Senator WATSON. How did you happen to send out this questionnaire, Mr. Secretary? Secretary LAMONT. This questionnaire we are talking about? Secretary LAMONT. It was suggested by the chairman of the House subcommittee, Congressman Luce, from Massachusetts. Doctor GRIES. We had foreclosure statistics for many cities and they have increased steadily for the last two or three years, and in some cases it has been increasing since 1926 and 1927. There were thousands of foreclosures on homes, and of course the sheriff's sales, that is a different matter, they have been going up; like Philadelphia, 1920, only 737; 1921, 1,156; and I will skip some years; 1925, 2,406; 1926, 4,659; 1927, 6,543; 1929, 11,919; 1930, 14,841; and 1931 is far beyond that. Senator CouZENS. Where is that? Doctor GRIES. Philadelphia. Senator WATSON. Foreclosures on homes? Senator TOWNSEND. Sheriff's sales. Doctor GRIES. Sheriff's sales, yes. Senator COUZENS. And in the various cities it has increased practically from 1928 to 1931. Secretary LAMONT. I did not want to interrupt, but I just wanted to be sure that you got it in some place at some time. Doctor GRIES. We get so many letters I can not answer them all. I have to get help to answer them. People are being foreclosed and in many cases the institution does not seem to be at fault; but the bank has been closed in which the institution carries its funds, or they are short of funds and can not take care of it. Senator COUZENS. In that case would that not be rather shaky collateral for this bank if they took over those mortgages on which there are defaults? Doctor GRIES. Not necessarily, Senator. We have defaults in cases like these where a house has $10,000 present assessed value. The owner has a mortgage of $3,000 on it. He is out of a job. The lending institution can not carry him. So they asked the owner to curtail it or have asked him to pay them in full, or at least to pay a certain amount. They are not in a position to go and renew that mortgage, and it is a perfectly safe mortgage on $4,000, but he is out of a job. Senator COUZENS. I was wondering how these people, even though that be so, who are out of employment are going to be able to pay up even the $3,000 when the Secretary of Labor last night said in a speech that there were millions of unemployed who would never get back their old jobs. Do you know how they are going to pay off? Doctor GRIES. That is, when they will not get back their old jobs they will get jobs. I still believe in this country, and I believe we will get back on our feet. Senator CouZENS. When? Doctor GRIES. I do not know, but I think in a period of time we will get back. Secretary LAMONT. Off the record I would like to say something about that. (Discussion off the record.) 675 Senator BULKLEY. I would like to ask Doctor Gries whether the answers to this questionnaire that he has been telling us about have been analyzed according to the character of the institutions that make the answers. Doctor GRIES. Yes, sir. Senator BULKLEY. Could you give us that for the record? Doctor GRIES. I can give you the numbers. I have not worked out the percentages. Secretary LAMONT. We can give you the percentages and put them in the record. Doctor GRIES. Yes. Senator BULKLEY. That is all right, but what classification do you make there? Doctor GRIES. We have national banks, building and loan associations, mutual savings banks, stock savings banks, State banks, loan and trust companies, mortgage bankers. Secretary LAMONT. And insurance companies. Senator BULKLEY. That will be helpful. Do you analyze them according to the size of the institutions? Doctor GRIES. According to States, but not Senator BULKLEY (interposing). I was going to ask you about the geography, too. Doctor GRIES. Yes; we have the geographical distribution. Senator BULKLEY. I think it would be well to put them in by States. And you did not separate them according to the importance of the institution? Doctor GRIES. No; I do not think that has been done. Doctor GRIES. I do not know whether I have it by States here or not. Secretary LAMONT. We have a blank with every State on it, 49; District of Columbia I guess must be on there, and each question by States. If we have it here, we will put it in. Senator TOWNSEND. That can go in later. Doctor GRIES. Yes. (See charts and tables in the first part of Secretary Lamont's opening remarks.) Senator WATSON. Have you finished your response to that question, Doctor? Doctor GRIES. Yes, sir. They are not getting any lower. Senator WATSON. About the questionnaire? Doctor GRIES. Yes. Secretary LAMONT. May we have the right to put in these other records? Senator WATSON. Oh, certainly. Senator COUZENS. I would be glad to see that. Where is that questionnaire? Doctor GRIES. I have it by States here. 98195-32-PT 4- -3 Senator WATSON. Put the answer received geographically and the size of the institution responding. Senator BULKLEY. He said he did not have it by sizes but the character of the institution. Senator WATSON. We did not know how many investment bankers, for instance, there were. Doctor GRIES. The mortgage bankers, for an example; there was more opposition there, but there was 23 per cent of those that favored it. Senator WATSON. Can you tell what part of the country they were from? Doctor GRIES. Yes; we have it by States. Senator BULKLEY. I think that is very helpful. Doctor GRIES. This gives it for all-Question 1 by each State. Senator WATSON. Did those mortgage bankers who responded know that they were not in the association? Doctor GRIES. You mean not members of the association? Senator WATSON. Yes; not in it. Doctor GRIES. We got the list of the mortgage bankers from their association list and sent it to the 400 of them, and we got 25 per cent or 29 per cent of them. Senator WATSON. I was just wondering whether they knew when they answered that they were not in this system, the mortgage bankers, not included. Doctor GRIES. I understand. Senator BULKLEY. Mr. Secretary, I wanted to ask you about that foreign information that you have. Have you got the laws of the principal foreign countries abstracted and translated so that we can understand them? Secretary LAMONT. Yes, we have. Would you like to have that put in the record? Senator BULKLEY. Yes, I would. Secretary LAMONT. Have you got the abstract of those foreign laws? I know we have it. Doctor GRIES. I think Mr. Taylor has that. Secretary LAMONT. Yes. We will see that that goes in also. There is a recent book on the subject published by some English author that describes the mortgage loan systems of all of the states of Europe. Senator WATSON. I wonder if you could have somebody go over that, if you have legal counsel up there to ascertain the difference. We are so busy and have so many things on our hands. Senator BULKLEY. If they could furnish an abstract, I think it would help. Senator WATSON. If you have somebody there that can give us an abstract of particularly the difference or differences between the European systems and this proposed system, it would be very helpful, Mr. Secretary. Secretary LAMONT. All right; we will make it as brief as we can and limit the abstract to the more important countries. Senator WATSON. Oh, yes. Secretary LAMONT. You do not want all the countries. Senator BULKLEY. I think the most important countries, unless you know an exceptionally good example in the smaller countries. Senator WATSON. Of course, Sweden, I understand, is on an excellent basis. FOREIGN CENTRAL MORTGAGE BANKS (By James S. Taylor, Chief Division of Building and Housing, Department of Commerce) INTRODUCTION In practically every country of continental Europe, central mortgage banking of one type or another has been developed as an element in the mortgage banking structure; it tends, among other things, to help equalize conditions and to give each community access to mortgage loan funds beyond its own local capital resources. Thus the individual borrower in effect has access to an institution which directly or indirectly can tap the leading money centers. Central mortgage banking is facilitated in many countries of continental Europe by the fact that laws apply uniformly within each country in regard to registration of title, claims against property, etc. In a number of cases central institutions have been granted special privileges in connection with foreclosures, etc., and also monopolistic privileges in the issuance of real-estate mortgage bonds, or have had government guaranties behind the securities issued. If the home financing system in the United States is to be compared with European systems from the point of view of Government participation, we must remember that the leading European governments have nearly all directly encouraged new building of low-cost homes, through the furnishing of credit at low rates or more direct forms of subsidy. However, that subject is considered outside the scope of this memorandum, as to detailed treatment. In the United States the outstanding unit in home-loan financing is the local bank or building and loan association which relies for funds on the people who live in its localtiy, and furnish funds by making savings or time deposits, or by taking out building and loan shares. In most European countries and in many countries elsewhere the chief institutional form of investment in mortgages is a mortgage bank or system of banks each making loans over an extended area, and obtaining its funds through the sale of long-term bonds. There are, of course, exceptions to the preceding generalizations. In the United States and abroad many loans on homes are held by insurance companies and private investors. There has been recently a rapid growth in building societies in England, somewhat along the lines of our building and loan associations, and there is a limited application of the mortgage-bond principle for home mortgages in the United States. In many countries developments in central mortgage banking have taken place as a result of conditions not found in the United States; for example, since the World War much centralization of mortgage banking has been effected in order to provide more attractive security in obtaining loans from abroad. Each system has its advantages and disadvantages. The holder of a bond of the Town Mortgage Bank of the Kingdom of Sweden, for example, has a security for which there is an established market, which he can either post as collateral for a loan or sell at any time. However, it is subject to fluctuation in value; and it may turn out that when he wants to sell it, the market will be low. The American Bank depositor, or building and loan shareholder, has an asset upon which he can realize in full at any ordinary time. However, in time of stress, such as the present, he may find that for the time being he can not effect a prompt withdrawal, and he has no established procedure for obtaining cash from his investment. From the point of view of the borrower, the important considerations are dependability in the lending institution, an amortization plan adapted to his circumstances, and reasonable charges. Under the American system the borrower's security, a mortgage or trust deed on his home, usually is acceptable only locally. He is thus dependent upon the immediate financial condition of a local institution which at times may be out of the market for new mortgages due to special local conditions-and such a condition may occur just at the time when, under the practice of making shortterm mortgages which is often followed here, the borrower has to renew a mortgage. CONSERVATISM IN BASIS OF LOANS Although it is common for the bonds of foreign central mortgage banks to be issued up to 100 per cent of the unpaid principal of the underlying mortgages securing them, one is bound to be impressed by the safeguards attached to the mortgages themselves. In most cases these are for not more than 50 per cent of the conservatively appraised value, and for some types of property, less. In some cases, all the land within the area in which the mortgage bank operates has been appraised, and ample information is available in regard to incomes from representative properties over periods of many years. Furthermore, for many years prior to the World War, real property values in leading European countries and cities are said to have been relatively much more stable than in the United States. As has been pointed out previously, determination of titles, and foreclosure proceedings, are relatively simple in many European countries as compared with many States in the United States. POSITION OF LOCAL INSTITUTIONS It is apparent that in the leading foreign countries, even where there are elaborate systems of central mortgage banking, there still remains a considerable reliance upon local machinery and sources of funds. Although the central institutions are regarded as an indispensable part of the mortgage banking structure in most European countries, they cover only a part of the field. RATES OF INTEREST The high standing of bonds of well established mortgage institutions among investors is indicated by the following table, which shows a number of instances where they have sold at prices to yield less than Government obligations: Comparative percentage yield of certain mortgage bank and Government bonds 1 2 Annual average. 3 For 1913, bonds of 38 mortgage banks for 1918, 37 mortgage banks or 1927 yields are based on quotation of internal gold-mortgage bonds as of Sept. 30, 1928. For 1927, the yield is based on the quotation of the 6 per cent loan of the Reich. Current yield of selected European bonds computed on the basis of recent quotations 1 Compiled by the Finance and Investment Division, Bureau of Foreign and Domestie Commerce Department of Commerce. |