The Federal Home Loan Bank Act How lt Will Op"rate

President Hoover Appoints Supervise Home

The board of five, who will supervise the new Federal home loan bank system, was ,created by President Hoover on August 6 with Franklin W. Fort, of New Jersey, as its chairman. The other members of the board appointed by the President include; William E. Best, Pittsburgh, Pa,, Dr. John M. Gries, Rosewood, Ohio; Nathan Allen, Dallas, Te*as, and H. Morton Bodfish, Chicago, Ill.

A summary of the various provisions of the Federal Home Loan Bank Act, that was signed by President lfoover on July 22, showing how it is intended to function follows:

Organization

A. Appointment of Board-The authority in the Home Loan Bank System is centered in a Federal Home Loan Bank Board consisting ,of five members appointed by the President of the United States. Their importance is comparable with the Federal Reserve Board in the Federal Reserve System. (Section 17.)

(r) The first duty of this board will be to establish not less than eight (8) nor more than twelve (12) Federal Home Loan Bank Districts. (Section 3.)

(b) Each Federal Home Loan Bank will be managed by a board ,consisting of eleven (11) directors. For the first year these directors will be appointed by the Federal Home Loan Bank Board. (Section 7.)

(c) Thereafter the Federal Home Loan Boarcl will appoint two of the directors of each bank with the remainder being elected by member institutions. (Section 7.)

(d) The Board has broad powers of examination and supervision over the Federal Home Loan Banks and the member institutions. (Section 4-a.) (Section 4-c.) (Section 8.)

(.) In order to equalize the supply of funds the Bohrd, under certain conditions, has p,ower to compel the Federal Home Loan Banks to shift funds from one bank to another. (Section 11-h.)

B. The Federal Home Loan Banks.

(r) There will be a Federal Home Loan Bank in each district. (Section 3.)

(b) The Federal Home Loan Bank Board will determine the capital for each Federal lfome Loan Bank with a minimum of $5,000,000 for each bank. (Section 6-a.)

(c) After the country has been districted and other details taken ,care of books will be open for subscription for

Members of Board Who \flill Loan Bank System

stock by the institutions which are eligible under the Act. (Section 6-a.)

(d) Thirty days after the book have been opened if the appli.cations for membership do not equal the ,capital as specified by the Board the United States Government will subscribe for the remaining stock but not more than $125,000,000. (Section 6-f.)

Membership in the Federal llome Loan Bank System l. Unpaid principal means the original amount of the loan minus payments on the mortgage or payments, dividends and earnings on stock pledged by the home owner. (Section 2-sub-se,ction 7.) a. A first mortgage on a dwelling of not more than three families. l. 25% upon application for membership, 25% each four .months' period until the total is paid. (Section 6-d.)

A. Who is eligible for membership. (Section 4-a.)

(r) Building and loan associations, savings and loan associations, co-operative banks and homestead associations. (Section 4-a.)

(b) Savings banks and insurance companies (all other banks are excluded). (Section 4-a.)

(.) The above institutions are eligible if they are brganized under the laws of any state or of the United States and are subject to supervision. However, no institution is eligible if in the judgment of the Board its financial condition does not justify an advan,ce, or if it does not make long term mortgage loans, or in the case of a savings bank, il the deposits are not su,ch as to justify its making su,ch loans.

(d) Any building and loan association otherwise eligible which is not State Supervised may become a member if it subjects itself to such inspection and regulation as may be prescribed by the Board. (Section 4-c.)

(") No institution may become a member if the net cost of its loans to the home owner exceeds the maximum legal interest rate in the State or the 'contract rate. If neither a legal rate nor a contract rate is provided by the State law, no more than 8/ocan be 'charged. (Section 5.)

B. How to become a member.

(") Subs,cribe to capital stock of the Federal ilome Loan Bank in your district. (Section 6-c.)

(b) The amount of this subscription must be at least 1/o of. the unpaid principal of the subscribers' home mortgage loans but not less than $1,50O. (Section 6-c.)

2. A home mortgage is-(Section 2-sub-section 6.)

(c) How is subscription paid? (Section 6-d.)

(d) Associations are eligible to borrow twelve (I2) times the amount paid on their stock subscriptions. (Section 10-c.)

(e) Example: If your association has assets of $1,250,000, of which $1,000,000'consists of home mortgages with an unpaid principal as above des'cribed, its stock subscription would be $1O000. $2,500 will be paid immediately, giving you a borrowing power of $30,000. At the end of the year, when the full subscription of $10,000 has been paid, your borrowing polver would be $120,000.

C. Who are non-member borrowers ?

Associations whose State laws do not permit them to purchase stock in the Federal Home Loan Bank Systern may become non-member borrowers by depositing such security in addition to home mortgages as may be required by the Board at least equal in amount to the above des,cribed stock subscriptions. The borrowing powers of nonmember borrowers are the same as those for members. (Section 6-e.)

1. When any State enacts legislation permitting associations to buy stock in the Home Loan Bank System nonmember borrowers in that State must either subscribe to stock or be deprived of the right to borrow. If at the next regular session the State Legislature does not pass legislation permitting the associations to buy stock in the system the bank shall proceed to liquidate the indebtedness of the non-member borrowing associations of that State. (Section 6-e.)

2. No loans to non-member borrowing associationscan be made for a period of more than one year but may be renewed for yearly periods or less. (Section 6-e.)

3. No loans may be made to a non-member borrower for a longer period than until the end of the next regular session of the legislature. (Section 6-e.)

D. I{ow may a member withdraw from the Federal Home Loan Bank System? (Section 6-i.)

(a) By giving six months' written notice to the Board.

(b) Indebtedness of such member shall be liquidated.

(.) Capital stock in the Federal Home Loan Bank shall be cancelled.

(d) Provision is made for the equitable return of the member's investment in stock of the Federal Home Loan Bank.

E. Provision is made for the payment of dividends on stock from the earnings of the banks after establishing adequate reserves. (Section 16.)

F. Member and non-member borrowers may deposit funds rvith the Home Loan Banks. These deposils are not subject to check and no rate of interest in excess of.2/o can be paid on them. (Section 11-g.)

G. The Federal Reserve Banks may in turn act as depositories for the Federal Home Loan Banks. (Section 1s.)

H. Under Banks can act 14.)