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"The third sentence of section 24 of the Federal Reserve Act, as amended, is further amended by inserting after the words 'National Housing Act' at the end of such sentence the following: 'or to real estate loans guaranteed in whole or in part under the provisions of title III of the Servicemen's Readjustment Act of 1944'."

In view of the fact that this legislation relates to national banks, copies of this letter are being sent to Senator Wagner, chairman of the Banking and Currency Committee of the Senate, and to Congressman Spence, chairman of the Banking and Currency Committee of the House of Representatives. Also, since H. R. 2789 is identical with S. 795, we are sending a copy of this letter to Congressman Rankin, chairman of the House Committee on World War Veterans' Legislation.

Very truly yours,

CHESTER MORRILL, Secretary.

SECTION 24. LOANS ON FARM LANDS

1. REAL ESTATE LOANS BY NATIONAL BANKS

SEC. 24. Any national banking association may make real estate loans secured by first liens upon improved real estate, including improved farm land and improved business and residential properties. A loan secured by real estate within the meaning of this section shall be in the form of an obligation or obligations secured by mortgage, trust deed, or other such instrument upon real estate, and any national banking association may purchase any obligation so secured when the entire amount of such obligation is sold to the association. The amount of any such loan hereafter made shall not exceed 50 per centum of the appraised value of the real estate offered as security and no such loan shall be made for a longer term than 5 years; except that (1) any such loan may be made in an amount not to exceed 60 per centum of the appraised value of the real estate offered as security and for a term not longer than 10 years if the loan is secured by an amortized mortgage, deed of trust, or other such instrument under the terms of which the installment payments are sufficient to amortize 40 per centum or more of the principal of the loan within a period of not more than 10 years, and (2) the foregoing limitations and restrictions shall not prevent the renewal or extension of loans heretofore made and shall not apply to the real estate loans which are insured under the provisions of titles II and VI of the National Housing Act. No such association shall make such loans in an aggregate sum in excess of the amount of the capital stock of such association paid in and unimpaired plus the amount of its unimpaired surplus fund, or in excess of 60 per centum of the amount of its time and savings deposits, whichever is the greater. Any such association may continue hereafter as heretofore to receive time and savings deposits and to pay interest on the same, but the rate of interest which such association may pay upon such time deposits or upon savings or other deposits shall not exceed the maximum rate authorized by law to be paid upon such deposits by State banks or trust companies organized under the laws of the State in which such association is located.

Senator JOHNSON. I have also another letter, dated September 17, 1945, signed by Bray Hammond, assistant secretary, Board of Governors of the Federal Reserve System, addressed to Senator George, dealing with section 501 (a), which provides that "loans may be made by any Federal Reserve bank, national bank, State bank, private bank, building and loan association, insurance company, The CHAIRMAN. You have eliminated in your amendment the Federal Reserve bank.

Mr. ODOM. No; we don't have that.

* *

The CHAIRMAN. You have eliminated that. You only put in the national bank.

Mr. ODOм. That is right. National bank, Federal savings and loan association, or any bank or trust company or insurance company in the District of Columbia.

The CHAIRMAN. You meet that objection then?

Senator JOHNSON. The object of this letter is that Federal Reserve banks not be included.

The CHAIRMAN. That is right.

Mr. ODOм. Am I not correct, Mr. Collins, that the regulation is sufficient to enable them to participate reasonably in the program? Mr. PAVESICH. The Federal Reserve?

Senator JOHNSON. They don't want to be included.

The CHAIRMAN. They do participate indirectly, of course. Mr. ODOм. They probably would indirectly purchase them. (The letter above referred to, dated September 17, 1945, is as follows:)

Hon. WALTER F. GEORGE,

Chairman, Committee on Finance,

BOARD OF GOVERNORS,
FEDERAL RESERVE SYSTEM,
Washington, D. C., September 17, 1945.

United States Senate, Washington, D. C.

DEAR SENATOR GEORGE: This refers to the bill H. R. 3749, cited as the Servicemen's Readjustment Act of 1945 which passed the House of Representatives on July 18, 1945, and which is now pending before your committee.

The matters of particular concern to the Board of Governors of the Federal Reserve System are certain provisions contained in section 501 of the bill with respect to the making of loans to veterans. The last sentence of section 501 (a) of the bill provides that "loans may be made by any Federal Reserve bank, national bank, State bank, private bank, building and loan association, insurance company * * *" and section 501 (b) provides that such loans may be made by national banks and banks located in the District of Columbia "without regard to the limitations and restrictions of any other statute or ruling of the Federal Reserve Board."

In the Board's opinion it is not necessary or desirable to include Federal Reserve banks in the list of institutions which are authorized to make loans to veterans guaranteed under the Servicemen's Readjustment Act. The Board feels that so far as practicable loans of this type should be made by private banks and other types of private lenders and that Federal Reserve banks should not be in a position of competing with the private banking system for such loans. Under existing law, loans made to veterans by member banks of the Federal Reserve System could be used as the basis of obtaining credit from the Federal Reserve banks under the provisions of section 10 (b) of the Federal Reserve Act, and the Reserve banks are thus already in a position indirectly to assist in the program for guaranteed loans to veterans. The provision of the bill for national and State banks and other lending institutions to make such loans appears to be sufficient to provide all eligible veterans with reasonable sources of guaranteed loans without any need for giving this authority to the Federal Reserve banks. It is respectfully suggested, therefore, that the words "Federal Reserve bank" be stricken from the last sentence of section 501 (a) of the bill.

The clause in section 501 (b) that loans to veterans may be made without regard to the limitations of any statute is extremely broad and seems most undesirable. This clause would exempt loans to veterans from all such safeguarding provisions of the law as the limitation upon the amount of loans which a member bank of the Federal Reserve System can lend to an executive officer of such bank and the limitation upon the amount of loans which a national bank can lend to one borrower. In addition, the clause would appear to permit loans to veterans without regard to the statutory provisions providing penalties for the making of loans by banks to bank examiners or for the accepting of fees or commissions by bank officials for procuring loans from member banks.

Moreover, the provision in section 501 (b) that guaranteed loans to veterans may be made without regard to any ruling of the Federal Reserve Board seems inappropriate. If, as pointed out hereinafter, this provision is intended to relate to real estate loans under section 24 of the Federal Reserve Act, the Board is not the agency which administers the provisions of this law relating to realestate loans and hence the language just quoted is unnecessary. If, on the other hand, the language quoted is intended to have general application, we do not know of any ruling or regulation of the Board that would affect this matter.

The Board's Regulation W pertaining to consumer credit provides that loans guaranteed under the Servicemen's Readjustment Act of 1944 are exempt from all the provisions of that regulation. It would seem, therefore, that the provision

in section 501 (b) referring to the Federal Reserve Board should be eliminated. It may be that the intention of the framers of the proposed legislation is to remove only the limitations and restrictions contained in section 24 of the Federal Reserve Act with respect to the ratio of the loan to the appraised value of the property and with respect to the maturity of the loan. This matter was discussed in our letter to you dated April 30, 1945, with reference to the bill S. 795 pending before your committee. A copy of such letter is enclosed for your convenience. In that letter the Board stated that it favored the objective of the bill S. 795 but felt that it would be more appropriate that any exemption from the restrictions of section 24 should be dealt with directly in the provisions of that section rather than in some other statute. This could be accomplished by striking out all of section 501 (b) and inserting in lieu thereof the following:

"The third sentence of section 24 of the Federal Reserve Act, as amended, is further amended by inserting after the words 'National Housing Act' at the end of such sentence the following: 'or to real estate loans guaranteed in whole or in part under the provisions of title III of the Servicemen's Readjustment Act of 1945'."

Very truly yours,

BRAY HAMMOND, Assistant Secretary.

Senator JOHNSON. Do you have anything further to say, Mr. Collins? Mr. COLLINS. No, sir.

Senator JOHNSON. I want to thank you for a very clear presentation of a very difficult and technical matter. I hope that the rest of our witnesses will give us references so that we can follow the proposals as we have been able to follow your proposals.

I would like to ask the committee what their pleasure is. I am very anxious to proceed as rapidly as possible with the hearings on the veterans' legislation. I presume that within 10 days the Finance Committee will have before it the new revenue measure and most of the members will have to attend the hearings on that bill. We would like to proceed so that we could have the hearings behind us before that bill gets here.

Mr. ODOм. Mr. Chairman, could I suggest this: Yesterday General Bradley indicated that he hoped the committee could proceed after finishing with these bills, this group of bills relating to the Servicemen's Readjustment Act, to consider the bill which was introduced as S. 1203, of which we have seen an amended copy. The amendments on the other side are contained in House bill 3522. It is a codification and a somewhat liberalization of the laws respecting medical care, hospitalization, reduction of hospital pay, and some other matters in connection therewith. Hearings began on that but were discontinued because of the recess. Then, of course, the insurance bills are pending but we are now preparing another bill to put the National Service Life Insurance Act on a peacetime basis and we are not quite ready on the insurance question. We will be as soon as we can get a clearance. We have a clearance, as the Senator will remember, on an adverse report on the pending bills. But we hope to present something constructive to you to put the National Service Life Insurance Act on a peacetime basis.

Senator JOHNSON. Yes. The subcommittee has a lot of work ahead of it in veterans' bills, and we simply must make progress on them. They are controversial in the extreme. Many people want to be heard. And the only way I know of getting that work behind us is to continue these hearings in both the forenoon and the afternoon until we get them behind us.

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Mr. ODOM. I don't want to be understood as apologizing for the Veterans' Administration or the committee, either, but this committee and the Veterans' Administration has more legislative bills actually by count, than all of the rest of the Congress put together. Senator JOHNSON. Well, there is only one way to make progress and that is to get on with the hearings.

Senator LUCAS. I don't know why you should give us that information.

The CHAIRMAN. I think you should proceed all week both in the afternoon and mornings.

Mr. ODOм. There are many interests that are vitally affected by the educational provisions which we have recommended as well as by the loan provisions which we have recommended. There is a most widespread interest.

Senator LUCAS. I move that we adjourn until 2:30.

Senator JOHNSON. I would be very glad to proceed with the hearings both in the morning and in the afternoon until we have some of this work behind us.

It has been moved that we recess until 2:30. If there is no objection, we will recess then until 2:30.

(Whereupon, at 12:30 p. m., the committee recessed until 2:30 p. m. this day.)

AFTERNOON SESSION

Senator JOHNSON. Colonel Taylor, are you ready to proceed?

STATEMENT OF COL. JOHN THOMAS TAYLOR, DIRECTOR, NATIONAL LEGISLATIVE COMMITTEE, THE AMERICAN LEGION

Colonel TAYLOR. Mr. Chairman and members of the subcommittee, the American Legion deeply appreciates this opportunity to appear before the subcommittee and submit recommendations proposing certain amendments to the GI bill of rights, the Servicemen's Readjustment Act of 1944. These recommendations are made by our organization based upon studies resulting from complaints submitted to us by our men in the field who are concerned with the operation of the act. Before referring to our recommendations, however, I should like to refresh the memories of the members of this subcommittee as to certain outstanding decisions, which were reached by your subcommittee, the Senate Finance Committee, the Senate, and the other branch of Congress upon the so-called GI bill of rights. The majority opinion of this committee and of the Congress displayed a firm conviction on several points, as follows:

(1) That the laws pertaining to veterans must be administered by a single Federal governmental agency, thus avoiding the chaos and confusion which followed World War I;

(2) That the Servicemen's Readjustment Act of 1944 would not be used as a vehicle to perpetuate temporary Government agencies, nor to allow for the building of any huge bureaucracy; and

(3) That the act was intended solely and wholly for the World. War II veteran and not for the benefit of financial or educational institutions.

It is unnecessary to remind the members of this committee of the terrible confusion that existed for the World War I veteran in the early postwar years when it was necessary for him to apply to several different governmental agencies for benefits provided by laws enacted by Congress. The inefficiency which prevailed because of this condition resulted in resentment and complaints from the veterans and eventually led to the consolidation of administration of all laws within one governmental agency. When the Servicemen's Readjustment Act was under consideration the Congress realized that there were existing agencies which could administer some of the titles of the act, and it was for this reason that the act provided in section 505 (a) that the Administrator shall designate such agency or agencies, if any, to determine whether the guaranty of loans should be approved under this title.

In this connection, certain persons are advocating that the homeloan section of title III be transferred in its entirety to the Federal Housing Administration. Your committee will hear some proponents of that.

Senator MILLIKIN. If the chairman please, may I ask a question? Senator JOHNSON. Certainly.

Senator MILLIKIN. Are there any bills pending to that effect?

Colonel TAYLOR. No; but it is being advocated by many bureaus that came into being during the war, various functions of Veterans' Administration should be taken over, and I am sure you will hear from several of the proponents who come before this committee. We are opposed to it.

We of the Legion do not think this is at all necessary. In the first place, FHA insured mortgages are available to a qualified veteran under section 501 (c) and section 505 (a). And you will find out, under section 6 of the FHA Act which was enacted for war purposes and enabled FHA to go out and build this war housing, that the FHA can go ahead and assist in the building of homes of lower values.

The fact of the matter is, and I want the committee to recall that, that that was purely a war measure and expires by its very terms on July 1, 1946.

Further, during the pendency of the bill a conference was held in the office of a Member of the Senate with two officials of the Federal Housing Administration, and representatives of the Legion, with a view to possibly proposing that the Federal Housing Administration should be designated in the act to handle the section of the act pertaining to home loans. That is not on the part of the Legion.

The Federal Housing Administration with its existing facilities could approve loans only in about one-third of the country because of its requirement as to economic soundness which involves location of homes and type of construction. In other words, the veteran who desired to obtain a loan but who wished to build where electricity and sewers were not available would not be eligible.

We of the Legion are, of course, interested in the boys who live at the fork of the creek.

Because of that agency's inability to serve all veterans on a Nationwide basis, the proposal was rejected.

Further, if the loan title of the Servicemen's Readjustment Act of 1944 should be transferred to the FHA in its entirety, it would be

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