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Senator MORRISON. Does it have that effect?
Mr. TIBBETTS. Doesn't it?

Senator MORRISON. Does it have that effect with the Federal banks in the Federal reserve system?

Mr. TIBBETTS. That is a different situation.

Senator MORRISON. Have the people ceased to do business with the local bank because they have set up a rediscount reservoir to which, in time of need, they can resort? Has it had any such effect as that on those banks?

Mr. TIBBETTS. Here, if you please

Senator MORRISON. And if not, why will it have that effect to set up something akin to the same thing for the dealers in another type of credits?

Mr. TIBBETTS. Here, if you please, if my vision of the bill is right, a mortgage for $15,000 is given to the X savings bank. That is pledged with the Federal loan bank, and that is put on record.

Senator MORRISON. Put on record how?

Mr. TIBBETTS. It is put on record by assignment in the office of the registrar of deeds, so that the central Federal loan bank then becomes the owner of record of that mortgage. If there is any question about it, can the owner go to the Federal central bank and do business? Of course he can not. He has to deal with his own banker, and that banker, in turn has to deal with the Federal bank.

Senator MORRISON. Does not the merchant doing business with the Federal reserve system, with his paper up for discount, deal the same way with it? Isn't it up, and rediscounted at the Federal reserve bank, and when it is due, does not the banker substitute something else, and take it down, and renew it if he wants to!

Mr. TIBBETTS. You are dealing with a different type of mind altogether. Here is a man with a little home. The man or the institution which holds the mortgage on his home, in his opinion, is almost next to God.

Senator MORRISON. That is not so down in my country.

Mr. TIBBETTS. Well, you know who is next to God—the reverse of it.

Senator MORRISON. Are you through?
Mr. TIBBETTS. Yes, sir. I thank you for this opportunity.

Senator MORRISON. While I do not agree with you, I thank you for your contribution.

Mr. TIBBETTS. I hoped you might say, as you did to one of the gentlemen who favored the bill, that you respect my opinion. I think you do.

Senator MORRISON. I am perfectly satisfied yours is a quite sincere one, and while I do not agree with it, I respect any sincere opinion.

(Whereupon, at 1.05 o'clock p. m., the committee adjourned until 2.30 o'clock p. m.)

AFTER RECESS

The committee reconyened at the expiration of the recess, at 2.30 o'clock p. m.

Present: Senators Watson, Townsend, and Morrison.

STATEMENT OF ALFRED K. STERN, A DIRECTOR JULIUS ROSEN

WALD FUND, CHICAGO, ILL.

Mr. STERN. Mr. Chairman and gentlemen, my name is Alfred K. Stern. I am a director of the Julius Rosenwald Fund in Chicago; president of the Michigan Boulevard Garden Apartments, a large housing development on the South Side of Chicago for negroes; chairman of the Illinois Housing Commission; and chairman of the large scale operations committee of the President's Conference on Home Financing and Home Ownership.

Senator MORRISON. Do you favor the bill before us or do you

oppose it?

Mr. STERN. I favor the bill if it reaches certain objectives which I would like to state. I come to this meeting not as a banker or real-estate operator nor as a mortgage broker. I am not connected with any insurance companies. These are all businesses which I only know about indirectly.

My point of view is mainly that of one interested in the economic and social aspects of housing. As chairman of the large scale operations committe of the President's housing conference I had a remarkable opportunity to be educated in many aspects of the general housing problem as related to single-family homes and urban housing, apartments, as well as homes.

As regards the bill, as I stated before, I do not know enough yet about what its ultimate results will be. In other words, what it will accomplish is not entirely clear to me from listening to the discussion this morning.

It seems to me that there is a definite need for the holders of mortgages on homes, especially in the smaller communities where the banking facilities are limited, to be protected against the foreclosure proceedings that are going on at such a tremendous rate.

Senator WATSON. Are they going on at such a rate?
Mr. STERN. I am so informed.

Senator WATSON. In instances with which you yourself come into immediate contact ?

Mr. STERN. Not directly. I am told though that the possibility of getting renewals of mortgages is extremely limited, and that insurance companies are holding rigidly to the terms of the mortgage, and that building and loan associations, to meet demands from banks and insurance companies have had to foreclose.

Senator WATSON. Do you come in immediate contact with building and loan associations?

Mr. STERN. No, sir; not directly. I think though that some instrumentality should be set up whereby the home owner who has a mortgage and who is in a sound position so far as his business is concerned should be able to renew and get a long-term amortization basis.

Also, I am told that in many cities, and the smaller communities particularly, the loan-banking building and loan associations are being drawn on heavily for their savings deposits, and that they in turn are closing down on mortgage holdings. & That situation is of an emergency nature, and if this bill is going to relieve it, it seems to me, in itself to be a sound mechanism under able administration.

I want to present another phase of this housing question. The people who have preceded me have talked here for the most part about the home and the single detached house. That is definitely a most satisfactory way of living when it is possible, and all of us want that as an ideal. In the smaller communities it is highly possible to continue that in a large degree but I am thinking of our urban centers. I am not thinking of the follow who has an income of $5,000 a year and up. I am thinking of the man and the family who are earning $2,500 and below. Those people are more in need of better housing facilities, and if this bill is so written as to stimulate new housing I think from the standpoint of supply and demand as we have studied it, received the reports from various cities in the national conference, and have been in touch with groups of five cities of the country who have attempted to find out what could be economically done under private capital; something should be projected to accommodate these large groups of people who are at that earning level right now. There has been no new housing in that field.

Senator Watson. You think Chicago is not overbuilt then in that respect?

Mr. STERN. It is not overbuilt. It depends on how you interpret that. There is a great deal of vacancy in Chicago to-day at various levels, mostly at the higher levels, in the speculative, high-cost apartments. In the lower levels there has been a great deal of doubling up with two or three families living in one apartment. As soon as there is any business for the people who are now living under those insanitary and indecent conditions there is going to be a demand for decent quarters for that group.

For the last two years, we have been operating a large housing development for negroes. It was opened in the fall of 1929.

Senator WATSON. You mean an apartment? Mr. STERN. An apartment development. We have on our board of directors some of the leading business men of Chicago who have taken a real interest. Mr. Rosenwald put up the capital. He wanted to demonstrate that a reasonable return could be made on such an investment, and that improved housing facilities would be created thereby.

Senator WATSON. When did you start on that?

Mr. STERN. It was opened fully in the fall of 1929, just at the beginning of our debacle.

Senator WATSON. So that there is no way to tell at the present time whether or not it is a paying proposition ?

Mr. STERN. We have had two full years of operation, and during those two years we have earned on the equity moneys, a net return of 4 per cent after all charges and depreciation at an average rate of 3 per cent had been deducted. We paid a 51/2 per cent return on the mortgage, and amortized it in advance of its prepayment dates.

We have also, during 1931, earned 3.8 per cent net. We are catering to a group who are a less economically sound risk; a group who are considered a marginal group, for the most part, in their credit standing

Senator WATSON. How many of those tenants have you?

Mr. STERN. We have a total population of about 1,800 people, in 450 apartments.

Senator Watson. That many heads of families ?

Mr. STERN. Yes. In some cases there are two couples, or families, living in an apartment.

Senator WATSON. You do not think this bill could be used advantageously for apartment construction? The capitalization does not admit it.

Mr. STERN. What I want to propose here is this—and this is applicable in New York City to a greater degree than in Chicago. It is applicable in Cleveland and St. Louis, from investigations of able groups of local citizens. Even in the present economic depression, there are really opportunities to-day to build well-conceived groups of houses—they do not necessarily have to be apartments depending upon your land cost; groups of houses as well as apartments that can be rented at from $8 to $12 a room per month.

If we are talking about supply and demand here, I think we ought to level the new construction at a group who are now badly supplied with any kind of decent housing. That is especially true if we are thinking of stimulating any degree of employment, which, to my mind, is bound to be sound financially if considered in the class of public utilities.

I am proposing, Senator, that this bill, if it is to be amended, should be amended to include the possibility of discounting mortgages of corporations, limited dividend corporations under State supervision, that can be issued through existing channels at a reasonable rate of interest over a long period of amortization. These can not be secured in large enough amounts to-day through mortgage brokers or insurance interests.

Senator Watson. Could an institution like this, covering all the phases that you suggest, be put on a paying basis?

Mr. STERN. We are on a paying basis..
Senator Watson. You are on a paying basis?
Mr. STERN. Yes; and there are many other all over the country

that are.

Senator Watson. That are on a paying basis?
Mr. STERN. Yes.

Senator Watson. How many have started to operate that have not paid?

Mr. STERN. There are some that have not.
Senator Watsox. Is it a question of management?

Mr. STERN. The director of the Marshall-Field development in Chicago is on our board and is very frank to admit the weaknesses in their set-up, as we are in ours. We are attempting to demonstrate something.

Senator Watson. That has not paid?

Mr. STERN. That has not paid. It is about breaking even, but the difficulty there is primarily the location of the undertaking and the bigh cost of construction. If we were building to-day, we could show a reduction of 25 per cent in our building costs, and savings in the use of improved materials and methods of construction.

Senator WATSON. You would have to rent at a lower rate.

Mr. STERN. We are making a reduction. We anticipate in 1932 a return of better than 2 per cent net, with a substantial reduction in rentals. These, in turn, may be increased in time as there is increased demand. I do not need to go into too much detail with respect to our development, which I will be glad to lay before you. The reports are completely available. We are publishing everything. Senator WATSON. Suppose we set up this establishment for the erection of small homes. How many people would move out of your apartments into small homes?

Mr. STERN. They are not located so that they can be accommodated in small homes. They have to live near their work, adjacent to the downtown or near-in districts. We have areas in Chicago that are absolutely lying idle, near-in districts, almost within walking distance of the loop, that could be developed on a large-scale basis, that would reach the clerical and skilled workers, the clerks in our department stores, who have no equity money to put up on a home, and who can not pay the rentals that you would expect. They have to spend an hour or two hours going to work every day. There is an opportunity that is economically sound and socially very sound. It will stimulate a great deal of employment, and will create improved conditions for a much wider range of our people than by continuing to stimulate single-family detached houses in outlying districts, where you are overexpanding your cities, which, in many instances, are already overexpanded. You are reaching the level of the $5,000-a-year class and up.

Senator WATSON. You had better go up than out? You had better build high than build wide?

Mr. STERN. I think, from the standpoint of the utilities investments, and all other public improvements, it is sounder. Here we have this land lying idle in New York, Cleveland, Chicago, St. Louis, and many of our large industrial centers.

Senator WATSON. Do you know how this bill, then, would help the small home owner?

Mr. STERN. I have an idea.
Senator WATSON. What is it?

Mr. STERN. My understanding is that in the case of the home owner who has placed his mortgage in a bank, or in a mortgage company, that mortgage company, by being a member of this regional discount bank, can take a mortgage amounting to a maximum of $15,000 and have that rediscounted, I believe, to 60 per cent of the value, and he can get in cash that amount of money to use in making other business transactions. Is that correct, to a large degree?

Senator WATSON. Yes.

Mr. STERN. My claim, if I have made myself clear, is this. What we need to do is to gear our building machinery and our financial structure to be leveled at a group of working people who to-day are living in miserable habitations that need to be improved and can be improved if we apply the automobile methods of construction and engineering skill to that group of our population, instead of continuing to expand in a disorganized way by building one house here ind another house there. It is good for some of the fellows that are sharing in those overhead costs—the banking and real-estate operators, and the whole crowd that are involved. But you can only do what I propose by large combinations of capital, planning, engineering, and architectural and management skill.

Senator MORRISON. I want to ask you this question. Excluding credit difficulties, don't you think now would be a good time for a inan who has a job, with the reasonable hope that he can keep it,

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