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July 30, 1955 Dear Senator Bulkleyi ir« D&iger asked me on Saturday if 1 had any objection to M s discussing with you, in view of your special interest in various measures having to do with mortgage lending, some suggestions that he recently ra&de with regard to reconciling the real-estate loan provisions of the House and Senate versions of the Banking Act» I told him that 1 had no objection, but on the contrary thought you sight find the suggestions useful in working out & compromise that bath groups of conferees would be disposed to accept* I understand from Mr. Daiger that he has since talked •with you and that you thought his suggestion with regard to the regulation of real-estate loans aight afford a feasible basis of compromise, and hence was one that you sight be willing to sponsor* He tells se that you further expressed the view, however, that the suggested eomproaiise might more appropriately come from me for the consideration of both groups of conferees. I aa glad to act on your suggestion in this matter mid am accordingly enclosing, for such use as jovt m&y wish to aftkt of them in conference, drafts of two amendments embodying the ideas that Mr. Daiger discussed with you. One of these proposed amendments would be an addition to Section 207 of the measure adopted by the Senate last Friday and would authorize the Board of Governors of the Federal Reserve System to prescribe real-estate loan regulations within the maximum limitations fixed in this section. The other proposed amendment, which Mr, Daiger tells ae you do not regard favorably, would modify the Senate provision relating to amortized loans on real estate, not increasing the proposed tiat limit of 10 years, but permitting amortization at a rate that would retire the loan in not more than 20 years rather than in 15 years* The latter is the rate of amortisation contemplated by the Senate provision* To explain these proposed changes briefly, I may say that the House measure limits real-estate loans by national banks to 60 per cent of the appraised value of the real estate, but in other respects authorizes the Federal Reserve Board to prescribe regulations governing such loans # The Senate measure, cm the other hand, retains the tiste lixadLt of five years and the loan limit of 50 per cent of appraised value of the real estate, as provided in the existing law, but hlso provides that loans sa&y be made up to 10 years, in amounts not exceeding 60 per cent of apr,raised value of the real estate, If installment payments are required that would reduce the loan to at least one-half its face amount in 10 years. Taken alone, the proposed amendment relating to regiila— tion of real-estate loans would retain all the provisions of Section 207 of the measure enacted by the Senate on Friday, but within these maximum limitations would authorise the Board of Gove?rnors of the Federal Reserve Qrvtai to prescribe additional regulations. The amendment would require all member banks to comply with the provisions of the revised section and with such regulations as might be issued pursuant thereto, except that neither the statutory provisions nor the Board's regulations -would prevent State member-banks from making real-estate loans to the extent expressly authorized by specific provisions of State law. Onder the terms of both the House and the Senate measures, the Board would have authority to prescribe regulations governing advances to aeaber banks on re&l-estate loans* 1 think it would also be desirable, however, to enable the Board to establish certain niniaum standards in appraisal practice and other governing factors, with a view to bringing about a greater uniformity and a greater degree of safety in the real-estate lending methods of member banks. As a practical matter, of course, the Eosrd could not prescribe real-estate loan regulations in exhaustive detail, but within the limitations fixed try- Congress it could use its regulatory authority to prevent a recurrence of unsound mortgage practices, to aeet changing conditions in the real-estate and mortgage markets, and to restrain speculative excesses and abuses. As to the proposed amendment relating to the rate of amortization of real-estate loans, I hope that jou will give this equal consideration with the foregoing proposal, and also that you will take the proposed regulation of such loans into account in .reaching your final soncluslon with regard to the rate at which they are to be paid off, I think ycrn would agree with me that there is B O W & consenguft aaong all. *ho have considered the realestate mortgage probHiM that the short-term ^ f B t w l * mortgage should bt discouraged and an effort made to establish amortisation as standard practice* As a matter of factj much progress in thin direction has- b@ea im.de. during the past two years under •.mumMUliH leader ship, &nc! you jowrmdJEg I believe, deserTe M O h of the credit foi- itet has foenn accoupiiehed aloag this iiae« I realise, of coarsef that there is a great diTersity of both opinion practice as regards tlis maber of years required for tlos of riit lititn loans f but I think that the EO year ticm established tm: loans aad« by tlie federal savings and loan aaaoeiatlotui! ;•. loaai iri^\p-ic/:i ';/ thi Federal Houaing Administration^ rejor«l«Btfl s sound and practical middle course. This rate of aaortiistioa is also one that would not le&Te the banks at too •tlcHW a competitive diasdvaatag« In relation to the insurance compaaies# the savings and lo^n associations, and other agencies that make loans up to EG years* What I particularly- hav© in mind in this respect is thaij, if the bamka ar© to b® authorised to ta&ke real-estate loans Bp to 10 years, provided the losns are to bm regnl&Tly curtajledj the rate of Eaortisatioa should ba mm that borrowers can aad will t.isef one that will effectually' discourage banks from making realloans that c&rij no proTlsien for regular ctirtailmerit* With kindest personal regards*, I a® Since.rel;/ y cmr s * i* S* Beele#9 Hone Robert J« BuLkiey Enclosures
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