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FEDERAL HOUSING ADMINISTRATION WASHINGTON, D. C. OFFICE OF THE FINANCIAL ADVISER December 23, 1957 Dear Marriner: I mailed to you last night copies of a letter and a memorandum to James Roosevelt, together with copies of enclosures referred to in the memorandum. You will see from these the position that I think we ought to take regarding the principal points of difference between the House and Senate provisions of the housing bill. The letter to Mr. Roosevelt and the accompanying material went over to the White House by messenger early this morning. I sent copies to Stewart McDonald by mail to New York last night. Abner Ferguson went over the letter and memorandum today, and he concurs in all my recommendations. Lubin and I had a talk about the prevailing-wage amendment yesterday morning. He took the matter up at length with Miss Perkins and the Solicitor of the Department of Labor yesterday afternoon, and then called me last evening to let me know the outcome of their discussion. From what Lubin told me last evening, I am satisfied that the matter can be satisfactorily handled. As I told you on Tuesday afternoon, however, after the prevailingwage amendment was adopted, I think that the job is one that only the President can handle. Miss Perkins and Lubin evidently hold this same view. As you perhaps know, I am very much run down from the over-concentration and the long and irregular hours of the past two months. For the past ten days I have been under a physician's care because of some very unfavorable symptoms resulting from the manner in which I have,been working. I was advised to stop last week, but of course I did not want to drop everything midway in the executive sessions of the Senate committee. Today, however, I am -2- leaving, but I hope to return in reasonably fit condition upon the reconvening of Congress. I also hope by then to do some fresh thinking on the subject of the program to be followed by the President after the pending legislation is enacted. Meanwhile, I have asked Abner Ferguson if he will not undertake to follow through for me any matters that may currently arise in anticipation of a meeting of the House and Senate conferees on the housing bill. He is as familiar with the questions involved as I am, and in any event he will be representing Stewart McDonald during the next two weeks in the regular agency meetings with James Roosevelt. Stewart will be away until January 10. It may be important for you to have in mind that Abner sat continuously in the executive sessions of the House committee, and that I sat continuously in the executive sessions of the Senate committee and subcommittee. When the time comes, after January 3, for any informal conversations with the Administration members of the joint conference, therefore, some arrangement ought to be made for Abner and myself to be present. I wish that you would speak to James Roosevelt about this. With best wishes for Christmas and the New Year, I am Yours sincerely, Honorable Marriner S. secies Boerd of Governors of the Federal Reserve System Washington, D.C. c December 22, 1937 Deer Mr» Roosevelt! The memorandum that you asked l e to prepare on the i principal points of difference between the housing bill M passed by the House end the same bill »• amended and passed by the Senate is enclosed with "this letter* The numbers in the following paragraphs refer to the numbered items in the memorandum• If the recommendations made 1 B the? memorandum were taken as the basis of the Administration position, the conferees would rsgeet the Senate MMMUtaMta with respect to (l) the prevailing wege, (4) the limitation to July 1, 194-2, of the authority of the HEA to insure 90 per cent loan*?, (6) the limitation of 15 to 1 on the ratio of bonds to capital of national mortgage associations, and (B) the insursn.ee of 90 per cent loans up to a term of 25 years. On the other hand, the conferees would accept the Senate amendments with respect to (2) insurance of farm mortgages, ( 3 housing for cooperative societies, snd .) (9) mortgage-insurance premiums applicable to mortgagee insured by the FHA prior to enactment of the pending legislation • The conferees- would modify both the House and the Seaatc provisions with respect to (5) the payment of claims for losses on large-scale mortgages, (7) the authority of national aortg&ge associations to originate lo&rip-, end (10) the volume of mortgage insurance which the PEA may have outstanding at any given time. In the case of these three lies •, however, the House conferees «o«Id be yielding largely to the policies reflected in the Senate «Mttdmeats« There are points of difference between House and Senate provisions with respect to other matters, but it to these I should s&y that the House conferees might tend to yield in the msia, provided that on the ten important point** of difference an agreement could be reached substantially In accordance with that outlined in the enclosed memorandum to you* Yours sincerely, J. 8U Dsiger Honorable James Roosevelt Secretary to the President The White House December 22, 1937 Tot Jir. James Koosevelt — & *i _ Sk c H.R. B750 ntJft your request irTHMQjg^i&y evening, I » B sending to you this aen^r'andusi regarding the natter*&5!t%feil4we then disciiss©d and the rel&£rf£t matters that resulted yesterday l aaendmsrit-j/'to the bill adopted by the House on December 18, suggestions M to the principal agreement^ to be so\^ht in confei ence &re subject to a further exchange of views with Mr. Eccles, Mr •-•'Me Donald, and lr« Ferguson, 1. PR;:V.AILING WAG£J The Senate amendment requires the so-called orsvailing wage for construction of properties on which mortgages are insured by the PHA. The Romst bill makes no such requirement* That the Senate amendment (by Censtor Lodza) be rejected, This Mtter is dealt with in the attached copy of ^m«»oraadu!T5 t ^!jgggg^^ 2. FARM DillLIIOSl Both the House bill and the Senate amendment sake provision for rural as well fci urban mortgages to have the benefits of FHA insurance, HRSGHUR I Thst the .Senate aaeadment (by Senator Jus Follette) be retained instead 01 the provision in the House bill* This matter is dealt with in the attached copy of & memorandum 3. HOUSING TOR COOP5,fiATIVI, SOCI£TIE£i The Senate amendment provide?! for the insurance of mortgages on large-scale projectheld by cooperative societies as legal agent of owner occupants* The House bill contains no such provision* RECOMMENDATION "hipstead) be retained. That the Senet-s amendment (by Cenator ••2— U AUTHORITY TO INSURE 90 Ptt CENT lOiM&t The Senate amendment limits to July l t 19£2> the authority of the FEA. to insure mr cent losns. The House bill contains no such limit?:, tiom \ That the Senate MMftdMttt be rejected* ALTERNATIVES Extension^^autkar|.tyflto.JPpfember 31* 1943f la order to cover five-year orc«rttifjpMEia^ Til • lie* ri^heii^lsNjtuHSwjpp?. Reasons J$r avoiding any limitation are in the paragraph numbered 2 on page 2 of up?raenorandvos of December 19, which is attached hereto under the heading "Hote^ on Subcommittee Changes in Housing Bill*" U S U K M I G S OF LARGE-SCALE LOANSt The Senate amendment provider that, in the event of default on mortgages covering V rgescale housing projects, FKA debentures shell be issued for 95 per cent- of the unpaid principal and & certificate of claim be given for the remainder* The House bill provides for the issuance of FHA debentures in the full amount of the tuptld principal, RECO?.«MEKDATIONt That the House provision be rejected end theSbnate amendment be revised to provide for the issuance of debenture© for 93 per cent of the unpaid principal, together with a certificate of clfcim for the remainder, and that the mortgagee be given the option of (a) accepting .uch debentures and certificate or (b) foreclosing the sortgsge, paying the costs of foreclosure, end receiving PHA debentures and a certificate of claim in the manner provided in the existing law. Query: ^ould the inclusion of option (b) in the conference report be subject to a point of order that would preclude adoption of the report? ALT-'RNATIVFi That the figure in the Senate amendment be revised from 95 to 9B, and the House provision be rejected* Reasons for the proposed revision I M , summarised in the two paragraphs on page 3 of the attached *Notes on Subcommittee Chi?n?res in Housing Bill.* 6. BGI&8 0J- MATIOHAL MORTGAGE ASSOCIATION-: The Senate amendment provides that these associations may issue bonds against FHA insured mortgages to the extent of 15 times their capital arid surpltta* The corresponding figure in the House bill ll 20.. RECOMMEMDATIOSi That the Senate, amendment be rejected the provision in 'the House bill be retainec* Note* Senator Bulkley has been the chief contender for the figure in the Senate bill. Reasons for retaining the House provisions are suaamriEed on •s 4 and 5 of the attached "Notes on Subeosaittee Changes in Housing BilL.« ?• LOANS BY RATXO9AX. »OJtTQAGE ASSOCIATIONS! The Senate amendment authorises these associations to originate loans on any mortgages insured under the National Housing Act. The House bill authorizes the associations to originate only the large-sc&le loans under Section 207 • That both the Senate amendment and the House bill be revised to provide that the associations may originate loans under Section 207 and Section 210, which cover the large-scale and aiddle-stse loans respectively. There is no lack of directlending facilities for mortgages m> to $16,0009 rhich are covered by Section 20.?* 3. TERM OF 90 PER CS2fT LOANS s The Senate amendment provides that 90 p^r cent loans (but not 00 per cent loans) maybe amortized over 25 years• The term in the House bill is 20 ywure, I in the existing law governing 30 per cent loans* RECOMMENDATION* That the Senate amendment be rejected, Acceptance of the amendment would (a) create a sharp and incongruous disparity between the term of 90 per cent loans and the terra of §0 per cent loans and (b) cause a greater resistance than would otherwise be encomtared in obtaining acceptance of the 90 per cent mortgage on the part of lending institutions. 9, M0BT0AGMMSUEMCE PtBXIBKSl The Senate amendment makes D M reduced basis of FHA premiums applicable to mortgages insured prior to the oaaetsnent of the pending legislation as well M to mortgage;:- subse-; uently insured. RECOMUEHDATIOSi That the Senate amendment be accepted. 10. VGLtTT OF MORTGAGES Hr.:UBABLBs The Senate amendment empowers the President to increase from t2f000,000,000 to £3,000,000,000 the amount of mortgfcge insurance which the FHA is authorised to hsve outstanding at any given time. The House bill places no Unitstlon on the extent to which the President B»y author ize ? u h an increase-. ;e That " h Senate amendment be revised te to increase from $1,000,000,000 to $3,000,000,000 the amount by > ' h e the President may extend the authority o f the FHA to issue .:ih mortgage insurance, and that the House provision be rejected, ALTFKUATIVFt That trie $2,000,000,000 figure in both the Houae bill sad the Senate amendment be changed to 13,300,000,000, u.n6 the respective clauses empowering the President to authorize en increase be eliminated. • purpose of the program catHaed by the in to atiaolate the private coaatrue&icHi of bousing *at prices* rate*, &nd rents that the rnsas of our people can Afford t o pey»* As the President pointed oat in his ffiea*sget A3 svemge of 6OQ#0QQ to 8Q0f000 deellisift to b« built aaaaelly ov©r th« aext five y»ar« to t i » accuasalatdd shortage of housing and to aeet the normal growth in masber of fsaili«a« Tfe^ principal means pfopoaud to caeoarage baildiag coapfiiiit t to orgsnias for l«rfeH5«®le inroduetioa i s the i a suraaco of 90 per cent aortgag©* on bouses valued up to therelqr na&lag the pwrchee* of each hem see possible siagle lo^-eofit s»rtg*ge upon a dom p^ymmi of 10 per cent* In the b U l as aaended by the aabcoi^ltfe##f the iasarsace of these 90 p&r c«it sortgag«s la «aths:riaHsc!t but two reetrlctiose are &dd©tf that VMli scnricaaly limit productIOR e 1. The builder or contractor would be required to go os the B»rtg«^e with the aortgftgor u n t i l th© Ides wa* wwi 90 per coat to 80 per c«at» notvithfltftadtng that the Fttdercd Bo"asinc Adalnlst«itor 1» r*qairod to inquire iato tb© credit pass upon his reasonable ability to aeet the piJTiodlc peyaanta* To require the builder or contractor to go on the aortgsg© wsuH <piekly ti© & bis wording capital* impair his credit t and p deprive hisr of th® basis of e&rrylag <sa any farthaar aetlrity* Tlais tb© authorisation ©f $0 s c @ tftetl of tha subcoaaaitte«fs m b i l l WCKLLS It ziullif lad 'b^ th« y«i»<irksble r«qair«awBt iapoaad &a tke builder or contractor in another clause,, The aatliorlaatioti to iasur© aa«ilX-^K>use nwrtgages up to 90 per c«st would b limited to 3ulj 1, 1941, @ would aeen tlist any buildlag eoapsaies organised to eagege in large-aeal^ oper&tioas la the anaJJMioiise field aoald hsf» to rsia® capital sn<! devalop art far *hst would at best be a ttea#<^Bid*Hme«uHtet« This, even i f the building company required to eadoraa the nortgage«--a coadition that would i t s e l f s & © the ral&lag of a&pltal uk the difficulty of getting the capital said aHa Tor a bufflaasa that woold imm no mrkut ajftlt two or three buildiag aeaaoas would b ®1M>B% inavpersbli @ It aay ba said of tbes® two aaianrtmrgts^ ther#for^9 that the eutkjrisatioa of 90 per cent sjortgagaa would be not serely & WHMitttgittffft geaturef but & aialeading one* ?ha expectation of a large volame offflaaH^feouiseconstruction could sot be realised^ «aad the fallare to MalftM It «9uld react against the &&©th©r tgaen-CAe&t aade by the sabcoi^ittee that would seriously iapod« the raiidng of faa^s for l&rge-seal© operations* both in the rental bousing field and the emll»~ house field. Is the provision thet mortgftge^d shaking loans on tbe X«^g«H^aXe opeimtlons Injured under S^ctloa ^37 of th« Soaelsg Act (what i s usually #poke& of aa the liiaited-civtdend •••tlon) wtmld recolve debeatiiros for cmlj 95 per wmt aapaid beilanc# of the isortga^ la the «rr©nt of default If this figure were fixed &t $8 per cm%$ or 97 per cent, the effect would probably not be baatperiag* or S p®iats and a pMMftlf of 6 points night be Jttet ^j^agh to represent the dlfference betvtea a very large 'volaaie of comatrao* t i a s mid a ocsipferati'rely staall volun&* fatrtheraore, that dif* t t I ar S points la the anoottt r^eoTtrablt oa large-scale would k®v® & t»rejudlelal effect oa tlie bcmd© lesaed l^r Sfertgage Anaoeiatlotts mekiug such ICNROS* Th* bonds would HMMftM h©r© to bear a sooevhai higher rate of than «oald be the ease oth&rvts®* Thi« would HM% of 9 a ©on^^iXKiiliaflj Mgfc^s* rcrta of interest than would othendflMi ba required on large»seal«s loans* Tfews there are three aaeadatmta sade by the subcowaitt€»e though ostensibly desiga©d to "protect the governatat,* are actually slasd &t defeating the President's preventing a wJWfcipwMwi recovery of boufiiog ©OT#trueti<MS and financing by private mesas, they rosily k i l l the Mil* There Is a fourth wwtUbcnty ostensibly designed t o *sa£eguard* thii Satioael Mortage Association, that i s enlealated to discourage private eaplt&l finon oraay of the*© &ssociati€ms# I t I t the mmtomt limiting- te 15 to 1 tfr© ratio of bonds t o capital. Tb© Jmstifie&tioa offeree for ihi^ @i»mam«at l i th« previously r»f««Ted t o that wwld bavc? e prejfodleUl os ttj© bonds of &ssoci£ti#ii£ 2as.kiag large-scale loans iamired under Section 207• la other «ord89 thei»e two aseo^n^t^ bang tb© 5 pofcst oonalty la tJte aa^ i« offered Hi ttie Tor k&ipiag 4mm tfei vo3aa© of l&rg«-ses!«* coastructioa that sight be fiasaced aad«r the other* I t i& amrSectlj true that thm f©raatio» of & Iiition&l ^rtgiig© -feaso-ciatioii srith #^O»OQOfOCX) of M C f*«i4s wold ask© F poasibl© the- raislsg of |7S0f0&390CK) through the sale of bonds if the ratio **«• placed at 15 to 1 instead of 20 to 1* Sat tnere i s aa eooraoas diffurtWMi botwen C750t000fOOr) «ad $19COO||000#000 whtu a»&m«p«d in terms of construction activity «ad aapiovwent. »hat s«B»ibl4. reaaoa o n there b^ for letting 11 of fov@riua@ntal capital "taring in Hfi of private eapltal when i t ®ight jtt*t a« ©feail^ tariag la |H>? The TresideBt'e ia©ft©«fe look^ toward the fora&tloa of H&tlonsl Mortgage iesociatione ty private capital, *&& several o£ the previsions in the Administration bill as introduced by Senator iagner had that purpose especially In view. One of the aoat important of these provisions was that authorising the 20 to 1 ratio of bonds to capital* Since th© associations can issue bonds only against ?EUU-insured Bortgages, government obligations* government-guaranteed obligations, end cash, investors in the bonds are assured &n esdiraordiaariiy high di^ree of pratoctioa* The proposed iaerefese ia the ratio of boade to capital is necessary as a practical matter because & national mortgage association vsold heva to s e H it© boadg at a very sorrow spreadi The association ought therefore be permitted to hare a reasonably large turnover of its capital in order to cov©r ©xpea&e* and sake & M l 1 profit* If the ratio of bonds to capital is not aede large enough to assure reaaoaable ea^raiaga, then manifestly ao associatioas will be formed hy private capital. Thus another of the osteasible * safeguards11 written into the bill by the subeoaaittee would h&ve only a delusive iacaning aad an obstructive result* 12/19/37