of such an institution or system and it will draw sufficient from the home financing institutions to pay the bill or costs tenance.

Senator WATSON. Just a moment. We are compelled to Finance Committee on an important matter.

Senator CoUZENS. We will be back in a short time.
Senator WATSON. It won't be very long.

(The committee recessed to attend to other duties
reconvening the following further proceedings were had
Senator WATSON. Please finish your statement, Mr.
Mr. BODFISH. I will be very brief. Senator Couzen
tion about the "deposits" in these 12 banks by mem'
It would seem that a member association or insti
privileged to use its own home-loan bank, to whe
build up modest balances for the retirement of l
to keep a modest deposit there for emergency p
to the funds they keep in their commercial bank-
functions are neither denied nor permitted in t

Now, the question the Senator raised reg those deposits in relation to Government bon I think, by the fact that the bill provides only be invested in two ways by the 12 b States Government securities; the other, members of the system, which merely ca ation and pooling of funds that the v facilitate.

Senator CouZENS. Did I understan these banks which "we" own?

Mr. BODFISH. No; I don't think Senator CouZENS. Will you read (The reporter read as follows:)

Senator Couzens raised a questi member associations. It would see leged to use its own bank

Senator CoUZENS. He did permitted to deposit in o to that, but as I read t1 banks for a long time when I say "we," I me your banks?

Mr. BODFISH. We and I think the bill participating will

time goes on. Senator Couz

set up with the Mr. BODFIS

enough to tal Senator C Mr. BODE

an institut gency, wi institutio

the futu

er intended, so far as I ion, that we should ever he that cost more than

end on a house that cost 000, you would be getting of this bill.

o it being limited to $30,000 ee could be used as collateral, ms when very desirable pieces would come in. For example, house. He lives in one half and are valued at fifteen, twenty, or they are a very desirable type of

as not originated for the purpose of rson who owns the other half of a > bill, as I understand it, is inspired to for investment but for home use.

Do you not feel, Senator, that the owner living in one-half of it is a desirable the type that should be encouraged? k it is, but the question is whether we make investments for the man who puts

like to submit a memorandum dealing with the language.

right. Give it to Mr. O'Brien.

k that is all, Mr. Chairman, unless there are

Do you want to ask him any other questions,

Have you seen a memorandum prepared by Building and Loan League-that is your league? 1 es, sir.

NS. And is Mr. William E. Best your president?
Mr. Best is our president.

ZENS. Did you see a memorandum he has made up
dated December 24, 1931?

H. I did, Senator.

OUZENS. Have

you covered those features in your

FISH. Those amendments or features have been embodied aft of the bill.

WATSON. Do you want to ask him any questions? If not, recess now until 2 o'clock.

reupon, at 12.10 o'clock p. m., a recess was taken until 2 - p. m.)

98195-327

some return on. You know, there is a very full distribution of earnings and the spread is very narrow, approximately 1 per cent, out of which they pay all expenses and create reserves.

Senator WATSON. You feel that if this system is set up it will work? Mr. BODFISH. Personally; yes, sir.

Senator WATSON. Successfully?

Mr. BODFISH. Successfully; absolutely, in my personal opinion. Senator WATSON. And be profitable?

Mr. BODFISH. Reasonably profitable; sufficiently to sustain the 12 banks in their normal operations. I don't think it would be the source of great profit at all.

Senator WATSON. Do you look upon it as purely an emergency proposition or as permanent in character?

Mr. BODFISH. It will fill both an emergency need and also a permanent need.

Senator COUZENS. Have you any idea what the securities of these banks would sell for?

Mr. BODFISH. It is my opinion that they would sell at their par or above, at least at their price of issue, and probably remain so, because you have about four times the amount of home mortgages on real estate behind each dollar of bond issue; and we feel that that would make one of the primest bond investments possible; experience with the land bank of the State of New York, which is a State organization of somewhat similar character and which has been functioning for 18 years, bears that out.

Senator COUZENS. Would you tell us what effect you think it would have upon these bonds if we removed the tax exempt feature?

Mr. BODFISH. I doubt if they would find as active and quick a market as they would find if tax exempt. It seems to me these bonds must be so prime and so desirable that when the time of need comes they will find a very ready and a very immediate market. As you have noted I do not feel that the system as set up is designed for major real estate or credit expansion, because the power to borrow, and therefore the power to issue bonds is rigorously limited. Senator COUZENS. Have you anything else?

Mr. BODFISH. There are one or two points I would like to present. In the section dealing with the character of home mortgages which may be permitted for collateral, page 15, section 8, item 2b, I think the intent was to deal with the unpaid principal rather than the principal sum.

Senator WATSON. What line is that?

Mr. BODFISH. Line 19 on page 15. The present language would exclude any mortgage whose original amount was in excess of $15,000, and I think the intent was to permit mortgages to be used as collateral in which the original sum may have been $30,000 at the outside.

Senator COUZENS. That is the point that was raised the other day. That is the point I object to because of the fact that it endangers the Government and this agency in making loans on homes that might have cost a million dollars, for example. That was not the intent of the proponents of this legislation, that this should be a means to use for the building or maintaining of expensive homes. In other words, it was my view that the limit ought to have been $10,000 instead of $15,000, that it was the viewpoint of one prominent official that it ought to have been $20,000, and the other was a sort of compromise

figure arrived at of $15,000, and it was never intended, so far as I could understand the authors of this proposition, that we should ever participate in lending money on any home that cost more than $30,000.

Mr. BODFISH. That is true, I think.

Senator COUZENS. If you propose to lend on a house that cost $100,000 just because it is down to $15,000, you would be getting away from the principle which was back of this bill.

Mr. BODFISH. There is no objection to it being limited to $30,000 mortgages as long as the unpaid balance could be used as collateral, and there would be frequent occasions when very desirable pieces of collateral approaching this amount would come in. For example, a person buys a two or three family house. He lives in one half and rents the other half. Often those are valued at fifteen, twenty, or twenty-five thousand dollars, and they are a very desirable type of home ownership.

Senator COUZENS. This bill was not originated for the purpose of creating investments for the person who owns the other half of a 2-party apartment house. This bill, as I understand it, is inspired to encourage home building, not for investment but for home use.

Mr. BODFISH. That is true. Do you not feel, Senator, that the 2-family house which has the owner living in one-half of it is a desirable type of home ownership and the type that should be encouraged? Senator COUZENS. I think it is, but the question is whether we should advance money to make investments for the man who puts it up.

Mr. BODFISH. I would like to submit a memorandum dealing with that particular intent of the language.

Senator WATSON. All right. Give it to Mr. O'Brien.

Mr. BODFISH. I think that is all, Mr. Chairman, unless there are further questions.

Senator WATSON. Do you want to ask him any other questions, Senator?

Senator COUZENS. Have you seen a memorandum prepared by the United States Building and Loan League that is your league? Mr. BODFISH. Yes, sir.

Senator COUZENS. And is Mr. William E. Best your president? Mr. BODFISH. Mr. Best is our president.

Senator COUZENS. Did you see a memorandum he has made up and sent to me, dated December 24, 1931?

Mr. BODFISH. I did, Senator.

Senator COUZENS. Have you covered those features in your argument?

Mr. BODFISH. Those amendments or features have been embodied in the redraft of the bill.

Senator WATSON. Do you want to ask him any questions? If not, we will recess now until 2 o'clock.

(Whereupon, at 12.10 o'clock p. m., a recess was taken until 2 o'clock p. m.)

98195-32- -7

AFTERNOON SESSION

The subcommittee resumed its session at 2 o'clock p. m., at the expiration of the recess.

Senator COUZENS (presiding). The committee will come to order. The gentleman who was here this morning who wanted to testify will please come forward and take the witness stand.

STATEMENT OF JAMES A. DEVINE, SECRETARY OF THE OHIO
BUILDING ASSOCIATION LEAGUE, COLUMBUS, OHIO

Senator COUZENS. Will you give the reporter your full name?
Mr. DEVINE. James A. Devine.

Senator COUZENS. And your address and what your occupation is. Mr. DEVINE. I am secretary of the Ohio Building Association League, Columbus, Ohio.

Senator COUZENS. You may proceed with any statement you choose to make.

Mr. DEVINE. First, Mr. Chairman, I would like to clear up some statements with reference to the Ohio Building Association League, a statement which was made in this meeting that our $1,200,000,000 are assets that are absolutely frozen.

And, further, that our depositors were making their deposits without knowing what they are doing.

Thirdly, that the Ohio building associations do not create a reserve. And I want to state that under the Ohio law we have to place 5 per cent in the reserve, which is built up and that we can have and call upon in the case of a loss. The very first of the year, we had over 1,000,000 stockholders and depositors, we had 465,000 borrowers, showing the magnitude of the business so far as the people are concerned.

Last January we had 809 associations functioning. This year we have had five liquidated, four of them by reason of defalcation. Three of the defaulters are in the penitentiary, and another committed suicide, and the other association is being liquidated voluntarily. The total amount of that liquidation involved $6,000,000, and a few dollars over.

Senator COUZENS. Will there be any loss sustained by reason of these liquidations?

Mr. DEVINE. There will be a loss on the defalcations, unless we can recover fully on the bonds. Due to the present condition of the bonding companies, on account of general conditions, it is doubtful how much can be recovered on the bonds.

Senator COUZENS. I did not have particular reference to those who were liquidated by reason of fraud; but for other reasons.

Mr. DEVINE. We have only one that is being liquidated voluntarily. Senator COUZENS. And in the case of that one, will there be loss by reason of the liqudation?

Mr. DEVINE. That will pay 100 cents on the dollar to depositors. You will remember we are the only State in the United States. where we have special deposits in our institutions.

Further, the records will show that, in competition with the banks, State and national, we are paying a rate higher than is true in some States, but are on a par with many of the banks in many of the States, and in Ohio, which are paying 5 per cent.