S. 757, since the provisions of the bill are not of primary interest to the Department. Very truly yours, D. W. BELL, Acting Secretary of the Treasury. Hon. ROBERT F. WAGNER, NATIONAL HOUSING AGENCY, United States Senate. OFFICE OF THE ADMINISTRATOR, MY DEAR SENATOR WAGNER: Since receiving your request to our views on S. 1034, a bill to amend title IV of the National Housing Act and for other purposes, there have been undertaken and completed certain studies relative to the impact which the bill would have upon those phases of the National Housing Agency's program which are designed to make possible the maintenance of a system of local thrift and home financing institutions as a vehicle through which the public may safely invest its funds and obtain sound and economical financing for home construction. As you know, the operations involved in this general phase of the program are executed through the Federal Home Loan Bank Administration, one of the constituent units of the National Housing Agency. As of June 30, 1943, there were more than 2,400 institutions of the savings and loan type, with assets of nearly $3,900,000,000, whose accounts were insured by the Federal Savings and Loan Insurance Corporation. However, it is estimated that, as of the same date, there were more than 4,000 other institutions of the savings and loan type, with assets of approximately $2,600,000,000, which had not obtained for their investors the protection of insurance through the Federal Savings and Loan Insurance Corporation. Many of these institutions are eligible for insurance under title IV of the National Housing Act and many others, through merger or other appropriate action, could readily become eligible for such insurance. The current situation, in which the investors in a substantial number of institutions of the savings and loan type do not have the insurance protection authorized by title IV of the National Housing Act, is not consistent with the purposes of the act, and is certainly not desirable. The insurance protection thus authorized is designed to promote and retain confidence on the part of members of the investing public who have placed their savings in institutions of the savings and loan type. So long as a substantial portion of such institutions remain outside the insurance system and do not provide for their investors the protection of insurance of their accounts by the Federal Savings and Loan Insurance Corporation, a potential source exists for the creation of lack of confidence which may spread to the investors in those and other financial institutions, including commercial and savings banks. Institutions of the savings and loan type necessarily operate on a very close margin. These institutions must pay a reasonable rate of return to their investors, must provide for competent management, and must accumulate necessary reserves. The cost of insurance therefore represents an item which must be given careful consideration by such institutions, particularly in view of the low interest rates on home loans which have prevailed in recent years. Much of the hesitancy on the part of uninsured institutions of the savings and loan type to apply for insurance under title IV of the National Housing Act, and, where necessary, to take appropriate action to qualify therefor may be due to the existing premium rate. The provisions of the bill which would reduce, as of July 1, 1943, the premium rate which insured institutions are required to pay for insurance granted by the Federal Savings and Loan Insurance Corporation from one-eighth of 1 percent per annum to one-twelfth of 1 percent per annum would, in our opinion, tend to further the accomplishment of the objectives of the National Housing Act by encouraging an extension of the insurance coverage and a broader base for public confidence. These provisions of the bill are, in our judgment, desirable and in the public interest. In addition to reducing the premium rate authorized to be charged for insurance granted by the Federal Savings and Loan Insurance Corporation, the bill provides that, after June 30, 1943, the dividends on the capital stock of the Federal Savings and Loan Insurance Corporation shall be abolished and that all dividends theretofore accumulated and remaining unpaid shall be waived by the Home Owners' Loan Corporation. Section 402 (b) of the National Housing Act provides that the Home Owners' Loan Corporation should subscribe for the entire $100,000,000 authorized capital stock of the Federal Savings and Loan Insurance Corporation and should make payment therefor in bonds of the Home Owners' 60232-44 Loan Corporation. Under section 402 (b) of the National Housing Act, the Home Owners' Loan Corporation is entitled to the payment of cumulative dividends on such capital stock out of net earnings, at a rate equal to the interest rate on the bonds issued in payment therefor. The bonds issued in payment for such capital stock bore interest at the rate of 3 percent per annum and, as of September 1, 1943, the interest accumulated to the credit of the Home Owners' Loan Corporation in the treasury of the Federal Savings and Loan Insurance Corporation amounted to $24,500,000. Title IV of the National Housing Act, of course, contemplated that the $100,000,000 investment in the capital stock of the Federal Savings and Loan Insurance Corporation, together with the accumulated dividends, would be returned when the Home Owners' Loan Corporation was liquidated. The provisions of the bill which require the waiver of all dividends accumulated and remaining unpaid prior to June 30, 1943, will increase, by the amount of such accumulation, the ultimate loss of the Home Owners' Loan Corporation and will have to be assumed by the Treasury of the United States. The determination as to whether the ultimate loss to the Home Owners' Loan Corporation should be thus increased is, of course, a matter of public policy which must be determined by the Congress. Attention is also called to the fact that in order to retire outstanding bonds of the Home Owners' Loan Corporation, it would be necessary, when the liquidation of the Home Owners' Loan Corporation is completed, to provide for the repayment of the $100,000,000 investment of the Home Owners' Loan Corporation in the capital stock of the Federal Savings and Loan Insurance Corporation. As you know, the operations of the Federal Home Loan Bank System and the operations of the Federal Savings and Loan Insurance Corporation are closely interrelated. In addition to S. 1034, there have also been referred to the Committee on Banking and Currency S. 756 and S. 757 which provide for certain changes in the Federal Home Loan Bank Act and the Home Owners' Loan Act which affect the Federal Home Loan Bank System. You may therefore deem it advisable to consider S. 1034 in connection with S. 756 and S. 757. The Bureau of the Budget, however, informs me that the proposal to reduce the premium rate from one-eighth to one-twelfth of 1 percent would not be in accord with the program of the President at this time. Sincerely yours, Hon. ROBERT F. WAGNER, JOHN B. BLANDFORD, Jr., Administrator. TREASURY DEPARTMENT, Chairman, Committee on Banking and Currency, United States Senate, Washington, D. C. DEAR MR. CHAIRMAN: Further reference is made to your letter of April 27, 1943, requesting the views of this Department with respect to S. 1034, a bill to amend title IV of the National Housing Act, and for other purposes. The proposed legislation would amend section 402 (b) of the National Housing Act, as amended (U. S. C., title 12, sec. 1725 (b)), so as to provide that no dividends shall be payable after June 30, 1943, on the shares of the Federal Savings and Loan Insurance Corporation, and that all dividends accumulated and remaining unpaid shall be waived by the Home Owners' Loan Corporation. Any reserve funds of the Federal Savings and Loan Insurance Corporation existing on the date of enactment of the bill would be transferred to the reserve fund provided for by section 404 of the National Housing Act. With respect to the proposed retroactive elimination of the dividends on the shares of the Federal Savings and Loan Insurance Corporation, reference is made to the report relating to the financial condition and operations of certain corporations and agencies of the Government which the Treasury transmitted to the President of the Senate on February 10, 1940 pursuant to Senate Resolution 150 (76th Cong., 1st sess.). Among the recommendations contained in such report (S. Doc. No. 172, pt. 1, p. IX, 76th Cong., 3d sess.), the Secretary of the Treasury suggested that the Congress give consideration to the adoption of a uniform policy with respect to the payment of dividends or otherwise reimbursing the Federal Treasury for the use of public money. It was suggested that reimbursement might be made on the basis of the average daily balances of capital funds furnished by the Treasury (after deducting unexpended balances with the Treasurer of the United States), computed on the basis of the average interest rate on interest-bearing debt of the United States outstanding, subject to such adjustment as the Secretary of the Treasury may determine to be equitable. If corporations are required to reimburse the Treasury for the cost of their capital funds, it will be possible to determine whether their earnings are sufficient to pay all costs of operations, including a reasonable cost for capital funds. Otherwise, the corporations are indirectly subsidized to the extent of the cost of capital funds paid out of the Treasury. While the capital of the Federal Savings and Loan Insurance Corporation was furnished by the Home Owners' Loan Corporation, the capital funds of the Home Owners' Loan Corporation have been furnished by the Treasury without cost to that corporation. Inasmuch as governmental corporations are operating with substantial funds furnished by the Federal Treasury, this Department renews its recommendation that the question of having such corporations, including the Federal Savings and Loan Insurance Corporation, reimburse the Treasury for the cost of their capital funds on such basis as the Congress may determine, be given consideration. It is believed that such a plan for reimbursement might appropriately be substituted for the present requirement of dividend payments on the shares of the Federal Savings and Loan Insurance Corporation. Section 2 of Senate 1034 would amend subsections (a) and (b) of section 404 of the National Housing Act, as amended, to reduce the annual insurance premium rate of the Federal Savings and Loan Insurance Corporation from one-eighth of 1 percent to one-twelfth of 1 percent, effective as of July 1, 1943. The Federal Savings and Loan Insurance Corporation was organized in 1934, and an analysis of the reserve it has accumulated from insurance premiums since its organization, would not appear to indicate that the present premium rate is excessive. It is true that the Federal Deposit Insurance Corporation levies a premium of onetwelfth of 1 percent in connection with its insurance of bank deposits, but the risk is substantially less than that encountered by the Federal Savings and Loan Insurance Corporation. In the first place, banks are required by law to carry considerably larger reserves than are customarily carried by building and loan associations. Building and loan associations seldom maintain substantial reserves in cash, and customarily carry only a small amount of liquid securities and a small portfolio of Government securities. In the second place, the premium base in the case of insured banks, as a class, is much higher in relation to the aggregate amount of insurance in force than is the case with building and loan associations. Stated in other words, banks have a much larger proportion of uninsured funds on which they pay premiums than do building and loan associations. Accordingly, the Treasury Department recommends that the proposed legislation, in its present form, be not enacted. The Department has been advised by the Bureau of the Budget that there is no objection to the submission of this report to your committee. Very truly yours, D. W. BELL, Acting Secretary of the Treasury. Senator RADCLIFFE. At this time so many committees are in session it is a little bit hard to get a full attendance of our members, but we will start the hearings. I have not been furnished with a list of witnesses. I do not know who wants to testify, nor in the order in which they would like to appear, but I rather assume the most of the witnesses will want to discuss all three bills. That is a matter of procedure which will be entirely subject to the wishes of those who wish to be heard. Is there any understanding among yourselves as to whom you want to testify first, or in what order witnesses will wish to appear? It is entirely agreeable to me to follow any line of procedure or any order of presentation you may prefer. Senator Buck. Mr. Chairman, might we not take up S. 756 first, and hear any witnesses who may wish to appear on that bill? Senator RADCLIFFE. I imagine the most of the witnesses will wish to discuss all three bills. But we will begin with S. 756. I see that Mr. Blandford and Mr. Fahey have taken seats at the table, and we will now hear Mr. Blandford. STATEMENT OF JOHN B. BLANDFORD, JR., ADMINISTRATOR, NATIONAL HOUSING AGENCY, WASHINGTON, D. C. Mr. BLANDFORD. Mr. Chairman, with the committee's permission I would like to make a very brief statement and then turn the presentation over to Commissioner Fahey, of the Federal Home Loan Bank Administration. First, I would like to express in behalf of our agency its appreciation of the fact that the committee has taken time from very pressing legislation to consider these bills. The committee will recall that in February 1942 there was a consolidation of the housing agencies, primarily pointing toward expediting the war-housing job. So we have been working since that time, with good teamwork, on the task of building houses and financing homes, and generally financing the war effort. Specifically in terms of war housing it has been our task to house the enormous number of migrant war workers, some 4,000,000 of them, representing 8,000,000 persons in all, including their families. That war job in terms of construction is largely completed, but we have ahead of us a very considerable task of utilizing about 2,000,000 accommodations efficiently in the interest of the war effort. There are still spots where special needs will appear for the housing of migrant war workers, and there are still communities where there is congestion which if relieved would help the war effort. Broadly speaking, we are headed toward the transitional period; and to the extent that critical materials may be available from other sectors of the war front we hope to be able to relieve some of the congestion in war communities, and hope to keep the building industry going. Specifically, in the days ahead, consistent with war needs, it is our intense purpose to withdraw from the programing of war housing; to get out of regulation and hand the ball back to the communities. Correspondingly we need to make plans for the disposition of war housing, and Congress has helpfully provided legislation already, and the Administrator of the Surplus Property Administration has designated the National Housing Agency as the disposal agency for war housing. As rapidly as we can find the time from unwinding the war job, we feel that we and the Congress will wish to begin to make plans for post-war, to identify the housing industry as an important element of our post-war economy. So, increasingly, we hope to make studies and plans, and to have suggestions for the consideration of this committee and the Congress. Specifically we have before us today three bills which generally are designed to facilitate the operations of the bank system and the savings and loan institutions in the post-war period. At this point, Mr. Chairman, I would like to have Commissioner Fahey take over and explain to the committee these bills and their intent and purpose. I thank you very much. Senator RADCLIFFE. We thank you. Senator BUCK. Mr. Blandford, you speak of disposing of the war houses. What do you plan to do with them; sell them or tear them down? |