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TABLE II.-Mortgage investment of building and loan association-Continued

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TABLE III.-States reporting mortgage loans made in 1930 compared with 1929

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One hundred and ninety failures of building and loan associations were reported by the supervisors of the several states for 1930, as compared with 159 reported for the previous year, distributed among the states as follows: Arkansas 1, California 5, Florida 1, Illinois 2, Indiana 3, Kansas 1, Michigan 2, Missouri 4, Nebraska 1, Pennsylvania 153, Ohio 5, Oklahoma 4, Texas 4, and Wisconsin 1. There were also 2 failures in Maryland where there is no supervisory department. The probable loss which will be sustained by the shareholders in these various failed

associations is estimated at $24,676,059, which is the largest loss ever reported in a single year, and probably exceeds the aggregate sum which building and loan association shareholders have sustained during the last three-quarters of a century of their existence. The total loss for the preceding 10 years for which figures are available amounted to only $5,555,935. Losses from failures by building and loan associations have been exceedingly small. The unusual and excessive amount shown during 1930 is attributable mainly to the speculations of a few crooks who unfortunately got into the building and loan business. Over one-half of it is chargeable to the dishonest practices of one man, George H. Beesemyer, a former banker, who looted the Guaranty Building and Loan Association of Hollywood, Calif., and affiliated companies, and who is now serving time in the California State Prison. There is nothing inherently wrong with building and loan associations and they should not, as an institution, be held accountable for acts such as these. Honestly managed, building and loan associations still continue to be the safest possible place for savings investments. This experience simply emphasizes the primary importance of capable and honest management which the public will look for in selecting building and loan associations for patronage. Yet in all fairness and to the everlasting credit of building and loan associations it should be stated that only in rare instances have officers or directors violated their sacred trusts.

SUMMARY OF building aND LOAN ASSOCIATION FAILURES 1920-1930

The following is a summary of building and loan association failures and losses for the years 1920 to 1930, inclusive, together with a statement of the total number and total resources of all associations for each year, the total liabilities of failed associations for 1930, and annual per cent of loss to total resources:

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Senator WATSON. Of course, that is not a consequential question when it comes to the merits of the proposition.

Mr. BODFISH. As some building and loan leaders see the bill, it will do much to revive public confidence in the associations at the present time.

Senator WATSON. Are you interested in this measure primarily for new construction or the salvaging of homes that are already built, the owners of which are in distress?

Mr. BODFISH. Primarily for the assistance it will give building and loan associations in aiding them to function normally. It will do much toward salvaging homes, as far as the building and loan associations are concerned, because all of our mortgages are long-time mortgages without a due date, so there are no foreclosures in connection with building and loan associations caused by mortgages coming due. Borrower distress occurs where they have these one and two year mortgages coming due, and then the bank or trust company, or whoever made that type of mortgage, insists on a substantial reduction in the mortgage or refinancing.

Senator COUZENS. Do I understand that these long-time amortized mortgages do not have a due date?

Mr. BODFISH. They do not have a due date. A building and loan mortgage contract, Senator, is not due until it is paid off. That is a universal condition. The contract is one for monthly repayment, and when the monthly repayments are made the mortgage debt is completely extinguished. Most of our mortgages run from 9 to 13 years.

Senator COUZENS. Is that true in every State?

Mr. BODFISH. It is true in every State.

Senator COUZENS. Do these contracts not provide a specific time to amortize the mortgage?.

Mr. BODFISH. Yes, a specific monthly payment.

Senator COUZENS. Would that not automatically fix the date of maturity, if the amortization amounts were paid off at specified periods?

Mr. BODFISH. Yes; but the amortization covers the whole amount of the loan.

Senator COUZENS. I understand, but if they fall down on an amortization payment, then there must be some due date for the principal, isn't there?

Mr. BODFISH. Yes; if they fail to make their monthly payments, the whole amount is accelerated and the mortgage is foreclosed.

Senator COUZENS. Then they do foreclose on them.

Mr. BODFISH. There are occasions, but that is only when a borrower can not make his payments, and, naturally, to protect the investors in building and loan associations.

Senator COUZENS. Isn't that true of every mortgage, that when the borrower does not pay his installments or his interest or his principal, his mortgage is foreclosed?

Mr. BODFISH. That is true, but there are hundreds of mortgages which have been made for a term of one or two years.

Senator COUZENS. I understand that. But I understood you to testify to the fact that the borrowers in your institutions do not have any fixed date when the mortgages must be paid.

Mr. BODFISH. That is true.

Senator COUZENS. There is no difference between your customers' condition and those who borrow from a bank, if there is a failure to live up to the contract, is there?

Mr. BODFISH. That is true.

Senator COUZENS. Then automatically there must be a due date, if all the amortized amounts are not paid during the life of the mortgage. Mr. BODFISH. Yes, Senator.

Senator COUZENS. Then I do not see any difference between your form of doing business and the form of doing business by a savings bank, except as to the period of time, of course.

Mr. BODFISH. The period of time is of major importance to the borrower. We have considerable distress in Chicago right at the present time, due to 1-year and 2-year mortgages. The due date comes and the bank or trust company insists upon the borrower refinancing in another institution of making a major reduction in principal. This never happens to a borrower from a building and loan association.

Senator COUZENS. Right at that point, if a borrower from a building and loan association did not make his promised payments for amortization, then the mortgage would become due.

Mr. BODFISH. That is true.

Senator COUZENS. In what respect is that different in the case of a savings bank when a mortgage becomes due?

Mr. BODFISH. On a straight mortgage often he can make all his payments according to his contract, and when the mortgage comes due at the end of one year, they ask him to pay it, regardless of the fact he has made his payments with regularity.

Senator COUZENS. If he has made the mortgage for one year, it is due in one year, is it not?

Mr. BODFISH. Yes, Senator.

Senator COUZENS. So he fails in his contract, just the same as he would fail in his contract with you, if he did not make his amortization payments.

Mr. BODFISH. That is true.

Senator COUZENS. I still do not get the point you are trying to make. The point is that borrowers from building and loan associations are not facing foreclosure due to the race for liquidity which characterizes other financial institutions to-day.

Mr. BODFISH. Most home owners, when a straight 1-year shorttime mortgage becomes due, do not have six or seven thousand dollars in cash to pay off that mortgage.

Senator COUZENS. We understand that, but there is no difference, so far as foreclosure proceedings are concerned, if the borrower fails to live up to his contract.

Mr. BODFISH. Yes; as far as foreclosure procedure is concerned. Senator WATSON. In your building and loan vernacular, what is your definition of an amortized mortgage?

Mr. BODFISH. An amortized mortgage loan is a mortgage loan which is repaid in monthly installments over a period ranging from 8 to 12 years, completely extinguishing the debt in that period.

Senator COUZENS. But at what period of default does the building and loan association usually foreclose?

Mr. BODFISH. Usually after a borrower has failed to make any payments whatsoever for six months.

Senator COUZENS. So if a man is out of a job for two years and he fails in any 6-month period to pay the amortized payments, then the building and loan association forecloses, or at least has the option of foreclosing?

Mr. BODFISH. They have the option of foreclosing; yes.

Senator WATSON. How would this bill, then, help you to help him? Mr. BODFISH. There is a great deal of demand made on building and loan associations at the present time to take over mortgages that have been made by other institutions, particularly 1 and 2 and 3 year straight mortgages. We do not have funds enough, frankly, at the present time to refinance those home owners. Money is also needed to pay withdrawing shareholders.

Senator WATSON. But where a fellow has defaulted in his payments to a building and loan association for six months and the mortgage becomes foreclosed, how would the provisions of this bill, if passed, help you to help that man?

Mr. BODFISH. It puts building and loan associations in a little better position to carry him further and longer, if he is of the type of individual and moral risk that will ultimately be able to pay his loan. Building and loan associations enjoy a lot of their present good will due to the fact they have cooperated with their borrowers very closely and very considerately.

Senator COUZENS. So, as a matter of fact, you would be inclined to extend the 6-month period if you had this organization back of you to rediscount your mortgages?

Mr. BODFISH. Associations would be in much better position to extend those payments or reduce them to interest only during this period of stress.

Senator WATSON. Does interest accumulate on those defaulted payments?

Mr. BODFISH. Yes.

Senator WATSON. A fellow who is several months behind, does interest accumulate in his case?

Mr. BODFISH. Just in the defaulted payments. There is no increase in the interest.

Senator WATSON. No increase at all?

Mr. BODFISH. No, Senator.

Senator WATSON. Nothing put on by the way of penalty?

Mr. BODFISH. Very seldom. To continue, building and loan associations during 1930 functioned quite normally. As a matter of fact, we grew $128,964,939 in the country, but early in 1931 the tide seemed to turn the other way. Public confidence waned. We felt it in the wake of bank failures, because after a bank fails people tend to withdraw their money from the building and loan associations. The result has been that quite a number of our institutions have frozen up, so to speak; they have been unable to pay all the demands for withdrawals.

Senator COUZENS. Have they closed in that case?

Mr. BODFISH. They have not closed in any sense of the word. The associations are paying out such income as they have from new investors and from the contracted monthly payments that are coming in on the mortgages that they have outstanding.

Senator COUZENS. Have any building and loan associations closed during this period?

Mr. BODFISH. A very small number. In the first six months of 1931 there were liquidations and losses involving eleven one hundredths of 1 per cent of the total of building and loan assets in the country. Senator COUZENS. Do you mean by that that that many closed? Mr. BODFISH. These were the actual losses.

Senator COUZENS. I am trying to find out how many actually closed their doors and went into liquidation or suspended payment. Mr. BODFISH. When you say suspended payment, do you mean ceased paying on demand?

Senator COUZENS. Yes.

Mr. BODFISH. I do not know the number. There are quite a number that have been unable to pay their shareholders as they came and wanted their money.

Senator COUZENS. Did they close then?

Mr. BODFISH. No; associations do not close then. They continue to collect on the mortgages and distribute what income they have to shareholders who have made applications for withdrawals.

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