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November 18, 1937


Mr. Eccles

From: J. M. Daiger


The particular point that Mr. McDonald makes in
raising the question of tax exemption for debentures of
national mortgage associations is in relation to the Presidents
recent comments on an overall cost of 5 per cent to borrowers
under Title II.
Mr. McDonald points out, quite accurately, that an
exact comparison cannot be made between the cost to borrowers
under the FHA on the one hand and, on the other hand, under
the HOLC, the FCA, and the USHA. The three latter agencies
have the advantage of raising funds in the open market on taxexempt securities.
Hence it is not reasonable to argue that, because the
HOLC rate is 5 per cent and the FCA and TJSHA rate less than 5
per cent, an overall rate of 5 per cent, including mortgage insurance, ought to be possible through the FHA.
Mr. McDonald1s contention, which I think is quite
reasonable, is that a rate of 5 per cent, exclusive of the insurance premium, is an altogether reasonable rate in comparison


with the others mentioned, and that, if the President wishes
to get it still lower, the logical means would be to extend
the tax exemption to national mortgage association debentures.