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Officf Correspondence
Chairman Eccles


J. iL^Jaiger\^r/



Date July 1, 1956

Subject; Mortgage developments among
New York banks. ,
• r•


You will be interested in knowing that the mortgage plans on
which Mr. Miller and Mr. Hathaway are working in New York contemplate
the inclusion of representatives of New York City commercial banks and
trust companies in an informal group to consider the adoption of uniform minimum standards of construction. The purpose is to avert a
recurrence of the shoddy building that characterized much of the activity in and around New York City during the construction boom of the
In the past the savings banks have been the principal mortgagelending agencies both in New York City and in the State as a whole. At
the present time some of the up-State savings banks have shown a greater
disposition to make mortgage loans in and around New York City than
have the savings banks in Manhattan and Brooklyn. This is particularly
true in the case of some new suburban developments on Long Island financed under the FHA set-up.
Two or three of the large trust companies, particularly the
Manufacturers and the New York Trust, have likewise shown a readiness
to go along on this new residential financing in an area that heretofore
has been served primarily by the Brooklyn savings banks. The Brooklyn
savings banks, meanwhile, have been financing no new construction in
this suburban area because they still have for sale a number of properties that they are holding at a price above the current market.
The luncheon meeting that I was asked to attend in Brooklyn
last Thursday was attended ty the presidents of eight Brooklyn savings
banks. During the earlier part of the meeting they were severe in their
criticisms of the FHA. It developed, however, that their chief complaint
was that any new construction at all was taking place on Long Island in
the general area where they still had properties to dispose of. The
simple fact seemed to be, as far as I was able to judge from a pretty
extensive discussion, that the new houses are a better bargain than the
second-hand houses.
I undertook to bring the discussion around to a practical
basis of cooperation between the local banks—the banks that ordinarily
made the bulk of the loans in the area—and the Federal Housing Administration. I pointed out that the loans complained of were being made by
highly reputable institutions, and presumably were being made in accordance with the FHA standards that have been widely commended by banks.
I said that what was really being complained of, therefore, was competition,
and hence that the practical question was not how to prevent it, but
how to meet it.

• 2 -

I then pointed out that the insured mortgage system was
now being used very extensively by banks and that their current
business under that system was running into pretty large figures.
I said that the practical test of the insured mortgage system, at
this stage, was in its widespread acceptance by banks, and that I
thought the practical view of the matter for the Brooklyn banks to
take was that they had to live with the system and that their best
course was therefore to try to influence its local operation. I
said that I felt sure they would realize that the Federal Government could not join them in saying that builders should not build
on Long Island when it is perfectly evident that the houses being
built are being responsibly financed and are finding a ready market.
The tone of the meeting changed considerably after this,
and one of the most influential members of the group, Mr. Henry R.
Kinsey, president of the Williamsburgh Savings Bank, said that he
thought it was probably the case that the thing for them to do was
to get acquainted with the local representatives of the FHA and to
try to work out some basis of cooperation. Mr. Philip A. Benson,
president of the Dime Savings Bank of Brooklyn, and the most active
member of the group, said that he agreed with me that they would do
better to try to influence the character of the construction on
Long Island than to try to stop any building from being done there.
The attitude of these two seemed to influence most of the others,
and a meeting that had been marked by undisguised bitterness and
hostility toward the Roosevelt Adiainistration in general and the
FHA in particular ended with a decision to call a further meeting
and to bring in local representatives of the FHA with a view to finding a practical means of cooperation.
I was asked to come to luncheon at the Bowery Savings Bank
on the following day by Earl Schwulst, formerly president of The
RFC Mortgage Company and now first vice president of the Bowery.
Schwulst wanted me to discuss the insured mortgage set-up with him
and Mr. Bruere and other officers of the Bowery. I accepted the
invitation, and I now think it is highly probable that the Bowery
will begin to make Title II loans notwithstanding the legal opinion
which the bank has received from Cadwalader, Wickersham & Taft
questioning the constitutionality of the Housing Act. Up to the
present time the existence of that opinion has been the principal
reason given by the Bowery for not making Title II loans, and the
knowledge that the Bowery had obtained such an opinion has of course
not been without its influence on other institutions.

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I have learned today from Mr* Hathaway that a meeting of
savinpbank presidents, which he and Mr. Miller arranged and which
was held on Monday, made some progress on the matter of forming an
informal group to consider the question of construction standards,
and also the question of inviting the New York City commercial banks
and trust companies to be represented in such a group* Mr» Hathaway
said that much of the discussion on Monday turned to the lending
activities on Long Island, and that he thought any definite action
by the larger group would have to wait on the meeting between the
Brooklyn banks and the local representatives of the FHA* It is
still my opinion that Mr. Miller, despite his years, is perhaps
the most progressive and most farsighted banker in New York; and
I am also of the opinion that it would be to the advantage of the
commercial banks and trust companies to join hands with him in the
work that he is doing to improve the mortgage situation*