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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*


November 4, 1935

The President

«. 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
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
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*


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
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*