designed to be relieved by this, as to the use of their funds? I do not know how deeply you could go into that matter. The release of deposits in closed banks would have a great psychological effect on the minds of the people who are now obsessed with this hysterical fear which is responsible for the whole trouble. Senator WATSON. Is not that a question of wise management and economic administration? Mr. DOWNEY. Yes, sir; it is. The board can dictate the purposes of the borrower in the use of money borrowed. Senator WATSON. Is there anything further you want to say? Mr. DOWNEY. No; not at all. Thank you very much. STATEMENT OF WILLIAM E. BEST, PRESIDENT UNITED STATES BUILDING & LOAN LEAGUE, PITTSBURGH, PA. Mr. BEST. Mr. Chairman, I have prepared a statement, which I will read, with your permission. Senator WATSON. You are president of what? Mr. BEST. Of the United States Building & Loan League. Mr. BEST. The United States Building & Loan League is an organization formed by the State leagues of the various States through the United States, and the individual associations in the various States, the purpose of the said league having been given by Mr. Morton Bodfish in his testimony before this committee. Senator WATSON. You are president of that league? Mr. BEST. I am president of that league. Senator WATSON. How many members are there in the United States? That is, how many local establishments? Mr. BEST. Local institutions connected with the league? Senator WATSON. Yes. Mr. BEST. There are very close to 2,500. in addition every State league belongs-that is, 44 States. Senator WATSON. They all belong? Mr. BEST. They all belong. Senator WATSON. Do you keep in pretty close touch with the operation of all of the associations? Mr. BEST. In as close touch as possible at all times. Senator WATSON. What do your total loans amount to, and what are your assets? Mr. BEST. The assets of those associations are just a little short of $9,000,000,000, and the entire membership in the United States is over 12,000,000 people. Practically 90 per cent of these assets are invested in home mortgages. We represent these assets and this membership. Senator WATSON. You may read your statement, and then we will ask you some questions after that. Mr. BEST. The home owners of America will not without protest permit selfish interests to obscure the issues nor to delay the creation of the Federal Home Loan Bank system proposed by President Hoover as an integral part of his program for economic recovery. The first three parts of that program have been enacted into law. The Federal home loan bank act, which touches most closely the homes of America and the millions of investors in thrift and home financing institutions, should not be delayed by the protests of private capital and their lending representatives. No man or organization should be permitted to speak for the home owner, if he or it has called mortgages or led the home buyer to assume short-term mortgages, which are either unrenewable or only renewable upon large reductions and at heavy expense at the present time. Since time immemorial real estate, particularly homes, has been considered the sound and conservative investment for the family of small means. Men high in public life have urged the people to save and prosper through home ownership, and no one denies the need for thrift and good homes on grounds of public policy and private happiness and progress. The Federal Government will not go into business when it cooperates in maintaining normal credit for the small home owners of America. For centuries one of the principal functions of government has been the establishment and regulation of the issues of money, the flow of credit, the encouragement and development of financial institutions to carry on the necessary activities of its citizens. Proper housing, or home building and home owning, are important in the development of any well-ordered nation. Good homes are possible only through widespread and low-cost credit. What the country needs to-day are more green lawns and white houses and no present owner should lose his home because building and loan associations or other home-loan agencies do not have the funds necessary to refinance short-term loans made by other institutions or to lend to the man who needs funds and who, in time of plenty, has completely paid for his home. I might recite an experience that I had just last week. My home is in Pittsburgh. I was visited by a lady whom I had known years ago, who owns a $20,000 home. She had borrowed $8,000 from a commercial bank. In her town three banks have failed. The receiver of the bank in which her loan was placed, has demanded the $8,000. That home to-day will appraise, even at the present market values, at least $15,000. I know it very well. I have been unable to refinance that home, and it looks very much as though that lady is going to lose a $20,000 home to one of these commercial institutions which is compelled, of course, to collect, its assets. That is one of thousands and thousands of cases existing throughout this country to-day. Senator WATSON. And there is no place where you can refinance it? Mr. BEST. I have not been able to find one. I have endeavored to get it in every avenue, and as yet have been unable to. Building and loan associations are to-day serving 12,000,000 people-12,336,754. Ten million are investing members, many of whom look to home ownership some day. Two million, two hundred thousand are buying their homes on the building and loan plan. No borrower from a building and loan association is, losing his home due to a mortgage being called, as building and loan associations have no right to call any mortgage unless there has occurred a prolonged delinquency of both interest and principal payments. However, these associations are besieged with meritorious applications for loans from thousands. The Federal Home Loan Bank system would make advances possible and do much to hasten recovery and steady the already unreasonable residential real estate deflation. Practically speaking, less than two-tenths of 1 per cent of the shareholders' dollars in building and loan associations have been lost during the present economic crisis, although the demands for withdrawals have been very, very, heavy during the last year. Funds are needed to pay those people desiring their money. Many are timid or frightened and it is only a minority that have a real need. We must serve them or all financial institutions will be years in rebuilding good will and confidence. These conditions have followed in the wake of the hundreds of regrettable bank failures. The building and loan association is on the home owner and home buyer's side of the market. Our associations have nothing to sell to him. Moneys advanced for home purchase and home owning are taken entirely from the savings of investing members. No mortgages of building and loan associations are sold to insurance companies, banks, or private investors, so that the association has a continuing interest in the home owners' property and his individual welfare. There are no renewal commissions nor so-called short-term loans in the building and loan plan. Further, as building and loan associations confine their lending activities almost exclusively to small homes, we feel that we are closer to the home owner's problem and have our home-loan system more arranged to his benefit than others who also supply home loan credit and who have undertaken to speak for him before this committee. Building and loan associations will support the Federal home loan bank bill for the following reasons: 1. The normal functioning of the home financing and thrift institutions is essential to general business recovery. There must be an unfreezing of these institutions before public confidence will unfreeze. This bill will create a system which can and will restore public confidence. 2. Building and loan institutions are unable to refinance many existing mortgages to avoid foreclosures and the resulting forced sales and general distress. These mortgages were not originally made by building and loan associations, but the owners of these homes are coming to building and loan associations requesting to be refinanced on a long-term monthly repayment basis. The importance of meeting this demand is obvious. 3. This measure will supply a reserve device, which will serve the home-financing institutions as the Federal reserve serves the commercial and industrial activities of the country and somewhat as the Federal farm loan system serves the farming interests. The general tendency will be to equalize conditions of demand and supply and cost for home mortgage money throughout the country. 4. The home loan bank bill, in my judgment, serves a twofold purpose. First, it will give immediate relief and service to an important part of the financial institutions of this country; and, second, it will erect a permanent structure which will assist the homefinancing institutions in meeting future periods of stress. It seems important to have an agency of this character created, to which institutions requiring aid may go for relief. As drafted, the agency will be ultimately owned by the associations and banks benefited and it will be a wise preparation for future contingencies. 5. Building and loan associations, with 90 per cent or more of their assets in mortgages, have only limited flexibility. If receipts fall off, even temporarily, they have to curtail loans or borrow. Borrowing, of course, is an uncertain remedy when depending upon commercial banks. There are also seasonal fluctuations in loan demands and withdrawals, which an agency of this kind would help building and loan associations to meet. 6. This Federal home loan bank system is in no way designed to create a construction boom. Examination of the bill shows that it is conservatively drawn, loans being made only to local institutions, borrowings limited, and mortgages having to be placed as collateral practically on a two-for-one basis. At the present time there are no funds for legitimate home builders, who desire to take advantage of prevailing low prices of labor and materials for repairs and modernization. There is a distinct demand for refinancing. 7. In my judgment, this home-loan bank agency would have no difficulty in employing its 150 to 200 millions of dollars of capital in periods of prosperity and "easy money." The operation of this type of a bank is very inexpensive, as they have no use for marble columns, uniformed doormen, or any of the paraphernalia of general banking. A system of 12 banks can be operated without great cost in good times as well as in stress times. The experience of the land bank of the State of New York indicates just how inexpensively this type of reserve institution can be operated. The New York land bank operated with an expense of $22,000 for the year 1930. Of course, Federal Home Loan Board expense must be added, but such cost can be met for "insurance reasons by the members to be benefited. The fact that they may be assured of this avenue of credit in the future is well worth the additional small item of cost that might be incurred above the experience of this State bank. 8. The credit support provided by the bill will check the precipitous decline in real estate values, stabilize them, and revive the real estate market from the demoralizing effects of foreclosures and forced sales. 9. The small towns and cities who will be primarily benefited by this measure do not have the extremely overbuilt condition which is present in large cities in apartment properties, and the like, financed largely by mortgage bankers through bond issues. Certainly, construction where warranted is desirable, and there is no justification for withholding construction so completely as to attempt to maintain values in worn-out, outdated, and insanitary home structures. A recent Department of Commerce summary on vacancies indicated that the so-called overbuilding was not serious in the small home field. (Survey attached on Exhibit A.) 10. Perusal of the Finance Committee's report of the President's conference on home building and home ownership gives a sound and comprehensive picture of desirable home-financing policies. This Federal home-loan bank bill contributes to the carrying out of the principles laid down in that report. I would urge that that report be made a part of the record in support of the Federal home-loan bank bill. (Report attached on Exhibit B, pp. 1-16 and accompanying letter.) It is also noted that two of the members of the Finance Committee who helped to build up that report then appeared in opposition to this bill. 11. Building and loan associations are found in the smaller towns and cities and the credit service provided in this proposed Federal home-loan bank bill will be used primarily by the building and loan associations and banks in these small communities: Credit is usually limited in these rural areas and home mortgages have normally constituted the principal support of credit. This proposed bill will cause a most favorable credit reaction in these thousands of typical American small towns. 12. The recently created national credit agencies have responsibilities too diverse and too large to deal adequately with the specific mortgage financing problem. This fact was recognized by the President when he made specific recommendation for the home-loan banks to both revive confidence at the present time and to cushion or prevent a recurrence of either overexpansion or unwarranted contraction in the home financing, the home construction, the home-owning activities, which are so important in the social and business life of the Nation. 13. The bonds of such a system can be sold and offer a security to the bondholder unsurpassed except by direct Government obligations. 14. Ample provision is made for the early retirement of the Government advance. The Government is merely lending the use of money in a relatively small amount and no institution will be benefited which does not assume its responsibility in contributing capital to retire the Government advance. 15. Again, credit support of real-estate investment in homes is needed, if not imperative, else home ownership will be permanently discredited and the thrift organizations, who have carried the principal burden of home financing, adversely affected for years to come. 16. There is nothing to the proposition that is continually advanced that this home loan bank bill will result in a lot of new construction and consequent depression in the value of homes. The answer to that is found in the fact that right now the demand for homes is stopped by the fact that adequate financing is not available. After all, the old supply and demand law holds in its fundamentals and demand is just as important as supply. To repeat, lack of adequate financing is a serious restriction on demand. A most probable effect on real-estate values, if financing were available, would be increased marketability and perhaps a real increase in values. When the purchaser can't secure the necessary financing for the purchase of a home it means that homes can be sold only at a much lower price than would otherwise be the case. The supply on the market, which is the important consideration, is greatly increased under present conditions because of forced sales resulting from foreclosure of straight mortgages which can not now be renewed. What every one fears apparently-renewal of speculative building-is practically impossible, because the speculative builders know that the risk under present market conditions is too great. As a matter of fact, all the building that could be expected would be for people who are building homes for themselves, and that form of construction activity, every one would agree would be advisable from the point of view of the general economic structure. Buying and even home building on the part of individuals should be |