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. I 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 moments 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?

Mr. WHITE. A fraction better than 8 per cent on monthly payment mortgages.

Senator COUZENS. Does that include all of your loading expense? Mr. WHITE. Yes, sir; the gross.

Senator WATSON. What percentage of those loans are in default? Mr. WHITE. At the present time about 50 per cent. Most of these defaults occurred in 1930 and 1931. We are now faced with two things: Defaulting on our bonds and foreclosing 300 or 400 mortgages due to being unable to sell bonds in this market or obtain loans on our collateral.

Senator COUZENS. And if you foreclose that what would you do? Mr. WHITE. We would have to buy the property in.

Senator CoUZENS. Then what?

Mr. WHITE. Then we would own the real estate.
Senator CoUZENS. Then what?

Mr. WHITE. We will be forced to carry the property as frozen assets until able to dispose of it. We can not satisfy the trustees and pay bond maturities with foreclosed real estate and the surety company, when we get to the point of default in bond payments, will take us over or it will mean receivership. So we are faced with the home owner losing his house and the mortgage company not being able to pay its maturities promptly, although our collateral is perfectly sound, but not liquid, and it simply can not extend matured mortgages because it can not refund its bonds at this time. A year ago, in 1931, we had half a million dollars worth of bonds come due and we had no trouble refinancing. But we felt out the market recently and not a banker would consider the matter.

Senator BULKLEY. A year ago, was that public financing?
Mr. WHITE. Yes, sir; public financing on March 1, 1931.

Senator WATSON. How much have homes sunk in actual value since you made the loans?

Mr. WHITE. The intrinsic value has only shrunk to the extent of the reduced cost of reproduction, but as to market, there is none of any consequence.

Senator WATSON. There is no market value at all?

Mr. WHITE. No. We foreclosed about 100 properties during 1931, and with one exception we have had to buy them in. There has been no competitive bidding.

Senator TOWNSEND. Have you made claim on the bonding company for your loss?

Mr. WHITE. No, sir. We are in the position of a mortgage company. We can not make any claim on the bonding company. The bondholders can make claim on the bonding company if the bonds are not paid when due, but we can not. When the bondholders have to make claim on the bonding company, it is because the mortgage company can not pay and it would then naturally go out of the picture.

Senator COUZENS. How long have you been in business?

Mr. WHITE. I was associated with the Continental Trust Co. in charge of its real estate and real estate investments from 1918 to 1930 and have been president of the Continental Mortgage Co. since its. organization in 1924. The Calvert Mortgage Co. has been in business for about 35 years.

Senator COUZENS. Have you ever had any experience like this before?

Mr. WHITE. Never; nor has the Calvert Mortgage Co. had any experience like the present in all of the 35 years before. I have been in the mortgage business myself but 12 years.

Senator COUZENS. But the Calvert Mortgage Co. has been in business for 35 years?

Mr. WHITE. Yes, sir.

Senator COUZENS. And never has had an experience like this? Mr. WHITE. No. The thing that is of interest to us in this bill, and we are not unlike most mortgage companies, is a temporary place to pypothecate our perfectly good collateral until conditions are such that we can refund our bonds and obviate the necessity for so many foreclosures.

Senator COUZENS. When this is over you would have no use for the rediscount home banks?

Mr. WHITE. No. The rediscount bill as drawn at the present time would not be of much service to us because of the restricted amount which we would be able to borrow. For instance, if we desired to borrow half a million dollars we would freeze practically twice that much of our assets.

Senator COUZENS. In view of what other witnesses have said, and what you are now saying, would you say that it is a good investment for private capital to organize these rediscount banks under the guidance and authorship of the Federal Government?

Mr. WHITE. No, sir.

Senator COUZENS. You would not think it a good investment?

Mr. WHITE. No, sir. I do not believe as a permanent thing it is economically sound. As a temporary thing I think it is a necessity, because there are thousands of home owners, bondholders, and individuals that are directly affected by it but who will be relieved as soon as this depressed condition has eased somewhat.

Senator BULKLEY. What relief can they get from these proposed home loan banks that they can not get from the Reconstruction Finance Corporation?

Mr. WHITE. I do not know that there is any. My only fear about the Reconstruction Finance Corporation is that the small fry would not be able to get into it. There will be so many big ones that they won't listen to us. That is my fear about the Reconstruction Finance

Corporation.

Senator COUZENS. Perhaps it would be well to amend the bill to set up 12 agencies throughout the country to look after the small fry. Mr. WHITE. If you will set up some kind of agency to take care of loans on sound mortgage collateral, it should meet this urgent necessity. The home owners that this bill is designed to help, as I understand it, are largely borrowers through mortgage companies, building and loan associations, and country banks. I do not think the bill is especially necessary for people in the large cities. I represent one of the large life insurance companies in our territory, and we have perhaps 1,000 mortgages on our books. They are in a large city, and there is not the same need for this as in the smaller centers. It is the man in the smaller community (small towns), who is being sold out and is losing his life savings invested in a home, and the mortgage company is unable to render him any further assistance due ot its being unable to refund its maturing bonds. While he is suffering he is making the mortgage companies suffer at the same time.