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Senator MORRISON. If there is not some such reljef as this gives, is not there danger of that condition coming about in your section, where to get the money the fellow to save his home will resort to sharks, who will let him have the money under conditions that will destroy him?

Mr. ROBINSON. I would not be at all surprised at that.

Senator Morrison. There is that danger, and it is coming. It has already arrived down in our country.

Senator TOWNSEND. Is it your belief that this organization when set up will help commercial banks?

Mr. Robinson. I think it will, Senator.

Senator WATSON. What do you think of Senator Couzens's proposition, to compel this institution to pay the Government interest at the rate of 3 or 4 per cent and that that interest should be paid before any dividends are paid?

Senator TOWNSEND. That is on the money that the Government furnishes?

Senator Watson. On the money that the Government furnishes; yes.

Mr. ROBINSON. I would not go as far as that. If down here you feel that the government should have some return on its money

Senator WATSON. We do.

Mr. ROBINSON. Then if the bank earns enough to pay 6 per cent, then pay the subscribing member, who needs the dividends more than the Government at the present time, perhaps 4, and the Government 2.

Senator TOWNSEND. In other words, pay half to the Government that you pay to the stockholder?

Mr. ROBINSON. Yes. Give the stockholder a little edge on the earnings, then give the Government something on its stock.

Mr. O'BRIEN. As dividends or as interest?
Mr. ROBINSON. As interest.
Mr. O'BRIEN. As interest?

Mr. ROBINSON. I have no choice in the matter whether it is dividends or interest.

Senator Morrison. Do not the commercial banks, notwithstanding the fact they can not carry the notes to the Federal reserve system and discount them, take a great many mortgages anyway on real estate?

Senator MORRISON. They have to do it.

Mr. Robinson. We have $35,000,000 of them. We have 130,000 customers and because of this large number we are bound to make a lot of real-estate loans.

Senator Morrison. And in time of stress there is not anywhere, however good they may be, where you can go and get them discounted.

Mr. Robinson. No; there is not, as far as mortgages are concerned. Senator MORRISON. That is the trouble with this country to-day.

Mr. ROBINSON. There was some opposition initially to this proposal of the President from the insurance companies. I assume that they felt that they furnished a market for all good merchantable loans the country could provide. That is not so at all. Adjoining the city of Cleveland, we have a very beautiful suburb known as Lakewood. The homes are attractive and built by thrifty people who live there and take pride in the appearance of their property. They will always take pride in it. Their streets are wide and well paved and the transportation facilities are good. But the insurance companies won't make a loan in some parts of that suburb. Why? Because the houses happen to be 15 years of age. I don't blame the insurance companies. Theirs is a sound policy, but the banks must loan to their customers who live there.

Senator MORRISON. It would help the commercial banks in time of strain to have a place where they could go and get discounts on their real-estate mortgages, would it?

Mr. Robinson. Absolutely. In times of credit stress, unemployment and loss of confidence, in our business situation, banks which have to borrow of the Federal banks in order to pay their depositors demands would welcome, I am sure, an additional place of discount where the mortgages in their portfolios could be discounted the same as their commercial paper.

Senator MORRISON. And the ultimate safety is frequently superior, is it not, to the commercial loan?

Mr. ROBINSON. Yes, sir. Just as the other gentleman pointed out, the status of a corporation whose paper you hold may change in a month's time.

Senator MORRISON. And where this paper that is subject to discount at the Federal reserve bank is liquid in the sense that you can get the money right away on it, it is about the most perilous paper bankers deal with, is it not?

Mr. ROBINSON. It is.
Senator Watson. We are much obliged to you, sir.
Mr. Robinson. Thank you.
(Witness excused.)
Senator Watson. Who is the next gentlemen?

Mr. MORTON Bodfish. Chairman Watson, I am connected with the United States Building & Loan League. We had intended that our president Mr. William E. Best, of Pittsburgh, would be with us, but he is detained at home through illness. However, he has asked Mr. Stickle, from Newark, N. J., and myself to make a brief presentation in his behalf. We would like to be heard.

Senator WATSON. Very well, sir.

Senator Watson. Give the committee your name.
Mr. STICKLE. Fred G. Stickle, jr.
Senator WATSON. Where do


live? Mr. STICKLE. Newark, N. J. Senator WATSON. What is your business?

Mr. STICKLE. I am a lawyer, a former judge, and also I have been engaged in the building and loan business for some 20 or 22 years.,

Senator WATSON. Actively in it or as a lawyer?

Mr. STICKLE. As a lawyer and as a director of various associations, and also I am in the mortgage business, guarantee mortgage business, in our city, as general counsel of one of the mortgage companies.

Senator Watson. What is your opinion of this bill and why?

Mr. STICKLE. I think the redraft of this bill is a very, very great improvement over the original draft, in that it takes care of the longterm needs as well as the immediate needs of the various associations,

in that it recognizes the value of the long-term mortgage as a homefinancing agency, the strictly building-loan mortgage, which is mainly amortized and shares in the profits and is not callable as long as the payment is kept up.

I think the differentiation between a mortgage of that kind, a mortgage of a long time, and the mortgage of a single year, like the mortgages that some of our banks indulge in, is a wise provision, and the division of 50 per cent in the one case and 60 per cent in the other is very good.

I take exception to a particular paragraph on page 13, because it does not seem to cover our type of mortgage in New Jersey. . Senator Watson. Which paragraph?

Mr. STICKLE. Page 13, paragraph 1, in that we pay our instalments on the shares of stock that are pledged as security, and we do not pay them on mortgages. When a share of stock matures at $200 a share, they cancel the debt, and consequently some language ought to be inserted to cover that situation. It is a sort of a sinking fund plan.

Senator Watson. Supposing you draft it, and submit it.
Mr. STICKLE. I have drafted one.

Senator Morrison. It is very important. All of the real building and loan associations have that.

Senator WATSON. Paid on the stock and not on the mortgage?

Mr. STICKLE. Yes, sir. It might be very well to have a differentiation in the act between what constitutes an amortized mortgage and this other form, and I have drawn up such a differentiation.

Senator Watson. There ought to be one there then.
Mr. STICKLE. I will be glad to let you have it.

Mr. O'BRIEN. You were talking just a moment ago about the amount of the mortgage that was

Mr. STICKLE. That is still another point.

Mr. O'BRIEN. Don't you think that subsection 7 of section 2 on page 2, lines 19 and following, take care of the case in which there are payments on shares of stock?

Mr. STICKLE. Subsection?
Mr. O'BRIEN. Section 2.

Mr. STICKLE. That describes what you consider to be unpaid principal but it does not describe what is an amortized mortgage.

Mr. O'BRIEN. But you are worrying about the case in which the unpaid principal is not considered, where there is payment against shares of stock. I think this takes care of your shares of stock case, doesn't it?

Mr. STICKLE. No, I think not. You say here in the third line:

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.

In the first place, we have no term. Ours merely mature. In the second place, it may be said that a mortgage which is not paid on account of principal is not an amortized mortgage, as distinguished from one paid on stock.

In our State we have 1,561 associations, and perhaps 15 per cent of them are finding difficulty in the matter of meeting these shareholders to whom we taught systematic thrift, and then when the rainy day comes, due to depression conditions, we do not have the funds for them, a very important part of our business.

Senator WATSON. How many building and loan associations are there in your State?

Mr. STICKLE. There are 1,561 in the State and about 600 in our county.

Senator WATSON. What is their condition?

Mr. STICKLE. About 15 per cent of them are unable to meet their withdrawals. We have had since 1903 a provision whereby we pay withdrawals within 30 days. Eighty-five per cent of our association to date have paid within that period. About 15 per cent of them are not able to pay.

Senator WATSON. Is there any new construction now through the building and loan associations?

Mr. STICKLE. There is no new construction, because with the withdrawal situation, until we can meet it, we can not have construction. And we can not borrow from our banks, because we have grown so big we are almost as big as banks. Senator TOWNSEND. Is there any demand for new construction?

Mr. STICKLE. I would not say there is any demand for new construction at the present time. We have borrowed 32 per cent of our loans now, and we can not borrow any more. If we could borrow 50 per cent, as the law permits us to borrow, we could meet every demand.

Senator MORRISON.'Why are you unable to borrow?

Mr. STICKLE. The banks want to become liquid, and they don't want to help our associations. We are strong competitors.

Senator TOWNSEND. Do your associations take deposits?

Mr. STICKLE. No; we have not the deposit system in New Jersey. In time of prosperity we have paid on demand, but as a matter of law we are not compelled to do it before 30 days.

Senator Watson. Do you issue shares of stock?
Senator WATSON. Taxable by the State?

Mr. STICKLE. Yes. And I might say that our shares of stock have stood up better than our installments at the present time. We are at the present time in New Jersey hoping to build up a State agency that will help to take care of these needs of liquidity, and we hope perhaps you will see your way clear to allow our State organization, if it comes into being, or any similar State organization throughout the United States, to make a cooperative arrangement with your agency, because I think it would be helpful to our agency and to your agency as well.

If we could get funds, such as this agency would enable us to get, we could meet these withdrawals and stem the feeling that is producing many of these withdrawals. When these discount banks come into our territory, come right back home, as distinguished from the finance corporation, and the people know that the United States Government to a degree is behind our sound institutions, the psychological effect would be splendid, and many of our people who are now seeking to make withdrawals would stop, and that would stem the tide. Many of them would want to put it back.

Just like the experience they had in Mechanicsville, N. Y., where two banks failed. When the banks failed the shareholders of the building association sought to withdraw their money and withdrew $67,500 the first day. They have a State land bank in New York,

per cent.

and while it is organized for development purposes rather than liquidity purposes, they recognized the situation and stepped in and put $150,000 into that building and loan. The surrounding associations, who realized for the first time that a chain was only as strong as its weakest link, came in and put some money in with the result that by the third day the run had stopped, and the people who took the money out on the first day tried to put it back on the third day, and your organization will do the same thing for the building and loan movement in this country.

Senator TOWNSEND. This was a State land bank?

Mr. STICKLE. A State land bank, yes; which is organized to sell bonds. But it is not a liquidity organization such as we have in mind and such as they have in Massachusetts.

Senator WATSON. As a general rule, Mr. Stickle, how much has real estate depreciated for loan purposes?

Mr. STICKLE. I should say at a maximum about 33% per cent and as a minimum about 25


cent. Senator TOWNSEND. That is less than it is in a great many places, is it not?

Mr. STICKLE. Yes; it is. I think perhaps that is true, but I don't think I would be accurate in putting it any higher than 33%

This bill, I think, would have not only a psychological effect, but a very great practical effect.

Senator WATSON. Your building and loan association loan is about as safe an investment as you can have, is it not?

Mr. STICKLE. We think so. In New Jersey we have the individual plan as developed by the President's finance committee. They recommended the kind of a loan under which a home owner could put up 20 per cent and the balance or the remaining 80 per cent be taken care of by an amortized mortgage. We do just that. And we have done it very successfully in our State since 1903.

Senator MORRISON. What do you do with stock of a defaulting member?

Mr. STICKLE. Sell it at public auction.
Senator MORRISON. Does it bring almost always nearly par?
Mr. STICKLE. Almost always par, yes.

Senator MORRISON. Do you know of any security in the country that has brought as nearly par as that? Sold at auction?

Mr. STICKLE. I wish I had all my money in the building and loan! Now, Senator, there may be some few slight amendments in the verbiage that I would like to suggest.

Senator WATSON. Yes.
Mr. STICKLE. I will prepare those and send them to Mr. O'Brien.
Senator Watson. Yes. He will give you his address.

Senator MORRISON. Do you think the plan set forth in this bill would be successful?

Mr. STICKLE. I think it will be successful. I think the plan is something we need and have needed.

Senator MORRISON. And you think the banks and the building and loan associations which by its terms are permitted to join it, would subscribe for the stock and become members?

Mr. STICKLE. Yes, I do. And I don't have the fear that the preceding speaker had about the size of the fee, because if you observe the terms, you may pay in 1 per cent in installments and you may

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