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The CHAIRMAN. They are guaranteed?

Mr. JONES. They are guaranteed and we only purchase those on newly constructed homes.

The CHAIRMAN. And owner-occupied homes?

Mr. JONES. Yes, owner-occupied homes.

Mr. WILLIAMS. I understood that was your ploicy, you had no applications, but you would make the loans?

Mr. JONES. Yes.

Mr. FISH. Have you that power to do it now?

Mr. JONES. Yes, the RFC Mortgage Co., may do it.

Mr. FISH. And you have not done it?

Mr. JONES. We have made very few residential loans but have purchased many F. H. A. mortgages.

Mr. FISH. I thought you had said you had made none.

Mr. LUCE. Do you think it would be easier, or what reasons have you for thinking that national mortgage associations can be developed under the proposed law when they were not under the existing law? Mr. JONES. Well, this is a little more liberal law than the other. Mr. LUCE. I do not want to embarrass you, but do you think national mortgage associations will be formed?

Mr. JONES. I do not know. None have been and we have offered to match dollars with the capital of the national mortgage associations, but I think probably the reason_none have been formed, or one reason, is the 1939 limitation. Do you know what that is, Mr. Ferguson?

Mr. ABNER H. FERGUSON. The guarantee of debentures expires on July 1, 1939.

Mr. LUCE. Has any man in the financial world told you he would go into this?

Mr. JONES. No; there is no reason why he should.

Mr. LUCE. I am asking you because I have grave debts about it. Mr. FISH. May I ask you, Mr. Luce, if there is any such thing as a national mortgage association?

Mr. LUCE. None have been formed.

Mr. FISH. Mr. McDonald said yesterday none existed.

Mr. JONES. He was talking about the national mortgage association undoubtedly.

Mr. KOPPLEMANN. Do I understand, Mr. Jones, under this proposed act, that you have money and authority to make loans to home owners?

Mr. JONES. By the RFC Mortgage Co.; yes, sir.

Mr. KOPPLEMANN. And under this proposed act as well?

Mr. JONES. Yes, sir.

Mr. KOPPLEMANN. That is all.

The CHAIRMAN. Mr. Jones, at the time the act authorizing the R. F. C. to organize the mortgage company and to subscribe for such stock was approved, there had been no provision for the national mortgage association such as is embodied in the Federal Housing Act, had there?

Mr. JONES. It might have been passed at some session of Congress. The CHAIRMAN. Is there anything in the law giving authority to the R. F. C. which would authorize the R. F. C. to organize and initiate national mortgage associations as approved in the Federal Housing Act?

Mr. JONES. We can under this law as proposed.

The CHAIRMAN. I am talking about the present law.

Mr. JONES. I am talking about the existing law; yes, sir. I do not know whether we could organize

The CHAIRMAN (interposing). You have never undertaken that? Mr. JONES. We never thought it was part of our function.

Mr. ABNER H. FERGUSON. Mr. Chairman, there is specific authority in one of the acts authorizing the R. F. C. to purchase stock. The CHAIRMAN. To purchase stock?

Mr. ABNER H. FERGUSON. Yes.

The CHAIRMAN. That is not what I am talking about. I am asking about the authority of the R. F. C. to organize national mortgage associations under the National Housing Act. Mr. Jones has already told us he had offered to match dollar for dollar, but what I want to inquire about is whether or not there has been authority heretofore for the R. F. C. to organize one of these Associations outright.

Mr. ABNER H. FERGUSON. There is no limitation in the act as to the purchase of stock which the R. F. C. could buy.

The CHAIRMAN. Let me ask you this, you had something to do with preparing the present bill before us?

Mr. ABNER H. FERGUSON. I drafted it.

The CHAIRMAN. Well, you did see fit to confer specific authority by this bill upon the R. F. C. to supply the stock of these corporations in full?

Mr. ABNER H. FERGUSON. Oh, no; it is not mentioned anywhere. There is not any provision about the R. F. C. buying stock because we thought there was already sufficient provision.

Mr. FORD. May I make an observation there, Mr. Chairman?
The CHAIRMAN. Yes.

Mr. FORD. We gave the R. F. C. authority to buy stock in national mortgage associations and they found nobody to match the mone, and as sort of a help to get around that they did do something and organized the RFC Mortgage Co.

Mr. JONES. That is right.

Mr. FORD. That is the situation and that authority exists.

The CHAIRMAN. What I am trying to make clear is whether or not under the law conferring the authority upon the R. F. C. there was such authority to permit that to be done.

Mr. GOLDSBOROUGH. Mr. Ferguson, while the R. F. C. may purchase stock yet that would not give the R. F. C. authority to form a company. That is a different proposition.

Mr. ABNER H. FERGUSON. Yes, there is no limitation on the amount of stock they could buy.

Mr. GOLDSBOROUGH. They may have authority to buy stock in national banks.

Mr. ABNER H. FERGUSON. I think the authority is limited to the preferred capital stock.

Mr. JONES. What is the purpose of your question?

The CHAIRMAN. I am inquiring whether Congress had conferred upon the R. F. C. authority to organize one of these national mortgage associations, and I do not think we did.

Mr. JONES. No.

Mr. WOLCOTT. May I suggest under the same authority the R. F. C. was set up, that initially the RFC Mortgage Co. was set up under the general power granted to the President.

Mr. JONES. I think we could under the law now take the stock of the national mortgage association, but we have not thought that we should because that was not the purpose and intent of the law. You passed a law to create machinery for private capital.

The CHAIRMAN. That is what I am undertaking to develop.

Mr. JONES. To encourage that we undertook to

The CHAIRMAN (interposing). What is the language of the act? Mr. ABNER H. FERGUSON. Here is the act, if the committee please. The Reconstruction Finance Corporation Act as amended was amended by an act of Congress approved January 1, 1935, to read as follows; this is section 5-C of the act:

To assist in the reestablishment of the normal mortgage market, the Reconstruction Finance Corporation may with the approval of the President subscribe for or make loans upon the non-assessable stock of any class of any national mortgage association organized under title III of the National Housing Act or in any mortgage loan company, trust company, savings and loan association or other similar financial institutions now or hereafter incorporated under the laws of the United States or any State

and so forth.

The CHAIRMAN. That is the authority the R. F. C. now has?
Mr. ABNER H. FERGUSON. That is right.

The CHAIRMAN. And you think that is broad enough to authorize them to organize a mortgage association?

Mr. ABNER H. FERGUSON. I certainly think so.

Mr. WILLIAMS. On what theory do you think that?

Mr. ABNER H. FERGUSON. We can form a national mortgage association by naming five people to form the association and subscribe to the stock.

Mr. WILLIAMS. I doubt that, under the law, but even so, what is the authority for creating the R. F. C. Mortgage Co.?

Mr. ABNER H. FERGUSON. That is another angle altogether.
Mr. WILLIAMS. I am simply asking what is the authority?
Mr. ABNER H. FERGUSON. I think it is the same authority.

Mr. JONES. When was it passed?

Mr. ABNER H. FERGUSON. 1935.

Mr. WILLIAMS. Have you any other authority than just read for creation of the RFC Mortgage Co.?

Mr. ABNER H. FERGUSON. I do not know anything about that. I am not connected with the Reconstruction Finance Corporation. Mr. WILLIAMS. I would like to ask Mr. Jones that question: Upon what authority have you organized the RFC Mortgage Co.? Mr. JONES. The authority you gentlemen gave us in 1934. Mr. WILLIAMS. Is that the authority just read?

Mr. JONES. I think you gave us that authority in 1934, it may have been in 1935, to buy stock in mortgage companies.

The CHAIRMAN. In other words, you did not organize your mortgage company under authority conferred in the Housing Act?

Mr. JONES. No.

Mr. WILLIAMS. On what authority did you organize?

Mr. JONES. The specific authority that you gave us.

Mr. WILLIAMS. To organize?

Mr. JONES. To buy stock in mortgage companies.

Mr. ABNER H. FERGUSON. That is contained in this act.

Mr. JONES. That is what we did.

Mr. WILLIAMS. Did you organize it?

Mr. JONES. We organized and operate it.

Mr. WILLIAMS. On the same principle you now contend you can organize national mortgage associations and buy stock in it?

Mr. JONES. I believe we could.

The CHAIRMAN. As a matter of fact you have not passed on that question.

Mr. JONES. It has never been suggested that we organize a national mortgage association.

Mr. WILLIAMS. The Reconstruction Finance Corporation Mortgage Co. and the National Mortgage Association, so far as the authority given to the R. F. C., to organize either are on the same footing: In other words, you have the same authority under the laws that now exist to organize a National Mortgage Association as you had to organize the RFC Mortgage Co.?

Mr. JONES. I think so.

Mr. FORD. Under section 301 (a) which is as follows:

The Administrator is further authorized and empowered to provide for the establishment of National Mortgage Associations as hereinafter provided, which shall be authorized, subject to rules and regulations to be prescribed by the Administrator, (1) to purchase, service and sell first mortgages and such other first liens as are commonly given to secure advances on real estate held in fee simple or under a lease for less than 99 years, under the laws of the state in which the real estate is located, together with the printed instruments, if any, secured thereby, such mortgages not to exceed 80 per centum of the appraised value of the property as of the date the mortgage is purchased, and to make loans and advances upon, and to purchase, service, and sell mortgages or partial interest therein, which are insured under Section 207 of this Act.

There you are setting up national mortgage association authority and the administrator is the Federal Housing Authority. Mr. JONES. Will you read that again?

Mr. FORD. It is section 301 (a), as follows [reading]:

The Administrator is further authorized and empowered to provide for the establishment of national mortgage associations as hereinafter provided which shall be authorized, subject to rules and regulations to be prescribed by the Administrator (1) to purchase, service, and sell first mortgages and such other first liens as are commonly given to secure advances on real estate held in fee simple or under a lease for less than 99 years, under the laws of the State in which the real estate is located, together with the printed instruments, if any, secured thereby, such mortgages not to exceed 80 percent of the appraised value of the property as of the date the mortgage is purchased, and to make loans and advances upon, and to purchase, service, and sell mortgages or partial interest therein which are insured under section 207 of this act.

Mr. JONES. That is the 1935 act?

: Mr. FORD. This is the new act. Now that gives the F. H. A. Administrator the authority to do what you now have the authority to do, in my judgment.

Mr. ABNER H. FERGUSON. No; we can only do it on the application of private capital. You will notice section 301 (b) provides that

any number of natural persons, not less than five, may apply to the Administrator for authority to establish a national mortgage association and, at the time of such application, shall transmit to the Administrator articles of association, signed and sealed by each of the incorporators and acknowledged before a judge of any court of record or a notary public, which shall contain (1) the name of the association, (2) the place where its principal office or place of business is to be located, and (3) such information with respect to its capital stock as the Administrator may by regulation require.

The CHAIRMAN. Where, under that provision, would the R. F. C. find authority to organize a national mortgage association?

Mr. ABNER H. FERGUSON. The R. F. C. could take five of its officials, that is the only way they could do it, take five of its officials and operate it as a board of directors representing the R. F. C., the stockholder.

The CHAIRMAN. What is the act that authorizes the national mortgage association?

Mr. ABNER H. FERGUSON. The present act provides, and the amendment is practically the same, the Administrator is further authorized and empowered to provide for the establishment of national mortgage associations as hereinafter provided, which shall be authorized, subject to rules and regulations to be prescribed by the Administrator, (1) to purchase and sell first mortgages and such other first liens as are commonly given to secure

The CHAIRMAN (interposing). You need not read all of that, but that is the authority for five persons?

Mr. ABNER H. FERGUSON. Here it says any number of natural persons, not less than five, may apply to the Administrator for authority to establish a national mortgage association and, at the time of such application, shall transmit to the Administrator articles of association, signed and sealed by each of the incorporators and acknowledged before a judge of any court of record or a notary public.

The CHAIRMAN. Would you say under that authorization five natural persons to organize, that the R. F. C. could go out and organize?

Mr. ABNER H. FERGUSON. Yes; I think so undoubtedly.

The CHAIRMAN. Do you think we had any such idea as that in mind when we passed that law?

Mr. ABNER H. FERGUSON. I think you had that idea in mind when you passed the act authorizing the Ř. F. C. to subscribe for stock.' If there is any doubt about it I would like to have it cleared up.

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Mr. FISH. I think you put the whole question very clearly. It is debatable whether they have that power. Unless we give them that power I doubt if any of those private organizations will form. If they do not have the power we had better give it to them.

The CHAIRMAN. The President clearly contemplates the R. F. C. shall be given authority to organize these associations and subscribe for stock, and in addition to that purchase the debentures of these associations so that we may be sure we will not be dependent upon private initiative and investment to organize these associations,' because we have already found the authority conferred for such private activity has proven disappointing.

Mr. ABNER H. FERGUSON. Yes, sir.

The CHAIRMAN. It was argued in this committee at the time that we were going to give opportunity for some shylocks to get out and organize these associations, but we did not have any such trouble as that so far and my thought is if we are going to do what we want to do and what we say we are going to do that this bill should have a specific provision authorizing the R. F. C. to organize these associations and subscribe to the stock and purchase debentures.

Mr. ABNER H. FERGUSON. I quite agree with you; and may I make this further observation, Mr. Chairman: I do not myself have very much confidence in the organization of national mortgage associations by private capital until in some way the venture has been proved. I

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