Mr. OGDEN. From mortgage companies and banks. Mr. OGDEN. Both; yes, sir. Senator WATSON. The ordinary commercial bank? Mr. OGDEN. The ordinary commercial bank and trust company. I have had no difficulty, up until the present time, in getting such loans as were reasonable on worthy enterprises. That is my fear, that this loan bill will bring back to us the speculative building that we had, as I say, in the period 1926 to 1930. We are now seeing what it has done to us. Undoubtedly, in my mind, it will deflate the prices that have already been deflated; it will still further deflate them. Those who have money invested and those who are going to invest money in new homes will undoubtedly lose in the future because of this new surplus to be created and those homes will go on the auction block when the people can not finance them, can not carry them. Senator WATSON. How many homes have you built in the last five years or so? Mr. OGDEN. In the neighborhood of 200. Senator WATSON. What condition are they in now? Mr. OGDEN. All very fine. Senator WATSON. Were they all mortgaged in the beginning? Senator WATSON. All of them? Mr. OGDEN. I would say with very few exceptions. There were possible one or two that were cash transactions, but in almost every instance they are mortgaged. Senator WATSON. What per cent of the mortgage was put on, as compared to the real value? Mr. OGDEN. About 60 per cent. Senator WATSON. Sixty per cent? Mr. OGDEN. Of their contract price or contract cost. Senator WATSON. Are they amortized loans, or how are they paid? Mr. OGDEN. They will vary. Some were amortized and some were straight loans. Senator WATSON. Some amortized and some straight? Mr. OGDEN. They will vary on the amount of money required. Senator WATSON. Straight loans with interest payments? Mr. OGDEN. Yes, sir. Senator WATSON. Have you taken on any building and loan contracts at any time? Mr. OGDEN. I have arranged several times when the owner preferred to make some saving through a building and loan program to have a building and loan mortgage against the house. Senator WATSON. How many interest periods have passed without payment; how many defaulted? Mr. OGDEN. I have in my own possession probably 25 second mortgages, and I have had but one of those where there was a default on the interest payment, and that has been only in the last three months. Senator WATSON. Is the same true of the monthly payments in the building and loan associations? Mr. OGDEN. I only have five of those. I have arranged for five of those, and they have all been kept up well. Of course, the reason for that is that those people have all kept their positions. It seems that I have built for the general type of people that have been able to keep their positions through this trouble. I realize that the working man who is buying a very inexpensive house has suffered considerably from this trouble we have been going through, and it possibly is no fault of his that he can not keep up his payments and that he has lost his house, but I fail to see how this bill will help him in keeping up. Senator WATSON. You think that this bill is of no benefit to him? Mr. OGDEN. I can not see how it will be. I believe it is going to be more of a harm to the industry, because it is going to flood our market with additional houses. The speculative builder has to have money to continue, and if he sees that he is going to keep on going, he is all ready to bloom forth again. I have seen it in developments in our vicinity. We have one very fine development in Summit, controlled by a man who has some independent means, and he is able to finance up to within 75 per cent of the true value. That right there is the keynote of the whole thing, the true value. We have had too much fictitious value in real estate. I have had mortgage company officials request that in making an application, if I wanted more than what would be normally 50 or 60 per cent, I should put in a fictitious value. In one case I was requested to frame a duplicate contract, giving the owner a receipt for money to show that I had a contract for a greater amount than the contract actually was, so that he could go to his board and say, "Here is a contract for $30,000; we want twenty-five or thirty thousand dollars on this house," where in reality my contract might have been $25,000. That is a thing that has gone on. Senator WATSON. That doesn't very often occur, does it, or has it? Mr. OGDEN. Two years ago, yes; it was very frequent. It was a common practice with at least three of the mortgage companies in our vicinity. Senator WATSON. During the period of deflation? Mr. OGDEN. Yes. Senator WATSON. You think there is no demand then for additional residential construction? Mr. OGDEN. I think we have a surplus of it. Senator WATSON. Would a bill of this kind have a tendency to construct more homes and take more people out of apartment houses and into homes that would be built? Mr. OGDEN. If we can cut our building costs sufficiently; yes. I think now it is a matter of cost, what it is going to cost the individual to live in that house. To-day the average individual can obtain a house very, very easily, as some one stated, for the amount of the mortgage against it, the amount of the first mortgage against it, or even less. There are a great many foreclosures in our sections also. In most cases I find that they are houses that have been sold on a shoestring, houses that have been overfinanced. I have had several cases brought to my own attention. I have tried to help people out of their predicament. I did not have much luck, however. They were overfinanced. Their income was not equal to keeping up the payments on those overfinanced houses. Senator WATSON. You think this bill then will result in an additional inflation of residential construction? Mr. OGDEN. I certainly do. Senator WATSON. And a further kiting of prices? Mr. OGDEN. I certainly do. Senator WATSON. That will result afterwards in another collapse? Mr. OGDEN. That is right. Senator WATSON. That is your opinion? Mr. OGDEN. It certainly is. It would merely be a temporary measure that I do not believe would last at all. It undoubtedly will give us a little more business. In fact, I personally own a little lumberyard and I have had access to the lumber magazines and have read articles where they have stressed the importance of this bill. To me it is merely a near sighted, selfish attitude, and we will be back right where we started, or worse, before any considerable time has passed. Senator WATSON. Is there anything more you would like to say about it, Mr. Ogden? Mr. OGDEN. No, sir. Senator WATSON. All right. We are much obliged to you. (Mr. Ogden left the table.) Senator WATSON. Mr. Clark. STATEMENT OF THOMAS F. CLARK, T. F. CLARK CO., NEW HAVEN, CONN. Senator WATSON. Give the reporter your full name. Mr. Clark. Mr. CLARK. Thomas F. Clark. Senator WATSON. And where do you live? Mr. CLARK. New Haven, Conn. Senator WATSON. What is your buisness? Mr. CLARK. I am in the mortgage business. I am president of Thomas F. Clark & Co., mortgage loans Senator WATSON. Mortgage loans? Mr. CLARK. Yes. Senator WATSON. A bank or an individual? Mr. CLARK. No; a company, operating in 22 cities and towns in the State through five offices. Senator WATSON. A company? Mr. CLARK. Yes, sir; a corporation. Senator WATSON. Yes; I suppose you meant a corporation. What is your capitalization, Mr. Clark? 1. Mr. CLARK. Our capitalization, although we are authorized for $300,000, is just about $80,000, as we get all the money we want from the banks at a lower rate than we can get by selling out stock. Senator WATSON. Can you get all the money you need? Mr. CLARK. Yes. Senator WATSON. Where? Mr. CLARK. From the various commercial banks of the city. Mr. CLARK. May I also say that I am vice president of the Mortgage Bankers Association in order that I may be identified here. Senator WATSON. Yes. Mr. CLARK. So that it may appear that there is no evasion of anything. I am also chairman of the legislative committee of the Mortgage Bankers Association. Senator WATSON. Legislative committee? Mr. CLARK. Yes. Senator WATSON. What do they want with a legislative committee? 98195 3211 Mr. CLARK. In various States there is vicious legislation relating to the real-estate mortgage business and we have to keep, through our counsel and legislative committee, advised as to what legislation is going to affect our business. Senator WATSON. You have studied this bill? Mr. CLARK. Yes, sir. Senator WATSON. Tell us about it. The Mr. CLARK. The bill is alleged to be for the home owner. people who are actually to profit by it are not named in the bill. The home owner is the one who is going to lose. With reference to the financial set-up of the bill, very few companies could afford to buy their way in to the regional bank and use money obtained that way. It costs too much. Senator WATSON. It costs too much? Mr. CLARK. Yes. They have to buy $2,500 worth of stock, have to deposit 1 per cent of the mortgages on hand, and they could not afford to do that. Senator WATSON. Could the figures in this bill be changed for adoption you say it costs so much to get in? Mr. CLARK. Yes. Senator WATSON (continuing). And yet leave the institution on a sound basis. Mr. CLARK. No. The institution won't be on a sound basis under any condition that might occur. It can not support itself. Senator WATSON. That is your opinion? Mr. CLARK. Absolutely. That is my opinion from a study of the bill. It can not support itself. It will be a drug on the market in a very short time. Senator WATSON. Why is that? First, because it costs so much to enforce? Mr. CLARK. That is incidental. Let me give you this picture. Perhaps it will explain the thing clearly, Senator. Senator WATSON. Yes, I wish you would. Mr. CLARK. In 1918 and 1919 there was a claimed shortage of homes. In 1920, without having any promotion of home building there was a surplus revealed. So that in 1918 and 1919 it was a state of mind, due to war conditions. In 1920 and 1921 it was claimed there was no mortgage money. In 1923 and 1924 the promoter speculators started to build. They carried that along until 1926 and 1927 at a pretty high pressure. Then many of them were induced to go to Florida, and they left everything they had in Florida besides obligations they would never be able to meet. It took those speculators out of the real estate market. In June of 1928 the stock market started to go up. It continued until October 29, 1929. The building speculators left the real estate field and went into the stock market. They go into anything the money is in. They sought bigger profits. They said, "We will make more money in the stock market in thirty days than we can in the real estate business in a year. Why not go in?" The effect on the mortgage companies was this: That the banks that financed mortgage companies on their paper up to 80 per cent of the amount of the mortgage, which can be had at any time-you can have it to-day; we are getting it right along these banks were loaning to the commercial people and they were sending the money down to Wall Street and getting a little higher rate of interest than on commercial paper. That tightened up on the speculator who had an account at the bank. He could not get cash enough to take care of his building obligations within the statutory period, and the mechanics' liens and the other liens were filed, and everybody else came in and took everything he had. The mortgage company that was operating on a sound basis had no particular trouble. What I mean by "on a sound basis" is one that is not carried away by any inflationary ideas. I refer to the mortgage man who feels he is building a business for a long time rather than for a short time, and who made his loans during that upgrade period on the basis of a down grade. In other words, he looked through that thing pretty carefully. I may say this with reference to our own organization. We have been making loans since 1920. We have loaned millions of dollars in first-mortgage loans. Senator WATSON. On what? Mr. CLARK. On homes. Mr. CLARK. Over 90 per cent of them are on homes. Mr. CLARK. We have very few commercial and very few apartmenthouse loans. I think our apartment-house loans won't amount to over $400,000. And they are all fairly sound. Ninety-seven per cent of our business is on residential property. We have financed the construction of many buildings. We financed during 1931 twice as many homes as we did in 1930. The average cost of the home on which we loaned in 1931 was about 25 per cent higher than the average in 1930. In other words, during the years prior to 1928, what we call the small owner, the man who would have a mortgage, say, of $3,000 or $3,500 or $4,000, was quite prominent. That man was buying speculative property. He was being over sold. He would have a first mortgage and a second mortgage that would sometimes be 75 per cent of the first and sometimes 100 per cent, and, in addition, frequently a third mortgage. No home owner owning a home costing less than $20,000-and assuming that home is in keeping with his financial standing, his income-can afford to make principal payments on two mortgages at one time. Senator WATSON. Of course, that is taken for granted. I do not understand, however, how you could finance at a higher price in 1931 than in 1930. Tell us how that happened. Mr. CLARK. The people whom we might classify as those whose positions were not affected very much or, if affected, not materially who wanted to get out of certain districts that were going back, depreciating every district goes behind at times-built houses costing $20,000, or $25,000. We make them a 60 per cent loan and finance the home for them during construction. Up to 1928 the average cost was about $15,000. Of course, I do not mean that there are no $5,000 houses or six or seven thousand dollar houses being built. There are a great many. But the financial standing of many people who are building these seven and eight thousand dollar houses does not warrant their owning a house of that type. They are enthusiastic about it at the beginning. It is an event |