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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 612 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. Stephenson.

STATEMENT OF ROME C. STEPHENSON, PAST PRESIDENT AMERI

CAN 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 the Congress during the past few weeks has been favorably received by the general public, which believes that the measures that are being taken and the bills that have been passed will inspire confidence and bring about the desired result. I have endeavored at all times to support the President in his efforts to bring about stabilization of our financial structure and, therefore, do not desire to be considered an obstructionist or one who is against the policies advocated by President Hoover, but rather as one who desires to be helpful and constructive in any suggestions that he may make.

It is, however, the general opinion that in normal times there would be no demand for a bill similar to S. 2959, for the reason that the financial agencies now in existence satisfactorily perform the function of making mortgages to home owners at fair and reasonable rates and upon terms that have in the past been the means of the construction of millions of homes throughout the Nation.

One of the troubles that we have to-day is the fact that in every community home building has been overdone, and the home owners who have mortgaged their premises in many instances are finding it impossible to pay the interest and amortization payments on their loans and the local taxes against their property. I know of no community anywhere in America that is now suffering from the lack of homes. Many home owners that are now in arrears in the payments on their notes secured by mortgage will be unable to pay until they can obtain employment and again exchange their labor for money to buy the commodities to sustain life and to pay their debts.

It is estimated that in times of prosperity between 300,000 and 400,000 homes per annum have been built in the United States, the money therefor being furnished by the existing financial institutions. At the recent rate of constructions, covering a period of 10 years, practically every community has been overbuilt.

The passage of the bill under consideration would result in the building of homes that are not now needed or required, and within a few years the conditions would be much worse than they are to-day by reason of further overexpansion.

Any emergencies that now exist for the relief of institutions that are carrying mortgages on homes can be taken care of by the Reconstruction Finance Corporation. Reasonable opportunity should be given to demonstrate its usefulness in the present situation.

After conditions return to normal, it will likely be demonstrated that there is no demand for a permanent home loan bank bill. It will be necessary, of course, that large issues of Government bonds be offered the public to procure the capital for the Reconstruction Finance Corporation, to cover the deficit that now exists in the Government finances, and other purposes. Such a demand for money will require that rates much higher than usual be paid, and some trouble will likely be encountered in selling to the public bonds in such volume as will procure the necessary funds. The sale of such a large volume of bonds carrying the tax-exempt features will further deplete the resources of the Federal Government through income taxes and the collection of taxes by the States and municipal units.

Would it not be well to delay the consideration of legislation along the lines proposed in the pending bill until such time as the agencies already brought into existence have an opportunity to function, when it will be disclosed, likely, that there is no need or requirement for the passage of a bill containing the provisions of the one now under consideration? This bill, in its present form, seems to limit its operation to one class of lending institutions, and should not pass for the reason that as now restricted it does not provide the broad measure of relief which I understand was contemplated by President Hoover.

Senator WATSON. What could these bonds sell for?

Mr. STEPHENSON. I do not believe they would sell for less than 5 per cent.

Senator Watson. You do not think they would ? Mr. STEPHENSON. I do not believe so. Senator Watson. If you sold them at 5 per cent, and could not sell them for less, do you think thạt 12 banks scattered over the country could be made to pay?

Mr. STEPHENSON. I do not, because there is not a demand for loans for home building at this time, that would be desirable loans—that is, that is my belief. In the community in which I live, I have been trying to find some good loans to be made on residence property in South Bend and Mishawaka for some months. About the only loans that I have been able to uncover were the loans that were desired to pay off existing mortgages and to get some money to pay debts that have been contracted.

Senator Watson. Have you been looking for loans of that kind?

Mr. STEPHENSON. Yes. I have been looking for loans. There are practically no construction loans going on, and no demand for them.

Senator Watson. From your institution?
Mr. STEPHENSON. Yes.

Senator Watson. So that if anybody in South Bend wanted to build a house, he could come to your institution and get the money?

Mr. STEPHENSON. Yes. I lave been looking for them for the last six or eight months, and I have found only two or three desirable loans. The loans that I could have made—and I could have made a great many of them were to pay off existing mortgages and pay debts that had been contracted because so many have been out of employment.

Senator WATSON. Are you familiar with the building and loan associations in your city?

Mr. STEPHENSON. Yes, sir; I am somewhat familiar with them, because I have talked with a number of the men connected with them.

Senator WATSON. Do you ever buy their securities?

Mr. STEPHENSON. No. They never sell any securities. They make their loans, and occasionally they borrow money from some of the banks.

Senator WATSON. On their securities?
Mr. STEPHENSON. On their mortgages.
Senator Watson. Have you ever loaned any to them?
Mr. STEPHENSON. I have not recently.
Senator Watson. Do you know what condition they are in now?

Mr. STEPHENSON. The building and loans in South Bend are all requiring notice for the payment of stock that is asked to be withdrawn. I think also, Senator, that there has been default in the payment of interest on a great many of their mortgages, owing to the fact that the mortgagors have been out of employment for so many months. The building and loan associations in South Bend have performed a great work in helping to build up the city, and they have all been prosperous and highly regarded until the depression came, and then so many wanted to withdraw the amount that they had paid in on stock, that it stopped the building and loan associations from functioning in the usual way, and all the money they can get in, they are paying out to those who have asked for withdrawals.

Senator Watson. Do you think that this proposition would inflate building in the United States?

Mr. STEPHENSON. It think it would have that tendency.
Senator Watson. That is, it would lead to overbuilding?

Mr. STEPHENSON. I think it would later. If we had this in operation right now, I do not think there would be any special demand for the money for building homes at this time on account of the lack of employment, and also on account of the fact that those who contemplate building a home do not want to do so under the uncertainties that exist at this time.

Senator WATSON. Of course, this bill was not designed to build homes immediately. It was designed, first, as an emergency measure, in the mind of the President and those who were his aides; and, secondly, as a permanent proposition; the theory being that a vast number of men who were borrowers from building and loan associations, and could not meet their payments, could be tided over. It would give them a sort of breathing spell. Do you know whether that condition exists?

Mr. STEPHENSON. I think that can be accomplished through the Reconstruction Finance Corporation.

Senator WATSON. You think it can?
Mr. STEPHENSON. I think it can.

Senator WATSON. You think there are clauses in here that would enable that sort of refinancing?

Mr. STEPHENSON. I believe so. I believe this Reconstruction Finance Corporation contemplates giving assistance to building and loan associations, and I think they should have it.

Senator WATSON. I know it does.

Mr. STEPHENSON. I want it distinctly understood that I am a friend of building and loan associations. I once was the president of a building and loan association, and I know of the work that has been done by the associations. They have done great work throughout the country.

Senator WATSON. There is no question about that.

Mr. STEPHENSON. In the way of helping industrial workers and poor men to acquire homes.

Senator WATSON. Has there been correspondence between you and other bankers, or among all of you—your former associates ?

Mr. STEPHENSON. I have not had any correspondence, but I have talked with a great many bankers.

Senator WATSON. As you get their opinion by conversation, is it in accord with yours?

Mr. STEHENSON. Yes.

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