Mr. CANNON. I have gone over them quite a few times. Senator WATSON. Are there things in them that you would change or alter?

Mr. CANNON. There are some things that I think could be changed. Amendments have been offered by our friend from Ohio which I think in some cases-in most cases would be desirable.

Senator WATSON. Have you discussed them with him, or heard his testimony here?

Mr. CANNON. I have heard his testimony. That was my privilege this morning.

Senator WATSON. And you feel that those amendments that he suggested, or some of them, would help the bill?

Mr. CANNON. Yes, sir.

Senator WATSON. And aid in its operation?
Mr. CANNON. I do.

Senator TOWNSEND. Do you think a permanent organization of this character would injure commercial banking in any way?

Mr. CANNON. I do not see that there would be any possible injury to be derived by the commercial-banking interests. This money is to be put into long-time investments, an entirely different procedure, and I can not conceive how, if they are started in the fashion that the bill prescribes, there would be anything detrimental to the commercial banking interests of the country. We should not do anything that would be detrimental to them, because they are the backbone of our very life. I would be the last one to make a move which would be against them.

Senator WATSON. Is there any other observation you want to make, Mr. Cannon?

Mr. CANNON. I do not believe so, Senator.

Senator WATSON. Very well. We thank you very much for your statement.

1 have been asked to place in the record a statement of Mr. Robert Oakman, of Detroit, and his statement is placed in this record. (The statement is printed in the record, as follows:)

FEDERAL HOME LOAN BILL

INTRODUCTION

President Hoover announced to the country some months ago a broad and comprehensive reconstruction relief program.

One plank called for a finance measure to enable distressed home owners, particularly in the towns and cities, to save their homes, and to enable this class to borrow and build homes, in cases where they did not have one.

It will be generally conceded that the first draft of the administration experts, as submitted to Congress, was not satisfactory, as Senator Watson, chairman of the Senate Banking and Currency Committee, withdrew the first draft and submitted an improved bill.

Experts are now working to improve this second measure. Every good American qualified to submit an opinion should feel free to advise Congress how to perfect this bill.

It is in this spirit that I submit my plans and suggestions.

NOT ENOUGH HOMES FOR THE WORKER

Those who claim that there are already built more working men's homes than are required by that class are not well informed. In large cities, there has been for years a crying need for substantial, sanitary homes for working

men.

For the past few years, there was a strong tendency for wage earners to buy homes at a price, which, when amortized, required the payment of 1 per cent per month, putting upon them a burden that could not be met in the time allotted for the final payment. It is primarily for this class of home owners that a Government Home Loan Bank is needed.

It is evident that the bill, as it is to-day, is made up to fit the needs of commercial banks and reserve banks, and not for the purpose of making a home loan bank a useful and going concern for the benefit of home ownership. What is needed is a real, genuine mortgage bank that will function along the lines laid down by President Hoover, and this can not obtain by attempting to compel responsible borrowers to put up $75 in good securities in order to secure a loan of $25. It won't work, for the simple reason that reliable institutions can not afford to make such transactions. A few can afford to take under the bill as it is, for reasons that are quite clear.

The mortgage loaning companies own the mortgages that are required to be made liquid for the purpose of aiding persons who are now in danger of losing their homes, because their earning power is not sufficiently large to enable them to keep up the required payments, and, when an extension is given, these mortgagors will make certain that their homes will be paid for within the 20-year limit.

BANK MUST BE SELF-SUPPORTING

Local members of a permanent Federal home loan bank should be of the highest financial standing in the community in which a district bank is located. It is not that such a member bank must be the largest bank in the community, but it must be a bank of recognized and approved financial standing-banks strong enough to have a substantial interest in the Federal mortgage bank. The original stock subscription should be not less than $10,000. This sum would earn interest as soon as the bank began to pay.

The Federal home loan bank must be self-supporting. It must earn enough money in order to pay the debt owing the Treasury. It can not be successful when its earning power is dwindled down to meet the provision of the bill as it now stands, limiting mortgage advances to 25 and 30 per cent of the value of the real estate.

The bill as it stands limits the loaning power of a member bank to twelve times the amount of capital stock which it has paid in, that is, paid in and subscribed for. It is a case of superfreezing the frozen mortgages. This is a bit of nonsense, especially when the bill provides that the member bank must guarantee its loans; the local member, after a trial or two, learns that such a rule would cause the freezing, instead of unfreezing, their stock of sound securities as well as to lower the bank's cash balance.

Some of the bigger member banks might be able to function for a few days under this provision. A repetition of borrowing under that section of the bill would soon deplete the soundest securities of the banks.

The 1 per cent clause in section 5 should be eliminated.

NO INFLATION

There can be no inflation where money and credit are invested in goods of a permanent and lasting character, such as workingmen's homes. This is only a case of increased wealth.

Fifty per cent mortgages on well-built homes of the workers of the Nation connotes the safest security in the world.

In every large progressive city in the country there is a shortage of thousands of houses that are not fit for the families of those who toil for their living. Thousands of clerks and mechanics and artists live in dilapidated houses (situated on convenient streets), that ought to be torn down and replaced by houses that can be bought and paid for by home seekers.

The city of London, England, has recently tried a similar experiment and have found it to be a paying investment from a rental viewpoint.

Private capital to the amount of $50,000,000 has recently been spent in improving living conditions of the poor. The rehabilitation was done by mass production. If private capital in the city of London can do this uplifting work, we should feel confident that through a real home-mortgage bank, America can do a thousand times more good for the bone and sinew of our land.

Rehabilitation of old homes and of hovels does not increase the number of houses. Besides it reduces unemployment.

BILL NOT WORKABLE

Ask your banker how he would like to put up $100 of A-1 securities for a loan of $25, and he will tell you that his bank would not have anything to do with a system that would thaw and freeze the same security at the same time.

Subsections 1 and 2 sought relief through the fortification clause, which limited the mortgage loan to 40 per cent of the appraised value of the real estate" any port in a storm," seems to have been their motto.

This idea of 40 per cent of the real value of the real estate was, it seems, placed in the bill for the same reason that timid people withdrew their bank deposits through fear.

Why 40 per cent when for ages money for home purposes was lent at 50 per cent of the value of the property to be mortgaged, and when the President and Congress are now leading the Nation out of depression along a sure and certain road that leads to prosperity? Besides 40 per cent now means not more than 35 per cent, if the home loan bank would use the same care in appraising property as is used by the banks in lending money on mortgage securities.

The usual way of estimating values of real estate by the banks is to cut out the profits of the builders as well as commissions for the sale of the property, as well as the overhead. The bare cost of material and labor, plus lot value, is the basis on which loan companies do business. This usually means a 40 to 45 per cent mortgage, and there is sound reason to believe that the same method would obtain under the 40 per cent clause, section 8, the result of which means a 30 or 35 per cent loan.

True value does not mean a price that may be obtained at a forced or auction sale, but rather a conservative value placed on the property by the local member bank, whose knowledge of local values is well established. The local member who guarantees the loan will not put an inflated appraisal on the real estate to be mortgaged. The district bank agent shoud be required to study values before passing on them for advances.

It should be borne in mind that a 50 per cent mortgage has weathered the tornadoes of panics for more than a hundred years and that it stands unchallenged in the mortgage markets of this country to-day, so why not strike out of section 8 that clause pertaining to percentages and insert "No mortgage advance shall exceed 50 per cent of the true value of the property at the time the mortgage is made." This clause would be applicable to old as well as to new mortgages, for the amortization of old mortgages must be treated as new mortgages. The true way of finding the value of any mortgage is based upon the value of the thing mortgaged.

Loaning companies, strong banks and trust companies can not afford to dissipate their solvent securities by borrowing 25 or 30 per cent of the value of their mortgage securities (except in emergency cases), thus creating a shortage of cash for the amortization and extension of old mortgages, as well as creating a shortage of cash for new home construction. Besides an extra burden will be put on second mortgage money.

President Ecker of the Metropolitan Life Insurance Co., in his official report says that at least 25 per cent of the cost of the home would be paid down as first payment. In such a case, there would be another 25 per cent to bring the paid in money to 50 per cent of the cost of the home. If another per cent is added to the second mortgage, one may rest assured that this burden will fall upon the shoulders of the man who is struggling to pay for his home. And in most cases there will be no second mortgage money to be had, except from private parties and contractors. Renting would increase and home construction would decrease.

The common people are in need of a permanent mortgage bank, not so much for the purpose of securing money for new mortgages as it is to get money to protect mortgages on homes already mortgaged. Extension of time is the present grievous need. Even in prosperous times, mortgage renewals are frowned upon.

Thousands of mortgages have been foreclosed because the monthly, quarterly, or yearly payments have been beyond the ability of the buyer, who, if given time, could save his home.

THE EXAMPLE

A person who wishes to borrow $8,000 in order to construct a home worth $16,000, including the lot, will be required to go to the local member bank or to any other institution and ask for the necessary loan.

The local member will require of the petitioner to fill out a blank, sworn to, giving in detail the full and complete estimate of the cost of the proposed building, as well as his judgment as to the value of the land. A copy of this sworn statement should be on file in the offices of the local member, the district bank, and the parent bank at Washington, D. C.

Should the application be received favorably by both the local and district banks, the commitment must contain the following requisites:

1. That the mortgage must be amortized.

2. That the building must be insured in favor of the district or parent bank. 3. That the local member shall have the right to choose the fire insurance company, with the consent of the district bank; the district bank to O. K. the insurance company, if it is found to be a sound financial fire-insurance concern. 4. That the local company should have the right to charge the usual commission for negotiating the loan; the local member should also have the right to charge the borrower a reasonable fee when title insurance is required, and for other incidentals usually entailed in negotiating mortgage loans.

5. The premium derived from the fire insurance policies should be divided equally between the local member and the parent bank. The premium money received by the parent bank should not be put to the credit of either district or parent bank for general purposes, but should be put in a sinking fund for the retirement of the debt owing the Government by the parent mortgage bank.

6. The local bank or agent making the original loan should be required to guarantee the payment of the loan; to make collections on these amortized mortgages; and in case the original borrower fails to keep up his payments or to pay his taxes, the local member must immediately make such delinquent payments to the district or parent mortgage bank.

7. Should the local member wish to redeem the delinquent mortgage, it may do so by replacing it with a new mortgage or with cash.

8. Straight term mortgages should not be taken for a term of more than five years. If extensions are required it should be amortized.

9. That the tax clause stand as is now in the bill.

10. Interest on the Government loan should not be charged against the Federal home mortgage bank.

Under such a plan as is here outlined, it will be impossible for the Government to lose any money.

When a mortgage is amortized, there must be some basis provided for the gradual payment of the mortgage. In the business world to-day it is almost the usual custom to require a payment of 12 per cent per annum, generally payable in monthly installments. This 12 per cent per annum would have paid the interest on the mortgage, besides other 6 per cent would be applied on the mortgage, and in eight years the mortgage debt would reduce $1,920, leaving a remainder of $2,080 to pay in order to lift the mortgage.

Under this subsection the borrower may be given an advance up to 60 per cent of the unpaid principal of the home mortgage loan, or $1,280, on an $8,000 home, while to-day the home may be worth six, reven, or ten thousand dollars, or half the original value.

Home lots that have become business sites have increased in value by two, three, and four hundred per cent. We know of hundreds of such cases, and we have known of business lots being turned into town lots on account of the chain stores. This section having reference to the 60 and 50 per cent clause means trouble, and should be stricken out. For under the 60 per cent and 50 per cent clauses the mortgage is less than the 40 per cent of the appraised value, thus the loan would be about 25 per cent of the appraised value of the property.

Subsections 1 and 2, section 8, are partially helped through the fortifica tion clause, which limited the mortgage loan to 40 per cent of the appraised value of the real estate.

This idea of 40 per cent of the time value of the real estate, was, it seems, placed in the bill for the same reason that timid people withdraw their deposits-through fear.

It should be borne in mind that a 50 per cent mortgage has weathered the tornadoes of panic for more than 100 years and that it stands unchallenged

in the markets of this country to-day, so why not strike out of section 8 all that pertaining to percentages and insert "if not amortized shall exceed 50 per cent of the appraised value of the property at the time the mortgage is made."

VALUE OF MORTGAGE

It is just as easy to find 50 per cent as it is to find 40 per cent or 75 per cent. Section 8 should be stricken out.

Another reason why this section, so far as percentage is concerned, should be deleted, is because it is not to be made workable to any reasonable extent. Again section 8, subsection 1, provides that in the case of an amortized mortgage loan which was for an original term of eight years or more the advance may be for an amount not in excess of 60 per cent of the unpaid principal of the home-mortgage loan. This clause means nothing, for if the security behind the 8-year-old mortgage is the same as it was at the time the mortgage was made, then the mortgage would be worth its face value, but if the security supporting the mortgage is a great deal less, then the mortgage would not be worth its face value.

When the mortgage is amortized there must be some basis provided for the gradual payment of the mortgage. In the business world to-day, it is almost the usual custom to require a payment of 12 per cent per annum, generally payable in monthly installments. This 12 per cent per annum would have paid the interest on the mortgage; besides the other 5 per cent would be applied on the mortgage, and in eight years the mortgage debt would reduce $1,920, leaving a remainder of $2,080 to pay the mortgage in full.

Under this subsection the borrower up to 60 per cent of the unpaid principal of the home-mortgage loan, or $1,280, on an $8,000 home, which to-day the home may be worth $6,000, $7,000, or $10,000.

Home lots that had become business sites have increased in value by 200, 300, and 400 per cent. We know of hundreds of such cases, and we have known of business lots being turned into town lots on account of the chain stores. This section having reference to the 60 per cent and 50 per cent clause, means trouble.

The Federal home loan bank must be self-supporting. It must earn enough money to pay the debts owing the Treasury. It can not be successful when its earning power is dwindled down to meet the provisions of the bill as it now stands.

For instance, it limits the loaning power of the member bank to 12 times the amount of capital stock which it has paid in. That is, paid in and subscribed for. This is freezing bank securities with a vengeance, especially when the bill provides that the member bank must guarantee the loan.

Some of the bigger member banks might be able to function for a few days under this provision. A repetition of borrowing under that section of the bill would soon deplete the soundest securities of the strongest mortgage institution. Loaning companies, strong banks, and trust companies, can not afford to dis ipate their solvent securities by borrowing 25 per cent or 30 per cent of the value of their mortgage securities (except in emergency cases), thus creating a shortage of cash for the amortization and extension of old mortgages, as well as shortage of cash for new home construction. Besides an extra burden will be put on second-mortgage money.

Even in prosperous times mortgage renewals are frowned upon.

Thousands of mortgages have been foreclosed because the monthly, quarterly, or yearly payments have been beyond the ability of the buyer, who, if given time, could save his home.

The large life insurance companies let their local agents have money at 52 per cent, and the agent bank finds it profitable to operate on this basis of 6 per cent. By the same token the local member of the Federal bank could do business on the same provision.

It would not cost the Federal bank as much as it does the local member, because three-fourths of the cost of preparing for the loan is done by the local bank. So it is reasonable to suppose that a profit of one-half per cent would cover the operating expenses of the parent bank. This one-half of 1 per cent would carry on during the term of the mortgage.

The Federal land bank act does not provide for any compensation for the Government's capital, no matter how long it remains in the service of the banks and if the Federal home loan bank would be treated with the same liber