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1015 Minutes of actions taken by the Board of Governors of the Ileclera1 Reserve System on Wednesday, June 4, 1952. The Board met in executive session in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Evans Powell Mills Robertson The Secretary later was informed by the Chairman that during the x eelltivn - session the following actions were taken: Unanimous approval was given to an authorization covering travel by Chairman Martin to Ft. Louis, Missouri, during the period June 11-15, 1952, to attend a joint meeting of the boards of directors of the Federal Reserve Bank of St. Louis and its branches. Unanimous approval was also given to a memorandum dated June 4, 1952, from Mr. Sloan, Director, Division of Examinations, outlining a proposed prograla incident to the visit of the Division's flel_d exRmining staff to the Board's offices on June 10 and 11, 1952, and requesting that the Board authorize a reception, with light refreshments, in the cafeteria or the starf dining room Oil the afternoon of one of the two d?ys. s lzie tie $3..40 The meeting then recessed and reconvened at 2:35 r.n. with the rIbers of the Board present and the following members of the staff atterldancP: Mr. Mr. Mr. Mr. Mr. Carpenter, Fecretary Sherman, Assistant Secretary Thurston, Assistant to the Board Riefler, Assistant to the Chairman Thomas, Economic Adviser to the Board 14 XI' ?4 3 T -2Mr. Vest, General Counsel Mr. Noyes, Director, Division of Selective Credit Regulation Mr. Garfield, Adviser on Economic Research, Division of Research and Statistics Mr. Solomon, Assistant General Counsel Mr. Benner, Assistant Director, Division of Research and Statistics 111". Raymond M. Foley, Housing and Home Finance Administrator, and Mrs lie &I.1 J. Hardy, Assistant Administrator, Housing and Home Finance Agency, --0-E0 present. Chairman Martin stated that this meeting had been called so that th etbers of the Board could have an opportunity to hear Mr. Foley's e°11cerning the desirability of relaxing Regulation X, Real Estate the job Mr, Foley made a statement in which he said that his Agency had of carrying out the housing objectives set forth by Congress but that thitking of the regulation of real estate credit he related the Iktter zot to the housing ideology contemplated by these objectives, but as wise and feasible in housing production this year. Oray ttee ro A 41 If the 'were in a position to produce freely and without considering the probably would Inaking materials available for defense, his Agency -"ts in terms of the maximum production that the housing industry deton -evrated that it could build, which would be in the neighborhood 411111ItiMe. cA b 1111 0 3000 units annually. 8 Under the defense program, however, it had ary to limit production and a goal of 800,000 units had been 6/4/52 -3 441°Ped for this year on the basis of what then appeared to be the 81114 of materials that would be available for housing. That number, po, -LeY said, was the "bare bones" of meeting increasing housing need 414 A4 "JAI not allow for accumulated need. He stated that his Agency also 4c(4 ' llized that that number of units would have to be distributed very cEtref,,,, ' u LLY as to locality and price range. He added that since the begi 114--t. of the year when the 800,000 figure was arrived at, the materials 114t i°x1 had changed to where it now was considered entirely feasible to 4,041 1400,000 units during 7.9,2. Because available materials would fully EPLippo rt s ucn a program (unless the steel strike turned out to be of long which Mr. Foley did not anticipate) approximately 1,000,000 units should be the aim for production this year. Mr. Foley went on to say that reports from Federal Housing Adminis- tt1On offices and from builders over the country indicated there Igetlkerling in the building situation which, if continued, would result 4 than proposed relaxation — 1,000,000 starts this year, even with the Ilegla It41°I1 X. Facts in the weakening of the situation included some 1141L4 of completed but unsold houses which, however, wa 1Ot serious '11°11€11to necessitate action to amend Regulation X for the purpose of relieving cases. 414 r guaranteed b kik stfk. Aside from that element, Mr. Foley noticed that mortgages l Ettion 8' Ito the Federal Housing Administration and the Veterans accounted for between 50 and 60 per cent of total housing W that the commitments of these two agencies for insuring or 614152 guaranteeing loans provided a significant figure in judging the current "Pr'c'ePective activities of builders. These commitments, he said, had f ith ' -e Sharply in the case of the Federal Housing Administration between the ezta of January and first of May of this year, the backlog falling from 41)?r°xiluatei-Y 290,000 to 130,000 units in that three-month period. He 4141 thatsuch information as was available to the Veterans Administration d e- a similar decline in the backlog of commitnents of that agency 1.11 -°" the Past three months compared with the same period last year and t44, u the same situation appeared to exist in the conventional mortgage 14r. Poley then referred to the long lag between commitments and the 4ctua1 construction of houses, commenting that the decline in commit- of the two agencies during the past 90 days was significant as 1414-esti -rIC the probability of a rapid falling off in housing starts during the te several months, and that in his judgment, this decline would begin t° %ear oon after the end of June. . Foley then stated that Regulation X was only one factor affect- 7i theb uillinE outlook and that there were three other which he considered /kb Stanti10‘_.1., importance, one of these being the tightness in the supply of 4 - Ne f unds. The second was the rates permitted on FHA and VA mortgages kid 4e 1t stated that the Housing authorities proposed to hold these rates. thil.,1 ?actor was that as long as the Federal National Mortgage Associa- re Illained out of the mf3rket there would be a progressive freezing out (In 614/52 -5orthe also zarket of veterans housing financilay. at the 4 er cent rate. He referred to current Proposed legislation viith respect to funds to be tads av ailable to the Federal National Mortgage Association for the purchaole °1) mortgages, stating that not only was it anticipated that such %tett, _ ° would be limited to defense and disaster-area housing, but in addi- tio 'Ile Proposed legislation would cut back the portion of loans that the A esociation might purchase from any lender by providing that such Could not sell to the Association more than 50 per cent of Veterans stration-guaranteed loans made by it after a recent base date. (At the Pl'esellt time, the Association is permitted to purchase u to 100 per cent or, veterans Administration mortgages made by a lender.) He added that th factors, and e lielleing and Home Finance Agency had considered all N.+ ai, '"ce the action of Congress in the summer of 1951 relaxing the terns 111th ' le41 estate credit regulations on houses valued at $12,000 or less, 441 felt that an adjustment was needed in order to restore more equitable houses in the upper price-brackets. In view of the improvement Illtheiraaterials situation and the indications of a falling off in housing "ttta after June of this year, he had come to the conclusion that this the apProPriate time to bring about this needed adjustment of terms. 111.4101A Vine any Foley felt consideration to political factors, Mr. that 'tee in the regulation along the lines proposed would be justified 4'41_ tict r uPments during recent months and would bring about housing producal.°Und a million units this year. It would also result, he said, 614/52 e. -6- Inuch better distribution by types of houses than would be produced trials change were not made. As to the political situation, Mr. Foley expressed the view that . it tilt - vas the right time to make adjustments in the schedule on account or the materials situation and the building outlook, he felt it also zip- °i8..a to take into account whether Congress would react favorably or 12114tv °rabiz to a change at the time it was considering an extension of the bete._ Production Act. relax at this It was his opinion that action to thie °tad indicate to Congress that the regulations were being administered rleZtb 17 and that it might safely continue the authority- on the grounds tbztt th. , agencies administering them were prepared to adapt the regulations tOM. itg conditions. He emphasized that it was very desirable to continue the Pir1 1 4. as a means of placing some restraint on pressure for no(. 1 'Da ent housing credits under Government sponsorship and also as a t or restraining builders from going out on a greatly expanded protre4 torh b commitments Uilaing in which they would obtain a large number of if they -°1143e8 Ighich would have to be exempted from the regulations *eter, wta to be reinstituted. Mr. Foley then commented briefly on the proposed schedule of down Nkott a/ stating if it were A that minor adjustments could be worked out ,koe to relax Regulation. Y. He also referred to discussions he had had /Ittil 1)resettatives of other interested Government agencies, stating that Item t ---ve a further talk with Mr. Steelman, Acting Director of Defense 6/4/52 -7- lization) and Mr. Putnam, Economic Stabilization Administrator, and that he hoped the Board would find it possible to defer taking final action with °la the the final views of these individuals were known, particularly question of timing of action. In the discussion that ensued, Me3srs. Foley and Hardy commented With re sPect to the proposed relaxation in requirements for houses under Foley stating that he would not feel too strongly on this it but that of he was satisfied it would have little effect on the total credit. He also said that he considered it desirable as a means ling builders to meet a need for housing for certain of the lowest 14collie e'r°uPs in the south and southwest. As to houses selling for more t/len6„ c))000, Mr. Foley expressed the view that it would make little difference 14 telt, of actual construction whether the down lilynent requirement was 13 Per cent or Iftltas-A4 / 1 4)- 1:11 he. 4o per cent, but that there might be a psychological using the higher percentage, this having been suggested by Antri . Eru ln one of his conversations. A more important consideration, se, 1-1.) vas that if the regulation were retained it would continue the secondary borrowing and this would deter excessive Nhibition eZainst 11111clirig. activity in the higher price level. A8 to the commercial building 11'()Itisi0n5, Mr. stated that his Agency was not directly concerned Foley ith theta but than to that he felt it might be bett r to relax rather 114elad of current that portion of the regulation, especially in view 099 E/4/52 -8- ''/Icertainties regarding the steel str'ke. At 3:45 P.m. Mr. Foley and Mr. Hardy withdrew from the meeting. ah"-rraan Martin then called upon the members of the Board for comment, 'a.rticularlv whether Mr. Foley's statement had modified the views pre71°11s34- expressed by members of the Board. There was a discussion of the )x.ob al)le outlook for housing starts, of the materials situation, and of 1°8sible variations that might be made in the schedule of down payments at the , '-(3/1causion of which it was the consensus that some relaxation of Retsulatiori should be approved and, accordingly, that there was no need to inaiecite to Mr. Foley that the Board would not be willing to proceed at the I-jr()Der title with a relaxation of the regulation along lines discussed at tlits leetinge It was agreed, therefore, that after hearing from Mr. Foley tONorrow, another meeting of the Board would be held in order to consider Whet steDe would then seem desirable in connection with modification of reelaation. At this point all of the members of the staff with the exception 't e„rs. ect to Carpenter and. Sherman withdrew, and the action stated with each of the matters hereinafter referred to was taken by the III-Autes of actions taken by the Board of Governors of the Federal SYstem on June et11)10 3, 1952, were approved unanimously. Wemoranda recommending that the resignations of the following Yee6he accepted, effective the dates indicated: 1023 EA/52 -9- Date of Memorandun 6/2/52 Effective Date Name and Title Director, Young, Mr. Memorandum from Division of Research and Statistic Mary R. Carroll, Clerk 6/6/52 Memorandum from Mr. Allen, Director, Division of Personnel Administration 6/3/52 M. Jane Coughlin, Clerk-Typist 6/41)2 Approved unanimously. Letter for the signature of the Chairman to Mr. Edwin H. Barker, Offic e of Naval Material, Department of the Navy, Washington, D. C., reading 4 f°11ow(1: "Receipt is acknowledged of your letter of May 14, reding the Federal Reserve Banks making avai3a1-ile to the 011111ef of Naval Material, the Contracting Bureaus and the financial reief of the Office of Naval Research, confidential with respecting certain contractors doing business theyY° epartment of the Navy. co "During World War II, the Federal Reserve System made D,,Ilfidential financial reports available to the War and Navy p7Dartments at the request of Under Secretary of the Navy vu jrestal and Under Cecretary of War Patterson in connection ae ll requests for advance payments and for the purpose of in e,'erining whether the Departments would be justified „;upplies material, arding contracts to certain concerns for avallablo to the Defl equipment. This information was made ;111Ii!artments through the Offices of the two Under rocrt--2f0E cannot .4e. see no rea;on that similar information at the present timr'. In view of the fact that this matter is clic which will „ 4 04 , 'bv Air 7crcr7, 1701 4nterest to the Dr:partments of the Amy, and the „1-tcewith L, ee the Department of the Navy in connection satis:ctory most of current procuremeAt„ I telieve th t the Isae through the Departi c4 of workinc, out a procedure would be rae,: of Defense. Therefore I would st,060,,t that the mattel ho of With Honorable W. J. McNeil, Assist,.nt beci.etary r 4 1024 6A/52 -10-- "As you know, we are presently making available to the Office of Naval Material through the Office of the Assistant Controller credit information furnished by the Reserve Banks in connection with applications for V-loans. -imilar information is available in Washington on many other concerns which have V-loans guaranteed by the DePartments of the Army and Air Force. In order that there l inia_Y be no duplication of effort or conflict with the present loan operations, it appears to me that all requests for credit information should be funneled through the Defense De partment. "Unless the volume of requests for credit information is c onsiderable, it will not be necessary for us to ask for any reimbursement for this service. I suggest, therefore, basis }.1at we initiate the arrangements on a nonreimbursable DeWith the understanding that we will notify the Defense Partment in advance if the volume appears to be reaching ProPortions which require us to make a charge." Approved unanimously, together with the following letter to the Honorable W. J. McNeil, Assistant recretary of Defense, Washington, D. C.: "For your information there are enclosed a copy of a letter dated me May 14, 1952, with attachment, addressed to my and Edwin H. Barker, of the Office of Naval Material, ' 1)1Y thereto which are self-explanatory. As I have advised Mr. Barker, I see no reason that time information cannot be provided at the present bethe Departments of the Army, Navy and Air Force. r_eve that in order for the plan to operate successfully, 07-lests for credit information should be made to the Board or Governors through either the Contract Finance Committee the Department of Defense or through the Offices of the 'irt rollers of the three Armed Services. If you feel it a desirable to re-establish a plan similar to that which WVarently operated very successfully during World War II, will be glad to so advise the Federal Reserve Banks. arrange1/Ielits"As I advised Mr. Barker, we can initiate the on a nonreimbursable basis with the understanding 1025 6/4/52 that we will notify you in advance if the volume of requests appears to be reaching proportions which will require the Peaeral Reserve Banks to make a charge." Letter to the Presidents of all Federal Reserve Banks, prepared 1)14s811al1t to action taken by the Board on May 210 1952, reading as follows: "After careful consideration and in the light of the viewS expressed by the Federal Reserve Banks, the Board has opted an amendment to its Regulation Ct, in the form enalosed, effective July 1, 1952, with respect to the allow_Ace of days of grace in the computation by member banks of lalUrest on savings deposits. to"Under this amendment, a member bank will be permitted allow a grace period of 10 business days at the beginning °I* 8-4Y calendar month commencing a regular quarterly or semiinterest period, a grace period of 5 business days at _.T2' beginning of any other calendar month, and a grace period 3 business days at the end of any calendar month ending a Parterly or semiannual interest period. The Federal Deposit Je.Talrance Corporation has adopted an identical amendment, also zelfective July 1, 1952, to its regulations relating to payrtt of interest on deposits by insured nonmember banks. prirrf:It will be appreciated if you will make arrangements for 111,6 the necessary copies of this amendment and for such , ' distrtbution to member banks in your district as you consider sav isable." Approved unanimously. Secretary.
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