Evening Star Newspaper, June 7, 1935, Page 37

HOUSING COST CUT BY U. 5. FORESEEN Fahey Says on Forum Home Loan Bank Board to Make /3 Slash. (Continued Prom Sixth Pa tion is the second of the four agencies administered by the Board. It is en-| tirely different from the bank system. It deals directly with home owners, and was created under the far-sighted | leadership of President Roosevelt in 1933 to meet a great crisis resulting | from mortgage distress. During the past two years, its relief operations cities, serving hundreds of thousands of investors and home owners. Many more charters are pending, particular- ly for former State-chartered asso- ciations converting to Federal asso- ciations. The legislation which for the first time made charters granted by the Federal Government available to mutual savings and loan associations marked an important epoch in the history of home ownership and the encouragement of thrift in our coun- try. Under the law, the accounts in these associations have to be insured in the Pederal insurance fund which the Government has provided. They also have to be members of the Home Loans Bank System so that they may easily and quickly secure ample cash when they may want it. Membership in the bank system also places them in a position to borrow from the bank system to loan again on good mort- gages when there is need for the money. To help and encourage the development of these associations, the Government has provided a large fund which for the present allows our board to take shares in these associa- tions on exactly the same basis as the have been carried on upon a tremen- dous scale throughout the United | States. The Home Owners' Loan | Corporation is designed to help only | those home owners who are in gen- | uine mortgage distress and threatened with the loss of their dwellings. In | carrying out this relief work, the Corporation has already issued its own bonds to the extent of almost $3,000,000,000. Most of this money has gone to the banks, building and loan associations and other lenders | which originally held the defaulted | mortgages of over 860,000 home | owners. The corporation has helped not only | the home owners whose mortgages it has refinanced, but every other home owner as well as every building and 10an shareholder, savirgs depositor and insurance policy holder. If the forced | &ale of housex for half what they were | actually worth had been allowed to| g0 on in your town it meant that the | value of your home was being marked down and part of your savings was| lost. ‘When the corporation began opera- | tions foreclosures were running a' thousand a day—the highest ever known. If this had been allowed to continue with the consequent steady decline in the value of homes on which mortgages are held by the building and loan associations. banks and insurance companies, millions of policy holders, shareholders and de- positors would have faced enormous | losses. By taking up distress mort- gages the corporation has stopped the decline in urban real estate values, reversed the trend and protected the value of your property and savings. Fortunately also, in co-operation with the Reconstruction Finance Corpora- tion. it has by promptly taking de- faulted mortgages out of closed banks, | made possible cash dividends of over $400.000,000 to depositors in these banks. Magnitude Realized by Few. Like the many other recovery measures which the President and Congress have developed, the magni- tude and far-reaching character . of the operations of this corporation are realized by but few of our citizens. It is time to appreciate, however, that how in possession of the tremendous | sums which the Government has transferred to them in exchange for mortgages. most of our private lend- | ing institutions are in a posi- tion to resume normal mortgage lending and the public has a right to expect them to do so. Moreover, it 1s justified in expecting that loans on homes will be made at more moderate | rates than have in the past prevailed in many sections and for terms long enough to permit comfortable repay- ments. The 15-vear 5 per cent loan of the Home Owners’ Loan Corpora- tion. when pm]ecleé by the Govern- | ment, was the most just and generous plan offered up to that time in this country, and it will have an important influence on the future of mortgage lending in the United States. Many | of the lending institutions have al- | ready adopted similar plans and we | are gratified to observe that in nearly | every section now they tell us they | are prepared to make loans at at- tractive rates. The Home Owners’ Loan Corpora- | tion is an emergency and temporary | undertaking. The emergency need ' has passed and the private lending institutions must be depended upon to meet our urban home mortgage de- | mands as they have in the past. as! the Corporation clears up the bal- ance of its applications. Now, as to the third important #gency administered by the Federal | Home Loan Bank Board: Two years | ago, the crisis of home mortgage finance and the acute distress of a million home owners who were un- able to obtain refinancing disclosed that more than half of all the coun- ties in the United States were abso- lutely lacking in local home-financing resources, and that such facilities were inadequate in most other sec- tions. including several of our largest eities. New Type Thrift Institution. Congress, in June, 1933, accordingly provided for a new and improved type of local thrift institution, to be known as Federal savings and loan associa- | tions. They are regulated and in- spected by the Federal Home Loan Bank Board, but are entirely private in management and mutual in opera- tion. Except that they operate under Federal charter and supervision and follow & uniform procedure in their service to homeowner borrowers and to thrifty people whose savings are placed in their care, these Federal associa- tions are similar to the building and Joan associations * and cooperative | banks which have long operated in this country under State charter. More than 800 Federal associations are already chartered in some 700 | | some ways it is the most important regular small installments, month by month, from the very time the loan is contracted. Ordinarily, a monthly payment of only about $10 is suffi- cient to pay both the interest and the entire principal of a $1,000 loan in 10 to 15 years, depending upon the interest rate. smallest shareholder. We can when conditioi rrant take a larger pro- portion of shares than the loca® share- holders. In a word, through these as- sociations the Government is enter- ing into partnership with honest savers in providing money for home financing and safety for investments in such associations. As a result of the amendments to our act just passed, we can also take shares or make de- posits in State-chartered building and loan associations or savings banks if they are members of the bank system or insured. We are prepared to treat all these institutions alike provided they are sound, safe and honestly con- ducted. Savings and Loan Corporation. We now come to the fourth and final institution administered by the Federal Home Loan Bank Board. In of them all for the future. That is the Federal Savings and Loan In- surance Corp., created in June, 1934, under which the savings of every person held in any Federal savings and loan association, or in an insured State-chartered association, are pro- tected against loss up to $5,000, in somewhat the same way that bank | deposits are insured by the Federal | Deposit Insurance Corp. There are | already 800 insured associations, and | more than a million small investors will soon have the safety of their savings insured in this way. | Such insurance for thrift associa- | tions filis a long-felt need. It should | permit thousands of local institutions | throughout the United States to attract a large volume of private savings at reasonable dividend rat By doing so they can make loans to | home owners on more liberal terms because their investors know that the safety of their money is properly provided for. Never before has any such mutual protective measure been developed on & Nation-wide scale, in any country, for the encouragement | of thrift and home finance through institutions of this type. Your Government in your interest has furnished the $100,000.000 insur- ance fund which is available to safeguard your savings in the institu- tion to which you have entrusted | them or in which you may now place | them. Government has done its part. It is now up to you and to the officials of the associations in which you hold or contemplate taking shares to se- cure the advantages of the powerful protection of the Federal Savings and | Loan Insurance Corporation. Task Largely Completed. Now we can begin to see how these four separate agencies fit together | into a definite plan for the benefit of the home owner and to provide secur- | ity for great numbers of people whose | savings depend upon the safety of | home mortgage loans. The urgent| task two years ago was to solve the emergency of widespread home mortgage distress and restore home | finance to strength. This has now | been largely completed through the | Home Owners’ Loan Corporation which, by saving s million or more homes from foreclosure, has removed a grave threat to our social and economic structure. ‘When I spoke last year on the National Radio Forum hour I men- tioned that a vital change was taking place in the whole practice of Ameri- can home mortgage lending, through the agencies operating under the Federal Home Loan Bank Board. I would like to emphasize what that change is and how it benefits not only the home owners, but investors in home mortgage loans and the publie as a whole. What is happening is that the old style home mortgage, which was made out for a short term of from one to five years, and then falls due in full at maturity, is being rapidly repladed by an entirely different type of mort- gage, which has had a better record in the test of depression. It is known as the long-term amortized loan. It is safer for the lender and very much more convenient for the borrower who wants to own his home free and clear of debt. On an amortized loan, the borrower never has to pay off & heavy principal sum at any time. Instead, his mortgage loan extends over a period of from 6 to 15 or even 30 years. It is paid off gradually in Cause of Distress. More than two-thirds of all the $21,000,000000 of American home mortgage loans in 1930 were the old short-term mortgages, with maturi- introduce aFacePowder to really get Excited About Women have been asking for a thin, fine, delicate face powder... but one that also clings for hours without the use of heavy, sticky loundation creams. That's why the famous French house of Piver cre- ated Aventure face powder. It clings . . . it stays on for hours. .. yet it never gives a “white-washed™ powdered look. Aventure face pow- der is made without starch, or orris root...so thin it blends righ in with your make-up and skin, POVDRSE " Aventure dull. amoo brings to your skin. rant . 6o/ in a luxurions red shell boudoir box THE EVENING STAR, WASHINGTON, ties of less than five years. That situation was the main cause of the tragic wave of home mortgage dis- tress that developed between 1929 and 1933, because nearly all those short-term loans fell due in those four years of depression. Many home owners were unable to pay or renew their maturing mortgages, with the result that foreclosures increased rapidly. Home properly values ac- cordingly collapsed, and a progressive decline began. If most of those home loans had originally been made on the amortized plan, no such wide- spread disaster could have occurred, because the home owners would not have had any such large payments falling due at & time when they were unable to meet them or renew them, Under all four of the agencies ad- ministered by the Federal Home Loan Bank Board, the use of the long-| term amortization loan by all types of private lending institutions is being | encouraged in every possible way. All of the loans made by the Home Own- ers’ Loan Corp. are amortized over & period of 15 years, at a cost to the borrower of less than $8 each month for each $1,000 borrowed. The Fed- eral Home Loan Banks lend up to a higher proportion of the face value of the mortgages of their member borrowing institutions on loans which are amortized. Amortization Required. Pederal savings and loan associa- tions are required by law to make loans on an amortized basis. The Federal Savings & Loan Insurance | Corp. s intended for the protection | of savings in building and loan asso- ciations, and similar institutions, which employ the amortized type of | loan exclusively. Whether you are a home owner, an investor or & business | man interested in the credit problems | of home owning customers, it may | | pay you to consider the advantages of the amortization loan. The new Federal home loan act| gives further stimulus to the adoption | of that type of loan, through all four | institutions supervised by the Federal | Home Loan Bank Board. Let me say | pose of this board, under the direction | of Congress, is not to urge any home owner to go into debt, or to remain in debt. On the contrary, its objec- | tive is to place within the home own- er's reach, through private and Fed- eral lending institutions, an improved, well-tested form of home mortgage loan which enables him to get out of debt just as quickly as possible, and with the lightest possible burden on his wages or salary. That policy of the board is not only to the advantage of home owners and investors, but constructive from the standpoint of general business activity as well. Obviously, when a large num- ber of home owners have freed them- | selves from the millstone of heavy short-term mortgage indebtedness, and have replaced it with a convenient long-term loan which requires only a small monthly installment to pay off Moo~ GrLow OH, my! Look ar THIS! I'M GOING AND —— THE MYSTIC D. C, ON A LONG JOURNEY ACROSS THE WATER wWITH A DARK MAN e @ 1935 5 Y TRIBUNE iNC gradually, it means that those home |is a heavy handicap to our whole eco- Home owners have " | larger part of their incomes for food, | been entirely too tolerant of poor ma- in this connection that the basic pur. | clothing, recreation and a thousand | terials, gingerbread architecture, ex- other expenditures than merely keep- | cessive costs and an sbsolute lack of ing & roof over their heads. For that orderly development of residential owners are in a position to spend a | reason, the work which the Federal | Home Loan Bank Board is doing to develop the broader use of the amor= | tized loan, and to make possible lower interest rates and more liberal lend- | ing terms, is in the interest of the entire public. | Aids Better Construction. | A further objective of the Home Loan Bank Board is to assist in im- proving the quality of home construc- | tion in this country, in order to give the people better value for the dollars they spend for their homes, and to assure a longer useful life for their dwellings. Our American standards in home building and community planning in the past have been far from creditable to us, and the high cost of shelter for the average family . o yrm— AIL P(ll,l H 5 25¢ for this large size bottie of the polish of Hollywood Moon Glow Nail Polish applies more smoothly, sets more lus- trously. Will not chip, peel, crack or i Clear and cream polish in six smart shades. For Sale By nomic stability. neighborhoods. These great wastes in housing and | home construction can easily be re- | duced by better co-operation for home private home- | owners from their FRIDAY, JUNE 7, 1935. policy is absolutely necessary in the home owners' interest. The main immediate purpose of the new Federal home loan measure is to bring to an end as rapidly as possible the emergency mortg: relief work of the Home Owners’ Loan Corp., through the additional suthorization of about $1,500,000,000 to take care of clearly eligible applicants who otherwise face foreclosure. In the longer view, however, Lhe great sig- nificance of this new Federal act is in the encouragement which it offers to the thousands of local private home loan institutions to proceed upon their own initiative in making loans to home owners who are not in distress, for the refinancing of their maturing short-term mortgages, or for building, buying or modernizing their dwell- ings. $300,000,000 Given by Act. In this connection let me point out that this act makes the sum of $300,~ 000,000 available to the Federal Home Loan Bank Board for direct financial assistance to such private institutions. That credit may be used to buy Home Loan Bank bonds or, as I have ex- plained, for investment in Federal savings and loan associations or in State-chartered associations which are members of the ome Loan Bank system or are insured by the Fed- Savings & Loan Insurance Corp. ankly, I cannot imagine more tan. gible evidence of the Government’s faith in the management of these private lending agencies, and in the soundness of their morigage loan op- erations for the protection of funds intrusted to their care. I may add that this same $300,000,000 authoriza- tion is the best proof of the Govern=- ment’s intention of restoring Ameri- can home finance to private capital and private business initiative, in the interest of home owners, investors and the public at large. This purpose gives added emphasis to what I have alrepdy suggested is the most important single feature of the new Federal home loan act. That feature is the incentive given to thou- sands of thrift associations of the building and loan type to protect the | savings of their millions of small in- | vestors through the Federal Savings & Loan Insurance Corp. The new act actually cuts in half the cost of such insurance of savings | and the simple fact is that with the cost of ins ce brought down to | 50 moderate & level the Pederal Gov- | financing institutions, through an ad- | ernment has now gone the full dis- | visory service to buyers of homes, and insistence by the upon sound materials, good workman- ship and the elimination of useless expense in building homes. Such a lending sgencies tance in making it possible for the private thrift associations to give the additional safeguards of insurance to their stockholders and depositors. The | people whose savings are involved Rinse Away HAIR A DULLNESS { LOVALON have every right to demand that their thrift institutions provide them with such protection. The institutions, in turn, have every reason to supply it because, in doing so, they are taking a long step toward the restoration of public confidence in their ability to serve the savings needs of the people. I should point out that this insurance of savings in thrift associa- tions has no connection with the in- surance of mortgages held by banks and other financial institutions under the Federal Housing Administration. All Shareholders Protected. No individual shareholder can have his own account insured in an asso- ciation which has not been insured by the Federal Savings & Loan In- surance Corp. In an insured asso- clation every shareholder is auto- matically protected. Now, in bringing to a close this out- line of the various steps which the Federal Home Loan Board has taken and intends to take for the benefit of home owners and the millions of people throughout this country whose savings are invested in home loans, I would like to point out the useful results that should be expected from these activities as time goes by it the people realize the importance of the opportunities presented and will _co-operate. All four of the agencies under the board's supervision are designed to| give home owners greater security in the possession of their dwellings. The Home Losn Banks and the Federal Savings and Loan Insurance Corp., particularly, should increase the vol- ume of private credit available for home mortgage loans. By the greater protection and greater liquidity given to such savings, these Federal agen- cies also help to make lending terms lower and more convenient for the home owner. Thus, they open up the privilege of home ownership at lower cost to many thousands of families. Again, by assisting the private home- financing institutions to develop higher standards of home construc- tion and neighborhood planning, these agencies of the Federal Home Loan B—-17 Bank Board should help the home owner to get better value for his hous- ing dollar. With any measure of success in reaching these various worth-while ob- Jectives, there will also be real prog- gess in reducing the actual cost of shelter, which now takes 30 cents or more out of every dollar that most American urban families earn in wages or small salaries. They should not have to pay over 20 cents of that dol« lar for rent or home ownership. By cutting the cost of homes, and the cost of financing them, it is obvious that home owners will benefit in many WA, apart from better living condi- tions in more attractive homes. If a | smaller part of their incomes is needed | for housing, they will have that much more money to spend for the multi- tude of other desirable things in life which are now beyond their reach. ‘There is nothing in the least Uto- | pian about this suggestion. It is not | an impractical dream. Great Britain | and many of the European nations, 1 |sm sorry to say, have been years ahead of us in making better homes possible for their people at lower cost. Those nations furnish conclusive evie dence of what may be done in develop- ing a more enduring, more wide- spread prosperity through intelligent home finance and stimulated by the co-operation which the Federal Gov- ernment is extending to private busi- ness for the benefit of the American | public. WORKERS QUIT RELIEF ST. 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