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Senator WATSON. If your building and loan associations are sound institutions, why do they require help?

Mr. HILL. Sometimes they do not; but in times of stress and strain they need help very urgently, and in a seasonal way they always need a certain amount of money, because at times there are not enough people investing in building and loan associations to take care of the applications for loans; and at this time the withdrawals have been very great. For some time now, for the past two years, withdrawal notices have been very great with building and loans. Senator WATSON. And that endangers the existing loans?

Mr. HILL. No; it did not affect the value of the loans, but it caused the business of the building and loans to dry up. If any large percentage of the people who are investing in building and loans you understand, there are two sides to the building and loan; one is the number of people that come in to take stock, that never get a loan, that do not want a loan. The other is the people that come in and take stock, and they get a loan as soon as their turn can be reached. The theory on which you operate a building and loan is to try to keep those people balanced. It is a mutual concern, and we try to keep them balanced.

If nearly all of the people who have stock in the building and loan are pressed from every source for money, they file withdrawal notices, and you must not make another loan until those people filing notices have been satisfied. Therefore, no more loans can be made and no more homes can be built by building and loans for one side of the business has lopped off; and that throws your whole business out of balance for a long period of time. What the building and loans in our section need is a balancing institution where they can go and pledge a part of their securities in a reasonable way to meet this difficult situation and carry on business as usual.

The building and loans do not stand for inflation in our section or anywhere else so far as I know, and there is no inflation in the bill. There is nothing wild about the bill. It is on sound principles. It is very sound.

I think the bill will do the work. The general theory of the bill is that you will bring together millions in each institution, large amounts of small loans-and, by the way, they are always the best loans, the most liquid-that are drawing with us 6 per cent interest; you will pool those loans with the regional bank, and issue collateral trust bonds on the strength of those underlying securities on a basis of about one-fourth the appraised value of the property.

Those bonds will sell on any where from a 44 per cent to a 41⁄2 per cent basis, and the building and loan will be able to borrow, perhaps, on a 5% per cent basis from the Federal home loan bank. That will leave a spread of about 1 per cent, so that the institutions will be profitable, and you will have a sound security for the people to buymuch sounder than the 3% per cent bonds that you now have out. Therefore, I think with that spread no business man need to fear about the future of these institutions. They have proven profitable in the past, and they will prove profitable in the future, and even

more so.

Senator TOWNSEND. Why will they be any sounder than the 3% per cent bonds you are referring to now?

Mr. HILL. Because the rate of interest on the 3% per cent bonds is so low that they have gone down to 86, according to the last quotation I saw. They can get, from good savings banks, 4 per cent, and get their money when they want it. It is just too low a security to keep a bond floating at par. I have rather vigorous ideas along that line that I do not want to put in the record here. My own motion is, if you want to know about it, that some plan must be worked out by the Government to keep its own securities somewhere up to par when they float them; not let them drift on the market. A great many bank failures are due to that, to my knowledge. Enormous losses in banks all over the country are due to the fact that they invested in United States securities, 3% per cent bonds, and they have lost their entire surplus in the depreciation of the bonds.

Senator TOWNSEND. Is that because they do not have faith in the bonds, or because of the low rate of interest?

Mr. HILL. Nobody knows why. They have just gone down. Fortunately, I did not buy any of those bonds.

Senator WATSON. Of course, the Government wants to get its money as cheaply as it can.

Mr. HILL. Now coming back to the bill, the whole theory that those of us who are for the bill have in mind is that these millions of owners of small homes are entitled to exactly the same aid from the Government that commercial paper is entitled to and that the farmer is entitled to.

I am also a large farmer myself, and represent a great many farm people. In other words, the purpose of this bill, as I understand it from its provisions, is to put these millions of small home owners on exactly the same basis as the farmers and as the commercial institutions who borrow money, whose paper can be discounted at the Federal reserve on statements, whereas here is something that is real, in front of the eyes, that you can not discount anywhere as a general proposition.

I think, therefore, that as the Government puts its capital behind the Federal reserve bank for a reasonable length of time, and puts some money without interest, and puts as much as $60,000,000 behind the land bank bonds. It should follow some course now-I helped to draw the land bank bill; I was a member of the American commission that studied the proposition in Europe, and came here and stayed; I was chairman of the Rural Credit Committee, and came here and stayed and helped to work it out. The Government put its money hehind that for a reasonable length of time, a reasonable amount of money. I think, therefore, it is only just to the homeowners, the owners of small homes in the country, for the Government to put at least $60,000,000 behind this proposition without interest for a reasonable length of time, or charge interest on the other advances. The three branches of work are, in my judgment, all on the same basis, except perhaps this is the most important.

Senator MORRISON. How about safety between the three?
Mr. HILL. I think this is the safest of the three.

Senator MORRISON. So do I.

Mr. HILL. I know from my own experience that it is safer than the Federal reserve operations, because statements in time of stress and strain are very uncertain; but the basis of this proposition is never uncertain. You know exactly what the condition is. A man has his

home. It is a small home, and the loan is on a 40 to 50 per cent basis-not over 50 per cent and your mortgage is on a 25 per cent basis; and the last thing he is going to give up is his home and roof over his wife and his children. It is a case of something that you see, as against something that you do not see.

There may be some details in the bill that can be ironed out, and probably will be, you gentlemen who are well versed in those matters know very much better than I.

The question of withdrawals is protected in the bill. I can hardly imagine a liquidation of one of these banks. If they should liquidate, my own personal opinion is that the Government should stand in the same position as the participating institutions. The bill provides that the participating institutions shall get their money first. The theory on which that is founded is that they will only get what they put in, but under this bill the profits of the institutions go to the Government, if the business is profitable, as it certainly will be. It has been throughout all the history of the world so far as I have been able to see. From what I saw in perhaps 20 countries of Europe, they are always profitable and sound. It is the kind of an institution that stands up in war, or stands up in depression, or stands up under any strain.

Senator WATSON. Do you understand that the United States Government is to get the profits out of this bank?

Mr. HILL. It gets its capital back; but I understand that in case of a dissolution of the concern, if for some reason or other you want to dissolve it, the withdrawing concern under that bill only gets back what it has put in. Now, it may be that in a district, some time in the happy future, the demand perhaps is not sufficient for the use of a bank there, and therefore you would withdraw the business, and the profits would all go to the Government. What is left in there would go to the Government. However, that is a rather small detail. Senator MORRISON. That is the dissolution feature which was pointed out this morning by Senator Couzens. He brought out that the Government did not get anything, and the others got all they put in; the Government got nothing except the surplus when it was wound up, which did not put it on an equality with the other subscribers to the stock.

Mr. HILL. I have conferred with a great many people about this bill. I was here at the conference. I met hundreds and hundreds of people. I personally conferred with hundreds myself. I never found a single man here advocating this bill who wanted any charity, or wanted the Government to give him something, or to give his institution something. He just wanted to be put on a parity with other institutions.

My own personal opinion is that as much as possible that theory should be the basis of the bill. The Government just comes in like it does with other institutions, and comes out like it does with other institutions.

Senator MORRISON. Mr. Hill, you say you have been loaning money for some 20 years on homes-small homes, generally. What has been your experience as an investor in loans of this character?

Mr. HILL. My experience is based on my own personal experience in an institution. Perhaps it is not necessary to put its name in the record. It does not need any advertising. It stands for itself.

It began business in the year 1904. From its beginning, its loan policy has been to make loans principally on improved real estate on a basis of 50 per cent of the appraised valuation.

Senator TOWNSEND. Pardon me: Are you referring to a building and loan association?

Mr. HILL. To a savings bank. I will come to the building and loan association.

The bank has been in operation 27 years, and up to the present time has never lost a dollar on a direct loan on real estate. We have, however, had some losses on collateral and 2-name types of loans. The bank does make some collateral loans on New York Stock Exchange collateral or local collateral, and occasionally loans on what we thought was good 2-name paper.

Being a bank, the interest is paid three months in advance on all loans. No commission has ever been allowed on a loan of any kind by this bank to anybody. It has frequently advertised that any officer connected with the bank would be discharged who ever had any interest in making any commission on a loan. That, in my judgment, accounts considerably for the success of this institution. On July 1 this bank had real-estate loans amounting to $788,752. Loans on which interest was paid in advance amounted to $739,000. The amount of loans on which interest was paid within 60 daysthat is, during this three months advance was $41,227. The amount of loans on which no interest was paid in the 60 days, still a month in advance, was $8,000.

We have had three foreclosures during the past 12 months. One was on improved property, for clearing the title. We have never foreclosed single loan in the whole history of the bank that was a direct loan on real estate in the regular way.

That institution requires an application in writing signed by the applicant, a description of the property-I intended to bring one of those blanks, but I came off very hurriedly, so as to give you a picture of how a little institution works and then that property is visited by three members of the loan committee of the bank, without charge, and then the loan is passed upon by the loan committee, and at the next meeting of the board of directors it is approved by the board. Senator WATSON. It appears to me that you have a pretty sound institution, Mr. Hill. You do not need any help.

Mr. HILL. No, sir.

Senator MORRISON. No, sir; but that is what I am trying to come to now. I know something about the benefit to that community of this bank.

Mr. Hill, an institution like yours-you have given us the amount of the deposits of that bank, and the real-estate loans-could not run that way but for private assistance; could it? You could not have that many loans out?

Mr. HILL. Under banking practice that whole $788,000 of loans is frozen, and it requires members of the board of directors or the officers to keep United States bonds or North Carolina bonds at all times ready to put up to take every loan out of the bank; and we think that is a discrimination against institutions of our kind that is unfair and unjust. We have no standing at the Federal reserve on that much paper, and no standing anywhere.

Senator MORRISON. In emergencies like this, it is worse than junk.

Mr. HILL. I may state that this institution can stand any strain. It is now standing it, and will stand on to the finish.

Senator MORRISON. That is because you people who run it put the securities behind it to protect it.

Mr. HILL. Yes.

Senator MORRISON. Which you could not get but for the fact that some of you are men of wealth.

Mr. HILL. I came away very hurriedly, and I have not all the information about the building and loan institutions. It would require some little time to furnish it.

Senator TOWNSEND. Mr. Hill, are you familiar with Senate bill No. 1, known as the reconstruction finance bill, which has passed the Senate?

Mr. HILL. No, sir; I have not had time to read it.

Senator TOWNSEND. Then you are not prepared to say as to whether or not your institution, a bank, could receive help from that corporation?

Mr. HILL. No, sir. My whole thought was a permanent relief. I was not thinking about an emergency relief. My own opinion is that in certain sections certain emergency relief is needed by building and loan associations. Generally speaking, right in our section the press for an emergency relief is not so much as it is for a permanent method by which they can do business on business principles in a sound, plain, honest way.

Senator MORRISON. You are not seeking any relief yourself for your institution?

Mr. HILL. No, sir; we do not need any.

Senator WATSON. Are all those real-estate loans frozen in your trust company?

Mr. HILL. They are frozen so far as being able to borrow any money on them is concerned in case there was a run on the bank. They are not frozen so far as the people paying their interest and making any payments. They are quite liquid.

I have some other information. There is a small life insurance. company there. You may be interested in that. There were $553,000 of loans on the 1st of July of that small insurance company; and in January, 1931, the amount of past-due interest on loans was only $142, and that was paid very soon afterward. On July 1 the interest was paid on all but $36,000 of their loans, or about 1 per cent.

Our experience is that the owners of the small homes pay their interest more promptly than any other class of people, and, usually speaking, there is more turnover in the loans. They are not liquid so that you can immediately realize upon them, but they are constantly paying on them; and it is good, sound, clean business.

Senator MORRISON. The ultimate safety is very high?

Mr. HILL. The ultimate safety is very high-higher than other class of loans I know about; higher than stock exchange collateral. Our banks do not operate on much stock exchange collateral, because we can not take the time of the men to watch the market every hour in the day and keep up with the fluctuations. It is very demoralizing. Senator MORRISON. How about safety as compared to any investment that you know of, from United States bonds on down?

Mr. HILL. There is not a loss in any loan of these two institutions that I have mentioned here that I know personally about. I have seen

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