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vol. i

Inffil

No

-'

FEDERAL
HOME LOAN BANK

REVIEW
OCTOBER
1934

ISSUED BY
FEDERAL HOME LOAN BANK BOARD
WASHINGTON D.C.




FEDERAL HOME LOAN BANK BOARD
JOHN H. FAHEY,

T. D. WEBB, Vice

Chairman

Chairman

WILLIAM F. STEVENSON
F.

W.

CATLETT

H. E. HOAGLAND

OFFICERS OF FEDERAL HOME LOAN BANKS
Federal Home
Loan Bank of—

Chairman

President

Vice president

Boston

B. J. Rothwell...

W. H. Neaves..

Newark

G. L. Bliss

Pittsburgh

George MacDonald.
E. T. Trigg

R. H. Richards.

Winston-Salem

Ivan Allen

T.W.Ellett...

Cincinnati

H. S. Kissell

H. F. CeUarius, W. E.
Julius, executive vice
president.

Indianapolis...

F. S. Cannon

Chicago

H. G. Zander

H. T. Donaldson, F. B.
McKibbin, executive
vicepresident.
A. R. Gardner
, Oscar R. Kreutz, A. G.
Erdmann.

Des Moines—

C. B. Bobbins...

Little Rock...

I. Friedlander

Topeka
Portland
Los Angeles...




W. S. Metcalf....
F. S. McWilliams.
C.H.Wade

Other officers

H. N. Faulkner.

Frederick Winant, Jr.,
secretary-treasurer.
F. G. Stickel, Jr., Robt. W. E. Murray, secretaryG. Clarkson.
treasurer.
G. R. Parker
H. H. Garber, secretarytreasurer.
G. E. Walston
F. F. Kidd, secretarytreasurer.
H. J. Brodbeck, second W. B. Furgerson, treasvice president.
urer; Dwight Webb,
Jr., secretary-comptroller.
John A. Rhue, vice pres- B. F. Burtless, secretaryident-treasurer.
comptroller.

E. H. Burgess, treasurer;
J. P. Domeier, secretary.
R. J. Richardson, presi- W. H. Lohman, vice J. M. Martin, assistant
president-treasurer.
dent-secretary.
secretary.
B. H. Wooten
, H. D. Wallace, vice pres- J. C. Conway, secretary.
ident-treasurer.
W. L. Bowersox
C. A. Sterling.
R. H. Burton, treasurer;
W. E. Stevens, secretary.
W. H. Hadlock.
C. H. Stewart.
Irving Bogardus, treasurer; W. H. Campbell,
secretary.
M. M. Hurford, vice F. C. Noon, secretary.
president-treasurer.

FEDERAL HOME LOAN BANK
REVIEW
TABLE OF CONTENTS
Page

The Government's program for the organization of
the Nation's home-financing system
The need for new homes:
Summary of real property inventory statistics
for 64 cities

1

14

Editorial—Introducing t h e R E V I E W

18

Home-mortgage interest rates by States
Interest rates of the Federal Home Loan B a n k s . . .

19
21

Page

Combined statement of condition of the Federal
Home Loan Banks
Federal savings and loan associations
Federal Savings and Loan Insurance Corporation.
One year of the Home Owners' Loan Corporation:
Summary of operations of the Home Owners'
Loan Corporation by months
State Court affirms constitutionality of Federal
Savings and Loan Associations

22
21
21

26
27

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
nsular possessions, subscription price is $1.40; single copies, 15 cents.

THE GOVERNMENT'S PROGRAM FOR THE ORGANIZATION
OF THE NATION'S HOME-FINANCING SYSTEM
By J O H N

H. F A H E Y ,

Chairman,

In t h e g r a d u a l strengthening of its economic structure, t h e United States h a s left
housing a n d h o m e financing to t h e last. It
took 150 y e a r s a n d a n a t i o n a l crisis to b r i n g
the F e d e r a l G o v e r n m e n t to assume any r e sponsibility for housing. D u r i n g those
years the G o v e r n m e n t t h r e w u p safeguards
a r o u n d public use of practically every other
necessity of life, helped to organize the m a chinery for its production, a n d encouraged
its p r o d u c e r s . It created t h e D e p a r t m e n t
of Agriculture to p u t the production of food
on a scientific basis a n d it set u p t h e F e d eral l a n d b a n k s to provide credit for agriculture. T o foster i n d u s t r y a n d commerce




Federal

Home

Loan

Bank

Board

it p r o v i d e d F e d e r a l d e p a r t m e n t s a n d t r a d e
commissions, tariffs a n d subsidies, a n d it
established t h e F e d e r a l Reserve System to
h a r n e s s t h e credit resources of t h e nation
in their service.
W h i l e it organized a n d subsidized, the
G o v e r n m e n t also i m p o s e d controls in o r d e r
to protect t h e public interest in t h e p r o d ucts of agriculture, commerce, a n d i n d u s try. T h u s w e h a v e t h e P u r e F o o d a n d
Drugs Act, t h e antitrust laws, t h e Interstate C o m m e r c e Commission, a n d a host of
other r e s t r a i n i n g a n d regulating acts a n d
agencies. As for housing, however, the
Government neither set u p a n y safeguards
Page One

FEDERAL

HOME

LOAN

in the public interest not helped organize
the machinery for its construction and
financing.
We have paid a price for this neglect.
This is not the place to discuss the obvious
social and economic costs of our slums and
blighted areas; the immense waste in dollars and cents chargeable to the inefficiency
of home construction; the costly burden of
periodic booms in the construction industry; the load of taxes carried by home owners to support utilities servicing vacant lots.
Our concern here is primarily with the
home-financing structure. The organization of our credit resources for home purchase has remained so primitive compared
with the rest of our financing structure that
the home owner has paid from 2 to 5 times
as much as a business ma$ for a loan, and
every strong wind of economic maladjustment has driven lending' institutions and
Home-owner borrower^ alike into distress.
NEGLECT FORCES DRASTIC REMEDY

Eventually this neglect of housing and
home financing threatened social disaster.
With foreclosures on homes averaging
more than 200,000 each year during the depression, millions of our* soundest citizens
were being turned into embittered malcontents; life savings represented by equities
in homes were being lost; values of home
properties sank to disastrous levels; the
real-estate market collapsed, and mortgage
money'disappeared; financing institutions
with vaults full of frozen real-estate paper
were forced to close. A drastic remedy
was unavoidable. The task was too great
for any private agency. To protect the public the Government was forced to enter directly into the business of refinancing
homes. In June 1933 Congress set up the
Home Owners' Loan Corporation, the largest home-financing organization in the
world, to take over the mortgages of home
owners who could not otherwise escape
foreclosure.
Page Two



BANK

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It is well to recall these facta for they are
the spur behind the Government's present
pfogram for the organization of the homefinancing system.
Up to September 1934 the Home Owners'
Loan Corporation has taken over nearly
500,000 mortgages, which means that it has
saved nearly 500,000 families from the economic and spiritual defeat of foreclosure.
It has enabled financial institutions to pay
out tens of millions of dollars to distressed
depositors. The money thus released has
gone to pay the grocer, and the butcher,
and the clothier, and the doctor. It has
enabled home owners to pay millions of
dollars of back taxes into needy city treasuries. It has ended the chaos of deflation
in the real-estate market. In short, it has
broken loose an obstruction in the windpipe of the economic body that had threatened to strangle it. It put the Government
directly into the refinancing of homes, yet
there can be scarcely a banker or businessman in the couiitry who is not the gainer
thereby.
THE GOVERNMENT'S DUTY TO HOUSING

The Home Owners' Loan Corporation is
strictly a relief and therefore a temporary
agency. It has helped to prevent a complete collapse, but its success must not permit us to forget the necessity which created
it nor again to ignore society's responsibility for housing and home financing. In
the light of past experience the Federal
Government's function is quite clear. It
is to set forth sound standards for housing
and to educate the public to those standards. It is to bring order into the complex
mechanism that produces housing, to organize where the need for organization
transcends the capacity of individuals or
of smaller units of government, but to control only where control is necessary. These
tasks cannot be accomplished over night.
In so vast and complex a field as housing,
improvement must come step by step.

FEDERAL

HOME

LOAN

BANK

REVIEW

Fortunately there can be no question about
Many home owners themselves have approached home ownership in the spirit of
where to begin.
Nowhere is the need for Federal organ- speculation rather than as the attainment of
ization more insistent than in the system a major goal of family effort. Instead of
for financing homes. On the one hand the bending their effortsi to own a home clear,
present faults in this system give rise to such owners have made the smallest down
the most pressing and the most clearly rec- payment possible, obtained the largest
ognized of the ills effecting housing. Oi} mortgage they could get, and carried it
the other, they imperil the entire credit without reduction of principal in the hope
structure of the Nation. The estimated (usually unwarranted) of selling the h6me
mortgage indebtedness on urban homes at a profit. Many building and real-estate
reached in 1931 the immense sum of $21,- interests have materially contributed to
000,000,000. This is nearly twice the pres- this dangerous practice of home buying by
ent total railroad debt, and nearly half the encouraging shoe-string down payments
present combined total of Federal, State, and giving second mortgages at appalling
county, and municipal debt. To leave rates.
Finally, the mushroom growth of our
such a mass of credit unorganized and uncontrolled as we have done in the past is as cities has for still another reason militated
perilous to our economic structure as an against stability of land values. I refer to
the instability of use which leads to such
unlashed cargo in the hold of a ship.
rapid decay of American home neighborhoods. The good residential district of toL DEFECTS OF NATION'S HOME-FINANCING
day is the garage and rooming-house and
SYSTEM
small-store neighborhood of tomorrow,
INSTABILITY OF VALUES FORCES ULTRACONwith the consequent theft of value from the
SERVATIVE LENDING POLICIES
residential property.
The home-financing system 9!" this counThese powerful physical and psychologtry is a typically American product. It re- ical factors working for instability of land
flects both the physical environment in values have forced sound home-financing
which it has grown and our national char- institutions to insist on wide margins of
acter. Thus in the exploitation of new safety in their loans. The decision, in fact,
land, whether it be on the frontier of a has not been left entirely to the lending
city or on the frontier of the Nation, there institutions. Government, concerned for
is inevitably a large element of speculation. the safety of savings, has frequently
Population may flock to the new develop- stepped in to limit the percentage of propment or it may not.
erty value up to which certain financial
Again, our national passion for betting institutions can invest in mortgages. Thus
on land values leads us periodically to banks, trust companies, and life insurance
oversubdivide and overbuild. Once or companies in most States cannot accept
twice in every business generation the Na- mortgages representing mbre than 50 pertion rides a land and building boom to the cent of the appraised value of the property.
precipice of inflated values and inevitably
Unfortunately, however, this emphasis
takes the drop. Within these larger cycles, upon an adequate margin of property value
local communities have lesser booms, above the loan has not proved adequate to
either periodical or random. The dis- protect the investment nor the solvency of
covery of Florida as a winter resort oc- the lending institutions. The portfolios of
casioned a typical random boom.
thousands of banks which haVe closed in




Page Three

FEDERAL

HOME

LOAN

the past 4 years have contained quantities of " conservative " first-mortgage paper. A survey recently made by the Division of Research and Statistics of the
Federal Home Loan Bank Board indicates
that building and loan associations, savings
banks, and insurance companies held, at
the end of 1933, urban home real estate representing some $900,000,000 of foreclosed
first mortgages.

BANK

REVIEW

CAUSE OF SECOND-MORTGAGE SYSTEM

Finally, the practice of restricting the
amount which many financial institutions
may lend on first mortgages has been the
principal cause of second mortgages, and
second mortgages have been the outstanding sore spot in our home-financing system.
The mortality rate among second-mortgage
financing institutions during the depression
reached practically 100 percent. Investors
in second mortgages have been wiped out
EMPHASIS ON SAFETY LEADS TO EVILS
as buyers on margin were wiped out in the
Moreover, the tendency to seek such wide
stock-market crash of 1929. Thousands of
margins has led to a number of undesirforeclosures can be traced to the exorbitant
able results. It has caused many homerates charged for second-mortgage finanfinancing institutions to ignore the personal
cing. With true interest rates on secrisk factor almost entirely. So long as the
ond mortgages frequently running as high
institution holding the first mortgage felt
that it could always get its investment out as 20 percent a year due to discounts, plus
of the property by forced sale in the event commissions and service charges aggreof default, it concerned itself hardly at all gating 10 percent yearly, the actual cost of
with the borrower's capacity and intention obtaining and carrying a second-mortgage
to meet his payments, the size of his equity, loan often ran up to 30 percent of the
or the amount of other liens on the prop- amount of the loan. These rates are usurerty. When the market becomes glutted ious in many States and in consequence
with distressed properties, the expectation many second-mortgage financing agencies
that a conservative first mortgage can al- have operated outside the law. They have
ways be liquidated for the amount of the not been a part of the reputable organized
financial system of the community and
loan is shown to be false.
The same reasoning has led many finan- have been subject to virtually no control
cial institutions to pay no attention to the by law or public opinion.
quality of construction nor to the comHOME-FINANCING SYSTEM A MAKESHIFT
nunity's real need for new housing. Those
STRUCTURE
institutions that in times of plenty provided
first-mortgage funds for the jerry-builder
In addition to being a reflection of the
are now burdened with foreclosed and physical environment and of our national
unsaleable properties.
psychology, our home-financing system has
Associated with this indifference to qual- been a makeshift structure, the improvisaity of construction, to desirability of location of the movement to meet an immedition, and to real need for housing is the
ate
need. This characteristic has led to
inefficiency of our appraisal system. Before the depression it was common practice evils no less dangerous than the evil of secin many communities for appraisers to ond-mortgage financing. It has put into
judge the value of a house from the run- the business of making loans on homes,
ning board of an automobile. Obviously, many financial institutions which should
sound appraisals are the very cornerstone have confined themselves to other types of
of successful home financing.
investments.
Page Four




FEDERAL

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SHORT-TERM FUNDS FOR LONG-TERM LOANS

Loans on homes are by their nature longterm loans and under conditions that have
obtained hitherto, they have not been
liquid. Many institutions such as commercial banks, however, have invested demand
deposits and time deposits indiscriminately
in home loans. Faced with the dilemma
of permitting short-term funds to be invested in nonliquid long-term obligations,
the Federal and State Governments tried to
effect a compromise by legislation. National banks, for example, have been prohibited from holding mortgages made for
periods longer than 5 years. (This prohibition is now removed for mortgages inSome State banks may not hold mortgages
sured under the National Housing Act.)
made for a period in excess of 1 year.
This compromise has satisfied neither the
needs of the investing institutions nor the
needs of the home owner. That it has not
secured the liquidity essential to commercial banks is evidenced by the more than
$500,000,000 worth of frozen urban home
mortgages held in closed and restricted
State and national banks as of October
1933. To the home owner the short-term
first mortgage has caused almost as much
distress as the second mortgage. When a
short-term mortgage comes due in hard
times, the lending institution usually
refuses to renew or else demands a substantial reduction of principal. As this demand is made at the very time when
the home owner is least able to make that
reduction, foreclosure is frequently the
only alternative. This situation works a
hardship also on the entire real estate market, for foreclosures and inability to borrow on real estate depress the prices of all
property.
UNEVEN FLOW OF CREDIT FOR HOME FINANCING

The variety of types of agencies that
have financed homes has also contributed




BANK

REVIEW

to the delay in setting up any reserve system for home financing on a national
scale. It has led to the credit isolation of
each community and of each lending institution within that community. With the
exception of the large insurance companies
which lend on a Nation-wide scale, each
home-financing institution has been almost
wholly dependent upon its own local resources. When hard times have come it
has had no reserve of credit on which to
draw, no central pool from which to borrow against its sound mortgage collateral,
and consequently credit for home financing has dried up regularly at the first sign
of danger.
Even in periods of prosperity, this isolation of home-financing institutions has resulted in an uneven flow of mortgage credit. While large financial centers, particularly in the Northeast, enjoyed a surplus of
credit for home financing, smaller communities everywhere and the West and South
as a whole tended to suffer from an undersupply. The effect of the surplus in those
communities where it existed was frequently to start a boom in building, while
the effect of the scarcity in other communities was to increase the cost of financing to
the home owner and to keep many wouldbe owners in the tenant class.
HOME FINANCING A SIDE ISSUE

The fact that many institutions have engaged in the financing of homes as a side
issue has contributed to the unevenness of
flow of mortgage credit for another reason.
Because such institutions have many other
outlets for their funds they cannot be depended upon to supply the more or less
steady stream of credit needed for home
financing. An epidemic of stock speculation such as occurred in 1926-29 diverts the
funds of such institutions from residential
building.
Page Five

FEDERAL

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LACK OF STANDARDS FOR HOME-FINANCING
INSTITUTIONS

In addition to these v a r i o u s evils, the
multiplicity of types of lending agencies
h a s led to a complete lack of uniformity in
l e n d i n g policies a n d of accepted s t a n d a r d s
for home-financing institutions. W h e r e ever s t a n d a r d s a r e lacking, w h e t h e r it be in
sport, in business, or in any o t h e r competitive activity, t h e r e one m a y look for all
k i n d s of u n d e s i r a b l e results a n d practices,
One u n d e s i r a b l e result of the lack of standa r d s a m o n g home-financing institutions h a s
been to k e e p the cost of financing h o m e s
unjustifiably high.
E l s e w h e r e in this R E V I E W there a p p e a r s
a table of interest rates charged by different types of institutions t h r o u g h o u t the
United States for loans on first mortgages.
This table shows t h a t rates of 7, 8, 9, a n d
even 10 percent a r e c o m m o n in m a n y
Slates. High as these rates are, however,
they do not always reveal the full b u r d e n
imposed u p o n the h o m e o w n e r for the
privilege of b o r r o w i n g m o n e y on his h o m e .
On straight m o r t g a g e s there is generally
a b r o k e r a g e charge, ranging, in different
p a r t s of the country, from 1 to 5 percent of
the f^ce value of the mortgage. Many institutions i m p o s e this fee every time the
m o r t g a g e is r e n e w e d . In addition, the
m o r t g a g e t r a n s a c t i o n is b o u n d u p with so
m u c h r e d tape, is r e n d e r e d confusing by so
m a n y w o r d y documents, a n d involves so
m a n y extra services that the o p p o r t u n i t y
of charging fees out of all p r o p o r t i o n to
the v a l u e of the service is too great for
h u m a n n a t u r e to resist. T h e charges comm o n to m a n y m o r t g a g e transactions in
New York City w e r e r e p o r t e d by the committee on finance of the President's Conference on H o m e Building a n d H o m e Ownership in 1931 to include the following:
Interest rate.
Title examination
State tax
Page Six



6 percent.
$50 and up.
One-half of 1 percent.

BANK

Conveyancing
Recording
Attorney's fees
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REVIEW
$7.50 to $35.
$5 to $10.
$100 to $500.
1 to 3% percent.

W i t h these m u l t i p l e charges it w a s possible for a h o m e o w n e r b o r r o w i n g $10,000
on a 1-year m o r t g a g e to p a y as m u c h as 12
percent for his loan, a n d on a 3-year m o r t gage 8 percent annually. T h e smaller the
amoutit Of the m o r t g a g e the higher its cost
u n d e r such conditions.
T h e charges listed occur in w h a t a r e
k n o w n as legitimate home-financing t r a n s actions. T h o u s a n d s of h o m e owners unwittingly p a y additional tribute to s h a r p ers. Because of the lack of uniformity in
home-financing institutions, it h a s b e e n
possible for m a n y agencies to engage in
this business whose integrity or desire to
deal fairly is not above r e p r o a c h . T h e
n u m b e r of such institutions is large enough
to constitute a serious problem.
SUMMARY OF DEFECTS

W e h a v e n o w b r o u g h t to light the m a j o r
defects that have developed as a result of
the h a p h a z a r d a n d uncontrolled g r o w t h of
o u r home-financing system. It is w o r t h a
m o m e n t to s u m m a r i z e t h e m in the o r d e r in
which they have been m e n t i o n e d .
1. Exclusive emphasis by lending institutions
on a wide margin of safety and indifference to
the personal-risk factor, to the quality of construction, to the stability of the neighborhood,
and to the actual need for housing,
2. Shoe-string buying on the part of home
owners.
3. Faulty appraisals.
4. The frequent use of short-term funds for
long-term financing.
5. The frozen nature of hoine^inortgage paper
due to the complete lack of organization among
our home-financing institutions and the consequent lack of a national credit reserve for home
financing.
G. The unevenness of flow of credit for home
financing at different times and in different sections of the country.
7. The lack of uniformity in practices and in
standards for home-financing institutions.

FEDERAL

HOME

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8. The high cost of home financing due principally to the extralegal second mortgage structure, and the frequently high-servicing charges
and the high interest rates for first mortgages.

In spite of these defects, millions of
homes have been successfully finance^ in
this country. Many institutions have made
an immense contribution toward sound
home ownership and better housing.. The
aim of organization is to reenforce these
institutions, to scrap nothing good in the
existing structure but rather to expect from
each unit the duties it can best perform.
The particular elements with which we
have to deal in a program for organization
narrow down to four.
1. The lending institutions.
2. The millions of shareholders, policyholders,
and depositors whose savings constitute the
funds of these lending institutions.
3. The Government—municipal, State, and
National—whose regulations determine to a
greater or less degree the activities of the homefinancing institutions.
4. The home-owner borrowers, on whose needs
and participation the entire structure rests.

We may as well recognize at once that
no organization of our home-financing
structure will succeed unless it takes all
these elements into consideration. If the
last 4 years have revealed anything, it is
the fact that the well-being of one is the
well-being of all and if the home owner
sinks, the home-financing institution and
its depositors, the building industry, and
the economic structure go down with him.
II. PROGRAM OF ORGANIZATION

We come now to the Government's program for the permanent organization of
our home-financing system. To,carry out
this program the Government has established or authorized the establishment
under Federal charter of five agencies or
types of agencies. These are (1) the Federal Home Loan Banks; (2) Federal savings
and loan associations; (3) the Federal Savings and Loan Insurance Corporation; (4)




BANK

REVIEW

the Mutual Mortgage Insurance Fund; and
(5) national mortgage associations. These
five agencies are planned specifically to
eliminate the principal defects in our
home-financing system, and to supplement
and strengthen existing home-financing institutions. They were designed with full
realization both of the ideal to be striven
for and of the practical necessities of the
situation. The first 3 come under the
jurisdiction of the Federal Home Loan
Bank Board; the last 2 under the National
Housing Administrator* How they are ii>
tended to work can best be shown in connection with the objectives sought.
LONG-TERM AMORTIZED LOAN FUNDAMENTAL

The mainspring of the Government's
program is the conviction that the longterm amortized loan is essential to sound
home financing and secure home.ownership in this country. Homes are capital
goods intended to provide service for
many years. They should be paid for
gradually during their use. That is the
principle upon which industry operates in
financing its capital equipment, and it is
sound. It is best for the home owner because every payment made increases his
equity in his home, thus reducing the danger of loss if values drop or his income is
affected by unemployment or sickness. It
eliminates the need and cost of renewing
the mortgage periodically and the dangers
attendant on the mortgagee's refusal to re^new. It encourages thrift and builds up
the most desirable kind of an estate. The
long-term amortized loan is best also for
the lender, because every payment reduces
the risk of loss through default. The home
owner's growing equity is a guarantee of
his intention to carry out his contract.
INSTITUTIONS QUALIFIED TO MAKE
LONG-TERM LOANS

The handling of the long-term amortized loan in the small amounts necessary
Page Seven

FEDERAL

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for most home financing is a specialized
business. The making of loans on homes
should be a major interest of the institution, to insure expert knowledge of realestate conditions and mortgage activity.
The business is local and the personal-risk
factor is large, so knowledge of the borrower on the part of the institution is
highly desirable. The business has profound social significance and affects the
entire community, so that as much of the
community as possible should participate,
benefits should be mutual, and undue
profit through exploitation impossible.
Because they disposed of long-term funds
and usually were not restricted by law as
to period of loan, the institutions hitherto
best qualified to make long-term loans on
homes have been building and loan associations, the mutual savings banks, and the
insurance companies working through
local representatives. The business of
building and loan associations has been
almost entirely in amortized loans; the insurance companies and savings banks are
in a most favorable position to adopt that
type of loan and in several instances have
already done so. In 1931 these three
groups together did more than half the
urban home financing in dollar volume and
the building and loan associations alone
held a majority in number of all first mortgages on urban homes. In view of these
facts, it is inevitable that the Government's
program should seek to strengthen these
institutions and to see that all sections of
the Nation are adequately serviced by this
most desirable type of thrift home-financing institution. Federal savings and loan
associations provide the means for attaining this latter objective.
FEDERAL SAVINGS AND LOAN ASSOCIATIONS

These associations are modeled on the
features that have best stood the test of
time in the operation of building and loan
associations and mutual savings banks.
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They are believed to constitute the ideal
type of home-financing institution specializing in the long-term amortized loan on
homes. Being under Federal charter, they
are free from the impractical restrictions
and unwise privileges that have injured
building and loan associations in some
States. They are mutual institutions under
private management and Federal supervision. In short, they offer practical
models of operation for the Nation's thrift
home-financing institutions. They are recognized as so socially desirable that the
Government has made available $100,000,000 for subscription to their shares. The
Treasury may invest in full-paid income
shares of these associations up to 75 percent of the total paid-in share subscriptions. By September 1934 over 490 associations had been chartered throughout the
country. These include many building and
loan associations converted from State
charters as well as newly created institutions.
NATION-WIDE ORGANIZATION OF HOMEFINANCING INSTITUTIONS

The next step is to give the mutual
thrift type of home-financing institution
the strength of Nation-wide organization.
With all their desirable qualities and potentialities, these institutions have been
handicapped by a major weakness—
mutual isolation. Each one has stood
alone, dependent usually for its resources
on its own community. The framework of
a national organization is provided by the
Federal Home Loan Banks. This is in essence a Federal Reserve System for building and loan associations, savings banks,
and insurance companies. It provides a
permanent reservoir of credit on which
these specialized home-financing institutions can draw in any emergency.
Already some 2,700 institutions are members of the Federal Home Loan Bank System. Every Federal savings and loan

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association automatically becomes a member. The System's possibilities will not be
realized, however, until every eligible
thrift home-financing institution in the
country has joined. Recent amendments
to the Federal Home Loan Bank Act make
membership more inviting by liberalizing
the banks' collateral requirements at the
ratio of approximately 1 to iy2 instead of
the former 1 to 2. Member institutions
whose creditor liabilities (not including
advances from the Home Loan Bank) do
not exceed 5 percent of their net assets may
borrow for 1 year without collateral. Also,
all the Federal Home Loan Banks have recently reduced their interest rates, a move
which permits member home-financing
institutions to benefit by the System's facilities to a greater extent.
OTHER INSTITUTIONS ENCOURAGED TO MAKE
AMORTIZED LOANS

Though the Government's program
seeks by all means to encourage home
financing by mutual thrift institutions, it
does not seek to give such institutions a
monopoly of the business. As a purely
practical matter, it would be impossible to
transfer the several billion dollars worth
of mortgages held by commercial banks
and trust companies to thrift institutions
in the near future. Faced with the necessity of encouraging the long-term amortized loan without at the same time excluding institutions subject to heavy demand
liabilities, the Government is using the device of mutual insurance to give such
safety to long-term amortized mortgages
that they will be readily negotiable and
therefore suitable investments for such institutions. This is the major purpose of
the Mutual Mortgage Insurance Fund,
which is empowered to insure only longterm amortized mortgages. It is believed
that Federal operation of the Fund and the
mutual character of the insurance will prevent the evils and failures that have at86968°—34




2

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tended mortgage insurance by commercial
companies in this country.
To provide a national market for such
insured mortgages Congress has authorized
the establishment of private national mortgage associations under Federal charter
and supervision. These associations can
invest their funds, with the exception of
their capital stock, only in mortgages insured by the Mutual Mortgage Insurance
Fund. Given the safety of insurance and
the liquidity of a national market, Congress
has quite logically permitted national
banks to invest in such long-term amortized insured mortgages.
CREDIT FOR FINANCING HOMES

We now have a picture of the framework
of a more practical and stronger homefinancing system. It offers support to all
types of home-financing agencies; it encourages them all to adopt the long-term
amortized loan. The next problem is to
insure an adequate and even flow of funds
with which to operate. For purposes of
clarity we may divide credit for home
financing into two categories—the basic
and the marginal. Both are essential, and
the Government's program provides means
for attracting both.
The basic funds must be ticketed specifically for investment in home mortgages.
The flow must be reliable and free from
rapid fluctuations in volume. The obvious
source is the savings of shareholders and
depositors in the mutual thrift type of savings and insurance institutions. The people's savings belong in the basic wealth of
the country—its land and homes. To increase the flow of capital from this source
is a major purpose of the Federal savings
and loan association? and of the Federal
Savings and Loan Insurance Corporation.
These two agencies are intended to promote thrift and to provide a haven for the
savings of all classes of our population—
the worker who invests 50 cents a month
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and the capitalist who invests $1,000 or
$10,000 at a time. The need for some such
haven is particularly acute because of the
loss of savings and the destruction of confidence that have attended the financial
shipwrecks of the depression.
The public has confidence in federally
controlled and supervised institutions.
This is proved by the experience of Federal savings and loan associations already
chartered. Some months ago a $6,000,000 Kentucky building and loan association operating under State charter converted into a Federal association. Immediately thereafter its receipts from the
investments of thrifty people in its shares
increased nearly $100,000 a month over the
previous rate. The Federal Savings and
Loan Insurance Corporation should end the
withdrawal of funds from thrift and homefinancing institutions that has been taking
place recently and invite new investments
in building and loan shares. This Corporation must insure the accounts of Federal
savings and loan associations and may insure those of sound building and loan associations up to $5,000 for any one investor.
The funds invested in shares of the Nation's thrift home-financing institutions
are to be very definitely earmarked as
long-term money. The investor will have
to understand that he is not making a
demand deposit, that he is putting his
money where it will be safe, where it will
return him reasonable dividends, where
he can borrow on it in an emergency, but
where he does not have the right to draw
it out on demand. The dangerous practice of soliciting demand deposits is not
consistent with the principles and purposes
of a thrift and home-financing institution.
The Federal Savings and Loan Insurance
Corporation is authorized in its discretion
to prevent the issue by any insured instituPage Ten



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tions of new securities which guarantee a
definite return or a definite maturity.
MARGINAL CREDIT FOR HOME FINANCING

The basic funds for home financing
usually are local in origin and invested in
local homes. This fact reveals the necessity for what we have called " m a r g i n a l "
funds for home financing, that is, funds
which are not tied to any one community
but can be easily transferred from an area
of oversupply to an area of undersupply.
To create such a flow of liquid funds for
Nation-wide home financing and to provide the channels for their distribution to
any community in need of them are purposes of the Federal Home Loan Banks and
of the national mortgage associations.
The Federal Home Loan Banks may lend
to their member institutions up to $1,000
against every $1,500 of approved longterm home-mortgage collateral. The national mortgage associations, when they
are set up, will be free to purchase outright in any part of the country mortgages
insured under the Mutual Mortgage Insurance Fund. In other words, these two
groups of federally controlled agencies
create a national credit reserve for home
financing and a national market for home
mortgages. In doing so they do more than
end the isolation of home-financing institutions and the isolation of communities so
far as home-mortgage credit is concerned.
They insure a large degree of liquidity to
all investments in home mortgages. This
is a new and vital service to the Nation's
home-financing system. First-mortgage investments in this country have always suffered from a lack of liquidity or marketability. This has been a principal cause
of the hardships incurred by the homefinancing institutions and their shareholders in the present depression and for
the inevitable withdrawal of mortgage
credit at the first sign of hard times. The

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Federal Home Loan Banks insure permanent liquidity to their member institutions
and through them to the entire mortgage
market.
The third essential service performed by
these federally controlled agencies for the
supply and distribution of marginal funds
for home financing is to supply a desirable
type of investment for funds which demand the highest degree of safety combined with liquidity. At any time that
calls upon them require funds in excess of
their capital, the Federal Home Loan Banks
may issue bonds or debentures against
their home-mortgage collateral for sale to
the public. These issues will unquestionably be quoted on the leading exchanges
and will constitute the first standard negotiable security based on urban home real
estate to appear in the United States. In
many European countries similar central
mortgage bank issues have frequently sold
on a lower yield basis than direct governmental obligations of the nations concerned. The national mortgage associations will be privileged to sell similar bonds
and debentures to the public against their
insured mortgages.
BENEFITS TO THE HOME OWNER

So far we have considered the Government's program for organizing the homefinancing system as it strengthens lending
institutions and protects the investor. Only
as it accomplishes these ends can it achieve
its ultimate purpose, which is to encourage
home ownership and protect home owners.
The amortized mortgage gives security to
home owners and by eliminating brokerage
and renewal fees reduces the cost of home
financing. Then, there is the development
of standards. The newly created Federal
Savings and Loan Insurance Corporation
will powerfully supplement the Federal
Home Loan Bank System in raising standards. It has the power to reject an appli-




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cation for insurance if in its judgment the
character of an institution's management
or its home-financing policies are inconsistent with sound and economical home
financing. The Mutual Mortgage Insurance
Fund will tend to raise the level of lending
practices of institutions outside the Federal
Home Loan Bank System and provide a
uniform type of mortgage. In short, the
tendency of the entire program is to bring
better standards into home financing.
Standardization is the surest means of
eliminating the shady lending agency. It
is also the key to reduction of the many
fixed charges—for appraisals, for title
search, for conveyancing, for recording—
peculiar to the mortgage business. The
operations of the Home Owners' Loan Corporation have shown that these charges
can be reduced and rendered uniform.
The Corporation has also familiarized
the Nation's home owners with a 5-percent
interest rate, and the Government's program for the permanent organization of
the home-financing system seeks to make
possible low rates on all home loans. The
rate of interest is largely determined by
the supply of funds, and by the safety and
liquidity of the investment. To increase
the flow of funds and to insure both safety
and liquidity are, as we have seen, major
purposes of the Federal program. Because they have lacked liquidity, interest
rates on first mortgages have been far
higher than on the long-term bonds of railroads, of industry, or of the Government.
This is no longer justifiable. There is no
longer any excuse for an interest rate on a
long-term amortized first mortgage in excess of 7 percent in the South and West,
and 6 percent in the North and East.
What is more, this should be the real interest rate and not conceal a higher rate
made possible by such devices as failing
to deduct the monthly payments from the
principal as they are made.
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ELIMINATING THE SECOND MORTGAGE

A major question yet to be considered
is, How does the Federal program solve
the second-mortgage problem? The answer is that the program seeks to eliminate
the need for most second mortgages by
inducing the lending institutions to grant
first mortgages up to 75 and 80 percent of
the appraised value of the property, on
long-term amortized loans. In some States
building and loan associations are already
permitted by law to make loans up to 75
percent. All Federal savings and loan associations are authorized to lend up to 75
percent. The Mutual Mortgage Insurance
Fund may insure and national mortgage associations and national banks may deal in
insured mortgages representing up to 80
percent of the appraised value of the property. However, the making of such loans
with a reasonable degree of safety will
necessitate the development in every community of a lending technic which is now
pretty generally lacking. In the first place,
lending institutions that take a 75- or 80percent first mortgage will have to insist
that the home owner supply the remaining
25 or 20 percent on the down payment. No
liens junior to a 75- or 80-percent first mortgage can be permitted.

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the amortized mortgage means that the risk
to the lending institution decreases every
month.
CONTROLLING BOOMS TO STABILIZE VALUES

The second condition to be met if the
75- and 80-percent first mortgage is to be
made feasible is that stability of residential property values be increased. This
means primarily some control of the
periodic booms to which real estate in this
country has been subject. Booms are the
result of excessive confidence based upon
ignorance—ignorance of the real need for
homes and of the relation of supply to that
need. Booms are typified, of course, by
excessive subdivision of land, and by overbuilding with its waste of invested funds
and its threat to all home values.
There seems little excuse for the ignorance which encourages real-estate inflation.
The population trends and probable needs
for housing are ascertainable at any time.
To guide their lending policies, the homefinancing institutions of Utica, N.Y., for
instance, have for years made annual compilations of statistics on local building occupancies, mortgages recorded, real-estate
transfers, vacant lots, new lots placed on
the market, and foreclosures. Thanks to
the guidance of lending policies and the
control of building this knowledge made
This is not an unreasonable condition. possible, the vacancy ratio in Utica even at
Shoe-string buying has proved one of the the height of the depression never exprincipal causes of foreclosure in the pres- ceeded 5.7 percent, and the city is said to
ent depression. It benefits no one, neither be practically the only one in New York in
the borrower, the lender, nor the commun- which mortgage money has been available
ity. If a man cannot save 20 or 25 percent throughout the depression.
of the price of his home before he buys it,
CENTRAL INSPECTION AGENCIES TO CONTROL
there is serious question as to whether he
CONSTRUCTION
will be able to save that much after he
Whether home-financing institutions can
buys it. On the other hand, if he does save
make
75- and 80-percent
first-mortgage
the 20 percent and at once establishes such
an adequate equity in his property, his in- loans will depend in part also on quality
terest in retaining it is the best guaranty of construction. Between the years 1920
of his fulfilling the mortgage contract. and 1930 the jerry-builder made great
Also, the installment payment principle of headway among us and contributed effecPage Twelve




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tively to the subsequent distress of home
owners and mortgage holders. It is not
only because his own product becomes a
common liability that the jerry-builder is
dangerous; it is because, like the employer
of child labor, he provides unfair competition to the responsible builder and forces
the latter to lower the quality of his
product.
It is, therefore, a matter of major importance that a technic has been developed to enable home-financing institutions
to control the quality of construction of
new homes on which they lend money. This
technic involves the organization in each
community of a construction inspection
agency. The agency follows the progress
of a home from the submission of plans
through all phases of construction to delivery of the finished product to the home
owner. Its work is impartial and expert.
Against it the jerry-builder has no chance.
Many building and loan associations
supervise building on their own construction loans. In some cities several associations have cooperated to establish a central supervising bureau. This is a step in
the right direction. It would seem mere
good business for home-financing institutions in every community to take the lead
in organizing central inspection agencies.
Responsible building interests will welcome
such agencies for their own protection.
In this connection it should be pointed
out that periodic surveys to reveal the real
need for housing, coupled with efficient inspection of construction by central inspection agencies, would go far to put our
appraisal system on a scientific basis.
Sound appraisals are essential to the success of 75- and 80-percent mortgages.
SUMMARY OF PROGRAM

We have now seen the major details of
the Government's program for the organization of the Nation's home-financing system. The program is certainly simple in




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concept and not impossible of execution.
It involves five major steps:
1. Concentration of most home financing in
the mutual thrift type of institution and the development of such institutions under Federal
charter in all communities w h e r e they are lacking or w h i c h are inadequately served by existing
institutions.
2. The organization of these specialized homefinancing agencies on a national scale and the
pooling of their resources.
3. The insurance of savings deposited in these
institutions.
4. The development of mutual mortgage insurance under Federal supervision.
5. The establishment under Federal charter of
private institutions doing a Nation-wide business
in insured mortgages.
6. The creation of a national market for home
mortgages and the authorization of standard
bonds and debentures based on home mortgages.
7. The setting up of uniform standards of
operation for all home-financing institutions.
SUMMARY OF RESULTS ANTICIPATED

This simple organization will, it is hoped,
in the course of time produce the following
results:
1. Extend the use of long-term amortized loans
to the great majority of home-financing transactions.
2. Develop an even and adequate flow of longterm money to meet the needs of home owners,
and give liquidity to mortgage investments.
3. Permit the making of first mortgages up to
75 and 80 percent of the value of a property and
largely eliminate the costly second mortgage.
4. Put an end to shoe-string home buying and
extend the practice of a 20 to 25 percent down
payment.
5. Increase the number of home owners by
making home ownership possible to many families hitherto forced to live in rented properties.
6. Eliminate the irresponsible and dishonest
home-financing agency.
7. Reduce and standardize the cost of servicing home mortgages—fees for appraisal, title
search, conveyancing, recording—and largely
eliminate brokers' fees, commissions,
and
bonuses.
8. Lower interest rates on first mortgages in
many sections of the country.
9. Increase the stability of property values
and add to the control of booms.
Page

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10. Help eliminate the jerry-builder and improve the quality of construction of small homes.
11. Improve the quality of appraisals.
PROGRAM DOES NOT PUT GOVERNMENT IN
BUSINESS

There is nothing paternalistic in this program for organizing the Nation's homefinancing system. The Government is
merely fulfilling a double duty to aid private industry to organize and to protect a
vital public interest. The program does
not put the Government into the business
of financing homes. It protects the savings
of the investor and provides security to the
home-financing institutions. It puts a premium on thrift. It encourages wise home
ownership. It seeks to prevent home ownership that is not financially sound.
A basic premise of the whole program is
that home owners stand on their own feet,
that they deserve protection but do not
wish subsidization. I do not mean to say
that direct governmental aid to improve
the housing of the less fortunate members
of the lower income groups should not be
given. In fact, it is part of the Govern-

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ment's program to give such aid, but that is
a wholly separate field of activity from the
one here discussed. Slum clearance, lowcost housing, and subsistence homesteads
may become a vital part of the national
housing program, but they are distinct
from the program to organize the homefinancing system. So, incidentally, is the
necessary organization of the system for
financing commercial properties and apartment houses. It would be a great mistake
to confuse in any way commercial-property mortgages or the bonds financing them
with urban home mortgages and homemortgage bonds.
The credit system of the country is a
single machine of which all the parts
are interrelated and interdependent. A
wooden piston in a steel motor will not
function. Our unorganized home-financing
system has been a wooden piston in our
credit machine. The Government is seeking to replace it with a steel piston. None
will benefit more by this substitution than
the private financial institutions of the
country.

THE NEED FOR NEW HOMES
For the accompanying summary of Real Property Inventory Statistics and the material on which this article is based, the
REVIEW is indebted to Daniel E. Casey, Chief of the Real Property Inventory, Department of Commerce.

Specific information on the need for new
homes and consequently for new-home
financing is one of the invaluable results
of the first extensive inventory of real
property ever taken in this country. This
inventory, financed by the Civil Works Administration and carried out last spring by
the Real Property Inventory Unit of the
Bureau of Foreign and Domestic Commerce, gives data on nearly 2,000,000 structures containing the homes of over 9,000,000
people in 64 cities. At least 1 of the 64 cities
is located in each State of the Union. The
cities were selected to represent different
economic types, sizes, ages, and rates of
Page Fourteen



growth. It is felt therefore that the results may justifiably be accepted as a
rough cross section of the national housing
situation.
The accompanying summary of the inventory shows a vacancy percentage in
dwelling units of 7.8. When this percentage is compared with the 7 percent of unit
dwellings in which two or more families
are doubled up, with the 15.6 percent that
are overcrowded, and with the 2.2 percent
of structures which are unfit for use, we
have a startling picture of the national
housing shortage which is developing and
will appear the instant that reemployment

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permits o u r people to enjoy again an adequate s t a n d a r d of living.
T h e d a t a on the n e e d for r e p a i r of
A m e r i c a n h o m e s is scarcely less startling
a n d significant to home-financing institutions. Only 37.6 p e r c e n t a r e listed as in
good r e p a i r ; 44.4 p e r c e n t of the structures
need m i n o r r e p a i r s ; 15.4 percent structural
repairs.
T h e inventory gives an insight also into
the type of h o m e most p o p u l a r with Americans a n d the r a n g e of r e n t a l s both as to
type of structure a n d n u m b e r of rooms.
It establishes the n u m b e r of owner-occupied dwellings to be 39.4 percent, of which
14.8 p e r c e n t a r e owned free a n d 18.9 percent a r e mortgaged.
Great as is the value of the information
developed by the inventory to real-estate
interests, to m a n u f a c t u r e r s of building m a terials a n d equipment, to city p l a n n e r s , to
sociologists, to h e a l t h officers, a n d other
m u n i c i p a l officials, it is doubtful w h e t h e r
a n y g r o u p is m o r e vitally concerned in the
detailed information assembled for each
of the 64 cities t h a n the home-financing institutions. This detailed information constitutes an analysis of the m a r k e t of h o m e financing institutions in each city. It is safe
to say that h a d these institutions been possessed of such analyses in 1925 the overfinancing a n d overbuilding t h a t led to the
depression would n e v e r h a v e t a k e n place.
T h e h o p e c a n n o t be too strongly expressed
that home-financing institutions in the
cities concerned will take a d v a n t a g e of the
m a t e r i a l m a d e available a n d t h a t the
financing institutions in every o t h e r city of
the country will take the l e a d in initiating
such surveys a n d m a r k e t studies in their
cities.
T h e 64 cities in which the real p r o p e r t y
inventory w a s taken a n d for which data
are now available are listed herewith,




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g r o u p e d b y geographical divisions to correspond w i t h the s u m m a r y .
New England
Burlington, Vt.
Nashua, N.H.
Portland, Maine.
Providence, R.I.
Waterbury, Conn.
Worcester, Mass.
Middle Atlantic
Ringhamton, N.Y.
Erie, Pa.
Syracuse, N.Y.
Trenton, N.J.
Williamsport, Pa.
East North Central
Cleveland, Ohio.
Decatur, 111.
Indianapolis, Ind.
Kenosha, Wis.
Lansing, Mich.
Peoria, 111.
Racine, Wis.
Zanesville, Ohio.
East South Central
Birmingham, Ala.
Knoxville, Tenn.
Jackson, Miss.
Paducah, Ky.
South Atlantic
Asheville, N.C.
Atlanta, Ga.
Charleston, S.C.
Columbia, S.C.
Frederick, Md.
Greensboro, N.C.
Hagerstown, Md.
Jacksonville, Fla.
Richmond, Va.
Wheeling, W.Va.
Wilmington, Del.

West North Central
Des Moines, Iowa.
Fargo, N.Dak.
Lincoln, Nebr.
Minneapolis, Minn.
Sioux Falls, S.Dak.
Springfield, Mo.
St. Joseph, Mo.
St. Paul, Minn.
Topeka, Kans.
Wichita, Kans.
West South Central
Austin, Tex.
Baton Rouge, La.
Dallas, Tex.
Little Rock, Ark.
Oklahoma City, Okla.
Shreveport, La.
Wichita Falls, Tex.
Mountain
Albuquerque, N.Mex.
Boise, Idaho.
Butte, Mont.
Casper, Wyo.
Phoenix, Ariz.
Pueblo, Colo.
Reno, Nev.
Salt Lake City, Utah.
Santa Fe, N.Mex.
Pacific
Sacramento, Calif.
San Diego, Calif.
Portland, Oreg.
Seattle, Wash.

T h e following tables w e r e compiled in
the Statistical Division, Alanson D. Morehouse, Chief Statistician, Real P r o p e r t y
Inventory Unit, B u r e a u of F o r e i g n a n d
Domestic Commerce, U.S. D e p a r t m e n t of
C o m m e r c e ; p r e l i m i n a r y figures subject to
c h a n g e ; Sept. 7, 1934:
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Summary of real property inventory statistics for 64 cities, 1934—distributed by geographic divisions
Population figures and data on structures and dwelling
units
Total number of cities enumerated
Population of cities enumerated (1930 census)
Persons covered by real property inventory—residential
only *

Total, 64
cities

Percent

New
England

Middle
Atlantic

64
9, 793, 371

1, 225, 693

5
740, 785

9, 074, 786

1,112, 767

675, 246

1, 931, 055 100.0

173, 688

125, 475

, 536, 706
250, 670
26, 420
21, 669
7,051
22, 055
66, 370

79.6
13.0
1.4
1.1
.4
1.1
3.4

95, 560
41, 304
21, 753
2,949
424
4,063
7,635

83,143
29, 984
1,418
1,196
1,775
1,247
6,712

726,180
857, 648
297, 791
43, 068

37.6
44. 4
15.4
2.2

76, 407
79,153
16, 513
1,300

56, 444
55, 397
12, 373
1,039

, 584, 032
306, 532
4,545
7,576
115, 918
11, 034
1,453

82.0
15.9
.2
.4
6.0
.6
.1

165, 493
5,251
254
350
2,057
170
113

99, 094
20, 266
487
995
4,021
367
66

, 165, 402
762, 049
, 704, 974
, 343, 047

60.4
39.5

80,
92,
143,
121,

DATA ON STRUCTURES

Total number
By type:
Single family
2-family
3-family
4-family
Row house
Apartment
Other
By condition:2
In good repair
Need minor repair
Need structural repair
Unfit for use
Principal material or type of construction:
Wood
Brick
Stone
Concrete
Stucco finish
Other
Not reported
Garages and automobiles:
With garages
Without garages
Car capacity reported
Number of automobiles reported

501
795
131
609

68,
56,
117,
93,

727
478
293
611

DATA ON DWELLING UNITS

Total number
By occupancy and tenure:
Number of occupied units..
Number of vacant units. . .
Number of owner-occupied.
Owned free
Mortgaged
Not reported
Extra families 3
Inadequate housing condition:4
Crowded
Overcrowded
Greatly overcrowded
Type of heating apparatus:
Warm air
Steam or vapor
Hot water
Heating stove
Other
None
Principal fuel used:
Coal
Wood
Gas
Oil
Other

2, 633,135

100.0

304, 126

185, 714

, 428, 908 92.2
7.8
204, 227
, 036, 316 39.4
390, 476
14.8
498, 753 18.9
147, 087
5.6
183, 192
7.0

280, 628
23, 498
109, 957
23, 779
46, 050
40, 128
14, 124

173,
12,
83,
21,
37,
24,
10,

118
596
151
387
651
113
156

376, 850
29, 348
6,144

14.3
1.1
.2

43, 678
1,913
112

818, 088
316, 733
194, 845
117, 121
174, 900
7,519

31.1
12.0
7.4
42.4
6.6
.3

33, 289
104, 808
11, 785
151, 482
1,554
435

105,
21,
15,
42,

773,
310,
305,
174,
53,

67.4
11.8
11.6
6.6
2.0

202, 064
8,760
711
72, 241
18, 237

174,141

420
328
258
994
192

19,185
397
54
863
523
258
032
698
234

1,777
2,044
3,400
3,927
1
Does
not
include
persons
having
residence
in
hotels,
rooming
houses,
clubs,
and
summer
cottages.
2
Totals do not include "Not reported."
3
Sharing dwelling unit with usual occupants.

Page Sixteen



FEDERAL

HOME

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BANK

REVIEW

Summary of real property inventory statistics for 64 cities, 1934—distributed by geographic divisions
Population figures and data on structures and
dwelling units
Total number of cities enumerated
Population of cities enumerated (1930 c e n s u s ) . . . .
Persons covered by real property inventory—residential only 1

West
South
Central

Mountain

10
7
4
11
600, 329 1, 357, 264 1, 452, 891 829,152

9
416, 635

560, 462 1, 275, 001 1, 365, 947 763, 926

379, 452

East
South
Central

South
Atlantic

West
North
Central

DATA ON S T R U C T U R E S

Total number
By t y p e :
Single family
2-family
3-family
4-family
Row house
Apartment
Other
By condition: 2
In good repair
Need minor repair
Need structural repair
Unfit for use
Principal material or type of construction:
Wood
Brick
Stone
Concrete
Stucco finish
Other
Not reported
Garages and automobiles:
With garages
Without garages
Car capacity reported
Number of automobiles reported

129, 220

253, 227

305, 530 181, 256

89, 266

110, 787
15, 353
74
754
236
489
527

197, 041
36, 839
1,303
096
823
024
10, 101

259,187 160, 646
29, 840 13, 625
660
392
3,737
2,216
271
104
3,627
1,253
8,208
3,020

79, 026
5,666
145
884
585
1,065
1,895

30, 304
62, 862
30, 898
5, 064

81, 492
113, 058
49, 837
8,418

122,191
131, 593
47, 696
5,364

67, 770
79, 313
24, 412
3,955

33,192
37, 264
16, 018
2,642

117, 584
961
448
299
399
446
83

190, 562
50, 523
1,073
1,306
8,540
907
307

225, 945 152, 940
18, 793 23, 741
429
802
1,158
251
56, 008
3,019
662
2,599
214
225

38, 423
34, 593
386
1,165
10, 556
4,034
152

52, 205
76, 830
67, 070
52, 224

112, 849
140, 587
160,193
142, 583

207,
96,
285,
230,

477 113, 425
561 67, 340
361 166, 744
351 126, 120

57, 596
31, 766
73,143
64, 788

154, 447

343, 417

400, 610 215, 827

114, 847

141, 728
12, 719
45, 964
22, 079
20, 342
3,543
15, 122

318,
24,
112,
46,
46,
19,
32,

373,
27,
177,
75,
78,
23,
26,

020 202, 656
590 13, 171
120 76, 163
255 31, 587
305 36, 493
560
8,083
510 20, 090

104, 920
9,927
49, 282
22, 871
20, 499
5,912
6,218

42, 050
5,177
1,407

21, 350
2,212
544

DATA ON D W E L L I N G U N I T S

Total number
By occupancy and tenure:
Number of occupied units
Number of vacant units
Number of owner-occupied
Owned free
Mortgaged.
Not reported.
Extra families 3
Inadequate housing condition: 4
Crowded
Overcrowded.. .
Greatly overcrowded
Type of heating apparatus:
Warm air
. . .
Steam or vapor.
Hot w a t e r . . .
Heating stove..
Other
None
Principal fuel used:
Coal..
Wood.
.
Gas..
Oil....
Other

698
719
850
746
737
367
307

35, 957
5,173
957

67, 496
7,625
1,670

15, 754
9,112
2,207
48, 524
78, 587
144

51, 455
27, 331
29, 758
166, 294
66, 641
1,347

153, 283
3,684
39, 841
3,592
83, 920
1,238
120, 271 200, 499
2,305
5,500
687
899

27, 167
10, 961
5,243
68, 437
2,283
498

136, 170
8,369
6,808
167
2,598

268, 386
50, 566
10, 772
5,543
5,833

323, 237
6,537
16, 721 41, 525
28,104 164, 850
29, 575
443
1,574
726

83, 927
10,149
15, 646
2,592
1,696

53, 384
3,303
759

4
Crowded indicates from 1 to 2 persons per room; overcrowded indicates from 2 to 3 persons per room; greatly
overcrowded indicates 3 or more persons; figures only presented for cases of inadequate housing conditions.




Page Seventeen

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HOME

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Many other cities, quick to sense the
value of such data as that collected by the
Federal Government, have either conducted or are conducting similar surveys as
local projects, using the same schedule and
forms as those used by the real property
inventory. Among these cities are:
Connecticut: Bridgeport and Stamford.
Illinois: Chicago.
Indiana: Fort Wayne and Gary.
Iowa: Sioux City.

BANK

REVIEW

Kentucky: Louisville.
Massachusetts: Boston, Cambridge, Chelsea, and Springfield.
Michigan: Detroit and Flint.
New Jersey: Atlantic City, Camden, Elizabeth, Jersey City, Newark, Paterson, and
Trenton.
New York: Albany, Buffalo, and New
York City.
North Carolina: Charlotte.
Pennsylvania: Philadelphia, Pittsburgh.
Texas: Amarillo and Houston.
District of Columbia: Washington.

INTRODUCING THE "REVIEW"
In establishing this REVIEW as its official
monthly publication the Federal Home
Loan Bank Board has four major objectives in mind.
1. To provide a permanent official record of the current activities of the four
agencies under the Board.—The operations
of the Federal Home Loan Bank Board are
Nation-wide. They affect directly the solvency and liquidity of the $21,000,000,000
of urban home mortgage indebtedness and
consequently the entire financial and credit
structure of the United States. Information concerning the variety and extent of
these current operations should be made
available in permanent form to all those
affected or interested.
2. To provide the Board with a regular
means of contact with member institutions
of the bank system and to give a sense of
unity to the Nation's principal
homefinancing institutions.—The Federal Home
Loan Bank System is a unit and the activities of each regional bank and its members
are of concern to all other banks and members. Also, isolation is a major obstacle
to the spread of new ideas and practices in
the operation of home-financing institutions. A monthly bulletin offers perhaps
the most effective means of ending this
isolation. The need for uniform and high
standards of operation among homefinancing institutions is a paramount one,
Page Eightfmn



and in creating this organ the Board believes it is taking a major step toward the
realization of these standards.
3. To provide a channel for the dissemination of sound principles and sound technic for home-financing and related activities.—As the leading article in this REVIEW
by Chairman Fahey points out, the extension of long-term amortized loans representing as much as 75 percent of the appraised value of the property will necessitate the development of a lending technic which is now generally lacking. The
REVIEW will, from time to time, publish detailed studies on such subjects as the directreduction plan, the study of their markets
by lending institutions, the creation of central inspection agencies, appraisal methods,
personal-risk factors, and legal phases of
home financing.
4. To present through the medium of statistical tables, indexes, and charts a factual
picture of current activities in home financing and home construction in the United
States.—Home-financing institutions, shareholders, the building interests, and home
owners, all have suffered from ignorance of national and local trends in home
construction and real-estate activity. This
ignorance made possible the overfinancing
and the overbuilding which helped bring
on the depression. In the reenforcing of

FEDERAL

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our system for financing housing and housing construction, facts as to the market are
essential. Obviously, information on the
situation in each locality is of first importance, but knowledge of national trends—
in construction costs, for example—is likewise significant. The monthly publication
of fundamental data, both sectional and
national, will be valuable as a guide to
home-financing institutions and serve as an
incentive to them for the collection of more
detailed local statistics

BANK

REVIEW

Since it is impossible to divorce residential construction or residential real estate
from other types of construction and real
estate, the REVIEW should cover these larger
fields insofar as space and material will
permit. It will take time to develop
sources of data and the REVIEW will of
necessity proceed slowly. The cooperation
of lending institutions and of all Federal
and private agencies active in the field of
home construction and home finance will
be essential to success.

HOME MORTGAGE INTEREST RATES BY STATES
The accompanying table, showing the
results of a survey of interest rates on first
mortgages charged by building and loan
associations and banks, was made in the
fall of 1931. We know there has been
since that time a downward tendency in
interest rates. The extent of that downward tendency should be revealed when
the financial survey of urban housing of
the Bureau of Foreign and Domestic Commerce completes the task which now occupies it. Making use of data gathered by
the Bureau's real property inventory, the
survey is engaged in the most exhaustive
study of home-mortgage interest rates that
has yet been undertaken. Through the
courtesy of the survey, this REVIEW will
publish some of its results in a later issue.
The striking range in rates revealed by
the accompanying table—from 6 percent
in the Northeast to 10 percent in the South
and West—reflects differences in degree of
risk which no longer exist. Doubtless
there was a time when scarcity of capital
and exceptional risks prevailed in States




such as Arizona, Idaho, Oklahoma, Oregon,
and New Mexico. The factors which justified high* interest rates have, however, to
a large extent disappeared; yet the rates
themselves reflect a traditional tendency
of interest rates to become customary and
to remain at a high level after the circumstances which caused this level have disappeared.
We may, therefore, count upon a steady
leveling down of rates, a movement which
is being strongly accelerated by the Federal Home Loan Banks.
It should be noted that interest rates do
not always reveal the total cost of the mortgage loan to the borrower. There are some
service charges connected with all mortgages; these charges vary as between localities and as between lending institutions.
Also, many institutions charge fees and
commissions for making and renewing
mortgages. On short-term straight mortgages these commissions may considerably
increase the real cost of the loan.

Page Nmeteen

FEDERAL

HOME

LOAN

BANK

REVIEW

HOME LOAN INTEREST RATES
[ D i v i s i o n of R e s e a r c h a n d S t a t i s t i c s , F e d e r a l H o m e L o a n B a n k B o a r d , W a s h i n g t o n , D.C.]
Banks2
ConUnited States L e g a l 1 tract *

Alabama
Arkansas
California
Connecticut. . . .
Delaware
District of Columbia
Florida
Georgia
Idaho
Illinois
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts. .
Minnesota
Mississippi
Montana
Nebraska
New Hampshire.
New M e x i c o . . . .
North Carolina.
North D a k o t a . .
Ohio
Oklahoma
Oregon
Pennsylvania. . .
Rhode I s l a n d . . .
South Carolina. .
South D a k o t a . . .
Texas
Utah
Vermont
West Virginia...
Wyoming
Alaska
Hawaii
Puerto R i c o . . . .
Philippines

Page Twenty



B. &
L.2

Straight
mortgage

Amortized
mortgage

Percent
7.3
10.0
9.0
8.2
8.8
5.9
6.0

Percent
7.2
8.0

Percent
6.9

7.1
6.5
5.9
6.0

7.2
6.0
5.8
6.0

8
10
8
10
7
8
8
10
6
8
4
( 6)
6

6.0
8.4
7.4
8.6
6.3
7.1
6.8
8.7
6.3
7.4
6.2

6.0
7.5
7.5

7.0
5.0

(4 7 )

6.2
7.2
7.0
9.0
7.5
7.8
7.3
10.0

6.1
6.5
6.6
6.6
6.0
7.8
6.1
5.9
5.9
6.7
6.1
7.5
6.5
8.6

6.2
6.6
6.7
7.4
6.2
7.8
6.0
5.8
5.9
6.5
6.0
8.0
6.0
10.0

8.0
5.4
6.0

5.2
6.0

5.8
6.0

5.9
6.0

6.6
8.1
7.2
6.0
6.0
7.5
6.4
7.0
7.5
8.1
6.0
6.0
7.2
6.0
6.2

6.6
8.0
6.7
6.0
6.0
7.0

Percent
8
6
6
7
8
6
6

Percent
8
10
10

6
8
7
7
5
6
6
6
6
5
6
6
6
5
6
6
6
8
7
7
6
6
6
6
6
6
6
6
6
6
6
7
7
6
6
8
6
6
6
6
6
7
8
8
6
6

(3)

(4 5)

12
6

7
8
8
8
10
10
12
4

(8 )

( )6
12
( 9 )6
6
9
8
10
10
6
(10)

8
10
6
10
12
6
6
12
6
10
10
12
12
12

(ll)

6.0
10.0
6.0
6.0
7.7
6.8
9.1
9.3
6.0
6.0
7.9
9.7
6.0
8.7
8.7
6.3
6.4
7.9
6.9
6.7
8.1

7.0
8.5
6.0
6.0
7.4
8.5
6.1

1
Source: R a n d McNally Bankers Directory, January
1932, p. 2132.
2
Source: The finance committee of the President's
conference on home building and home ownership, 1931
(questionnaires).
3
Parties may agree in writing to a higher rate of interest
than 7 percent but not exceeding 12 percent for 1 year,
and not exceeding t h a t rate for a longer or shorter time.
4
Any rate.
5
Any rate agreed upon is legal, on loans over $300, b u t
Colorado courts decline to endorse grossly unreasonable
rates.
6
A corporation may agree t o pay any rate of interest
and may not plead usury.
7
Legal rate is 6 percent. On loans of less than $1,000,
interest shall not exceed 18 percent. N o t more t h a n 7
percent can be charged on bonds issued by corporations.
8
A corporation cannot plead usury. Under small loan
act ($300 minimum) interest rate is l*/2 percent per month
9
Any rate agreed upon in writing is legal on collateral
demand loans of $5,000 and over.
10
On amounts exceeding $50, 30 percent including
service and expenses. On amounts not exceeding $50,
5 percent per month for the first 6 months, 2*/2 percent
thereafter. Licensees under the small loans act may
charge 3V2 percent per month.
11
12 percent when there is security; 14 percent when
there is no security.

FEDERAL

HOME

LOAN

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REVIEW

FEDERAL HOME LOAN BANK INTEREST RATES ON ADVANCES
TO MEMBER INSTITUTIONS
The rates charged on advances to mem- Home Loan Bank Act which liberalize the
bers of the Federal Home Loan Banks are collateral requirements and permit larger
set at the lowest levels consistent with the advances against a given amount of apcost of such credit to the banks. Present proved collateral. These steps, in conjuncrates range between 4 and 4J/2 percent on tion with the lower rates now in force, are
secured advances, as indicated by the table calculated to promote greater lending acbelow, covering the rate schedules of each tivity by the banks. Such a development is
of the 12 regional Banks. The maximum directly in line with the Federal Home
rate on unsecured loans is 5 percent.
Loan Bank Board's policy of cooperation
Current rates reflect a recent reduction, with private home-financing institutions to
for most of the Banks, from a 5-percent permit them to take advantage of the presminimum on secured advances. The low- ent opportunity to improve their own earnering of such rates coincides with general ing position and assist in the general proefforts by private home-financing institu- gram of economic recovery by the sound
tions and the Federal Government to re- expansion of their mortgage lending operastore activity and stability to mortgage tions.
finance and to the construction industries
by making long-term credit available to Interest rates—Federal Home Loan Banks
home owners on reasonable terms.
[Rates on advances by member Banks]
The present line of credit available to
members through the Federal Home Loan
in
Banks exceeds $230,000,000. This is exclu- Federal home loan Rate
effect
Type of loan
sive of the $50,000,000 which the Home
bank
on
Aug. 31
Owners' Loan Corporation has been authorized by Congress to invest in the bonds
Percent
or debentures of the Banks. Less than
1. Boston
4 All loans.
$100,000,000 of the $230,000,000 of Bank 2. Newark
Reconditioning loans.
I 4H All other loans.
credit immediately available is currently
3. Pittsburgh. . . .
4/ 2 All loans.
absorbed in advances outstanding. It is
r 4 Short-term and long-term
billing.
therefore expected that present low rates 4. Winston-Salem. .
I 4^ Long-term contract.
on such advances will continue in the near
WA All loans until Dec. 31,
1934.
future.
Secured loans.
In the long run, it is inevitable that the
{ 4i Unsecured loans.
1-and 10-year amortized
rates must be largely determined by the
I
loans.
yield that bonds or debentures of the Banks
1 4/2 1-year straight loans.
I 5 Unsecured1 loans.
will command in the investment market. 8. Des Moines
4 ^ All loans.
The natural growth of the System's volume 9. Little Rock
4 All loans until Sept. 30,
1934.
of advances will doubtless call for the 10. Topeka
4 All loans.
issuance of such obligations to provide the 11. Portland
Do.
4H
12. Los Angeles....
Do.
major source of the System's funds.
m
Attention is called, elsewhere in this RE1
Des Moines has made a special rate to one member of
VIEW, to recent amendments to the Federal 4 percent on an advance of more than $250,000.




Page Twenty-one

FEDERAL

HOME

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BANK

REVIEW
FEDERAL HOME
Combined statement of

Combined
Assets:
Cash on hand—in banks and U.S.
Treasury
Loans outstanding:
Members
Affiliated banks
Other
Total loans
Investments—United States Government
Other assets
Total assets
Liabilities and capital:
Liabilities:
Current
Total liabilities
Capital:
Capital stock:
Fully paid—Issued and
outstanding:
Members
United States Government

Boston

$4, 377, 381. 92 $1, 020, 799.15

Newark

$334, 885. 40

Pittsburgh

$162, 285. 59

Winston-Salem

$580, 509. 78

84, 875, 136. 96 2, 540, 972. 60 13, 879, 494. 72 10, 568, 766. 20 6, 077, 579.10
600, 000. 00
600, 000. 00
7, 256. 02
85, 482, 392. 98 3, 140, 972. 60 13, 897, 494. 72 10, 568, 766. 20 6,077,579.10
587,521.07
27, 524. 20
68, 459. 88
37, 896. 46:
73, 317. 82
15, 489, 200. 16 2, 701, 468. 76
108, 570. 86
18, 541. 64

59, 656. 25
8,878.3 7

236, 400. 00 1,010,468.75
6, 553. 36
6,32 7.66

106, 441, 066. 99 6, 909, 306. 35 14, 369, 374. 62 11, 047, 097. 27 7,713,007.45

2, 588, 285. 25

10, 259. 90

802, 624. 66

5, 659. 00

2, 588, 285. 25

10, 259. 90

802, 624. 66

5, 659. 00

17, 815, 100. 00 1, 313, 100. 00 2,142, 000. 00 1, 401, 700. 00 1, 590, 400. 00
81, 445, 700. 00 5, 000, 000. 00 11, 500, 000. 00 8, 500, 000. 00 5, 700, 000. 00
99, 260, 800. 00 6, 313,100. 00 13, 642, 000. 00 9, 901, 700. 00 7, 290, 400. 00

Subscriptions to capital
stock:
Members and applicants
Less: Balance d u e . . . .

5, 020, 600. 00
2, 517, 392. 38

664, 600. 00 1, 256, 400. 00
693, 950.13
225, 000. 00

338, 200. 00
200, 500. 00

306, 300. 00
128, 950. 00

2, 503, 207. 62

439, 600. 00

562,449.87

137, 700. 00

177, 350. 00

United States Gov43, 295, 300. 00 7, 467, 500. 00 7, 463, 200. 00 2, 646, 300. 00 3,508,200.00
ernment
Less: Balance d u e . . . . 43, 295, 300. 00 7, 467, 500. 00 7, 463, 200. 00 2, 646, 300. 00 3, 508, 200. 00
Surplus:
Reserves:
As required under section
no. 16 of act
United States Government—2 percent dividend
Other
Surplus—Unallocated
Total surplus
Total capital

563, 392. 81

25, 460. 44

56, 603. 25

57, Oil. 80

40, 954. 58

848, 404. 53

112, 290. 46

39, 068. 50

70, 915. 07

146, 389. 04

676, 976. 78

18, 855. 45

58, 993.10

77, 145. 74

52,254.83

2, 088, 774. 12

156, 606. 35

154, 664. 85

205, 072., 61

239, 598. 45

103, 852, 781. 74 6, 909, 306. 35 14, 359, 114. 72 10, 244, 472. 61 7, 707, 348. 45

Total liabilities and capital.. 106, 441, 066. 99 6, 909, 306. 35 14, 369, 374. 62 11,047,097.27 7,713,007.45
NOTE.—Italic figures=deficit.

Page Twenty-two



FEDERAL

HOME

LOAN

BANK

REVIEW

LOAN BANK SYSTEM
condition as at Aug. 31, 1934
Indianapolis

Cincinnati

Chicago

Des Moines

Little Rock \

Topeka

Portland

Los Angeles

$664, 321. 57 $625, 806. 91 $389, 920. 01 $85, 212. 01 $404, 062. 83 $29fc, 262. 87 $21, 073. 87 $214, 241. 93
16,689,739.45 5, 870, 990. 33
4, 208, 402. 04
11, 812, 810. 64
3, 957, 816. 52
4,100, 993. 502,157,170. 24 2, 992, 401. 62
7, 256. 02
16, 689, 739. 455, 870, 990. 33
4, 208, 402. 04
11, 812, 810. 64
3, 957, 816. 52
4,100, 993. 502,157,170. 24 2, 999, 657. 64
48, 633. 20
93, 291. 40
78,196. 97 38,107. 94 39, 374. 41 35, 681. 24 18, 299. 04
28, 738. 51
838, 496. 73 1, 576, 408. 59 169, 879. 811, 349, 370. 04
3, 268, 715.131, 262, 664. 50
1, 685, 374. 721, 330, 296. 88
17, 960. 82
3, 703. 93
7, 855. 38
6, 631. 27
7, 248. 33
9, 885. 85
5,198.12
9, 786.13
18,283,809.97 8,125, 542. 9612, 458, 662. 81
5, 687, 723. 30
7, 679, 854. 74
5, 696, 850. 44
3, 887,115. 99 4, 582, 721. 09

1

682, 245. 70

75, 878. 87

320, 373. 22 243, 478. 49 416, 003.16

3, 336. 50

28, 409. 23

16.52

1

682, 245. 70

75, 878. 87

320, 373. 22 243, 478. 49 416, 003.16

3, 336. 50

28, 409. 23

16.52

4, 087, 300. 001, 757,100. 00 1, 671, 500. 00 732, 300. 001,140,100. 00 738, 400. 00 434,100. 00

807,100. 00

12, 775, 700. 006, 000, 000. 00
4, 500, 000. 00
5, 900, 000. 00
4, 700, 000. 00
10, 000, 000. 00
3, 310, 000. 003, 560, 000. 00
16,863,000.00 7, 757, 100. 00
5, 232, 300. 00
7, 040,100. 005, 438, 400. 00
3, 744,100. 00 4, 367,100. 00
11, 671, 500. 00

666, 900. 00
326, 518. 75

259,100. 00
95, 775. 00

340, 500. 00 316, 400. 00 259, 600. 00 298, 900. 00
212, 040. 00 187, 612. 50 163, 020. 00 138, 816. 00

62, 200. 00
28, 075. 00

251, 500. 00
117,135. 00

340, 381. 251

163, 325. 00

128, 460. 00 128, 787. 50

96, 580. 00 160, 084. 00

34,125. 00

134, 365. 00

2, 872, 400. 00
2, 633, 600. 00
2, 650, 000. 006, 407, 900. 00
577, 400. 00 4,173, 900. 002, 894, 900. 00
2, 872, 400. 00
577, 400. 00 4,173, 900. 002, 894, 900. 00
2, 633, 600. 00
2, 650, 000. 006, 407, 900. 00

J

133, 801. 76

52, 930. 50

82, 583. 30

26, 263, 24

49, 521. 43

13, 942. 88

11, 806. 81

12, 512. 82

43, 402. 38

20, 383. 56

131, 972. 59

37, 726. 01

20, 043. 86

91, 523. 29

64, 827. 87

69, 861. 90

220, 978. 88

55, 925. 03

i23, 773. 70

i9, i68. 06

57, 606. 29|

10, 436. 23

3, 847. 08

i, 135.15

398,183. 02

129, 239. 09

338, 329. 59

83,157. 31 127,171.58

95, 029. 94

80, 481. 76

81, 239. 57

3, 858, 706. 764, 582, 704. 57
|5, 693, 513. 94
|l7, 601, 564. 27
12,138, 289. 595, 444, 244. 817, 263, 851. 58
| 8, 049, 664. 09
3, 887,115. 99 4, 582, 721. 09
5, 696, 850. 44
12, 458, 662. 81
[18,283,809.97! 8,125, 542. 96
5, 687, 723. 307, 679, 854. 74




i

Page Twenty-three

FEDERAL

HOME

LOAN

BANK

REVIEW

FEDERAL SAVINGS AND LOAN ASSOCIATIONS
In the Home Owners' Loan Act of June
13, 1933, authority was given the Federal
Home Loan Bank Board to provide for the
organization, incorporation, examination,
and regulation of Federal savings and loan
associations. The Board w^s also authorized to convert existing building and loan
associations into Federal associations.
These associations are local, mutual, thrift
and home-financing institutions modeled
on the best features of mutual savings
banks and building and loan associations.
They are privately officered and managed
under Federal charter and subject to annual Federal examination. The shares are
carefully defined and uniform for all associations and their lending policies are
strictly regulated and likewise uniform.
In order to hasten the establishment of
Federal associations in communities where
other credit for home financing is either
totally lacking, frozen, or inadequate and
to encourage conversions, the Treasury is
empowered to subscribe up to 75 percent
of the paid-in stock of any association.
The sum of $100,000,000 has been appropriated for governmental subscriptions. The
first Federal savings and loan association
was chartered in August 1933 and only 67
associations had been chartered by January
1 of this year.
The 498 Federal associations chartered
up to September 1 are located in 38 States
and the Territory of Hawaii. There is at
least 1 in each of the 6 largest American
cities. The rapid extension of this model
form of private, mutual, thrift home-financ-

ing institution in the past few months indicates the wide-spread resumption of confidence in home-mortgage investments and
reveals the public faith in Federal supervision and control. This growth of Federal
associations is one of the most encouraging
signs of an early resumption in home construction. The following table gives the
status of Federal savings and loan associations as of September 1, 1934.
Federal Savings and Loan Associations
Sept. 1, 19U

as of

1. Charters issued:
a. To new associations
b. To associations converted
f r o m S t a t e institutions

406
92

Total charters issued.

498

2. Charters p e n d i n g :
a. For new associations
b. For associations converting from State institutions

220
173

Total charters pending
3. Resources:
a. Of associations c h a r t e r e d .
b. Of associations for w h i c h
charters are p e n d i n g . _
Total resources
4. Subscriptions by the Secretary
of the T r e a s u r y :
a. Requested
b. Approved and paid for__

393

$75,321,616
212,944,400
288, 266, 016

6,151, 500
2, 852, 800

THE FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION
The Federal Savings and Loan Insurance Corporation is the Government's
agency to protect savings invested in thrift
and home-financing institutions from a recurrence of such losses as they have sufPage

Twenty-four




fered in the last 4 years. The Corporation
was authorized by the National Housing Act
of June 27, 1934. It has a capital stock of
$100,000,000 subscribed for by the Home
Owners' Loan Corporation. All Federal

FEDERAL

HOME

LOAN

savings and loan associations are required
to insure their accounts with the Corporation. Building and loan, savings and loan,
and homestead associations and cooperative banks are eligible to apply for such
insurance. The Corporation may insure
the share or deposit accounts of any one
investor up to $5,000.
This program undertakes to do for small
investors in thrift and home-financing institutions what the Federal Deposit Insurance
Corporation is doing for the small depositors in our banks. However, as homefinancing institutions differ from banks in
the type of service they render so their
plan of insurance protection must differ.
People who deposit their money in banks
want to be assured of its immediate availability. Generally they do not expect income on such deposits. Consequently, the
Federal Deposit Insurance Corporation insures the liquidity of bank deposits. People who invest in thrift and home-financing
institutions want to be assured of its safety;
they expect also a share of the earnings
from the use of their funds; finally, they
want to be assured of recovering their commitments under conditions determined by
the nature of the home-financing business.
In view of these expectations, the Federal
Savings and Loan Insurance Corporation
insures the solvency of investments.
Insurance by the Federal Savings and
Loan Insurance Corporation is on a strictly
mutual basis. The Corporation is authorized to charge a premium of one-fourth of
1 percent of the total amount of all accounts of insured members plus any creditor obligations of the insured institutions.
It is authorized also to assess additional
premiums, not to exceed one-fourth of 1
percent in any year, to recover losses and
operating expenses.
The Corporation
hopes to keep the operating expenses down
to a minimum. It is confident that under
the plan of operation which it will establish losses should also be small and there-




BANK

REVIEW

fore not burdensome to the insured institutions. With these ideas in mind, it plans
to operate for the first year on the minimum premium of one-fourth of 1 percent,
and to let additional assessments, if any,
be determined entirely on the basis of
experience.
The Corporation has just adopted a set
of rules and regulations for its management
and operation. The thought behind the
drafting of these rules and regulations has
been essentially this: A broad program of
insurance of savings and loan accounts
should be made effective immediately to
such institutions as desire to avail themselves of it. It should be actuarily sound
in order to minimize future losses. At the
same time it should be sufficiently liberal
to admit to its advantages all the solvent
thrift home-financing institutions of the
country that apply for it.
It is generally recognized that the investing public have had their confidence in the
security of their investments in many thrift
and home-financing institutions shaken severely during the past few years. It is obvious that insurance of such investments
will prove a powerful factor in restoring
confidence in such institutions, just as insurance of deposits in commercial and savings banks has done. Quick recovery of
lost prestige may be expected of those institutions which are able promptly to accept the benefits of this insurance program.
The trustees of the Federal Savings and
Loan Insurance Corporation are confident
that all eligible institutions will recognize
the advantages of insurance to them and to
their investors and will avail themselves
of it.
Copies of the Corporation's rules and
regulations may be had by addressing the
Federal Savings and Loan Insurance
Corporation, Washington, D.C. Inquiries
about the insurance plan and the procedure necessary to secure its benefits are
solicited from any interested parties.
Page Twenty-five

FEDERAL

HOME

LOAN

BANK

REVIEW

ONE YEAR OF THE HOME OWNERS' LOAN CORPORATION
Within approximately a year from the institutions to assist them in opening their
date of the establishment of its last State doors and to aid their depositors. Taxes
office, the Home Owners' Loan Corpora- and assessments paid to counties and mution reports as of August 31 the completion nicipalities totaled $103,300,000. Repair
of refinancing loans on 492,684 homes and maintenance disbursements to small
throughout the country, aggregating $1,476,- contractors for repairs and reconditioning
913,010. Of the balance of 1,159,000 appli- totaled $20,274,000. Attorney and apcations, some 689,000 have passed through praisers 5 fees, insurance, and other adthe appraisal phase and are mostly in the vances amounted to $26,930,000. This dishands of attorneys for title examination
tribution of cash has served the useful purand closing. Of the remaining 470,000 applications a large percentage have been re- pose of adding to the purchasing power of
jected because they do not fall within the the country during the emergency.
The accompanying table shows the progprovisions of the act and a small percentress
of the Corporation's activities by
age are in the earlier processes of exammonths
from the beginning of its operation
ination. In addition to the 1,651,811 appliuntil
August
31, 1934. ,
cations received up to August 31, the Corporation has interviewed at least 300,000
Home Owners1 Loan Corporation—
persons who were, not permitted to file apSummary of operations
plications because of obvious ineligibility.
The social consequences of this intervenNumber
Loans closed by
tion to prevent the eviction from their
of applimonths
homes of more than 2,000,000 people durcations
Months
received
ing a period of great tension and unrest
by months!Number
Amount
can hardly be overestimated. To save this
portion of the population from despair and
to prevent complete chaos in the real-estate From date1933
of opening
403,114
to Sept. 30
593
$1, 688, 787
and home-mortgage fields has been wrorth
129, 504 3,424 10,164, 678
October
an incalculable sum to the taxpayers of the November
99, 232 10, 946 31, 445, 827
90, 946 22, 286 62, 621, 051
December
United States.
In addition to the primary social and
1934
123,189 30, 339 £6,143, 838
economic benefits in preserving the existing January
136,132 32, 940 93, 499, 995
February
structure of home ownership, there has oc- March
168, 273 52, 260 150, 213, 639
145, 772 56,172| 171,490,768
curred a large number of secondary bene- April
119, 791 64,1721 208, 293, 766
May
fits to depositors of closed banks, to mu- June
97, 679| 71, 768 223, 440,191
66,157 78, 046 235,467, 606
nicipalities where taxes were in arrears, to July
72, 022 69, 738 202, 442, 864
August
small contractors and repair men, to insurCumulative total
ance agents and companies, to professional
through Aug.
appraisers and attorneys, and, of course, to
31, 1934
1, 651, 811492, 6841, 476, 913, 010
mortgagees who received liquid for nonNOTE.—The total amount of all applications received as
liquid paper. Up to September 7, 1934, a
Aug. 31, 1934, was $5,349,379,811. Loans closed avertotal of over $200,000,000 had gone to closed of
aged $2,998 each.

Page Twenty-six



FEDERAL

HOME

LOAN

BANK

REVIEW

VALIDITY OF FEDERAL SAVINGS AND LOAN ASSOCIATIONS
By HORACE RUSSELL, General Counsel to the Federal Home Loan Bank

In one of the most far-reaching decisions
yet made affecting an important measure
of Federal recovery legislation which has
been in dispute, a Wisconsin State circuit
court early in September affirmed the constitutionality of that section (5 (i)) of the
Hotoe Owners' Loan Act of 1933 which provides for the creation of Federal savings
and loan associations. Thus, for the first
time, the validity of such associations is
made clear.
The decision fully confirms the authority
of Congress both to incorporate savings
and loan associations under a Federal
charter, and also to authorize the voluntary
conversion of a State building and loan association into a Federal savings and ldan
association, even without the consent of the
State. Its immediate effect was to permit
the voluntary conversion into Federal savings and loan associations of two Wisconsin building and loan associations which
the Wisconsin State Banking Commission
and State supervisor of building and loan
associations had threatened to restrain
from such conversion.
The broader interpretation of the decision is that it will encourage conversion by
hundreds of other State-chartered associations throughout the country, including
one or two States where, as in Wisconsin,
the State banking authorities have previously threatened to oppose conversion.
Conversion, however, is purely optional in
any instance, and is undertaken only upon
the initiative of the majority shareholders
in an association. There have been no disputes, with regard to conversion steps, between the Federal and State authorities.
Such differences as have occurred in some




Board

few States have' been between local associations desiring to convert, and State officials who wished to prevent such conversion. The position of the Federal Governm'etit toward conversion is merely permissive!
Pending fust such a decision as that now
rendered as to the constitutionality of the
law by which Federal savings and loan associations are provided for, the directors
and shareholders of many State-chartered
institutions had previously postponedsteps
toward conversion, which they may now be
expected to take, in'view of the manifest
safeguards which the federally-chartered
associations assure the shareholder and the
benefit which such an association may enjoy due to the fact that the United States
Treasury is empowered to purchase its
shares, thus increasing its loanable resources.
In his written decision, handed down on
September 11, 1934, Judge Charles L.
Aarons, of the circuit court of Wisconsin,
points out that, in his opinion—
1. The language of section 5 (i) of the
Home Owners' Loan Act does not imply the
need of legal consent by the State to the
proposed conversion of State savings and
loan associations into Federal savings and
loan associations.
2. Congress has the power to incorporate
savings and loan associations, as affirmed
by the Supreme Court with respect to the
establishment of the National Bank of the
United States early in the last century, the
national banking system after the Civil
War, and the more recent establishment of
Federal land banks and joint stock land
banks.

Page Twenty-seven

FEDERAL

HOME

LOAN

In this connection, Judge Aarons stated:
" The purpose of this act, as well as
the Federal Home Loan Bank Act of
July 22,1932, and the Federal Farm Loan
Act, is apparent throughout their content, and from the debates in public committee hearings and in Congress. The
ultimate purpose of these acts is fundamentally the same—the rehabilitation of
the people of an entire Nation suffering
from the most calamitous burden of debt,
contraction of credit, and economic and
financial depression known in American
history. Congress, by its expressions,
apparently believed that Governmentsupervised institutions making long-time
loans on homes and receiving savings in
exchange for the issue of income shares
of stock can be useful in increasing the
market for Government obligations and
in being employed as fiscal agents for the
Government—even though its ultimate

Page Twenty-eight



BANK

REVIEW

purpose was to stimulate a return of
wholesome economic conditions."
3. Congress has the power to authorize
the voluntary conversion of State building
and loan associations into Federal savings
and loan associations without the consent
of the State, and without the necessity of a
State enabling act to permit building and
loan associations, organized under Wisconsin statutes, to convert themselves into
Federal savings and loan associations.
4. The voluntary conversion of State associations into Federal associations does
not infringe upon the just authority of the
State, even though the State should withhold its consent.
5. The requirement that conversion may
be effected by favorable action by 51 percent
of the votes cast at a legal meeting, as contained in section 5 (i) of the amended Home
Owners' Loan Act, does not conflict with
any provision of the Wisconsin statutes.

U. 8 . GOVERNMENT PRINTING O F F I C E : I B M

FEDERAL HOME LOAN BANK DISTRICTS

• BOUNDARIES OF FEDERAL HOME LOAN BANK DISTRICTS
FEDERAL HOME LOAN BANK CITIES.