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This was prepared at Mr. Eceles1 request byMr • Daiger for Mr* Coolidge*
Mr* Eceles deferred sending it to Mr* Coolidge*


August 21, 1935


It appears that the proposal to have the Federal
Housing Administration authorize banks to pool mortgages and
issue participating certificates against them is one of three
that Mr. Grimm and his legal assistant, Mr* Riegelman, have
been pressing with particular insistence on McDonald and his
chief associates at FHA.

The other proposals are (a) to have

the Administrator create a special class of institutions to be
known as "approved assignees" or •accepted mortgagees" as distinguished from "approved mortgagees,11 and (b) to have the Administrator authorize by regulation the payment of commissions
to real-estate brokers of 2^ per cent for negotiating loans on
existing dwellings accepted for mortgage insurance by FHA and
4 per cent for construction loans.
As a matter of fact, all three of these proposals now
have a history running back ffrom nine months to nearly two years;
they have been repeatedly urged by one or another "pressure group;"

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th^y have been as often canvassed over again by men who are thoroughly familiar with the background of the Housing Act and with the
FHA program; and they have been rejected each time for reasons
that I think you would agree are sound, practical, and in accordance with good public policy from both an economic and a social
point of view*
It seems to me extremely unfortunate, therefore, and I
know it has been disconcerting and unsettling to the FHA people,
to have someone apparently speaking with the authority of the
Treasury come down to Washington and immediately champion and urge
the proposals of these various pressure groups without first getting
hold of some of the people who know the history of it all* That
is the same mistake that Moff ett made when he was put in as Housing
Administrator, and you know what the consequences were and how long
it has taken to get the program headed in the right direction again*
I think that you would be doing both your ftiend Grimm
and the FHA program a good turn if you suggested that he himself
undertake to get a fairly comprehensive view of the whole picture,
from the appointment of the Presidents housing committee down to
date, and then in the light of that pass on to McDonald for his
consideration whatever new proposals seem to Grimm to have real
merit and whatever factors he thinks have been overlooked or given
insufficient weight then certain proposals have been rejected in
the past*

Our experience here with McDonald is that he is open to

suggestions and easy enough to get along with, but that he has a

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prudent Scot caution and wants to know just what it is all about
and what the other side of the argument is before he acts*


way he overhauled his regulations and altered his operating setup after a few weeks with Riefler and Daiger recently is evidence
enough of that*
To come back to these two proposals besides the participating-certificate plan: Both of them go contrary to the purposes
of the Housing Act and neither of them can do anything to increase
the volume of residential construction*

They might give a shot in

the arm to FHA!s volume, but that is not a good reason for passing
over the other consequences*
The proposal to have the Federal Housing Administrator
make provision for a special group to be known as "approved assignees11
or "accepted mortgagees0 comes from the Prudential Insurance Company.
As far as I know, no other lending agency among all the thousands
eligible for approval by FHA has asked for such a special designation or wants it* What, then, is unique about the Prudential Insurance Company that the Federal Housing Administrator should stretch
the National Housing Act in order to pull out of it something that

one agency among thousands says might induce it to buy some FHA
The only reason advanced for the proposal is that the
Prudential does not want its policyholders to regard it as a source
of money for loans insured by the Federal Housing Administration*
It takes the position that if it were so regarded policyholders who

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are also mortgagors or prospective mortgagors would look to it for
the FHA type of loan, and policyholders who were refused such loans
by the Company would be resentful. Imagine the Federal Housing Administrator going along with that proposition, and then having to
explain it to a Congressional committee next winter as a plan to
spur residential construction and help home-buyers get mortgage
The proposal to provide for the payment cf 2§ per cent and
4 per cent commissions to real-estate brokers has been pressed fcy
the National Association of Real Estate Boardsfor months. Their
argument is that this is a proper cost for salesmanship and distribution far FHA loans, and that the failure of FHA to make provision for
commissions at the rates mentioned is discriminatory and unfair•
In the first place, one of the essential purposes of the
Housing Act was to reduce the cost of home-biying ty eliminating various
elements present in older methods of mortgage financing. With thousands of institutions around the country holding themselves forth as
making FHA loans, and many of them paying good money right along to
advertise that fact in the newspapers, what earthly reason is there for
the prospective mortgagor to go to an intermediary and pay good money
for a service that he is perfectly capable of performing for himself?
In the second place, the commissions ordinarily charged ty
real-estate brokers for negotiating loans are established by the local
Real Estate Boards and paid by the borrower, and neither the FHA nor

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any other governmental agency has power to regulate the transaction.
For the FfflL or any other governmental agency to propose that lending agencies under its authority make provision for the collection
from borrowers of real-estate dealers1 commissions would simply
mean that thousands of loans which would ordinarily carry no such
commission would be burdened with one*
In the third place, the realtors should not ask to have
the benefits of TEk both ways—the commission on the sale and the
commission on the loan in addition*