Senator WATSON. Are those mortgages held on homes on the outer edge of the city?

Mr. WHITE. They are held on homes in towns of various sizes and, as a rule, not on the outer edge of these smaller towns.

Senator WATSON. But you have them in Baltimore, also, have you not?

Mr. WHITE. We have some in Baltimore, but those in Baltimore we do not put under our bond issues. We sell them directly to insurance companies or private investors but, as a rule, insurance companies and private investors will not buy mortgages in small towns. It is in the smaller towns and cities that mortgagors and mortgage companies are running into trouble because, under present conditions, these borrowers have no facilities for refinancing and paying their matured loans so that the mortgage company may pay its bonds when due.

Senator BULKLEY. I should like to make sure that the Reconstruction Finance Corporation can not handle these just as well. You do not base it on any personal information as to who is going to run it because you do not know and we do not know, but you do not think it important for them to organize any big staff in order to take care of everybody, do you?

Mr. WHITE. I think it is possible to take care of all with the Reconstruction Finance Corporation, but there may be so many big institutions, railroads, and so forth, to be considered that the smaller interests might not get serious consideration in the Reconstruction Finance Corporation. That is my only objection to it. I think this bill would be helpful to us if liberalized so that it can be of practical use.

Senator BULKLEY. It seems to me it would be possible to give more help there than under this proposed system. It certainly would be a much shorter act to get the money.

Senator WATSON. Unless they run out of funds.

Mr. WHITE. Unless they run out of funds before we get to it. Senator BULKELY. Do you mean if they run out of two billions of dollars before you get to it?

Mr. WHITE. Yes, sir.

Senator BULKELY. Maybe we better increase that amount.
Senator WATSON. Oh, no; do not let us think of doing that.

Mr. WHITE. I think a separate organization, liberalized to meet the actual needs, unless it is too elaborate, will give us surer relief. Senator BULKELY. You do not think it would be of value as a permanent organization?

Mr. WHITE. I do not think it is necessary to have the Government permanently in the real estate financing business.

Senator ČOUZENS. In all your experience do you recall when there was any difficulty in getting money in selling your bonds?

Mr. WHITE. This is the only time we have ever had any difficulty in selling our bonds. Our sales of mortgages to private investors and insurance companies also have been materially reduced.

Senator COUZENS. Up to this time there was always a demand from insurance companies and private investors and others for good real estate mortgages, was there not?

Mr. WHITE. Yes, sir.

Senator COUZENS. Do you have any specific recommendation to make as to amending_this_bill?

Mr. WHITE. Yes, sir. I should like to see the bill amended so as to permit mortgage companies to make loans through the discount banks.

Senator WATSON. To do what?

Mr. WHITE. To permit mortgage companies to make loans.

Senator WATSON. The same as was suggested by the previous witness?

Mr. WHITE. Yes; along the lines suggested by the representative of the Mortgage Security Corporation of America.

Senator WATSON. How would you amend it?

Mr. WHITE. I think the bill should be liberalized permitting borrowers to loan up to 70 per cent of the balance due on unamortized mortgages and up to 85 per cent on balances due on amortized mortgages, limiting the borrowings, however, to 40 to 50 per cent of the appraised value of the property securing the mortgage. The amount of subscription required by borrowers should be reduced to one-half of the provision of the present bill. The present bill provides for borrowers to be under the supervision of some State organization. There are very few mortgages companies and building associations under such supervision. It is not clear whether a subscriber and borrower in the Baltimore territory could use its mortgages in other States for borrowing purposes through the Baltimore discount bank. This would be necessary for a mortgage company doing an interstate business. I do not think that the bill in its present form makes it practical for us to use the facilities of the discount bank.

Senator TOWNSEND. What is your suggestion?

Mr. WHITE. My suggestion would be that instead of subscribing for one-twelfth of the amount of mortgages held by the member, this be changed to one twenty-fourth of this amount; in other words, cutting the present requirement in half. I feel that the 1 per cent additional provision should be eliminated.

Senator TOWNSEND. The same as was suggested by the former witness?

Mr. WHITE. Yes; the recommendations of the representative of the Mortgage Security Corporation of America. Taking our own case, we belong in Baltimore. We have loans in Georgia, Alabama, Texas, and other States. We think we should be permitted to make discounts in our Baltimore branch for loans even though they were on property held in other States. I think that is desirable.

Senator WATSON. You say it is a necessity now?

Mr. WHITE. Yes, sir.

Senator WATSON. But would be a superfluity or unnecessary by and by, as a permanent institution. Have you any suggestions to make as to what sort of limitations we could put on its operation so as to put it out of business then?

Mr. WHITE. I would put a limitation from three to five years.
Senator WATSON. Is three years enough to get it started?
Mr. WHITE. I think five years would be better.

Senator COUZENS. Do you believe the securities issued by these home discount banks should be tax exempt?

Mr. WHITE. Yes, sir; real estate the underlying security-is already heavily taxed and if you are going to get a low rate of interest to borrowers, which they need now.

Senator CouZENS. To what extent would that affect the borrower? Mr. WHITE. I do not know that it is going to affect the borrower, except to the extent of extending the mortgage. If we have a mortgage maturing now that bears 7 per cent interest rate, if we rewrite that mortgage and borrow money on our bonds at a lower interest rate, we can make a 6 per cent interest rate to the borrower and give him a longer period of mortgage and smaller amortization which he will be able to meet. With a 6 per cent interest rate instead of 7 or 8 per cent it would change a lot of involuntary sales to permanent home owners. In other words, this benefit would pass on to the

borrower.

Senator COUZENS. Do you believe this bill should provide a limit that the finance corporation or mortgage company could charge the borrower?

Mr. WHITE. Yes, sir. I think there should be a limit on it. I do not think the borrower has any business being overcharged. I think your board should certainly regulate that if the bill itself does not provide it, the spread should not exceed 2 per cent.

Senator COUZENS. And should fix a maximum charge?

Mr. WHITE. Yes, sir.

Senator WATSON. Do you think if we were to limit the operation. of this set-up to five years you could sell bonds?

Mr. WHITE. Yes, sir.

Senator WATSON. How about it for three years? Wouldn't the Government then have to put up all the money in order to run it? Mr. WHITE. Three years would be rather short. I think probably it could be done in five years, especially if our economic condition changes.

Senator WATSON. I know, but that is the trouble about it. We are legislating now to meet the present economic situation.

Mr. WHITE. Yes, sir.

Senator COUZENS. But of course the time could be extended by congressional action later.

Senator WATSON. I know, but I am talking about the present issue of bonds, with a 3-year limitation or a 5-year limitation.

Mr. WHITE. What would happen in our case would be this: We would want a temporary loan and perhaps in six months or a year, if conditions change, we would take that loan up by the sale of our bonds to the public.

Senator COUZENS. Do you believe the Federal Government should have a return on its investment in these banks?

Mr. WHITE. Yes, sir.

Senator COUZENS. The same as the private investor?

Mr. WHITE. Yes, sir.

Senator COUZENS. The bill does not provide for that, of course. Mr. WHITE. No, sir. The bill does not provide for it, and I think you will find unless the bill is very materially amended, so as to liberalize some of its terms, that the amount of business it will do will be rather limited.

Senator WATSON. Have you any other remarks?

Mr. WHITE. No, sir.

Senator WATSON. Any questions by members of the subcommittee? (A pause, without response.)

If not, we thank you.

(The witness left the table.)

Senator WATSON. If we have a witness who can get through in 15 minutes, we will be glad to hear him. We will call Hiram S. Cody, president of the Mortgage Bankers' Association of America.

STATEMENT OF HIRAM S. CODY, PRESIDENT OF THE MORTGAGE BANKERS' ASSOCIATION OF AMERICA, CHICAGO, ILL.

Senator WATSON. Mr. Cody, where do you live?

Mr. CODY. Chicago, Ill.

Senator WATSON. You are the president of what institution?
Mr. CODY. Of the Mortgage Bankers' Association of America.
Senator WATSON. What is your business?

Mr. CODY. Mortgage loans, with the Cody Trust Co., of Chicago. Senator WATSON. What is the nature of those mortgage loans? What do you lend on?

Mr. CODY. Homes, office buildings, stores, apartments-on the class of buildings securing the standard type of mortgage.

Senator WATSON. Are they all city loans?

Mr. CODY. Yes, sir; Chicago and the immediate vicinity.

Senator TOWNSEND. What is the size of your institution?
Mr. CODY. We have $1,000,000 of capital paid in.

Senator WATSON. What is your present financial condition?
Mr. CODY. In what way?

Senator WATSON. Is it in good or bad condition?

Mr. CODY. I suppose we are having the same experience that all mortgage companies are having.

Senator WATSON. Have you a great number of loans on small homes?

Mr. CODY. We have a large number on small homes.

Senator WATSON. What is their general condition?

Mr. CODY. Fairly good.

Senator WATSON. Have you any defaults of any serious consequence?

Mr. CODY. There are some, but not alarming.

Senator WATSON. What is the prospect for the immediate future if conditions continue as now, as to those loans?

Mr. CODY. I should say that the prospect is that they will continue about as they are until things begin to improve.

Senator WATSON. Do you lend outside of the city of Chicago?

Mr. CODY. In the immediate vicinity, but not in other towns.

Senator WATSON. How are your home mortgages outside?

Mr. CODY. They are good.

Senator WATSON. They are all right?

Mr. CODY. Yes, sir; in good shape.

Senator WATSON. Do you see any necessity for the passage of this

bill?

Mr. CODY. No, sir.

Senator WATSON. None at all?

Mr. CODY. No, sir.

Senator WATSON. You are satisfied with the existing conditions? Mr. CODY. Yes, sir.

Senator WATSON. You are refinancing your mortgages without any difficulty, are you?

Mr. CODY. I see no necessity for the passage of this bill as a permanent measure. I recognize the present emergency situation, how

ever.

Senator WATSON. How is there an emergency if you are getting along as well as ever?

Mr. CODY. I think our experience is better than the average in that respect, perhaps.

Senator WATSON. You say "perhaps." Do you know?

Mr. CODY. Yes; I think that is a fair statement to make.

Senator WATSON. Is it better than other institutions of like character in Chicago?

Mr. CODY. Yes; it is better.

Senator WATSON. In other words, you have been more conservatively managed.

Mr. CODY. We hope so and believe so.

Senator COUZENS. You wouldn't have any need for it in the emergency now existing?

Mr. CODY. Not our house. Nor do I believe

Senator COUZENS (interposing). I did not get what you said. Do you represent an association in addition to your company?

Mr. CODY. I will try to interpret the thought of the Mortgage Bankers' Association of America with reference to this bill if you care to have me do so.

Senator COUZENS. That is what I am talking about. You not only represent yourself but the Mortgage Bankers' Association of America?

Mr. CODY. Yes, sir.

Senator COUZENS. How many members are there in that association?

Mr. CODY. Four hundred.

Senator COUZENS. In other words, 400 companies doing a mortgageloan business are members of your association?

Mr. CODY. Yes, sir; a national organization.

Senator COUZENS. In their favor now you are going to speak?
Mt. CODY. Yes, sir.

Senator ToWNSEND. What is the total amount of their loans? Mr. CODY. The loans that they have represent eight or ten billion of dollars.

Senator WATSON. Have you had any kind of meeting, or telephonic communication, or any gathering of a consensus of opinion so that you are able to speak for those people?

Mr. CODY. We had a convention at Dallas, Tex., at which the central mortgage bank plan as originally proposed was very carefully considered, and the convention went on record as opposing that plan as inflationary and dangerous.

Senator WATSON. There is quite a difference between that plan and this.

Mr. CODY. Yes, sir. But at that time we asked our members to express an opinion on the plan in general, and we got such complete replies to that letter, and have had such communications from others since, that I believe I can fairly interpret their thought in the matter if you care to have it.

Senator WATSON. Have any members appeared here who are members of your association?