Evening star., 1934-05-26
ASSOCIATION ASKS
+ MORTGAGE PLAN
|eFate Committee Hears
Request for Amendment
: to Housing Bill.
(Continued From First Page.)

norrnalize home mortgage financing,
to lower home financing costs, and to
set up machinery through which, un-
der local initiative, new normal ac-
tivty in home building and home re-
conditioning may begin, drawing on
private capital for the enterprise. It
emphasized the need for pressure
gauge in each locality to the end that
the activity should be accurately ad
justed to actual economic needs.
Eligible mortgages would not ex-
ceed go per cent of the value of the
property after July /, 1887, but could
run up to 80 per cent until that time.
Against the mortgages it held, the
corporation would have power to issue
bonds guaranteed both as to princi-
pal and interest by the Government
up to Is times its capital
1.-The association believes that only
by some immediate encouragement of
this kind to all types of sound and
necessary new building can health
and confidence be restored to the
mortgages market" Schmidt said
1.-The association contended the ad-
ndinistration's legislation does not in
clude two provisions considerably ex-
tending the present discount facilities
for real estate mortgages THESE
ate as follows:
~. In Federal Reserve banks:
(a) Loans made to finance the con-
struction of residential or farm build
ings if having maturities Of not more
than six months are given the status
of ordinary commercial loans, under
the Federal Reserve act. Such loans,
even though secured by mortgage or
similar lien on the real estate upon
which the building is being con-
structed, are not to be considered as
loans secured by real estate within
the meaning of the act. The one
condition imposed: That no ma
tional banking association shall invest
in, or be liable on. such loans in an
aggregate amount in excess OF so per
cent of its actually paid-in and un-
impaired capital.
4. (b) Notes representing such loans,
II accompanied by an agreement OF
an acceptable person, association,
partnership or corporation to advance
the full amount of the loan upon COM
gible for discount as commercial paper
2 In home loan banks:
The Home Loan Bank Board "s
authorized and empowered to permit
-" . Federal home loan banks to re-
discount the discounted notes Of
members held by other Federal
home loan banks or to make
loans to, or make deposits with,
such other Federal home loan banks,
or to purchase any bonds or deben-
lures issued under this section. and,
in any case, upon such terms and
conditions as the board may pre-
scribe"
Whenever, in the judgment Of at
least four members Of the board, an
emergency exists requiring such ac-
ton, the board may require the banks
to take such action.
Would End Restrictions.
The proposed act would not only
make considerable liberalization OF
the powers given the home loan
banks, but in addition, in the case
of loans secured by real estate insured
under the proposed act, would abolish
the present restrictions imposed on
Federal Reserve banks both in re-
spect to the amount Of the loan which
they may make on real estate mort
cages in relation to the actual value
of the real estate and also In respect
to the present fve-year limit on the
terms of such loans.
The proposal to insure amortized
mortgages on homes and loW-cost
housing, both for new construction
and for existing homes, a proposal
new in national banking and finance,
originated with the administration
agencies. The association, through its
president, Hugh Potter, Houston, Tex,
has pledged that in the huge expert
rnent which the Government is un-
dertaking the association will give its
support Mr.. Potter is asking Real
Estate Boards to prepare to offer, in
the important matter of local ad-
rriinistration of the measure, the in
formation and facilities which they
have, in order that the whole pro-
gram, both as to modernization and
as to new buildings, may be accurately
adjusted to community needs in each
case.
Provides Safety Factor.
The Governments plan for insur-
Hnce of home mortgages Is set up
with q very large safety factor, the
association points out. The plan pro-
vides on a strict actuarial basis for
possible default in the case Of 25
per cent of all the mortgages insured.
1t is emphasized that the proposed
plan for stimulating home building in
such communities as have need for
new construction and for home recon-
ditioning is a plan for bringing pri-
vate capital into this field. The as
ISOLATION has consistently held that in
needed legislation for mortgage stab
tIization Government aid should be
extended through existing financing
institutions. 1t has held that the
Government should not 60 directly
into the lending business.
The present legislation should tend
strongly to encourage private lending
in the home-mortgage field by insur-
ing, on a mutual cost basis, large
group Of amortized loans for home
building made on a sound appraisal
basis. The Presidents program would
tend enormously to standardize ap-
praisal of homes and tend enormously
to strengthen the use Of long-term
loans for home buying and home
building. It would encourage loans
on q basis of, for example, 20 years,
rather than on the basis of three to
five years, hitherto prevalent. In this
respect it would, If adopted, practically
create a new type Of loan instrument,
the long-term, amortized, insured
home mortgage.
The enormous scope Of the proposed
legislation should not obscure the fact
that comparatively little funds from
the Treasury Of the Federal Govern
ment would be needed to put the
whole machinery in motion and COM
paratively little expense to the Gov
eminent would be involved in putting
the plan in operation.
4 NHfVg nuHRrG