home ought to be put out of business. But they would sell as high as 15 or 20 per cent to a man who had no knowledge as to a legitimate concern he could have his home built by. That was the scheme, and it has happened actually a good deal in good times, although I do not think it will happen now for a long time to come. But those who bought at that time, or some of them, would say: "I hope the house is worth what I have on it now. I paid too much and have lost, we will say, $1,000 or more, as the case may be, but it is my home, and I guess I will get along if I can, and forget what I lost on it, and therefore I will keep on paying."

Senator WATSON. All right, Mr. Oakman, we thank you.

Mr. OAKMAN. I want to thank you.

(Mr. Oakman left the table.)

Senator WATSON. Is there any other witness present this morning? I believe Mr. Bodfish was going to have somebody here. Mr. FRIEDLANDER. I should like to be heard.

Senator WATSON. All right, come up to the table and give your name for the purpose of the record.

STATEMENT OF I. FRIEDLANDER, PRESIDENT OF THE GIBRALTAR SAVINGS & BUILDING ASSOCIATION, HOUSTON, TEX.

Senator WATSON. Where do you live?

Mr. FRIEDLANDER. Houston, Tex.

Senator WATSON. What is your business?

Mr. FRIEDLANDER. President of the Gibraltar Savings & Building Association?

Senator WATSON. Is it as strong as the Rock of Gibraltar?

Mr. FRIEDLANDER. It is the largest building and loan association in Texas.

Senator WATSON. You say it is the largest in Texas?

Mr. FRIEDLANDER. Yes, sir; with resources of ten and a half millions of dollars.

Senator WATSON. Of pretty good size?

Mr. FRIEDLANDER. Yes, sir.

Senator WATSON. How old is it?

Mr. FRIEDLANDER. The association is 10 years old.

Senator WATSON. What is your volume of business now as compared to past years?

Mr. FRIEDLANDER. Well, it is, I should say, about 60 per cent of normal so far as receipts are concerned.

Senator WATSON. How many outstanding loans have you?
Mr. FRIEDLANDER. Three thousand five hundred.

Senator WATSON. Now?

Mr. FRIEDLANDER. Yes.

Senator WATSON. Are they all right in that immediate locality? Mr. FRIEDLANDER. Yes, sir; with an average of about $2,700 each. Senator WATSON. Are they nearly all on residential property? Mr. FRIEDLANDER. About 95 or 96 per cent of them are. Senator WATSON. Tell us what the state of those loans is at this time and the state of your association.

Mr. FRIEDLANDER. Well, our association is at this time in this position: Our income for 1931 was three and one-fourth million

dollars. Of that net income we were only able to lend on new loans, either for refinancing or construction purposes, approximately $350,000.

Senator WATSON. How did that income of three and one-fourth million dollars compare with the income in 1928 and 1929? Mr. FRIEDLANDER. That income was about the same as in 1928 and 1929.

Senator COUZENS. In fact, then, you have not many defaults? Mr. FRIEDLANDER. NO.

Senator WATSON. Your defaults are not heavy?

Mr. FRIEDLANDER. We have in foreclosure of real estate about 3 per cent of our assets, an addition of about 100 per cent in the past year of all we had heretofore accumulated in the last five or six years. We were only able to make about $350,000 of loans out of three and one-fourth million dollars of income. The balance of our income going to meet the demands of our members for withdrawals on account of the present economic condition.

Senator WATSON. Do you sell paid-up stock?

Mr. FRIEDLANDER. We do.

Senator WATSON. Is that taxable under the State law of Texas? Mr. FRIEDLANDER. It is not.

Senator WATSON. What is the amount of that paid-up stock? Mr. FRIEDLANDER. The amount of paid-up stock that we have represents about, I should say, 15 per cent of our total stock. Senator WATSON. And the other stock is what?

Mr. FRIEDLANDER. For installment shares. Our institution has been built up largely on installment shares.

Senator WATSON. What was the average price of a loan made by your institution for construction?

Mr. FRIEDLANDER. The average price?

Senator WATSON. The average amount that you loaned.

Mr. FRIEDLANDER. $2,700.

Senator WATSON. That was not heavy?

Mr. FRIEDLANDER. No.

Senator COUZENS. What is your rate of interest?

Mr. FRIEDLANDER. Eight per cent, which is the current rate of interest in Houston.

Senator COUZENS. Is there any bonus charged on top of that? Mr. FRIEDLANDER. No; we charge no brokerage at all. We charge only the actual expense of putting the loan on the books and the attorney's fee.

Senator COUZENS. That is in addition to the 8 per cent?

Mr. FRIEDLANDER. Yes, sir.

Senator COUZENS. To what percentage does that bring it in the matter of the cost to the borrower?

Mr. FRIEDLANDER. We charge a flat fee of $25 for attorney, which is about 1 per cent of the loan, the average being $2,700. But that fee is the same whether the loan is $5,000 or $1,000; and then there are the recording costs, which usually run about five or six dollars. Senator COUZENS. Do you have any limit on the amount you loan to any one borrower?

Mr. FRIEDLANDER. Yes. We limit our loans to $15,000, and we have a few of those on our books.

Senator COUZENS. Do you like this bill?

Mr. FRIEDLANDER. I think the bill is an excellent bill.

Senator COUZENS. Just in the form in which it is now drawn? Mr. FRIEDLANDER. I can not find any real objection to the bill. Senator WATSON. What do you think of the 60 per cent and 50 per cent clauses?

Mr. FRIEDLANDER. Well, you have got to consider the ultimate purchasers of the bonds if you are setting up a credit structure. Unless it is set up on a basis where the bonds will be attractive they will not be sold, and they have to be limited to a percentage of the value of the property. No responsible institution would invest its money in the stock of one of these banks, which it necessarily would have to do under the bill, unless it felt that the loans back of the bonds were good.

Senator COUZENS. Do you agree with the previous witness that this bill should carry a limitation of $7,000 per loan?

Mr. FRIEDLANDER. Well, that is a matter of opinion. I do not believe the Congress ought to be asked to enact legislation which would exclude any large element of the population from using the instrument set up by fixing too small a minimum as might be the case in some of the larger cities where land values are high, and where the cost of building is probably higher than in other sections. It would seem to me that $15,000 would not be excessive, although my personal preference would be $10,000.

Senator COUZENS. Did you say $10,000?

Mr. FRIEDLANDER. Yes, sir.

Senator COUZENS. In other words, you believe that the Government should step in and help a man who wanted to build a $20,000 home?

Mr. FRIEDLANDER. Well, I am not conceding that the Government is here directly helping that man. I think the Government is setting up a credit agency whereby that man may be helped, but the help would come from the institutions themselves who furnish the capital and from those who purchase the institution's bonds that are sold. Senator COUZENS. That is, you mean the institutions to be affected are to supply the capital?

Mr. FRIEDLANDER. Yes, sir.

Senator COUZENS. But I observe the Federal Government is to furnish a large part if not all of the capital at the beginning.

Mr. FRIEDLANDER. Yes; due to economic conditions, in order to get the system at work, the bill as I understand it, provides that the Government will supply the unsubscribed capital up to $150,000,000, in the same manner that the land bank organization was set up.

Senator COUZENS. Do you believe that the Government should have no return on its investment in this matter?

Mr. FRIEDLANDER. Well, I have no set opinion on that. It would seem as a matter of equity that it should. At the same time the expense will be large at the beginning of these institutions, and it might well be conceived that the Federal Government would make that much contribution toward the success of the bank by withholding a dividend. However, that is a matter of opinion.

Senator COUZENS. In other words, that the Federal Government should receive no return on its $150,000,000, which would materially add to taxation, would it not?

Mr. FRIEDLANDER. Well, it would have to come from some source. Senator COUZENS. And of course, as you know, there is a terrific demand to reduce Government expenses now.

Mr. FRIEDLANDER. Yes. We all join in that demand.

Senator COUZENS. At the same time you are joining in that program to reduce Government expenses you are still advocating more Government expense by way of the Government advancing this money without receiving any return thereon.

Mr. FRIEDLANDER. I think that is only an incidental matter in the bill. It is important, of course, and I do not mean to deprecate the importance of it, but as to the general set-up, I think it is only a small matter. It would seem to me that you would want to get the Government's capital retired as quickly as possible. And it would seem to me as an inducement to get the organizations to come in and put up the capital to be used to retire the Government's capital that they ought to be to some extent assured that they are not making a dead investment immediately. And the Government by waiving its dividends would get its capital retired much more quickly because it would induce banks, insurance companies, and building and loan associations to put their capital in more readily at the formation of the system.

Senator COUZENS. In other words, private investors should be encouraged to go into this thing, and the Government should receive no encouragement to go in so far as any return on its investment is concerned?

Mr. FRIEDLANDER. The Federal Government in making its advance would make it with the understanding and the hope that its capital would be retired. And I think any inducement you would offer in order to get private institutions into it from the very start, so that Government capital might be retired, would be very helpful to that end.

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

Mr. FRIEDLANDER. I do; yes.

Senator COUZENS. Do you believe a system of this sort could be organized and conducted exclusively by private capital if the Federal Government undertook the organization of it?

Mr. FRIEDLANDER. Do you mean if the Government withheld any appropriation at this time?

Senator COUZENS. Yes; and just simply started out the organization and handled the matter for the institutions until they got it going without putting in any capital.

Mr. FRIEDLANDER. Under present conditions I do not believe it possible. Life-insurance companies, as you probably know, are having very heavy demands made upon them for policy loans and in the paying of cash-surrender values of policies, the same as our building and loan institutions are having withdrawals. As I have already stated we were only able to invest $350,000 in loans during the past year out of our income of three and one-fourth million dol

lars. Under those conditions, and that obtains pretty generally throughout the South with building and loan associations, we would not be in a position to immediately come in and take this capital, of course excepting those institutions that would want to use it for borrowing purposes.

Senator COUZENS. Do you believe that the Government should retain Muscle Shoals?

Mr. FRIEDLANDER. Do I believe the Government should retain Muscle Shoals?

Senator CoUZENS. Yes.

Mr. FRIEDLANDER. It has been my opinion that it should dispose of it.

Senator COUZENS. You do not believe in the Government getting into business, then?

Mr. FRIEDLANDER. I do not; but as you understand, the Government is in the credit business, and credit does not halt nor stop at State line. There should be a national system whereby when credit is easy in certain sections of the country and tight in other sections for home-building purposes, credit could flow from one section to another. And I do not know of any other method whereby it might be set up except through a Federal agency. It seems to me that we need these home mortgage banks in order to round out our national credit structure. We have our Federal reserve system, but it denies credit to this type of lending, and properly so, because it deals with commercial credits.

Senator WATSON. Is your part of Texas overbuilt residentially? Mr. FRIEDLANDER. I do not think we need any new residence construction in Houston at this time. I do not think that this bill will be any relief or detriment along that line.

Senator WATSON. Your proposition is, then, that this is needed as an emergency measure. How do you regard it as a permanent institution?

Mr. FRIEDLANDER. I think it is needed as a permanent institution. Right at this time here as I see it is the situation: The Government and our schools and economists have been preaching thrift to the people of the United States. They have been preaching that the highest expression of thrift is home ownership. They have induced thousands of our citizens to start out on home ownership. Those. citizens have gotten part of the way and then here we have an economic depression come on whereby the thriftiness as expressed in the home is worthless to those people. They have no way to go along or to get out. The banks will not and can not loan, and building and loan associations are tied up where they can not loan, and there is no credit available to those people who have been thrifty. And it would seem, therefore, under present conditions there is a premium on thriftlessness.

Senator WATSON. What percentage of the borrowers in your building and loan association are not able to keep up the payments on their dues or otherwise?

Mr. FRIEDLANDER. Well, at this time I should say approximately 12 per cent.

Senator WATSON. Because they are out of jobs or positions.