View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.


1. Operation of national mortgage associations presupposes the prior existence of many thousands of insured home
mortgages in excess of the number that lending agencies would retain for their own portfolios*

Considerable period of time —

say one year to eighteen months — must elapse before insured
mortgages would exist in sufficient numbers to provide an adequate
supply for institutions as large as national mortgage associations.

Primary purpose of national mortgage associations is

to syphon funds from areas where there is a surplus to areas where
there is a deficiency.

At the present time there is in nearly all

areas a surplus of capital or credit awaiting investment• Once banks
and other lending agencies began to take on insured mortgages, they
would be more concerned, under present conditions, with adding to their
own earning assets than with selling insured mortgages to national
mortgage associations.
3. Chief obstacle to organizing argr national mortgage
association is inability of investment bankers to see any possibility
of profit as Titles II and III of National Housing Act now stand with
regard to mortgage associations. Reducing minimum capital requirement from $5,000,000 to $£,000,000, or even less, would not meet the
real problem and, therefore, would not lead to the forming of any
mortgage associations. On the contrary, reduction of the minimum

capital requirement would increase the difficulty that a mortgage
association would have in operating at a profit. Primary reason for
original provision for 05,000,000 minimum capital and 15 to 1 ratio
of debentures to capital was that only very large company could
operate profitably on the small spread available even under favorable conditions.
4. Most serious flaw in Title III from standpoint of investment bankers who might consider organizing national mortgage
associations is limitation of governmental guaranty to FHA debentures
issued prior to July 1, 1957. Nobody wants to organize $5,000,000
distributing organisations that will begin to lose their source of
supply in two years. Similar flaw is limitation of insured mortgages
to total of $2,000,000,000 when existing volume of urban home mortgages totals $21,000,000,000.
5. Federal Housing Administration and Reconstruction Finance
Corporation are in competition, if not in actual conflict, with regard
to setting up national mortgage associations and mortgage-trust
companies. Investment bankers simply refuse to raise capital for

They donft see why Government does not make up its mind which

of the two it wants instead of pressing for both. As matter of
practical policy, Title III of National Housing Act should be amended
so that mortgage associations could also perform functions of mortgagetrust companies as contemplated in HFC Circular No. 18•