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the Administrator under an agreement whereby he will reimburse any such insti. tution for losses incurred on such loan up to 15 per centum of the aggregate uf loans so made or purchased by it.

"(b) Loans insured hereunder shall be made on such other terms, conditions, and restrictions as the Administrator may prescribe within the limitations set forth in this title. The Administrator may fix the maximum rate of interest payable on any class of non-real-estate loans insured hereunder at a figure not in excess of a 3 per centum discount rate or an equivalent straight interest rate on nonamortized loans.

"(c) The Administrator shall pay the same amount on each loan insured hereunder as he would be required to pay under the sixth sentence of section 500 C hereof if the loan were guaranteed rather than insured.

"POWERS OF ADMINISTRATOR "SEC. 509. (a) With respect to matters arising by reason of this title as now or hereafter amended and, notwithstanding the provisions of any other law, the Administrator may

“(1) Sue and be sued in his official capacity in any court of competent jurisdiction, State or Federal;

“(2) Subject to specific limitations in this Act, consent to the modification with respect to rate of interest, time of payment of principal or interest or any portion thereof, security or other provisions of any note, contract, mortgage, or other instrument securing a loan which has been guaranteed or insured hereunder;

**(3) Pav, or compromise, any claim on, or arising because of, any such guaranty or insurance;

"(4) Pay, compromise, waive or release any right, title, claim, lien or demand, however acquired, including any equity or any right of redemption:

**(5) Purchase at any sale, public or private, upon such terms and for such prices as he determines to be reasonable, and take title to, property, res! personal or mixed; and similarly sell, at public or private sale, exchang, assign, convey, or otherwise dispose of any such property; and

“(6) Complete, administer, operate, obtain and pay for insurance on and maintain, renovate, repair, modernize, lease, or otherwise deal with any property acquired or held pursuant to this title: Provided, That the acquistion of any such property shall not deprive any State or political subdiviswn thereof of its civil or criminal jurisdiction of, on, or over such property talt cluding power to tax) or impair the rights under the State or local law of

any persons on such property. “(b) The powers by this section granted may be exercised by the Administrator without regard to any other provisions of law not enacted expressly in limitation hereof, which otherwise would govern the expenditure of public funds: Pror det, That section 3709 of the Revised Statutes shall apply to any contract for service or supplies on account of any property acquired pursuant to this section if the amount of such contract exceeds $1,000.

"(c) The financial transactions of the Administrator incident to, or arising out of, the guaranty of loans pursuant to this title, and the acquisition, management, and disposition of property, real, personal, or mixed, as incident toʻsuch activities and pursuant to this section, shall be final and conclusive upon all officers of the Government.

“EFFECTIVE DATE "Sec. 510. This title, as amended, shall be effective from the date of enactment: Provided, That any application for guaranty of a loan filed within ninety days after such date may be approved under the title as it existed prior to amendment: And provided further, That nothing herein shall be construed to affect any corrtractual right under any certificate of guaranty issued thereunder,

"H. R. 6635 As INTRODUCED That the Service men's Readjustment Act of 1944 is hereby further amended by inserting immediately after section 510 thereof, the following new sections:

"SECONDARY MARKET ""Sec. 511. (a) The Administrator is authorized under such terms and conditions as he may prescribe, consistent with this act, to purchase, at a price equal to the unpaid principal plus accrued interest, hereinafter referred to as 'par', any real-estate loan

guaranteed under section 501 or 502 of this title: Provided, That, (1) such loan is offered to the Administrator for purchase within five years of the date of its origin by the lender to whom the evidence of guaranty was originally issued, (2) the original amount of any loan hereafter made shall not exceed $10,000, (3) the loan shall not be in default at the time of purchase, and (4) the seller shall enter into an agreement with the Administrator that at the option of the Administrator the seller will service the loan in return for a service charge at such rate, not in excess of 1 per centum per annum of the unpaid balance, as may be provided in such agreement: Provided further, That the Administrator may sell any loan purchased under this section at a price not less than par, with the primary right of repurchase reserved to the original mortgagee.

(b) For the purpose of this section the Secretary of the Treasury is hereby authorized and directed to make available to the Administrator such sums as he may request from time to time between the effective date of this section and the erpiration of the period of time in which loans may be offered for purchase pursuant to the terms of this section. Such sums, together with all moneys received by the Administrator under this section, shall be deposited with the Treasurer of the United States in a special deposit account, to be disbursed through the Division of Disbursement of the Treasury Department.' On sums so advanced by the Secretary of the Treasury, less those amounis deposited in miscellaneous receipts under subsection (d) hereof, the Administrator shall pay semiannually to the Treasurer of the United States interest at the rate or rates determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the deposit.

"'(c) In order to make such sums available to the Administrator the Secretary of the Treasury is hereby authorized to use, as a public-debt transaction, the proceeds of the sale of any security hereaster issued under the Second Liberty Bond Act as now in force or as hereafter amended, and the purposes for which securities may be issued under the Second Liberty Bond Act as now in force or as hereafter amended are hereby extended to include such purposes.

"'(d) The Administrator shall from time to time cause to be deposited into the Treasury of the United States, to the credit of miscellaneous receipts, such of the funds in the special deposit account referred to in subsection (6) hereof, as in his judgment are not needed for the purposes hereof, and after the last day on which the Administrator may purchase loans under this section, he shall, with due allowance for outstanding commitments, cause to be so deposited all sums in said account, and all moneys received thereafter, representing the repayment or recovery of the principal of obligations purchased pursuant to this section. Interest collected by the Administrator in excess of the amount payable by the Administrator to the Treasurer pursuant to subsection (b) of this section, together with any miscellaneous receipts or credits the disposition of which is not otherwise provided for herein, shall constitute a reserve for payment of losses, if any, and expenses incurred in the liquida!ion of said loans. Without regard to any other provisions or limitations of law or otherwise except the provisions of this title the Administrator shall have authority in carrying out the functions hereby or hereunder vested in him to exercise any and all rights of the United States, including without limitation, the right to take or cause to be taken such action as in his judgment may be necessary or appropriate for or in connection with the custody, management, protection, realization, and liquidation of assets, to determine the necessary expenses and expenditures and the manner in which the same shall be incurred, allowed, paid, and accounted for and audited, to invest available funds in obligations of the United States, to make such rules, regulations, requirements, and orders as he may deem necessary and appropriate, and to employ, utilize, compensate, and delegate any of the functions hereunder to, such persons and such corporate or other agencies, including agencies of the United States, as he may designate.

"INCONTESTABILITY

" Sec. 512. Any evidence of guaranty or insurance issued by the Administrator shall be conclusive as to the eligibility of the loan for guaranty or insurance under the provisions of this title and as to the original amount of such guaranty or insurance, except that nothing in this section shall preclude the Administrator from establishing, as against a holder, defenses based on the fraud or material misrepresentation of such holder, and except that the Administrator shall not, by reason of anything contained in this section, be barred from establishing, under regulations in force at the date of such issuance or disbursement, whichever is the earlier, defenses to payment of any part of the guaranty or issuance.'

H. R. 6635 As REPORTED For the convenience of Members the changes made in existing law by the bill as reported by the committee are shown in italics:

""That the Servicemen's Readjustment Act of 1944 is hereby further amended by inserting immediately after section 510 thereof the following new sections:

SECONDARY MARKET

"Sec. 511. (a) The Administrator is authorized under such terms and conditions as he may prescribe, consistent with this Act, to purchase, at a price equol to the unpaid principal plus accrued interest, hereinafter referred to aspar", any real-estate loan guaranteed under section 501 or 502 of ihis tiile: Provided, That, (i) such loua is offered to the Administrator for purchase within five years of the date of its origin by the lender to whom the evidence of guaranty was originally issued, (2) the original amount of any loan hereafter made shall not exceed $10,000, (3) the loan shall not be in default at the time of purchase, and (4) the seller shall enter into an agreement rih the Administrator that at the option of the Administrator the seller will serrice the loan in return for a service charge at such rate, not in excess of 1 per centum per ann. 1 ? of the unpaid balance, as may be provided in such agreement: Prorided further, That the Administrator may sell any loan purchased under this section at a prime so less than par, with the primary right of repurchase reserved to the original mortgngee.

(6) For the purpose of this section the Secretary of the Treasury is hereby author. ized and directed to make available to the Administrator such sums as he may request from time to time between the effective date of this section and the expiration of the period of time in which loans may be offered for purchase pursuant to the terms of 1818 section. Such sums, together with all moneys received by the Administrator unter this section, shall be deposited with the Treasurer of the United States in a special deposit account, to be disbursed through the Division of Disbursement of the Treasury Department. On sums so advanced by the Secretary of the Treasury, less thore amounts deposited in miscellaneous receipts under subsection (d) hereof, the Administrator shall pay semiannually to the Treasurer of the United States interest at the rate or rates determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding marketable obligations of the l'nited States as of the last day of the month preceding the deposit.

(c) In order to make such sums available to the Administrator the Secretary of the Treasury is hereby authorized to use, as a public-debt transaction, the proceeds of the sale of any security hereafter issued under the Second Liberty Bond Ad 4: now in force or as hereafter amended, and the purposes for which securities may be issued under the Second Liberty Bond Act as now in force or as hereafter amended are hereby extended to include such purposes.

"'(d) The Administrator shall from time to time cause to be deposited into the Treasury of the United States, to the credit of miscellaneous receipts, such of the funds in the special deposit account referred to in subsection (6) hereof, as in his judgment are not needed for the purposes hereof, and after the last day on which the Admin.lttrator may purchase loans under this section, he shall, with due allowance for oststanding commitments, cause to be so deposited all sums in said account, and all moneys received thereafter, representing the repayment or recovery of the principal of obligations purchased pursuant to this section. Interest collected by the Administrator in excess of the amount payable by the Administrator to the Treasurer pursuant to subsection (b) of this section, together with any miscellaneous receipts or credits the disposition of which is not otherwise provided for herein, shall constitute a reserve for payment of losses, if any, and expenses incurred in the liquidation of said lors. Without regard to any other provisions or limitations of law or otherwise ercept the provisions of this title the Administrator shall have authority in carrying out the functions hereby or hereunder vested in him to exercise any and all rights of the linster States, including without limitation, the right to take or cause to be taken such action as in his judgment may be necessary or appropriate for or in connection with the custody, management, protection, realization, and liquidation of assets, lo determine the necessary expenses and expenditures and the manner in which the same shall be incurred, allowed, paid, and accounted for and audited, to invest available funds in obligations of the United States, to make such rules, regulations, requirements, and orders as he may deem necessary and appropriate, and to employ, utilize, compensate, and delegate any of the functions hereunder to, such persons and such corporate or other agencies, including agencies of the L'nited States, as he may designate.

INCONTESTABILITY ""Sec. 512. Any evidence of guaranty or insurance issued by the Administrator shall be conc'usive as to the eligibility of the loan for guaranty or insurance under the provisions of this title and as to the original amount of such guaranty or insurance, ercept that nothing in this section shall preclude the Administrator from establishing, as against a holder, defenses based on the fraud or material misrepresentation of such holder, and except that the Administrator shall not, by reason of anything contained in this section, be barred from establishing, under regulations in force at the date of such issuance or disbursement, whichever is the earlier, desenses to payment of any part of the guaranty or insurance.'

Senator MORSE. I also have before me a copy of a letter dated June 14, 1948, addressed to the Honorable Robert A. Taft, chairman, Committee on Labor and Public Welfare, United States Senate, and signed by 0. W. Clark, Executive Assistant Administrator of the Veterans’ Administration, setting forth a Veterans' Administration report on S. 2790, and for purposes of identification and for the record the chair will mark this letter as “Exhibit 2” in this hearing, and include it in the record at this point.

(The letter referred to is as follows:)

EXHIBIT 2

JUNE 14, 1948. Hon. Robert A. TAFT, Chairman, Committee on Labor and Public Welfare,

United States Senate, Washington 25, D. C. DEAR SENATOR Tart: Further reference is made to your letter of June 4, 1948, requesting a report on S. 2790, Eightieth Congress, "A bill to amend the Servicemen's Readjustment Act of 1914, as amended, and for other purposes.

The purpose of the bill is to amend title III of the Servicemen's Readjustment Act (the loan guaranty title) to authorize the Administrator to establish a secondary market for the purchase of title III paper.

The Administrator would be authorized to purchase any loan guaranteed under section 501 or 502 if it was offered to him for purchase within 5 years after the date of its original inception by the lender to whom the original evidence of guarantee was issued. The loan could not be in default at the time of the purchase and the Administrator would be authorized to enter into an agreement to have the seller service the loan at a service charge rate not in excess of 1 percent per annum of the unpaid balance. No loan could be purchased at a price less than par. Any loan made prior to the effective date of the act would be eligible for purchase but no loan in excess of $10,000 made after the effective date would be eligible. Funds would be provided through the medium of the Second Liberty Bond Act as a public debt transaction. The bill further provides an incontestability clause which would make conclusive the eligibility of any loan for guarantee or insurance, as to original amount of such guarantee, except as to defenses based on fraud or material misrepresentation of the holder or partial defenses based upon regulations in force on the date of disbursement of the loan or issuance of the guarantee.

The need for an adequate secondary market to support the title III loan program has become more and more apparent since the expiration, on June 30, 1947, of the Government market administered by the Reconstruction Finance Corporation. Lack of such market since that date is believed to have contributed to the decline in the number of home-loan applications received by the Veterans' Administration during recent months. A sharp decline set in in September 1947 and has continued to this date. Applications during April 1948 for title III home loan guarantees were 45.4 below the September 1947 number. It is believed that the decline of home-loan activity in this program at a time when new home completions have been approaching a near record peak is largely attributable to the lack of an adequate secondary market.

However, there are certain features of this bill to which the attention of the committee is particularly invited. For example, all loans guaranteed or insured under sections 501 and 502 since the inception of the program in 1944 would be eligible for sale to the market. Your committee may desire to consider whether the interests of veterans, and of the Government, would not be better served by a

secondary market which limited the eligibility of loans to those originated subsequent to the effective date of the bill. Otherwise, it is only reasonable to expect that many mortgagees would unload loans previously made and there is no assurance that funds obtained in this manner would again be employed for the making of loans to veterans under the title III program.

Further, there is no restriction upon the number of loans nor the dollar amount which any lender can offer to the proposed market. This might operate as an invitation to lenders to become merely disbursing agents for Government funds since there would be nothing to prevent the lender from making loans to the full extent of his available capital, selling such loans to the secondary market, and using the capital thus acquired to make more loans. This cycle could be continued indefinitely. The lender would profit from such an operation in that he would be entitled to receive a servicing charge on such loans at a rate not to exceed 1 percent of the unpaid balance as may be agreed upon with the Administrator. It is believed that the committee will wish to consider the desirability of a restriction as to the percentage of the dollar amount of loans which may be purchased by the market from any one lender. If the market was created on a restricted basis, lenders would be required to retain in their portfolios, or seek non-Government .channels for disposition of, a portion of the loans which they originate. This would tend to produce a sounder line of credit resulting from more prudent investment by lenders.

The committee may desire to inquire into the desirability of specifically empowering the Administrator to refuse to purchase loans which, in his judgment, are not made on the basis of an acceptable credit and security requirement in their origination. It is believed that such a feature would better safeguard the interests of the Government and the veteran.

The bill reserves to the original mortgagee the primary right to purchase loans which may be offered for resale by the market. It is believed that this provision may prove cumbersome of administration since, in each instance, the original mortgagee would have to be consulted before the market could dispose of any particular loan.

It is believed that the proposed incontestability clause should have the effect of encouraging lenders to participate or increase their participation in the title III loan program since it will give to them more positive assurance as to the extent of their risk in making loans.

It is not possible to furnish an estimate of cost in connection with this bill, since the factors which would make up such cost are largely dependent upon future events not presently capable of being predicted.

Due to the urgent request of the committee for a report on this measure, there has not been sufficient time in which to ascertain from the Bureau of the Budget the relationship of the proposed legislation to the program of the President. A supplemental report will be furnished later in that connection. Sincerely yours,

0. W. CLARK Executive Assistant Administrator

(For and in the absence of the Administrator). Senator MORSE. Mr. Dunton, at a later time in the hearing I shall ask you to comment on exhibit 2. You have nothing further to add at this time? Mr. DuNton. Not unless there are some questions.

Senator MORSE. You may be excused, then, subject to the call of the Chair.

Mr. DuNton. Thank you, gentlemen.

Senator MORSE. Have any of the Congressinen who wish to testify arrived vet?

Mr. WHEELER. Senator, you did not call my name. I was under the impression that I was to be given an opportunity to make a few remarks.

Senator Morse. Congressman Wheeler, we will be very glad to hear you at this time.

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