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FEDERAL HOUSING ADMINISTRATION ROOMS 6O1-6O2, 2 2 5 SAN ALFRED B. FRANCISCO, BUSH STREET CALIFORNIA SWINERTON REGIONAL DIRECTOR November 27, 1934. Honorable M. S. Eccles, Chairman, Federal Reserve Board, Washington, B. C. Dear Mr. Eccles: Everything is going fine on the trip to the Reserve Banks. I am more than ever convinced of the promise both in the credit situation and in the Modernization Program. You asked me the day I left to let you know if there was anything that you could do. The one single thing that would do more to help than anything else would be an affirmatively favorable attitude on the part of every bank examiner toward Modernization Credit Notes. Ify office in Washington informs me that instructions to examiners, prepared in accordance with the conference held at the Chief Examiner's office in Washington some time ago.* have now been delivered for distribution to each examiner of the Federal Reserve system, Federal Deposit Insurance Corporation and the Comptroller of Currency. Anything you can do that would make it possible for the examiners to let the banks that they examine know that they look with favor on this paper, would be a tremendous help. I believe it is fear of the examiners1 attitude which has more effect than anything else, particularly with the smaller banks. Sincerely yours, RS G December 10, 1934* Mr. hoger Stefan, Federal Housing administration, iNashington, D. C. Dear Mr. Stefan; I wish to acknowledge your letter of November k7, regarding the attitude of examiners toward Modernization Credit Notes. On September 4, 1934, the Federal deserve Board sent letters to all Federal reserve agents concerning examination policy. The Bo^rd stated that the Federal reserve examiners should be instructed that no modernization loans should be classified as slow, doubtful or loss, so long as the insurance provided by the Federal Housing itdministration adequately covers the loans or portions thereof. I am enclosing a copy of this letter for your information. Later, November *c:6, a letter of transmittal was addressed to all agents providing tftem with the Federal Housing Administ i ation memorandum for the use of bank examiners, iilso a supply of the revised modernization credit plan bulletins were made available to examiners. In view of this action, it seems to me that the examination division of the Federal xieserve Board has demonstrated to Federal reserve examiners that modernization loans shall not be regarded with suspicion in any way. I do not think that additional communications on the subject of modernization loois would do much to increase the volume being currently made by commercial banks. I wish to reiterate my desire to aid the housing program by every means in my power and I would appreciate any suggestions which you may wish to make in the future. Very truly yours, M. S. Eccles, Governor. HHE/lem F o r m No. 131 -^t g^ | FEDERAL RESERVE Office Correspondence To J^Y?rn°_r Eccles «, >m Mr. Edmiston * 0RD Date December 5* 1934,^ Subject :_Res Br« Stephanfs letter with regard to examiners1 attitude toward Modernization 0- • Notes. _lh. The Federal Reserve Board sent letters to all Federal teserve agents on September 4, 1934, regarding the classification of loans under Title I, The pertinent paragraph in this letter reads as follows: "The Board feels that the examiners for the Federal Reserve Banks should be instructed that no part of the loans made under the provisions of Section 2, Title I of the National Housing Act should be classified as slow, doubtful, or loss so long as the insurance provided by the Federal Housing Administration adequately covers the loans or portions thereof which might otherwise be so classified." The Comptroller of the Currency sent out a similar statement to all national bank examiners at the same time* Just recently, November 26th, a letter of transmittal was addressed to all agents providing them with a memorandum furnished by the Federal Housing Administration to bank examiners to give them information in treating modernization loans. This memorandum points out to examiners that the insurance provided is 20 per cent of the total face value of all qualified notes acquired by the bank and not simply 20 per cent of the loans outstanding at any one time* It seems to me that the Examination Division of the Federal Reserve and the Comptroller's Office have demonstrated to bank examiners that modernization loans are sound loans and should not be regarded with suspicion in any way. No further action on the part of the Federal Reserve Board would seem to be necessary and I do not think that a letter pointing out that the Board looks with favor upon such loans would do much to increase the volume made ty banks*
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