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Chairman XXXXXX3C. .Novembe TO - Mr, Kclntyre* FROM - tr. Bccles, This is the aeiaorandoa. to the President which I dlscusMd with you over the telephone today* I trust you personally will take time to read it in rim of your interest in the question* I hope you are successful in getting it before the President, i believe if he will take time to reed it thoroughly, he will not permit any change to be jaade in th© present installment financing being done by banks through the Federal Housing Adainistration# at least not before April 1st* the date on which Title One of the Housing Act is due to expire* Attachment* November 4, 1935 The President FROMs «. S. Eccles SUBJECT: Installment financing by btmks of domestic electrical equipment. Through a aeaber of our staff who sets as a liaison officer for the Board on housing matters, I hare learned of the question that has arisen between the Electric Home and Farm Authority and the Federal Housing idainistration as to whether the latter agency shall discontinue the insuring of loans on certain domestic electrical equipment. I understand that you now have the question under advisement. this is a kind of situation in irhich I should ordinarily, of course, hesitate to put m? views forward. I feel that X say do so with your indulgence in the present instance, however, for two particular reasons* Is the first place, I had a good deal to do with working out the program of installment financing that M i incorporated in Title I - £ - of the Housing Act* You may recall, In this connection, that X served as the Treasury representative oa your Cosuaittee on Housing. In the second place, I em now especially interested in the fWk program because of the fact that the great bulk of the business under both Title X and Title XI of the Housing Act is being financed by aeaber book* of the federal Reserve System. Xt Is my recollection that the insurance of loans on domestic electrical equipment was not originally contemplated ty the authors of the program provided for in the Housing Act* Nevertheless, a widespread demand developed for the insurance of such loans, and in October of last y**r they were authorized to a limited extent by administrative regulation. Xn May of this year Congress adopted an amendment which enlarged the field of FEA operation in this respect, and a further clarifying amendment as to the Administrator's powers under Title X was included in the Banking Act of 1955. Lotms fey banks on do&estic electrical equipment, X &m informed, apparently represent nore than £0 per eent of the total business of BOW* 1200,000,000 dome to date tinder Title X* X an also informed that at the present time Title X loans by banks and other agencies are being aade at the rate of £6,000,000 to "7,000,000 a week, of which approximately $1,250,000 a week is estimated to be on domestic electrical equipment. This is in Itself a substantial volume of business and, from an earning standpoint, is of no less importance to the banks then to the manufacturers and dealers whose products they are financing. Moreover, the cost of this financing is the lowest that the purchasers of such products hare ever been required to pay— approximately half the rate that prevailed before the FHA progrits was inaugurated* 0& the other hand, if I as correctly informed, the total voluae of household-appliance business financed fcy the IHFA since it was established in December 1355 Is less than that which the basks are now financing every week under the EHA program* and the cost of the EHFA financing to domestic consumers, If I am correctly inforated, ranges from XI per cent to more than IS per cent, whereas the maximum charge aade by banks for Title X loans is 9.7 per cent and is In numerous instances below that rate* Hence, It seen* to me that this bank lending In the field of household appliances Is of such evident practical value that every effort should be made at this time to encourage It through FHA rather than to curtail it or abandon it In farnnr of - 4 governmental financing through EHFA* This last point X reg&rd as the crux of the matter. In coaaon with other officials of the Administration* I have in recent addresses and In numerous private conversations been placing great emphasis on the effort that is being made by the Administration to have the Government withdraw from the lending field and to revive private lending. I think you will agree with ae that the two forrsa of insurance provided for in the Housing Aet are thus far the most effective, the most popular, and the most economical iteana devised to bring this transition about. To date 5,901 banks and other Agencies have asade loans under Title I, and 5,878 have made loans under title II. the aggregate volume of business being done under these two titles is running currently between $£0,000,000 and 160,000,000 a ssonth. Thin is all private capital and coming in the maim, as I said before, from memhw banks of the Federal Reserve System, If this flow of private capital were interrupted by diverting from the banks to the EBFA the financing of householdappliance Bales* the reaction would in agr opinion be harmful to the FHA program-—not only to th© 8hort-*t«ra» modernisation financing under title I, but to the w»eh more Important lo»g*tera mortgage finanoing uader title II. I sav this because for the FBA no* suddenly to alter its course> after manufacturers and dealers had entered into arrangements with banks in accordance with the recent amendments to Title lt would cause »ueh confusion among these banks aad not a little loss of business ncm definitely In prospect for them* This would m turally provoke resentment toward the FHA. prograT* as a whole and Impair confidence In its stability* Fur- thermore, It would almost Inevitably result in widespread criticism of the Administration an the part of the press, the banking comattialty* asd the numerous a&wif&cturers and dealers involved, without &n$ cosmensurate gain to the buying public find without as^ o©araefiSTff&te impetus to business recovery. For another thing, the effort to transfer to a governmental agency a voluse of financing that Is now being well handled by the banks would embarrass those of us who are consistently urging private agencies to relieve government of the necessity of financing private borrowers* It seems to me quite evident that nothing which the 1HFA could accomplish during the next few months would warrant the operating upset that Manufacturers, dealers, and banks would experience, or the great commotion they would stir up, if the existing smooth arrangement were prematurely altered. I would earnestly req\j«sst, therefore, that In reaching your final decision in this matter you consider th* 4e~ airability, on practical grounds as well as cm groumdc of governatntal policy, of permitting the bank* to continue their present method of financing domestic electrical equipment at least until April 1, 1956t OR whieh date Title I of the Koiisiag Act is due to expire, Any change you might then wish to aiogiir&t© in the event Title I is extended coyld b® brought about nithout the harmful repforeustioBS that would an earlier ciartailaeat of PHA's business with tha beaks* ,
