Mr. VANDYGRIFF. May I answer that we definitely would agree that there is need for actual experience to determine the best way that this can be handled, the application of it in every respect. Now, we are not confronted with the same problems in many of the States that Mr. Weiant has expressed here because of the three that we have pending at the present time from the State of Texas. The largest one has $21 million in assets, the smallest some $6 million, and one in between is $17 million. Mr. ROUSSELOT. This is conversion from State mutual to stock corporation? Mr. VANDYGRIFF. Yes, sir. Mr. ROUSSELOT. You only have three applications pending? Mr. VANDYGRIFF. That is correct, and this pending before the Federal Home Loan Bank Board at the present time. Mr. ROUSSELOT. This leads me to another question: The reason that you believe that we should not continue a moratorium is that we do need some actual experience and that the only way to do that is to go ahead and provide the best conditions and atmosphere under which to do that, and you think that the combination then of both the Federal Home Loan Bank Board and State supervisors together can prevent the kind of fears that have been raised by many of the witnesses here; is that correct? Mr. VANDYGRIFF. I definitely do, Congressman. I think that we have adequate safeguards existing today in both the Federal Government and in the State government and I know that our laws insofar as Texas are concerned are adequate to safeguard the associations, the people's money, and the individuals' rights. Mr. ROUSSELOT. Now, some of the savings and loans, and I am sure from each of your States, have indicated that they favor the idea of conversion, the right of free conversion, that the reason that an additional year or so is needed of a moratorium is that they think this is "just the nose under the tent," and that once it starts; that is, the process of conversion is allowed, that it will pyramid and the giants will absorb and cause to bring about the conversion of the small, little Federal savings and loans, and that they will be gobbled up all over the country. Do you find that to be a reasonable position? Mr. SwOPE. I can't concur with that. Mr. VANDYGRIFF. I cannot concur at all. Mr. ROUSSELOT. Why? Mr. VANDYGRIFF. For one concrete example. If you would permit me to deviate for just a moment. Statewide branching was a very recent issue in one of the States and at that time there was fear expressed, it was terrific, that the large institutions would come out in the small places and take over. That State has had some three applications for pretty well statewide branching. Mr. ROUSSELOT. Can you tell us which State? Mr. VANDYGRIFF. Texas. In those three the application was made, and it was a small association attempting to go into the metropolitan area. Not one single large one has made an application to go into a smaller area. That is one of the things. Mr. ROUSSELOT. In other words, businesses don't tend to apply for a branch or apply for a conversion unless they think there are sound business reasons for doing that and that they just don't go ahead and convert for fun, or fun and games, or for that kind of thing, they have to have sound business reasons for doing it because they want to remain in business. Mr. VANDYGRIFF. Definitely so, and I think that that condition exists all over the United States. Mr. ROUSSELOT. I think it would be helpful if we could, though, have a statement, if it is possible, from your State association of State supervisors to answer this question and have it in this testimony on the basis of the combined and collective experience of the State regu lators, why they believe that this fear may or may not be overdrawn. that is, that the big guys will gobble up the little guys, because they will pressure the savers to push the management to go for conversion and thereby make that, after the conversion is accomplished, make that "little association," very right for gobbling up in a merger of some kind. Do you understand what I mean? Mr. VANDYGRIFF. Yes, sir. Mr. ROUSSELOT. I think that needs to be answered by those who have the regulatory responsibility at the State level because that fear has been clearly promulgated in these hearings, and I think those of you who have regulatory responsibility at the State level could help us to answer that fear, if it is real, or if it is not real, or maybe it is a combination, I don't know. Could you do that? Mr. SwOPE. We will poll the membership. Mr. ROUSSELOT. Are you gentlemen familiar with the Citizen conversion in San Francisco? Mr. VANDYGRIFF. Yes, sir. Mr. SwOPE. I am not. Mr. ROUSSELOT. Have your State regulatory commissioners studied this other than the one in California obviously? Have they studied this conversion to enough degree to give us input as to things that should be guarded against in a conversion that they saw occurred in that conversion or was it basically a sound conversion? Mr. SwOPE. I would allude to the judge who was on the committee who must have had exposure to it. Mr. VANDYGRIFF. We have had considerable exposure from the State regulatory authorities and I think generally it is conceded that there may be some grounds that possibly need to be more firmly covered. I would say this, that we could give you a more detailed answer to that in connection with the other question with regard to the larger ones gobbling up the smaller ones. Mr. ROUSSELOT. Since the proponents of conversion hold this example up, this pilot conversion up, as one that was soundly done and carefully watched over by the Federal Home Loan Bank Board, I think it would be helpful to have the State association, the Association of State Regulatory Bodies comment on that conversion and whether it was in fact a sound conversion. Mr. VANDYRGIFF. I think you would recognize immediately that it was well-guarded in every respect because there was strong supervision by the Federal Government and the State regulatory body. Mr. ROUSSELOT. Well, I think an inclusion of your comment, your nationwide association, or a combination thereof of State associations would be helpful because I think it would and I think should be included in this testimony if you are willing to do so. Mr. SwOPE. Yes, sir. Mr. ROUSSELOT. Because the claim of some, that came before that somehow, that conversion was opening up obvious windfalls reduced the number of stockholders, and somehow was going to reduce America to a shambles in the field of housing, that because that conversion occurred and that there would be no more money or very limited amount of money for housing because of that conversion, and we are concerned in this subcommittee about the ability to produce housing and financing for housing, we have to be, and Chairman St Germain has properly raised that issue, and so I think we should speak to it. If that kind of conversion to stock ownership will reduce the amount of money avialable for housing somehow. Mr. VANDYGRIFF. May I speak to that issue a moment? All savings. and loan associations must maintain home mortgages under the Internal Revenue Code, if more than 18 percent of the income of an association is derived from other than home mortages. Their tax structure is drastically and adversely changed. Mr. ROUSSELOT. In other words, there is a present IRS regulation that prevents this is another government regulation in effect that prevents displacement or disbursement of normal funds for housing. to some other kind of activity? a Mr. VANDYGRIFF. Away from housing, yes, sir. There definitely is Mr. ROUSSELOT. Then a stock company would still be required to make sure that not more than 18 percent of its profit Mr. VANDYGRIFF. Income. Mr. ROUSSELOT. Income is derived from things other than housing; is that correct? Mr. VANDYGRIFF. Yes, sir. One- to four-unit housing, which is considered home loans. Mr. ST GERMAIN. Mr. Weiant, did you participate in the Citizens underwriting? Mr. WEIANT. Yes, sir, we did as a member of the syndicate, yes, sir. Mr. ST GERMAIN. As a part of the syndicate, do you known what your fees were from that particular underwriting? Mr. WEIANT. No; I would Mr. ST GERMAIN. Would you submit them for the record? Mr. WEIANT. Yes, sir. Mr. ST GERMAIN. That in part of the public record, is it not? Mr. WEIANT. The number of shares that we were underwriting is a matter of public record. Mr. ST GERMAIN. Your fee would be also a part of the public record, would it not? Mr. WEIANT. I believe so. We will submit it. Mr. ST GERMAIN. I don't want to ask for any privileged information. Does your firm underwrite subordinated debentures of S. & L.'s? Mr. WEIANT. We have been actively involved in the whole question of subordinated debentures for savings and loans and we currently have in process a memorandum for a private placement for a stock savings and loan association rather substantial. Mr. ST GERMAIN. Have these been successful, these placements? Mr. WEIANT. The memorandum has just been completed and I believe the initial contact with investors is now being made. Mr. ST GERMAIN. Would you state for the record later on, if you don't have the information now, how the fees for underwriting conversion offerings differ from your fees of underwriting subordinated debentures? Mr. WEIANT. All right. Mr. ST GERMAIN. How would your fees from the conversion of an S. & L. or subsequent stock offerings compare with your fees from a typical commercial corporate stock offering! Mr. WEIANT. We do not believe that there would be any difference than what it would be for public offerings of any other savings and loan. Mr. ST GERMAIN. If you have any reason to find it would be different, would you so state for the record? Mr. WEIANT. Yes, sir. Mr. ROUSSELOT. We do have a vote so I think that rather than take additional time of these gentlemen who were nice enough, thank you, for waiting for us while we went and had you sit here and cool your heels. Mr. ST GERMAIN. Certainly. Mr. ROUSSELOT. In writing. Mr. ST GERMAIN. Yes. Before closing the hearings, I will ask unanimous consent to place into the record a number of communications received commenting on H.R. 2419 which would include yours. Mr. ROUSSELOT. Fine. Mr. ST GERMAIN. Without objection, so ordered. Now, as I stated at the opening of the hearings on Tuesday, it was simply impossible to accommodate all of those interested in appearing before the subcommittee, which is certainly an indication of the concern the industry feels about the entire subject. I will ask unanimous consent of the subcommittee that I may place this closing statement in the record. Mr. ROUSSELOT. Fine. [Chairman St Germain's closing statement follows:] CLOSING STATEMENT ON H.R. 2419 Before closing the hearings, I ask unanimous consent to place into the record a number of communications received commenting on H.R. 2419 and the general subject of conversions. As I stated at the opening of the hearings last Tuesday, it was simply impossible to accommodate all those interested in appearing before the subcommittee which is certainly an indication of the concern the industry feels about the entire subject. The hearings have certainly been helpful to the subcommittee and we do express our appreciation to each of the witnesses. We will, within the next few days, be going to conference with the Senate on H.R. 6370. It is my understanding that the Senate will act on S. 1798 this afternoon. The Senate Banking and Currency Committee adopted a moratorium until December 31, 1974. Thus, we will be examining the moratorium issue within the next few days. We have heard a great deal concerning the "how" of conversions. Explanations of the intricate techniques of conversions have been set forth. Difficulties encountered with the proposed regulations have been noted and efforts to deal with these difficulties by the board have been explained. I remain troubled, however, by the fact that the "why" of conversions has, at least in my mind, not been adequately stated. The savings and loan industry, as we know it today, was born during the height of the depression. The original Home Owners' Loan Act of 1933 which created the Home Owners' Loan Corporation was responsible for refinancing one out of five owner occupied homes. The Federal Home Loan Bank Act of 1932 established the Federal Home Loan Bank Board with the following purposes: 1. For the present emergency purpose of relieving the financial strains upon sound building and loan associations, savings banks, deposit banks, and farm loan banks that have been giving credit through the medium of small mortgage loans upon urban and farm properties used for homes, thereby to relieve pressures upon home and farm owners. 2. To put the various types of institutions loaning on mortgages in a position to assist in the revival of home construction in many parts of the country and with its resultant increase in employment. 3. To safeguard against the repetition of such experiences in the future. 4. For the long-view purpose of strengthening such institutions in the promotion of home ownership particularly through the financial strength thus made available to building and loan associations. The industry continued through World War II in a fairly conservative fashion and it was not until the growth of VA and FHA, have mortgages with their liberal loan to value standards that the savings and loan industry began to loosen its requirements to its present 95% loan to value ratio. Today, we surely are not experiencing the panic of the depression that created the industry. What can stock companies do that present day mutuals cannot? Will conversions insure more mortgage money available for 1 to 4 owner occupied housing or rather will there be a tendency for stock companies to seek higher risk investment, commercial development, high rise apartments, etc., in order to provide a greater return to the stock holders. Thus, a clear possibility exists that less money will be available for the family purchaser. Finally, which form, mutual or stock, is best able to provide funds for central or inner city housing? At a time when the Administration has frozen housing programs in an effort to define the Federal “role” in housing, at a time when the industry seeks increasingly an independent FHA, at a time when FNMA seeks to increase from 35.000 to 45,000 its loan ceiling, should we not ask ourselves who is left to meet the most pressing housing needs of our Nation? Thus, as we close these hearings, it is my hope that this subcommittee during any newly agreed upon moratorium period, will seek answers to these and other truly public policy questions so that the needs of the public at large can be weighed rather than concentrating exclusively on the desires of the industry managers. Mr. ST GERMAIN. Prior to that statement being placed in the record, I, too, want to join Mr. Rousselot in thanking you gentlemen for your patience in standing by while we heard from the Federal Home Loan Bank Board. Mr. HANNAH. May I present this for the record? Mr. ST GERMAIN. Would you identify yourself for the record? Mr. HANNAH. Mack H. Hannah, Jr., chairman of the Board of Standard Savings Association, Houston, Tex. Mr. ST GERMAIN. Without objection, so ordered. [Mr. Hannah's statement follows:] STATEMENT OF MACK H. HANNAH, JR., CHAIRMAN OF THE BOARD, Honorable Chairman Fernand J. St Germain, Members of Congress, ladies and gentlemen, good morning. I have come all the way from Houston, Texas to offer my testimony, I want to thank you for giving me the opportunity to speak before you. My hope, Standard Savings only hope, I might add. is that after hearing our story, 15 years of struggle, the moratorium legislation you are now considering will be changed. And I mean changed only insofar as it affects Standard Savings, we are seeking a specific exemption, exclusion, if you will, for Standard 95-930-73-13 |