Senator COUZENS. Right at that point, if a borrower from a building and loan association did not make his promised payments for amortization, then the mortgage would become due.

Mr. BODFISH. That is true.

Senator COUZENS. In what respect is that different in the case of a savings bank when a mortgage becomes due?

Mr. BODFISH. On a straight mortgage often he can make all his payments according to his contract, and when the mortgage comes due at the end of one year, they ask him to pay it, regardless of the fact he has made his payments with regularity.

Senator COUZENS. If he has made the mortgage for one year, it is due in one year, is it not?

Mr. BODFISH. Yes, Senator.

Senator COUZENS. So he fails in his contract, just the same as he would fail in his contract with you, if he did not make his amortization payments.

Mr. BODFISH. That is true.

Senator COUZENS. I still do not get the point you are trying to make. The point is that borrowers from building and loan associations are not facing foreclosure due to the race for liquidity which characterizes other financial institutions to-day.

Mr. BODFISH. Most home owners, when a straight 1-year shorttime mortgage becomes due, do not have six or seven thousand dollars in cash to pay off that mortgage.

Senator COUZENS. We understand that, but there is no difference, so far as foreclosure proceedings are concerned, if the borrower fails to live up to his contract.

Mr. BODFISH. Yes; as far as foreclosure procedure is concerned. Senator WATSON. In your building and loan vernacular, what is your definition of an amortized mortgage?

Mr. BODFISH. An amortized mortgage loan is a mortgage loan which is repaid in monthly installments over a period ranging from 8 to 12 years, completely extinguishing the debt in that period.

Senator COUZENS. But at what period of default does the building and loan association usually foreclose?

Mr. BODFISH. Usually after a borrower has failed to make any payments whatsoever for six months.

Senator COUZENS. So if a man is out of a job for two years and he fails in any 6-month period to pay the amortized payments, then the building and loan association forecloses, or at least has the option of foreclosing?

Mr. BODFISH. They have the option of foreclosing; yes.

Senator WATSON. How would this bill, then, help you to help him? Mr. BODFISH. There is a great deal of demand made on building and loan associations at the present time to take over mortgages that have been made by other institutions, particularly 1 and 2 and 3 year straight mortgages. We do not have funds enough, frankly, at the present time to refinance those home owners. Money is also needed to pay withdrawing shareholders.

Senator WATSON. But where a fellow has defaulted in his payments to a building and loan association for six months and the mortgage becomes foreclosed, how would the provisions of this bill, if passed, help you to help that man?

Mr. BODFISH. It puts building and loan associations in a little better position to carry him further and longer, if he is of the type of individual and moral risk that will ultimately be able to pay his loan. Building and loan associations enjoy a lot of their present good will due to the fact they have cooperated with their borrowers very closely and very considerately.

Senator COUZENS. So, as a matter of fact, you would be inclined to extend the 6-month period if you had this organization back of you to rediscount your mortgages?

Mr. BODFISH. Associations would be in much better position to extend those payments or reduce them to interest only during this period of stress.

Senator WATSON. Does interest accumulate on those defaulted payments?

Mr. BODFISH. Yes.

Senator WATSON. A fellow who is several months behind, does interest accumulate in his case?

Mr. BODFISH. Just in the defaulted payments. There is no increase in the interest.

Senator WATSON. No increase at all?

Mr. BODFISH. No, Senator.

Senator WATSON. Nothing put on by the way of penalty?

Mr. BODFISH. Very seldom. To continue, building and loan associations during 1930 functioned quite normally. As a matter of fact, we grew $128,964,939 in the country, but early in 1931 the tide seemed to turn the other way. Public confidence waned. We felt it in the wake of bank failures, because after a bank fails people tend to withdraw their money from the building and loan associations. The result has been that quite a number of our institutions have frozen up, so to speak; they have been unable to pay all the demands for withdrawals.

Senator COUZENS. Have they closed in that case?

Mr. BODFISH. They have not closed in any sense of the word. The associations are paying out such income as they have from new investors and from the contracted monthly payments that are coming in on the mortgages that they have outstanding.

Senator COUZENS. Have any building and loan associations closed during this period?

Mr. BODFISH. A very small number. In the first six months of 1931 there were liquidations and losses involving eleven one hundredths of 1 per cent of the total of building and loan assets in the country. Senator COUZENS. Do you mean by that that that many closed? Mr. BODFISH. These were the actual losses.

Senator COUZENS. I am trying to find out how many actually closed their doors and went into liquidation or suspended payment. Mr. BODFISH. When you say suspended payment, do you mean ceased paying on demand?

Senator CouZENS. Yes.

Mr. BODFISH. I do not know the number. There are quite a number that have been unable to pay their shareholders as they came and wanted their money.

Senator COUZENS. Did they close then?

Mr. BODFISH. No; associations do not close then. They continue to collect on the mortgages and distribute what income they have to shareholders who have made applications for withdrawals.

Senator COUZENS. Do they continue to accept deposits?

Mr. BODFISH. They continue to accept money on shares, yes. Senator WATSON. Then the advantage of passing this bill, as I understand it, to a borrower, who has a mortgage on his home, making monthly payments to a building and loan association, is that it would enable you to extend further credit to him.

Mr. BODFISH. That is correct, Senator.

Senator COUZENS. And also take on new business.

Senator WATSON. I should suppose it would help them to take on new business.

Mr. BODFISH. The primary reason, Mr. Chairman, why we "freeze" is that all of our assets are invested in these long-term amortized mortgages. For example, in 1930 there was over 88 per cent of the total assets of the building and loan associations in longtime amortized mortgages.

Senator WATSON. What is your definition of long time?

Mr. BODFISH. From 8 to 12 years. It is the use we make of the money that causes us to "freeze up, so to speak.

Senator COUZENS. Have you any figures here to indicate how many of these 10,000,000 customers that you have I understood you to say a few minutes ago that there were 10,000,000 customers, did I not? Mr. BODFISH. Over 12,000,000.

Senator COUZENS. Twelve million customers who do not borrow? Mr. BODFISH. True. There are about 10,000,000 who have not borrowed.

Senator COUZENS. What is the aggregate investment of these 12,000,000 in all of the building and loan associations?

Mr. BODFISH. Practically $9,000,000,000.

Senator COUZENS. Where is that now? Is that all loaned out? Mr. BODFISH. The money is invested entirely in long-term mortgages on homes.

Senator COUZENS. Do you keep any surplus above that? I mean, do you keep any surplus of the $9,000,000,000, or do you invest it all. Mr. BODFISH. The surplus will probably run from 2 to 3 per cent of the total assets, and then there is a little cash on hand, and a few of the associations keep some United States Government securities on hand for liquidity purposes or to use in paying unusual demands from shareholders.

Senator COUZENS. Have you a condensed statement of the assets and liabilities of the aggregated building and loan associations of the Nation?

Mr. BODFISH. I have a statement of their assets but not of their liabilities. That is, I do not have a compilation showing all the detailed items. The statistics I presented in the beginning will give you a picture of their total resources, liabilities to members, and their mortgage loans by States and in totals for the United States.

Senator WATSON. Of all the borrowers of the country, how many have defaulted?

Mr. BODFISH. I do not know.

Senator WATSON. Is there any considerable number?

Mr. BODFISH. We have not had a great number in our building and loan associations. It has been one of the things that has helped the associations through this depression period. Home owners seem to make these monthly repayments with surprising regularity and

tenacity. I think it is a splended vindication of the long-term amortized home mortgage loan principle or plan.

Senator WATSON. I do not see then the necessity for the passage of this bill to aid building and loan associations, if you are running right along. A man will pay these loans and his life insurance to the exclusion of everything else, will he not?

Mr. BODFISH. True; but, senator, we have a large number of people who saved their money in our associations and saved it for a rainy day, due to lack of confidence they want their money at the present time.

Senator WATSON. That is, the investors, not the borrowers?
Mr. BODFISH. The investors, not the borrowers.

Senator WATSON. Yes.

Mr. BODFISH. Building and loan borrowers are not suffering, in my judgment. The home loan bank bill might also provide for a certain amount of credit mobility among home financing institutions. There have been situations in the last year and a half in which there have been ample funds, for example, in the New England section of the country, and a decided lack of funds to pay withdrawing shareholders or for new loans in other parts of the country. Such a system could serve home financing institutions much as the Federal reserve serves commercial banking.

Senator WATSON. That is, for new construction, new homes?
Mr. BODFISH. Both for that and for withdrawing shareholders.
Senator WATSON. Do you lend money on apartment construction?
Mr. BODFISH. Very rarely.

Senator WATSON. Very rarely?

Mr. BODFISH. The building and loan associations confine their mortgage loans primarily to homes.

To continue, there were some questions raised Thursday upon which the building and loan point of view might be helpful to the committee. A question was raised with regard to the 56 per cent preference which is established in the bill as now written, as between amortized loans and straight loans. We feel that this policy is justified on the grounds of public welfare and the long-time welfare of the home buyer. The desirable thing in connection with home owning is to give the home owner a type of credit that turns him out some day with a free and unencumbered home. Our experience indicates that the long-time amortized monthly repayment mortgage seems to get the borrower out of debt and encourages a proper and debt-free type of home ownership. We very heartily approve of that recognition of the desirability of long-time monthly repayment credit for home owners that is set up in the bill.

There is also a feeling that, from the point of view of the popularity of the bonds, that the monthly repayment or amortized mortgage is more safe and desirable collateral than the straight mortgage.

Senator COUZENS. How far does your knowledge go back in the history of building and loan associations?

Mr. BODFISH. Well, I was the editor of the only book that has been written, to my knowledge, on the "history of building and loan associations." I think I could be helpful there.

Senator COUZENS. Do you recall any time since 1870, for instance, when the building and loan associations were requiring such legislation as this?

Mr. BODFISH. Building and loan associations were interested in this type of legislation as early as 1919. A committee prepared a plan of organization for Federal cooperative banks or land banks designed to promote thrift and home ownership, working through building and loan associations. The structure or arrangement proposed was not as adequately conceived and worked out as the system in the bill that is before you. There had been talk in building and loan circles prior to that concerning some devise or organization for pooling cash reserves and providing for exchange of funds between building and loan associations.

Senator COUZENS. So after the depression of 1920-21 was over, from that time on for 10 years practically you have not found any great need for such an agency as this?

Mr. BODFISH. There has not been a major need, although there has been considerable talk about it among building and loan men. A number of States have studied the problem and attempted to set up agencies which would accomplish in a State area what this bill proposes to accomplish in a national way. I would say, Senator, that there has been a pretty sustained interest in the general question. Senator COUZENS. Was any effort made to have Congress do anything in 1919 with respect to this matter?

Mr. BODFISH. Yes. There was a bill at that time, as I recall it, known as the Calder-Nolan bill.

Senator COUZENS. Were any hearings held on that?

Mr. BODFISH. There were hearings held on that, yes, sir; before the Senate committee on Banking and Currency on October 8, 1919, and a similar House committee on October 31, 1919.

Senator COUZENS. Then, since then no bill has been introduced to provide such a measure as this?

Mr. BODFISH. Yes, the bill was introduced in later Congresses and was later sponsored by Senator Copeland.

Senator COUZENS. When was that?

Mr. BODFISH. I think it was during several sessions between 1920 and 1927.

Senator COUZENS. But there was no pressure then brought to have the legislation enacted?

Mr. BODFISH. There was considerable. Of course, it was a day when money was flowing abundantly. One of the problems was that sometimes there was too much money rather than too little and naturally interest waned.

Senator COUZENS. That is the point I want to bring out. If we ever get back-and I make that "if" with big letters-to where we were in 1927 and 1928, and so on, there will not be the need then for these banks, because, as you say, there was a surlpus of money during those years, and sometimes there was more money than was needed. So what I want to find out is what we may expect as to the sustained and continued need of these banks.

Mr. BODFISH. I think the answer to that is very clear. There is a need for this type of institution or bank at all times, in order that the home-financing institutions could pool some of their cash reserves and have a certain liquidity which will keep the association functioning normally in case there is a loss of public confidence in some area or unusual demands are made by their shareholders or a pressing need for home building. I think the first reason alone justifies the existence