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borrow in a certain portion of the year and then you will have to pay out. It would not be seasonal exactly, but they would have to handle it in somewhat that way.

Senator MORRISON. Mr. Wood, it is a fact, is it not, that while the farmer can look for help through the farm land bank, can get the benefit of loans and discounts; and while the merchant and the manufacturer can hope to get the benefit of discounts through the regional banks, yet there is no provision looking to the home owner and the town man whose home does not come under the definition of farm.

Mr. Wood. That is true.

Senator MORRISON. He does not have the benefit of anything of that sort under the present banking and currency laws.

Mr. Wood. No. There is no place like that for him to go.

Senator MORRISON. As a commercial banker don't you think it would be wise to supplement the banking system and constitute such an agency as this proposed here?

Mr. Wood. Yes, sir; I do.
Senator WATSON. Any other remarks?

Senator COUZENS. I should like to ask the witness whether or not he does not distinguish between putting up money for capital investment and putting up money for commerce or production.

Mr. Wood. How do you mean?

Senator Couzens. I mean as to the Government doing it. The Federal reserve system of course was set up to expedite the flow of currency in commerce. The Federal land banks were set up to expedite production in the matter of maintaining farms and producing food supplies. Now comes along a proposal to set up an institution to take care of capital investments in homes.

Senator BULKLEY. The Federal land banks and the joint stock land banks are capital investment institutions.

Senator Couzens. Yes; but for the purpose of enabling the farmer to produce food supplies. That is not the case here. If this goes through as a permanent agency of course we will have another set or rediscount banks set up for there will be a demand for the purpose of supplying money for hotels, apartment houses, factories, and all that sort of thing, because they obviously are entitled to the same consideration, it seems to me, from the Government as any other activity. I am just pointing out that if the Government is going into the matter of furnishing capital for building operations in any one line of activity will not the same thing arise when it comes to needing money for other capital investments? That is the point I should like to add now. The witness is a commercial banker. He knows the distinction between a fixed asset and a liquid asset.

Here is a case where we are proposing to set up an agency to take care of fixed assets. The witness knows that he is engaged in doing business mostly with concerns that have liquid assets, and he tries to keep his bank going with credits to liquid organizations. But here is a case whereby there is to be a set-up for furnishing capital. It seems to me there is a clear line of distinction. I am just wondering whether the witness doesn't believe there is a distinction between the several groups that the Senator from North Carolina (Mr. Morrison) points out.

Mr. Wood. There is supposed to be a distinction, but as a matter of fact in practical application there has not been in the case of the Federal land banks. They have furnished too much capital in my opinion. And so have the joint-stock land banks.

Senator COUZENS. And won't this proposal invite the same thing? Mr. Wood. Not if it is properly managed.

Senator COUZENS. Oh, well. As a matter of fact I do not believe any of these other institutions now that have frozen assets would have been perhaps in the same difficulty if they had not gone into lending too much money on apartment houses and other fixed assets, and to foreign nations through international bankers, and secured assets that are not liquid.

Senator MORRISON. They are not in much worse fix than the commercial bankers of the country at the present time, are they, Mr. Wood?

Mr. Wood. No. In fact, taking everything into consideration, I think the Federal land bank system has done very well.

Senator Couzens. I thought you said they had overloaned.

Mr. Wood. I think they have, but everything considered they have done pretty well to come out as well as they have. I think they have loaned too much and probably should have been more strict in their lending policy.

Senator BULKLEY. Do you mean their appraisals are too high or that they have made loans they should not have made?

Mr. Wood. They have made loans they should not have made. I think in many cases they were loans used too much for buying other real estate. They were pyramided. And also for buying luxuries, and so forth. In other words, I think they were encouraged to borrow on such long terms that they felt they never had to pay it back, it was such an easy thing.

Senator BULKLEY. They went beyond the intent of the act, you mean?

Mr. Wood. I think they did. I know that the joint stock land banks did.

Senator Couzens. Are you lending now to industry and to merchants?

Mr. Wood. Yes, sir. We are taking care of our customers. Senator Couzens. But you are not taking on any new business? Mr. Wood. Not any outside business.

Senator COUZENS. Are you refusing money by way of loans to your regular customers for their normal business? Mr. Wood. No, sir; not where they are entitled to credit.

Senator COUZENS. I suppose you are more strict in analyzing their trial balances.

Mr. Wood. Oh, yes. The credit situation is so dangerous you have to be.

Senator COUZENS. Are you keeping unusually liquid during these times?

Mr. Wood. Yes, sir. Senator COUZENS. Is that fact contributing at all to a lack of adequate credit?

Mr. Wood. Oh, I think it is; yes, sir. But the banks are in this situation. They admit I think that the banks started a lot of the trouble by being run improperly, by extending too much credit. I think the banks in thousands and thousands of cases have been improperly managed, that in some cases they did not know what banking was. They did not realize that they were the biggest borrowers in the world, and with all their deposits on demand. Then they got fooled through a drop in values. As the failures started the depositors got scared and began to draw out their money; and the bankers got scared, and there were runs, and depositors began hoarding their money, and it just worked in a circle.

Senator Watson. In other words, the Federal land bank system is not the only banking system that has been badly managed?

Mr. Wood. No, sir. Tỉ think commercial banks, and all the banks in this country taken as a whole, have shown about as poor management as any class of business in America.

Senator BULKLEY. You testified a few momerts ago that you had not heard of any objection to this legislation in North Carolina. I should like to ask you if there is any substantial demand for it?

Mr. Wood. Yes, sir.
Senator BULKLEY. From what class of people?

Mr. Wood. Well, all classes practically, home owners, building and loan associations, banks, and all corporations that handle real-estate loans. I think they are all wanting some place where they can go and get relief.

Senator BULKLEY. You have personally heard of a great deal of that demand.

Mr. Wood. Yes, sir. Even building and loan associations have had withdrawals and they have gotten scared.

Senator COUZENS. But, Mr. Wood, did you ever know of a place to borrow money where there was not a demand for it?

Mr. Wood. Well, in some very prosperous times when money was plentiful, yes, there was money without demand.

Senator COUZENS. I have always known that the more places there were for people to borrow money the more would be loaned, and that shouldn't be loaned.

Mr. Wood. Yes, sir.

Senator Couzens. That was the trouble with the installment selling under our finance corporations, that it invited people to live beyond their means.

That is the result of the borrowing process; not even though it does go through a sales agency it is a borrowing process because the finance corporation sets up the money in the final analysis.

Mr. Wood. Yes, sir.

Senator MORRISON. Mr. Wood, don't you think that it would really help that class of credit that is not eligible for discount under the Federal reserve system if some additional arrangements were made to take care of credits like home mortgages and mortgages on farms? Don't you think it is really necessary to protect credits not provided for in the Federal reserve system, to make some modern and sensible arrangement for this other class of credit?

Mr. Wood. I think it would have that tendency, more especially in the smaller towns where the demand is largely based on real estate. I think those banks would be freed of a lot of that, and under proper regulation and instructions they would run their banks in a more liquid and stronger shape. They would not get it frozen up in real estate.

Senator MORRISON. It is difficult to run a bank in a small town and not have credits that are not eligible for rediscount in the Federal reserve system.

Mr. Wood. It is very difficult. In the case of many of them they have no eligible paper in their own community of any consequence.

Senator COUZENS. Would you approve of setting up rediscount banks to rediscount railroad mortgages, and factory mortgages, apartment-house mortgages, and street-railway mortgages, and electric-light mortgages, and gas-company mortgages, and all of that sort of thing?

Mr. Wood. No; I would not.
Senator COUZENS. They are all capital investments, aren't they?

Mr. Wood. Yes. But, Senator Couzens, I think our home-owning citizens are probably more important. In other words, I think the future of the country is based more on people owning their own homes and being able to take care of them, to work them out and pay for them, than any other class of business.

Senator COUZENS. I do not think there is anybody in the country who disagrees with that proposition. The point is that we have gone through the period of great development, and immigration has been stopped, and almost everybody says we are overbuilt, so I am quite satisfied that during normal times there is no lack of adequate funds for building homes. The trouble seems to be that the man who desires a home is unable to get his 50 per cent at any reasonable rate. He has to save for a long time, and then he comes along and gets half the price of his home and then borrows the other half. In that case there has been no great difficulty, has there?

Mr. Wood. The difficulty in many cases, especially in the smaller towns, has been that they have had to pay such abnormally high rates for the money.

Senator COUZENS. I understand that under this bill, by reason of what the former witness said, there would be no relief in that respect, because they charge the current rate of interest, and he said in California it is 8 per cent, and in some other States 6 per cent, and in some other States 7 per cent, and then the borrower has to pay the loading charge. Still I do not see where there would be any great saving for the home owner in the setting up of this organization.

Mr. Wood. In a State where they charge 8 per cent I would not think there would be any great amount of relief. But in a State where they are allowed to charge only 6 per cent as a maximum, I think there would be relief.

Senator MORRISON. Mr. Wood, if it be conceded that this building program has been taken care of under existing conditions, until this depression came on, I ask you if in your opinion that was not a strain on commercial banks of the country, and if they would not have been better off had they been free from it.

Mr. Wood. That is true, particularly in the smaller towns.
Senator WATSON. Is that all, Mr. Wood?
Mr. Wood. I think so.
Senator WATSON. We thank you.
(Mr. Wood left the committee table.)
Senator WATSON. Mr. White.

STATEMENT OF THEOPHILUS WHITE, PRESIDENT CONTINENTAL

MORTGAGE CO. AND CHAIRMAN OF BOARD OF DIRECTORS OF CALVERT MORTGAGE CO., BALTIMORE, MD.

Senator Watson. Mr. White, where do you live?
Mr. WHITE. Baltimore.
Senator WATSON. What is your business?

Mr. WHITE. President of the Continental Mortgage Co. and chairman of the board of directors of the Calvert Mortgage Co.

Senator WATSON. Two different mortgage companies in the same town?

Mr. WHITE. In the same town, under the same management.
Senator WATSON. What is the capitalization of these institutions?
Mr. WHITE. $340,000 for one and $350,000 for the other.
Senator Watson. Will you give your impressions of this bill?

Mr. WHITE. I might say first that the Calvert Mortgage Co. has been in business 35 years making loans in small communities on the monthly payment plan, throughout the South and the Middle West. Those mortgages running for a period of 10 years completely amortize themselves. The Continental Mortgage Co. does a similar business but its mortgages run for three-and-five year periods as a rule. The mortgages in the case of both companies are trusteed and bonds sold to the public against them. Neither company is in financial difficulties.

Senator WATSON. How was that?
Mr. WHITE. I say, neither company is in financial difficulty.
Senator WATSON. Have they been at any time?
Mr. WHITE. No.

Senator TOWNSEND. Are your bonds guaranteed by a bonding company?

Mr. WHITE. Yes; by a surety company. Our collections and payments have always been made so as to satisfy and meet our maturing bonds. In the year 1931 our collections dropped. Mortgages have matured and when we called on borrowers they were unable to pay or refinance their loans. In the case of the Continental Mortgage Co. we synchronized the mortgages with our bond issues, so as not to be caught with bonds maturing and funds not provided to meet them. Now, we have bond maturities coming due this year. We have 300 or 400 mortgages coming due which borrowers are unable to meet.

Senator WATSON. What are they on?
Mr. WHITE. Small homes.
Senator WATSON. Altogether?

Mr. WHITE. Yes. I do not think the loans will average more than $3,500 or $4,000 each. They did run about $4,500 but they have been reduced by amortized payments which have been made. The larger mortgages, as a rule, have been paid off, refinanced, or refunded.

Senator COUZENS. What interest do you charge?

Mr. White. Those on the 10-year monthly plan are charged 5 per cent straight through. Interest and principal are included in the monthly payments. In Texas, Oklahoma, Florida, Georgia, Alabama, where we receive the payments every month and credit payments, it gives slightly in excess of 8 per cent.

Senator CouZENS. You net better than 8 per cent?

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