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Minutes of actions taken by the Board of Governors of the -44* Reserve System on Tuesday, October 10, 1950. PREsENT: Mr. Mr. Mr. Mr. Mr. McCabe, Chairman Szymczak Evans Vardaman Norton Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Minutes of actions taken by the Board of Governors of the Reserve System on October 9, 1950, were approved unanimously. Memorandum dated October 6, 1950, from Mr. Marget, Director °tIlleDivision of International Finance, recommending that the resig48.tio4 of Miss Barbara Hinrichs, a research assistant in that 1:141siort, be accepted to be effective, in accordance with her request, Oqt,01, vet es 1950 Approved unanimously. Mein orandum dated October 6, 1950, from Mr. Vest, General ,_ 'oommending the appointment of James Bruce Kellison as a 14 the Legal Division, with basic salary at the rate of 0 13ezi tho 84nunly effective as of the date upon which he enters upon Derr° 111411oe of his duties after having passed the usual physical tiorL ,Approved unanimously. L -K Letter to Mr. Olson, Vice President of the Federal Reserve 414 4-cago, reading as follows: 10/10/50 -2"This refers to your letter of October 3, 1950 en1/Xirig a copy of a letter received by you from the Marine :")11a1 Exchange Bank of Milwaukee, Wisconsin, regarding ti ; a question whether a Regulation V guarantee would cover 8. -n e8.se Where a bank which has taken an assignment of claims ecurity for a loan is later required by the Government, a; ! to 4he result of price revision, to refund amounts paid e : 11/ , e_ bank as assignee, even though the guarantee may b t1„terminated because of payment of the loan by c'j e borrow r. It is assumed that the ruling of the General referred to in the Bank's letter is the Boje inien of May 17, 1949 which was enclosed with the 8 letter of June 16, 1949. vith "There has been no authoritative opinion expressed 1)1.0-4, rese P Ct to the question raised. Duringthe V-loan perragrie1114_ of World War II the Armed Services agreed to agre;' banks, upon the cancellation of a guarantee TerapTrileAt, to add a rider to the form of 'Statement of Na:14.1?ti0nt to the effect that, notwithstanding canloZ1 of the guarantee agreement, the agreement and 4ts of the financing institution should continue iii or aZ,1 force and effect 'with reference to the amount 44( 0 1 PaYments or application of funds, if any, heretofore the r°A said loan which may hereafter be recovered from Eq,a 4Ilancing institution'. (See F.R.L.S. 74'966o) By iliwt1", it might be supposed that if a financing elaoln;Ution after payment of the loan by the borrower, NI-;r- be required by the Government to refund amounts ea by the bank as assignee, such amounts would sha/jarded as a 'loss on the loan' which would be ‘' ratably by the financing institution and the glzaZeeing agency of the Government according to the there7;fed percentage. However, as previously indicated, N.1,6, ' 1 4.448 not been any interpretation of the form of 1_e agreement of September 27, 1950 to this effect. -7 e is question and other questions relating to the Act, 0f assignee banks under the Assignment of Claims ktl 11,2,1 the light of opinions of the Comptroller General, studied; and it is likely that we may discuss he h0 . 1701Areci0le Problem with the guaranteeing agencies inn13 v,i4 the new V-loan program. We shall of course qqa 4`'u advised of any developments in connection with fla tter." 1)er: Approved unanimously. 10/10/5o Telegram to the Presidents of all Federal Reserve Banks and 14811414g 0„, 411oers of all Federal Reserve Bank Branches, prepared in e.ccortance with the discussion at the meeting on October 6, 1950, fOilOWS: Res "Referring my wire October 6 re Regulation X, idential Real Estate Credit. Text of press release to b giVen to press at press conference to be held 0 P.m. today, Eastern Standard Time, is as or • Statement is for release in morning papers wednesday, October 11: et 'Restrictions on residential real estate Conet credit, under authority of the Defense Ord-o-liction Act of 1950 and the President's Executive toci2: No. 10161 of September 9, 1950, were announced te„;,v on non-government-aided private credit, governded loans, and direct covernment veteran and 114 1 ,(3ans on one and two-family houses. silre,4 Credit restrictions on housing loans not inGuaranteed, or extended by Government agencies orGe°7ered under Regulation X issued by the Board eola,°17ernors of the Federal Reserve System, with the gor : ellrrence of the Administrator of the Housing and govel„ , Plaance Agency. Companion restrictions on torti erit-aided housing finance, on a basis concretl 114g to those applied to other types of private were announced by the Housing and Home —ce Administrator. reziaiLI:Ile new regulations will call for down payments riEtri. li7 from 10 per cent in the $5,000 and under price or vd„:° 50 Per cent at $25,000 and over, with preference Poillt' erane amounting in most cases to 10 percentage or h 8' The regulations are geared to the marketing nillg production of not more than 800,000 to N),(1 01 (1\S aew housing units next year. rsa ' t he regulations on both types become effective October 12, 1950. They are designed to ; 1Ice the currently high inflationary pressures /1 re::! . 4 41krite;1. cting the flow of funds into the mortgage e‘ctilisiyuld through the reduction of new home construction aext year, to assure that materials and labor for the defense program will be available tleeded. N 10/10/50 -4'The regulations apply to virtually all future 10 Thez e s on new construction of one and two-family houses. mc re strictions agreed upon, according to Thomas B. e4bel Chairman of the Board, and Ruymond M. Foley, 14 , A Ad ministrato, r are based on an estimate that, to :% 1 serious inflation in the housing market and to 1213 cr te i:rt3J i 1;;t 6 i mated defense requirements, housing I should be reduced about one-third 1,10'jv the current record level of homebuilding, or ev raore than 800,000 units. They are intended, howto continue, as far as possible through control thecredit, the relative preferences for veterans and it 11-oe distribution of housing sought by Congress its l egislative enactments. The situation will be Under close review to determine whether defense tiots liflationary developments require later modificacalll:The regulations specify maximum amounts which borrowed, maximum maturities, and minimum ollortization requirements for extensions of credit or l'esidential construction, including the financing Eltio:i!j°r additions Awl improvements where the loan llorl-ut is more than $2,500. They do not apply to ber'130vernment-aided loans on construction begun te °Ile noon on August 3, 1950, nor to loan commitprior to the effective date. Credits bY new construction as well as credits exfinance the purchase of homes are subject eations bra .ror those purchasing homes in the lower price lolZets, the percentage down payments required are vet; thaz for higher priced structures, and for rtie: : t 448 Using GI loans the down payment require4re lower at each price level than on other tlittsr; .Also, a longer period for repayment is peror those buying homes costing $7,000 or less. thell-La determining the amount that can be loaned, N'toil licler must take into account all credit pre44i --LY e xtended in connection with the property 4(141.8j111 outstanding, as well as the amount of briii;"348-1 credit being extended. This provision 41011;8 suPAlementary borrowing, as well as first Ill oiZ!! loans, within the scope of the regulation. 40111 words, minimum down payments must be made terlai'lle borrower's own funds in connection with ex(348 of credit on new residential construction 458 Mob -5o, and. not from the proceeds of supplemental mortgages °rPersonal loans in excess of the permissible loan Value. 40 , 'Down payments and maximum permissible loans for irgovernment loans and FHA-insured financing are Ith7ctical and are calculated on the transaction price or4V1 is defined by the regulation as the amount paid it be paid by the purchaser, exclusive of prepaid the8 cf expense, such as taxes or insurance. Under r4az regulation, maximum permissible loan amounts, are,1141.1m maturities and minimum amortization provisions sPecified. °erties having a value of: May have outstanding credit of: Oe thn, $2,500 but not 1411)4;ri.than $5,000 90% of the value m "hall $5,000 but not -Ore than $9,000 $4,500 plus 65% of excess of value over $5,000 More than $7,100 plus 60 of $9,000 but not rIl°re than excess of value over $15,000 14°re than $15,000 but not tore than $20,000 01'er $20,000 $9,000 $10,700 plus 20% of excess of value over $15,000 $11,700 plus 10% of excess of value over $20,000 but not less than 50% of value T° carry out the requirement that the relative credi : N.v;" Preferences for veterans be maintained, down th;Irlt requirements on loans guaranteed or made by th veterans Administration are 10 per cent lower Dric, °11 PHA and non-government-aided loans in the - range between $6,000 and $12,000, with the pre-ererr— narrowing to 5 per cent in both the 4 17 and lower price levels. The down payments pric : -guaranteed loans, also based on transaction vkl "4 are computed as follows: Ile Transaction Price Minimum Down Payment !,500,0 or less of value 5% -41 e than $5,000 but not -°re than $250 $6,000 10/10/50 -6 "'Value Transaction Price More than $6,00C but not more than $9,000 More than $9,000 but not more than $12,000 More than $12,000 but not r110re than $15,000 More than $15,000 but not Zore than $20,000 More than $20,000 but not lac)re than $24,250 °N'er $24,250 Minimum Down Payment $250 plus 25% of excess of value over $6,000 $1,000 plus 30% of excess of value over $9,000 $1,900 plus 55% of excess of value over $12,000 $3,550 plus 75% of excess of value over $15,000 $7,300 plus 85% of excess of value over $20,000 45% of value 1-L1 real estate construction loans are limited to. ' pr -nlaximm term of 20 years, except those made on 10erties valued at $7,000 or less under a contract , c h calls for complete amortization of the loan 1.11 , or `5 Years by equal monthly, quarterly, semi-annual ilrttAllel Payments to principal or to principal and basi—est• However, a loan may be amortized on a that Provides for nnnual reduction of principal 0:ZMinimum rate of 5 per cent per year of the eze ; 41a1 amount of the balance, and such loans are bale,t from further amortization when the outstanding ot;,ce has been reduced to not more than 50 per cent cred;! value of the property as of the time the vas extended. tallet 'Alth -6ou 1_ 11 the regulation provides that a person 14g. rebe registered to engage in the business of extendal estate construction credit, all persons to in the business will automatically be deemed 0114 , registered for present purposes and no action 40It; eir Part to secure registration is now required. ImLer, the regulation provides that the Board may stet; , hY Public announcement, require registration ,4ts to be filed by persons affected. .uring the formulation of Regulation X, and the l'eglu,44j N.usi7:1°As on government-aided housing credit, concl'7:'°48 and meetings were held with representatives --i°us groups affected. This includes manufacturers 4 11 10h0/50 -7and dealers in building supplies and materials, itellor and veterans' and other consumer organizations, eT14 and trust companies, savings banks, savings Thrli°an associations, and building associations, j"Eage bankers, insurance companies, builders, real , : ,ete dealers, and others interested in construction u•ukt in ortgage finance. re The new regulations apply only to residential eval estate credit on one and two-family houses. HowConsideration is being given to the early .1,4811a/ice of regulations applying to construction credit pr„ating to rental-type projects, non-residential Pe and other real estate credit. dir 'Inquiries in regard to Regulation X should be th2:cted to one of the 12 Federal Reserve Banks and 24 2+ branches, through which the regulation will be adm inistered. gov 'Instructions to field offices for processing viirt ent-aided housing loans under the new regulations tret4be issued shortly by the Federal Housing Administelit4'°; the Veterans Administration, and the DepartOf Agriculture in their respective fields. 2 Approved unanimously. ka, -gram to the Presidents of all Federal Reserve Banks mrs,_ the Qu ' Leging Officers of all Federal Reserve Bank Branches, as follows: e l ection 4(c) of Regulation X provides that no 4.iTk.rant shall extend any credit unless he is 4,'8fied and maintains records which reasonably cflm°11strate on their face whether such credit is 110t real estate construction credit. One Vherr Of showing compliance with this provision is 4° real estate construction credit is involved the:4 st atement made by the borrower to the effect 4: : h the credit in question is not wholly or partly by, or for the purpose of purchasing or ' 4111.0 4.,g, or for the purpose of financing, or one cotl Illvolves the right to acquire or use new 01117nction on real property or real property "A41°}1 there is new construction (or that such new 10/10/50 -8Ii cohs truction, if any, is not a residence or a /J°11. addition or major improvement to a residence). D4°11 a statement, if accepted in good faith by the "registrant, will be acceptable if stamped on the Of the borrower's note and the note is theresigned by him or, if made by the borrower in 134-stter, application form, or in any other written taerla whatever. Merely as a suggested form of stateveillt , which can be used if desired for this purpose, it rye prepared the statement quoted below which ro,'" suggested you reproduce and have available ar; registrants. Mimeograph copies of the statement Illso going forward to you by airmail. We are 3 working on a Statement of the Borrower with 8t Peet to loans which involve real estate contor.uction credit and will forward such a statement ou as STATmbm, soon as possible. is ;;;a,DIT OF BORROWER WITH RESPECT TO CREDIT WHICH "v4: 'REAL ESTATE CONSTRUCTION CREDIT' does This form may be used where the Registrant ollthr , 1?t have other records which reasonably demonstrate stril r face that the credit is not 'real estate conOf j'ion credit' under Regulation X of Board of Governors or :e Federal Reserve System. Credit extended, insured is raranteed by the United States or any agency thereof °t 'real estate construction credit' under Regulation 4 $ With respect to the credit in the amount of for which I am applying to Name of Registrant cer+4,, cleC 0 41-Y under the penalties of Regulation X of the Board it Ajernors of the Federal Reserve System that the credit and will not be either wholly or partly secured the'for the purpose of purchasing or carrying, orright for to 413 011rPose of financing, or one which involves the qUire or use, new construction* on real property or ! ) ,f: (TertY on which there is a new construction (or or aUch new construction, if any, is not a residence 174aj°r addition or major improvement to a residence). tate (Borrower's Addressr (Borrower's Signature) *At Nor8ed here, 'new construction' means any structur ts or e4dition or major improvement to a structure, which has been begun after August 3, 1950." 10/10/50 -9Approved unanimously. Letter for the signature of the Chairman, to Honorable kr rY S. Trumaaa., President of the United States, The White House, 1(18111hgtort, D. C., reading as follows: vi "The Board will be glad to proceed in accordance s th the request contained in your memorandum of clember 28, 1950, that in performing the functions oelegated to or vested in the Board by Executive Gr eciel' 10161, the Board consult with the Attorney colt,a1 and the Chairman of the Federal Trade th:Liesion for the purpose of determining and, to ' or extent consistent with the principal objectives e Defense Production Act and without impairing the tae defense effort, of eliminating any factors which ajtetd to suppress competition unduly, create or oth'eerigthen monopolies, injure small business, or ise Promote undue concentration of economic 004 "To that end we are forwarding to the Attorney Q01071 ' 8.1 and the Chairman of the Federal Trade Commission Pr;;" of Regulation V, Loan Guarantees for Defense Crl i.tiTtion, and Regulation X, Residential Real Estate to 'which have been issued by the Board pursuant ;:lle Defense Production Act and the Executive Order. We "e.Nre been giving consideration to possible actions rese°Arlection with the voluntary agreements with cliZct to financing authorized by the Defense Prosila:t 011 Act and the Executive Order and we will conthe t,Ilith the Attorney General and the Chairman of 701 ederal Trade Commission as required by Section °F, the Order with respect to any such agreements. kelt) In accordance with the last paragraph of your EIN,erelliclum, I or the members of the Board who will to thePeoial consideration to the matters delegated ror -e Board by the Executive Order will be available Ciletic°neultation with the Attorney General and the sifillan of the Federal Trade Commission whenever Approved unanimously, with the understanding that copies would be sent • 463 10110/50 -10to Attorney General McGrath and Mr. James M. Mead, Chairman of the Federal Trade Commission. te* 17, Letter to Mr. Victor H. NYborg, President, Association of usiness Bureaus, Inc., 723 Chrysler Building, New York Ilev York, reading as follows: T 21 ,: : . hank you very much for your letter of September ',7'th which you forwarded a copy of your organizatio Press release covering the issuance of advertis- 8-,t;ezdards for consumer credit. co,, Your constructive action relating to the Board's lie-LIttler credit Regulation W is appreciated indeed and to ;re forwarded copies of your letter and enclosures ""e Federal Reserve Banks for their information." Approved unanimously. Menloranclum dated October the payment of $600 6, 1950, from Mr. Thurston, to cover the costs of the trip of 44 ellier, of Encyclopaedia Britannica Films Inc., to Washington t414'eliminary animation drawings and showing of the film on Ne, Reserve System in the then incompleted stage to members 'theTk --jktcl's research staff, etc., with the understanding that the : ett) 14€et of the Division of Administrative Services would be into cover this additional cost. Approved unanimously.
@FedFRASER