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Mr. STERLING. It would help in this way, that our association, where its mortgages are paid down at this time would be able to refinance and take up these second mortgages in a good many cases.

Senator COUZENS. What percentage of the value are these second mortgages?

Mr. STERLING. Oh, I would say 7 or 8 per cent.

Senator COUZENS. You mean on a $10,000 home, for example, $700 or $800 would be in second mortgage?

Mr. STERLING. I would think so.

Senator Couzens. And what rates are they having to pay for these second-mortgage loans?

Mr. STERLING. They pay as high as 81/2 per cent; as low as 6.
Senator CouZENS. And who do they borrow them from?

Mr. STERLING. Usually from the investment company that built the house, or from the individual who built the house and sold it.

Senator Watson. Eight and one-half per cent?

Mr. STERLING. As high as 81/2 per cent. I would say the average being about 7 per cent.

Senator COUZENS. Well, before this second mortgage is sold by the builder-and I assume it has been sold by the builder, has it not?

Mr. STERLING. Yes, sir.

Senator COUZENS. Does he not discount it before it is sold to the investor? Does he not have to discount it?

Mr. STERLING. Yes; he does.
Senator COUZENS. How much does he have to discount it?
Mr. STERLING. Usually about 20 per cent where he is able to sell it.

Senator COUZENS. So that that 20 per cent discount must be added to the 842 per cent. So that creates an intolerable situation which I can not conceive of this bill particularly helping. I mean, if you can suggest an amendment whereby it will help that situation, I will be glad to have you do it.

Senator Watson. What is your opinion about that? Mr. STERLING. I think you will find that situation pretty general all over the country.

Senator COUZENS. I think that is true. And that is the reason I think the bill would not help it.

Mr. STERLING. I think there are too many of those second mortgages. Entirely too many of them. Too much of a burden on the home owner.

Senator Couzens. Yes. From your experience, how much would you say a man ought to have before he starts to build a home?

Mr. STERLING. Well, he ought to have pretty close to one-third of its cost. The general trouble is that the man who has a fair amount to pay down is too ambitious. He wants too much of a house. More house than he has the ability to take care of.

Senator CouZENS. And you first mortgage lenders do not try to keep him down to something within reason, I suppose?

Mr. STERLING. We surely do.

Senator Couzens. One of the previous witnesses suggested that we ought to have a board up here in Washington to do that for him. Do you believe that that would be a good practice?

Mr. STERLING. I do not see how it would be possible.
Senator WATSON. You are for this bill, are you?
Mr. STERLING. Yes, sir.

Senator WATSON. You have studied it?
Mr. STERLING. I have.

Senator Watson. Have you had meetings of building and loan men in Kansas to discuss it?

Mr. STERLING. We have studied it in our own city. We have six building and loan associations there, and we have studied it most carefully.

Senator TOWNSEND. You are united for it, are you?
Mr. STERLING. Yes. We have no opposition to it in our town.

Senator COUZENS. Would you invest your capital in this enterprise if it were a private undertaking ?

Mr. STERLING. I would.

Senator WATSON. What is the term of your amortized mortgage in the West ?

Mr. STERLING. Do you mean the length of time?
Senator WATSON. Yes.

Mr. STERLING. Most of our mortgages are made on 10 or 12 year basis. We have the plan anywhere from 1 to 12 years. The majority run from 10 to 12 years. Senator COUZENS. Do you loan around 50 per cent of the value? Mr. STERLING. We go higher than that. We go as high as 65

Senator Couzens. Those mortgages could not be discounted here, could they?

Mr. STERLING. Not when they are first made.
Senator COUZENS. No.
Mr. STERLING. They could when they are paid down some.
Senator Watson. When they are paid down.

Mr. STERLING. An amortized mortgage pays down quickly to the point where it could be handled.

Senator Watson. Have you anything further you would like to say to the committee, Mr. Sterling?

Mr. STERLING. No; that is all.
Senator Watson. That is all, then. Mr. Monks.

per cent.



Senator Watson. State your name to the committee, Mr. Monks.
Mr. Monks. Thomas E. Monks.
Senator Watson. Where do you live?
Mr. Monks. Cleveland, Ohio.
Senator Watson. What is your business!

Mr. Monks. I am vice president of the Guardian Trust Co. I am here to-day representing the Ohio Bankers' Association.

Senator WATSON. In the Bankers' Association have you had meetings and discussed this bill? Mr. Monks. Yes, sir. Senator WATSON. How often? More than once?

Mr. Monks. They have had about three meetings on this, Senator.

Senator Watson. Where have those meetings been held, Mr. Monks?

Mr. Monks. At Columbus, Ohio.
Senator Watson. How many bankers attended the meetings?

Mr. Monks. There were representatives from the nine districts that the State is redistricted into.

Senator Watson. And you discussed this bill in all its phases, did you?

Mr. Monks. Yes, sir.

Senator WATSON. Now, give us your conclusions and your present opinion.

Mr. Monks. I first want to say that I want to correct an impression that has gone out from here that the Ohio Bankers' Association and certain Ohio bankers have approved this bill as it is.

When the President's statement as to a Federal home loan bank bill came out in November we had meetings and discussed all phases of it, and approved such a bill to be acted upon. The first bill that came out, I think, was your bill, 35, and upon it they had meetings and approved it.' There were certain parts of it that they were opposed to.

When the present bill came out, 2959, we were opposed to many sections of it. We have taken that bill and gone over it very carefully, and have some amendments that we would like to suggest in that bill if you want to listen to them.

Senator Watson. Certainly we want to listen to them. That is just what we are here for. Now give your first amendment, and tell where it is, and tell why you believe in it. You leave us copies of all these proposed amendments, Mr. Monks.

Mr. Monks. Yes, sir. The first objection we have is on page 4, starting with line 6, paragraph.(2). We are opposed to this paragraph for

two reasons. First. That it would exclude any kind of mortgage loans but longterm loans.

Second. It leaves to the judgment of the board whether savings banks, trust companies, and other banks can become members of a Federal home loan bank.

To correct this we recommend that it be changed as follows

Senator WATSON. What is a long-term loan, in your judgment, Mr. Monks?

Mr. Monks. Well, Senator, the longest term loan that I know of that is recognized now is made by the Metropolitan Insurance Co. and some of the other insurance companies, which is for a term of 15 years. If it is a 50 per cent loan they require no amortization the first two years. If it is a 60 per cent loan, they demand amortization right from the start.

We recommend that you strike out lines from 4 to 11, inclusive, being subsections (1), (2), and (3), and rewrite as follows:

SUBSECTION (1). Building and loan associations, cooperative banks, and homestead associations ;

That is as it reads now. (2). Savings banks, trust companies, national banks, and other banks: and (3). Insurance companies. That is as it is now. Senator Watson. You leave No. (2) as it is? Mr. Monks. No; No. (1) as it is.

Senator Watson. No. (1) as it is?
Mr. Monks. No. (1) as it is.

Senator Watson. And No. (2) “ Savings banks, trust companies, national banks, and other banks"!

Mr. Monks. Yes.

Senator WATSON. Tell us why you want to strike out all the language previous to “ Savings banks” in (2).

Mr. Monks. Let me go on.
Senator WATSON. Yes.
Mr. Monks (reading):

No. 4. Such other financial institutions whose time deposits and financial condition in the judgment of the board warrant making home-mortgage loans.

Senator WATSON. Yes. Mr. Monks. I have stated our reasons for objecting to it as it is. We do not believe if this is going to help the savings banks, the trust companies, the national banks, and other banks, that any board should say whether they are to have relief under this bill. This bill should explicitly state when it is passed that this class of institutions, financial institutions, is to have relief, and be given the same consideration as everybody else under this bill.

Senator BILKLEY. Banks and trust companies should be in absolutely without any qualification?

Mr. Monks. Absolutely, without anybody passing judgment on it.

Senator Coczens. What is your objection to the term of the mortgage?

Mr. Monks. I beg your pardon, Senator?

Senator COUZENS. What is your objection to having only longterm loans in there? Do you want to rediscount two and three-year mortgages!

Mr. Monks. Senator, I will come to that a little further on, if you will please wait a minute.

Senator CotZENS. Yes.

Mr. Monks. Page 5, line 8, we believe that 1 per cent should be changed to one-half per cent. We are of the opinion that 1 per cent is too high an entrance fee for a large number of the smaller banks and loan companies, and might be the cause of them being kept out of the system. To correct this we recommend that it be changed to read one-half of 1 per cent.

Senator WATSON. One-half of 1 per cent?
Mr. Monks. One-half of 1 per cent.
On page 11, lines 6, 7, and 8, they now read:

Directors of classes A, B, and (", whether appointed or elected, shall be chosen from among persons connected with the home-financing business.

We have no idea what the definition or the construction would be on “home-financing business." So we recommend that starting with line 22 on page 10, section (c), that be cut out.

Senator Watson. Will you say that over again? My attention was attracted away from what you said for a moment.

Mr. Monks. Starting on page 10, section (c), cut it out.
On page 11, section (a), cut it out.
Lines 1 and 2 on page 12, cut them out.

And in its place we recommend, as follows:

(c) Nine of such directors, three of whom shall be known as class A directors, three of whom shall be known as class B directors, and three of whom shall be known as class C directors, shall be first appointed by the board and shall serve until the end of the calendar year 1932. Their successors shall be elected as provided in subsection (d)which follows here.

Senator WATSON. Yes.

Mr. Monks (continuing reading): and of such successors first elected one of each such class shall serve for one, two, and three years, respectively. Thereafter all such directors shall serve for three years.

Section (d)

Senator WATSON. Just a moment. You just strike out, then, lines 6 and 7?

Mr. Monks. No. I am giving you (d) now, Senator Watson.

(d) The board shall divide the members of each of the Federal home loan banks

Senator Watson. Let me get you, Mr. Monks, please. I thought beginning with line 22 on page 10 you decided that you would amend section (c) so as to leave that all in down to line 6 on page 11. Am I right about that, or do you cut out the whole section?

Mr. Monks. Cut out the whole thing, and then rewrite it in this kind of a way.

Senator WATSON. Yes.

Mr. Monks. Which virtually follows some of the language that is in the present section. It naturally would.

(d) The board shall divide the members of each of the Federal home loan banks in two groups

Senator TOWNSEND. Instead of three?
Mr. Monks. Yes, sir. [Continuing reading :]

The board shall divide the members of each of the Federal home loan banks into two groups which shall ge designated as A and B, which groups shall represent respectively and as fairly as may be, the large and small members, the size of such members to be determined according to the net value of their holdings of home-mortgage loans. The board may revise the membership of such groups from time to time.

Class A and class B directors, whether appointed or elected, shall be chosen from the officers or directors of the member institutions. Class C directors, whether appointed or elected, shall be chosen from among persons actively engaged in commerce, agriculture, or some business, or industrial pursuit.

Each member shall be entitled to nominate a suitably qualified person for election as director of the class corresponding to the group to which such member belongs and one suitably qualified person for election as a director of class C. The directors of each class shall be nominated and elected in accordance with such rules and regulations as may be prescribed by the board.

Now here are our reasons for changing this. You will note from the above that we have eliminated class C directors from the member. ship and substituted therefor members drawn from those actively engaged in commerce, agriculture, or some other business or industrial pursuit. This set-up follows somewhat the Federal reserve act which has worked very satisfactorily. The group C directors would be expected to furnish an outside viewpoint on general business condi.

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