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Senator WATSON. Doctor Gries, you may proceed and make any statement that you have in mind about this bill.

Doctor Gries. I think a measure somewhat along this line is essential for the sound financing of home building. I think it is of value for the immediate needs and purposes, and also would be of permanent value. I I have followed the home-building program and the mortgage problem for something like 20 years. We have followed statistics, especially for the last 12 years, and there have always been localities where there has been a shortage of mortgage money. That was true in 1921 and in 1922 and in 1924 and in 1926. There are always periods when certain institutions have more money than they need, and also periods when they have less. And by supporting more or less through this agency long-time paper, as we do the shorttime paper and giving some liquidity to the long-time paper, we would enable the shifting of funds from one area to another, or from one section to another.

Senator COUZENS. Doctor Gries, if you don't mind an interruption?

Doctor GRIES. No, sir.

Senator COUZENS. Isn't it true that many of these large insurance companies in locations, where there is such a shortage as you have referred to, have stepped in and helped finance the home builder?

Doctor ĠRIES. That is true to an extent, but might I explain something about the operations of certain insurance companies?

Senator COUZENS. Just before you do that let me say this: When the Ford Motor Co. built its plant at Highland Park, Mich., there was a vest amount of land unoccupied; and some of the large insurance companies came to Highland Park and notified the Highland Park State Bank, which was set up at that time, that they would like to have it act as their agent; and they did in fact supply all the money needed for developing that whole area around the Ford Motor Co.'s plant for first-mortgage money. And they were very liberal in their loans, as I recall.

Doctor GRIES. That was for new building, was it not?
Senator COUZENS. Yes.

Doctor GRIES. Well, take the case of some insurance companies. They do not make loans west of a certain river, or even in certain cities that are under a certain population. Take a city, say, of 300,000 population, they may only go on certain streets. They may not make loans in three-fourths of the area of the city. And they may only grant a mortgage on a house not more than 15 years old, and they may only grant mortgages in certain other areas. They sometimes will not grant a mortgage on a Torrens system title. When loans are limited by such conditions, you can see that many borrowers can not be reached. The poorer people live perhaps, we will say, in the sections where they do not make loans, or in houses that are more than 15 years old, and therefore can not be reached. So if you take it from the standpoint of the insurance companies, and I am not finding any fault with them at all, and I admit that they do reach their clients and do render a good service, but from a public policy standpoint, from the standpoint that we must look at it here, can the home owner secure a mortgage when he needs it? He can not secure a mortgage in all of the areas when the conditions are laid down such as I have mentioned.

Senator COUZENS. How did we get through all of the period of the large influx of population when immigration was more or less free, and when there was great development; and now with an elimination of immigration and a reduction in development, why is it necessary to have this set-up?

Doctor GRIES. The most of our troubles were bred during the period of prosperity, Going back to the subject we had up a while ago, loans were made at such a low percentage of the appraised value but not going up to the 75 per cent. This bill does provide a method of discounting mortgages appraised up to 75 per cent. That is the only feature I think that helps us toward the 75 per cent.

Senator COUZENS. What section is that?

Doctor GRIES. In the discounting of mortgages, that the amortized loans run up to 75 per cent, and the unamortized loans up to 60 per cent of the appraised value.

Senator COUZENS. What percentage of them can be rediscounted?

Doctor GRIES. Well, 60 and 50 per cent. But it would encourage a higher mortgage.

Senator COUZENS. You could not rediscount a 75 per cent mortgage unless it had been reduced to 50 per cent. 1 Doctor GRIES. No. You could rediscount a mortgage made at 75 per cent of the appraised value, but you only get 60 per cent on an amortized mortage and 50 per cent on an unamortized mortgage. You can go up to 75 per cent.

Senator COUZENS. Tell us what section of the bill that is.

Doctor GRIES. I do not know that I can give that. Mr. O'Brien can probably do that.

Mr. O'BRIEN. You will find that on page 15 of the bill, beginning on line 3 and then going over on page 16. bet I think Senator Couzens is quite right when he says the basis of the amount which may be borrowed on the mortgage is the unpaid principal rather than the value of the real estate.

Senator WATSON. That is my understanding. Mr. O'Brien. Subsection 3, however, specifically provides that an advance in excess of 40 per cent of the value of the real estate securing the home mortgage loan can not be granted.

Doctor GRIES. That does not cover it then. Subsection 3 does refer to three-fourths of the appraised valuation.

Senator BULKLEY. Mr. Gries, I do not want to distort your state ment by asking a question out of place, but perhaps it would be appropriate now to call attention to this point: You refer to the insurance company as being unwilling to lend except to what you term the aristocrats of mortgage borrowers. Now I think it is not because of any prejudice against any other people but because the other risks are not as good.

Doctor GRIES. I think that is right.
Senator Watson. That is right.

Senator BULKĻEY. Facing the fact that those other risks are not as good, that means higher losses, higher collection costs, and so forth. How can we manage to keep the funds of these proposed home loan banks good and at the same time undertake the higher costs that would be involved in the character of loans that we are discussing here?

Doctor GRIEs. In the State of Ohio, for example, you have many mortgages made by the local people at 75 per cent. Your building and

loan associations in many communities have, as in Mansfield, in Bucyrus and all through that section, make them up to 75 and 85 per cent.

Senator BULKLEY. Are they on the undesirable class of risks, or let us say, less desirable class of risks?

Doctor GRIES. They are over 15 years of age, lots of them.
Senator TOWNSEND. On the smaller homes?
Doctor GRIES. On the smaller homes.

I have no fault to find with the insurance companies. They have their local agents, and their loans secured by the local houses are very frequently very satisfactory. Some of the old houses, some 20 years of age, are better built than those built in the last 10 years. They are still a good risk.

Senator COUZENS. I was going to ask if you had any statistics to show the defaults over your loan study due to insecurity of income.

Doctor GRIES. That would be hard to figure out. There is always an increase in foreclosures during periods of depression, that is true; and how much of that is due to unemployment I do not know.

Senator Couzens. Have you no figures to show why the defaults occur so much more in periods of depression than at other times?

Doctor GRIES. Well, not specifically here, but

Senator COUZENS (interposing). What other cause would you ascribe to the defaults during periods of depression except through unemployment or insecurity of income?

Doctor GRIES. You take banking institutions, if they are hard pressed – I know building and loans that have borrowed money from the banks. The banks have been asked to become more liquid. They have called their loans, and as a result of that the building and loan foreclosed to get its necessary cash to pay even interest on its deposits.

Senator COUZENS. Isn't there one of the difficulties which occurs to me, the fact that many, if not practically all, of the depositors in these building and loan associations treat the building and loan association as a bank rather than as a loan association?

Doctor GRIES. They do in one or two States.

Senator COUZENS. I understand the building and loan associations have testified or written to me--because I have very definite information that they desire to pay out this money when requested; and therefore they want to be liquid. That in itself demonstrates to me that the depositors or the investors in the building and loan associations look at them as a bank and therefore have the right to withdraw at will.

Doctor GRIES. Senator, that would hold true in a few States. That will hold true in information you get from Ohio. That would not hold true in Massachusetts, where you have your cooperative banks with serial shares. It would not hold true in Louisiana, where it is not subject to withdrawal like it is in Ohio.

We have a peculiar situation in Ohio, and I was interested in the testimony of the various groups bringing that fight here in the committee. 'In 1867 the building and loans were given the right to accept deposits, and instead of segregating the long-time paper in building and loans and the short-time paper in the banks; then we had the McFadden Act passed. Then we had the banks come in and the building and loan thought the banks were encroaching on their field.

Anything that you would get from Ohio on that I think might bear you out, but

many States are on a serial basis and some pay so much a month and you can not withdraw at will.

Senator COUZENS. What returns do they get on that money invested in that manner?

Doctor GRIES. You mean in the method like they have in Ohio?
Senator COUZENS. No; the one you have just described.
Senator WATSON. The serial character.

Doctor GRIES. The serial character—that may be 5 or 6 per cent, and if you do business at 1 per cent and loan to the borrower which is one of their own members, add 1 per cent additional. In other words, you buy your shares and you get 5 per cent, we will say, on the money paid in. Then if you borrow $2,000, to buy a house, you continue to pay on the shares; another may be set up covering your borrowings, and on that you pay 6 per cent.

Senator COUZENS. Just what is the difference between that and Ohio that you were just referring to?

Doctor GRIES. In Ohio you can deposit. You do not need to buy a share at all. You can go to a building and loan and you can deposit $5,000

Senator WATSON (interposing). Just like you do in a bank?
Doctor GRIES. Just like you do in a bank.
Senator Watson. It is subject to check?
Doctor GRIES. It is not subject to check,
Senator WATSON. It is not subject to check?
Doctor GRIES. It is not subject to check.
Senator COUZENS. What interest do they pay on those deposits?

Doctor Gries. That depends—four or five, and sometimes, I think during the war, as high as six.

Senator COUZENS. The banks do want to pay those out, do they not, when they are requested; the building and loans like to pay those out whenever requested?

Doctor GRIES. The building and loans like to pay those out as soon as the interest rate falls.

Senator Couzens. And also when the depositor desires his money the building and loan association wants to be in a position to pay him, do they not?

Doctor Gries. I do not get the purpose of that.

Senator Couzens. I say, when a person deposits money in a building and loan association in Ohio the building and loan association officials desire to pay him off when he requests his money, do they not?

Doctor GRIEs. They consider whether they are short of money or not. If they are short of funds for the demands of the building they do not like to pay him off.

Senator Couzens. If he wants to they would like to be prepared, would they not? Doctor Gries. Yes, sir; they would like to be prepared.

Senator COUZENS. So that what I am developing is that they are really under those circumstances in vigorous competition with an ordinary bank, are they not?

Doctor GRIES. They are in competition with the bank in respect to deposits.

Senator COUZENS. Yes.

Doctor Gries. In the same way that the bank is in competition with the building and loan on extensive long-time paper. While I am a native of Ohio and citizen of Ohio, I do not think that this legislation should be drawn solely with reference to Ohio, because it has a peculiar problem and we can not settle nationally Ohio's problems.

Senator Couzens. Yes; that is true, but what about the other States? Is that the only State that is in that unusual position?

Doctor GRIES. That is the most striking case. I do not recall them offhand.

Senator COUZENS. What is the situation in Michigan?
Doctor GRIEs. I am not so well acquainted with Michigan.

Secretary LAMONT. I think, Senator, judging from the people who have been in to see us about this thing, the building associations, bankers, and so forth, that the Ohio situation is the worst of all; there seems to be a rather bitter feeling there between the banks and building and loan associations. Each one thinks the other is infringing on its territory; I told some of the bank presidents who came down that theirs was a purely local difficulty which had to be fought out in their State legislature and should not be settled by this bill, which is a national bill, and had to be framed in a broad, general way, and while it might not be entirely satisfactory to certain States, the States could more easily accommodate themselves to this bill than this bill could attempt to accommodate itself to conditions in all the 48 States.

Senator WATSON. While we are talking about that, how do you propose to overcome the obstacle that presents itself in Missouri?

Secretary LAMONT. Missouri will simply have to change its law. They have a law to the effect that the building and loan associations can not put up as collateral mortgages which they hold.

Senator WATSON. For rediscount?
Secretary LAMONT. For rediscount.

Senator Watson. They can not do it. I was wondering how they could overcome that in this bill.

Secretary LAMONT. They would have to change their law and make it uniform with the other 47 States.

Senator Watson. How many States are similarly situated?
Secretary LAMONT. I do not know.
Senator WATSON. Doctor Gries, do

Doctor GRIES. I do not think there are more than two or three at the most.

Senator Watson. Somebody told me that my State is in that condition, but I confess I do not know.

Secretary LAMONT. I do not think so.

Senator COUZENS. Would you think it would be proper to amend this bill so as to permit loans up to 75 per cent?

Doctor GRIES. Well, I think if we had loans to 75 per cent home ownership would increase, and much of the second-mortgage financing would be eliminated. Taking a sample study, checking over with people who bought their homes there were more than 50 per cent that had less than 40 per cent to pay down. More than 25 per cent had less than 25 per cent to pay down. But home ownership would be very much reduced if they had to pay down as much as 50 per cent.

And the second mortgages--another thing that happened during the boom period, trying to accommodate their customers instead of

you know?

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