We extend every indulgence to delinquents, and I think that our $40,000,000 of dwelling loans, which average about $4,000-we have about 10,000 such mortgages-shows a very good record.

There has been a great deal said about Ohio, and just for illustration in that particular State, I may say that we have about $30,000,000 in Ohio, of which I presume $25,000,000, at least, are residence loans. We have been lending there for many years. We do not own a single residence by foreclosure. We have one piece of business property that has been foreclosed

Senator WATSON (interposing). Do you get those mortgages through building and loan associations?

Mr. KINGSLEY. Not this group.

Senator WATSON. These have come straight to you?
Mr. KINGSLEY. These have come straight to us.

Senator WATSON. From the home builder to you?

Mr. KINGSLEY. From the home builder or home owner.
Senator WATSON. Direct from the home owner to you.

Mr. KINGSLEY. In saying direct I mean from the offices of our mortgage correspondents who are in all these localities and negotiate these loans.

Senator TOWNSEND. What is your average rate of interest?

Mr. KINGSLEY. On the mortgages taken in 1931 it was 5.59; on our entire holdings, 5.28 per cent.

Senator WATSON. About what is the average loan on a home? Mr. KINGSLEY. About $4,000.

Senator WATSON. You say there are no defaults?

Mr. KINGSLEY. In all of our loans?

Senator WATSON. Yes.

Mr. KINGSLEY. We have some in the outstanding case of Ohio where there is so much trouble. Our defaults are very few. Elsewhere we have typical cases where people have bought homes for $8,000, and have first mortgages of $4,000, and have second and third mortgages. The lure of a home has put such a buyer into a budget plan, showing how much is necessary each month for payment for the home. He eliminates the matter of sickness and other unusual things and when he disturbs that budget he can not get back on it. The result is he gets behind, and the second and third mortgages get restive. In a few months, if his interest and taxes are unpaid, they get after him to see if he can not do something to clean up.

Usually about that time he walks in and offers us a deed and says, "I am through." Of course, you can not take a deed where there is a second or third mortgage without their acquiescing, or getting out of the way. Sometimes the owner will say, "I will take $50 or $100 for a deed," which is not always safe. And we have to foreclose. We have $4,000 mortgages that have been reduced to $3,500, but still they have been foreclosed. After everything has been cleaned up we have offered such property for sale to the former owner at the cost to us, excluding interest. We disregard interest because it is the desire of every lender to avoid real-estate ownership. And the reply is, "I can buy a house down the street of the same type cheaper." A foreclosure, having occurred in the same street in precisely the same type of home. And that, and other circumstances, has glutted the market with real

estate at prices that are unthinkable. With that condition existing, I can not bring myself to believe that anything is to be gained by building more homes even at forclosure figures. Foreclosed homes are not always old or obsolescent, and it looks very much as though we must get around to the general knowledge that it is the present depressed business conditions that has made this situation evident to everybody and has created the oversupply of homes that can not be absorbed.

I have prepared, and if agreeable to the committee-it will take probably 10 minutes to read-a statement on this bill, merely with the thought in mind that I do not want to take you gentlemen through statistical highways up into the astral bodies, but keep you down on earth. May I present it?

Senator WATSON. Yes; go on.

Mr. KINGSLEY. And will subject myself to any questions that you wish to ask.

Senator WATSON. Proceed.

Mr. KINGSLEY. I have cited objections to this bill, and, if I may suggest a very minor point without meaning to be pedantic, that some term other than "amortized" be used relating to mortgages. That word means what is expressed, but it has been appropriated by insurance commissioners to apply to the process of reducing the carrying cost of a bond, year by year, if it was purchased above par, or increasing the purchase figure year by year until it is valued at par, so that its yield will express its contractual rate, that is, a $1,000 bond having five years to run, purchased at 105, would be reduced in five years to par; and if purchased at 95, it would be increased in five years to par. This is a sound and accepted plan, but some meticulous individual will assert that the term "installment mortgages" should be substituted for "amortized mortgages."

I do not feel that this bill can be considered unrelated to the Reconstruction Finance Corporation. It has been introduced as collateral, or as a stepsister to the other, to enlarge the powers, but limited to the single element of mortgage lending in small amounts. I have considered that subject from the claim that relief will be afforded to the home owner who is facing foreclosure by reason of a maturing mortgage which he can not refinance. That is what the proponents claim.

The rebuttal to that is that it severely strains credulity to entertain such belief. Instances where foreclosure is related to the mere maturity of a well-secured mortgage are so rare as to be of infinitesimal aggregate and should be regarded as a negligible factor in considering this bill. The security value under a mortgage regulates its desirability, and that there is a wide market for good mortgages is attested by the fact that mortgage bankers throughout the country close loans with their own funds or through temporarily borrowed money and sell them to the investing holder.

That is a custom that is prevailing very largely, and they would not be closing loans if there was not a market for them.

At maturity they compete with each other to effect renewal, frequently on more favorable terms to the borrower than those originally stipulated. A home against which there is a good mortgage needs no relief, as such investments are always in demand by corporate and private investors. If this group for some temporary reason

can not absorb the normal volume, the Reconstruction Finance Corporation will relieve the pressure as provided within its authority and promptly cure the interruption of flow of mortgage money. Ill-secured and defaulted mortgages may not be taken over by that body, nor by any set-up under S. 2959. Hospitalization work in sick mortgage cases must be carried on by the mortgagor as the patient and the mortgagee as the doctor, and the latter will exercise all his experience, training, and resources to keep the mortgage alive and help restore it to life. The corpse of a dead mortgage can not be interred and thereafter exist as a memory. It must be resuscitated as far as possible, even if it is transformed into a real-estate ghost to haunt the former mortgagee. No government instrumentality or other investor aims to make a hobby of collecting ghosts or purchasing trouble; therefore, mortgage insecurity and defaults should be handled by the debtor and the creditor without expectation of relief by outside intervention.

I think that is very sound, Mr. Chairman, that those whose operations in mortgages have brought trouble are able and competent to handle that trouble, and it should not be carried outside. It ought to be absorbed by those who developed it.

It is further claimed that these measures will help manufacturers of building supplies and those engaged in building-trade activities. with consequent lessening of unemployment; that they will revive the real-estate market and stabilize existing valuations.

Any beneficial effect from revival of the home building at this time would be temporary, artificial, and transitory, and property thus created could not be absorbed until after the millions of dollars of houses now for sale, at prices approximating 50 per cent of present reproduction costs, have been disposed of, unless immediately put on the market at sacrifice prices. Existing homes are being offered at prices that require very small down payments and low interest rates with which new house financing could not compete. The result would be increased real estate to be added to the present overstocked conditions with ensuing deflation of values and lessening of sales opportunities.

In effect, that is like treating a patient who has indigestion by giving him more food. It will not cure him. It is just that much more to absorb, and it can not be done. We have to get the digestive apparatus in good shape before we can take on more real estate.

There is probably no group of mortgage investors that has afforded more widespread and prolonged indulgence to mortgaged property owners, than the insuring companies.

And I am only mentioning this because I am familiar with their practices.

Their records will clearly indicate that foreclosures are not undertaken until every possible means of avoidance have been exhausted. To prevent foreclosure and assist in the retention of ownership, interest payments have been accepted in installments, stipulated principal reductions have been modified and waived and the general spirit of partnership with the debtor has been developed and fully

observed.

It is well known that they will go to lengths beyond what might be termed business prudence in avoiding acquistion of foreclosed real estate. A predominating feature of foreclosure by these companies

is the circumstance under which property owners advise the mortgagee that they are unable and unwilling to further carry the real estate covered by the mortgage. Sometimes this is due to sheer inability arising from reduced rentals and personal income, and quite frequently by the circumstance that there are junior liens which leave but little if any equity to the owner.

Recognizing the desire of insurance companies to keep as free as possible from accumulated foreclosed property, the real estate men all over the country seek to have such property placed in their hands for sale and ask for lowest acceptable prices. The response to this is usually to set a sales figure that will return to an insurance company the amount of the principal invested in the former mortgage, plus taxes that may have been advanced and foreclosure costs, it being quite an accepted belief that if such property may be sold without loss other than the preexisting delinquent interest under the mortgage, a satisfactory condition from recoupment standpoint will be brought about. A number of sales are made on the long-time plan, with initial payment of such small percentage of property sale price as to give new meaning to installment buying. In many instances, contracts so made are abandoned by the purchaser after covering the primary moderate payment.

That is a fact of which we had two evidences last week. On one property on the Pacific coast, valued at $16,000 or $18,000, we loaned $7,500, and had to foreclose it at a cost of $8,000, the difference of $500 being costs and taxes which were advanced. We sold it for $8,000, $500 on account. Within six months the man said, "I can't keep payments up. Here is the property back."

We then found somebody to buy it at $7,500, with $500 on account. If that keeps up we will probably get our money back. That is a frequent situation.

We had a similar instance that came up in connection with a farm property.

Senator WATSON. How do you account for the fact that many representatives of the building and loan associations have been sitting here day after day and saying they are having defaults, and one man said 16 per cent?

Mr. KINGSLEY. Overlending or overfinancing.

Senator WATSON. Anyway, you say you have plenty of money to loan and can not get anybody to take it?

Mr. KINGSLEY. Yes, sir.

Senator WATSON. And yet they say they can not get any money. What do you mean by overfinancing?

Mr. KINGSLEY. Lending 70 or 75 per cent on the property, or over that, perhaps.

Senator WATSON. Well, when you say, then, you have plenty of money to loan, you have got plenty of money to loan on such terms that they could not borrow?

Mr. KINGSLEY. No; because we have obligated ourselves, just as one company, to loan at current rates about $8,000,000, and I think that the total commitments of all companies run about $80,000,000. Senator WATSON. That is, of the insurance companies? Mr. KINGSLEY. Yes: that is just approximate. Senator WATSON. That is on this line of lending?

Mr. KINGSLEY. Yes, sir. Right in line with this bill, but in a more simple way. There has been no cooperative undertaking to do this. In Ohio, as I said, we have no acquisitions of residences, with $40,000,000 of loans outstanding. We have been approached by the building and loan associations in two ways-whether we care to buy mortgages, or lend on them. We have said to them, "Whichever course will be the greatest ultimate help to you. If you wish to dispose of mortgages for cash, we will purchase; but if you prefer to pledge your mortgages as collateral, we will make loans, and you can redeem them."

We have both plans in operation. As I said in the beginning, these mortgages are very liquid. In one case we have had $300,000 paid back over seven months. And they are paid by the borrower, who owns the home. They are not paid out of other funds of the building and loan associations.

I know that building and loan associations have had a great deal of trouble and, furthermore, I want to give every assurance, if necessary, that nobody has a higher sense of what the building and loan associations have done in this country in establishing homes and home ownership, than those who have handled mortgages. But they have been playing a little out of bounds. If the building and loan associations had refrained from taking deposits, there is no trouble that confronts them that could not be settled in their own membership. It would mean, probably, a delay in maturity of stock and a reduction in profits, and a temporary marking of time so that they could step forth on their journey, and all of the members would share in that. But, unfortunately, they took deposits, and depositors wanted their money and they were just not prepared to meet the demand. And I think the loans referred to are quite largely made to take care of those deposits.

Senator BULKLEY. I think a moment ago you characterized a 70 per cent loan as overloaning; is that correct?"

Mr. KINGSLEY. Yes; from our viewpoint and from our experience. Senator BULKLEY. Do you regard that as applicable to the whole country, that 70 per cent is too much?

Mr. KINGSLEY. Largely so, Senator. We are getting where minds are centering on that. When a newly erected home is sold there is an element of profit to the builder, and the sale and junior financing costs are quite high. Those elements combined absorb quite a bit of the appraisement, so that 70 per cent represents more than the reproduction value; it represents cost with trimmings.

Senator BULKLEY. You are referring to 70 per cent on land and buildings?

Mr. KINGSLEY. Yes; the entire property.

Senator BULKLEY. What is the maximum that you think is proper? Mr. KINGSLEY. Well, that depends-speaking solely from the regulations of Pennsylvania law, an insurance company can loan 60 per cent on the sound appraisal.

Senator TOWNSEND. Is that the way most of your loans are?

Mr. KINGSLEY. We think so. Again, you are in the hands of the appraiser, but we guard against that by having our own seasoned appraisers. And we have a nation-wide experience in this that is quite deep, and practically coextensive with every phase of it. We have been able to set up an effective organization.