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November 29, 19l5
.A nhairman Ecoles

Subject! Federal H m Loan Bank
o e

ffrnm Mr* Wood and Mr* Chase



The b i l l S. 1592. introduced by Senator Wagner for himself
and Senators Ellender and Taft, is entitled "General Housing Act of
19h5n &&& is designed ttTo establish a national housing policy and
provide for i t s execution*1* I t contains a large number of provisions
and proposed amendments to existing law, among which are the remains
of the proposals which have been incorporated from time to time during
the past several years in bills dealing with the Federal H m Loan
o e
Bank System* These provisions are contained in Title I I I of S* 1592«
W have compared these provisions in Title III with the proe
visions which were the subject of the Board1 s most recent l e t t e r s to
Congress regarding the Federal H m Loan Bank legislation and, with
o e
three exceptions, a l l of the principal objections which the Board has
made with regard to these b i l l s in the past have now been taken into
account and the objectionable features eliminated*
The three exceptions ares
(1) Section 301 is similar in effect to S. 180 except that
instead of authorizing Federal associations to invest their funds in
any obligation insured under the National Housing Act, they would be
limited to obligations insured under Title I or Title II of that Act*
The Board objected previously to the provision which would
authorize associations to lend on any obligation insured by the Federal Housing Administration under any existing or future provision of
the National Housing Act* This, the Board f e l t , was not consistent
with the character of savings and loan associations as local mutual
thrift institutions for home financing, since i t could put them into
large scale projects (possibly including urban redevelopment) in remote localities* The present b i l l does not include the provision,
contained in S. 180, that the Federal H m Loan Bank Administration
o e
shall regulate the investment of associations in F.H*A* loans, and
makes i t possible for Federal savings and loan associations to invest
in insured mortgages on large scale rental housing located anywhere
in the United States*

This section would also permit Federal associations to make:
(a) any home mortgage loan which i s guaranteed under the
Servicemenfs Readjustment Act on property within fifty
miles of the association's home office;

To: Chairman Eccles


equity investments up to 15 per cent of assets
in rental housing projects within f i f t y miles
of the association's home office i f the earnings on the equity are insured under a new
Title VII to be added to the National Housing
Act* This investment may be made directly, or
i t may be made by the formation (either alone
or in conjunction with other associations, mutual savings banks, or l i f e insurance companies)
of a corporation to operate rental housing projects on which the return is insured under the
yield insurance plan* The income of corporations so formed would be exempt from Federal
income tax»

Section 302 of S* 1592 has the same effect as section 1
of S* 179# in that i t i s the companion provision authorizing the
Home Loan Banks to discount loans which the associations would be
able to make under Section 301*
(2) The Board objected to Section 2 of S* 179 authorizing
the Federal Home Loan Banks to expand the base on which debentures
could be issued so as to include Government bonds and any secured
loans, regardless of the type of security, discounted for member i n stitutions* This provision is contained in section 303 of S*
(3) Section JOS corresponds to section 2 of S. 810 and
reduces the premium rate of the Federal Savings and Loan Insurance
Corporation from one-eighth to one-twelfth* TJe understand that you
no longer intend to oppose this change*
The other provisions in Title III of S. 1592 which, as
stated above, appear not to be open to the objections heretofore
raised by the Board, are as follows:
Section 302(b) permits Federal Home Loan Banks to discount
mortgages which have maturities as long as twenty-five years, rather
than twenty years, so that associations may discount any F*H*A* homemortgage loan*
Section 30i+ provides for annual instead of semiannual examinations of members of the Federal Home Loan Bank System, and was not
objected to by the Board*
Section 305 corresponds to section 1 of S* 810 and relates
to the payment of dividends by the Federal Savings and Loan Insurance
Corporation to the Home Owners Loan Corporation* However, instead of
providing for the forgiveness of dividends, to which the Board objected, i t provides that future dividends shall be at the same rate

Tot Chairman Eccles

as the interest on the bonds of the Home Owners Loan Corporation.
Dividends prior to June $0$ 1945 a ^e no * forgiven, and are not
Section 3®5(b) is the same as section 3 of S. 179 except
that the reference to the purchase of Federal Home Loan Bank System
debentures by the Treasury has been eliminated* This leaves only
the authorization to purchase Federal Savings and Loan Insurance
Corporation obligations* and this is not objectionable since that
Corporation could not, as a matter of policy, be allowed to fail*
This memorandum deals only with the parts of S. 1592 which
relate to the Federal Home Loan Bank legislative proposals which
were the subject of the Boardfs previous letters. Mr. Wood will
prepare, as soon as possible, a memorandum on the other features
of S. 1592, which is over 100 pages long*