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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