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, have 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. This program 98195 3210

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. CODY. No, sir.

Senator COUZENS. 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?

Senator WATSON. That is what I wanted to ask, whether there is any selfish motive because you think it would interfere with your business, I mean the passage of this bill.

Mr. CODY. The owners or representatives of existing mortgages, of course, take a vital interest in seeing that values are not depreciated any further. It is bad enough as it is.

Senator COUZENS. And so does the present home owner.

Mr. CODY. And the present home owner has that more at heart than the mortgage owner, because he owns the equity above the mortgage.

Senator WATSON. Is there anything further that you have to present?

Mr. CODY. No, sir.

Senator WATSON. The subcommittee will now stand adjourned until to-morrow morning at 10 o'clock.

(Thereupon, at 12 o'clock noon Tuesday, January 19, 1932, the subcommittee adjourned until 10 o'clock the following morning.)