Since Mr. Magenheimer has ably stated the background of Section 26-610 and the reasons that those of us in the real estate investment trust industry feel that such trusts should be added to the list of organizations which are exempt from the licensing requirements of the Loan Shark Law, I will confine my comments to the effect this law has had on the investment policy of our Trust. CMI's principal investment activities to date has consisted of the making of construction and development loans to developers of residential and commercial projects. As of September 30, 1971, CMI had outstanding loan commitments of $134 million. Of this total amount, approximately $71 million is financing the construction of income-producing properties such as apartments, shopping centers, motels and office buildings; approximately $44 million is financing the construction of single-family residential subdivisions and approximately $19 million is financing land development and acquisition in prepartion for future construction of various kinds. As a local trust with principal offices in Chevy Chase, Maryland, the logical principle markets for CMI's lending business are Maryland, Virginia, and the District of Columbia. As of September 30, 1971, CMI had outstanding loan commitments in the three jurisdictions in the following amounts: Virginia District of Columbia. $75, 583, 395 33, 151, 726 The absence of any commitments in the District stems directly from the uncertainty expressed by Mr. Magenheimer over the coverage and operation of the D.C. Loan Shark Law. Because of this uncertainty, Capital Mortgage Investments has not sought loans in the District of Columbia. However, on a number of occasions opportunities to make such loans have been presented and would, in all likelihood, have been taken were it not for the possible effect of the Loan Shark Law, which carriers with it the risk of forfeiture of all interest-and I omitted to say "and principal", so if the reporter would please add that, and a possible suit for damages by the borrower. CMI recognizes the need to protect the public and, particularly, the unsophisticated small borrower, from the unscrupulous lender, and it is obvious that the Loan Shark Law is designed to fill this need in part through its licensing requirements. However, it is also obvious from the various exceptions found in section 26-610 that this law was not intended to cut off the access of Washington builders and developers to the large amounts of capital necessary to support the kind of building project commonly launched in a city the size of ours. There is a distinct difference between the individual who needs $200 to meet his medical bills and the individual who needs $2 million to construct an apartment project. In the first case, the individual may be unable to obtain the needed funds from the normal sources and is forced to turn to the loan shark or finance company. The business borrower, on the other hand, is in a position to shop around among many lenders to obtain the best rates available. Over the past six years there has been a phenomenal growth in the number and assets of real estate investment trusts. Today there are 80-500 O 72-3 more than 100 trusts in existence with combined assets in excess of $5 billion. Real estate investment trusts are subject to very strict regulation at both the State and Federal level to insure that they are operated with the public interest in mind. Based upon this background, there is every reason why real estate investment trusts should be added to the list of lending institutions exempt from the licensing requirements of Section 26-610. The granting of an exemption will provide the District with a vast new source of funds to be used in the development and redevelopment of the District. Thank you. Mr. HUNGATE. Thank you very much. Are there any comments you would like to make on any of the testimony thus far! Mr. WINSTON. That is all, thank you. Mr. HUNGATE. Thank you very much. I think your helpful and interesting statement outlining the difference in the loan commitments in Virginia and Maryland from that of the District of Columbia is very striking. I appreciate that. Now, the representative from the District of Columbia, Mr. Robinson, please. We are pleased to have you with us, Mr. Robinson. We have a letter of October 4, 1971, from Mr. Watt for Mr. Washington, addressed to Mr. McMillan. Do you want that made part of the record? Mr. ROBINSON. We would, sir. Mr. HUNGATE. Without objection, so ordered. (The letter follows:) GOVERNMENT OF THE DISTRICT OF COLUMBIA, Washington, D.C., October 4, 1971. Hon. JOHN L. MCMILLAN, Chairman, Committee on the District of Columbia, U.S. House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: The Commissioner of the District of Columbia has for report H.R. 10523, a bill "To exempt real estate investment trusts from the Act of February 4, 1913, which regulates the loaning of money on security in the District of Columbia." The bill amends the so-called "Loan Shark Law" (D.C. Code, sec. 26-601 et seq.) so as to exempt from its provisions the lending business of real estate investment trusts. The 1913 Act was designed to regulate the making of small loans in the District by requiring the licensing of persons or organizations engaged in the lending of money at an interest rate in excess of six per cent. The small loan law currently exempts the following businesses from its provisions: national banks, licensed bankers, trust companies, savings banks, building and loan associations, small business investment companies licensed and operating under the Small Business Investment Act of 1958, real estate brokers, and life insurance companies. The exemption provided by H.R. 10523, would apply to real estate investment trusts meeting the definition of "real estate investment trust" contained in section 856(a) of the Internal Revenue Code of 1954, as amended. The Commissioner is informed that such trusts and associations currently do business in all fifty States and that the District of Columbia is the only jurisdiction in which they do not now operate. In light of the large lending capability of real estate investment trusts, the need for additional mortgage investment in the District of Columbia, and because the provisions of the "Loan Shark Law" were not designed to regulate the business of such organizations, the Commissioner of the District of Columbia has no objection to the approval of H.R. 10523. Sincerely yours, GRAHAM W. WATT, Assistant to the Commissioner, (For Walter E. Washington, Commissioner.) STATEMENT OF WILLIAM A. ROBINSON, ASSISTANT CORPORATION COUNSEL, D.C. GOVERNMENT Mr. ROBINSON. Mr. Chairman, the District of Columbia has no statement to make. The previous witnesses, I believe, have adequately explained the purposes behind H.R. 10523. As the letter of the District of Columbia indicates with respect to this, the Commission has no objection to its approval. Mr. HUNGATE. The Commission has no objection to the approval; is that correct? Mr. ROBINSON. That is correct. Mr. HUNGATE. The Loan Shark Act, I understand, was passed in 1913. Is that the proper date? Mr. ROBINSON. That is the correct date, Mr. Chairman. Mr. HUNGATE. Has that amount of $200 been changed since that date, do you know? Mr. ROBINSON. No, it has not. It has remained the same since that date. Numerous efforts have been made to modernize and revamp the law; in fact, there is a committee sitting on it now, but Congress so far has not seen fit to make any change. Mr. HUNGATE. I imagine you will agree that $200 has changed since 1913. Mr. ROBINSON. There are very few loans being made in that amount. Mr. HUNGATE. Has any opposition to this legislation been called to your attention, Mr. Robinson? Mr. ROBINSON. Not within the District of Columbia government. I have heard no opposition. Mr. HUNGATE. Thank you very much. I thank all of you gentlemen for your time and testimony here this morning. It has been helpful to the committee and the subcommittee will probably meet to work on a markup of this measure, hopefully, within the next month. I hope that we will be able to come up with something to relieve the money market in Washington. If we can just learn how here in Washington, D.C., maybe we can start working on the rest of the country. Thank you, gentlemen. (Whereupon, at 11:15 a.m., the subcommittee proceeded to other business.) INTEREST, USURY, AND CONSUMER CREDIT MONDAY, NOVEMBER 29, 1971 HOUSE OF REPRESENTATIVES, JUDICIARY SUBCOMMITTEE OF THE COMMITTEE ON THE DISTRICT OF COLUMBIA, Washington, D.C. The subcommittee met, pursuant to notice, at 10:00 a.m. in Room 1310, Longworth House Office Building, Honorable William L. Hungate, Chairman of the Subcommittee, presiding. Present: Representatives Hungate, Jacobs, Mikva, Link, Broyhill, and Smith and Delegate Fauntroy. Also Present: Messrs. Hayden S. Garber, Counsel; Patrick E. Kelly, Assistant Counsel; John Hogan, Minority Clerk; and Leonard O. Hilder, Legislative Assistant. Mr. HUNGATE. The subcommittee will be in order. Testimony will be received on H.R. 10523 and S. 1938, dealing with the interest and usury laws of the District of Columbia. (S. 1938 follows:) (31) |