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It began business in the year 1904. From its beginning, its loan policy has been to make loans principally on improved real estate on à 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 all of these loans myself. There is not a loss of a dollar on any one of those two institutions. That is on something like, you might say, $1,400,000 of loans. If you had it in Government bonds you would have lost 16

per cent on some of them. Senator WATSON. That is temporary, let us hope. Mr. Hill. Yes; we hope it is temporary.

I shall be glad to answer any other questions about the bill. I have been in this business for 28 years. I have never drawn a salary from any of these institutions. I have made a specialty of trying to provide money for 28 years to people desiring to own and build small homes; and I know from my own experience, though I can not speak for the other fellows, the soundness of those loans.

The two essential things in this whole land mortgage business, home mortgage business, are sound appraisal and ability to sell your bonds. If some wild-cat mortgage company comes in and appraises property at twice its value, and makes a loan to my knowledge in thousands of cases of from 90 to 125 per cent of the value of the property as appraised by our people, you may expect trouble.

Senator MORRISON. But you do not think banks and trust companies and building and loan associations have made appraisals of that character on loans, and will not in the future?

Mr. Hill. No, sir; not only that, but they have helped to prosecute those people and run them out.

Senator MORRISON. Do you not know, Mr. Hill, as a fact that those other people you refer to have made loans all over our section of the country, and so amortized the payments that they are paying rates of interest away above the legal limitation?

Mr. Hill. Yes, sir; and as high as 13 per cent. It is not a question of per cent; it is a question of a scheming man of small means unloading his house on a wild-cat company.

Senator TOWNSEND. What is your legal rate of interest?
Mr. Hill. Six per cent.

Senator MORRISON. And they have made these mortgages all over the State and so arranged the payments that they appear to pay 6 per cent, and they really pay 13 per cent.

Senator TOWNSEND. What is the penalty for that sort of thing? Senator MORRISON. Nothing. There is no criminal statute prohibiting it. There is a provision that the man paying it can bring a civil action and recover back the amount he pays double, which nobody will do, because they are forever damned in commercial life, of course, if they do; so they pay it, or their homes are sold out under it; and this bill will help provide some place to which worthy home owners can go, through proper channels, to get accommodations which a sound banking system ought to give them.

Mr. Hill. If there are any questions about the bill that you gentlemen have any doubts about, it has been my life's business, and I ought to know about it. If anybody has any doubt about the soundness of the general proposition, I should be glad to answer questions in regard to it. I do not know about the little details that may be worked around in the bill.

Senator Watson. We regard it as a sound proposition, so far as that is concerned, but there are a good many details that have to be worked out and, of course, there is much information which we would like to have before we finally act on it; but we will dig that out during the progress of this hearing.

Senator MORRISON. I think you have helped us a whole lot.
Mr. Hill. Thank you.
Senator WATSON. We are very much obliged to you, Mr. Hill.

I promised some gentlemen from Baltimore that they might be heard at this time.

STATEMENT OF HARRY E. KARR, BALTIMORE, MD.

Senator WATSON. What is your name?
Mr. KARR. Harry E. Karr.
Senator WATSON. Where do you live, Mr. Karr?
Mr. KARR. Baltimore.
Senator Watson. What is your business?
Mr. KARR. Lawyer.

Senator WATSON. Are you familiar with the provisions of this bill in a general way?

Mr. KARR. In a general way. I listened this morning to the reading and explanations that were made of the bill. Senator WATSON. Whom do you represent?

Mr. KARR. I represent the Real Estate Board of Baltimore City and also the Maryland League of Building Associations.

Senator WATSON. Tell us what those institutions are and what their business is.

Mr. KARR. The Real Estate Board of Baltimore is just a general real estate organization, consisting of men who are engaged in the business of real estate, as well as associate members made up of the general business men of the city. The Maryland League of Building Associations is a league the members of which are the various building associations throughout the State of Maryland. Senator Watson. Are those voluntary associations? Mr. KARR. Entirely voluntary associations. Senator WATSON. Not organized under any State statute?

Mr. Karr. Not organized under any State statute and are simply for the purpose of promoting the best interests of their respective avocations.

Senator Watson. You may now proceed with any statement you care to make, Mr. Karr.

Mr. KARR. Generally speaking, the bill as proposed we are in hearty sympathy with.

Senator WATSON. Tell us why.

Mr. KARR. I may state probably my own viewpoint, which I believe would reflect what most of us feel, and that is that you are undertaking in this bill to set up, so far as real-estate mortgages and real estate itself are concerned, an institution similar to the Federal Reserve Bank in its relation to the general banking business.

Senator WATSON. Your real-estate mortgages are on city property altogether?

Mr. KARR. City, county, farms. Well, the building associations are scattered all through the State.

Senator WATSON. Yes.

Mr. Karr. But we realize, as practically every man must realize, that the time is here now when the ordinary banking institution does not care to take as collateral real-estate mortgages. Real estate finds itself, if it needs to get assistance from a bank, that what it has to offer is not what they call liquid security, and under present conditions you have the slowing up generally of all real-estate business and a very serious question for the future, and for perhaps for some time to come, after the depression is over is what is going to be the attitude of the banking world toward real estate, whether or not real estate is going to be accepted as collateral, or whether mortgages can be accepted as collateral.

Just as the gentleman who preceded me stated in connection with building associations, there are times when they must have accommodations. At the present time, because of the slowing up of general business and real estate and that sort of thing, there has not been much request at our banks to advance funds to building associations. Most of them have been able to carry on themselves.

However, many people find themselves to-day in our section, where there is not any particular distress, that it is necessary for them to get a loan, and it is rather difficult to get, because many of the building associations are not able to get accommodations at the banks and find they must conserve what cash they have on hand to meet any withdrawals; by reason of the fact, as has been explained by Mr. Hill, you have two classes of people in a building association, those making deposits, who never borrow, and those who are borrowers. When times of this sort come, those who have made their deposits, of course, want to go and withdraw for the purpose of their use, in the same manner as they would withdraw from any ordinary savings bank.

Senator Watson. Do your loans on real estate in Baltimore consist of lands and residential properties, hotels, business property or what?

Mr. KARR. None of our building associations, Senator, make loans of very large amounts. The loans practically all are on small homes, residences. It is practically all confined to that character of structure. It is very seldom that any building association, except in times when money piles up, takes loans of any large size. But I should say 99 per cent of all the loans we make would probably average around $5,000. I don't think they would exceed that.

Senator TOWNSEND. Are your building and loan associations supervised by the State?

Mr. KARR. That is the point I am coming to and that is the reason I am here to-day. We have two peculiar conditions in Maryland. I do not think any State on the Union has a better reputation, or the building associations have a better reputation in any State than they have in Maryland. The Maryland building associations are strictly mutual, and for many, many years we have enjoyed the highest confidence of the public. We have never been under any State supervision. Maybe it is because of the building associations that have grown up with us have originally come out of the small localities. However that is, a building association would be started in a certain locality in the city and draw its strength entirely from the people surrounding that given section. So they have grown up until to-day we have a number of building associations in our city with large deposits; the highest has somewhere around five millions on deposit. We have many that have two or three millions. We have quite a number of over a million and a great many that run around half a million. I imagine that the

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