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• '







-., X9SI


• of


ive tlm op;:






fore? I r;o 2®

i a i Br




I t t by

f I Mi giving ftn 53 consaenta xs thio i M M MB
M H N i«
j e c t i s one In
fron t h e p


E aa naturtili^

• >lnt

I Ihia
. ,
think *

Mt poll



. 1% imdifis&bie &ad ii3practic:;.bl€
! •-... v


' .^

•Hirt :*;;IB






U n w t a r t into UM mor.

'ect^r of rf;i;^t.i-sre VBlapc


t h e sub-

such ii

of vt;



n d#isiltn::-

i .

. .
.1^ re-

iciuj of aen coisst^mc..

MtUpttllj OTtl/

"ottflai stated in tr.-

Frankly, i t seesm to

v» 3rtM has aisconceiyed

fttniln i-ct «rf klM Mil •

o^ived the pg—ft •itwttloa of the bamk* with
to r v.l-esti.te laaNfe
in the A F I A

iieording to the recount recently -ublished
:—-under trie i.e^disg »t\ £. Trefcsur* studies


i;,:ii to Sell FL -iortj- !:«3 to Indivlii^ls* 1 — n ?.:r.

he thought i t I



HHltfOm for beaaJ

> s e l l aotrne of their

tatvrai PBi iortg&tj©» to tjie public^ tTmr<ly n i t g f l i f bmk9 of M M
of their mortgage lo&d & d making lirttttilti
mortgages tfcltVfl


I I ova.Lk.ble for

I mblle d i r r e t l y Into thii f i e l d , R

Thii- i s the view th^t &ee<n£ to b€ reflected in hie camssnts on "The Eccles *!feiaorsuidiM#K

I t is • Wim Vhitfa iapiies (1)

that banks can d©riv« an ftdvai - *
mortgages rather tftsn holdlo^


i f IIMIV IllllKihii

., (E) th&t btnicg are overloaded

ivith MVtfNfti fend in need of being relieTed of ftt IWit p«rt of
their Ioed f (5) thet saortg&g^ ineurance was wroyided under Title I I
to f a c i l i t a t e the Iiq-:dd&tio.iL of MrtgltgM kg bftakf MMMV I ta to
irtduce banks to increase t h e i r -iortg«ge holdings, fend (4) tfcttt the
current voliuae of r e s i d e n t i a l construction t a i the ^ol\me of funds
liV&ilable tor —afjfift ftaUMiac can 'be ll

t 4 If t h e i t i l M •::••

Lllng participating certificates to individual investors.
These sre &I1, &



nyttlf n i l few&re, erroneoua

- t fer« Qrimm has heard thoa voiced

fcr^ so«ae bankers, but neverthijlesii, a« .:.


thing to be i*id about M error is tbat i t la tf9

ut i t , the f i r s t

Y o u e x p r e s s i s y >ur a e a a r & c d u a f
Mliag :'


c o a : i e n t l n g on Mr*

^ by *

ct trail*!;

G r l i g


opinijii that tqy

Uqpr rttitftH+,


MM! go MI to M T b«wrfW| that HbotlMff banks ihovli be perQp

mitted to allocate; the portlelpfttieM In • single •Ortfftft i s a
some whet dlf!f«WBt £QMtlOB«a
different, but I

X agree r.ith ;7

l the fSMtl<NM

1 point ovl that the Mil of participations

mUL ••*';•'•• I ; t\\- ?


• ( • ifl "-,159 M l the aaxisium

|1S9OQO)| ua^rti^ed by equal « athlj p*J mtM of lnttr—t end princombined, It also entirely iaj^ractic^ble*
tea will r— tfiij see thfct the piecemeal pajaeat of interest
prineipal on pftrtielpfttlag certificatee ftfftlact W h & mortgage
te cr;j«bc"£omc arui costly tfl UM bLiik in l t « dual role of mortB Mflrlctgi



nd •1ttg(rtiKT l i l t i i f l f l i f nrj to the in-

The l*tt«r 9 1 i n t e r e s t tafl principal aroiild cose back t o his

in .iionthiy dribl^t^, bij ',ctn&l iuvestiiient r«turu Mrall Umi be subitifcll^1 lesc tbaa the itiUKU of ISICMMHI borne tj tbe M r t | a | t |

edther iris aonthly receipts fros bis c e r t i f i c a t e vould be spent

in driblets or hi rould ba put to the fieces&ity of depositing for
i acc\MnlEtion the ss&ll suss-s received fr
investment dimiaiah©d#

- th to •fltttli M hie

In short, t h i s would be •



in reverse*
For &D agency of the Federal QoTsraaast to tUQOlll 0^0 per-

sons of limited jaeans and limited experience to engage in such &

parautt I raid ba, therefore, an unwarrantable
[ X l l t l i j wal tapaai&lly so tfian governsient&l protection is
tbla in a Variety of other inveetseats which aa*t MM at the dis~
fcdvimtages that voaUl be inherent in participating certificates
issued against a single aor.thly-p* -yw nt-plsn • 0 r t f f #
The s^rticle ia the iM - I A BAILEE tlwt I k P rcvfrrred
to fcbove sayii thr.t, *!in re^Iv to Mr. Grimnjfs suggestion for the
sale of F A mortgages to the public^* the disadvantages of ptirticiH
patin^ certificates issued ng&inst a aortg&^'e that Is imid off ia
•oothly installments were pointed out to hia, tad loat there follow™
ed the suggestion ttet Nat solution of the profclMi aight l i e in
pooling groups of Mrl§a§M


^ selling itiMMEtMNM ifltiait tbMfcfl

This 1 t^ke to \x- the plfcn thfct Mr. >-rvm i s advoctting, and t h i s
i s the plan that I bad taken into C3nsider«tion in writing vt$
previous ^eaor&ndm*
th«t the iMridag Act M i tmnn ador>ted, &:&& with Congress
on the eve of •djournsentj i t 6ee-j^ t o M l i k e flo^ginj-; a desid
horse t o presa a t t h i s time & proposal ror the adaption of which
there i s no clear lagal authority> but on the contrary s- considerable lagal doubt*

i t ia true- t . ? t , ua a>« iriiam stt*t* ^ at laa . i t -

»et of h i s eosacmts on "The Eccleg '.teaor&ndma,R Section 305 (&) of
the new Banking Act m^j ha umexidtgd, i f i n i t s present form i t dosg
aot remove the doubt respecting the paaaa1 of bt;n^s t o is^ue partialpating c e r t i f i c a t e s .

This auggestion # however, i s for obvious roaaoaa

one thai t



liec .if OB&U

at MHCt iOtSlftD ;

cvkilvd t f sail*
i ,fereac«> ni»c<






• I (



a t sad t a t

MM .f:-.?t subject bo

l i t rti<

lit Section S S (a) does I s practical ti
iMrlac baakg to l t * l ia MM I
I f i * i I t Uwir f f l i



V M a* -

r.ttitijds of


Inc »r;';orated ir.



ftand •
ittatio;. i




fche s p l i t

d? <

8IM ^ i r *.b« s s t o U l t





i*ev* n t i n g

:et iis ta| fora*

. • •. --•-•-'



.;?. t a t

Ltaa la feat f i r s t LBS sm—I tart -

, o: a :.

t l i l aM

> - ' . &gMititttAaai apt

i i

^r ^ w I-eatftti



Av f>:-c r&tr-,


aationai t
3 e c t i o m t O t a • » • • . • . •••••...

^e« f»r. to rr

<~B£ 'XL Dee

M i in ipllt nartg^^es*

( A ) on I I M t t t d a t t

• .

HH*to Mf/od^Ni —gtgt#ti with

T,^; ? t h ' r e f o r m b o M 1 4 kf l a f e r e a « e f

rltb i t Hit * i j :t I

aend * ::*.

rj ia thl

' It ciaii >t, n
. •

i ;; n fk r% & »er«-



*.!>•< imiag «<

- o f a»tl«ps.l, bankt taaapt l a tfat klad of tfftat
Ififti Mr* Jones asd

M as s a ^R^ of b«t >r sore

— 0 —

ta the Mfctui of r—L"—t»t< 1 M M th^t M M too i: r n for
Mil t o h&Ml@*
f'hRt legel &uthori9&tioaf I M % 90*24
Adainistr&tor mly


. federal

... ertoox la MrtMlf Hi

rvrsved mortgagees bad t.ctl.


>, as &p-

ees# to tfl

ng ceriiflcatM •gainst pools of atortge-.&es?




l& I aee I t , i

m onlj the iapllcrtlM tMt OTM sortiflcfctes tTi oat In—
seeisrltieA but are
"03 (i:-)»

nrtgi Ml -•It:di> lM MMMf of section

If this Ic-g&i s^netloi?

,:o «xist 9 ho«reY«rf It i

in re»pect of &11 clfe^ses of mortg«^©s^ end. action bj lM Fec
3insj iMAatMVfttW predicated thereon in respect of ixasured» ^ould & & aetttsr tf c V N tend to QM«tMf* lljM the resort
by MflM to lM tooling of liaia^-ured siortgege© end the si-le of ;-r.rticIp»ti:jg certificates &g&inst these pools*
it the competitive result 9 f Udi Kl^bt be on Ml F A
projjrai i s if •ours© & ^oot c.,\ie«tion» but say orm vie* Is tlsat tha
^r^l Bousing Adjainlstrstor eojid be jpening a P&ndor&'i hox, tly.
the f'-!i pragr&m «MU Wtffer, &ad thet his action would rightf-ally
be protested by the Comptroller of the Currenej- and the Federal ReMVfi Boc,rd» The I M ) eng&^iitg in the wXl of ^ tifti^fct! |


cates against pools of ssortgeges v-ould be ;roceedi2;g vlbhout c l e ^ r l j
defined authority

^ to either insured or uninsured ^

while at the ssae time neither the Co^ptrollsr of the Currency Mff
the ?$der&l Reserve Board would h&ve the



es #




eithc-r to authorise the sale >f '•;-. and ror*ibit the s^le of the
•r or to prohibit the eaJLe dto&etber*
X think I bk-ve caid enough to m^ke I t ©viaent t$m\ the
Federal Hfmrtm j'sdiainistrt' tor vouid be \md&r the necessity «f obtaining the express f u t h r r i m t l — af Con.jresg b t f w i )M eoulcl M
a pr&etlcal administrative a a t t e r :rojnulga%t i regulation designed
to faring tib-aiit th# sjiie by iMriMI of psrtlclp&tiag
i pM>l8 of »ortg&g«a«


J'lirtheraors^ X think: i t l i obvious Iksl

banks thon0elire0f even i f a^y coasiaerable MMlMV of HMM might
be w l i i l i ^ to engage In th@ ssfeie of raok c e r t i f i e a t e a ^ would i n s i s t
upon knovfiiig beyond a i i reasonable doubt tlmt they Kere not Subjecting themselves t o the penalties of the N i W t l l a i ^-ct» Onlj Congress
or ttM er>wt« csn g l w llMB that d t f l r t t l assurance*
i t i s ptdLatlMM for M f tlMMf t o


fwttMV tmu I hi:V

do'£i.e iri my or^V'Krua ^emQv&a&vm the -mtters referred t o in the paragraphs rm^b«jreci frosi £ to 8b, JntiTMlTtj i n Sr« Gria^i1^ •mMOvm&ask*
If H^NM itself MrtfeMriMi the Mli tf ptrtld|M%lag certificates
&^&inst -^aols of mortgages in the .s&nnar proposed ty i*r« ^rixm,9 the
qpMtlMMi of IMI tti policy th&t I raised i n ^

: .rcrfioiw .esor&ridtim

in regard t o these several m t t ^ r e ( l to 6b) would be

;'ith ngertt t o Mr. urima's content (p&rafr&ph 4) on T i t l e I I I
•f the Housing Act, hzwrewr, I may sey i t i s ; n i t e plcJLn that he hin
wlslnfonMMl U t o


wfdch the «-:Uthor« of t h i s t i t l e

In RurfU

1 4 intend i t to supplant or Hm

a the

tpyt of ptrtlei^Atlag certificate Hrf they | i | not ieftlpi i t to
"drbstttize the r,eed ta getting the funds t£ yrivnte lllWHtOil lot*
this field, 11

I do not lijtl to g* into t det&iled iiMiminn if

Title I I I here, tat I would suggest that, If fe. 'ri r r; ii ttrtmrttti
in lMnfag the ^ckgrotmd of this t i t l e , bt discuss i t iitll f4rm Charles
L$ Illler, l$r. winfield V Piefl.-.r, *iKi 'Ur. J. w. ^ i g e r , who f:*re i t s
chief proponents*

I a^?self haf« r.-ever IMM litflgrtWor in MMarl ^ith

their fftifW ^n Title I I I , i s l I • f W t h t l f i

recoijnise thftt i t cannot

be pfll to the test of ?>r&ctle«l operation until operslions -under Title I I
I M p tp M M mtich ferther UMB th«*y lie1!?® up to ths present tittk
H M Vf P N i
AB to Mr* Grlsa's s'Ute^ent (p*Hfr>p> I) thftt f-.te volume of
certificate sales lay batiks would prodaee i greater profit UtfU t |
backs could earn oa the fiortg£.::es the;?.eclveS| 1 wiwM H f thftt he- is
simply mistaken both In, -is firithmetic snd la his e&tif^t£ of the
marketing jll'OiMlMiitiMi


bf M'fttil i£ thtsorttictllj p—l)Mt i a

the csse of bnn&s individwiilly, Mtf Mfaftllgr i;.ttein»ble far ft MTttia
ntsmbsr of them, hut i t la not ptMdl&t for the banking systcjn as s
whole and could not in the ftltafttlaa now existing elter the total

The. error here i s the s s® feS that aontloned in ray previous
with reference to the at&ttors now referred to Rgsll in
? & d I of Kr« Griaa's semorandum*
la regard to these matters, and ftlM in regard• to UM swtt-

tera referred to in ::.ara;;.r«-?hs 10a &nd 10b, I c^n only roiter&te «hnt
I s&id before, «ith the further suggestion, however, that if Mr. Griwi

desires ttddltion&X |&ftra&tlo& on these several points—or, for that
~ tt^r, on any aspect of this rhole question iroz the berjkers1 point
of f j m ilw obt&in UM considered judgment of the Administrative Committee? of the taerltaa ftMftNM Associ&tion*
It need not be supposed, however, tact the lBft!M2J% of
banks to sell certificates agelatt pools of mortgages—which could
«.t best r©*ich oalj a fringe of the tot&l mortgage ssrket—will impede*
the progress of rsnidenttal construction, or trt^Wl the impetus that
the federal Houaing ^dadnistr«ti«B i s giirirtg to h^>?ae-aortgage financing
« In 'the present inve«traent position of l i f e Insureecc
eu, building tad lo&s aasoeiatioas, coaeaercio.1 bsaks, savings
nkii# trust comp&Bies and other trustee*, asd s>iso of isdlYidtml
-wliola aortgages, there i s &o unprecedented volume of funds
for aortg&ge investment, and there Is increasingly evideut
« pressure* of these fmvig for invettaent*
Nilihcraore, the volume of funds potentially uv&liable for
mortgage investment hfcs ]>een augmented to the extent of f; 1,100,000,000
>^T the adoption of the •wkiQI Act of 1355, Prior to the adoption of
this Act, the i f f t II i l limit of uortg« ,e lending fey mtto—l feariM
vtixB "2,600,000,0001 I t is now M»700,000,000* Sine© the present volume
of mortgages held ty m t i nal baukis Is £l,300 f 000,000, there is
potentislly availfible froa this H W l ] m |89400t000t000«
i t Ikould 'be noted that the Banking Act contain! M N N
designed to facilitate the fiiu.r«eing of l»«~cost heading, tinder the
provision tf Section £07 of the fctisnal Houaing Act, by means of bond


2hetse bands w^ild of course be &v&il**,fc&i to



:. I to j a > t l t * t i o n i | ttft would provida ia even M n con-

venient fmm of security far investors than, would the proposed
participating 1 1 l i f t • • ! • > ,
Rrosn ltr« GrlMt1* aaaorandun* i t r-^jld >j]iji—I Uv.-t he
is of the iapression that the de:afefid for rmw •-•-vmlat

i s

-%&nk at

present bee&us« of "aesunr/tion Uu»t credit f!Mtllf%tHi M aH
ftfSilable,1* aM b#e^«nse of *la©k of immediate ecoiaomic pressure
far additional space.*

The l e t t e r factor is eTi--rent enough and

tfcl ejcplanation of i t Is readily to b ? foui^S in the depleted stat©
of the national, income (which Is £ f cdUHMi I—11 tine in i t s e l f ) &nd
in the continuing cdup&rit^ betwefji: rents *n& eoiiStriictlon costs*
factors HHl rf MMM&ty b further remedied before &
A l l j greater ©ffective dstmofi for additional i p e can assert
M &e
Bust i t is difficult to MMMRi for MN Grist's evident
that there ia a ^idespre^d aasmtption on the pert of
builders of new h->ualt!g Ifcttt credit f a c i l i t i e s &ra not
n:^ available*

f i r t u a i l j every isetJe of tae AailjT MMpqptMMI bears

evidence in the advertising columns thfet »ortg&ge money i s being
offered to ha^e ovn&rs hoiaa builders on S >e H"b€r&l terms IhMI
i t h&s ever pMf9ftMM3|P been W t i a M r

I>uring the past six sjojrths,

and -uore partlcilarly aurir^: the second -..unrter if tkt f

r# co»-

merclftl aa<3 savlagis banks have been leading Tior© freely, insurance
companies have been lending v,3re- freely, building & s loan aasociaxd

tions heve been landing

freely, the clients of ,.aort/

fcrsfcsrt Ittfl Men iMUflg aare freely?
universal coopl&int



there Isas been &

these sever&l classes of lenders that

they caimot find enough borrowers*

I t Is tr»© th&t the more

speculative type* of re&l-est&te loams wkica ch&r&ott:ri£ed the
last boom period are not being ;asdef ttisd tljat facilities for
making them t>r^ lacking; but there is c«rt*»lnly no lwpreeslYe
evidence ar coapl&int in the lending community th&t acceptable
borrowers are folding teck new housing l^e^nae of &a a»sua?tion
Ml %heiT part thrt credit f a c i l i t i e s are Mi to b .had*
there is of course M questl^ziing the ©saential
cluaion of -,fr« Griss^s obse-rr^itiirus, fitilcii is ttttl & h
s,;,ortege iapettds if th@ industrial upswing continuM am! that &
boom with a l l i t s aiachi««MM pot—tiillII— i s therefore incipient.
I t sbotild also be observed^ howeverf vimt U N i is i reciprocal
action between the Industrial • M i Q & d realdentifcl cofjgtractioB,
p rU g B
Ikat an incre&sir«g proportion of %hv iatWfattMl UpmAmg hes
become attributable In recent months to the upswing in nev housing*
Both these phenomena ere evidences of the opening ap of credit
Among th«se f a c i l i t i e s are | i be included those of Tttls I I
•f the National




B*9 f s c i i i t i e s that BJRfl been

available in re&iiy sottekis farm, however, onij over a p&riod of

i i

soa« 60 or S dcys. In the :i.:bt of this Lfttttff f&ct the volumes
of OjOrtf*£«f 'being currently offo*oi t? the Federal Housing loV
•i.ini3trt.tton for Insurance aay reasonably be reg&rded ^s both



f ^-c^ur^ i-«, aai n j eooMni a m i t i rttt* of SawnMHM

in relation to the limited p f l a j Bf practical arveration ef Title II
:.d therefore iMM to bi |T4HWiiMk
The rtftl tfttMtSmmi 9f flt&i II to date is Ml in
the preseat •voliMfs of insure

spHOtttiOBSf but in the iapotua

m& direction that the F A hk.& given to residential conotruction
to the raort :* £« d&rket &s ^ wltoie ia ttw M^ of essier M M f
r interest r&tes, lon-i-toria Io4ins, tad the widespread trend
toward MMTtiSfcttaU

The I—t of F!-yifa efforts in the iMHHMMt

®f -iortg&ges will com© «itll liM evidence Of v;hether or not the
I of progress attained in the oast 90 or 90 ays c&n be sub-