Senator MORRISON. If he is in distress and gets relief, then will he not be the more able to give relief to those in distress as his debtors?

Mr. ADAMS. That is true, and to that limited extent there is some worthiness in the bill. Beyond that, I see none, Mr. Chairman. I want my criticisms to be absolutely fair and unprejudiced. I am only pointing out to the committee what I see.

Senator MORRISON. I do not mean to be impolite at all. It simply struck me that you are reading an argument against it rather than testifying to facts. If I do not ask you questions about the different points in it, when we get through reading it we will have to turn around and go all over it again.

Mr. ADAMS. I am delighted, Senator, to have questions at any time.

This bill even provides for a board of 11 directors for each district bank, only two of whom shall be appointed by the Federal board representing the Government, the rest carefully selected by the controlling private stockholders, and the Government without voice in selecting them even though it may own 90 per cent of the capital stock.

Senator MORRISON. Then you think it would be a great business for those who went into it?

Mr. ADAMS. There is no question about it. Any man who could put $1 in, and get from six to ten times that much benefit from the earnings on Government money, would be foolish not to invest if he was eligible to invest. But that right is limited to a few of a certain class who can afford to invest at this time.

Senator MORRISON. If they were able to do it, the institutions authorized to enter it are very extensive, are they not?

Mr. ADAMS. Yes. One insurance company in New York could subscribe all the private capital that was allowed, if they wanted to. Senator MORRISON. Not under this bill.

Mr. ADAMS. They could, through dummies out in the district, and they could control the entire system. They could borrow all the money that was available and shift their securities from one bank to another under the provisions of this bill. That is not the purpose of the bill, and it is not the thought of the President, in my judgment, although I have no authority to speak for him, but I am heartily in sympathy with his desire to assist the people of this country to secure homes of their own upon the best practical terms. This bill does not do it, in my judgment.

The bill even provides that while the usual certificates of stock may be issued to private stockholders, that only receipts for money paid shall be issued to the United States (p. 8, lines 9-12).

If the dominating desire is to secure money for the relief of home owners, why are the stock-subscription books not thrown open to everyone who desires to invest in the capital stock of the system? And why is stock ownership limited not only in the beginning but for all time to the few specified institutions, and the board vested with power to refuse stock to any one of the few institutions that are eligible to buy it, and if at any time the board becomes displeased with any private stockholder it may compel him to give up his stock and get out (p. 9, subdivision i)?

Senator MORRISON. Only banks can join the Federal reserve sys

tem.

Mr. ADAMS. Yes.

Senator MORRISON. Do you think all the individuals in the United States who want to ought to be allowed to subscribe for that stock? Mr. ADAMS. I would not say that. That is quite a different proposition. That is purely a banking system for the convenience and service of commercial banks.

Senator MORRISON. And this is designed to be one for those dealing in home-loan mortgages. What is the difference in principle? Mr. ADAMS. And for the relief of people who want to buy homes, Every provision should be made to enable them to profit if there is profit to be divided, and, at any rate, secure their loans at a rate of interest stripped of the usual charges of brokers' fees, commissions, attorneys' fees, and all that sort of thing. They should be able to get their homes on terms that they can afford to pay. A man must have a home in which to live, and he must either rent it or buy it. If a system can be devised that is sound and safe, that will enable people to get their homes and pay for them at a cost no greater than rent, you are granting a great benefit to the common people of the country.

Senator MORRISON. That is what the authors of this bill hope it is going to do.

Mr. ADAMS.. I wish I could see that advantage in it, but I do not see it.

If the bill is intended to relieve and help home owners, why are the excessive conditions placed upon loans and why is there no provision that the money loaned shall be used to extend such relief and help to the home owners even though it is loaned by the Federal bank to an institution that has in the past made loans to home owners? And why does it not limit the rate of interest that can be charged to the home owners? And why does it not prohibit the imposition of excessive charges for brokers' commissions, financing fees, attorneys' fees, title determination, and other incidentals in connection with making a loan?

Again, let me repeat, there is not one dollar's worth of help or relief in this bill for the home owner, and I am sure the President has never examined this bill or given thought to its provisions and the way it would work out.

There are many minor provisions in the bill that are very objectionable, unreasonable, and impractical to which I have not referred, but I am sure will appear to the members of this committee upon careful reading of the bill.

All of the terms used in the bill should be defined in section 2. Only part appear there now.

The term "advances" is used throughout the bill to designate loans. The limit placed upon a mortgage of this character offered as collateral is too low if the property is properly appraised and the mortgage does not exceed 50 or 60 per cent of the appraised value. Twenty years to run from the date a mortgage is received as collateral is altogether too long a term of years. It should not exceed 200 months from the date of the mortgage to its maturity.

No mortgage should be accepted that exceeds 60 per cent of the real value of the property mortgaged. The provision on page 15, line 20,

providing for a mortgage to three-fourths of the appraised value is probably written in to accommodate certain building corporations that add from 1 to 15 per cent to the contract price of the building erected as a finance fee, and this provision will probably secure the approval of this bill by such building corporations.

(P. 16, lines 1-5.) Certification of appraised value by a borrowing member is not sufficient to establish the real value of the property mortgaged. No mortgage should be accepted as collateral until the property has been examined and appraised by a skilled and trained estimator of building costs and property values, an appraiser employed by the Federal Government and assigned for duty in the various districts, changing from one to another as occasion requires.

The present system of appraising the value of property, as the chairman probably well knows, is this: If it is a loan from the bank, and the bank is taking the mortgage, two or three real-estate men will be called in to sign on the dotted line, as to the value of that property. They have no knowledge, perhaps, of the construction costs. They could not estimate the costs of the building, or specify the materials in it. They have an exaggerated idea of the value of the real estate, and the bank loan board takes those estimates and files them, but arrives at its own estimate of the value, and makes a loan accordingly. If they desire to hypothecate that security, here are the certificates of the real-estate men, and that is a mighty unsafe basis on which to make loans at a distance. So, I say that no security should be accepted until the property mortgaged has been appraised by competent appraisers in the employ of the Government, and shifted from district to district, so that there will be no influence brought to bear upon their judgment.

The provisions in the bill for selling obligations by one district bank to another and the joint liability by all of the district banks for the obligations of one should be given careful consideration before being written into a law.

If bonds issued by district banks can not be sold for less than 5 per cent interest (p. 19, subdivision e), there is no hope at any time for help to the borrowing home owner.

The Federal district banks must be able to secure the money it loans at a cost of not exceeding 312 per cent to be of any service to the borrowing home owner.

Under no conditions should these home mortgage banks be authorized to receive deposits, either from its members or others, or the United States.

Provision should be made for the collection of all installments of principal and interest on mortgages pledged as collateral by the borrower and a surety bond required to insure prompt and accurate accounting. These payments should be indorsed upon the collateral and the obligation of the borrower as they are received. Upon this point the bill is silent.

Section 10 provides that a district bank shall be authorized to do business upon filing an application called an "organization certificate" with the board, and does not require the approval of the board or the issue of a charter or certificate by the board. Section 10 also authorizes the employment of officers, attorneys, agents, and other employees without regard for the civil service and classification acts, and section 17 specifically declares that the board shall employ and

fix the compensation of officers, employees, attorneys, and agents "without regard to the provisions of other laws applicable to the employment or compensation" of such officers, agents, and employees, clearly exempting the entire home-loan system from board to janitor from the civil service and classification acts. This should be revised and bring all employees except experts and professionals within the terms of the civil-service act and the compensation within the limits of the classification act.

Section 15 provides for the selection of five members of the Federal board without regard for their political affiliations. This, with the provisions as to civil service and classification just referred to, will make this home-loan system, so-called, a political football and refuge for incompetent dependents and political workers and ward heelers. To avoid personnel turnover and promote efficiency, no more than three persons from any one political party should be appointed as members of this Federal board.

I am a Republican, living under a Republican administration, which would appoint the first board. But that, I believe, is essential to avoid the turnover of personnel.

Senator MORRISON. May I inquire which one of the Republican parties you belong to? Do you belong to the regular Republican Party, or to the Norris Republican Party?

Mr. ADAMS. I suppose I would be called a "standpatter." I have never departed from the reservation.

I only make that observation to show you that I am not trying to change this for political purposes, but merely for the benefit of the system.

Page 26 provides that a person already employed by the United States may be appointed to membership upon the Federal board without resigning his present position and may continue to serve in both places upon the mere condition that his total compensation shall not exceed $12,000 per annum. The work cut out for the members of this board will require all the time and ability they have to give. Just what employee of the Government is seeking appointment to this Federal board and had something to do with the writing of this provision, is not disclosed.

If there are officials in the Government service, such as the Secretary of the Treasury, or the head of some other department, it might be wise to make them members of this board ex officio, but such a provision as this has a motive behind it that is not disclosed. Specific reference (p. 32, subdivision e) to the Criminal Code defining offenses and imposing penalties upon Senators and Congressmen do not seem necessary, and by invoking section 204 may prevent many banks and building and loan associations from negotiating loans with the district banks unless the Member of Congress disposes of his bank stock or building and loan shares before application for loan is made.

I fully realize that criticism without constructive suggestion is destructive. Permit me, therefore, to submit a plan that will be of immediate and permanent benefit to home owners and a source of profit to the Government.

I believe that this plan that I am about to outline more nearly meets the real purpose of the President, and brings about the objec

tive that he has sought for a number of years, in promoting home ownership, than any other system.

Federal home loan banking system: A Federal home loan board of five members to supervise, control, and direct the system.

Twelve district banks with ample capital, each managed by five resident directors appointed by the board.

Capital: $150,000,000 initial, subscribed by the Secretary of the Treasury and paid in as needed in cash 20 per cent, and United States bonds 80 per cent.

Dividends annually on paid-up stock owned by the Government at the rate of 3 per cent.

Bonds: District banks authorized to issue bonds not exceeding ten times paid-up capital and surplus.

Loans: Upon deposit of Federal home-loan bonds in the amount of 10 per cent of the loan applied for and approved mortgages on homes occupied by the owners in amounts not exceeding 60 per cent if amortized, and 50 per cent if not, of the properly appraised value of the property mortgaged, in the amount of 110 per cent of the loan. Such loans to be paid as the payments on the mortgages deposited as collateral are paid.

Borrowers act as agents: That would be the banks and building and loan associations that have direct contact with the home owner. The borrowers at the Federal bank to act as agents for the bank in collecting and remitting the payments made by mortgagors and such agents to provide surety bonds to protect the banks against failure to report or misuse of funds collected.

Circulation: District banks to be given the right to deposit with the Secretary of the Treasury 10 per cent in cash and 90 per cent in United States bonds and receive home-loan circulating notes in all respects similar to national-bank notes, to be redeemed, reissued, and treated in all respects the same as national-bank notes.

Cash reserves: Each bank required to carry reserves in cash or equivalent in the amount of 10 per cent of the paid-up capital and 10 per cent of the par value of all outstanding bonds.

Under this plan it will only require $30,000,000 in cash from the Federal Treasury to capitalize the 12 district banks for $150,000,000, and all paid in.

Loans to be made by these Federal banks to the approved borrowers at the rate of 4 per cent interest, and probably less, and this will enable local banks and building and loan associations to lend money to home owners at an interest rate of 5 per cent or less secured by mortgages on their homes and payable in installments of not less than one-half of 1 per cent of the principal per month, together with interest, which will be well within the ability of the home owner to pay.

Not only can this be done, but the net earnings of the district banks will accumulate a surplus equal to the paid-in capital within 10 years or less and thereafter continue to function as a great Federal financial pool where real-estate mortgages of this class can be liquidated at any time.

This plan will provide a market for United States bonds, and the borrowers at these Federal banks will provide a market for 10 per cent of the banks' bonds.