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 there for 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 that 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 have 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.

Senator WATSON. There has been a discussion of this bill? Mr. STEPHENSON. There has been a discussion of this bill, and the men with whom I have talked believe that the desired object could be attained through the avenues that have been opened up through the Reconstruction Finance Corporation, by enabling building and loan associations that need the money to come in and get it. But building and loan associations are in a very favorable situation as compared with the banks, because their money is not payable upon demand, and they can slowly collect the amounts that are due on their notes and mortgages. It comes in, and they pay it out. Practically all of them, excepting possibly in the State of Ohio, are mutual associations, and belong to their stockholders. So long as they are functioning in the right way, the stockholders can not demand immediate payment of the money. It can be done in a slow way. Senator WATSON. We are very much obliged to you.

Mr. STEPHENSON. Thank you. I am very glad indeed to have had the pleasure of appearing before your committee. Senator WATSON. We are very glad to have had you here.

STATEMENT OF BRANDT C. DOWNEY, RECEIVER, WASHINGTON BANK & TRUST CO., INDIANAPOLIS, IND.

Mr. DOWNEY. Senator, in connection with one point Mr. Stephenson touched on, with reference to the home loan bank measure, if there could be such regulations, in the operations of the loans to solvent and going mortgage-loaning institutions whereby the funds would be available, such funds made available by borrowing could be used to relieve the pressure on closed banks. If perfectly good mortgages within the assets of closed banks could be refinanced and the cash made available to the liquidating agents of those banks, the distribution of such funds to the depositors would immediately go into the direct channels of a spending public, and would hearten those people who are sorely beset with the stringency of tied-up funds. Whether such regulations in the home-loan bank measure would be possible or not, and whether the money could be made available, would, of course, be a matter for their own judgment to determine.

Senator WATSON. What is your principal objection to this bill? Mr. DOWNEY. The danger of speculative building, Senator. We have no need for new housing. There is a distinct need for the refinancing of old mortgages, mortgages that are due. Take my own trust, for instance. We have $500,000 or $600,000 of perfectly good mortgages, with no avenue of refinancing now available, due to the condition Mr. Stephenson suggested, that the building and loan associations are using all their income, practically, to take care of withdrawals. They are out of the market on new loans. Should those mortgages be taken up and the cash be put into my trust, there could be an immediate distribution to the public, and half a million dollars of distribution to the depositors in my trust would be worth $5,000,000 worth of debt paying within a period of 60 days. It would just be circulating around.

Senator WATSON. How do you propose to do that?

Mr. DOWNEY. I would say only if it could be possible, in the regulations of the reconstruction bill, to have the borrowing associations

or companies first confined their refinancing to the assets of closed banks. Whether that is possible or not under the regulations, I do not know.

Senator WATSON. We can not do that. That appropriates only $200,000,000 for that purpose. That does not touch it.

Mr. DOWNEY. No; that would not touch it.

Senator WATSON. Aside from that, what plan have you to propose or offer that would enable you to take care of your dead mortgages, if you please to call them that? Would this bill do that thing?

Mr. DOWNEY. No.

Senator WATSON. It would not?

Mr. DOWNEY. Not in the regulations provided in the bill, Senator. We do not need any more housing, any new housing. We are overhoused now everywhere.

Senator WATSON. Suppose that to be true. What about taking care of the mortgaged homes all over the country? There are a great many of those, are there not?

Mr. DOWNEY. Yes. This little amendment that was prepared might relieve the pressure. It would, however, put the Federal home loan bank in direct competition with present solvent and going institutions in that market, viz, the mortgages in closed banks.

Senator WATSON. What is the condition of building and loan associations?

Mr. DOWNEY. Practically as Mr. Stephenson suggested. None of them are making any loans, and there are a lot in arrears, Senator. Senator WATSON. Are there a great many defaults?

Mr. DOWNEY. Yes; a good many defaults.

Senator WATSON. Are those in building and loan associations, or where they are mortgaged directly to banks?

Mr. DOWNEY. I think in both, Senator.

Senator WATSON. They are behind in interest, and behind in monthly payments?

Mr. DOWNEY. Yes.

Senator WATSON. They ought to be taken care of in some way, ought they not? There should be some means provided to tide them over, so that they would not be foreclosed on their homes and lose them.

Mr. DowNEY. Yes.

Senator WATSON. Something ought to be done.

Mr. DOWNEY. Yes. The more largely we can tie up our people in the ownership of homes, the better citizens we are going to make of them.

Senator WATSON. There is no question about that. It is a social problem.

Mr. DOWNEY. If we can have a moratorium to take care of those folks, and make it easy on the money-loaning institutions, there will not be the necessity of foreclosure. It will take a tremendous load off them, as well as add to the peace of mind of the public.

Senator WATSON. That was the very object of this measure. Whether or not it meets the situation is a different proposition, but those were the primary objects of the formulation of this measure. Mr. DOWNEY. Could regulations be put into this of a restrictive character, in connection with the borrowings of solvent institutions