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mortgage is based on the value of the property, and the size of the mortgage does not indicate its value as collateral. It is the real estate itself that indicates the value of the mortgage as collateral. We would like to see those sections liberalized. We would like to see paragraphs 1 and 2 of that section liberalized to read 80 per cent and 70 per cent, instead of 60 per cent and 50 per cent, respectively.

Senator COUZENS. What have you to say as to subsection 3, with respect to when the unpaid principal of such home mortgage loan exceeds $15,000?

Mr. LOFGREN. Let me look at that.

Senator COUZENS. The reason I ask that question is this: I understand the purport of the bill is not to loan money on a house that cost more than $30,000. It is my judgment that if the authors of the bill carry out their purpose the word “unpaid” should come out. How would that affect your case?

Mr. LOFGREN. In our case it would be unobjectionable. As I stated at the beginning, our mortgages are much smaller than that, and $15,000 would be ample. Our average mortgage is only $6,000 or $7,000. Therefore $15,000 would be plenty from our standpoint.

Mr. O'BRIEN. Would you suggest changing 60 per cent to 80 per cent in line 6, and the 50 per cent to 70 per cent in line 10, but involving no other change in the bill there?

Mr. LOFGREN. We would like to see the 40 per cent go up to 50 per cent. It is not absolutely essential for our purposes, but we would like it to be a little more liberal than that; 50 per cent of the appraised value would be quite satisfactory. We could even operate under 40 per cent so far as that goes.

Senator Watson. Have you anything else to suggest?
Mr. LOFGREN. On page 16, line 21, it provides that,

At no time shall the aggregate outstanding advances made by any Federal home loan bank to any member exceed twelve times the amounts paid in by such member for capital stock subscribed for by it.

That is a rather drastic provision from the mortgage company's standpoint, because it is its own capital which is largely frozen, and when the mortgages that are being met were made we restricted it, to I think 15 times the amount of our paid-in capital. Necessarily that capital is still intact except, as I say, frozen. But if we were required to put up 12 times with this bank it would mean a very substantial contribution of capital in addition to the capital we have in our own institution. I appreciate the necessity for a contribution of capital, but I should think it ought to be more liberalized than that, maybe 25 times instead of 12 times, with a view to giving greater latitude to the company that is struggling with its frozen condition, as our company is.

Senator COUZENS. Do you know why the term “12 times” was fixed ?

Mr. LOFGREN. Well, that is the 'usual provision, I believe. I do not know why it was fixed in this bill, but that is the usual provision of a mortgage company that puts in capital. They issue bonds to the extent of 10, 12, or 15 times the capital, and it is the very customary thing. I assume the person who wrote it had that in mind. It is really a sort of rediscount corporation already going, and to require 12 times is a difficult provision. I should like to see that about doubled, and then I think it would be much more workable.

Senator BULKLEY. Haven't they decided that 12 times provided for Federal land banks is too much?

Mr. LOFGREN. Yes, sir; 20 times is pretty high.
Senator BULKLEY. But you are advocating 25 times.

Mr. LOFGREN. Yes; but in the case of a company that is a member already and has its own capital, which has been restricted to fifteen times. We are already restricted, and we are not making any new mortgages, and our restrictions in our own company comply with that. To put that restriction here would mean almost a transfer of our capital to this company.

Senator COUZENS. If that were carried out it would necessitate having the condition applied to the company that was rediscounting.

Mr. LOFGREN. A much more liberal condition applying to the company rediscounting? Do you mean to the bank?

Senator COUZENS. As the case might be. Mr. LOFGREN. Yes. Senator WATSON. Go ahead with your suggestions. Mr. LOFGREN. In section 9, page 18, paragraph (c), in line 19, the bill provides that,

Any issue of bonds or debentures shall, as nearly as possible, be at all times not less than an amount equal to 190 per cent of the total outstanding amount of such issue.

Meaning 190 per cent of the mortgage and other collateral. If we liberalize in the case of the other sections we have talked about, that provision would have to be reduced somewhat. I would figure it should come down to 135 per cent, due to the necessity of changing that provision to fit the other situation. Does this apply to appraisals?

Mr. O'BRIEN. Depending on the way it is calculated.

Mr. LOFGREN. I thought that applied to the amount loaned on the mortgage. I have made a little calculation of my own to see what would be required provided we wanted $1,000,000 from this bank. In order to borrow $1,000,000 we must put up 1 per cent of the amount of the mortgages, and that would be $10,000, as I recall the provision of this act. In addition to that we would have to have one-twelfth of a million dollars as capital subscribed for the bank. That is $83,333.33. And figuring the provision regarding the 50 per cent and 60 per cent, depending upon the class of mortage you have, we would have to put in mortgage collateral, figuring that at 55 per cent as the average of the two, amounting to $1,818,000, which would make a total of $1,911,000 that we would have to freeze of our assets in order to acquire $1,000,000 from this bank. In other words, it would freeze $911,000 for the $1,000,000 we received, which would be rather hard for us to function under this bill.

Senator Watson. And to change it to meet your idea it would be what?

Mr. LOFGREN. If you changed it to meet my idea the amount would be $1,373,000. In other words, it would freeze $373,000 over and above the $1,000,000 we would receive out of the proposition. That is, it would be 37 per cent of the pledge over and above the amount of the loan. I may be too liberal. On the other hand, I think the bill itself is too drastic and that there may be some happy medium between these two figures that we could agree upon which would be satisfactory.

Senator Watson. And yet make for safety and stability?
Mr. LOFGREN. Yes, sir.
Senator Watson. What else have you to suggest?

Mr. LOFGREN. There is one other thing I want to say: Our company, as I have pointed out, made mortgages in small communities, well up to 150,000 or 200,000 population. We made a few even in Chicago, too, but as a matter of fact the majority were made in the smaller-size communities. They are all on urban property, however, and are, I believe, quite safe. But the small communities have been hit much harder as to the home owner than the larger communities. In the larger centers there is a more adequate supply of cash. smaller centers, particularly in the southern part of the country, cash has got to be almost unknown, and that is why I think this bill should be liberalized a great deal, to take care of the smaller centers and its people. The larger centers do not need this bill near as much as do the smaller centers. No provision is made for banks in the smaller centers; none is available. A great many banks in the smaller centers are so badly frozen that they can not make loans. That is where the difficulty is most severe at the present time. That is where our company operated. That is why it would interest us so greatly, if you liberalized this bill somewhat so as to enable us to function in the smaller centers, so as to stop the foreclosure proposition and give extensions where the borrower indicates good faith.

Senator Watson. You mean to liberalize the bill along the lines you suggest?

Mr. LOFGREN. Yes. I think that covers the points pretty well.

Senator WATSON. Very well. Are there any questions by any of the members of the subcommittee? If not, we thank you very much.

(Mr. Lofgren left the table.)
Senator Watson. We will now hear Mr. Wood.

STATEMENT OF W. H. WOOD, PRESIDENT OF THE AMERICAN

TRUST CO., CHARLOTTE, N. C. Senator WATSON. What is your name? Mr. Wood. W. H. Wood. Senator WATSON. Where do you live? Mr. Wood. Charlotte, N. C. Senator WATSON. What is your business? Mr. Wood. I am a commercial banker. Senator Watson. How long have you been a commercial banker?

Mr. WOOD. Well, I have been the head of the bank for about 30 years, but have been engaged in banking in one or another position for about 38 years.

Senator WATSON. Are you interested in the passage of this bill? If so, why?

Mr. Wood. I am interested in the passage of this bill.
Senator WATSON. Tell us why.

Mr. Wood. Because I think in the present situation that we are in, this depression emergency, it would do a vast amount of good toward stabilizing home values and values of real estate generally, which is very much needed.

Senator WATSON. Do you lend on homes in your bank?
Mr. Wood. Very little, practically none.

Senator TOWNSEND. Why not?

Mr. Wood. Because it is strictly a commercial bank. We have not loaned much money on real estate. We have loans that are predicated on real estate to some extent on account of customers who borrow from us and keep accounts with us.

Senator TOWNSEND. Is there a building and loan association in your town?

Mr. Wood. Yes, we have four, I think.

Senator Watson. Do you deal in their securities in your bank in any way?

Mr. Wood. We loan on that stock only.
Senator WATSON. You loan on their stock?
Mr. WOOD. Yes, sir.
Senator WATSON. Now, is there much of that?
Mr. Wood. Not a great deal.

Senator WATSON. Is there much distress by reason of the situation as to home mortgages?

Mr. Wood. Yes, sir; a great deal.

Senator Watson. Have you any idea what percentage of them are in default?

Mr. Wood. I could not give you the percentage, but there are a great many homes in Charlotte, and all over the country, that have been foreclosed by reason of mortgages, and they have been forced to take them on account of nonpayment of taxes and interest. And those homes are all seeking purchasers on the cost price, the foreclosure price, and they are willing to sell them on most liberal terms.

Senator Watson. How big a town is Charlotte?
Mr. WOOD. About 85,000 population.

Senator WATSON. How many loans of that character are in existence in your town?

Mr. Wood. Well, I could not say how many, but there are thousands of them.

Senator Watson. What percentage of them have been foreclosed?

Mr. Wood. Well, I could not say the percentage, but a great many.

Senator Watson. It would be a pretty high percentage, don't you think?

Mr. Wood. Well, in Charlotte I do not think the percentage would be as high as in a great many other places, because our building and loan associations are very successful and very conservatively managed, which has held up the situation, and our town is rather a distributing place, where the population is made up largely, or at least to quite an unusual extent for our section of the country, of salaried people, and not so largely made up of wage earners as is the case in many other towns. It is not so dependent upon farming and agriculture as are the smaller towns. So the percentage there would not be as large as in other places, especially in the smaller towns.

Senator COUZENS. Have you studied this bill?

Mr. Wood. I have read it only in the last few days. I had not had an opportunity to study it at all until I received a wire from Senator Watson a few days ago, and I got the bill day before yesterday.

Senator COUZENS. Have you any criticism of the bill, or any suggestions to make?

Mr. Wood. I was interested in one or two provisions. I should like to inquire how you arrive at the basis for the banks to take stock. I notice that they must take at least $2,500, and then it is based upon 1 per cent of their loans. Is that a better plan than something similar to the Federal reserve requirements, a certain percentage of capital stock, and to be increased as the capital stock may be increased from time to time? I wondered if that had been worked out finally, that provision.

Senator Watson. How about that, Mr. O'Brien?

Mr. O'BRIEN. Senator Watson's original bill provided that the capital stock subscription should be $2,500 plus 1% per cent of its home mortgages as may be determined by the board. The House subcommittee in deliberating on it decided to change that to 1 per cent.

Mr. Wood. That is the bill that I read.

Mr. O'BRIEN. That was arrived at long before I came into the discussion.

Senator Watson. It was arrived at by those who in reality prepared this bill. The Federal reserve people were brought into the picture, and the Department of Commerce, and various other individuals who had taken large part in the formulation of the farm-loan bank provisions and all these other provisions, in an effort to harmonize all on one basis as much as possible. I did not arbitrarily fix that figure; it was fixed by whoever drew the bill, the author of which I do not know, except that it was a composite bill as you may imagine.

Senator BULKLEY. Did you think the other method would be better?

Mr. Wood. I am not sufficiently informed to say whether I think it would be better or not. The Federal reserve is based, I believe, upon 3 per cent of the capital and surplus, with the right to call for 3 per cent additional if they want it. But they have never done it. Our bank has $1,200,000 capital, and we own $60,000 capital in the Federal reserve. And they have the right to call for $60,000 more, but it does not look like they will.

Senator Watson. Go ahead with your statement.

Mr. Wood. Suppose the subscriber's home mortgages are increased, is that 1 per cent to apply to the increase in mortgages as they increase?

Senator TOWNSEND. That is my understanding.

Mr. Wood. Well, it might work out all right as a practical proposition. My experience is not sufficient in this line of business for me to be a judge of whether that is the best plan or not.

Senator MORRISON. Mr. Wood, isn't it a fact that commercial banks in the smaller towns in North Carolina are almost compelled to make loans on homes?

Mr. Wood. That is true in the smaller towns.

Senator MORRISON. Wouldn't this bill tend to make it safer for them to take those mortgages than the situation is now?

Mr. Wood. Yes.

Senator MORRISON. Is there not a great deal of trouble about renewal of those mortgages in the smaller towns in North Carolina as they come due, whereas under normal conditions they would be carried along by the banks?

Mr. Wood. Yes. If they had a bank of rediscount like this it would be a great help in stabilizing the present situation, which is a

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