back to that condition again there would not be the necessity for a separate institution of this kind. What is your answer to that?

Mr. HAASE. Let us approach that from two viewpoints. First, let us approach it from the viewpoint of the home owner. The available quantity of money determines the cost to the borrower invariably, and unquestionably the borrower on small homes is paying, by direct first mortgage or by a combination of first and high interestbearing second mortgages too much for the money that he is using in owning his home, so that by free flow of money invested by the general buyer of this type of bond throughout the United States. into the points where money is needed, you would materially and permanently aid the situation of the men desirous of owning small homes.

Now take the other side, and that is what provokes my admiration of the bill to a very considerable extent. That is the supply of conservative, sound securities for the proposed buyer of those securities has been so restricted and of such a character that it has largely led to this wildcat speculation in the highly exploited first mortgage bonds that have themselves brought on much of the real estate disaster in this country; and the bill, as I say, provokes my admiration for that reason, because it comprehensively meets both the need of the home seeker and the investment seeker.

Senator TOWNSEND. Following Senator Watson's line of thought there: Was there in your judgment need for an organization or a bill of this character previous to 1929?

Mr. HAASE. There was.

Senator MORRISON. Were you through, Senator?

Senator ToWNSEND. Yes.

Senator MORRISON. All along for a few decades back, there has been great depression because of bootleg money lenders preying on small home owners with usurious charges for money, has there not been?

Mr. HAASE. There has.

Senator MORRISON. Over the country in general?

Mr. HAASE. There has.

Senator MORRISON. Among those who could not get it regularly? Mr. HAASE. There has.

Senator MORRISON. Has not there for some time been a tendency in banking and credit circles of enhancing the credit, subject to discount in the Federal reserve system, to the depreciation of all other securities?

Mr. HAASE. There has.

Senator MORRISON. Until the banks have come to scarcely desire anything unless it is subject to rediscount?

Mr. HAASE. That is very true.

Senator MORRISON. And that tendency is growing, is it not? Mr. HAASE. In the bank that has a sale of the bonds at the present time it certainly has grown.

Senator MORRISON. In fact, that is about the only kind of a loan anybody can get throughout the country except in a few big cities? Mr. HAASE. They have to huddle for a very long time before they give them that.

Senator WATSON. Are you for this bill without amendment? Mr. HAASE. I am for this bill practically without amendment.

Senator WATSON. Have you studied it carefully?

Mr. HAASE. I have read it carefully and studied it carefully. I have weighed every circumstance; recognized, for instance, that it may be hurtful for one portion of the business that I operate. Senator WATSON. As a banker?

Mr. HAASE. As a mortgage banker selling direct first mortgages to private investors, because I recognize that the type of bonds that would be created under this bill will appeal to the same clientele to whom I have been accustomed to selling conservative first mortgages, and I have got to depend upon my own ingenuity to meet that surplus.

Senator MORRISON. Senator, may I ask one more question?
Senator WATSON. Certainly.

Senator MORRISON. Do you not think that this bill would greatly aid in stopping the foreclosures going on over the country in that the holders of this type and those who buy would see that they could get money if they were in distress or to meet an emergency?

Mr. HAASE. You are absolutely correct, Senator.

Senator MORRISON. It would tend very much to stop that from all sorts of directions, to stop the foreclosures through which people are losing their homes, either on mortgage foreclosures or execution on judgments.

Mr. HAASE. One large life insurance company has started foreclosure on probably 60 or 65 pieces of property in Memphis or vicinity in the past week. I doubt if a majority of those foreclosures would have been undertaken had the availability of funds outside been present as will be presented by this system of banks when they begin to function.

Senator MORRISON. Their liquidity will be increased.

Mr. HAASE. And not that alone; the reaction of each foreclosure upon all of the remaining property, not alone directly contiguous but within the entire community is immediate. The reduction of home values is directly in relation to the number and frequency of foreclosures.

Senator MORRISON. Because of the distress supply thrown on the market?

Mr. HAASE. That is correct.

Senator WATSON. Is there anything else you want to say?

Mr. HAASE. I have nothing else.

Senator WATSON. Thank you very much.

STATEMENT OF ADOLPH F. ELLFELDT, SECRETARY AND MANAGER OF THE KANSAS CITY BUILDING AND LOAN ASSOCIATION, KANSAS CITY, MO.

Senator WATSON. Mr. Ellfeldt, where do you live?

Mr. ELLFELDT. Kansas City, Mo.

Senator WATSON. What is your business?

Mr. ELLFELDT. Secretary and manager of the Kansas City Building and Loan Association.

Senator WATSON. How long have you been?

Mr. ELLFELDT. I have been secretary 22 years and director for 34 years.

Senator WATSON. You are thoroughly familiar with the business?

Mr. ELLFELDT. Yes, sir.

Senator WATSON. How old an association is it?
Mr. ELLFELDT. Sixty-four years.

Senator WATSON. How big is it?

Mr. ELLFELDT. Three and a half million dollars as present.
Senator WATSON. Building homes only? Loans on homes?

Mr. ELLFELDT. Loans on homes at least 98 per cent. We have never catered to any other line of business but to home owners.

Senator WATSON. What is the financial condition of your institution?

Mr. ELLFELDT. It is not very good.

Senator WATSON. Tell us why.

Mr. ELLFELDT. Ever since the stock market broke there has been a certain fear, a certain need for money by the investing public, drawing out its money slowly but surely; half of it for need, perhaps, and half of it on account of fear. It was further emphasized by the fact that one of our largest associations in our part of the country had to go on notice, and that immediately made a stampede on a number of other associations; so that to-day in Kansas City 80 per cent of them are on notice; in fact, there are only five of them now able to pay on demand. It is just a question how soon we may be on the other side.

Senator WATSON. Do you take deposits straight?

Mr. ELLFELDT. Never.

Senator WATSON. Nor do you do a checking business?

Mr. ELLFELDT. No.

Senator WATSON. Nor any banking business?

Mr. ELLFELDT. No, sir.

Senator WATSON. Just a straight building and loan business?
Mr. ELLFELDT. Yes, sir.

Senator WATSON. How many defaults have you?

Mr. ELLFELDT. Out of 1,350 loans we have 330 some accounts that are over three months in arrears, about 25 per cent of the total.

Senator WATSON. How many foreclosures have you had in a year and a half?

Mr. ELLFELDT. We foreclosed in the last two years on about 130 properties.

Senator WATSON. What do you do with them?

Mr. ELLFELDT. The first thing we do is to put them in good repair and pay the taxes, which is considerable, and insurance, and then we try to rent them because at present we could not sell them at any price. The price of real estate has been demoralized in Kansas City on account of many foreclosures.

Senator WATSON. What is the average loan on those homes?
Mr. ELLFELDT. About $2,000 in our case.

Senator WATSON. Not over $2,000?

Mr. ELLFELDT. No. We cater more to the small home owner. We always have ever since our beginning.

Senator WATSON. What is the character of the home, Mr. Ellfeldt? As a rule, have they modern conveniences in those homes?

Mr. ELLFELDT. It has been, perhaps, a mistake in our association. but we have lent on properties that were not entirely modern. It

is impossible to get rid of such houses at present. There is no market for them.

Senator WATSON. It is a mistake to build that kind of house and to permit them to be built?

Mr. ELLFELDT. In our city we have many old homes that were built 20, 30, and 40 years ago, which, of course, were not modern at that time. But the moment we get hold of them we try to modernize them. We spent over $10,000 in 1931 modernizing our homes, painting, putting in furnace and bathroom and hardwood floors, et cetera, enough to make them salable; and at that they do not sell. Senator WATSON. Have you read this bill?

Mr. ELLFELDT. From beginning to end. I have read it and discussed it many, many times. I know every word of it. Senator WATSON. With whom have you discussed it?

Mr. ELLFELDT. With our building and loan people.

Senator WATSON. Have you discussed it with any mortgage bankers?

Mr. ELLFELDT. No. I do not believe you would get very far.
Senator WATSON. You would not get very far?

Mr. ELLFELDT. No. The discussion would be all one-sided. Senator WATSON. Tell us why you favor this bill, Mr. Ellfeldt. Mr. ELLFELDT. In the first place, there is an absolute necessity for short-term loans for this emergency. I can best answer it by saying, perhaps, that if we had had this set-up for building loan associations in the last three or four years we would not be in this condition. If we or any other association had been able to borrow 50 per cent of our seasoned mortgages, no investor or depositor would have had a fear; he could have got his money immediately and we would not have got into the locked up, frozen condition that we are now; and we can see no end to it. It will not immediately help those that are now in trouble, but we say we want to look to the future, because we are going to have cycles of this kind time and again, such many of us have gone through.

Senator WATSON. You can not rediscount your securities?
Mr. ELLFELDT. Not at all.

Senator WATSON. Nowhere?

Mr. ELLFELDT. Furthermore, our banks in Kansas City are placed in a position where they will not loan us any more money. They did to most of the associations until they got to a certain point where they ran short of funds; they were worried about their own institutions and there is no way now to borrow money. In Kansas City there is perhaps a million dollars borrowed from the banks by building and loan associations, and those banks would be glad to get their money back; now, no association can borrow money.

Senator WATSON. So that when payments were not made when due, you would either carry them along or make foreclosures? Mr. ELLFELDT. Make foreclosures.

Senator WATSON. Which is not desirable in a building and loan association?

Mr. ELLFELDT. No. In Kansas City most associations quit lending to new members during the last 18 months. Our own association quit about a year ago, and it is by necessity, because the withdrawals became heavy, the banks would not lend us any more money, and all we can do now is to take care of the taxes, which is a very heavy

item. During the last year we advanced about $5000 in taxes which had accumulated for 1, 2, or 3 years, also insurance past due, and that is the only help that we can offer to our own members, not to speak of the many applications which we turn down almost daily in our association-calls on the telephone and calls in person. And here is how it comes about: They have short-term loans made by insurance companies, made by banks, who in former times were our heaviest and strongest competitors. To-day, when the mortgages are due, they send them over to us. They do not want to renew them. The banks need the money themselves, or private investors who bought the first mortgages from the banks need the money or are afraid that they might have to take in the property. So they are sent to us; but we in turn tell them we can not help them.

Now, to illustrate further, take the foreclosures in our city years ago. I have lived there 45 years and been in the same line of business many years. We have a daily paper called the Daily Record, where all foreclosures are advertised 20 days. It was customary to see from 30 to 50 foreclosures advertised: very few from building and loan associations. To-day there are from 175 to 225 foreclosures advertised in this paper. These foreclosures do not all take place, but I will say 80 per cent of them are actually foreclosed, and there is no help for that class of home owners who have maturing shortterm loans, they do not know which way to turn.

Senator WATSON. How many did you say?

Mr. ELLFELDT. Foreclosures must be advertised for 20 days. Daily there appear in this paper now from 175 to 225 advertisements. Occasionally a man is able to help himself, and of course the advertisement drops out; but we somewhat gauge the foreclosures by the number that are advertised.

Senator WATSON. Is there much huddling down in munity?

your com

Mr. ELLFELDT. What do you mean by that? Senator WATSON. I mean by that where they are crowded into the apartment houses.

Mr. ELLFELDT. Indeed, there is considerable.

Senator WATSON. Suppose we pass this bill, how are those people that are huddling together in apartment houses or in small homes going to get money enough to avail themselves of the opportunity afforded by this measure?

Mr. ELLFELDT. I would refer again to the fact that the public has a certain fear in their minds, and money is hoarded; as we see in the papers over a billion dollars hoarded. The moment this bill is passed, the moment the public sees there is some outlet, a reservoir for easy money, people will let loose of hoarded money and the public would gain thereby by employing mechanics, painters, carpenters, and other labor; and we believe that would immediately relieve the unemployment situation. It would help the same class of people who are now living with relatives, and so forth; they would be glad to return to their homes or buy new ones.

Senator WATSON. Has there been overbuilding of homes in Kansas City?

Mr. ELLFELDT. There is an oversupply of homes. I would say up to 1926 at least Kansas City overbuilt. Our own organization has made few loans of that type, we have never encouraged professionals.