CREATION OF A SYSTEM OF FEDERAL HOME LOAN BANKS WEDNESDAY, JANUARY 20, 1932 UNITED STATES SENATE, SUBCOMMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The subcommittee met at 10 o'clock a. m. in the hearing room of the Committee on Interstate Commerce in the Capitol, pursuant to adjournment on January 19, 1932, Senator James E. Watson presiding. Present: Senators Watson (chairman of the subcommittee), and Couzens. Senator WATSON. I think I will start in, gentlemen, because I don't know when the other members will be here, if at all. I will make a record, anyhow. Here is a telegram from Cleveland that I will read into the record: Senator JAMES E. WATSON, CLEVELAND, OHIO, January 18, 1932. Banking and Currency Committee, chairman of Federal Home Loan Bank Act Committee, Washington, D. C. The Cleveland Real Estate Board at the meeting of its executive committee to-day decided to communicate with your committee because you are quoted as saying that the Federal home loan bank act may be delayed in passage. Our studies indicate that home loan banks will render immediate universal benefits as well as being a permanent and necessary addition to bank structure. We earnestly urge quick action on its consideration and passage respectively. THE CLEVELAND REAL ESTATE BOARD, O. W. L. COFFIN. Here is one from the board of directors of the National Association of Real Estate Boards: Hon. JAMES E. WATSON, ST. LOUIS, Mo., January 20, 1932. Senate Office Building, Washington, D. C. We are informed that the American Mortgage Bankers Association of America through its president appeared before your committee this morning, and stated that they represented the home owners of America, and that Senate bill 2959 was only desirable as an emergency measure and was very undesirable as a permanent measure. We call your attention to the fact that the Mortgage Bankers Association represents about 400 mortgage brokers most of whom are necessarily interested in making commissions on loans which they negotiate for insurance companies and that many of these loans are made on apartment houses, hotels, and office buildings it is preposterous for the mortgage brokers to assume to speak for the home owners of America. We also understand that they stated that the bill was being fostered only by those who are interested in creating a building program of 3,000,000 homes. The president of our organization when he appeared before your committee last Thursday endeavored to impress upon the committee that we did not believe in an inflationary building program but that we were trying to save the homes of hundreds of thousands of people who are losing them through foreclosure due to the frozen condition of the financial institutions. We stated further that we also were speaking for the people who had saved money for the time of their adversity and were now unable to get it to buy the bare necessities of life. It is absolutely absurd to talk about this being an emergency matter only. What has occurred will occur again. Moreover a reserve system for mortgage financing has always been needed in our financial structure. We understand that there is a disposition on the part of some in Washington to delay the prompt consideration of this bill and we would call your attention to the fact that every day's delay means more homes foreclosed. With the exception of this bill all of the President's finance program, however constructive it may be, is designed to help the railroads, the banks, the commercial interests, and the farmers. The urban home owners of America have the right to demand that they be given equal consideration with these other interests. Speaking for them we urge that the one bill in the President's financial program which will directly help the great masses of the people throughout the country be given immediate attention. At a meeting this afternoon of the board of directors of the National Association of Real Estate Boards, representing over 40,000 members, a resolution was passed urging that this telegram be sent to you, and requesting that you make it a part of the record of the hearings of this bill of the Banking and Currency Committee of the Senate. BOARD OF DIRECTORS OF THE NATIONAL ASSOCIATION OF REAL ESTATE BOARDS, By HERBERT U. NELSON, Secretary. And here are two letters that have been submitted by Senator Patterson of Missouri: FARM AND HOME SAVINGS AND LOAN Hon. ROSCOE PATTERSON, United States Senator, Washington, D. C. ASSOCIATION OF MISSOURI, DEAR SENATOR: I am just in receipt of H. R. 5090, a bill to create Federal home loan discount banks and to provide supervision thereof. The general purpose of the bill is to provide a bank of discount for certain securities held by institutions such as building and loan associations, yet presupposes the ability of building and loan associations to assign certain types of their mortgages as security for advances from the Federal home loan discount bank. Under the laws of Missouri no building and loan association could avail itself of the benefits of this act, since under our statutes, section 5597, Revised Statutes 1929, and subsequently reenacted under the same number in the Laws of 1931, building and loan association notes are nonnegotiable, and that has been construed to mean nonassignable. Lavton ". Hough (189 App. 213.) Building and loan associations in Missouri can, however, borrow money and since under our statutes such associations are mutual corporations and the interests of the members are all represented by stock, the lender to such an association has a prior lien on all of the assets of the association and does not require the pledge of any specific collateral for his security. Associations in this State are limited by law to borrowing not in excess of 10 per cent of their resources. It is apparent, therefore, that while Missouri associations are ineligible to borrow from the proposed bank, under the present terms of this bill, they are in a position to furnish far higher type of security than is demanded by section 6 of the bill. An amendment to section 5 of the bill and appearing at the end thereof, in the following substance, would render the act available to Missouri associations: "Should the laws of any State forbid building and loan associations to assign or pledge home mortgage loans held by them, but do permit such building and loan associations to borrow money, and give the lender a first and prior lien against all of the assets of such building and loan association, then and in that event, the bank may lend such associations, without specific assignment of collateral as herein provided, such amounts as they would be entitled to borrow under section 6 of this act.' If the proposed bill is to be of any benefit to Missouri associations, some such way must be found to permit their participation in the benefits thereof. I am satisfied that the framers of the bill would have no objection to such a provision. Building and loan men of this State generally would appreciate your assistance in this matter. Yours very truly, E. H. BUSIEK. Hon. ROSCOE C. PATTERSON, WM. B. HENDERSON & Co., Kansas City, Mo., January 14, 1932. Senator of Missouri, Washington, D. C. MY DEAR SIR: I am addressing you in regard to House bill 5090. I am not accompanying this communication with the usual command or urge for you to vote one way or the other. I am crediting you with enough interest in your responsibility and the bill in question to form your own judgment and vote your own sincere convictions. Whether your final judgment will agree with mine, I do not know, but I deem it my duty as a citizen to acquaint you with my viewpoint. I am mindful of the fact that I am very much in the minority. And I regret that (although I am a Republican) I find I can not bring myself into harmony with the provisions of this bill. Although I am engaged in the building and loan business and most of the building and loan men in this community seem to favor this bill, I am, nevertheless, opposed to it. And I do not find that most of the building and loan men with whom I have talked, who favor the bill, have studied it carefully and anticipated the possible ultimate results, if the bill is passed. To begin with, I am unalterably opposed to the continued trend toward centralizing responsibility and authority in the Federal Capital, and the minimizing and nullifying of the influence of the State. I am fearful that if the present trend continues, the effect will be decidedly detrimental to the future possibilities of the United States of America. If bill 5090 is passed it will not be possible for any savings and loan association in the State of Missouri to transact business with the Federal home loan discount bank because the laws of Missouri very specifically limit the authority of its savings and loan associations in that respect. The more recent building and loan laws contain a provision that the local associations "may become members of the loan bank of the State of Missouri when such land bank is established and may invest its assets in stock of said loan bank not in excess of 10 per cent of the assets of the building and loan association." The phraseology above is not accurately quoted, but the meaning is accurate. Building and loan associations of the State of Missouri are not permitted to hypothecate as collateral any portion of their assets, and they can not borrow money for a longer period than two years, nor an amount in excess of 10 per cent of their assets. It is very clear, therefore: First, that the Legislature of Missouri anticipated that a land bank might be established in the future and the way is now clear for our legislature to establish such a land bank. Second, that there is no provision in the laws of Missouri which would enable a Missouri savings and loan association to borrow money from the Federal home loan discount bank. Third, there is no provision in the Missouri laws for a local savings and loan association to own stock of the Federal home loan discourt bank. Fourth, the laws of Missouri provide that Missouri savings and loan associations shall be supervised by the bureau of building and loan supervision of the State of Missouri, and the provisions of House bill 5090 would transfer that control to a board to be selected by the President of the United States with, and subject to the approval of the Senate. There is a land bank in the State of New York, established for the purpose of rendering service to savings and loan associations and saving banks. It is significant that the bonds of said New York Land Bank have been in demand during the present depression at an interest rate not in excess of 42 per cent. It is also significant that said land bank has been the means of enabling all of the New York savings and loan associations to meet their demands without requiring notice. Inasmuch as the way has already been paved for the establishment of a land bank in the State of Missouri, and in other States, it occurs to the writer that it would be very much more desirable if land banks could be established in Missouri and other States by authority of their respective legislatures, the stock to be owned exclusively by the savings and loan associations of respective States, the control of said land banks to be exclusively in the hands of the stockholders, and the service to be rendered to be only to the institutions owning said stock. If the Federal Government wants to help it could provide for the establishment of a Federal home loan discount bank and in connection therewith name the various State land banks as legal depositories for public funds, exempt State land banks from taxation, subject them to investigation by the board of the Federal home loan discount bank (providing the State land bank was asking for credit from the Federal home loan discount bank) and establish such rules and regulations as it might agree upon which would be applicable to the State land banks if they wanted to avail themselves of the credit facilities offered by the Federal home loan discount bank. It is the writer's judgment that the State land banks would find it possible to finance themselves without the aid of the Federal institution. Some of the building and loan men with whom I have talked have expressed the opinion that the influence of a State institution would be so "localized" as to seriously limit its usefulness. That has not appealed to me, because I can visualize that if all of the States have institutions similar to the land bank in the State of New York it would be feasible for such State institutions to be mutually helpful, and there would be no reason why a State land bank in one State where there is plenty of money could not buy the bonds of a State land bank in another State where money might be needed. If the situation becomes so tense that the States are unable to be mutually helpful the Federal funds could be placed in the treasuries of the various State land banks. It would be feasible for the laws establishing the Federal home loan discount bank to establish the type of State land bank with which it could transact business, and then the State legislatures could exercise their own judgment as to whether they would authorize State land banks endowed with authority to transact business with the Federal home loan discount bank. Referring to section 9, page 14, line 13, would it not be feasible for the Federal Congress to pass a bill containing a modification of said section 9 which would read: "The obligations of each State land bank and the interest payable thereon, shall be exempt from all taxation now and hereafter imposed by the United States, Territory, dependency, or possession thereof, provided said obligations are exempt by the State in which said land bank is domiciled and by the counties and municipalities within said State." Would it not be equally feasible to modify section 10, page 14, line 19, to read: "When designated for that purpose by the Secretary of the Treasury, each State land bank authorized by the laws of its own State to transact business with the Federal home loan discount bank shall be a depository of public money, etc." Although I have not presumed herein to influence your own judgment I would very much appreciate it if you would advise me at your convenience what is your own opinion of H. R. 5090. Thanking you in advance, yours truly, W. B. HENDErson. Senator WATSON. The subcommittee will now hear a statement by Mr. Henry R. Robins. STATEMENT OF HENRY R. ROBINS, COMMONWEALTH TITLE CO., PHILADELPHIA, PA. Senator WATSON. Your name is Henry R. Robins? Mr. ROBINS. Yes. Senator WATSON. Where do you live? Mr. ROBINS. Philadelphia. Senator WATSON. What is your business? Mr. ROBINS. I am president of the Commonwealth Title Co. of Philadelphia. Senator WATSON. What does that institution do? Mr. ROBINS. It insures the titles to real estate and mortgages and lends money on mortgages. Senator WATSON. City or country? Mr. ROBINS. Yes. Senator WATSON. No farms? Mr. ROBINS. No farms; no, sir. Senator WATSON. Have you studied this bill, Mr. Robins? Senator WATSON. The last print of it? Mr. ROBINS. Yes. The first one that was printed, and then this Senate bill 2959. Senator WATSON. For the benefit of the record, I wish you would give your impressions of the bill and what you think about it. Mr. ROBINS. Generally, I think the whole scheme is inadvisable. It is more in the nature of an idealistic dream than a thing that can be put into operation, in my opinion. Senator WATSON. Why? Mr. ROBINS. In the first place, I don't think there is any need of such a structure in the United States. The fault has not been lack of money. It has been the size of the mortgages. There has been too much loaned by the various mortgage institutions generally on mortgages. That is what has been the cause of this foreclosure storm that has hit the country, and not the lack of money. Senator WATSON. What is the capitalization of your institution? Mr. ROBINS. Two million capital and three million surplus. Senator WATSON. How old is it? Mr. ROBINS. This present company is only about 3 years old, but it is a combination of others, some of which have been in existence for over 40 years. Senator WATSON. How many mortgages on homes or residences in Philadelphia has your institution? Mr. ROBINS. We have about 200 small mortgages. Mr. ROBINS. Yes. Our institution has only that number, because we are not in the mortgage buying and selling business. We invest part of our capital in mortgages and our active business is the title insurance of mortgages for institutions that do that business. We insure the titles to mortgages amounting to twenty-five or thirty or possibly fifty million dollars a year. Senator WATSON. Does that bring you into contact with the home ownership interests of Philadelphia? Mr. ROBINS. Yes, because the settlement of all these mortgages that we insure is made in our offices, and we are in contact with every home owner that makes one. Senator WATSON. How many would that be in the course of a year? Mr. ROBINS. Somewhere around twenty-five or thirty-five millions. Senator WATSON. Yes, but how many different homes would be involved? Mr. ROBINS. The average mortgage would be, I would say, about five or ten thousand dollars. Senator WATSON. Are these payments promptly made? Mr. ROBINS. The payments of interest? Senator WATSON. Yes. Mr. ROBINS. And amortization? Senator WATSON. Yes. Mr. ROBINS. Fairly promptly made. They have not been as promptly made the last two years as they were up to then, but that |