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There seems to be some confusion about the percentages that appear in section 8, particularly on page 15. As I read and interpret the section no mortgages are excluded. The section merely says that where there are monthly repayment mortgages of long duration, say eight years or more, 60 per cent of the unpaid principal of such a mortgage may be loaned to a member by one of the 12 banks. Other mortgages on homes with an unpaid balance of less than $15,000 are eligible for collateral to secure advances from any one of the 12 banks but on these mortgages the amount which may be advanced by any one of the 12 banks is limited to 50 per cent of the unpaid principal. This is on the theory that the home owner or home buyer is best served by a long-term monthly repayment mortgage and also that such mortgages are slightly better collateral for the bonds than are straight mortgages.

No home-loan mortgages, as I interpret it, are excluded but merely small preference is given to the monthly repayment long-term mortgages.

Item No. 3 of the same section on page 15 contains an important limitation. It


shall not be advanced on a mortgage in excess of 40 per cent of the appraised valuation of the real estate securing the home-mortgage loan. This is a wise provision in order that the bonds of the home loan bank system be absolutely safe and thus find a popular and ready market.

In lines 19 through 24, there is a further limitation which I consider highly desirable from the point of view of the safety of the system and the safety of the bonds.

As I understand the sense of line 19, it means that no home mort. gage shall be accepted as collateral if at the time the advance is made the unpaid principal sum, note that I say unpaid principal sum, as apparently the words “principal sum only appear in the bill. but it was intended to mean the unpaid principal sum as has been mentioned previously, should be less than three-fourths of the appraised value of the real estate in the case of an amortized loan and less than 60 per cent in the case of any other loan. It seems to me that this might be worded so that there could be no danger of the bill discouraging liberal financing particularly on the long-time amortized plan and instead of three-fourths the appraised value that might be raised to even four-fifths or possibly 85 per cent. In other words, the limitation should merely see that at the time the advance is made the unpaid principal of the mortgage is a sum less than the then value of the real estate. Then if half or 60 per cent of such an unpaid principal is advanced by one of the 12 banks we have a secure loan from the point of view of the bondholder. It seems to me, one of the principal purposes of this whole system is to encourage liberal and low cost loans to ome owners or home buyers, and for that reason I think the three-fourths could be changed to even 85 per cent.

With your permission, I would like to file, or at least refer to the President's conference on home building and home ownership report, and file this statement of the land bank of the State of New York. (Exhibit C.) Senator WATSON. Yes. (The statements referred to are as follows:)

98195—32-PT 2-7


Single-family house vacancies in 37 cities, including comparison with situations

of a year ago or nearest date to a year ago, if data are available

(Data compiled Dec. 1, 1931)


Allentown, Pa..
Cedar Rapids, Iowa..
St. Paul, Minn..
Milwaukee, Wis.
Fort Wayne, Ind.
Syracuse, N. Y
Ann Arbor, Mich.
Rochester and vicinity, New York.
Toledo, Ohio.
Brockton, Mass.
Dallas, Tex.
Rockford, III.
Salt Lake City, Utah..
St. Louis, Mo.
Denver, Colo.
Los Angeles, Calif.
Des Moines, Iowa.
Massillon, Ohio
Hutchinson, Kans.
Trenton, NJ.
Long Beach, Calif.
Oakland and other East Bay cities, Califor-

San Antonio, Tex.
Cuyahogo Falls, Ohio.
Akron Ohio.
Pueblo, Colo.
Beaumont, Tex..
Louisville, Ky
White Plains, N. Y
Lansing and East Lansing, Mich.
Kansas City, Mo..
Portland, Oreg -
Tulsa, Okla
Indianapolis, Ind.
Little Rock, Ark.
Tampa, Fla
Orlando, Fla.

Compiled by Division of Building and Housing.



Frederick H. Ecker, chairman; president Metropolitan Life Insurance Co., New York, N. Y.

Morgan Adams, president Mortgage Guarantee Co., Los Angeles, Calif.

William E. Best, president United States Building and Loan League, Pittsburgh, Pa.

Alexander M. Bing, president City Housing Corporation, New York, N. Y.
Hiram S. Cody, vice president Cody Trust Co., Chicago, Ill.
Clarence Dillon, Dillon, Read & Co., New York, N. Y.

Leonard E. Fackner, comptroller Metropolitan Life Insurance Co., New York, N. Y.

William A. Johnston, owner and engineer of Industrial Developments, Akron. Ohio.

Harry A. Kahler, chairman of the board, New York Title & Mortgage Co., New York, N. Y.

William H. Kingsley, vice president Penn Mutual Life Insurance Co., Philadelphia, Pa.

Harry S. Kissell, president National Association of Real Estate Boards, Springfield, Ohio.

James L. Madden, third vice president Metropolitan Life Insurance Co., New York, N. Y.

L. A. McLean, president Southern Trust Co., Louisville, Ky.

Paul P. O'Brian, secretary American Loan and Savings Association, Dayton, Ohio.

Samuel N. Reep, president Home Building and Loan Association, Minneapolis, Minn,

Henry R. Robins, president Commonwealth Title Co. of Philadelphia, Pa.

A. C. Robinson, president savings bank division, American Bankers Association, Pittsburgh, Pa.

H. C. Robinson, senior vice president the Guardian Trust Co., Cleveland, Ohio. A. A. Zinn, vice president Commerce Trust Co., Kansas City, Mo.

James S. Taylor, secretary; chief, division of building and housing, Bureau of Standards, United States Department of Commerce, Washington, D. C.

Arthur J. Mertzke, research assistant; division of building and housing, Bureau of Standards, United States Department of Commerce, Washington, D, C.


The happiness of the buyer of a home is related directly to the soundness of the sale. While too much can not be said about the value of stimulating home ownership because of its effect upon good citizenship and the strengthening of family ties, likewise too much emphasis can not be placed upon the importance of the sales transactions to the accomplishment of these objects.

Too often home buyers fail to realize that the satisfactory completion of sales contracts depends upon what might happen to the property and to themselves. If they understood the purchase of a home is a business transaction, undoubtedly more consideration would have been given to this point. The property itself is subject to fluctuations in value due to various factors, such as depressions, change in neighborhood, and depreciation. Their own net income may vary for many causes, such as unemployment and sickness. Before a sales contract is made for the purchase of a home, the potential buyer should understand these possibilities to the end that when estimating how much he can afford to pay monthly or annually for the enjoyment of his home, he will make proper provision for reserves in the form of saving to take care of any unfore seeable contingencies. Certainly many of the foreclosures and the consequent distress in homes to-day would have been avoided if such a prudent step had been taken.

The full significance of home ownership often is not appreciated by prospective buyers. As a result they frequently enter into sales contracts under impressions which are almost certain to lead to weak ownership in many cases. For example, there are those who undertake contractual obligations upon the assumption they can buy their homes with the money usually spent for rent, without realizing the amounts which will be necessary to increase continually their equities and to make necessary improvements, as well as the unexpected potential demands arising from special taxes and emergencies. Then too, there are many purchasers of homes who pay the least amount of money possible at the time of acquiring possession and secure and maintain thereafter maximum mortgages. The motives underlying this type of home ownership vary—in some cases it is inspired by the possibility of speculative profits through the sale of their properties, in the thought the higher the mortgages, the easier it will be to sell. Unwittingly this class of people assume very real hazards due to the possibility of fluctuation in land values or income reducing or eliminating their small equities. Furthermore, they make their problem of renewing mortgages more difficult because in times of depression and consequent deflation in land values, they can not expect mortgage lending agencies to renew their mortgages without a cash payment approximating the amount of depreciation in value. It would seem that every American who so desires and whose income permits should aspire to own his own home ultimately in fee simple, after considering home ownership from an investment as well as sentimental aspect, and the terms of the sales contract should be predicated upon this basis.

Lessons from foreclosures.--A study of foreclosures is enlightening to home owners in that it indicates from actual experience pitfalls which they should be prepared to face. The three most important personal reasons for foreclosures were found to be due to unemployment, the financial circumstances of the borrower did not warrant the purchase of a home, and the inability to pay special assessments and increase in taxation. The three leading external causes which contributed to these results were the general decline in home property values, the loan was too large a percentage of the value, and the change in the character of the neighborhood. More than 85 per cent of the lenders found that the personal causes of default had more to do with the foreclosures than the contributing external difficulties.

An effort was made to secure reasonably exact figures of the amount of foreclosures upon homes. The information available does not indicate a fore. closure situation by any means as bad as many believe. For example, replies from one type of lending agency with over $1,250,000,000 of mortgages on homes report the percentages of mortgages in process of foreclosure in comparison with the total outstanding mortgages on homes was 0.790 and the percentage of home properties reported as owned by these companies as a result of foreclosure proceedings compared with the total amount outstanding mortgages on homes was 0.738. The incompleteness of foreclosure information generally definitely shows a weakness in our realty structure. It should be possible to secure from various localities a factual picture of not only home foreclosures, but other trends which would be helpful in guiding the sound economic development of the various communities along realty lines. Such a current statistical control may be of assistance in avoiding situations like the one which exists in a mid-west city where five times as many lots were subdivided and placed in the market in a year as would be required for sites for new dwellings, or the continued construction of dwellings even though there was a substantial percentage of vacancies. It would seem that interested business men in the various communities would be willing to set up the necessary local machinery to prevent as much as possible unsound building and the consequent detrimental effect upon the equities of home owners. Accordingly the following resolution was adopted by the committee:

“To insure greater stability in home property values, and to help correct overbuilt or underbuilt conditions where they exist, the establishment of a permanent fact-finding bureau within the Department of Commerce is recommended to cooperate with local units of national organizations through the tabulation and distribution periodically, by districts, of dependable information regarding occupancy surveys, mortgages and trust deeds recorded, real estate transfers, new subdivisions opened, new construction, construction costs, rental trends, land value trends, interest rates, and foreclosures."

A review of foreclosures emphasizes the necessity of the home owner understanding the real significance of home ownership and its responsibilities, as well as the importance of sound personal financial planning. The experience of the Finance Committee, which was verified by others, indicates that prospective home owners should be able to pay about twenty-five per cent of the purchase price of the home at the time they take possession and approximately the same percentage of their annual income for the maintenance of the dwelling and reduction of the mortgage thereafter. The problem of maintenance is dependent upon the ability to save and those who have not demonstrated to themselves that they have acquired the habit of saving may be assuming risks which will lead to unhappiness.

To facilitate sound financial planning, the committee adopted the following recommendations :

Countless home purchasers are doomed to failure from the start owing to insufficient equity and lack of sound advice to the prospective home purchaser regarding the financial obligations of his undertaking, and the committee believes that a down payment of about twenty-five per cent of the purchase price should be established as the basis of a sound home purchase transaction. Further, that realtors, builders, and mortgage bankers should join in a concerted effort to assist prospective home buyers in analyzing their financial ability to consummate the proposed purchase.

"To safeguard the home buyer's ability to meet his payments of principal and interest, exclusive of annual taxes and insurance premiums, the committee recommends that 25 per cent of the buyer's assured income be the maximum allotment for these payments. Where the principal and interest installments are payable quarterly or semiannually, a monthly sinking fund deposit in a separate account covering one-twelfth of the annual principal, interest, taxes, special assessments, and fire insurance premiums, is strongly advocated. Where the principal and interest installments are payable monthly, the deposit each month in a separate account of one-twelfth of the annual taxes, special assessments, and fire insurance premiums, is highly recommended. As a protection against temporary reverses such as illness and unemployment, home buyers are urged to maintain a special home protection reserve fund, for emergency use in meeting the payments on their home purchase.”

Need of neutral appraisal service.-Assuming a proper understanding of home ownership, every prospective home buyer is confronted with the ques tion—is the house overpriced? Seldom is the home buyer able to determine the answer to this question with reasonable accuracy because he lacks the necessary training and experience to weigh intelligently the various factors entering into the answer. Yet there is scarcely a transaction which the average home buyer under takes which involves such a large sum of money and the possibilities of loss.

There are facts which indicate that individuals or small institutions, which in the aggregate must place at the disposal of home owners a large sum of money for mortgages, have not had at times the benefit of good appraisals. Certainly it is in the interest of both the home owners and these mortgagees to know just what is the real value of properties. In the course of considering this problem, the committee found an organized effort in Philadelphia to render a neutral appraisal service which has much promise. The principle underlying this service is that only sound building and sound values make for a solid growth of the community and this agency will contribute toward this end. Accordingly the committee recommends: “The establishment of central appraisal bureaus in the various cities for the purpose of stimulating home ownership through sound appraisals.”

Nothing discourages building as much as the results of unsound sales, because they dampen the enthusiasm of families for the attainment of what should be the birthright of every American who has the ambition to own a home commensurate with his income. Those associated with the building industry can help the home owner to attain this end through cooperative efforts which will enable the prospective buyer to more intelligently select a home, to understand the full significance of home ownership, and to negotiate the financial aspects of the sale on a basis which will insure strong ownership. The first fundamental factor in successful home ownership is therefore a sound and equitable sale.


(Usually when a home has been purchased, the prospective buyer has not the necessary funds to pay for it. There is generally a first mortgage upon the property and usually a second. The buyer assumes both of these, but it is only a question of time when he may have to refinance one or both. In the event he is building his own home, then he must arrange for his own mortgages. In both cases a better understanding of mortgage services and their proper adjustment to his financial status will make for greater happiness.

Type of loans available.-Let us now direct our attention to first mortgages. Competition in this field is very keen, and when this condition prevails, the public profits. Accordingly there are various types of mortgage plans available to the home owner, which may be divided into straight and amortized loans or combinations thereof. A straight loan represents a mortgage for a short period of time, possibly three or five years. Amortized loans usually run for a much longer period, frequently up to fifteen years, within which time the principal of the mortgage has been eliminated or very substantially reduced through systematic payments. With these facilities available, there

arises the question as to the type of mortgage service which will best suit the • needs of the home owner. He alone, after consultation with local mortgage agencies, can answer this question.

Again the committee wishes to emphasize the necessity of developing a mortgage program which will be in accord with the purchaser's ability to save. Furthermore, it wishes to point out the advantages of long-term loans both from the standpoint of saving renewal fees, as well as the security incident to knowing that the mortgage financing definitely is disposed of until the time when the first mortgage will be cancelled through complete, unencumbered ownership. While there are times when short-term straight mortgages are necessary, too often the motives underlying requests for such mortgages arise from principles which frequently lead to losses rather than profits. The committee, being mindful of the problems which sometimes arise upon the maturity of short-term straight mortgages

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