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calls for an increase in taxes and borrowing greater than ever required in peace times. To provide up to $150,000,000 more for the proposed Federal home loan bank would add to the already heavy burden.

7. There has been a strong and growing tendency for the Federal Government to usurp the functions of State governments in supervision of local private business. This bill is a further effort along this line. It proposes to take the control of real-estate finance out of the States and put it in the hands of the Federal Government.

Our members have given full support to remedial measures designed to meet the present emergency, notably the Reconstruction Finance Corporation. They have rendered active service on committees of the President's conference on home building and home ownership. Their interests are identical with those of the home owner. If they could see any benefit to the home owner in this bill it would have their enthusiatic support.

We do not challenge the sincerity of the sponsors of this measure. We do not assert that the organizations back of it are actuated by selfish motives, but in behalf of the unorganized home owners, our partners, we earnestly protest against any permanent legislation like the Federal Home Loan Bank, which, in our judgemnt, would adversely affect the security behind the $26,000,000,000 of mortgage assets of our financial institutions and would result in the loss of an untold number of homes which the owners, in the face of every obstacle, are now struggling to protect.

Senator COUZENS. Could you elaborate on that point, on how it would affect the present home owner? I do not think I grasp that. Senator WATSON. I did not either. I was going to ask that.

Mr. CODY. One of the principal arguments used in support of the bill is that it would encourage the construction of new homes.

Senator WATSON. No. It is the present home owner we are talking about.

Mr. CODY. The existing home owner?

Senator COUZENS. The bill as proposed would help to build homes. Senator WATSON. But the crying need is to help the fellow who has a mortgage on his little home.

Mr. CODY. Yes. And that man has suffered because of the depression in the value of his home and other property, and inasmuch as we are now over-built generally, the building of additional homes would greatly increase the present depression in values and would probably wipe out his entire equity. If a new home is built down the street, and it can not be sold on account of the overbuilt condition, its price must be reduced, and we all know what a buyer will select when he has the opportunity to take either an old or a new home.

Senator COUZENS. As a practical proposition isn't it true that builders of homes borrow 50 per cent on the home and then sell afterwards? Mr. CODY. Yes, sir.

Senator COUZENS. That would not help the home owner at all. That does not help the home man who wants to build his own home for himself, does it?

Mr. CODY. No, sir.

Senator COUZENS. Will you tell us before we go to the floor of the Senate, and there is the bell, how that would affect the members of your organization, how this bill would affect them?

Senator WATSON. That is what I wanted to ask, whether there is any selfish motive because you think it would interfere with your business, I mean the passage of this bill.

Mr. CODY. The owners or representatives of existing mortgages, of course, take a vital interest in seeing that values are not depreciated any further. It is bad enough as it is.

Senator COUZENS. And so does the present home owner.

Mr. CODY. And the present home owner has that more at heart than the mortgage owner, because he owns the equity above the mortgage.

Senator WATSON. Is there anything further that you have to present?

Mr. CODY. No, sir.

Senator WATSON. The subcommittee will now stand adjourned until to-morrow morning at 10 o'clock.

(Thereupon, at 12 o'clock noon Tuesday, January 19, 1932, the subcommittee adjourned until 10 o'clock the following morning.)

CREATION OF A SYSTEM OF FEDERAL HOME LOAN BANKS

WEDNESDAY, JANUARY 20, 1932

UNITED STATES SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY,

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 19, 1932, Senator James E. Watson presiding.

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

Senator WATSON. I think I will start in, gentlemen, because I don't know when the other members will be here, if at all. I will make a record, anyhow.

Here is a telegram from Cleveland that I will read into the record:

Senator JAMES E. WATSON,

CLEVELAND, OHIO, January 18, 1932.

Banking and Currency Committee, chairman of Federal

Home Loan Bank Act Committee, Washington, D. C. The Cleveland Real Estate Board at the meeting of its executive committee to-day decided to communicate with your committee because you are quoted as saying that the Federal home loan bank act may be delayed in passage. Our studies indicate that home loan banks will render immediate universal benefits as well as being a permanent and necessary addition to bank structure. We carnestly urge quick action on its consideration and passage respectively.

THE CLEVELAND REAL ESTATE BOARD,
O. W. L. COFFIN.

Here is one from the board of directors of the National Association of Real Estate Boards:

Hon. JAMES E. WATSON,

ST. LOUIS, Mo., January 20, 1932.

Senate Office Building, Washington, D. C.

We are informed that the American Mortgage Bankers Association of America through its president appeared before your committee this morning, and stated that they represented the home owners of America, and that Senate bill 2959 was only desirable as an emergency measure and was very undesirable as a permanent measure. We call your attention to the fact that the Mortgage Bankers Association represents about 400 mortgage brokers most of whom are necessarily interested in making commissions on loans which they negotiate for insurance companies and that many of these loans are made on apartment houses, hotels, and office buildings it is preposterous for the mortgage brokers to assume to speak for the home owners of America. We also understand that they stated that the bill was being fostered only by those who are interested in creating a building program of 3,000,000 homes. The president of our organization when he appeared before your committee last Thursday endeavored to impress upon the committee that we did not believe in an inflationary building program but that we were trying to save the homes of hundreds of thousands of people who are losing them through foreclosure due to the frozen condition of the financial

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institutions. We stated further that we also were speaking for the people who had saved money for the time of their adversity and were now unable to get it to buy the bare necessities of life.

It is absolutely absurd to talk about this being an emergency matter only. What has occurred will occur again. Moreover a reserve system for mortgage financing has always been needed in our financial structure. We understand that there is a disposition on the part of some in Washington to delay the prompt consideration of this bill and we would call your attention to the fact that every day's delay means more homes foreclosed. With the exception of this bill all of the President's finance program, however constructive it may be, is designed to help the railroads, the banks, the commercial interests, and the farmers. The urban home owners of America have the right to demand that they be given equal consideration with these other interests. Speaking for them we urge that the one bill in the President's financial program which will directly help the great masses of the people throughout the country be given immediate attention. At a meeting this afternoon of the board of directors of the National Association of Real Estate Boards, representing over 40,000 members, a resolution was passed urging that this telegram be sent to you, and requesting that you make it a part of the record of the hearings of this bill of the Banking and Currency Committee of the Senate. BOARD OF DIRECTORS OF THE NATIONAL ASSOCIATION OF REAL ESTATE BOARDS,

By HERBERT U. NELSON, Secretary.

And here are two letters that have been submitted by Senator Patterson of Missouri:

FARM AND HOME SAVINGS AND LOAN

Hon. ROSCOE PATTERSON,

United States Senator, Washington, D. C.

ASSOCIATION OF MISSOURI,
Nevada, Mo., January 13, 1932.

DEAR SENATOR: I am just in receipt of H. R. 5090, a bill to create Federal home loan discount banks and to provide supervision thereof.

The general purpose of the bill is to provide a bank of discount for certain securities held by institutions such as building and loan associations, yet presupposes the ability of building and loan associations to assign certain types of their mortgages as security for advances from the Federal home loan discount bank.

Under the laws of Missouri no building and loan association could avail itself of the benefits of this act, since under our statutes, section 5597, Revised Statutes 1929, and subsequently reenacted under the same number in the Laws of 1931, building and loan association notes are nonnegotiable, and that has been construed to mean nonassignable. Layton ". Hough (189 App. 213.)

Building and loan associations in Missouri can, however, borrow money and since under our statutes such associations are mutual corporations and the interests of the members are all represented by stock, the lender to such an association has a prior lien on all of the assets of the association and does not require the pledge of any specific collateral for his security. Associations in this State are limited by law to borrowing not in excess of 10 per cent of their resources. It is apparent, therefore, that while Missouri associations are ineligible to borrow from the proposed bank, under the present terms of this bill, they are in a position to furnish far higher type of security than is demanded by section 6 of the bill. An amendment to section 5 of the bill and appearing at the end thereof, in the following substance, would render the act available to Missouri associations: "Should the laws of any State forbid building and loan associations to assign or pledge home mortgage loans held by them, but do permit such building and loan associations to borrow money, and give the lender a first and prior lien against all of the assets of such building and loan association, then and in that event, the bank may lend such associations, without specific assignment of collateral as herein provided, such amounts as they would be entitled to borrow under section 6 of this act."

If the proposed bill is to be of any benefit to Missouri associations, some such way must be found to permit their participation in the benefits thereof. I am satisfied that the framers of the bill would have no objection to such a provision. Building and loan men of this State generally would appreciate your assistance in this matter.

Yours very truly,

E. H. BUSIEK.

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