CREATION OF A SYSTEM OF FEDERAL HOME LOAN BANKS WEDNESDAY, FEBRUARY 17, 1932 UNITED STATES SENATE, SUBCOMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The subcommittee met at 10 o'clock a. m. in the hearing room of the Committee on Interstate Commerce, the Capitol, pursuant to adjournment on February 16, 1932, Senator James E. Watson presiding. Present: Senators Watson, Townsend, and Bulkley. Senator WATSON. The committee will come to order. There are two telegrams for the record, one from Edwin L. Griest, president of a building and loan association; and one from the Chamber of Commerce, of Cedar Rapids, Iowa. (The telegrams are as follows:) COMMITTEE ON BANKING AND CURRENCY, CINCINNATI, OHIO, February 16, 1932. United States Senate, Washington, D. C.: On behalf of 290 building associations of first district organization, Ohio Building Association League, and their many thousand members, I urge passage of Federal home loan bank bill. We speak for the people as no other class financial institutions can. Pass the bill without delay. EDWIN L. GRIEST, President. CEDAR RAPIDS, Iowa, February 16, 1932. SENATOR PETER NORBECK: Construction industry vitally interested in immediate passage home loan bank bill. Local supply dealers particularly urge quick favorable consideration. CHAMBER OF COMMERCE, Senator WATSON. Mr. William H. Kingsley. STATEMENT OF WILLIAM H. KINGSLEY, VICE PRESIDENT OF THE PENN MUTUAL LIFE INSURANCE CO., PHILADELPHIA, PA. Co. Senator WATSON. Tell us your name, Mr. Kingsley. Mr. KINGSLEY. William H. Kingsley. Senator WATSON. Where do you live, Mr. Kingsley? Mr. KINGSLEY. Philadelphia. Senator WATSON. What is your business? Mr. KINGSLEY. Vice president of the Penn Mutual Life Insurance Senator WATSON. How long have you been such? Mr. KINGSLEY. For 15 years. Senator WATSON. You have studied this question, have you? Mr. KINGSLEY. Yes, sir. Senator WATSON. From the life-insurance standpoint and every other standpoint? Mr. KINGSLEY. For about 40 years I have been active in corporatemortgage lending. Senator WATSON. Have the life insurance companies had meetings about this matter? Mr. KINGSLEY. We have conferred informally several times, growing out of the President's conference, of which I was a member; but we have had no formal conferences on this. Senator WATSON. But you have studied this bill? Mr. KINGSLEY. Yes, sir. Senator WATSON. And have ideas about it? Mr. KINGSLEY. Yes, sir. Senator WATSON. All right. Tell us what they are and why they are. Mr. KINGSLEY. Mr. Chairman, I have come to regard this bill as ineffective in purpose and not a satisfactory supplement to the activities of the reconstruction finance bill. I think that amendments that have been made almost put it beyond recognition by its author, and I believe there are imperfections in it of which its projectors were unconscious at the time they were created, which will make it somewhat unworkable. Senator WATSON. The life insurance companies are all against it; are they not? Mr. KINGSLEY. I can not say all. I do not know. Senator TOWNSEND. Have you amendments to the bill that you think would make it a workable bill? Mr. KINGSLEY. Senator, I think the great objection to this bill is that it undertakes to set up a permanent structure. All the research that has been made indicates that an emergency exists arising from an unusual situation. Senator TOWNSEND. Would you be in favor of the bill if the emergency feature was all it provided? Mr. KINGSLEY. Yes; if further amended in several respects, but I believe that the terms of the reconstruction finance bill will set up a much better type of relief than this bill. Senator WATSON. What are your objections to this bill, Mr. Kingsley? Mr. KINGSLEY. In the first place, I doubt very much if the building and loan associations, for which I am not authorized to speak, and the insurance companies, by reason of their restrictions, could comply with the benefits of this bill. Senator WATSON. Why not? Mr. KINGSLEY. The insurance companies could only by legislative permission purchase stock in the proposed regional banks, and if this right were granted and they should withdraw they would have to leave all of their deposit behind. Now the laws provide that insurance companies must retain possession of their securities; they must not pass beyond control. Such deposits would be subject to diminution for any loss that might be encountered in the opera tion of this bill. I feel that we are attempting to cure what is really an emergency by some enduring remedy which is not necessary, which will be very expensive and which, I do not believe, in its present shape would be workable. I believe thoroughly in the idea that there should at the present time be created an agency by which mortgages could be used as collateral, but I think it ought to be temporary. I believe that if this bill is enacted and becomes law that the Government will be operating a perpetual lending institution that will really be capitalized by those who give their securities to it, that will be fraught with difficulty or trouble, and will wind up with the Government owning a good deal of real estate of citizens, which will put it in a position it should not assume. If the Government purposes are those of helpfulness, such can be done, in my judgment, though the Reconstruction Finance Corporation act, which comes into the picture and which will endure for at least 10 years, and during that time, unless history is going to write a very unexpected chapter, there will be a cure for these conditions, and there will be no need for this sort of financing. You would then have all this structure set up and expenses running without any particular business to do. I can not come into agreement with the testimony that has been. given that any part of the present housing situation is due to any lack of financing facilities. I think the contrary is the case. know, speaking intimately from the conditions of our own company, that we have men out in all areas in the United States at this time endeavoring to get mortgage loans. They can not be had. Few are being offered that are well margined. Some others are on the verge of foreclosure. Senator WATSON (interposing). You mean you have plenty of money for mortgage loans and can not get the loans? Mr. KINGSLEY. Yes, sir. In evidence of that I might say that, before this condition was apparent, and before any suggestion of Federal relief was made, we are one of the companies that undertook to buy mortgages from building and loan associations and trust companies and we contracted to buy about $8,000,000. They were in the States of Ohio and Michigan, largely, and in one or two other States. We have closed about $3,500,000 of those loans. The rest are in the process of closing. They are very liquid, and, in one instance, one $600,000 loan has been reduced to $300,000 in about eight months, which clearly indicates that the mortgage repayments are not bad. Senator TOWNSEND. What class of mortgages do you refer to; on homes, or Mr. KINGSLEY (interposing). Entirely dwellings; yes, sir. Mr. KINGSLEY. Yes, sir. Now in speaking of these matters, while I have to refer to the figures of our own company, I do so only because it is typical of other companies, and not with any thought of advertising our own affairs. We have had no bad experience with residence loans. We, of course, have rather a broad system of loaning money, and constant supervision. We do not reach for abnormal rates. We only take first mortgages. We get security that is abundant, so far as appraisal is concerned. We extend every indulgence to delinquents, and I think that our $40,000,000 of dwelling loans, which average about $4,000-we have about 10,000 such mortgages-shows a very good record. There has been a great deal said about Ohio, and just for illustration in that particular State, I may say that we have about $30,000,000 in Ohio, of which I presume $25,000,000, at least, are residence loans. We have been lending there for many years. We do not own a single residence by foreclosure. We have one piece of business property that has been foreclosed Senator WATSON (interposing). Do you get those mortgages through building and loan associations? Mr. KINGSLEY. Not this group. Senator WATSON. These have come straight to you? Mr. KINGSLEY. From the home builder or home owner. Mr. KINGSLEY. In saying direct I mean from the offices of our mortgage correspondents who are in all these localities and negotiate these loans. Senator TOWNSEND. What is your average rate of interest? Mr. KINGSLEY. On the mortgages taken in 1931 it was 5.59; on our entire holdings, 5.28 per cent. Senator WATSON. About what is the average loan on a home? Mr. KINGSLEY. About $4,000. Senator WATSON. You say there are no defaults? Mr. KINGSLEY. In all of our loans? Senator WATSON. Yes. Mr. KINGSLEY. We have some in the outstanding case of Ohio where there is so much trouble. Our defaults are very few. Elsewhere we have typical cases where people have bought homes for $8,000, and have first mortgages of $4,000, and have second and third mortgages. The lure of a home has put such a buyer into a budget plan, showing how much is necessary each month for payment for the home. He eliminates the matter of sickness and other unusual things and when he disturbs that budget he can not get back on it. The result is he gets behind, and the second and third mortgages get restive. In a few months, if his interest and taxes are unpaid, they get after him to see if he can not do something to clean up. Usually about that time he walks in and offers us a deed and says, "I am through." Of course, you can not take a deed where there is a second or third mortgage without their acquiescing, or getting out of the way. Sometimes the owner will say, "I will take $50 or $100 for a deed," which is not always safe. And we have to foreclose. We have $4,000 mortgages that have been reduced to $3,500, but still they have been foreclosed. After everything has been cleaned up we have offered such property for sale to the former owner at the cost to us, excluding interest. We disregard interest because it is the desire of every lender to avoid real-estate ownership. And the reply is, "I can buy a house down the street of the same type cheaper." A foreclosure, having occurred in the same street in precisely the same type of home. And that, and other circumstances, has glutted the market with real |