they want their principal in order to meet their obligations. That means foreclosures. It also means that those who have mortgages coming due can not get the help to which they properly should be entitled. If the mortgage has been reduced, they should be able to bring it back, as they have the best security that exists; they should be able to get some slightly larger amount in order to tide them over this period. But that is impossible. Mortgage money has_practically disappeared. And, contrary to what anybody may say, I have investigated over this country, and mortgage money simply does not exist except in a few centers. I might tell you of just one little instance I had. I was called. in by the Elkhart Housing Co. to advise them as to their condition. I found that they had sold a great many homes to purchasers on a contract basis. Those homes were mortgaged to the extent of 25 or 30 per cent of their value. My advice to them was that they replace those mortgages with mortgages of 50 per cent of the value, a very conservative loan, to give them money to tide them over, the loans being made directly by the buyers who were in possession and who would have the title. Every big agency in this country that has been approached has rejected those loans, on the ground that no loans are being made in communities of that size. Senator TOWNSEND. Are the big agencies you refer to, the insurance companies and other big companies, foreclosing their mortgages rapidly? Mr. SCHMIDT. The insurance companies are not foreclosing their mortgages rapidly. Senator TOWNSEND. They are not? Mr. SCHMIDT. They are not requiring payment when it is due, and are frequently waiving the amortization, because few have money to take care of the amortization payments. Senator TOWNSEND. Do the insurance companies have a large percentage of the mortgages? Mr. SCHMIDT. Comparatively small. The savings banks, and savings societies, and building and loan associations carry the bulk of home loans, Senator COUZENS. Have you stated the reason for the difference between the 5 or 512 per cent and the 6 per cent that you just spoke of? Mr. SCHMIDT. In my judgment, the improper flow of money into that field is one of the reasons, and the other is the small amount of the mortgage; more trouble to attend to it. Senator COUZENS. As a matter of fact, that accounts for the difference in rate? That is, the examination of the abstract, and the preparation of the papers for a small loan is really the difference between the rate on a $5,000 mortgage, or a $50,000 mortgage, or a $500,000 mortgage. Mr. SCHMIDT. Not entirely. It is a lack of money. Senator COUZENS. Well, there is no more money in the field for apartment houses and hotels than for small homes." Mr. SCHMIDT. No; not at this time, but there has been in the past. Senator COUZENS. I do not agree with you on that, but I am not the witness. 98195-32-PT 29 Mr. SCHMIDT. There has been money for apartment houses, and so on, at the rate of $1,000,000,000 a year. Senator COUZENS. But never available at 412 per cent. Mr. SCHMIDt. No. Senator COUZENS. That is what I am trying to bring out. Senator WATSON. Have you studied this bill, Mr. Schmidt? Senator WATSON. Have you any objection to any of its provisions? Mr. SCHMIDT. No objection. I think, undoubtedly, in the course of development improvements may be made in it. Senator WATSON. You think it presents a feasible plan that is workable? Mr. SCHMIDT. I do. Senator BULKLEY. Can you suggest any improvements now? Mr. SCHMIDT. It would seem to me that would be the part of those who object to certain provisions. The bill seems to me to be workable. Some adjustments of some kind may have to be made. Senator WATSON. Do you look upon it as a temporary proposition, or as a permanent institution? Mr. SCHMIDT. As a permanent institution. Senator WATSON. Do you think that when we get out of the doldrums and get on a prosperous basis, that there will be enough business to keep 12 banks going and make them a paying proposition? Mr. SCHMIDT. I do. I think that when such an agency is created, permitting the discounting or sale of mortgages, it will be used. In fact, I have asked any number of bankers about that. I happen to be a director of one of our large national banks in Cincinnati, and I know the feeling that exists in regard to it. I might also say that the passage of this bill, in my judgment, would immediately create a psychological effect of confidence. Senator COUZENS. You understand, of course, that this bill does not in any sense help second mortgage money people. Mr. SCHMIDT. It does not. Senator COUZENS. How much do you think a man should have before he starts a home? Mr. SCHMIDT. That would vary in communities. I should think that he should have, probably, from 15 to 25 per cent. Senator COUZENS. How does he get the money that is the difference between the 15 or 25 per cent and the 50 per cent that he is required to have before he gives his mortgage? That is, that will be about that which he has to have, or, probably, 45 per cent. How does he get that? Mr. SCHMIDT. That is carried sometimes by the builder; sometimes by a second-mortgage company. That situation is always unsatisfactory. Senator COUZENS. Is not that one of the worst features of the home-mortgage situation? Mr. SCHMIDT. It decidedly is. Senator COUZENS. Will this legislation help that? Mr. SCHMIDT. It will help it by setting up a better base. Senator CoUZENS. What is that? Mr. SCHMIDT. It will help it by setting up a better base. The mortgage practice in this country is not always sound. We repre sent the Metropolitan Life Insurance Co. in placing mortgages and frequently are approached by second-mortgage groups willing to lend 15 or 20 per cent on top of our first mortgages, because the conservatism of the Metropolitan is known. The same can not be said of the usual first-mortgage lender. We feel that this bill will tend to better appraisals, because the companies will want to be able to obtain the advantages of the act and, therefore, their practice will be improved. This will make for a sounder first-mortgage base, upon which to erect a second-mortgage structure. Senator WATSON. Have you studied the figures on page 15 of this bill? Any such advance shall be subject to the following limitations as to amount (1) If secured by a home mortgage given in respect of an amortized home mortgage loan, which was for an original term of eight years or more, the advance may be for an amount not in excess of 60 per cent of the unpaid principal of the home mortgage loan. Do you think that makes your plan a workable plan? Mr. SCHMIDT. Yes, sir. I don't see the logic, precisely, of the provisions as there set forth. I think the advancement should be based upon the appraisal of the property, rather than the amount due on the mortgage; and, also, it rather looks to me as though certain disadvantage might be done to institutions that do not take an 8-year or more amortized mortgage in the amount they can borrow from the banks as they are set up. Senator COUZENS. Do you believe that the mortgagor should live in the home? Mr. SCHMIDT. Yes, sir. Senator COUZENS. You do not believe that the money should be advanced for building homes speculatively? Mr. SCHMIDT. Decidedly not. I do not see any speculative stimulation in this bill. Senator COUZENS. In other words, if a builder wanted to build 15 houses, he would not be able to get the whole 50 per cent? Mr. SCHMIDT. No; it wouldn't do him any good anyhow. Senator COUZENS. I do not quite get you. I understand there is no prohibition in this bill against a builder getting 50 per cent on a home which he builds speculatively and which has not yet been sold, so that if the bill stands as is, the builder can build 15 homes and borrow 50 per cent and have a rediscount, under this bill, without having sold them at all. Mr. SCHMIDT. Yes, sir. Senator CoUZENS. Is that desirable? Mr. SCHMIDT. I think it is almost necessary, because almost all homes of the class which this bill is intended to serve, are built by builders. They are sold finally, and if the builder can not get any financial assistance it stops building entirely. Senator COUZENS. Yes; but your testimony seemed to be contradictory, when you said that before the mortgage was rediscounted the home should be lived in by the owner. Mr. SCHMIDT. I did not precisely say that, Senator; if I did, I did not intend to say it. Before the mortgage becomes what might be called a permanent mortgage, or before the rediscount becomes what you might call a permanent loan, I think the owner should live in the house, but I do not think you should stop the builder from getting finances; otherwise you stop construction. Senator COUZENS. I am not talking about that. I am talking about whether, before these rediscount banks rediscount these loans, if the owner should not live in the house. Mr. SCHMIDT. I should think it better practice. The original mortgage could hold the loans till the premises were sold. Senator COUZENS. In other words, you would not approve of a builder putting up 15 houses and making them subject to a 50 per cent loan before the owner lives in them? Mr. SCHMIDT. I would not consider that the better practice. Senator COUZENS. That would be a provision for speculative building, would it not? Mr. SCHMIDT. Yes, sir. Senator COUZENS. Criticism has been made by previous witnesses here that the amount that may be rediscounted in proportion to the loan is too small; some have contended that the whole amount of the mortgage should be subject to rediscount without any deduction. Is that your view? Mr. SCHMIDT. That is how the proposal was originally written; I helped to prepare the original proposal. This is much more conservative than was the original proposal. Senator COUZENS. Is not the real difficulty to the man who wants to build a home the rate that he has to pay for the difference between what he has and the 50 per cent which he is unable to borrow? Mr. SCHMIDT. That is one of the great difficulties, but, as I stated before, I think if you better the underlying basis and standardize our appraisal procedure, and perhaps better some of the laws of the States, as this would tend to do gradually-I think if you get your basis right, that then your second mortgage problem will follow along. In fact a major second mortgage group has already been started, I might say to you, with the thought that this bill will pass, and that they can act with safety. To-day second mortgage groups can not act with safety, because first mortgage practices are unsound. Senator COUZENS. Now this second mortgage situation, and the first mortgages that have to be rediscounted, is the terrific cost to the home owner, is it not? Mr. SCHMIDT. It is. I would say that it probably costs 70 per cent of the entire financing, if you take the country as a whole. Senator COUZENS. That means 15 to 25 per cent on the second discount? Mr. SCHMIDT. Yes; and that is a terrible weakness. Senator COUZENS. I wish you would emphasize, if you can, how this bill aids that. Senator WATSON. I was going to ask him that. Mr. SCHMIDT. As I stated, I feel that if we get a sound basis for first-mortgage loans in this country, whereby certain practices will be followed by all loaning institutions, that this will encourage creation of second-mortgage groups that can act with safety following upon loans that meet the requirements as to first mortgages, of this Federal Home Loan Bank. Upon that basis, of a mortgage that meets the requirements of this bank, and of a sound appraisal prac tice, you will find second-mortgage groups which will take mortgages based upon such a loan. Senator COUZENS. Will you tell me how the second mortagee's situation is improved by this plan differently from that it now is, when the home owner has such an insecure income? In other words, a large part of this difficulty is created by the insecurity of the income of the owner, so that the second mortagee is left in a very difficult position, because of the economic conditions and the insecurity of the income of the home owner. Mr. SCHMIDT. That has not been the danger or the cause of the trouble in the past. The cause of the trouble has been the coming due of the total amount of the second mortgage at a time when the home owner could not pay it; and also the coming due of the principal payments of his first mortgage. Senator COUZENS. Well, it has been testified before this commit-. tee that because of the depreciated prices many persons who have paid only a small portion down find themselves in a position where they can go out and buy a new house and sacrifice their equities in the old house and yet be money ahead, rather than if they tried to carry out their original contracts. This bill does not help that. Mr. SCHMIDT. Well, I do not agree that it does not help it, for this reason: Because of the fact that financial institutions can not get money to meet the demands of their depositors, or for other purposes they have been forced to demand payment of the principal sum of mortgages that became due. And as a result of that the value of homes has been depreciated. The value of homes has not depreciated because there is overproduction, but because they are forced on the market and prospective purchasers can not finance. Senator COUZENS. No; that is true, but the great drop in commodity prices, have they reduced values? Mr. SCHMIDT. There has not been such a tremendous drop in commodity prices in connection with homes. I would say 15 per cent,. or maybe 20. Senator COUZENS. That is enough to wipe out a man who has a 20 per cent equity on his home. Mr. SCHMIDT. Yes; that is why I said he should have 25 per cent. That seems to be about the swing in urban property-about 20 per cent. Senator WATSON. Mr. Schmidt, you said you want a standard base for mortgage loans and a unified system of appraisals, and that sort of thing. Can not that be brought about by your organization without a law? Mr. SCHMIDT. No, sir. Senator WATSON. You have to have a law to do it? Mr. SCHMIDT. I think you have got to have a law which will be. of use to banks, building associations, and trade associations, whereby they may take advantage of provisions which will be set forth under it, if the contemplated benefits are to come in this country. Senator WATSON. What is the situation in Cincinnati at the present time; are there many foreclosures on homes? Mr. SCHMIDT. There are quite a number. I think our city, how ever |