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vol. i
JPfmls
NO 8
-
FEDERAL
HOME LOAN BANK
REVIEW
MAY
1935
ISSUED BY
FEDERAL HOME LOAN BANK BOARD
WASHINGTON D.C.
Federal Home Loan Bank Review
TABLE OF CONTENTS
Page
The new legislation as it affects thrift, home-financing institutions
279
A method of adjusting interest rate to risk developed by a middle-western association.
282
Advertising by State-chartered insured associations
286
Premiums
289
Residential construction activity in the United States
293
Combined statement of condition of the Federal Home Loan Banks
298
Growth and lending operations of the Federal Home Loan Bank System
300
Federal Home Loan Banks authorized to lower rates on advances to member institutions
302
Federal savings and loan associations
304
Federal Savings and Loan Insurance Corporation
306
Home Owners' Loan Corporation
308
Summary of operations of the Reconditioning Division
308
Table of applications received and loans closed, by months
309
Resolutions of the Board
310
Directory of member, Federal, and insured institutions added during April
311
SUBSCRIPTION PRICE OF REVIEW
THE FEDERAL HOME LOAN BANK REVIEW is the Board's medium of communication with member institutions of the Federal Home Loan
Bank System and is the only official organ or periodical publication of the Board. The REVIEW will be sent to all member institutions without
charge. To others the annual subscription price, which covers the cost of paper and printing, is $1. Single copies will be sold at 10 cents. Outside of the United States, Canada, Mexico, and the insular possessions, subscription price is $1.40; single copies, 15 cents. Subscriptions should be
sent to and copies ordered from Superintendent of Documents, Government Printing Office, Washington, D. C.
Federal Home Loan Bank Board
JOHN H. FAHEY, Chairman
WILLIAM F. STEVENSON
T. D . W E B B , Vice Chairman
F. W. CATLETT
H. E . HOAGLAND
O F F I C E R S O F F E D E R A L H O M E LOAN B A N K S
BOSTON:
B. J. ROTHWELL, Chairman; W. H. NEAVES, President; H. N . FAULKNER, Vice President; FREDERICK
WINANT, Jr., Secretary-Treasurer.
NEWARK:
GEORGE MACDONALD, Chairman; G. L. BLISS, President; F. G. STICKEL, Jr., Vice President and General
Counsel; ROBERT G. CLARKSON, Vice President-Secretary; DENTON C. LYON, Treasurer.
PITTSBURGH:
E. T. TRIGG, Chairman; R. H. RICHARDS, President; G. R. PARKER, Vice President; H. H. GARBER, Secretary-Treasurer.
WINSTON-SALEM :
IVAN ALLEN, Chairman; O. K. LAROQUE, President; G. E. WALSTON, Vice President; F. F. KIDD, Secretary-
Treasurer.
CINCINNATI:
H. S. KISSELL, Chairman; H. F. CELLARIUS, President; W. E . JULIUS, Executive Vice President; H. J.
BRODBECK, Second Vice President; W. B. FURGERSON, Treasurer; DWIGHT W E B B , Jr., SecretaryComptroller.
INDIANAPOLIS:
F. S. CANNON, Chairman; F. B. M C K I B B I N , President; JOHN A. R H U E , Vice President; B. F. BURTLESS,
Secretary-Treasurer.
CHICAGO:
H. G. ZANDER, Chairman; A. R. GARDNER, President; E. H. BURGESS, Treasurer; R. D . HULSE, Secretary.
DES MOINES:
C. B. ROBBINS, Chairman; R. J. RICHARDSON, President-Secretary; W. H. LOHMAN, Vice PresidentTreasurer; J. M. MARTIN, Assistant Secretary; A. E. MUELLER, Assistant Treasurer.
LITTLE ROCK:
I. FRIEDLANDER, Chairman; B. H. WOOTEN, President; H. D . WALLACE, Vice President-Treasurer; J. C.
CONWAY, Secretary.
TOPEKA:
C. B. MERRIAM, Chairman; C. A. STERLING, President; W. L. BdwERSOx, Vice President; R. H. BURTON,
Secretary-Treasurer.
PORTLAND:
F. S. MCWILLIAMS, Chairman; C. H. STEWART, President; IRVING BOGARDUS, Vice President-Treasurer;
W. H. CAMPBELL, Secretary.
Los ANGELES:
C. H. WADE, Chairman; M. M. HURFORD, President; F. C. NOON, Secretary-Treasurer.
The New Legislation as It Affects Thrift,
Home-Financing Institutions
S this REVIEW goes to press, the Senate
and House conferees have reached
agreement on the act to provide additional
home-mortgage relief, and to amend the
Federal Home Loan Bank Act, the Home
Owners' Loan Act of 1933, and the National
Housing Act. This agreement presages
speedy enactment of the bill. By this legislation, Congress completes and clarifies the
program which it desires the Federal Home
Loan Bank Board to carry out.
The provisions of the bill fall logically
into two categories: (1) Those designed to
adjust further the burden of debt that has
been paralyzing the urban real-estate market; (2) those designed to strengthen and
encourage private, thrift, home-financing
institutions in order that they may resume
their function of financing the Nation's
homes.
A
ADDITIONAL FUNDS FOR THE HOME OWNERS'
LOAN CORPORATION
THE bill authorizes the Home Owners'
Loan Corporation to issue an additional
$1,750,000,000 in bonds, bringing the total
to $4,750,000,000. The major portion of
these additional resources is to be used to
refinance the mortgages of eligible distressed home owners, whose applications
are already on file with the Corporation or
who make application within 30 days from
the date this amendment takes effect.
The Corporation has already refinanced
some 860,000 homes, and these additional
funds will permit it to extend its aid to
a total of well over a million distressed
home owners. The law requires, of course,
Federal Home Loan Bank
Review
that the Corporation lend only to those who,
without the Corporation's aid, would lose
their homes by foreclosure or tax sale. All
applicants whose mortgages can be carried
by the present mortgagees or refinanced by
other private mortgagees must be declared
ineligible under the law. It is obviously to
the interest of private lending institutions
to stretch a point in carrying their own distressed borrowers in order that the Federal
Government may not be compelled to remain in the home-financing field any
longer than is absolutely necessary.
FEDERAL FUNDS TO BE INVESTED IN
ASSOCIATIONS
THE removal by the Home Owners' Loan
Corporation of many additional thousands
of acutely distressed properties from the
real-estate market should complete the
task—already well started—of restoring
property values and thus facilitate the revival of new home financing and home
building with private funds. To encourage
private institutions, particularly of the
thrift, home-financing type, to resume active lending is the purpose of several major provisions of this bill. One such provision authorizes the Corporation to employ
$300,000,000 to purchase shares of Federal
savings and loan associations, to purchase
shares and investment certificates of and
make deposits in State-chartered institutions that are members of a Federal Home
Loan Bank or whose accounts are insured
by the Federal Savings and Loan Insurance Corporation, and to purchase Federal
Home Loan Bank bonds, debentures, or
notes. This sum is, of course, in addition
279
to the $50,000,000 originally available to the
Secretary of the Treasury for the purchase
of shares in Federal associations. This
total of $350,000,000 of direct Federal investment in savings, building and loan associations is equivalent to $1 in every $14
that those associations had invested in
home mortgages at the end of 1934.
COST OF INSURANCE REDUCED
A SECOND group of provisions in this legislation to strengthen and encourage building and loan associations will probably do
even more than direct Federal investment
in their shares to increase their resources.
These provisions reduce the cost of insurance of accounts by the Federal Savings
and Loan Insurance Corporation. The annual premium charge is cut from % to %
of 1 percent of the total amount of all
accounts of the insured members plus
any creditor obligations of an institution.
The additional premium that may be levied
in any one year is also cut from *4 to y8 of
1 percent, so that the maximum premium
payment that any insured institution may
be compelled to make in any one year is
% of 1 percent. Furthermore, under the
new act insured institutions may be allowed
20 years to build up reserves to 5 percent of
the insured accounts instead of 10 as under
the earlier act. Finally, the former prohibition against the declaration of dividends
in any year in which losses are chargeable
to an institution's reserves has been altered
to permit the declaration of dividends if
the Insurance Corporation approves.
These amendments bring the cost of insurance of accounts within the means of
every eligible institution. By so doing,
they must clear the way for thousands of
building and loan associations to provide
their shareholders the protection of Federal insurance. Sufficient experience has
been accumulated by State-chartered and
Federal associations already insured to
place beyond argument the value of insurance in recapturing public confidence and
increasing the flow of savings to home280
financing institutions. As building and
loan associations take advantage of this
means of attracting the savings of the public, it is not over-optimistic to predict that
the volume of funds available to them will
be limited only by their capacity to employ
such funds profitably.
MORE LIBERAL TERMS ON FEDERAL HOME LOAN
BANK ADVANCES
A THIRD major category of provisions
makes the loanable resources of Federal
Home Loan Banks available to member
institutions on more liberal terms. Thus,
by eliminating the 2-percent cumulative
dividend on stock in the Federal Home
Loan Banks held by the United States
Treasury, the legislation will permit the
Banks to make advances to member institutions at lower interest rates. In anticipation of this step, the Board has already
authorized the 12 regional Banks to reduce
the effective rate on all advances to 3 percent (see page 302 of this REVIEW) . In addition, the term of amortized home-mortgage loans eligible as collateral for advances up to 65 percent of the unpaid principal is reduced from 8 to 6 years. Advances secured by obligations of the United
States or by obligations fully guaranteed
by the United States may be made up to the
face value of such obligations. The definition of " home mortgage " is changed so as
to permit mortgages on 4-family dwellings
to be used as collateral for advances from
the Banks. The term of mortgages eligible
as collateral for advances from the Federal
Home Loan Banks is extended from 15
years to 20 years and the former provision limiting the value of the property to
$20,000 has been replaced by one limiting
the amount of the mortgage to $20,000.
Finally, the Federal Home Loan Banks are
authorized to make advances on mortgages
insured under Title II of the National Housing Act to nonmember institutions meeting
certain requirements. Such advances may
equal 90 percent of the unpaid principal of
Federal Home Loan Bank
Review
the mortgage loan given as security. This
last provision is a step toward giving insured mortgages the liquidity essential to
create a national market for them.
MISCELLANEOUS PROVISIONS
IN addition to these major items, the legislation contains a number of provisions
facilitating administration of the Board's
agencies or which are of special interest to
home-financing institutions. The funds of
the Home Owners' Loan Corporation available for reconditioning of refinanced or distressed properties are increased from
$300,000,000 to $400,000,000. The appropriation for the development of savings and
loan associations is raised from $500,000 to
$700,000 and is to be used impartially in
the promotion of local, thrift, and homefinancing institutions, whether under State
or Federal charter. Associations converting from State to Federal charter are
authorized to continue making loans in the
same territory in which they made loans
while operating under State charter. The
directors of each Federal Home Loan Bank
are increased from 11 to 12. Four directors
are to be appointed by the Board and 8 are
to be elected by the member institutions—2
at large and 2 representing each of the class
A, B, and C institutions. Finally, a Federal Savings and Loan Advisory Council
is created to confer, advise with, and make
recommendations to the Federal Home
Loan Bank Board. The directors of each
regional Bank shall elect one member
Federal Home Loan Bank
Review
and the Board shall appoint six to this
council.
SUMMARY
legislation cannot be properly evaluated apart from that which has preceded it
and which it is designed to round out and
perfect. It completes the major details of
a program for organizing and strengthening the Nation's thrift and home-financing
institutions which has developed over a
period of years. Its contribution to that
program from the point of view of the
lending institution may be briefly summarized.
1. It gives additional protection to realestate values and so justifies the resumption of lending by private institutions.
2. It will relieve mortgagees of additional quantities of slow assets and thus
increase their liquidity.
3. It makes available $300,000,000 of
Federal funds for investment in building
and loan associations and in Federal Home
Loan Bank bonds, notes, or debentures.
4. It increases the potential line of credit
of member institutions with Federal Home
Loan Banks and makes possible lower
interest rates on advances.
5. It brings insurance within the means
of all eligible associations, thus enabling
them to recapture public confidence and
attract savings.
6. It gives thrift, home-financing institutions in an increased degree the prestige of
Federal approval.
THIS
281
A Method of Adjusting Interest Rate to
Risk Developed by a Middle-Western
Association
ACED with the necessity of reducing
interest rates to meet competition, a
Federal savings and loan association in a
Middle Western State has attempted a solution by the adjustment of rates to risk.
The association reports that this solution
has satisfied its borrowers and enabled it
to get its share of new business. In the
thought that the experiment will be of interest to all institutions engaged in making
long-term loans on homes, the REVIEW has
obtained permission to publish an adaptation of the method and an analysis of the
principles involved.
In explaining the origin of the plan, the
association reports that it had been charging the same rate on all loans. To have
made a flat cut in this rate on all loans
would have made necessary the charging
of a commission. This was undesirable
because, the association writes, " it is very
unpopular with the borrower." The practice followed by fire-insurance companies
of charging different rates for different policies according to the variation in risk suggested an alternative.
In principle, the method involves the setting of a minimum interest rate, which
should be the lowest rate possible consistent with the cost of money to the institution and with the cost of servicing the highest quality loan. In addition to this minimum rate the institution established a series of 4 other rates each one-half percent
per year higher than the preceding rate.
Thus, with 5 rates the spread between the
minimum and the maximum is 2 percent.
F
282
Next, the method involves a procedure for
measuring risk in order to determine
which of these 5 rates a borrower shall pay.
This procedure is illustrated in the accompanying interest rate sheet, which was
worked out by the association in question.
The sheet lists 10 specific tests to be applied
to a borrower and his property, ranging
from the type and occupancy of his dwelling to the liens on his income. Under each
of these tests, he may receive a number of
" deficiency points " ranging from 0 to 18
as the risk increases. Thus, under No. 1,
an owner-occupied home gets 0 deficiency
points because experience has shown that
an owner occupying his own home makes
a greater effort to keep up his payments
than an owner who rents his property.
Also, as the risk is greatest on a building for three or more families, this gets a
higher number of deficiency points than
any other type of dwelling.
The total number of deficiency points determines the interest rate according to a
fixed schedule. Thus 6 or fewer deficiency
points mean that the loan will be made at
the minimum rate. Each increase of 3 or
less deficiency points causes an increase of
one-half of 1 percent in the rate. The relationship between rate and deficiency points
is, therefore, as follows:
Rate of interest
Deficiency points
1
2
Minimum
6
9
3
4
5
+1% + 1 H %
12
Federal Home Loan Bank
15
+2%
18
Review
Interest Rate Sheet of
Savings and Loan Association
Name
Property address
Amount of loan
Rate of interest:
Deficiency Points:
Date
Minimum
6
+%%
9
+ 1%
12
N o . 1:
Interest rate . .
+1%%
+2%
15
18
Points
Owner occupancy
Tenant occupancy
Duplex, two families
Apartments, three or more
No. 2—Design and construction:
Fireproof and modern
Brick and modern
Frame and modern
Frame but not modern
Residence combined with business
No. 3—Location of property:
Restricted
Not restricted but protected
Not restricted and not protected
No. 4—Certain income:
5 to 1 of monthly payment
4 to 1 of monthly payment
3 to 1 of monthly payment
2 to 1 of monthly payment
No. 5:
A home not more than 5 years old
A home 6 to 10 years old
A home 11 to 15 years old
A home over 15 years old
No. 6—Ratio to value:
Loan less than 50%
50% to 60%
60% to 70%
70% to 80%
No. 7:
Loan to pay out in 12 years
Loan to pay out in 16 years
Loan to pay out in 20 years
No. 8—Record of Credit:
Credit Bureau A - l
Credit Bureau B
Credit Bureau C
No. 9—Life insurance:
Amount assigned for loan
Amount carried to loan but not assigned
No life insurance
No. 10—Amount of income pledged on installment other than loan:
None pledged
25% pledged
35% pledged
Charge
0
2
4
6
0
1
2
6
8
0
2
8
0
2
4
6
0
2
4
6
0
2
4
6
0
2
4
0
2
4
0
2
4
0
2
4
Total deficiency points:
Final rate
percent.
Federal
Home
Loan
Bank
Review
283
EXPLANATION OF THE 10 TESTS
T H E 10 tests on the interest rate sheet require little additional explanation. They
comprise the factors that in the opinion of
this particular association combine to
measure the degree of risk involved in any
particular loan. Another association might
eliminate some and add others.
Under design and construction (No. 2), a
"fireproof" dwelling is defined as one in
which the walls, roof, and floors are of fireproof materials. A " modern " home is one
equipped with central heat, electricity, gas,
bathroom, and interior finish of hardwood.
The term " restricted ", under location of
property (No. 3), means a subdivision in
which the type and cost of permissible design and construction are restricted when
the plat is filed or by zoning ordinances.
" Not restricted but protected " means an
area without restrictions as to cost or type
of home but with ample fire protection.
" Not restricted and not protected" designates an outlying district lacking fire
protection.
The relation of the borrower's income to
the monthly payments on his loan is considered vital in determining his ability to
pay and so explains test No. 4. The ratio
of the loan to assessed valuation (No. 6) is
used not only to fix the original risk but
also as a measuring rod by which to reduce interest rates as payments on the loan
decrease the risk. Thus, if a borrower
obtains a 75-percent loan he gets 6 deficiency points. When he reduces this to 60
percent, he is entitled to a cut of one-half
point in interest rate and when he reduces
it to 50 percent, to a whole point. It is suggested that this practice will encourage the
borrower to keep up his payments so as to
reduce the cost of his loan. It seems that
this procedure would also permit the association to grant a sufficiently large first
mortgage to eliminate the need for a second mortgage.
The association adopted test No. 7, under
which deficiency points increase as the
284
term of loan lengthens, to permit the granting of 16- or 20-year loans with relative
safety to borrowers who cannot make the
higher monthly payments under the 12year plan.
The borrower's past record in paying his
bills in the community (test No. 8) takes
care of the personal risk factor. The theory that a loan protected by life insurance
merits a lower interest rate explains test
No. 9. The association reports that the
offering of a lower interest rate overcomes
the objection of many people to assigning life insurance and that this item has
been of much assistance in securing such
assignments. It suggests the advisability
of giving a 3-point credit instead of 2,
which would immediately make one-half
percent difference in interest rate to those
who assign their insurance.
The last item—amount of
income
pledged on instalment purchases, such
as for automobile, radio, and furniture—is
said to be essential to round out the picture
of the borrower's capacity to pay obtained
under test No. 4, on the relation of mortgage payments to income.
The association reports that it has applied this rating system to all the loans on
its books without receiving a single objection from a borrower. It states that the
observable hazard in the loan tends to fix
the rate so that it is fair not only to the
association but to the borrower.
METHOD OF ESTABLISHING DEFICIENCY POINTS
T H E association established the deficiency
points in such manner as to give it an average income of 1 percent above the minimum rate on all its loans. That is, it knew
from experience that the majority of loans
on its books would represent an average
risk, and that there would be a number of
loans representing a lesser risk at one end
and a number representing a greater risk
at the other. It, therefore, fixed the number of deficiency points to be given for each
of the conditions under the 10 tests so that
Federal Home Loan Bank
Review
most of its loans would qualify for the
middle interest rate and the number qualifying for the two lowest rates would about
balance those qualifying for the two
highest rates.
The proponents of this plan claim that
aside from its success in adjusting interest
rates to risk and meeting competition, it
has one advantage capable of doing a great
Federal Home Loan Bank
133536—35
2
Review
service to the improvement of housing in
this country. It puts a premium on good
design and construction and on city planning and zoning. The theory is that the
opportunity to obtain lower financing costs
will lead home owners to have more care
for the quality of construction and for the
protection of neighborhood amenities.
285
Advertising by State-Chartered Insured
Associations
TATE-CHARTERED building and loan
associations are using advertising to
make the most of insurance of their accounts. They are recognizing that actual
insurance is only the first step; that it is
equally essential to inform the public about
this assurance of safety. Only when this is
done can an association hope to reap the
full reward of insurance in regaining public confidence, reducing withdrawals and
repurchases, and attracting new investments. Failure to call the insurance feature promptly to general public attention
is to restrict its productive value at the
very time when it is most needed.
Experience has proved that letters and
newspaper are efficient and economical
media for informing the public of insurance of accounts. As many State-chartered
institutions have asked the Federal Savings
and Loan Insurance Corporation for advice
on how they can best advertise the safety
feature, a number of insurance advertisements are reproduced in the accompanying
pages. It should be emphasized that the
effectiveness of these advertisements has
been tested. Several of the associations
submitting them report that the use of one
or two such advertisements immediately
brought in so large a volume of new savings as to make further advertising unnecessary for the time being. The first notice
frequently brought in new funds faster
than the association could place them in
loans.
The diversity of methods employed by
these comparatively few associations in
calling attention to insurance is worthy of
note. It indicates that the Corporation's
S
286
regulations concerning the advertisement
of share insurance are sufficiently flexible
to permit any association to retain its own
distinctive form of advertising.
As the good will of present members is
the most valuable asset of any association,
it would seem profitable to write every
member a letter informing him that his
account is insured up to $5,000. For an
association with a withdrawal list such a
letter seems absolutely essential. For all
institutions, it will tend to tighten the bonds
between the association and its members
and enlist them as active promoters both
of new investments and new loans. A draft
of such a letter which an association may
adapt to local condition is given herewith:
DEAR MEMBER:
Your association takes pride in informing you
that it has insured the safety of your account up
to $5,000 with the Federal Savings and Loan
Insurance Corporation, Washington, D. C. This
means that your investment with us up to $5,000
is protected 100 percent against loss or depreciation. This is the most complete protection ever
offered investors in home-financing institutions.
We hope that you will take increasing advantage of this protection and call the desirability of investment in this association to the
attention of your friends.
You will be interested to know, also, that your
association has funds available for loans in sound
first mortgages. No doubt you have friends and
acquaintances who would like to buy or build
or refinance their present mortgages. We know
that if you recommend these friends to us, they
will be the kind of people whom we will want
to serve.
Very truly yours,
ASSOCIATION,
By
,
Secretary.
Federal Home Loan Bank
Review
A D V E R T I S E M E N T S USED BY INSURED STATE-CHARTERED ASSOCIATIONS
This Savings
Institution Makes
NO UNSECURED LOANS
The wise provisions of the State law under which this Association operates provide that no loans can be° made except upon first mortgages on improved real
estate. — No loans can be made to officers or directors.
Real estate loans are among the earliest forms of money loaning known to man,
and experience through the centuries has proved their value and safety, if
proper safeguards and appraisals are made.
This mutual savings society offers investors a safe place for their investment
at a profitable rate of return.
The safety of amounts up to $5,000.00 each is insured by the Federal Savings
& Loan Insurance Corporation, an instrumentality of the Federal government..
Lewis County
Savings & Loan Association
ChehaU&Jfilas'"
Our Amortized Loan Plan
"Kills off" the Mortgage
We hare $150,000 to loan on good urban homes for
refinancing—remodeling—new construction, or to help
you purchase your own home, under a plan that is easy
to handle and fair to the borrower.
Applicants must have a good credit standing and
the ability to make monthly payments.
Another Step
Forward! Announcing
Conservative Policies
•Then...
IX^AM. • • •
Federal Home Loan Banl
—THE MOST ATTRACTIVE ever offered t
Building and Loan in Imperial Valley.
m
•
•
•
Through membership in t h e Fe"
Home Loan Bank System we establj
a background of resources t h a t pV
greater safety to our investors, g:
facilities for our borrowers.
Through our affiliation with t h e F
Savings and Loan Insurance Corpo
every savings-investment account l
t a Cruz County Building and Lo
sociation is now insured u p to $500
strongest assurance of safety ever
to building and loan investors.
No loan fees
No agent's commission
No appraisal fee
Monthly interest reduction
ership and regular monthly savings
I sis of great as well as modest forrt a savings account with us today.
ety of Your Investment in
*
tJNTAIN STATES BUILDING
D LOAN ASSOCIATION
Great Falls, Montana
wed Up to $5,000 by the
Saving's and Loan Insurance
[bration, Washington, D. C.
:
We are prepared to refinance
your present
mortgage
on this new basis.
•Now...
Federal Insurance of
Every Investment Accou
your own home. Real estate vall^nsimr, and rents are going up. '
« • ownership i s a warranty of
A N E W LOAN
POLICY
> First
From its beginning this company
held to sound, conservative p o 1 i c \ ej
keeping our overhead low, restrict
loans to Santa Cruz county, emphasir
small home loans in preference to la
commercial risks.
Now is a good time
Loans Made Withou\
Delay
A home institution for home people. Your
ing<s with us are insured up to §5,000.00 b4
Federal Savings and Loan Insurance Cor J
ion.
IMPERIAL
VALLEY
BUILDING AND LOJ
SAFETY OF YOUR INVESTMENT INSURED UP TO
$5,000.
Federal Savings & IAMB.
Iiuuranca Corporation
Your "Eagle" deposits are invested in first mortgage real
estate loans for buying build*ng or remodeling homes
and wffl aid in increasing
local employment.
ASSOjB&TION
LI46
SOUTH 6TH S T . ^ ^ B f l ^ ^ ^ t t ^ E L CENTQO
k^j*4foeu*j3^
PHONE 5 2 5
Federal Home Loan Bank Review
287
A D V E R T I S E M E N T S USED BV , N S U R E D STATE-CHARTEREO ASSOCAT.ONS
INVEST YOUR SAVINGS
Announcement
In Shares of This Association
The undersigned Associations of. this city take pleasure in announcing to their many shareholders and the public generalh/
that; effective March 7th, the
Why?
T h e safety of your Investment fully i n s u r e d ' u p t o $5000.00
by t h e
FEDERAL SAVINGS & LOAN INSURANCE
CORPORATION, WASHINGTON, D. C.
SAFETY OF YOUR INVESTMENTS
in These Institutions Have Been
Monthly Savings Especially Solicited.
One Dollar and Up.
INSURED 100% UP TO '5,000
By The
The CAPITAL
FEDERAL SAVINGS & LOAN
INSURANCE CORPORATION
BUILDING & LOAN ASSOCIATION
Corner Church and Florida S t r e e t s
Phone 39151
Baton Rouge, Louisiana
Established 19091
J. H. Percy, Pres.; O. M. Thompson, V. Pres. and S e c Treas,]
Taylor, Porter & Brooks, Attorneys.
MEMBER FEDERAL HOME LOAN BANK SYSTEftJ
Approved
Mortagee
Under
FEDERAL HOUSING ACT
j||fe
Washington, D. C.
Baton Rouge Building & Loan
Association
The Capital Building & Loan
Association
The Citizens Building & Loan
Association
Jefferson Homestead
Association
AN ASSET
^Pl^l? To TJjis Community
This splendid Association has operated solely for the benefit of the entire j
people of this vicinity since its organization.
It has no selfish motive in its operation. No inside coterie profits by it>? I
success. Everyone shares in its success alike according to the stock h d |
holds. It's record for
SAFETY A N D SERVICE IS
SECOND TO NONE
We now announce another forward step
SAFETY OF YOUR INVESTMENT
INSURED U P TO $5,000.00
By the Feedral Savings & Lpan Insurance Corporation, Washington, D. J
This step, together with our
NEW DIRECT REDUCTION LOAN PLAIN I
at GREATLY REDUCED INTEREST RATE?/
with all the best features of the latest loan plans make this ASAOCII J
the last word m
HOME FINANCING
It will pay anyone who is interested to call at our office and gel the c\ J
of this plan.
Fayetteville Building & Loan
Association
Member Federal Home Loan Banking Systetf
The officers and directors of this Association,
are pleased to announce that the shares or pur
many stockholders and friends are now insured
against capital loss up to $5,000.00 for each
individual account by the Federal Savings and
Loan Insurance Corporation, an agency of the
United States Government.
To the investor who is interested in a sound
investment we offer our Full Paid Stock and In*
stallment Stock.
Our dividends, predicated on earnings, nave
never been less than 4% per annum.
Lafayette Building
Association
Lafayette, La.
W. A. Montgomery
L. Gankendorft
President
Secretary
Member Federal Home Loan Bank System
288
Federal Home Loan Bank Review
Premiums
This is the fourth of a series of articles on practices prescribed for Federal savings and loan
associations
I
N many parts of the country, the distress
of the last 5 years has crystallized a
strong public opposition to premiums of
any kind on home-mortgage loans. The
extra burden imposed by these charges has
been insupportable for some, distressing
for many home-owner borrowers. Naturally, they and their neighbors, who have
profited by their experience, are in future
going to prefer the institutions that do not
charge a premium. Several associations
in widely separated sections of the country
have already adapted their plans to take
advantage of this situation. They are advertising the fact that they charge no premium. Some of them announce, also, that
they are charging neither commission nor
service fee. It seems inevitable that such
associations will get the cream of the homemortgage business in their communities.
In the following discussion, premiums
are carefully distinguished from commissions, bonuses, and discounts, to which the
next article in the series will be devoted.
Service charges and loan-closing fees were
dealt with in the April issue of the REVIEW
and should not be confused with the subject matter of the present article.
In the building and loan movement, the
premium is a relic of a condition that has
long since ceased to exist. When the building and loan association was a strictly
mutual neighborhood society in which all
investors were potential borrowers, there
were not enough funds to meet the demand
for loans. Consequently, associations resorted to bidding to determine the allocation of what funds were available. The
Federal Home Loan Bank
Review
premium was, in short, a price for priority
in the use of funds, and as nearly every
member sooner or later became a borrower, the burden and the returns alike
were shared equally by all.
As soon, however, as the supply of funds
equaled or exceeded the demand for them,
the justification for the premium charge
disappeared. Many associations today
claim to be possessed of more funds than
they can place in well-secured loans, and
the Federal Home Loan Bank System provides a national credit pool on which all
communities can draw to meet their homefinancing needs. In such circumstances,
the exaction of a premium would have appeared incomprehensible to pioneer building and loan men.
However, on the basis of its original use
the premium has found protection in the
laws of many States. It has been permitted in nearly all States; in approximately
half the States it has been exempted from
the operation of the State usury laws, on
the theory that in a strictly mutual association, members may ask of and pay to
each other whatever sum they choose for
the use of the common funds. Taking advantage of this legal indulgence, associations in many sections of the country have
clung to the premium. The amount is no
longer set by actual bidding, which has
practically disappeared, but by arbitrary
action of the directors.
MISCONCEPTIONS REGARDING THE PREMIUM
IN some quarters, the retention of the
premiums has been justified on the theory
289
that it hastens the maturity of shares so
that what the borrower pays out in such
additional charges, he gets back by having
his loan paid up more quickly. In fact, of
course, such a condition could only be true
where all investors were borrowers. Under present conditions, in which investors
in, building and loan associations outnumber borrowers roughly in the proportion of
5 to 1, it is evident that the borrower's gains
in dividends represent but a small portion
of the excess charges he is compelled to
pay. In essence, what the premium means
is taxation of the borrowing members for
the profit of the investing members. It is
nothing more nor less than a means of
increasing the effective rate of interest.
It should be noted here that as a means
of increasing the effective interest rate, the
premium has in the past served a useful
purpose in certain States. These are States
in which the maximum legal rate of interest
did not permit associations to meet their
expenses and pay the dividends necessary
to attract investors. Consequently, the
lending institutions needed the additional
income provided by the premium, which,
as has been pointed out, was generally exempt from the operation of State usury
laws.
Two general types of premiums are in
use today—the gross or lump-sum premium and the instalment premium. The
lump-sum premium is deducted from the
amount of the loan at the time it is made.
This means that the borrower has the use
of the net amount of the loan but pays interest on and amortizes the gross amount.
The gross premiums commonly charged
range from $1 to $5 per $100 share. With
a nominal interest rate of 6 percent compounded monthly on a loan amortizing in
139 months, the charging of a gross premium of $2 per $100 share brings the effective interest rate to 6.4 percent. When a
gross premium of $5 is charged on such a
loan, the effective rate is 7 percent.
The instalment premium is paid each
month and varies from 5 cents to 50 cents
290
per $100 share. The amounts most commonly charged—varying between associations and between communities—are 10
cents, 15 cents, and 20 cents per share.
The following table indicates the effect
of gross and instalment premiums of varying magnitude on the real cost of the loan
to the borrower when the nominal interest
rate and the loan is amortized in 139
months.
Table for ascertaining the effect of premium charges on the cost of the loan to
the borrower when the nominal interest
rate is 6 percent and the loan is amortized in 139 months
Gross premium per $100
loaned
Amount of
premium
$0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
10.00
Income rate
(compounded
monthly)
Percent
6.10
6.20
6.31
6.41
6.51
6.61
6.71
6.81 1
6.91
7.01
7.12
7.22
7.33 1
7.44
7.54
7.66
7.77
7.88
7.99
8.10
Monthly instalment premium per $100 loaned
Amount of
premium
Income rate
(compounded
monthly)
$0.01
.02
.03
.04
.05
.06
.07
.08
.09
.10
.11
.12
.13
.14
.15
.16
.17
.18
.19
.20
.25
.30
.35
.40
.45
.50
Percent
6.20
6.40
6.59
6.78
6.96
7.15
7.34
7.52
7.71
7.89
8.08
8.27
8.45
8.63
8.81
8.99
9.17
9.35
9.54
9.71
10.57
11.43
12.26
13.09
13.90
14.69
MAJOR OBJECTIONS TO THE USE OF PREMIUMS
types of premiums have been made
the agencies for various conscious or unconscious abuses which combine with
weaknesses inherent in the premium itself to condemn it. The objections to the
BOTH
Federal Home Loan Bank
Review
use of the premium may be listed under
4 heads:
1. It leads to abuses:
a. Nonreturnable lump-sum premiums.
b. Immediate distribution to earnings.
2. It tends to obscure the real cost of the loan
and permit unjustifiably heavy charges.
3. It tends to deprive associations of the best
home securities.
4. It increases the risk of default and foreclosure.
To discuss these objections in some detail, a common abuse of the gross premium
has been to make it nonreturnable. If a
loan is repaid before maturity, a portion
of the premium is obviously unearned.
Some associations do not refund this unearned portion, or refund only a part of it.
The effective cost of the loan is thus a second time increased and the saving which
should accrue to the borrower from early
repayment is in part abolished. A related
abuse is the crediting of gross premiums to
earnings at the time they are received. If
there is any justification for premiums it is
to provide an additional cushion of protection against borrower default. They
should, therefore, be held as reserves and
prorated to earnings over the life of the
loan. The practice of applying gross premiums to earnings in a lump sum led in
boom days, when new loans were constantly being made, to large dividends to
shareholders. When the crash came and
new investments and new loans stopped,
the practice left associations with depleted
reserves. Those who profited were the investors whose shares had matured before
the crash; those who suffered were the remaining shareholders and particularly the
borrowers whose profits were recaptured
or whose dividends decreased.
A second major objection is that the premium is almost inevitably confusing to the
borrower and sometimes even to the lending institution. When the premium is
charged, the borrower rarely knows how
much he is really paying for his loan. It
is to be suspected that some associations
do not know what effect their premium
Federal Home Loan Bank
Review
charges have on the cost of the loan. To
illustrate this situation, a building and loan
association in an eastern State which
charged 6 percent nominal interest, habitually gave the borrower the choice between
paying a gross premium of $5 or a monthly
instalment premium of 16 cents per $100
borrowed. The borrower imagined that
he was making a choice between small
monthly payments and a large lump-sum
initial payment. As a matter of fact, he
was making a choice between paying 7percent effective interest rate under the
gross-premium plan and 9 percent under
the instalment-premium plan.
With such possibilities for misunderstanding and error, it is but human to make
the premium as lucrative a source of income as possible. Yet in succumbing to
this temptation, the building and loan association is increasing the risks of its own
business and inviting eventual difficulties
which may well cancel the temporary
profit earned and turn the premium into
a boomerang. For it is obvious that the
best risk will not submit to paying a premium in addition to interest. It is an axiom that in a normally competitive market,
the better the security the less a man is
willing to pay for a loan. The imposition
of a premium, then, may very well mean
that an association will get only the less
desirable securities. In any event, the
additional burden of the premium weakens
the borrower's capacity to pay and increases the risk of default and forclosure.
RESTRICTION ON THE USE OF PREMIUMS BY
FEDERAL ASSOCIATIONS
the point of view of the lending institution as well as of the borrower, premiums are, therefore, of questionable wisdom. Because of the strong public reaction against them and because they handicap institutions in the market for the best
class of borrowers, the Federal Home Loan
Bank Board recommends that wherever
possible Federal savings and loan associations eliminate them entirely. The ideal
FROM
291
aimed at for Federal associations is to consolidate all charges in the interest rate and
thus make the nominal rate the effective
rate. To charge a premium on all loans as
an additional protection against default of
some borrowers is to penalize the best risk.
It is far more practical to adjust interest
rates to risk, thereby inviting the best class
of borrowers to the association, as indicated in a preceding article in this REVIEW.
It is recognized that existing laws in some
States may make complete elimination of
the premium difficult or impossible for the
time being. The ideal solution would, of
course, be the amendment of such laws.
Meanwhile, the charter of Federal savings
and loan associations states:
It may make such charges for the use of its
money or for the privilege of an advance or
both as are permitted by special or general law
of the State w h e r e it is located to be made by
building and loan associations, savings and loan
associations, cooperative banks, or similar institutions; such charges, however, shall not exceed
those permitted u n d e r sections 4 and 5 of the
Federal Home Loan Bank Act.
The pertinent part of section 5 of the
Federal Home Loan Bank Act reads as follows:
No institution shall be admitted to or retained
in membership, or granted the privileges of nonmember b o r r o w e r s , if the combined total of the
amounts p a i d to it for interest, commission,
bonus, discount, premium, and other similar
charges, less a p r o p e r deduction for all dividends, refunds, and cash credits of all kinds,
creates an actual net cost to the home owner in
excess of the maximum legal rate of interest or,
in case there is a lawful contract rate of interest
applicable to such transactions, in excess of such
rate (regardless of any exemption from usury
laws), or, in case there is no legal rate of interest
or lawful contract rate of interest applicable to
such transactions, in excess of 8 per centum p e r
annum in the State w h e r e such p r o p e r t y is
located.
The effect of this clause is to limit the
amount of combined interest and premium
292
that may be charged not only by Federal
savings and loan associations but also by all
other member institutions of the Federal
Home Loan Bank System. In other words
this law applies to the national field the
spirit of some State laws which define and
restrict the premium.
In applying these regulations affecting
premiums to Federal savings and loan associations, the Board comes to an agreement with each association compelled to
impose a premium as to the amount it may
justifiably charge in view of local conditions. Nonreturnable lump-sum premiums
and the crediting of lump-sum premiums
to earnings at time of receipt are alike forbidden. Such lump-sum premiums shall
be carried as reserves and a proportionate
amount applied to earnings each month.
At the same time, the lump-sum premium
prorated to earnings over the life of the
loan is strongly recommended to associations in preference to the instalment premium. In the first place, the gross premium affords less opportunity for overcharging and with it there is less chance of
the borrower remaining in ignorance as to
what he is really paying for his loan. It is
imposed at the beginning of the transaction
while there is still time for a borrower to
make effective objection if he thinks it too
burdensome.
Finally, in its efforts to make clear to
the borrower just what he is undertaking
to pay on his loan, the Board stipulates
that the nature and amount of all charges
shall be set forth clearly in the borrower's
passbook. Confusion and misunderstanding are to be avoided by a frank statement
of the contractual relationship between the
borrower and the institution. These regulations are inspired by the conviction that
borrower goodwill is essential to an association's success.
Federal Home Loan Bank
Review
Residential Construction Activity in the
United States
F
OR the first time in three years residential building during the first 22
days of April exceeded that in the same
period of 1932 (chart 1). Preliminary figures for the entire month of April indicate
that residential building was the highest
of any one month since November 1931
(chart 4). Furthermore, the preliminary
figures on average daily construction for
April were 28.2 percent higher than the
daily average for March. The significance
of this rise becomes apparent when it is
realized that over the past three years,
April construction exceeded that in March
by only 2.4 percent.
The volume of contracts let in the period
April 1-22 in 37 Eastern States, as reported by the F. W. Dodge Corporation,
was $30,185,000, which is more than double
the volume for the same period in 1933 and
nearly twice the 1934 volume. Residential
building for the full period January 1 to
April 22 of the present year is nearly equal
to the 1932 like-period total, and consid-
erably exceeds the building activity up to
April 22 in 1933 and 1934 (chart 2).
Notwithstanding this encouraging improvement in the first four months of 1935,
the construction of dwellings has still a
long distance to go before it equals the
average for the past ten years (chart 3).
There are, it is true, many evidences of a
stronger real estate market and of an increasing demand for homes and home
building. Thus, whereas the cost of building index (as constructed by the Federal
Reserve Bank of New York) has not
changed perceptibly in seven months, the
National Industrial Conference Board's
rental index has advanced steadily. In
March the rental index was 65.6 compared
with 65.1 in February. However, as the
cost of building index was 88.5 in March,
it is evident that the spread between these
two factors must continue to decrease if
building activity is to accelerate. Both
indexes are based in 1923-25 as 100.
V A L U E OF RESIDENTIAL CONSTRUCTION CONTRACTS AWARDED IN 1932-35.
37 EASTERN STATES.)
CHART I . APRIL
Millions of
Dollars
40
1—22*
Comparablt Periods of 19 Business Days
11
\
3
FOR
CHART 2. JAN. I - A P R I L 22
Millions of
Dollars
40
Millions of
Dollars
I20i
Millions or
Dollars
1120
\
Federal Home Loan Bank
133536—35
(BASED ON F. W . DODGE REPORTS
Review
293
Other signs pointing to an increase in
residential building are rises in real-estate
prices and increasing absorption of vacancies reported by many communities.
These factors, coupled with the growing
volume of funds for home financing being
made available at low cost by the Federal
Home Loan Banks and other agencies,
seem bound to result in a revival of home
building.
Nonresidential construction, which includes both commercial and Governmental
building, continues to run below the level
of 1934. This is due to the falling off in
the volume of Governmental contracts let.
For the year up to April 22, this type of
construction is almost 41 percent below
1934. This sharp recession in nonresidential contracts let was more than sufficient
to offset the improvement in residential
construction so that total construction of
all types in 1935 was below 1934, both in
the current April period as well as for the
year to date (table 1).
CHART 3.—AVERAGE D A I L Y V A L U E OF R E S I D E N T I A L
CONSTRUCTION CONTRACTS A W A R D E D I N 1935 COMPARED W I T H SELECTED PERIODS
(Based on F w Dodge Reports for 37 Eastern States.)
Millions of
Dollars
Millions of
Dollars
I
I
I
I
AVERAGE OF 3 MEDIAN YEARS
(Htyh&Low Values in Each Month
DEC.
JAN
FEB.
p *
MAR.
APR.
MAY
1926-1929
Eliminated)
AVERAGE OF TEN YEARS
1925-1934.
f • AVERAGE OF 3 YEARS
1932-1934
JUNE JULY
SEPT
OCT.
NOV.
DEC.
Prtlimmory
NUMBER OF FAMILIES FOR WHICH NEW DWELLING UNITS WERE PROVIDED IN MARCH
were provided for more than twice
as many families in March 1935 as in
March 1934, according to data on building
HOMES
CHART 4.- - V A L U E OF R E S I D E N T I A L CONSTRUCTION CONTRACTS A W A R D E D IN 37 EASTERN STATES 1925-35.
(DATA ALSO EXPRESSED AS A PERCENT OF TOTAL CONTRACTS AWARDED.)
294
Federal Home Loan Bank
Review
permits collected by the Bureau of Labor
Statistics (table 2). Total housekeeping
dwelling units for which permits were
granted in March 1935 numbered 6,156 as
compared with 2,523 in March 1934. The
3,965 units provided in 1- and 2-family
dwellings represented slightly less than
two-thirds of all units. It is significant to
note that although the number of units provided increased in all types of dwellings,
the greatest increase took place in multiTABLE
family units provided. The increase here
was 177.7 percent as compared with 144
percent in 1-family dwellings.
The average unit-value of both 1- and 2family dwellings for which permits were
granted was considerably lower in March
1935 than in March 1934. The average
value of 1-family dwellings fell from $4,380
in 1934 to $3,794 in 1935, and the average
value for each unit in 2-family dwellings
fell from $3,090 to $2,553.
1.—Value of construction contracts awarded in 37 Eastern States^jand percentage changes for
comparative periods
(Source: F . W. Dodge Corporation]
Average daily1
Total for the period
April 1-22
Type
January 1-April 22
(000 omitted)
1935
1934
93, 336 100, 304
1
2
3
4
Percent change
(000 omitted)
Percent
change
1935
1934
PerApril2
cent
change 1935
30,185 15,456 + 95.3 101, 420 73,163 + 38.6
Residential
Nonresidential4. . 63,151 84, 848 - 2 5 . 6 289, 781 488, 667 - 4 0 . 7
Total
(000 omitted)
- 6 . 9 391, 201 561, 830 - 3 0 . 4
March
1935
April
1934
April April April
from
1935
1935
from March, from
3-year
March
April
aver-8
1935
1934
age
1,589
3,323
1,239
3,494
905 +28.2
4,341 - 4 . 9
4,912
4,733
5,246
+ 3.8
+ 2 . 4 +75.6
- 2 . 6 -23.5
-2.0
-6.4
Based on the following number of business days: April 1935—19, March 1935—26, April 1934—25.
Based on preliminary reports for the first 22 days (19 business days).
Represents the average of the percent change in April from March for the 3 years 1932-34.
Includes contracts for commercial buildings, public works, and utilities.
TABLE
2.—Number of families provided for and estimated value of new building
permits issued in all
cities of 10,000 population or over in the United Statesl
[Source: Federal Home Loan Bank Board. Compiled from reports to U. S. Department of Labor]
Number of families provided for by Value of building permits issued
permits issued
(000 omitted)
Type of dwelling
March
1935
6,156
3,599
342
24
2,191
All housekeeping dwellings
1-family dwellings
2-family dwellings. .
Joint home and business 3 .
Multifamily dwellings
March
1934
2,523
1,530
184
20
789
Percent
change2
March
1935
+ 144.0
+ 135.2 $13, 655.1
873.2
+ 85.9
101.8
+20.0
+ 177.7
March
1934
$6, 702. 9
568.6
76.2
Percent
change2]
+ 103.7
+ 53.6
+ 33.6
1
Estimate is based on reports from communities having approximately 95 percent of the population of cities with
more2 than 10,000 population.
Percentage change March 1935 from March 1934.
3
Includes 1- and 2-family dwellings with business property attached.
Federal Home Loan Bank
Review
295
NEW
RESIDENTIAL
CONSTRUCTION
IN
THE
FEDERAL HOME LOAN BANK DISTRICTS AND
BY STATES
IN table 3 member institutions will find figures on the value of all new residential
building and on the value of 1- and 2-family dwelling units in their respective States
TABLE
and Federal Home Loan Bank Districts.
Great expansion in new residential construction was evidenced in each Bank District with all but two Districts increasing
more than 50 percent over February building activity. Large gains were also made
in each District in comparison with March
of last year.
3.—Estimated value of new residential building permits issued in all cities of 10,000 population
or over by Federal Home Loan Bank Districts and by States*
[Source: Federal Home Loan Bank Board. Compiled from Reports to U. S. Department of Labor]
Value of all new residential
building permits (000 omitted)
Value of all new 1- and 2-family
dwelling permits 2 (000 omitted)
District and State
March
1935
March
1934
Percent
change 8
$21, 788. 2
$9, 426.1
1,183. 8
1, 007. 4
+ 17.5
299.7
11.0
731.8
14.4
126.9
0
163.3
9.9
604.9
5.3
208.0
16.0
No. 2—Newark
6, 017. 0
New Jersey
New York
March
1935
+ 131.1 $14, 630.1
March
1934
Percent
change 8
$7, 347. 7
+ 99.1
1,183. 8
932.4
+ 27.0
+ 83.5
+ 11.1
+21.0
+ 171.7
-39.0
-100.0
299.7
11.0
731.8
14.4
126.9
0
163.3
9.9
529.9
5.3
208.0
16.0
+ 83.5
+ 11.1
+ 38.1
+ 171.7
-39.0
-100.0
2, 439. 0
+ 146.7
2,414. 3
960.0
+ 151.5
570.8
5, 446. 2
421.9
2, 017.1
+ 35. 3
+ 170.0
507.1
1, 907. 2
421.9
538.1
+20.2
+254.4
No. '3—Pittsburgh
1, 508. 3
947.3
+ 59.2
1, 307. 3
827.3
+ 58.0
Delaware
Pennsylvania
West Virginia
49.0
1, 400. 9
58.4
50.5
886.3
10.5
-3.0
+ 58.1
+456. 2
49.0
1, 215. 9
42.4
30.5
786.3
10.5
+ 60.7
+ 54.6
+ 303.8
No. 4—Winston-Salem
4, 901.1
707.3
+ 592.9
2, 053. 0
707.3
+ 190.3
56.8
1, 393. 4
578.9
2, 240. 7
136.9
176.8
99.9
217.7
17.1
+ 232.2
+ 366. 3
298.8
+ 308.3
141.8
30.0 + 7,369.0
+ 528.0
21.8
+ 74.5
101.3
+ 338.2
22.8
+ 195.4
73.7
25.8
883.4
395.5
131.3
136.9
166.5
95.9
217.7
17.1
298.8
141.8
30.0
21.8
101.3
22.8
73.7
+ 50.9
+ 195.6
+ 178.9
+ 337.7
+ 528.0
+ 64.4
+ 320.6
+ 195.4
UNITED STATES
No. 1—Boston
Connecticut
Maine
Massachusetts
New Hampshire
Rhode Island
Vermont
Alabama
District of Columbia
Florida
Georgia
Maryland
North Carolina
South Carolina
Virginia
No. 5—Cincinnati
934.6
383.4
+ 143.8
899.6
360.8
+ 149.3
Kentucky
Ohio
Tennessee
189.7
673.1
71.8
58.4
275.7
49.3
+ 224.8
+ 144.1
+45.6
189.7
638.1
71.8
58.4
254.6
47.8
+ 224.8
+ 150.6
+ 50.2
1
Estimate is based on reports from communities having approximately 95 percent of the population of all cities
with more than 10,000 population.
2
Includes 1- and 2-family dwellings with business property attached.
8
Percent change of March 1935, from March 1934. When the number of permits is small in two compared periods
the percentage change has little significance as a measure of the course of recovery or decline in the volume of construction.
296
Federal Home Loan Bank
Review
TABLE
3.—Estimated value of new residential building permits issued in all cities of 10,000 population
or over by Federal Home Loan Districts and by States—Continued
[Source: Federal Home Loan Bank Board. Compiled from Reports to U. S. Department of Labor]
Value of all new residential
building permits (000 omitted)
Value of all new 1- and 2-family
dwelling permits (000 omitted)
District and State
March
1935
March
1934
Percent
change
March
1935
March
1934
Percent
change
UNITED STATES—Continued.
Indiana
Michigan
No. 7—Chicago
Illinois
Wisconsin
No. 8—Des Moines
$828. 6
$277. 7
+ 198.4
129.2
699.4
11.2 + 1,053.6
266.5
+ 162.4
129.2
699.4
11.2
266.5
+ 1,053.6
+ 162.4
436.9
258.2
+ 69.2
436.9
258.2
+ 69.2
251.9
185.0
190.2
68.0
+ 32.4
+ 172.1
251.9
185.0
190.2
68.0
+ 32.4
+ 172. 1
1,106. 3
638.0
+ 73.4
1, 078. 3
638.0
+ 69.0
155.3
+ 32.3
124.7
+ 74.8
353.3
+ 77.0
3.0
+ 750.0
1.7 + 1,782.4
205.4
218.0
597.4
25.5
32.0
155.3
124.7
353.3
3.0
1.7
+ 32.3
+ 74. 8
+ 69.1
+ 750.0
+ 1,782.4
205.4
218.0
625.4
25.5
32.0
Iowa
Minnesota
Missouri
North Dakota
South Dakota
$277. 7
+ 198.4
$828. 6
N o . 6—Indianapolis
1, 059. 9
543.1
+ 95.2
1, 002. 6
533.2
+ 88.0
Arkansas
Louisiana
Mississippi
New Mexico
Texas
13.4
53.5
61.6
4.0
927.4
2.7
74.5
10.4
4.5
451.0
+ 396.3
-28.2
+ 492.3
-11.1
+ 105.6
6.4
53.5
61.6
0
881.1
2.7
74.5
10.4
4.5
441.1
+ 137.0
— 28 2
+492. 3
— 100.0
+ 99. 8
No. 10—Topeka
579.1
377.7
+ 53.3
528.5
252.7
+ 109.1
Colorado
Kansas
Nebraska
Oklahoma
139.5
186.5
72.1
181.0
76.5
46.8
65.0
189.4
+ 82.4
+ 298.5
+ 10.9
-4.4
132.3
150.4
72.1
173.7
76.5
46.8
65.0
64.4
+ 72.9
+ 221.4
+ 10.9
+ 169.7
No. 11—Portland
507.3
187.0
+ 171.3
497.4
153.0
+ 225. 1
Idaho
Montana
Oregon
37.1
48.3
79.9
53.5
201.4
87.1
4.6
19.4
88.8
17.2
57.0
0
+ 706.5
+ 149.0
-10.0
+ 211.0
+ 253.3
37.1
48.3
79.9
53.5
191.5
87.1
4.6
19.4
54.8
17.2
57.0
0
+ 706. 5
+149. 0
+45.8
+211.0
+ 236.0
2, 725. 3
1, 660. 0
+ 64.2
2, 399. 8
1, 447. 1
+ 65.8
6.8
2, 709. 5
9.0
2.8
+ 142.9
1, 655. 2 1
+63.7
2.0
+ 350.0
6.8
2, 384. 0
9.0
2.8
1, 442. 3
2.0
+ 142.9
+ 65.3
+ 350.0
No. 9—Little Rock
Utah
Washington
Wyoming
No. 12—Los Angeles
Arizona
California
Nevada
4
w
(4)
Represents an infinite amount of change due to comparison with zero in the particular period.
Federal Home Loan Bank
Review
297
FEDERAL HOME
Combined statement of
Combined
Newark
Boston
Pittsburgh
WinstonSalem
ASSETS
Cash on hand in banks and U. S. Treasury. $33, 611, 300.16 $3, 942, 068. 45 $1, 549, 784. 86
$469,155. 01 $2, 787, 801. 39
Loans outstanding:
Other
72, 032, 407. 17 2, 275, 996. 37 13, 247, 333. 87 10, 465, 937. 01 4, 891, 749. 08
4, 258. 95
0
0
0
0'
72, 636, 666.12 2, 275, 996. 37 13, 247, 333. 87 10, 465, 937. 01 4, 891, 749. 08
Accrued interest receivable
Investments TJ S Government
384, 345. 18
17, 665. 42
4, 262, 828. 89 1,102,156. 25
38, 568. 09
2, 894.18
63,130. 67
109, 293. 75
3,155. 27
66, 904. 83
137, 900. 00
2, 805. 94
29, 222. 09
0
6, 014. 00
110, 933, 708. 44 7, 340, 780. 67 14, 972, 698. 42 11,142, 702. 79 7, 714, 786. 561
LIABILITIES A N D CAPITAL
Liabilities:
4, 219, 236. 51
0
275, 272. 60
0
25, 900. 00
0
723, 986. 64
0
0
0
4, 219, 236. 51
275, 272. 60
25, 900. 00
723, 986. 64
0
Capital:
Capital stock, fully paid, issued and
outstanding:
21, 229, 700. 00 1, 955, 300. 00 2, 783, 000. 00 1, 573, 500. 00 1, 853, 000. 00
81, 645, 700. 00 5, 000, 000. 00 11, 500, 000. 00 8, 500, 000. 00 5, 700, 000. 00
102, 875, 400. 00 6, 955, 300. 00 14, 283, 000. 00 10, 073, 500. 00 7, 553, 000. 00|
Subscription to capital stock:
Less balance due
U S. Government
Less balance due
Surplus:
Reserves:
As required under section no. 16
of act
U. S. Government 2-percent
Surplus, unallocated
Total surplus
Total capital
2, 354, 300. 00
1, 041,178.13
25, 400. 00
13, 275. 00
642, 800. 00
264, 075.13
194, 200. 00
101, 675. 00
89, 000. 00
36, 550. 00
1, 313,121. 87
12,125. 00
378, 724.. 87
92, 525. 00
52, 450. 00|
43, 095, 300. 00 7, 467, 500. 00 7, 463, 200. 00 2, 646, 300. 00 3, 508, 200. 00|
43, 095, 300. 00 7, 467, 500. 00 7, 463, 200. 00 2, 646, 300. 00 3, 508, 200. 00
882, 682. 77
42, 745. 44
105, 902. 92
92, 399. 09
61, 700. 44
683, 618. 62
959, 648. 67
24, 657. 54
30, 680. 09
56, 712. 33
122, 458. 30
41, 917. 82
118, 374. 24
28,109. 58
19, 526. 54
2, 525, 950. 06
98, 083. 07
285, 073. 55
252, 691.15
109, 336. 56
106, 714, 471. 93 7, 065, 508. 07 14, 946, 798. 42 10, 418, 716.15 7, 714, 786. 56|
110, 933, 708. 44 7, 340, 780. 67 14, 972, 698. 42 11,142, 702. 79 7, 714, 786. 56J
298
Federal Home Loan Bank
Review
LOAN BANK SYSTEM
condition as at March 31,1935
Cincinnati
Indianapolis
Chicago
Des Moines
Little Rock
Topeka
Portland
Los Angeles
$3,428,758,04 $2,660,201.06 $2, 605, 589. 01$4, 074, 540.13$3,196, 987.19 $2, 329,189. 63$2,147, 908. 63
$4, 419, 316. 76
14, 044, 077. 96
4, 354, 743. 20
10,543,117.56 3,193,623.11 2, 900, 928. 512, 613, 464. 871, 563, 968. 712, 537, 466. 92
0
0
0
0
0
4, 258. 95
0
0
14, 044, 077. 96
4, 354, 743. 2010,543,117.56 3,193, 623.11 2, 900, 928. 512, 613, 464. 871, 563, 968. 712, 541, 725. 87
74, 659. 26 10, 595. 33 42, 479. 18
512, 090. 20 490, 263. 02 456, 686. 65
410.15
3,151. 29
2, 9<L1.14
20, 046. 22
18, 215. 91
63, 567. 28 1, 077, 000. 00
2, 066, 77
1, 677. 00
20, 842. 92
50, 000. 00
2, 831. 63
10, 083. 40
213, 871. 74
1, 339. 32
10, 499. 95
50, 000. 00
9, 311. 40
8, 287, 510. 88
19, 050, 554. 33
13,705,395.59 5, 884, 892. 398, 072, 361. 555, 884,126. 61 4, 118, 452. 804, 759, 445. 85
774, 407. 79 117, 764. 361, 376, 035. 98 295, 322. 24
0
0
0
0
463, 812. 32
0
496. 25
0
154, 738. 33
0
11, 500. 00
0
774, 407. 79 117, 764. 361, 376, 035. 98 295, 322. 24
463, 812. 32
496. 25
154, 738. 33
11, 500. 00
1, 972, 400. 00
4, 528, 700. 00
1, 957, 400. 00 945, 200. 00 1, 245, 600. 00 944, 000. 00 490, 600, 00 981, 000. 00
6, 000, 000. 00
12, 775, 700. 00
10,000,000.00 4, 500, 000. 006,100, 000. 00 4, 700, 000. 003, 310, 000. 003, 560, 000. 00
Jl7, 304, 400. 007, 972, 400. 0011,957,400.00
1
1
5, 445, 200. 007, 345, 600. 005, 644, 000. 003, 800, 600. 004, 541, 000. 00
683, 600. 00
250,193. 00
70, 300. 00 159, 200. 00
38, 275. 00 99, 415. 00
83, 000. 00
39,175. 00
192, 700. 00
121, 045. 00
76, 800. 00
28,100. 00
42, 200. 00
20, 525. 00
95,100. 00
28, 875. 00
433, 407. 00
32, 025. 00
43, 825. 00
71, 655. 00
48, 700. 00
21, 675. 00
66, 225. 00
o
0
59, 785. 00
577, 400. 004,173, 900. 00 2, 894, 900. 002, 672, 400. 002, 633, 600. 002, 650, 000. 006, 407, 900. 00
577, 400. 004,173, 900. 00 2, 894, 900. 002, 672, 400. 002, 633, 600. 002, 650, 000. 006, 407, 900. 00
189, 598. 81
75, 743. 41 120, 917. 40
43, 781. 64
67, 243.19
30, 951. 21
24, 952. 88
26, 746. 34
63, 003. 45
285, 737. 28
29, 589. 04 49, 315. 07
59, 989. 07 141, 942.14
22,191. 79
34, 571. 72
30, 082.18
93, 968. 86
146,120. 54
13, 858. 61
103, 278. 24
13, 208. 35
88, 641. 04
25, 333. 47
191, 294. 23
190, 930. 36
141, 439. 47
140, 720. 85
538, 339. 54 165, 321. 52 312,174. 61
100, 545.15
12,329,359.61 5, 589, 570.15 7, 608, 549. 235, 883, 630. 363, 963, 714. 474, 747, 945. 85
Il8, 276,146. 548, 169, 746. 52
8, 287, 510. 88
1 5, 884,126. 614,118, 452. 80 4, 759, 445. 85
Il9, 050, 554. 33
13,705,395.59 5, 884, 892. 398, 072, 361. 55
Federal Home Loan Bank Review
299
Growth and Lending Operations of the
Federal Home Loan Bank System
I
NFORMATION received as this REVIEW
goes to press indicates that net outstanding advances of the twelve regional Federal
Home Loan Banks at the end of April
showed an increase for the first time since
December 1934. The balance outstanding as of April 30 was reported to be $74,010,805.06, representing an increase of approximately $1,373,000 over March 31.
This reversal of the sharp downward
trend of the three preceding months is encouraging evidence of increased lending activity by member institutions. It reflects
the growing demand from home owners for
loans for new construction, reconditioning,
and refinancing. Undoubtedly, also, many
associations are awakening to the profitable business which the low rates on longterm advances from the Federal Home
Loan Banks permit them to do.
The tendency to consider advances from
the Federal Home Loan Banks in the same
category as loans from a commercial bank
is disappearing. Because of this confusion
many member institutions have hesitated
to use funds obtained from the Bank System to make new loans to home owners.
But Bank advances, especially when
granted for a ten-year period, are in reality
investments and so may be legitimately
used for loans. They may not be called in
advance of maturity and they are amortized on nearly the same terms as the loans
they enable associations to make to home
owners.
As a matter of fact Bank System advances are not fundamentally different
from United States Treasury investments
300
in the shares of a Federal savings and loan
association. Both classes of funds are intended to strengthen the nation's longterm
home-financing
structure. Both
come wholly or mainly from the Federal
Government. Both are controlled largely
by the same Federal agency. Both are
intended to encourage the flow of private
funds to the home-financing field.
In an effort to get this essential oneness
of the two sources of funds recognized
by Federal savings and loan associations
the Board on April 4 authorized the following letter to be sent to all Federals.
The fourth paragraph might very well be
addressed to all non-Federal members of
the Bank System.
It is the Board's judgment that Federal savings and loan associations that have assets of
$100,000 or more should make " reasonable use "
of funds available from the Federal Home Loan
Banks before requesting subscriptions to shares
by the Secretary of the Treasury.
The term " reasonable use " is interpreted to
mean not less than 30 percent of an association's
line of credit at its Federal Home Loan Bank.
Experience has shown that each case presents
problems and circumstances peculiar to the institution and the community. It is, therefore,
not the Board's intention to place a blanket restriction upon approval of Treasury calls. It
will be expected, however, that Federal savings
and loan associations that have not made reasonable use of Federal Home Loan Bank credit make
a substantial showing of any special reasons w h y
a Treasury call should be approved.
The Federal Home Loan Banks are your Banks.
They have already served, and are n o w serving,
you in many respects. They are in position to
advance funds for all legitimate purposes upon
terms and conditions that are conducive to the
safe, profitable, and expanded operation of your
Federal Home Loan Bank
Review
institution. You are urged to make continuous
use of all facilities thus available at your Federal Home Loan Bank—including the " reasonable use " of short- or long-term advances.
The Board is cognizant of the practical restrictions upon Federal Home Loan Bank advances to smaller institutions. These associations are also being encouraged, however, to
extend their operations by means of such advances wherever the circumstances w a r r a n t .
One of the reasons why building and loan
associations hesitate to obtain long-term
funds from the Bank System in order to
meet the demand for home loans is, of
course, their fear that the advances will
raise public suspicion of their soundness.
This danger can be easily avoided and the
TABLE
situation even turned to profit. Let the
association advertise prominently that it
has obtained long-term funds from the
Federal Home Loan Bank System in order
to meet the needs of its community. Let it
emphasize the fact that the acquisition of
such funds is proof both of the Federal
Government's confidence in the association
and of its sound condition. Let it play up
the fact that such Federal funds enable the
association to serve the community's homefinancing needs more fully and at lower
cost. The response in increased public confidence will not be long in manifesting
itself.
1.—Growth, trend of lending operations, line of credit, and unused credit of the Federal Home Loan
Bank System
Members
Month
December
June
December
Line of
credit
(cumulative)
(000
(000
Number Assets
omitted) omitted)
Loans
advanced 1
(monthly). (000
omitted)
Repayments x
(monthly) (000
omitted)
Balance
outstanding at
end of1
month
(000
omitted)
1932
1933
1935
Unused
line of
credit 2
(000
omitted)
$837
$22, 793
$270
859
47, 600
85, 442
99, 249
125, 782
2,950
2,904
3,143
3,360
85,148
86, 658
147, 778
167, 426
2,232
1,326
2,116
6,905
6,741
6,049
81, 985
76, 570
72, 637
172, 945
179, 266
183, 706
118
$216, 613
$23, 630
$837
$837
1,337
2,086
1, 846, 775
2, 607, 307
146, 849
211, 224
48, 817
90, 835
8,825
7,102
2,579
3,072
3, 027, 999
3, 305, 088
232, 926
254, 085
111,767
129, 545
3,131
3,161
3,203
3, 320, 975
3, 332, 545
3, 339, 977
254, 930
255, 836
256, 343
131, 778
133,103
135, 219
1934
June
December
January
February
March
Loans
advanced *
(cumulative)
(000
omitted)
1
Hitherto loans between Banks have been included in the columns headed loans advanced (cumulative and monthly),
repayments, and balance outstanding. As the purpose of this table is to record only advances to member institutions,
these2 interbank loans have been subtracted, so that these columns differ from those in previous reports.
Derived by deducting the balance outstanding from the line of credit.
NOTE.—All figures, except loans advanced (monthly) and repayments, are as of the end of month.
Federal Home Loan Bank
Review
301
Federal Home Loan Banks Authorized to
Lower Rates on Advances to Members
N MAY 1, the Board authorized the
Federal Home Loan Banks, in their
discretion, to reduce their rates on advances
to member institutions to a new low of 3
percent. This represents a further step in
the Board's program to shift the major burden of financing homes back to the Nation's
private thrift, home-financing institutions.
If and as the Regional Banks take advantage of this permission to lower their rates,
there seems no question but that member
institutions will be able to meet competition for loans from any source, and also
to attract a vast number of desirable borrowers.
Many sections have reported to the
Board that prospective home builders and
buyers have been postponing action in anticipation of lower financing costs. In fact
so insistent is this demand for lower interest rates in some areas that several building and loan associations have adjusted
their rates to the demand in order to get
their large cash reserves profitably invested. Thus in one State where the predominating nominal rate charged by building and loan associations in 1934 was 8
percent, one leading association is now advertising " n e w construction loans at 5y2percent interest on monthly reducing balances without any form of commission,
service charge, or premium." In elaboration of this offer, the advertisement states:
O
Believing that the stimulation of new home
building in this city, now, is the major step still
to be taken in promoting complete business recovery, this association makes this offer:
For the next six months we will make loans to
finance the building of new homes at 5 ^-percent
interest on monthly reducing balances. No discount, commission, service charge, or premium
302
of any kind will be charged on these loans. The
5 ^-percent rate will prevail throughout the entire term of the loan.
PRINCIPAL AND INTEREST PAYMENTS $6.88 A M O N T H
PER THOUSAND
Loans at the 5%-percent interest rate will be
made for 20-year terms with monthly principal
and interest payments of only $6.88 per $1,000 of
original loans. Up to 75 percent of the appraised
value of the property may be borrowed. This
offer is made only for the next six months to
stimulate new business and employment in this
city at the time it is most needed.
It is in order to permit all member institutions to take advantage of the present
opportunity in a similar manner that the
Board has authorized a further cut in rates
on Bank advances.
The new 3-percent rate may be granted
only on advances for one year or less.
However, so long as the rate remains in
effect on short-term loans the Banks are
authorized to collect the same rate on longterm advances. The Board's resolution
reads as follows:
Be it resolved that the Federal Home Loan
Banks be, and each of them is hereby, authorized
to establish an interest rate of 3 percent per
annum on all loans made for not to exceed one
year; and
Be it further resolved that the rate of interest
on all loans for longer periods than one year be
fixed at not less than 4 percent per annum nor
more than 5 percent per annum;
Provided, that, in the discretion of the Board
of Directors of each Bank, at the end of each
calendar quarter or each half year borrowers on
notes in excess of one year be charged 3 percent
so long as the 3-percent rate is effective on shortterm advances; and
Be it further resolved that any action heretofore taken by the Board in conflict with this
resolution is hereby repealed.
Federal Home Loan Bank
Review
INDIANAPOLIS AND DES MOINES LOWER RATES
April, two Banks—those at Indianapolis and Des Moines—announced reductions in their rates. The Indianapolis Bank
lowered the rate on secured advances made
for a period of one year or less from 4 percent to 3y2 percent. On unsecured advances, the Bank dropped the rate from 5
percent to 4 percent, but stipulated that no
unsecured advance shall be made for a
period of more than six months.
The Des Moines Bank, whose rates had
ranged from, 4 percent to 4% percent, established a 3%-percent rate on loans made for
one year or less. On longer-term advances,
the interest rate for the first year is set at
3y2 percent and for subsequent years at 4
DURING
TABLE
2.—'Interest rates, Federal Home Loan Banks; rates on advances to member institutions
Federal Home Loan
Bank
1. B o s t o n . . .
Rate in
effect on
May 1
3tf All advances written for 1 year or less. All advances for more than 1 year are to
4. Winston-Salem
4
4
5. Cincinnati. . . .
3y2
6. Indianapolis...
7. Chicago
8. Des M o i n e s . . .
4
4
3/ 2
3H
3^-4
9. Little Rock.
10. T o p e k a . . . .
11. Portland...
12. Los Angeles
Type of loan
Percent
2. Newark..
3. Pittsburgh
4
4
4
4J4
3/2]
4^
Federal Home Loan Bank
percent. However, the rate of interest collectible quarterly in these subsequent years
shall be the same as the then effective rate
on short-term advances.
To permit existing loans written at 4y2
percent to benefit by these reductions, only
4 percent will be collected after May 1,1935,
so long as the lower rates remain in effect.
Further, all advances outstanding at May
1,1935, written in excess of 3y2 percent will,
on December 31, 1935, and semiannually
thereafter, receive a refund of such portion
of the interest collected above 3y2 percent
as the Board of Directors shall deem justifiable. Such refund will be granted only on
loans on which no payments in advance of
maturity are made.
be written at 4 percent, but billed at S}i percent during the period in which
short-term advances carry this rate.
All advances.
All advances for 1 year or less. All advances for more than 1 year are to be written
at 5 percent, but on authorization from borrowing members, the Bank will
credit the interest charged their accounts with the difference between 5 and 4
percent per annum.
All advances secured by H. O. L. C. bonds.
All advances for 12 months or less. All advances for more than 1 year are written
at tyb percent, but interest collected at 4-percent rate.
All advances written for 1 year or less. Ail advances written for longer periods
will be at 4 percent, but billed at 3 ^ percent during the period in which shortterm advances carry this rate.
All secured advances for 1 year or less.
All unsecured advances, none of which may be made for more than 6 months.
All secured advances for more than 1 year.
All advances written for 1 year or less. All advances for more than 1 year a r e t o
be written at 4>}i percent, but billed at 3]4 percent during the period in which
short-term advances carry this rate.
All advances for 1 year or less.
All new advances for more than 1 year shall be written at 3^-percent interest rate
for the first year and 4 percent for subsequent years. However the rate of interest
collectible quarterly after the first year shall be the same as the then effective
rate on short-term advances. On all existing advances written at 4% percent only
4 percent will be collected on and after May 1, 1935 so long as these lower rates
remain in effect. Further, all advances outstanding at May 1, 1935 written in
excess of V/% percent will, on Dec. 31, 1935, and semiannually thereafter,
receive a refund of such portion of the interest collected above 3J4 percent as the
Board of Directors shall deem justifiable. Such refund will be granted only^on
loans on which no payments in advance of maturity are made.
All advances.
Do.
All advances secured by H. 0 . L. C. bonds (limit 1 year).
All other advances.
Advances written for 1 year or less that are made for the express purpose of meeting
maturities, paying withdrawals, or calling of higher-rate certificates.
All other advances.
Review
303
Federal Savings and Loan Associations
D
URING March the 565 Federal savings and loan associations reporting
comparable figures made mortgage loans
totaling $5,608,330, an increase of $1,513,471
or 37 percent over the February total
(table 1). Of special significance is the
fact that the net increase in loans outstanding of the 163 converted associations was
1.3 percent during March.
As usual refinancing leads the list of purposes for which loans were made, but the
proportion of loans for new construction
rose encouragingly to 16 percent of all
loans made. Loans for reconditioning
represented 9 percent and for purchase of
homes 18 percent.
To help satisfy this increased demand
for loans, the 565 associations obtained
over $3,000,000 in Treasury subscriptions to
TABLE
shares. The 402 new associations also obtained an additional $250,000 in advances
from the Federal Home Loan Banks. But
the 163 converted associations repaid to the
Bank System during the month $1,470,000
in excess of advances obtained from this
source. In this connection attention is
called to the letter to Federal associations
reprinted on page 300 of this REVIEW.
Twenty-six Federal savings and loan associations, with combined assets of $5,573,768, were chartered by the Federal Home
Loan Bank Board during March (table 2).
Nine of these were new associations and
17 were converted from State charters.
The only Federal Home Loan Bank District in which no additions were made was
District No. 1.
1.—Federal savings and loan associations—Combined summary of operations for March 1935
compared with February 1935
163 converted associations
402 new associations
March
Total subscriptions a t end of m o n t h :
Private share accounts
41, 057
409, 825
10
Shares per account (average)
February
38, 764
390, 251
10
Change
February
to March
Percent
+ 5.9
+ 5.0
0
March
February
Change
February
to March
153, 895
2,143,123
13.9
Percent
-1.3
-3.0
-.1
+ 11.8 $108, 408, 850 $110, 037, 951
8, 166, 600
7, 039, 600
+ 22.0
-1.6
+ 16.0
151, 925
2, 077, 432
13.7
Share liabilities a t end of month:
Treasury subscriptions
$10, 829, 919 $9, 682, 772
11, 157, 600 9,141, 800
21, 987, 519 18, 824, 572
Total
263
165, 858
Average paid on private subscriptions...
Repurchases during month
Mortgage loans made during month:
a. Reconditioning
b . New construction
c. Refinancing
T o t a l for m o n t h
258, 568
602, 543
1, 580, 819
491, 597
1
249
215, 612
208,
446,
1, 243,
257,
747
960
049
674
2, 933, 527 2,156, 430
18,815, 386 15, 967,181
+ 16.8
116, 575, 450
117, 077, 551
—.4
+ 5.6
-23.0
713.5
1, 869,150
715
1, 854, 861
-.2
+
+
+
+
23.9
34.8
27.2
90.9
240, 486
302, 785
1, 617, 221
514, 311
173,
194,
1,199,
370,
+ 36.0
+ 17.8
2, 674, 803
93, 225, 930
1, 938, 429
92, 012, 903
+ 38.0
+ 1.3
815
427
282
905
+ *7
+
+
+
+
38.3
55.7
34.8
38.7
Borrowed money from—
Other sources
Total
1
995,114
68, 014
748, 527
136, 903
+ 32.9
-50.3
6, 710, 367
1, 862, 217
8,183, 999
1, 668,181
-18.0
+ 11.6
1, 063,128
885, 430
+ 20.0
8, 572, 584
9, 852,180
— 13.0
Federal Home Loan Bank
Review
This total includes loans made for purposes other than those listed.
304
TABLE
2.—Progress in number and assets of Federal savings and loan associations
Number
Assets
Dec. 31, 1933June 30,1934 Dec. 31, 1934Feb. 28, 1935Mar. 31,1935Mar. 31,1935
New
Converted
Total
57
2
321
49
481
158
518
209
527
225
$24, 856, 920
183, 768,198
59
370
639
727
752
208, 625,118
Federal Home Loan Bank Review
305
Federal Savings and Loan Insurance
Corporation
OURTEEN State-chartered associations and 54 Federal savings and loan
associations were insured during the
period March 21 to April 20. This brought
the total number of insured institutions on
April 20 to 742, with combined assets of
$301,223,671. The number of insured
shareholders in these associations rose to
470,922. This marks the second consecutive monthly period in which the number
of State-chartered associations receiving
insurance increased considerably, and reflects the Board's efforts to simplify examining and insurance procedure.
Applications from 22 State-chartered associations and 44 Federal savings and loan
associations were received during the
March-April period, bringing the total applications from the two groups to 169 and
774, respectively.
Further evidence that investors are willing to accept lower returns on their savings if they can have the protection of
Federal insurance is contained in a letter
from a building and loan association in
F
306
Ohio with assets approximating $14,000,000. The letter reads in part as follows:
We notified our depositors . . . that interest
rates on deposits 1 would be reduced on March
1st from 4 percent to 3 % percent. Notwithstanding that many associations are paying 5
percent, we received nearly 90 percent of consents to a 3V2 percent insured basis . . .
While, since December 1934, we have paid all
applications for w i t h d r a w a l on demand, there
has been a continuous increase in deposits over
withdrawals. An average of ten new accounts
are opened daily, amounting to an average total
of $2,500, and many of the old depositors w h o
made withdrawals regularly every month are
now redepositing with most gratifying results.
There is a steady increase almost daily in our
total deposits, and every one seems very well
pleased, although this association is paying about
the lowest interest rate in the city, w h e r e the
average seems to be around 4% percent . . .
(Signed)
,
President
P. S. Today w e opened nineteen new accounts totaling $17,000. Total increase for today
$32,000.
1
Insured associations in Ohio are permitted to
use this term.
Federal Home Loan Bank
Review
Progress of the Federal Savings and Loan Insurance Corporation—Applications received and institutions
insured
APPLICATIONS RECEIVED
Assets (as of date of insurance)
Number
Dec. 31, Mar. 20, Apr. 20, Dec. 31,1934 Mar. 20,1935 Apr. 20,1935
1935
1935
1934
State-chartered associations
Converted F. S. and L. A
New F. S. and L. A
Total
53
134
393
147
265
465
169 $110,681,409 $227, 715, 214 $242,124, 821
290 128, 907, 073 266, 460, 586 306, 024, 403
8, 464, 758
484
7, 578, 870
8, 207, 395
580
877
943
247,167, 352 502, 383,195
556, 613, 982
INSTITUTIONS INSURED
Number of
Share and
sharecreditor
Assets
holders
liabilities
(as of date of
(as of date of (as of date of insurance)
insurance)
insurance)
Number
Dec. 31, Mar. 20, Apr. 20, Apr. 20, 1935 Apr. 20, 1935 Apr. 20,1935
1934
1935
1935
State-chartered associations
New and converted F. S. and L. A
Total
Federal Home Loan Bank Review
4
447
17
657
31
711
128,180
342, 742
$63, 428, 499
209, 186, 780
$71, 319, 648
229, 904, 023
451
674
742
470, 922
272, 615, 279
301, 223, 671
307
Home Owners' Loan Corporation
N indication of the proportion of 1-, 2-,
3-, and 4-family dwellings in the New
England States is given by a breakdown
of Home Owners' Loan Corporation mortgages in that area. In the relatively rural
A
States of Maine, New Hampshire, and Vermont a larger portion of the mortgages are
on single-family dwellings than in Massachusetts and Rhode Island—States with
large urban centers.
Proportion{of mortgages held by the Home Owners' Loan Corporation on 1-, 2-, «?-, and b-family
dwellings in New England
Type of dwelling
1-family
2-family
3-family
4-family
Total number of loans
Maine
Percent
82
13K
3
IK
2,756
OPERATIONS OF THE RECONDITIONING DIVISION
T H E revision of forms for reporting reconditioning operations has brought to light
duplications in earlier reports. The greatest adjustments have been made in the
New Hampshire
Vermont
Percent
74
Percent
77
17
6'A
1H
1,805
IK
1,442
Massachusetts
Rhode
Island
Percent
62y2
Percent
26JJ
IK
20, 429
56
26
15
3
5,770
number of applications received and in the
number of contracts executed. Accordingly the preliminary tables published in
previous issues of the REVIEW have been
corrected and condensed into the following
summary:
Reconditioning Division—Summary of operations June i, 193U, to Apr. 25, 1935]
Period
June 1, 1934, to Mar. 27, 1935
Mar. 28, 1935, to Apr. 25, 1935
Grand total to Apr. 25, 1935
1
Number of
applications
received for
reconditioning loans
Total contracts executed
Number
Amount
Total jobs completed
Number
Amount
506, 982
21, 385
229, 552 $40, 367, 797
11,151
2,102, 064
164, 389
10,110
$27, 705, 998
2,168,106
528, 367
240, 703
174,499
29, 874,104
42, 469, 861
The report for this period includes all corrections to date.
308
Federal Home Loan Bank
Review
Home Owners9 Loan Corporation—
Applications received and loans cbsed by months
Month
Applications
received
(number)
Loans closed]
Number
Amount
1933
From date of opening through Sept. 30..
October
November
December
January..
February.
March
April
May
June
July.
August
September.
October
November.
December..
January
February
March
Through Apr. 25.
403,114
129, 504
99, 232
90, 946
593
3,424
10, 946
22, 286
$1, 688, 787
10,164, 678
31, 445, 827
62, 621, 051
123,189
136,132
168, 273
145, 772
119, 791
97, 679
66,157
72, 022
39, 317
35, 675
30, 339
32,940
52, 260
56,172
64,172
71, 768
78, 046
69, 738
59, 240
65, 813
54, 468
54, 036
86,143, 83ff
93, 499, 995
150, 213, 639
171, 490, 76a
208, 293, 766
223, 440,191
235, 467, 606
202, 442, 864
179, 299, 857
201, 211, 532
170, 544, 562
169, 018, 847
54, 990
36, 542
23,140
11, 862
166,
104,
70,
33,
1934
14,171
2 2, 312
1935
Grand total to Apr. 25, 1935.
1, 743, 286
852, 775
836,15a
919, 941
664, 400
512, 588
2, 572, 920, 887
1
These figures are subject to adjustment.
^A .
-M.-M.- • 13,
-.-•--,
The December figures are the result of various adjustments and
Receipt of applications
stopped
Nov.
1934.
audits of the number of applications received during the preceding months.
2
Federal Home Loan Bank
Review
309
Resolutions of the Board
L_CONCERNING THE CHARGES FOR
ALL OFFICE AND FIELD EXAMINATIONS MADE BY THE EXAMINING
DIVISION
On April 5 the Board amended previous resolutions concerning charges for examination to permit billing on a flat per
diem basis until June 30, 1935. The resolution reads:
Whereas
reports received by the Board's
Comptroller from the Examining Division indicate that more than 50 percent of the examinations made to date have been of the officeanalysis type, in view of w h i c h it is believed
that if institutions examined are billed for services rendered at the rate of $25.00 per day for
senior examiners and $20.00 p e r day for junior
examiners there should be enough margin between actual operating costs and the amount
billed to absorb approximately all overhead expenses in the field and Washington offices;
Be it therefore resolved, That, effective April
1, 1935, and continuing through June 30, 1935,
the cost, including travel expense, of all office
and field examinations made by the Examining
Division, as well as other reimbursable services
rendered by them, shall be billed by the Board's
Comptroller on a flat p e r diem basis of $25.00
for senior examiners and $20.00 for junior
examiners.
II.—AUTHORIZING
THE
FEDERAL
HOME LOAN BANKS TO ACT AS
TRUSTEE IN ANY TRUST AFFECTING THE BUSINESS OF ANY MEMBER INSTITUTION OR NONMEMBER
INSURED INSTITUTION
The following resolution was passed by
the Board on April 5, 1935:
Whereas under certain circumstances it becomes necessary in the operation of members
of Federal Home Loan Banks and in some cases
in the operation of nonmember insured institutions of a similar character for a trustee to
hold a portion of the p r o p e r t y of such institution or to hold a portion of the capital or other
evidence of investment therein in order that
savers, investors, and b o r r o w e r s may be fully
protected and in order to promote sound and
economical home financing, and
310
Whereas the accomplishment of the objects
sought in such arrangements is the p r i m a r y purpose of the Federal Home Loan Banks and is
essential to their p r o p e r functioning to accomplish the purposes of the statute, therefore
Be it resolved by the Federal Home Loan Bank
Board that the Federal Home Loan Banks be
authorized to act as trustee in any trust affecting the business of any member institution or
any nonmember insured institution or any institution making application for membership in
a Federal Home Loan Bank or for insurance of
its accounts, provided such trusts are limited to
those w h i c h are created or w h i c h arise for the
benefit of the institution as such or for the benefit of its savers, investors or borrowers, in the
interest of the promotion of sound and economical home financing, and provided further that
Federal Home Loan Banks shall cease to act as
trustees in the case of applicants if the application is w i t h d r a w n or rejected.
Be it further resolved that the Federal Home
Loan Banks be authorized to make reasonable
charges for services rendered in connection with
such trusts.
III.—AMENDING THE RULES AND REGULATIONS OF FEDERAL SAVINGS
AND LOAN ASSOCIATIONS AFFECTING THE BONDING OF OFFICERS
AND EMPLOYEES
Resolution extending the bonding of employees to cover collection agents who for
any reason do not come under Section 11
of the Rules and Regulations for Federal
savings and loan associations. This resolution was passed on April 18, 1935.
Be it resolved by the Federal Home Loan Bank
Board that Section 11 of the Rules and Regulations for Federal Savings and Loan Associations
be amended by the addition of the following:
"Associations w h i c h employ collection agents
outside of their principal office or b r a n c h office,
if any, w h o for any reason are not within the
form of bond herein prescribed, shall provide
for the bonding of such agents in an amount of
at least twice the average monthly collections
of such agents, and such agents shall be required
to make settlement with the Association monthly.
Such bonds shall be placed in the custody of the
Federal Home Loan Bank of w h i c h the Association is a member and receipt therefor shall at
all times be in the possession of the Association."
Federal Home Loan Bank
Review
Directory of Member, Federal, and
Insured Institutions
DISTRICT NO. 6
Added during March—April
I. INSTITUTIONS ADMITTED TO MEMBERSHIP IN THE FEDERAL HOME LOAN BANK
SYSTEM BETWEEN MARCH 24, 1935, AND
APRIL 27, 1935 *
(Listed by Federal Home Loan Bank Districts, States, and
cities)
DISTRICT NO. 1
MASSACHUSETTS :
Boston:
Uphams Corner Co-Operative Bank, 585 Columbia
Road.
Dorchester:
Harvard Co-Operative Bank of Dorchester, 378
Washington Street.
DISTRICT NO. 2
NEW JERSEY:
West Orange:
Edison Building & Loan Association, Main Street <fc
Lakeside Avenue.
NEW YORK:
Hastings-on-Hudson:
Hastings-on-Hudson Building Co-operative Savings
& Loan Association, 541 Warburton Avenue.
DISTRICT NO. 3
PENNSYLVANIA:
Bustleton (Philadelphia):
Lower Dublin Building & Loan Association of
Bustleton, Bustleton and Grant Avenue.
Pittsburgh:
Knoxville Building & Loan Association, 139 Bausman Street.
DISTRICT NO. 4
FLORIDA :
Pensacola:
Pensacola Home & Savings Association, 19 East
Garden Street.
NORTH CAROLINA:
Whitakers:
Whitakers Building & Loan Association.
INDIANA :
Hammond:
People's Mutual Savings & Loan Association, 5444
Calumet Avenue.
DISTRICT NO. 7
ILLINOIS :
Belvidere:
Belvidere Building & Loan Association, 215 South
State Street.
Chicago:
Arnoldsville Building & Loan Association, 6239
South Ashland Avenue.
Bessemer Building & Loan Association, 9036 Commercial Avenue.
Columbus Building & Loan Association, 2525 West
Forty-seventh Street.
Peoples Savings & Loan Association of Roseland,
10956 South Michigan Avenue.
Russian National Building & Loan Association, 917
North Wood Street.
Warsaw Building & Loan Association, 953 West
Thirty-first Street.
Chillicothe :
Chillicothe Loan & Homestead Association, 222
North Second Street.
Pawnee:
Pawnee Building & Loan Association.
Riverside:
Riverside Building & Loan & Homestead Association, 15 North Longcommon Road.
WISCONSIN :
Milwaukee:
Pioneer Building & Loan Association, 2510 South
Kinnickinnic Avenue.
Wauwatosa:
Highland Park Building & Loan Association, 6018
West Vliet Street.
DISTRICT NO. 9
TEXAS:
Beaumont:
Beaumont Building & Loan Association, 801—802
San Jacinto Life Building.
DISTRICT NO. 5
DISTRICT NO. 10
KENTUCKY:
Princeton:
Princeton Building & Loan Association, Harrison
Street.
OHIO:
Bridgeport:
Bridgeport Savings, Loan & Building Association,
253 North Lincoln Avenue.
TENNESSEE :
Jackson:
Home Building & Loan Association, 503 First
National Bank Building.
Mary ville:
Mutual Building & Loan Association.
Morristown:
Morristown Building & Loan Association, 15 North
Henry Street.
1
During this period 21 Federal savings and loan associations were admitted to membership in the System.
Federal Home Loan Bank
Review
COLORADO:
Greeley:
Northern Colorado Building & Loan Association,
202 Central Building.
DISTRICT NO. 12
CALIFORNIA :
Alhambra:
Mutual Building & Loan Association of Alhambra,
237 West Main Street.
WITHDRAWALS
FROM
THE
FEDERAL
HOME
BANK SYSTEM BETWEEN MARCH 24,
APRIL 27,
1935,
LOAN
AND
1935
MISSOURI :
St. Louis:
Croatian-American Building & Loan Association,
1443 Chouteau Avenue.
311
NEW HAMPSHIRE:
Nashua:
Citizens Guaranty Savings Bank.
NORTH CAROLINA:
Black Mountain:
Black Mountain Building & Loan Association.
SOUTH CAROLINA:
Greenville:
Mechanics Building & Loan Association, 23 West
McBee Avenue.
II. FEDERAL SAVINGS AND LOAN ASSOCIATIONS GHARTERED BETWEEN APRIL 1,
1935, AND APRIL 30, 1935
(Listed by Federal Home Loan Bank Districts, States, and
cities)
DISTRICT NO. 2
NEW YORK:
Dongan Hills (Staten Island):
Dongan Hills-Grant City Federal Savings & Loan
Association, 1565 Richmond Road (converted
from Dongan Hills-Grant City Savings & Loan
Association).
New York:
New York Cooperative Federal Savings & Loan
Association, 274 Lenox Avenue (converted from
New York Cooperative Building & Loan Association).
DISTRICT NO. 3
OHIO—Continued.
Springfield:
Home City Federal Savings & Loan Association
of Springfield, 32 West High Street (converted
from Home City Building & Savings Company).
Merchants & Mechanics Federal Savings & Loan
Association of Springfield, Limestone at Main
(converted from Merchants & Mechanics Savings
& Loan Association of Springfield).
Youngstown:
First Federal Savings & Loan Association of
Youngstown, 124 West Federal Street (converted from Federal Savings & Loan Company)»
DISTRICT NO. 6
MICHIGAN :
Muskegon:
Muskegon Federal Savings & Loan Association, 880
First Street (converted from Muskegon Building
& Loan Association).
DISTRICT NO. 7
ILLINOIS :
Galesburg:
Fidelity Federal Savings & Loan Association, Main
& Cherry Streets (converted from Fidelity Savings & Loan Association).
Streator:
First Federal Savings & Loan Association of
Streator, 123 East Main Street (converted from
Union Building & Loan Association).
PENNSYLVANIA :
Philadelphia:
Quaker City Federal Savings & Loan Association,
1614 Walnut Street.
DISTRICT NO. 4
MARYLAND :
Baltimore:
Loyola Federal Savings & Loan Association, North
Charles Street at Preston (converted from Loyola
Perpetual Building Association of Baltimore
City).
NORTH CAROLINA:
Rocky Mount:
First Federal Savings & Loan Association of Rocky
Mount, 201 Tarboro Street (converted from Rocky
Mount Homestead & Loan Association).
SOUTH CAROLINA:
Allendale:
Mutual Federal Savings & Loan Association of
Allendale.
Columbia:
Security Federal Savings & Loan Association of
Columbia, 1230 Washington Street (converted
from Security Building & Loan Association).
DISTRICT NO. 8
MINNESOTA :
Breckenridge:
Breckenridge Federal Savings & Loan Association.
MISSOURI :
Joplin:
Joplin Federal Savings & Loan Association, 1502
Main Street.
St. Louis:
Cass Federal Savings & Loan Association of St.
Louis, 1510 Cass Avenue (converted from Cass
Savings & Loan Association).
DISTRICT NO. 9
TEXAS:
Marshall:
Marshall Federal Savings & Loan Association*
DISTRICT NO. 10
KANSAS :
Clay Center:
Northwestern Federal Savings & Loan Association
of Clay Center, 820 Fifth Street (converted from
Northwestern Savings & Loan Association).
NEBRASKA :
DISTRICT NO. 5
KENTUCKY:
Newport:
Daylight Federal Savings & Loan Association of
Newport, 335 York Street (converted from Daylight Building & Savings Association).
Monmouth Street Federal Savings & Loan Association of Newport, Corner Tenth & Monmouth
Streets (converted from Monmouth Street Loan &
Building Association of Newport, Kentucky).
OHIO:
Columbus:
Franklin Federal Savings & Loan Association of
Columbus, High & Main Streets (converted from
Franklin Loan & Savings Company).
312
Grand Island:
Home Federal Savings & Loan Association of Grand
Island, 212 North Locust Street.
DISTRICT NO'. 11
WASHINGTON :
Olympia:
Thurston County Federal Savings & Loan Association of Olympia, Security Building (converted
from Thurston County Savings & Loan Association) .
Renton:
First Federal Savings & Loan Association of Renton, 916 Third Avenue (converted from Renton
Savings & Loan Association).
Federal Home Loan Bank Review
DISTRICT NO. 7
WASHINGTON—Continued.
Seattle:
Ballard Federal Savings & Loan Association of
Seattle, 5301 Ballard Avenue (converted from
Ballard Savings & Loan Association).
CANCELATIONS OF FEDERAL SAVINGS AND LOAN
ASSOCIATION CHARTERS BETWEEN APRIL 1, 1935,
AND APRIL 30, 1935
FLORIDA :
St. Augustine:
St. Augustine Federal Savings & Loan Association.
NEW YORK:
Rochester:
Equity Federal Savings & Loan Association, 92
Portland Avenue (consolidated with First Federal Savings & Loan Association of Rochester).
VIRGINIA :
Virginia Beach:
Princess Anne County Federal Savings & Loan
Association.
III. INSTITUTIONS INSURED BY THE FEDERAL SAVINGS AND LOAN INSURANCE
CORPORATION BETWEEN MARCH 29, 1935,
AND APRIL 30, 1935 *
DISTRICT NO. 4
GEORGIA :
Decatur:
Decatur Building & Loan Association, 107 Sycamore
Street.
VIRGINIA :
Norfolk:
Mutual Building Association of Norfolk, Virginia,
121-23 West Tazewell Street.
DISTRICT NO. 5
OHIO:
Celina:
Mutual Savings & Loan Association, West Market
Street.
Federal Home Loan Bank Review
WISCONSIN :
Madison:
Northwestern Savings, Building & Loan Association, 115 East Washington Avenue.
DISTRICT NO. 9
ARKANSAS:
Fayetteville:
Fayetteville Building & Loan Association.
Little Rock:
Commonwealth Building & Loan Association, 212
Louisiana Street.
LOUISIANA :
Lafayette:
Home Building & Loan Association, 521 Jefferson
Street.
Lafayette Building Association, West Vermillion
Street.
Lake Charles:
Calcasieu Building & Loan Association, 702 Ryan
& Division Streets.
New Iberia:
Iberia Building Association, 127 West Main Street.
Opelousas:
St. Landry Homestead Association, 121 West Landry Street.
DISTRICT NO. 10
COLORADO:
Denver:
Empire Savings, Building & Loan Association, 1654
Welton Street.
DISTRICT NO. 12
CALIFORNIA :
El Centro:
Imperial Valley Building & Loan Association, 146
South Sixth Street.
1
During this period 56 Federal savings and loan associations were insured.
BACK COPIES OF THE REVIEW REQUESTED
The demand for the first two issues of
the REVIEW, published in October and November 1934, has exhausted our reserves.
To permit the completion of sets for bind-
ing, those who have copies of Nos. 1 and
2 they do not plan to keep are requested
to send them to the undersigned.
JOHN R.
ELLINGSTON,
Editor, Federal Home Loan Bank Review,
Federal Home Loan Bank Board,
Washington, D. C.
314
Federal Home Loan Bank
Review
FEDERAL HOME LOAN BANK DISTRICTS
• • — • B O U N D A R I E S OF FEDERAL HOME LOAN I A N K OISTRICTS
•
FEDERAL HOME LOAN BANK CITIES.
@FedFRASER