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I say admitting that it will be done, that is the only reason I am making this statement, and I do not think there is any necessity for it, and do not think it should be. But if they are going to do that, let them set up a corporation, fix a minimum price on the stock of this corporation, adopt a uniform plan which would be on monthly payments, 5, 10, or 15 years, not accept-I am talking about the permanent plan now-and not accept any other form of mortgages except that form.

And against that I would suggest that they, instead of requiring that it be a 50 per cent or 60 per cent mortgage, this corporation be allowed first to issue home building certificates under a savings plan wherein a man must accumulate 25 per cent of the cost of the home he buys before his home will be provided.

Then issue the mortgage for the entire amount of that home, plus the interest rate that is going to be charged, and divide this into the

payments, monthly payments, so that it matures in 5, 10, or 15 } years, no longer than 15 years.

Then provide an insurance policy wherein the insurance company would, in case of total disability or death, assume the payments of the home.

I would go farther and I would set up at least 1 per cent as an emergency fund to be kept entirely apart and separate from all other funds of the corporation. This could only be used where a man was temporarily unable to meet his payments by reason of a serious illness. He could be loaned from this money in order that there would be no default, until he was able to resume his payments. Then this money would be collected and added back to the emergency fund. When a home owner had completed his payments, pay to him in the form of a dividend his proportion of that emergency fund which would be collected from him.

Senator COUZENS. How many banks would you set up to handle a deal of that sort? 1

Mr. CLEMENT. I would not set up any banks. I would set up one corporation.

Senator COUZENS. With how many branches?

Mr. CLEMENT. Well, I should say ten or a dozen would be plenty in the United States to do that.

Senator Couzens. How would the man in all of these cities of the United States get service if you only had 10 or 12 branches?

Mr. CLEMENT. Why, they would have a branch in every place.
Senator COUZENS. That is what I was trying to get at.

Mr. CLEMENT. Yes, have a branch in every place, not a branch office, but they would have a representative there, which could be any local institution.

Now, this plan, the benefits of this plan are open to every man in the United States, the banker-it does not interfere with the banker; it does not interfere with the building and loan association. If they want to sell—and nearly all the building and loan associations to-day are selling on those monthly payment plans—if they want to come to this corporation and discount their payments, pay in this form . But this corporation could not exist, it could not go on account of the expense, if they had to examine and take every form of mortgage that is put out and sold to the banks and institutions.

Senator COUZENS. For the record I desire to put in a letter addressed to the chairman, Senator Norbeck, together with the attached memorandum, as follows:

New York City, January 13, 1932. Senator PETER NORBECK,

The Capitol, Washington, D. C. DEAR SIR: As chairman of the Committee on Banking and Currency, you have before you in President Hoover's proposal for the establishment of Federal home loan banks a measure of the greatest importance to the home owner and to real estate in general.

Some of those who have considered the matter very carefully feel that an amendment which would permit the banks to discount loans up to 50 or 60 per cent of the value of the property rather than to a like percentage of the face value of the mortgage would add greatly to the permanent value of the act and make it rank alongside of the Federal Reserve and Farm Loan Acts as a great constructive piece of legislation.

Without wishing to burden you unduly, I have taken the liberty of enclosing a monograph on the bill which I hope may be of some interest to you and perhaps be of some assistance in your deliberations. Very respectfully yours,

F. R. Howe, Vice President.

JANUARY 5, 1932.


The home loan bank bill, introduced into the House by Mr. Luce as H. R. 5090, and into the Senate by Senator Watson as S. 35, is designed to be of permanent help to real estate and it is believed that if the bill is amended in one important particular it may be of epoch-making influence in the financing of the homes of millions of home owners in the United States. The amendment which is deemed essential is to permit the home loan banks to lend 50 or 60 per cent of the appraised value of the property instead of as the bill is now drawn-50 or 60 per cent of the face value of the unpaid principal of the loan. It is the purpose of this article to consider the possible benefits and advantages which might be expected to accrue from the formation and operation of the 12 proposed home loan banks.

The history of mankind has shown that real estate is the basis of all wealth. Mortgages on properly improved real estate, upon a valuation of 60 per cent of the property, are the safest form of investment ever devised. It is a form of investment, however, which is subject to numerous handicaps.

First, it is a local matter of necessity, and a knowledge of the value of real estate is usually a local knowledge confined to a large extent to those skilled in dealing in real property in a given locality. It is information not available to the ordinary investor.

Second, real estate, while the basis of all wealth, is a slow asset. It is not as easily saleable as some other forms of property, and mortgages secured by real estate are also not readily saleable because the knowledge of the values behind them is confined to a locality and to a few people in that locality, and the amounts of such mortgages are frequently too great for the average investor, even if he had the knowledge which would justify the purchase.

These two qualities of real estate have made securities upon real estate a lucrative field for those having the necessary knowledge of values and the funds in sufficient amounts to make such mortgages, with the result that institutions such as savings banks, etc., who invest in real-estate mortgages get a higher return upon them than upon other forms of investment in their portfolio. These two handicaps, therefore, result in a premier investment security, paying a higher rate of interest than other forms of investment.

There is considerable difference in the relative values and marketability of mortgages on different types of income-producing property, but it is generally conceded that the relatively small mortgage upon the individual home is, from an investment point of view, perhaps the safest of all. This becomes particularly true when comparing a large number of small mortgages on individual homes

with one large mortgage on an individual piece of income-producing property because, for one thing, we see in this situation the application of the great investment law of averages which is operative in real estate as it is in every other form of investment to minimize the risk of loss.

There have been many attempts, both local and national, to overcome the handicaps which investment and mortgage securities on real estate have labored under. It might be well at this point to review briefly some of these efforts.

We have, for example, the guaranteed mortgage which is sold to the investor usually by a large company with great experience in dealing with property in a given locality, which large corporation pledges its capital and surplus as a guarantee fund to make sure the payment of the mortgage which it sells. A further step in this direction is the sale of the guaranteed mortgage certificate by similar companies, the security behind which being a group of first mortgages deposited in a trust fund, against which mortgage certificates are issued in amounts to meet the requirements of smaller investors.

We have the large central mortgage bank, frequently encountered in Europe and perhaps typified best by the Credit Foncier of France. Here was an institution which issued its own securities against the deposit of first mortgages which were regarded as of such high character as security and having such a broad appeal, from the smallest investor to the largest, that such securities frequently sold at a lower rate than ruled in the market for industrial and railroad securities.

Up to the present time in this country, the Federal farm loan banks and the joint-stock land banks represent the most important step to nationalize realestate securities, their operations, of course, being limited to one form of real estate only—the farm. While many of the joint-stock land banks, due to depression in the farming industry and other causes, have fallen on evil days, the operations of the Federal farm loan banks and the market value of their securities have held up very well, all things considered. That they have resulted in great savings to the farmers of the borrowing class and have broadened the market for these securities is a well-known fact. Prior to the formation of the Federal farm loan banks, investing in farm loans was carried on in a very limited way due to lack of knowledge of the values, but certain investing groups in the East were able to make a very high rate upon their money by investing through skilled agents in the West who had knowledge of farm values in these localities. All this was changed when the Federal Farm Loan Act went into effect. Thousands of investors who had never dreamt of buying a farm mortgage bought the bonds of the Federal farm loan banks. Small investors who might need their funds felt safe in investing in farm-loan bonds because there was a market available.

The home loan bank bill would extend the enormous benefits, heretofore enjoyed as far as real estate is concerned only by the farmer, to the owner of the urban house. The proposed limit on the size of such mortgages will bring these benefits within the reach of probably the greatest number of people in the United States. With the migration from the farm to the city which has gone on during the last 50 years, by far the greater part of the population of the United States now resides in the towns and cities of the country, and in so far as such town dwellers own their own houses and the same are of modern size, the benefits will fall upon them directly but all forms of urban property will benefit. To the individual house owner the benefits should accrue ultimately in lower interest rates on his mortgage. If lending companies and mortgage companies discount these mortgages with the home loan banks it will release their funds for additional real-estate loans and in consequence make more money available for lending to other forms of improved property. A large new field to the investor will be opened up, which would enable him to participate in the mortgage market in proportion to his means in a way that has heretofore been possible only to relatively large investors possessed of special real-estate knowledge.

The buyer of home loan bank bonds should find a ready market for them and so the small investor would be encouraged to put his money in this form of security, where he now dreads the thought of being locked up in a nonliquid investment.

In the relatively large bond issues of the new home loan banks, the law of averages before referred to will have very full scope and effect. The investor, instead of buying a mortgage on one man's house, would with the same money, by purchasing a home loan bond, secure a first mortgage interest in the houses of perhaps a thousand men. We have therefore a twofold advantage in the new home loan bank:

To the home owner new and greatly increased sources of funds upon which he can borrow upon bond and mortgage at probably a lower rate of interest than at present.

To another great class, the small investor, the opening up of a new field for saving in one of the safest investments ever devised by man.

While the home loan bank bill will require the amendment set forth in the beginning of this article in order to fully develop the benefits to be derived from it, yet it seems that the bill-promising as it does great benefits to the home owner and the small investor-should have practically the unanimous support of the entire country.

Senator CouzENS. Is there anything else?

Mr. CLEMENT. There is nothing else. I think I have covered all the ground I want to cover.

Senator COUZENS. All right, sir. Thank you.
Are there no other witnesses to-day?
We will adjourn.

(Accordingly, at 3 o'clock p. m., the committee adjourned to meet again on Tuesday, January 19, 1932, at 10 o'clock a. m.)




Washington, D. C. The subcommittee met at 10 o'clock a. m. in the hearing room of the Committee on Interstate Commerce in the Capitol, pursuant to adjournment on January 16, 1932, Senator James E. Watson presiding.

Present: Senators Watson (chairman of the subcommittee), Couzens, Townsend, Bulkley, and Morrison.

Senator Watson. The subcommittee will be in order, and we will proceed with our hearing. Mr. Lofgren.



Senator WATSON. What is your name?
Mr. LOFGREN. H. J. Lofgren.
Senator WATSON. Where do you live?
Mr. LOFGREN. South Orange, N. J.

Senator WATSON. Are you connected with some financial institution there?

Mr. LOFGREN. I am connected with several financial institutions; and the one I am appearing for to-day is the Mortgage Security Corporation.

Senator WATSON. What is that?

Mr. LOFGREN. That is a mortgage company which financed mortgages during the upgrade of this mortgage situation.

Senator Watson. During the what?

Mr. LOFGREN. During the time when everybody was making mortgages rather freely, I should have said.

Senator Watson. What is the capitalization of that organization?
Mr. LOFGREN. $3,000,000.
Senator WATSON. How old a concern is it?

Mr. LOFGREN. It was in 1921, I believe, that we started. I was not with the company at that time. I have only been with it in recent years, since it got into some financial difficulties.

Senator Watson. When did it get into financial difficulties?
Mr. LOFGREN. I should say they began in 1928.
Senator COUZENS. What caused that situation?

Senator Watson. Yes; I was just going to ask you that question. In 1928 nearly everything was on the upgrade.

Mr. LOFGREN. Well, the difficulty with the mortgage and realestate situation started I meant about that time. In fact, I think it 9819532- 8


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