the bonds or the guaranty of the same. The provisions of this subsection, except the preceding sentence, shall not apply to any bonds of the Corporation issued prior to the date of enactment of this subsection or to any bonds thereafter issued in compliance with commitments outstanding on such date.

"(M) The provisions of the second, third, and fourth sentences of subsection (c) hereof shall, after the date of enactment of this subsection, apply only to bonds issued prior to such date and to those thereafter issued in compliance with commitments outstanding on such date. Such bonds may, upon application of the holders thereof within six months from such date, be exchanged for a like face amount of bonds issued for such purpose pursuant to the provisions of subsection (L) hereof, bearing interest at such rate as shall be prescribed by the Corporation with the approval of the Secretary of the Treasury; but such rate shall not be less than that first fixed after the date of enactment of this subsection on bonds offered in exchange for home mortgages, other obligations, and liens upon homes, and the Corporation is authorized to increase its total bond issue in an amount equal to the bonds so exchanged.

"(N) In the event Home Owners' Loan Corporation calls in for refunding any of its bonds outstanding at the date this subsection takes effect, or issued in compliance with commitments outstanding on such date, it is hereby authorized to increase its total bond issue in an equal amount. The Corporation shall have power to purchase any of the bonds issued by it in the open market at any time and at any price. Any such bonds so purchased may, with the approval of the Secretary of the Treasury, be sold or resold at any time and at any price.

"(O) The loans made or refunded by the Corporation shall be confined to applicants whose indebtedness against their homes was in default prior to the date Home Owners' Loan Act of 1933 took effect: Provided, That relief may be extended to applicants whose defaults occurred since that Act took effect is specifically shown to be due to unemployment or economic conditions or misfortune beyond the control of the applicant: And provided further, That home mortgages and other obligations and liens against homes held by institutions in liquidation may be refunded, whether in default or not.

(P) In all cases where the Corporation is authorized to advance cash to provide for necessary maintenance and to make necessary repairs, it is thereby authorized to advance cash or exchange bonds for the rehabilitation, modernization, rebuilding, and enlargement of the homes financed and in all cases where the Corporation has a home mortgage it is authorized to advance cash or exchange bonds to provide for the maintenance, repair, rehabilitation, modernization, rebuilding, and enlargement of the homes financed and to take an additional lien, mortgage, or conveyance to secure such additional advance or to take a new home mortgage for the whole indebtedness, but the total amount advanced shall in no case exceed the respective amounts or percentages of value of the real estate as is provided in Home Owners' Loan Act of 1933, Not exceeding $200,000,000 of the bonds referred to in subsection (L) hereof may be sold, the proceeds of which may be used for the purposes of this subsection and for advances to provide for necessary maintenance and necessary repairs."

SEC. 2. Home Owners' Loan Act of 1933 is amended by striking out the comma and words as follows: ", and no payment of any installment of principal shall be required during the period of three years from the date this Act takes effect if the home owner shall not be in default with respect to any other condition or covenant of his mortgage ", as the same appears in section 4, paragraph (d), thereof.

SEC. 3. Home Owners' Loan Act of 1933 is further amended by striking out the word "two" from section 4, paragraph (g), and inserting the word "three" in lieu thereof, and the words "such exchange or advance" at the end of section 4, paragraph (g), thereof, and inserting in lieu thereof the words "the filing of any application with the Corporation to accomplish such redemption or recovery."

SEC. 4. Home Owners' Loan Act of 1933 is amended by inserting at the end of section 5 thereof new paragraphs as follows:

"(J) In addition to the authority to subscribe for preferred shares in Federal savings and loan associations, the Secretary of the Treasury is author ized on behalf of the United States to subscribe for any amount of full-paid income shares in such associations, and it shall be the duty of the Secretary of the Treasury to subscribe for such full-paid income shares upon the request

of the Federal Home Loan Bank Board. Payment on such shares may be called from time to time by the association, subject to the approval of said Board and the Secretary of the Treasury, and such payments shall be made from the funds authorized to be appropriated by section 5, paragraph (g), of Home Owners' Loan Act of 1933, and any funds appropriated pursuant to said authorization; but the amount paid in or held by the Secretary of the Treasury, including the amount paid in on preferred shares held under the provisions of section 5, paragraph (g), hereof, and the amount paid in and held under this section, shall at no time exceed 75 per centum of the total investment in the shares of such association by the Secretary of the Treasury and other shareholders. Each such association shall issue receipts for such payments by the Secretary of the Treasury in such form as may be approved by said Board, and such receipts shall be evidence of the interest of the United States in such full-paid income shares to the extent of the amount so paid. No demand for the repurchase and retirement of such full-paid income shares so purchased shall be made for a period of five years from the date of the purchase of the same, and thereafter requests for the repurchase of such shares by such associations shall be made at the discretion of the Federal Home Loan Bank Board, but such requests for the repurchase shall not be made in any one year upon any such association in excess of 10 per centum of the total amount of such investment in its shares. Such association shall repurchase such shares upon such request according to rules and regulations of Federal savings and loan associations established by the Federal Home Loan Bank Board.

"(K) When designated for that purpose by the Secretary of the Treasury, any Federal savings and loan association may be employed as fiscal agent of the Government under such regulations as may be prescribed by said Secretary and shall perform all such reasonable duties as fiscal agent of the Government as may be required of it. Any Federal savings and loan association may act as agent for any other instrumentality of the United States when designated for that purpose by such instrumentality of the United States." SEC. 5. (a) The first sentence of the eighth paragraph of section 13 of the Federal Reserve Act, as amended, is further amended by inserting before the semicolon, after the words "Federal Farm Mortgage Corporation Act", a comma and the following: "or by the deposit or pledge of Home Owners' Loan Corporation bonds issued under the provisions of subsections (L) or (M) of section 4 of the Home Owners' Loan Act of 1933, as amended."

(b) Paragraph (b) of section 14 of the Federal Reserve Act, as amended, is further amended by inserting after the words "bonds of the Federal Farm Mortgage Corporation having maturities from date of purchase of not exceeding six months", a comma and the following: "bonds issued under the provisions of subsections (L) or (M) of section 4 of Home Owners' Loan Act of 1933, as amended, and having maturities from date of purchase of not exceeding six months."

SEC. 6. The Federal Reserve Banks are authorized, with the approval of the Secretary of the Treasury, to act as depositaries, custodians, and fiscal agents for Home Owners' Loan Corporation.

SEC. 7. Home Owners' Loan Corporation is authorized to buy bonds or debentures of Federal Home Loan Banks upon such terms as may be agreed upon or to loan money to Federal Home Loan Banks upon such terms as may be agreed upon.

SEC. 8. The Federal Home Loan Bank Act is amended by inserting at the end of section 17 thereof the following: "The Secretary of the Treasury or the Under Secretary of the Treasury, when designated by the Secretary, shall be ex officio a member of the Board in addition to the five appointed members of the Board and shall as such have the right to vote as a member of the Board, but three members of the Board shall constitute a quorum for the transaction of business."

SEC. 9. To enable the Federal Home Loan Bank Board to encourage local thrift and local home financing, and to promote, organize, and develop Federal Savings and Loan Associations and similar associations organized under local laws. there is hereby allocated and directed to be transferred from the funds authorized to be appropriated by the provisions of section 5, paragraph (g), of Home Owners' Loan Act of 1933, and any funds appropriated pursuant to said authorization, the sum of $500,000, to be immediately available and to remain available until expended subject to the call of said Board, which sum, or as much thereof as may be necessary, said Board is authorized to use at its discretion for the accomplishment of the purposes of this section

and sections 5 and 6 of the Home Owner' Loan Act of 1933, without regard to the provisions of any other law governing the expenditure of public funds. SEC. 10. Subsection (a) of section 4 of the Act entitled "An Act to provide for the establishment of a Corporation to aid in the refinancing of farm debts, and for other purposes ", approved January 31, 1934, is amended by striking out the eighth sentence thereof reading as follows: "Such bonds shall be fully and adequately secured by such assets of the Corporation and in such manner as shall be prescribed by its board of directors", and by inserting in lieu thereof a new sentence reading as follows: "No such bonds shall be issued in excess of the assets of the Corporation, including the assets to be obtained from the proceeds of such bonds, but a failure to comply with this provision shall not invalidate the bonds or the guaranty of the same."

SEC. 11. If any provision of this Act, or the application thereof to any person or circumstances, is held invalid, the remainder of the Act, and the application of such provision to other persons or circumstances, shall not be affected thereby.

STATEMENT OF JOHN H. FAHEY, CHAIRMAN FEDERAL HOME LOAN BANK BOARD

The CHAIRMAN. We have with us Mr. John H. Fahey, the chairman of the Federal Home Loan Bank Board, who will discuss H.R. 8403, and I am going to suggest that Mr. Fahey be permitted to proceed as long as he desires without interruption, and after he has concluded his general statement, of course, the members of the committee will all be free to interrogate him, and I will now ask Mr. Fahey to discuss the bill without interruption, as long as he desires. Mr. FAHEY. Mr. Chairman and gentlemen of the committee, I should explain at the outset that this bill is presented to you with the recommendations of our Board, has the approval of the President, so far as its terms are concerned, and that we have also checked with the Treasury Department and the Director of the Budget relative to its financial phases. In addition to that, because of its relation to financing in general, we have also discussed it over recent weeks with the chairman and other members of the Board of the Reconstruction Finance Corporation.

To summarize briefly the outstanding features of this bill, I would say that first of all, as you are aware, it provides for the guaranty of the principal of its bonds. Its further purpose is to encourage employment in the country, to stimulate modernization and construction, and, in turn, to help in the restoration of the capitalgoods industries of the country, because of the influence on those industries of the construction industry.

More than that, we believe that these amendments will have a substantial influence in restoring the confidence of savers, whose thrift is necessary to the further extension of home building in this country; likewise, that it will have a very definite tendency to encourage the lending institutions to adopt a more liberal attitude in making funds available for the modernization and repair of homes and also for new construction wherever it is needed. Of course, you gentlemen will realize that another incidental factor of importance involved is the strengthening of the assets of the corporation itself, because under the terms of this act the corporation would be allowed to advance money for the modernization of the homes on which it takes over mortgages, thus putting them in better shape than they are today and increasing their value as assets behind the mortgages and bonds of the corporation.

There is also provision in this bill for extending the time during which those who are entitled to assistance may take advantage of the terms of the act. We have also made one other suggestion of amendment here, which we are convinced is important and which we hope will appeal to you gentlemen, and that is remove from the present act its mandatory provision that we shall grant a moratorium on any payment of principal on the part of these borrowers during the next 3 years.

The other, a very important and constructive feature of this act, as we see it, is the encouragement it lends to the further and more rapid development of the Federal building and loan associations, and also in putting some assets at the disposal of the home-loan bank system, and, in turn, its member institutions, so that they, too, may be in a position to extend their aid in home building and home rehabilitation without undue delay.

Dealing with the incidental features of the bill, may I explain that, of course, in the first place, the purpose of the act, so far as the guaranty of principal is concerned, is in general to place the bonds of this corporation on exactly the same basis as those of the Farm Credit Administration. In its terms, the bill provides that those who hold donds of our issue may, during the next 6 months after the passage of the act, if it be approved, exchange the bonds which they now hold for the new bonds which the corporation will issue. After long consideration of the subject and discussion of it with the Treasury and other financial authorities, this Board was convinced that that was the most equitable plan which could be adopted, and for these reasons: As you know, we encountered considerable resistance in the acceptance of these bonds on the part of mortgagees, largely because of their maturities as investments, because they were due and not understood, and because in some quarters there was considerable resistance to the idea that such an institution as the Home Loan Corporation should be created at all, but there was considerable misunderstanding on the part of financial institutions and of individual mortgagees as to just what this corporation was expected to do and how sound the securities were. The result was that we had to go to considerable expense and carry on quite an elaborate educational campaign to have the bonds understood at all. I say, it was not appreciated in the country generally just what they represented, because it was not realized, for example, that the Treasury Department had ruled that these bonds of the Home Owners' Loan Corporation should be accepted at par as security for United States Government deposits; that the Comptroller of the Currency had ruled that national banks might accept them at their par value in exchange for home mortgages held by such banks and carry them in their balance sheets at par, unless at some time in the future there was occasion for some other ruling; that the Reconstruction Finance Corporation had rated them as in the highest class of investments against which they advanced loans and had agreed to loan 80 percent in cash against these bonds.

Aside from that, we were successful in persuading the various State legislatures to make them legal investments, not only for savings banks but for trusts, and some of the States cooperated with us to the utmost in making them legal investments for munici

pal and State sinking funds. All of that took time, however, gentlemen, and it took time to persuade these tens of thousands of mortgagees that they ought to accept these bonds, and it has cost a good deal of money to carry on that campaign.

However, it is fair to say that as the facts were brought to their attention, the organizations representing the savings banks, the building and loan associations, and the individual building and loan societies, and the insurance companies, all gradually came into line and began accepting the bonds without reservation. That is evidenced by the fact that before the proposal was advanced to guarantee principal we had obtained consents from some 450,000 mortgagees to the exchange. Of course it is fair to say, in obtaining consent of the mortgagees, it does not necessarily mean that the Corporation has agreed to take over a mortgage from a mortgagee at its full value, because in a large proportion of the cases it is necessary to negotiate a compromise and secure some reduction in order to effect the exchange and keep within the terms of the law. Moreover, in practically all of these cases where such adjustments are negotiated it is fair that they should be adjusted downward. However, it is a fact that in time and as they understood the facts of the case, the great bulk of these mortgagees with whom we negotiated accepted the bonds on the basis of our representations and accepted them at par and in good faith.

From our point of view, it would be manifestly unjust to now discriminate against those who have cooperated with the corporation in this work, in comparison with those who may now be ready to exchange without objection, in view of the guarantee of principal. We feel, therefore, that the suggestion offered here-that those who have already taken the bonds be given an opportunity to exchange them for new bonds within a limited period-is a sound and fair solution of that particular problem. As to the terms of the act, they are not obliged to exchange, of course. Moreover, you will recall that we have the right to take up these bonds at their par value as funds accumulate in our hands to do so. Of course, aside from those who exchange, we would hope to take up the balance of these 4-percent bonds within a reasonable term and thus reduce the interest charges to the corporation. Under the terms of the act at present the Board has the right to fix the rate on our bonds from time to time. Of course, we would expect, in cooperation with the Treasury, to fix this rate consistent with financial conditions at the time the various issues were authorized. I should say, in conclusion, I believe we are all convinced that the guarantee of principal of these bonds will greatly expedite the work of the corporation in granting relief and it will also have a material influence upon our costs of operation. We would be able to save a lot of expense and effort which would be necessary otherwise in making clear to thousands of mortgagees just what the facts are about these bonds.

I suggested that, in the opinion of this Board, the bill which we have presented to you represents an opportunity to stimulate greatly in this country. I think business men generally-and it is certainly true of the labor organizations, and I assume that you gentlemen are of the same opinion-think that there is nothing more important than the stimulation of employment in the construction