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Mr. ROBINSON. Yes my bank is a member of the Federal reserve, but about the only paper you can use at the Federal reserve is paper which grows out of commercial transactions or Liberty bonds.

Senator TOWNSEND. Did you participate in this first reconstruction program, where the banks put up 2 per cent?

Mr. ROBINSON. The National Credit Corporation?
Senator TOWNSEND. Yes.

Mr. ROBINSON. Yes, we are a member of the Credit Corporation. In order to join the Credit Corporation, the minimum amount you can subscribe to become a member is 10 per cent of your bank's capital and surplus. The size of that entrance fee has restrained a lot of banks from joining the Credit Corporation. So when I saw in the original bill 12 per cent of the home mortgages in any institution was required to obtain membership in the Home Loan Bank, I felt that the entrance fee was too high, that it might better be lowered, even to one-half of 1 per cent. I see you have lowered it in this new bill to 1 per cent. In other words, broaden your base and get more institutions to come in, rather than try to get a larger sum which could only be handled by the larger institutions that have cash available for stock. You will find a lot of small home loan institutions which will be foreclosed from joining perhaps, because they have not the money and would hesitate to go and borrow the entrance fee.

So much for the relief afforded by the bill. I will just finish my statement and then I will answer any questions.

In the finance committee of the President's commission we had quite a lot of discussion regarding secondary financing. Heretofore in a great many localities this secondary financing was taken care of by the second mortgage, generally at a pretty high rate of interest, ten or eleven per cent. This depression has slaughtered real estaté values in certain sections of the country to such an extent that it has practically wiped out the individual second-mortgage lender, and the second-mortgage company, so that money is not available in anything like the quantity it formerly was, if at all, and perhaps will not be in the future.

What are we going to do to bring about new construction, if we can not find something to fill the gap between the amount of the first mortgage, say 60 per cent, and the amount of money which the home owner can provide, say 20 or 15 per cent of the cost to bring a complete building into existence?

It seems to me that the only instrumentality that can do that job is the building and loan association. In Ohio they can loan up to 100 per cent, but in practice they restrict it to 75 per cent of the appraised value of the property. The building and loan associations must perform that function if we are going to construct new homes and destroy the huddling which is taking place in many communities at the present time. The Ohio building and loan associations ought to function strictly on a mutual basis.

Senator Watson. Haven't they been there always?

Mr. ROBINSON. They have been there, but they have not been functioning in that way. In other words, I do not believe they will be able to attract the money formerly flowing to them when they functioned as banks. Also, banks are not going to be as liberal with loans to building and loan associations in the future as in the past, because they have had their experience in this time of strain and depression.

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Their aim will be to have greater liquidity in the future and consequently will not carry as many real estate loans in their portfolios as formerly.

Senator WATSON. Do you know of any other State in the union where building and loan associations can receive deposits like banks?

Mr. ROBINSON. I do not. As I say, I am not familiar enough with the building and loan practice to answer that question.

Senator Watson. I did not think it was done anywhere.

Mr. ROBINSON. Heretofore, when one of the building and loan associations had a loan which was paid down by amortization to a certain point, say 60 per cent of the value of the property, the association was able to go to a bank and the bank would refinance the loan by making a new mortgage and paying off that of the building and loan association. That source of relief will not be available to any great extent in the future, I feel. Where can they go now? No place, except to a corporation of this sort.

If you follow the thought of the President when he announced the plan for a home discount banking system in order to stimulate building in the future--a corporation like the one outlined in this bill is needed to provide financing facilities for that purpose.

I agree thoroughly with what the other witnesses have said about Government aid in furnishing facilities for discounting paper created in developing wealth by agriculture, commerce, and manufacturing and the need for one now to discount paper brought into existence by the creation of property values.

Senator TOWNSEND. Mr. Robinson, what in your judgment is the greatest need of this corporation; to further new building or to take care of the situation that now exists?

Mr. ROBINSON. As I said in the beginning, I think it would function in two directions; first, as a relief measure now; and later on it will be a great factor in stimulating building and also stabilizing building operations.

Senator Watson. You are not advocating this merely as an emergency proposition then?

Mr. ROBINSON. No, sir.
Senator WATSON. But as a permanent basis proposition?

Mr. ROBINSON. Yes. I think I can visualize certain things following the enactment of this measure which will be very helpful in the general situation throughout the country. You have a clause in this bill somewhere-I am not familiar enough with it to put my finger on it right away-where the home bank can refuse applications. I think that is very vital because it will have a tendency, if the bank is well managed, to restrict overbuilding. This will in turn react upon municipal expenditures, and, Lord knows, we are suffering now from that at the present time. Special taxes, paving, sewers, the putting in of water out in districts that can not be built up for a long time

Senator TOWNSEND. For 50 years.

For example, a building and loan association or a bank applies for a loan to furnish money to a speculative builder to build bomes out in a section where the bank knows they are not needed, it could properly refuse the application. I can see a great stabilizing influence there.

Senator Watson. That is true, unless we get in to boom conditions. Mr. ROBINSON. Yes.

It was

Senator WATSON. When your bank, along with everybody else, goes crazy.

Mr. ROBINSON. If we do not profit by the lesson of this depression we ought to be thrown out.

Senator MORRISON. Your thought is that if the Government has set up the Federal reserve business to which notes for commercial transactions and manufacturing and business obligations can go for discounts and then set up another one for the farmer to go to, that it ought to set up one for the man in the town and city who wants a home and, according to long custom, is building it solely on credit, that there ought to be some place for him to go without being squeezed by userers and all sorts of people who are imposing on him? Mr. RobinsO'N. Yes, sir.

Senator MORRISON. And that it ought to be a permanent part of our financial system?

Mr. ROBINSON. I thoroughly believe it.
Senator MORRISON. Yes.

Mr. ROBINSON. There is just one question I would like to raise about the bill. I do not want to take up too much time. touched upon this morning by Senator Couzens.

Senator Watson. The best way to do that, sir, is this: Of course we are now trying to pass emergency legislation. If you want this a permanent part of the governmental system at this time or from this time on, try to get the money into it and see that it functions successfully.

Senator MORRISON. It will come to pass, Senator, in my opinion, because it will be the most successful of all of them. People will join it as fast as they can get in.

Senator Watson. Then you would have no truoble making it permanent.

Senator MORRISON. The bill makes it permanent if it is successful.
Senator WATSON. That is right.
Senator MORRISON. I would like to ask this question, if you

don't mind. Do you think it will be successful?

Mr. ROBINSON. I do. I thoroughly do. There is just one clause in the bill which I can not determine the reason for its insertion. On page 15, the clause running from 3 to 7, where it says:

If secured by a home mortgage given in respect of an amortized home mortgage loan which was for an original term of eight years or more, the advance may be for an amount not in excess of 60 per cent of the unpaid principal of the home mortgage loan.

Why was the 8-year term put in? This is running through my mind. We have a peculiar custom in Cleveland. I do not know that it obtains in any other part of the country, but it started years ago with Cleveland's oldest savings bank. It makes loans for one year and then permits them to run on as overdue paper. Other banks followed that custom for years in Cleveland, although some have departed from the custom to some extent recently. These mortgages could not be discounted under the clause. I can not see why a mortgage having three or four years to run, irrespective of whether the original term was eight years, is not just as good as any other kind of mortgage? Why put in eight years? ?

Mr. O'Brien. May I say, Mr. Robinson, that I had nothing to do with prescribing any question of policy.

Mr. ROBINSON. I just wanted to present the point so that the Senators may consider it later.

Mr. O'BRIEN. May I make this point: I did not have anything to do with any of these questions of policy.

Mr. ROBINSON. I did not know whether or not you heard any discussion about it.

Mr. O'BRIEN. Even in that case I do not know whether I could disclose what was told me in confidence.

Mr. Robinson. I think that is a very objectionable feature of the bill.

Senator WATSON. Why is it?

Mr. ROBINSON. Because you automatically cut out a tremendously large lot of mortgages which are just as good securities as the others, except that they don't happen to be originally made for eight years.

Mr. O'BRIEN. That is not altogether true. May I point out subparagraph 2, I think, permits a loan up to 50 per cent of the unpaid principal of the home mortgage loan.

Mr. Robinson. I appreciate that. Mr. O'BRIEN. The other is 60 per cent. Mr. ROBINSON. Why not loan 60 per cent on an amortized loan when the original time was less than eight years?

Mr. O'BRIEN. That is a question of policy, whether you are going to permit that sort of a loan to have 50 or 60 per cent.

Mr. ROBINSON. It seems to me a good loan irrespective of whether it is made for eight years or not and which is being amortized properly should be permissible here. I think it would be a mistake to write an inhibition in the bill itself of that sort. You ought to leave some latitude to the board which will run the system.

Senator MORRISON. Don't you think the banks, the savings banks and the other banks, many of whom are not known as savings banks, and these people who are authorized to join this, don't you think they would join in great numbers?

Mr. ROBINSON. I do, unless, as I said before, the entrance fee is so high that they would be scared off.

Senator Watson. How do you want to change that No. 1, then Mr. Robinson? How do you suggest we change that?

Mr. ROBINSON. I have not thought about that.

Senator MORRISON. It was made with the idea that the long term was a little bit more valuable than the short term.

Mr. ROBINSON. It would base it more on the value of this property.

Senator Watson. I am talking about that one on page 15, “if secured by a home mortgage given in respect of an amortized home mortgage loan which was for an original term of eight years or more.. Do you object to the years?

Mr. ROBINSON. Yes, I object to the years. Don't put in any time, or make it “not to exceed eight years before maturity."

Mr. O'BRIEN. You will want all amortized loans, regardless of their term, to be eligible to secure an amount of not more than 60 per cent of the unpaid principal?

Mr. O'BRIEN. That is, amortized; unamortized 50 per cent.

Mr. O'BRIEN. Of course, this is true; paragraph 3 of section 8 (a) provides that in no case shall any loan exceed 40 per cent of its appraised valuation.

Mr. ROBINSON. That is correct. But you have got a limitation in this paragraph 1 that restricts you to an original 8-year period.

Mr. O'BRIEN. That is quite so.
Mr. Robinson. I think it is a mistake to let that in. I think you

a ought to give some discretion to the board which will provide regulations to make this bank work practically and equitably for its members.

Senator MORRISON. I got it just the wrong way; not exceeding eight years, instead of eight years or more. Mr. ROBINSON. Yes.

Senator MORRISON. I agree with the witness. It ought not to be there at all. I would just take it the other way,

. Senator WATSON. Anything further, Mr. Robinson?

Mr. ROBINSON. Just one other point; Senator Couzens spoke about the investment privileges of the bank. It seems to me there could be a clause in it permitting open-market operations by this bank. There is one in the Federal reserve act, which permits the bank to buy certain securities under certain regulations. I refer to page 2i. It seems to me the bank should be privileged to buy mortgages, say, that mature in one or two years. Such a privilege might be very helpful in the future.

Senator MORRISON. They can not under the general provisions.
Mr. ROBINSON. I don't get that.
Senator MORRISON. They can make loans.
Mr. ROBINSON. They can make loans, yes.
Senator MORRISON. I see what you mean, however.

Mr. ROBINSON. But you can only buy Government securities and certificates of deposits and advances with maturities not greater than one year. I do not know whether that means real-estate mortgages or not. But I can see where it would be very helpful to this bank at times to go to a State or National bank and say, “You have got some fine loans which will mature in one or two years, which have been paid down to a very small percentage of the value of the property they cover. We would like to buy them with this fund.” Why not invest some of your surplus funds in that manner?

Senator MORRISON. Well, now, leaving that, I would like to ask you if you do not think, on account of this difficulty about getting mortgage loans on homes, that over the country generally there is great imposition being practiced upon the home owner by usurers and other people making loans to him and charging him excessive rates and all that sort of thing?

Mr. ROBINSON. We have not experienced much of that in our particular section of the country. We have a better business commission that has been functioning pretty effectively.

Senator MORRISON. Which prevents that?

Mr. ROBINSON. It prevents that sort of thing. Although the building and loan associations have charged up as high as 8 per cent. But home owners have been robbed by the second-mortgage fellows.

Senator MORRISON. That is what I mean.

Mr. Robinson. In order to get a second mortgage a home owner often pays 8 or 10 per cent interest, and then a big discount on top of that.

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