But the large majority of the loans are fully amortized over a period of 10 to 15 years.

Senator WATSON. Give us your opinion of this bill, Mr. Murray. Mr. MURRAY. I have a selfish interest in this bill, by reason of the fact that I want to protect the investors who have purchased my loans. If this new bill will do what it is suggested it will do, that is, cause the building of a great number of new homes, it will only add to the present vacancy. Any time we create one vacancy or two vacancies in a city block we necessarily reduce rental value of all other properties in that block. Every time we foreclose a mortgage and sell that property out, we have reduced the value of property in that block.

Senator WATSON. Do you take into account increase in population plus the desire on the part of a lot of people who live in apartments to get out and own individual homes?

Mr. MURRAY. Yes; but we find that we are having a great many people going to apartments because they want to get away from the trouble of owning a home. They like to give one check to the landlord and then they are through with it. They do not have to cut grass and water the flowers. It is a bad situation, but they can rent apartments cheaper than they can own a home, and use the rest of the money for buying an automobile.

Senator WATSON. So the desire for the individual home, in your judgment, is not as great as it once was? There are a lot of young people getting married who are quite content to live in apartments?

Mr. MURRAY. Yes. That is a situation which confronts us and which we admit is a bad one, but it is a condition and not a theory. We are confronted with that every day.

I think the bill is bad, Mr. Chairman, by reason of the fact that it will help but very few business institutions. Any business such as mine will receive no benefit from this bill. Neither will we receive any bad effect, other than depreciating our securities. It will help the building and loan associations, but we have two types of building and loan associations. We have one type that declines to speculate. I believe the building and loan associations throughout Texas are collecting from their borrowers a rate of interest averaging around 9 per cent. I may be mistaken, but I think it will average that. If you permit those people to take a great bunch of those 9 per cent mortgages or 8 per cent mortgages and dump them into a Federal bank and discount those mortgages at 52 or 6 per cent, permitting them to make a 3 per cent spread or 32 or 4, you naturally cause a desire to speculate and take that money back to make more loans on inflated values, rediscount them and make a larger spread.

We have a conservative type of building and loan association which will not use this bank, because it is recognized, I believe, by all that it is not good policy for any institution to go out and hypothecate its assets for money to reloan. It is bad business for anybody to borrow money to make loans with. That is my opinion.

For temporary help I think the reconstruction bill is very fine. All of the companies that need temporary help can certainly get it from this new bill, but I can see no reason on earth why we should put up a permanent refinancing bill here for only a few companies

when they can obtain the temporary relief that they need perhaps in the next 30 or 60 or 90 days.

Senator WATSON. Not knowing whether or not this bill could ever pass, or, if so, before what time, and anticipating that under the most favorable conditions it would have a rough voyage through Congress under existing conditions, after the passage of the other two acts, we undertook to write in a clause that would be helpful in the Reconstruction Finance proposition, just as you suggest. Mr. MURRAY. I think that was very fine, Mr. Chairman.

Senator WATSON. It do not think it covered the whole situation that might be contemplated by this bill, but it at least partially relieved that situation.

Mr. MURRAY. This statement may seem a little strange, but from a careful observation it is my opinion that if you inflate your building to the extent of having an average of two dwellings, two vacant dwellings, in every city block throughout every city, you will find you have a reduction in your rental values from 10 to 20 per cent, because those two vacancies in each block will cause competition, and the tenants will say, "I can rent this house for $35," when they are paying $45 now. You will absolutely destroy your values.

I find a mistaken idea among many people who are in favor of this bill as to what the bill will provide. Before I left Dallas Saturday a good friend came to me and asked me if I was going to Washington, and when I said I was he said, "I hope you get that bill passed. I want to get a $10,000 loan on my property from the Government so that I can invest that money in certificates, because I can make 20 per cent discount."

Senator WATSON. What somebody thinks about it down in Dallas, Tex., has no relation to the merits of the bill.

Mr. MURRAY. No, of course not; but that is the sentiment over the country that this is going to be easy money.

Senator WATSON. We do not build up our financial structure on sentiment. We try to do it on the solid basis of reality.

Mr. MURRAY. I appreciate that; but I am trying to explain to you the sentiment among the people back home. The contractors are of the same opinion. They think that as soon as this bill passes they are going to build more houses.

The foreclosures that are being had at this time are wholly brought about by the fact that we were so liberal in our credits. We had loaned too much money. Values had depreciated to the extent that the owner had absolutely no equity in the property. If he has no equity now, this proposed bill would be of no value to him, because he could not borrow a hundred per cent on the value of the property; so he would not be benefited in the least.

We have had a lot of building and loan failures, but I do not think this bill would help them, because they are in liquidation. They are paying their stockholders almost nothing out of the liquidation. They do not have proper securities to go to this bank and get sufficient money to place them back on their feet, so it would be of no benefit to them.

It has been stated here that homes can not be refinanced at this time. That is not true in the Southwest. We have ample money and have had all the while for taking care of all loans that come to us on homes.

Senator WATSON. Suppose we pass this bill: how would it interfere with your business? In other words, have you a selfish interest in opposing it?

Mr. MURRAY. Not a particle. I am glad you mentioned that. If this bill is passed it will help no one except the high-rate companies

Senator WATSON. It would not benefit you?

Mr. MURRAY. It would not benefit me.

Senator WATSON. It would not harm you?
Mr. MURRAY. No.

Senator WATSON. Or interfere with your business or your future loans?

Mr. MURRAY. Not a particle. I will use the example that this gentleman here has, a home. He wants a reasonable loan. He comes to me or to some other representative loan company. He can

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borrow 50 per cent of the value of the property at 6 or 612 per cent. Why, then, would he go to some bank that would reissue the paper through this proposed bank where he would have to pay 7, 712, or 8 per cent to get that money?

It will not affect our business, except that it might cause a few loans to be made at excessive amounts and cause extra buildings to be constructed where there is no need, and then reduce the value of properties that are already on the books.

It has been stated to-day that home owners will lose their homes on account of loans maturing and they can not be refinanced. I question that statement. I know of no insurance company or no local bank or private institution, such as my own, that is foreclosing any loan at maturity if we can persuade the borrower to sign renewal

papers.

Senator WATSON. We have had quite a lot of testimony to that effect here. It may not be so in your immediate locality.

Mr. MURRAY. I can only speak for the small State of Texas. I know of many a case, including my own, where a borrower would become delinquent; he would have one or two semiannual settlements, and we would rewrite his loan entirely and start him off fresh and clean. That has saved many foreclosures. Where properties. are being foreclosed they are being sold on long-time terms at 1 per cent a month, including interest and principal, interest at 6 per cent. This would prevent the building of new homes, because a man can go to any company that is foreclosing property and purchase property with almost no down payment. A 5 per cent payment would be acceptable immediately. Then he can pay the balance of it at 1 per cent a month, including interest at 6 per cent. We can not see that this bill will do any one any good but in the long run it would be a detriment to every home owner in the country.

Senator WATSON. Thank you, Mr. Murray.

Are there any further witnesses? If not, we will adjourn until 10.30 in the morning.

Mr. RUSH. May I just rise to say a word, Mr. Chairman? I am Charles J. Rush, formerly executive secretary of the Texas Association of Real Estate Boards. In Texas our nominal interest rate is 8 per cent. My personal experience in San Antonio is that we

98195-32-PT 2- -6

can not refinance homes at the present time. When we do we get 8 per cent plus 2 per cent brokerage. That is the condition in San Antonio to-day.

Senator WATSON. What does that lead to?

Mr. RUSH. It means that it is almost impossible for us to finance our homes. Most of our loans are made on a five year first and second running possibly five years, which makes a rather heavy payment. I have a home that cost me $5,750. My interest on the first for interest and principal payable semiannually runs some $30 a month. The interest and principal on the second runs to possibly $30 a month, on a home worth $5,750. It is impossible to refinance and get that on one note down in our section of Texas.

Senator WATSON. Then you favor the passage of this bill, do you? Mr. RUSH. Yes, sir; the Texas Association of Real Estate Boards is very much in favor of this bill as sponsored by yourself.

Senator WATSON. You fellows from Texas ought to get together. You are a long distance apart, but you can get together.

Mr. RUSH. We are in different sections of the State.

Mr. MURRAY. I am writing loans in San Antonio and have a live agent there, and we have never charged over 62 per cent for a San Antonio loan.

Mr. RUSH. Eight per cent is the standard interest charged there. Senator WATSON. We will meet to-morrow morning at 10.30. (Whereupon, at 4.25 o'clock p. m., the subcommittee adjourned until Wednesday, January 27, 1932, at 10.30 o'clock a. m.)

CREATION OF A SYSTEM OF FEDERAL HOME LOAN BANKS

WEDNESDAY, JANUARY 27, 1932

UNITED STATES SENATE,

SUBCOMMITTEE OF THE

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The subcommittee met at 10.30 o'clock a. m., in the hearing room of the Committee on Interstate Commerce, pursuant to adjournment from Tuesday, January 26, 1932, Senator James E. Watson presiding.

Present: Senator Watson (presiding).

Senator WATSON. We will proceed with the hearing, Mr. Stephen

son.

STATEMENT OF ROME C. STEPHENSON, PAST PRESIDENT AMERICAN BANKERS ASSOCIATION, SOUTH BEND, IND.

Senator WATSON. Your name is Rome C. Stephenson, and you live in South Bend, Ind.?

Mr. STEPHENSON. Yes, sir; Rome C. Stephenson.

Senator WATSON. You are the past president of the American Bankers Association?

Mr. STEPHENSON. Past president, American Bankers Association. I have a statement here, Senator, that gives the antecedents of the witness. It reads:

Statement of Rome C. Stephenson, of South Bend, Ind., vice president of the St. Joseph County Savings Bank and president of the St. Joseph Loan & Trust Co., before the Banking and Currency Committee of the Senate, at the request of the secretary of the committee.

Senator WATSON. I would like to hear your views.

Mr. STEPHENSON. I have prepared a statement, and if there are any questions you want to ask me afterwards I shall be glad to answer them. It is a very short statement.

It is with reluctance that I appear before the committee in opposition to Senate bill 2959, known as the Federal home loan bank bill, owing to the fact that this bill has been prepared in an attempt to carry out some recommendations by the President of the United States designed to relieve economic conditions of the country. It is my belief that the President is doing everything possible to assist in devising ways and means to bring the country back to a normal and prosperous business condition. He is being loyally and patriotically supported by the Senate and the House of Representatives without regard to the political affiliations of the Members, and the action of