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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.



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

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, however.

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. În their favor now you are going to speak?
Mt. Cody. Yes, sir.
Senator TOWNSEND. What is the total amount of their loans?

Mr. Copy. 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?

Mr. Cody. Mr. Theophilus White is a member of our association, although we had no discussion about his appearance here. I did not know that he was coming.

Senator WATSON. You may proceed with your statement.
Mr. Cody. This bill is described as an aid to the home owner.

In making a home loan, the mortgage banker demonstrates his confidence in the owner and in the property by advancing funds to acquire a half interest in the home. He is a silent partner in the enterprise and every consideration leads him to have a genuine interest in the owner's welfare—the interest of a partner, not a promoter.

A home is financed, completed, and sold." The building industry has collected its profit. The realtor has received his commission on the sale. But the mortgage banker will continue his partnership until the loan is paid, possibly 20 years later. During this period there are frequent occasions for the mortgage banker to consult with the owner on his problems, financial and otherwise. Extensions of principal payments, especially in case of unemployment or illness, ve averted countless foreclosures and forced sales. Advocates of this bill contend:

1. That it will relieve the home owner who now fears foreclosure, owing to the alleged inability of financial institutions to refinance existing mortgages.

2. That it will help the manufacturers of building supplies and members of the building trades. According to estimates made public by the Federal Government, it would be possible to construct 3,000,000 residences within the next five years, if the plan should be put into effect.

3. That it will revive the real-estate market and stabilize existing values.

Those not favoring the bill contend that:

1. The normal rate of construction of new homes is between 300,000 and 400,000 per annum. The advocates of this bill estimate that the Federal home loan banks will make possible the construction of 3,000,000 homes within the next 5 years or about 600,000 annually.

The present rate of population growth and obsolescence of existing structures does not warrant increasing the annual rate of home construction 50 per cent or more above the foregoing normal figures.

Such an abnormal promotion of building activities could bring only temporary prosperity to the building and real-estate interests. It would add greatly to the present overbuilt condition, with an additional depreciation of real-estate values. A drastic increase of foreclosures in existing home mortgages would follow with resultant distress and loss to present home owners.

This would also adversely affect the basic security behind the financial institutions which to-day hold $26,000,000,000 of mortgages.

The President's conference on home building and home ownership reported on December 4, 1931:

Numerous suggestions have been received for encouraging easy credit through new first-mortgage financing methods. While undoubtedly they would for a time provide employment, there can be little question that the price would be further deflation of the values of existing homes.

2. Existing credit agencies, augmented by the Reconstruction Finance Corporation, the National Credit Corporation, and the strengthening of the Federal land-bank system, should be given an opportunity to demonstrate their usefulness in the present situation. Emergency relief for frozen mortgage assets is provided by the Reconstruction Finance Corporation. There is no need in normal times for any additional agency such as the proposed home-loan bank. On the contrary, the present overbuilt situation was partly created by the oversupply of mortgage funds in recent normal years. Again quoting the President's conference on home building and home ownership:

The American system of first-mortgage finance has not only enabled our country to build a housing structure upon an unprecedented scale, but we find it even to-day during the depression financing new structures for which there is an economic need.

The emergency situation relates to existing frozen mortgages in certain areas. That situation is comparable to the inability of railroads to accomplish refinancing of their existing bonded indebtedness through customary financing agencies. To relieve that situation a temporary organization is set up in the Reconstruction Finance Corporation. There is no more need for a permanent organization to relieve the frozen real-estate mortgage situation than there is for a permanent organization to relieve frozen railroad bonds, or to relieve other troubled industries.

3. The bonds of the proposed home loan bank system can not be sold at a low enough interest rate to allow a reasonable interest rate to the member borrower, as the expense of the new system would have to be paid from the interest differential. This would be particularly true after the Government had floated bonds for the Reconstruction Finance Corporation, for the deficit, for farm relief, and for other relief bills.

4. The sale of home loan bank bonds, tax exempt, would further deplete tax income to the Federal Government, the States, and smaller governmental units. It would depreciate other Government securities. The additional $125,000,000 proposed for the Federal land banks predicates the issuance of additional tax-exempt bonds, and the $150,000,000 for the proposed home loan bank predicates the issuance of $1,800,000,000 of tax-exempt bonds.

5. We should profit by the experience of the Federal land bank system during the current depression when their bonds are depreciated; new bonds can not be sold, comparatively little can be loaned, and the land banks must be furnished additional funds by the Government to restore liquidity. At a time when these Government agencies should be meeting an emergency, they are using funds collected from their borrowers to purchase at a discount bonds sold to the public at par, the effect being a loss to the bondholder and an additional tax burden on the taxpayer to maintain this Government system.

6. The fiscal situation of the Government should be considered. To provide for already scheduled expenditures of the Government, for the capital needs of the Reconstruction Finance Corporation, and for the Federal land banks (not including the refinancing of maturing governmental obligations) will require financing upon governmental credit during 1932 of three to four billion dollars of new money; in other words the creation of new debt to this amount.

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calls for an increase in taxes and borrowing greater than ever required in peace times. To provide up to $150,000,000 more for the proposed Federal home loan bank would add to the already heavy burden.

7. There has been a strong and growing tendency for the Federal Government to usurp the functions of State governments in supervision of local private business. This bill is a further effort along this line. It proposes to take the control of real-estate finance out of the States and put it in the hands of the Federal Government.

Our members have given full support to remedial measures designed to meet the present emergency, notably the Reconstruction Finance Corporation. They have rendered active service on committees of the President's conference on home building and home ownership. Their interests are identical with those of the home owner. If they could see any benefit to the home owner in this bill it would have their enthusiatic support.

We do not challenge the sincerity of the sponsors of this measure. We do not assert that the organizations back of it are actuated by selfish motives, but in behalf of the unorganized home owners, our partners, we earnestly protest against any permanent legislation like the Federal Home Loan Bank, which, in our judgemnt, would adversely affect the security behind the $26,000,000,000 of mortgage assets of our financial institutions and would result in the loss of an untold number of homes which the owners, in the face of every obstacle, are now struggling to protect.

Senator Couzens. Could you elaborate on that point, on how it would affect the present home owner? I do not think I

grasp that. Senator Watson. I did not either. I was going to ask that.

Mr. Cody. One of the principal arguments used in support of the bill is that it would encourage the construction of new homes.

Senator Watson. No. It is the present home owner we are talking about.

Mr. Cody. The existing home owner?
Senator COUZENS. The bill as proposed would help to build homes.

Senator Watson. But the crying need is to help the fellow who has a mortgage on his little home.

Mr. Cody. Yes. And that man has suffered because of the depression in the value of his home and other property, and inasmuch as we are now over-built generally, the building of additional homes would greatly increase the present depression in values and would probably wipe out his entire equity. If a new home is built down the street, and it can not be sold on account of the overbuilt condition, its price must be reduced, and we all know what a buyer will select when he has the opportunity to take either an old or a new home.

Senator COUZENS. As a practical proposition isn't it true that builders of homes borrow 50 per cent on the home and then sell afterwards?

Mr. Cody. Yes, sir. Senator Couzens. That would not help the home owner at all. That does not help the home man who wants to build his own home for himself, does it?

Mr. Copy. No, sir.

Senator COUżENS. Will you tell us before we go to the floor of the Senate, and there is the bell, how that would affect the members of your organization, how this bill would affect them?

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