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the house, but I do not think you should stop the builder from getting finances; otherwise you stop construction.

Senator Couzexs. 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 committee 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. SCHMIDr. 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, however

Senator WATSON (interposing). Do they come from the banks, or the building and loan associations?

Mr. SCHMIDT. From both.

Senator WATSON. Yes, sir. I think our city, however, is in better shape than any city in the country; perhaps St. Louis, Cincinnati, Milwaukee, and Baltimore, maybe, are in as good shape.

Senator COUZENS. What would you say if this bill were set up, and all of the banks, and building associations, and real estate associations were required to set up the capital; would you get going?

Mr. SCHMIDT. I don't think so. You would get going at some time away in the future, I imagine, but that was not the sole purpose of this bill. There is a present emergency,

undoubtedly. Senator Couzens. There is no provision in this bill for reimbursing the Government for any of the investments it makes in the home loan banks. Do you think they should come ahead of anybody else?

Mr. Schmid. Of course, there is a provision for a return of the stock subscription; but no earnings on the stock.

Senator COUZENS. Yes; but no return on the investment.

Mr. SCHMIDT. It seems to me that it is an appropriate function of government, gentlemen, for our Government to waive temporarily return on investments to make a distinct economic advance.

Senator COUZENS. Giving money without a return?

Mr. SCHMIDT. It seems to me the Government should help in economic situations such as this. And I am most actively against the Government in business.

Senator COUZENS. What is this?

Mr. SCHMIDT. It is not in business here. It is setting up and supervising a business whereby banking of this kind can be conducted on a proper basis.

Senator COUZENS. I find a lot of money going in, and no place for it to be returned.

Mr. SCHMIDT. It provides that the capital which the Government invests comes back to it at the rate of 50 per cent of the amount of subscriptions after the Government's original subscription has been equaled.

Senator COCZENS. But private industry does not want to put any money into this without a return on it, yet you urge the Government to put this money into it without a return.

Mr. SCHMIDT. Yes, sir.

Senator Couzens. There is no provision in the Reconstruction Finance Corporation for any return of the money.

Mr. Schmidt. Personally, I do not see that that is material. If it is customary for the Government to get a return on its money in such activities, this bill should have the usual customary provision. I do say I think the Government could afford, in order to take direct action in connection with this bill, temporarily to invest its money without income return.

Senator COUZENS. Are there any other questions of Mr. Schmidt? [After a pause:] Is there anything else you want to say, Mr. Schmidt?

Mr. SCHMIDT. I think I have covered the ground, Senator.
Senator Watson. All right. We thank you.
Mr. Marc Rose.



Senator Watson. Mr. Rose, your name is Marc Rose ? Mr. Rose. Yes, sir. Senator Watson. Where do you live? Mr. Rose. New York. Senator Watson. It says here that you are the editor of Business Week.

Mr. Rose. Yes, sir.

Senator Watson. When have we had a business week? (Laughter.] What is your publication, Mr. Rose?

Mr. Rose. That is the name of it. We named it before we knew this period was coming on. Now you can spell it differently, if you like.

Senator WATSON. W-e-a-k!

Mr. Rose. Yes, sir. Business Week, Senator, is a weekly which studies business conditions and presents the news of the business week.

Senator Watsox. How long have you been its editor?
Mr. Rose. Since it started.
Senator WATSON. When was that?
Mr. Rose. That was in 1929.

Senator WATSON. And what has that to do with commenting on a measure of this kind ?

Mr. Rose. Well, I am interested in the bill as a citizen; I am also interested in it as a student and observer of business conditions.

Senator WATSON. Yes.

Mr. Rose. I am not talking as a real estate man or banker, nor yet as an expert on the technical features of the bill; but I have some thoughts, perhaps, as a student of business conditions which might be interesting to look at from the point of view of some one who is not actually concerned in a monetary way.

Senator Watson. You speak with reference to New York City particularly?

Mr. Rose. No, sir.
Senator Watson. Or the country area generally?
Mr. Rose. No, sir; not New York City particularly.

Senator Watson. What is the situation in New York City with reference to home building that you think it requires legislation of this kind, either to stimulate it or to stabilize it?

Senator Couzens. The witness has not said he favors such legislation.

Senator Watson. I am trying to find out. I think his general remarks lead us to think he favors it.

Are you in favor of this bill?
Mr. RosE. Yes, sir.
Senator WATSON. Why?

Mr. Rose. Well, I think that it is of value as a permanent effort to stabilize the loaning of money on real-estate first mortgages. I think it ought to lead to better building practices, which is one of the most important things that I see in it. It ought to encourage the general practice of amortized mortgages, which is another excellent

thing, because they are given preference in this bill, and that is a first-class thing.

Senator WATSON. Is not that a general thing now, to amortize mortgages ?

Mr. Rose. No, sir. It is becoming the general custom, but this should foster and encourage it.

Senator WATSON. Yes.

Mr. Rose. And I see in it some effort at curbing real-estate booms, which, I think, is entirely desirable.

Do you want me to go back to New York?

Senator Watson. Do you not think that this bill, if it should pass just as it is written, would result in a great building inflation?

Mr. Rose. No, sir; I do not.
Senator WATSON. You do not?
Mr. Rose. No, sir.
Senator Watson. All right. Proceed.

Mr. Rose. There is some cumulative demand for housing, there is no doubt about that. When people are hard up they live two families in a house, there is no doubt about that, and there must be some cumulative demand for housing, and when they get back to work again and can earn money, and conditions begin to improve, then I should say that this would be a help in providing the housing which, undoubtedly, people want. They are ambitious to have their homes when they can get them.

Senator Couzens. Have you any information as to the cumulative demand that you have spoken of?

Mr. Rose. Ì have seen recently some figures, but that is a difficult thing to get at. I think you can get them from the National Association of Real Estate Boards, who take a survey of those matters periodically.

Senator COUZENS. That is a partisan statement.

Mr. ROSE. Yes, probably so, if you wish to be skeptical, but I do not see why they should wish to fool themselves as to the state of the market. They want to know where they are at.

As to the regulation of booms, it seems to me there is no national method of appraisal and watching conditions at the present time.

Senator WATSON. Well, is that not possible without the passage of a law, Mr. Rose ?

Mr. Rose. Possible, but I should say improbable. It is so much an individual local thing nowadays that one locality is not watching what the other locality is doing.

Here is another reason—this is, of course, one of the primary things—that this ought to provide a flow of credit from one area where money is plenty to another area where there is a stringency of money. | think that is one of the conditions that would be helped. I know there are areas where money is more stringent than in other areas. I, myself, have sent money out to places where the interest rate was high, rather than to invest it in New York where it was lower. I do not think that is the way it ought to be.

Senator COUZENS. What do you think with reference to the question I asked the other witness, as to whether the builder should receive the benefit of this bill prior to the sale of the property to a home owner.

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