Mr. BUSBY. They never would have understood them if there had not been some talk of the Government's guaranteeing them, do you think?

Mr. FAHEY. I Would not say that, because it was our opinion from the beginning, and it is my opinion, most emphatically, that these bonds were excellent bonds.

Mr. BUSBY. They were good but were not good to the financial investors because they did not have Uncle Sam's guaranty. Mr. FAHEY. That is true.

Mr. GOLDSBOROUGH. Why do you think they were good?

Mr. BUSBY. I think such bonds bottomed on hundreds of thousands of units of value are good, but I do not know how good.

Mr. KOPPLEMANN. May I say for your information that the thing began to function when one of the Federal financial organizations told us there was a sort of guaranty of a minimum of $80. Mr. BUSBY. How low did these bonds go?

Mr. FAHEY. They sold on one day, I think, as low as 83 or 831⁄2, but very few were sold. That was at the time of the slump in the 'bond market.

The CHAIRMAN. Gentlemen, are there any further questions; if not, we will excuse the witness.

Mr. FAHEY. Mr. Chairman, it may be you will want to hear other members of the Board. Mr. Newton and Mr. Stevenson are here, if there are any questions you would like to ask them.

Mr. GOLDSBOROUGH. I want to say that any unfavorable comment about the Secretary of the Treasury's being on the Federal Reserve Board is not made during the present administration, and it was purely impersonal, and anything I say is purely impersonal. Do you object, Mr. Fahey, to indicating to the committee where the suggestion came from that the Secretary of the Treasury should be on this Board?

Mr. FAHEY. I am unable to say about that.

Mr. GOLDSBOROUGH. Personally, I think it would be extremely unfortunate if this Board should not maintain its independence.

The CHAIRMAN. Mr. Fahey, we will excuse you. I think probably the committee should hold an executive session and decide about the order of policy with reference to these hearings.

Mr. REILLY. Mr. Chairman, if the other gentlemen of the Board want to make a statement, I think they should have that opportunity

now.

The CHAIRMAN. Mr. Stevenson suggested to me he hardly thought it was necessary for him to say anything.

Mr. NEWTON. I think Mr. Fahey has fully covered it.

The CHAIRMAN. I am sure I speak for every member of the committee when I say we will be glad to hear any member of the Board if it is desired that we hear them.

I had thought maybe we might reach a decision as to how far we would extend the hearing, since there are several gentlemen who want to be heard, and then some members of Congress want to be heard, and I had thought we might discuss that in executive session.

Mr. FAHEY. I would like to express the hope for the Board, Mr. Chairman, that the legislation be expedited as much as possible, consistent with proper consideration.

The CHAIRMAN. That is what I have in mind to accomplish-the very thing you have in mind.

Mr. FAHEY. Our point is this, that all over the country now the organization is being perfected and it is moving fast right now, faster than it has at any time. Our gain last week was 34 percent over any previous week since the Corporation has been in existence, and we would dislike very much to see the operation retarded in any way.

The CHAIRMAN. As a matter of fact, the operations have been expedited, of course, because of the fact the country understands this legislation is expected to go through at an early date, but I think like you, we need to make progress as rapidly as we can.

Mr. DISNEY. I want to ask one question, even at the expense of delay. I am reluctant even to bring it up, but constituents have written me about it, and that is with reference to enlarging the scope of the act to take in the larger apartments rather than the 4-family apartments. There is considerable urge in my particular town, Tulsa, on that subject, and I would like to hear what Mr. Fahey thinks of that being considered, and enlarging the value from $20,000.

Mr. FAHEY. In the first place, so far as the value is concerned, the figures show conclusively that more than 94 percent of all of the homes in the country come within the $20,000 limit, and there is less than 6 percent above that.

Now, so far as apartment houses are concerned, unquestionably it would complicate highly the operations of this Corporation if we undertook to deal with apartment houses beyond the limitation of the act.

The country is full of apartment houses that are in distress, and it is not a case of the home owner at all in most cases, but it is a case of relieving the real-estate operators, and we feel the home owner should come first.

Mr. DISNEY. I thank you. As Mr. Luce said, that gives me something to write my constituents.

I was surprised to hear him say that.

Mr. BROUN. Mr. Chairman, it does seem to me it is perfectly proper for the Secretary of the Treasury to go on this Board, for the reason we are now asking the Government to come in and guarantee these bonds, and it is in line with what is done in private industry, the banking business, and every other line of that character, to have a representative of the man who is willing to stand behind these bonds on the Board; and it seems to me it is perfectly right and proper it should be so done.

Mr. CROSS. Mr. Chairman, it is getting late, and I think if we are going into executive session we should do it.

Mr. BUSBY. Make a motion, and I will second it. I second the motion we go into executive session.

Mr. MARSH. Will you let it go in the record that representing the people's lobby I request to be heard as their representative?

The CHAIRMAN. We will decide upon our policy as to further hearings in executive session, and we will be glad to advise you of what the program will be.

The committee will now go into executive session.

TO GUARANTEE BONDS OF HOME OWNERS' LOAN

CORPORATION-H.R. 8402

FRIDAY, MARCH 16, 1934

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C.

The committee met at 10 a.m., Hon. Henry B. Steagall (chairman) presiding.

STATEMENT OF WILLIAM F. STEVENSON, FEDERAL HOME LOAN BANK BOARD

Mr. STEVENSON. Mr. Chairman, the chairman of the Board has gone very fully into all phases of this bill, and I do not know any of the points that the committee wanted to have further hearings upon.

The CHAIRMAN. Mr. Stevenson, you have heard the discussion here. You will remember that there have been two or three suggestions indicating that there might be some changes proposed in the bill. For instance, there has been some discussion of the matter of the interest rate, and you can readily apprehend that in all probability there will be proposals in the House dealing with that question. I should like myself to have you discuss that, because I think what you might suggest in that connection would be very favorably looked upon in the House.

Mr. STEVENSON. The rate in the bonds as guaranteed, of course, is limited, not exceeding 4 percent. Frankly, it seems to be generally conceded that the rate should be a little less than 4 percent. In other words, the idea of the Treasury is that bonds should be issued at such rate as would correspond as near as possible with the bonds of the United States Government that go at par. We as a Board would like to fix a rate at such figure as would make them par bonds; in other words, the earnings to induce investment at par.

Mr. HANCOCK. Right there will you not also let us have the attitude of the Board regarding carrying that reduction on to the borrower?

Mr. STEVENSON. That matter has not been discussed by the Board at all. The 5-percent rate which we now are charging on the old bonds is, of course, a spread of 1 percent, and the Board has not discussed a question of a further reduction to the borrower. I am not prepared to speak for the Board on that subject.

I do not hesitate to say that my disposition, so far as I am concerned, would be to be sure to maintain a sufficient spread to pay the expenses and losses, so that there would not be a loss to the Govern

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ment on this deal. This is a very large transaction, and losses to the Government could be very large if real estate does not respond during the current period of these loans and a great many people make failures and we have the property on our hands and all that. We need to maintain a spread sufficient, and my judgment is that a spread of 1 percent is about as little as is safe to make.

If the rate of interest were reduced to 312 percent or 334 percent on the bonds, a spread of 1 percent might be sufficient for us, and to that extent it would benefit the borrower. But I should deprecate any fixing of anything of that kind in the bill itself, because the Board has to have a certain amount of latitude in fixing these things, because it has to be governed by the conditions at that particular time.

For instance, if we issue $500,000,000 of these bonds at 31⁄2 percent, and immediately put down the rate to the borrower to 412 percent, and then conditions arose which necessitated raising the rate to 334 percent, you would find a great controversy and a great deal of complaint, and the demand that we recast our whole loaning system; because the people who have already borrowed and who have been paying would naturally say, "We want the same rate that the other people are getting. You have put the rate down on them, now you must put it down on us.

There are $350,000,000, in round numbers, out now in 5-percent loans, and the cash ones, of course, are 6 percent, at least the 40percent loans. There are only a million and a half of them. We would have that clamor, and it would be very embarrassing to the Board, in my judgment, to have that condition arise; and Congress will be passing resolutions demanding us to do that the first thing you know.

Here you have all these mortgages calling for a certain rate, all of the notes calling for a certain rate. To undertake to recast those would be a tremendous job. Binding the Board to make a certain rate to the borrower would not be in the interest of good administration. That is my judgment upon it.

However, I would say to you that the Board is entirely sympathetic with the home owners. If there is a substantial reduction in the interest rate, I cannot speak for the Board at all, but my disposition would be decidedly just to maintain a spread between the rate on our bonds and the rate on our loans that would enable us to make it a successful operation, and not involve the Government in a loss.

Mr. HANCOCK. You do not think the Board would contend for a greater spread than 1/2 percent, do you?

Mr. STEVENSON. I have no idea they would, but cannot.

Mr. LUCE. Speaking of the spread, and asking purely for information, will you tell us about the machinery for collecting the payments on the mortgages that come to your hands?

Mr. STEVENSON. At present we are working on a complete organization of that machinery that may involve considerable reorganization, but the machinery now is this: All the mortgages, papers, and everything comes to the corporation treasury here. The Department sends notices of the maturity of every installment. That goes out from here and goes direct to them by mail. They remit