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great deal of money, but those life-insurance companies are no more than the representatives-accredited, or not-of a great many millions of policyholders, somewhere between 60,000,000 and 65,000,000 policyholders, the great share of whose wealth and whose expectations have been put in the hands of these life-insurance companies in trust, if you will, and the executive officers and directors of these life-insurance companies feel that trust very keenly.

In the first place, the factor of a trading profit does not enter into their calculations. The money invested bears interest only and the loans are made with the sole idea in view of holding these investments for long periods of time. In the second place, insurance companies represent some 60,000,000 to 65,000,000 policyholders. After the laws of the State and the Nation, this policyholder group is the only authority that insurance companies recognize. It is toward the absolute safety of investments and the integrity of policies that these companies are constantly striving, and the two goals are identical. If it can be said of any one institution or interest that it represents the home owners, it can be said of insurance companies with more real conviction than of any other. Therefore, with that background, insurance companies believe that the proposed bill as an emergency measure is unnecessary and as a permanent measure unsound and dangerous.

1. As a permanent measure, the permanent addition of a large amount of tax-exempt Government securities will replace securities which at the present time are paying taxes.

2. States' rights will be invaded by its quite direct supervision of all institutions which become members of the Federal home loan bank, and the direct influence that this will have on State banking laws will be profound.

3. There will be set up an immense Government fund in competition with private funds. And when I speak of private funds I instinctively visualize the accumulation of the moneys of a great many million small people who are investing their money, wittingly or unwittingly, through the life insurance companies. The set-up gives the Government plenty of authority and theoretical control, but the indispensable supervision can be provided only at staggering costs and intricate organization which in the end will only parallel existing organizations. Now, I say that from the point of view of an official who has to do wholly with the administration of a great many small mortgage loans, and with a knowledge of the necessity for constant and unremitting supervision.

4. In normal times, competition for loans has been such that many unsound, unsafe practices have developed, such as inflated appraisals, disregard of district planning, tremendous duplication of housing facilities, dangerously lenient loan terms, the addition of further sources of credit will intensify the competition and aggravate the unsound practices.

5. The apparent need for the future, as a permanent institution, is a planning organization which can guide mortgage investors intelligently. There is plenty of money, but too little coordination and plan. No apparent cognizance is being taken of such potent factors as restricted immigration, the present definite back-to-thefarm movement and a greately reduced birth rate.

As an emergency measure, the situation can best be visualized by taking common individual situations, so as to see how such situations would be affected by the bill.

1. From the point of view of a home owner with a loan in good standing, interest and taxes and principal requirements paid, this represents most conservatively 90 per cent of the owners of mortgaged homes in the country.

New money will not help him. He may be having difficulties in meeting these obligations, but this difficulty is caused by lack of income; not lack of credit.

Senator TOWNSEND. Pardon me one moment. Then, your information leads you to the conclusion that there are only 10 per cent of the homes of the country that are in distress?

Mr. WESTBROOK. I think that is conservative.

Senator COUZENS. I would like to take issue with you on the proposition that there is no substantial lack of credit. There is a substantial lack of credit for maturing mortgages.

Mr. WESTBROOK. I shall touch on that.

Senator COUZENS. You already touched on it, because the statement stands in the record that there is no lack of credit for maturing mortgages.

Mr. WESBROOK. The statement really is not complete, Senator.
Senator COUZENS. Very well.

Mr. WESTBROOK. From the point of view of a home owner with a loan in good standing as to interest and taxes, but with principal due, and without funds with which to liquidate it, first

Senator COUZENS. Is not that a lack of credit?

Mr. WESTBROOK. I am speaking in that paragraph, sir, of the financial situation of the man himself, and I am giving four possible sources of credit in my next statement. As the man himself has not the money with which to pay off that loan, what is he going to do? Senator CoUZENS. He lacks credit.

Mr. WESTBROOK. Possibly.

From the point of view of a home owner with a loan in good standing as to interest and taxes, but with principal due and without funds with which to liquidate it:

First. The present mortgagee may renew it.

Second. Another institution or individual investor may purchase it. Third. It is eligible for purchase by the Reconstruction Finance Corporation.

Fourth. If none of these are possible, the present mortgagee may foreclose, but in that case the mortgagee in taking title to the property does not relieve the situation for himself or for the borrower. The result in most cases is that the mortgage is or certainly should be continued under some intelligent amortized plan.

The inference being that the Reconstruction Finance Corporation, in the the last analyses, would be a proper medium through which to clear the mortgage.

Senator CoUZENS. It must be obvious that the Reconstruction Finance Corporation can not take up all the defaulted mortgages in the United States.

Senator WATSON. Yes. If they had $10,000,000,000, they could not do it; to say nothing about $2,000,000,000.

Mr. WESTBROOK. I am not speaking of this, necessarily, as a defaulted mortgage, in the generally accepted sense of the term. While legally a mortgage due and unpaid is defaulted—

Senator COUZENS. Certainly.

Mr. WESTBROOK. At the same time, the great distress at the present time is caused by the inability of the borrower to pay his interest and taxes.

So far as insurance companies are concerned, I know of no insurance company-there may be some, but I know of no instance, where a maturing loan which has been kept up in good standing as to interest and taxes, will not be renewed by the mortgagee willingly and gladly.

Senator WATSON. Under what terms?

Mr. WESTBROOK. Under almost any terms, Senator, that will assure the continuance of the payment of interest and taxes. If the loan is a heavy one, there will be a definite attempt made on the part of the mortgagee to secure adequate and considerable principal payment during the next period of that loan.

Senator WATSON. What is the average loan you make to home builders?

Mr. WESTBROOK. About $5,500.

Senator COUZENS. Of course, you recognize that the generally depreciated values have a great effect upon the temperament of the mortgagee.

Mr. WESTBROOK. There is no question about it.

Senator COUZENS And he, therefore, is very reluctant to continue a mortgage, or to advance the taxes, for example, to a defaulted mortgagor in view of the depreciated values of properties generally. Mr. WESTBROOK. He is even more reluctant, sir, to take title to that property for the same reasons.

Senator COUZENS But the fact that he does not take title, and the fact that the foreclosure of the mortgage is constantly hanging over the head of the mortgagor, does not change the situation any. It means that he is always in fear that he is going to lose his home. Mr. WESTBROOK. Yes.

Senator COUZENS. He has no stability of income.

Mr. WESTBROOK. That is the trouble.

Senator COUZENS. That is the fundamental error of our whole capitalistic system.

Mr. WESTBROOK. There are a great many things that can be done, I am sure. I do not know what they are.

Senator CoUZENS. That is the conundrum of the Nation at the present time, to so correct the capitalistic system that somebody who is willing to work can have stability of income. Until that is solved, none of these home loan banks, the Reconstruction Finance Corporation, or any other of these things is going to solve the problem. Mr. WESTBROOK. From the point of view of a home owner with a loan delinquent as to taxes and/or interest, this is concrete indication of one of two things:

First, most likely unemployment or some other major calamity has caused a serious impairment of income.

Second, with malice aforethought, the borrower has defaulted in the knowledge that his loan is a heavy one and that he can pur

chase an equally desirable property for an amount less than the total of his present encumbrances, and on far easier terms.

Pitiful as the first may be, and despicable as the second may be, should the Federal home loan bank, the Reconstruction Finance Corporation, or any other governmental or private nonphilanthropic agency purchase or discount defaulted obligations?

Senator COUZENS. Do you want that word" despicable" to stand there?

Mr. WESTRBOOK. I think it is a despicable performance.

Senator COUZENS. It is what business has taught the Nation from time to time, through bankruptcy laws, and the permission given to the loaner to sell out whenever the security goes below the market value or the value of the loan.

Mr. WESTBROOK. It does not change my opinion of it, sir.

Senator COUZENS. No; but I just wanted to know if you wanted to leave that broad inference, that everybody who did that thing was despicable. I just want to emphasize that point. It seems to me that the home owner is no more despicable because he sees that he is sold out because of market depression, than it is for a man who trades on the stock market to be sold out because his security does not equal his loan. We just do not want to classify the home owner as any more despicable than the trader on the stock market.

Mr. WESTBROOK. Of course, the difference, as I see it, Senator, is that, theoretically at any rate, the stock used as collateral for a loan is actually sold, and as such, discharges the obligation.

Senator COUZENS. You can do the same thing with the home.

Mr. WESTBROOK. But the house is not really sold. There is no cash entering into the coffers of the mortgagee in the discharge of that debt.

Senator COUZENS. He does not know until he has sold it.
Mr. WESTBROOK. Quite true.

Senator COUZENS. So, we can not draw such lines of distinction when a home owner and a gambler on the stock exchange are compared.

Mr. WESTBROOK. I would perhaps use the same term toward a gambler on the stock exchange, if the sale of his securities did not discharge his debt.

Senator COUZENS. The fact is that when a home owner deserts his liability, and deserts his home because he can do better elsewhere, he is no different than the man who buys stocks and bonds, and lets them be foreclosed, or lets the loan be foreclosed, and lets the loaner take the security and sell it for whatever he can get. It is not an unheard of thing that a bank, or a broker, or any other financial agency, forecloses on a loan and takes a loss.

Mr. WESTBROOK. But that loss still remains as an obligation of the original borrower.

Senator COUZENS. It will in this case, too. It will in the case of the home owner, because the fact that his loan is sold does not relieve him of the obligation. He still has a continuing liability. You may proceed, so far as I am concerned.

Mr. WESTBROOK. From the point of view of a person seeking to purchase a home at the present time, there are offered a number of opportunities.

1. Properties new, old, and indifferent, owned by institutions or individuals through foreclosure of mortgages-first mortgages, second mortgages, or third mortgages. In many instances the first mortgage may be in good standing. Prices, terms and selection are all most attractive.

2. Properties at present occupied by the owner with interest and taxes paid, but with such a seriously curtailed income on the part of the owner-occupant that were it not for his honorable regard for his obligations, he would have defaulted and moved as a measure of economy. A great many such houses are listed with the real estate people all over the country.

3. If neither of the mentioned opportunities are attractive to the prospective home owner, he may build at the moment at costs greatly reduced from former costs. But to do this, he must have at least 25 per cent of the cost of the house in cash, even assuming that the Federal home loan bank is operating, in which case the lending institution may receive an advance of 60 per cent of the 75 per cent mortgage. Translated into dollars and cents, this means on a $10,000 property that the home owner must have $2,500 in cash, that the loaning institution must provide $7,500, and that it in turn will receive from the Federal home loan bank $4,000, for it is proposed that the bank will not advance more than 40 per cent of the value of the property. It is my opinion that the present economic state of the country will not permit transactions of this kind in great number.

4. From the point of view of the lender, there can be no question but that in a great many instances there is desperate need at the present time for some medium whereby owned mortgages in good standing may be used as collateral for substanial loans so that depositors and stockholders may be paid off and in some instances perhaps that policyholders may receive their due.

I know of no such instances.

The Reconstruction Finance Corporation is organized especially to care for this situation, and is prepared to function.

The present situation, including a shortage of mortgage money, if there is such a shortage, or a lack of demand for new mortgage money, which seems the more likely, and the unusual inability of mortgagors as a class to meet their obligations is the result of impaired incomes on every hand as a result of which bank deposits both savings and commercial, have shrunk, purchases of building and loan shares have been retarded, and loans on life insurance policies have increased. With that as evidence, it seems futile to expect, first, that there are many individuals who have 25 per cent of the cost of a house and lot in cash; second, that if they do have the cash, they have the courage and confidence in the immediate future to make the investment; third, that there exist in material numbers institutions which are seeking investments such as the 35 per cent of the cost of new construction necessary; and fourth, that there is a market at the moment for bonds in huge amounts if the first three expectations turn out to be reasonable ones.

Senator COUZENS. Can you elaborate on the third point there? Mr. WESTBROOK. My third point was, that there exists in material numbers institutions which are seeking investments such as the 35 per cent of the cost of new construction necessary. I do not believe

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