Of course that sounds very well, but the difficulty as I see it, is that either the thing is sound or it is not sound; and why we should not permit Mrs. Riley to put her $500 in a properly regulated realestate investment, but allow her to go down to Wall Street and lose her money in anything she likes, I have not yet been able to answer. I see no more logic or reason in saying that you shall not invest $100 in a real-estate bond than to say that you shall not invest $100 in stock or bonds or any security that is on the exchange. Senator RADCLIFFE. Do you think the insurance companies would be willing to buy these debentures rather than make corresponding loans? Mr. BARKER. My thought is that they will do both, Senator, and to a large extent will buy the bonds of a mortgage bank. We are also proposing an amendment to the laws which expressly permit savings banks and life-insurance companies to buy these bonds. Senator RADCLIFFE. Would not insurance companies be inclined to insist, as in the past, on the direct loan and direct contact? Mr. BARKER. They, I think, will continue to make many of these large direct loans, but they have great difficulty today in finding a real outlet for all the money that they have to invest, and my judgment is that if they can get a cross-section of real estate through the bonds they will do so. The CHAIRMAN. Do you know what interest savings banks pay? Mr. BARKER. Yes, sir. The CHAIRMAN. That is about as much as these debentures would bear, is it not? Mr. BARKER. Yes. I do not want to see these debentures particularly high. I should say 4 or 42 percent would be about the limit. If you are going to have them sound and attractive for the investor I do not think you can offer very high interest rates. One of the curses of the past has been high interest rates required of mortgagors. Since all the mortgages are in the pot, so to speak, there will be nothing to prevent them in times of stress from reducing the interest rate by one-half of 1 percent or 1 percent, if need be, to the mortgagor. That is what the life-insurance companies did. Senator RADCLIFFE. What difference do you think there ought to be as between what a mortgage pays and what these debentures pay? Mr. BARKER. I confess it is just my opinion not yet followed through that there should be a differential of, say, 12 percent between the amount that the mortgage pays and the interest which the bond pays; and my reason for that is that I am told that the expenses of the bank should absorb roughly 1 percent, leaving roughly one-half of 1 percent. The CHAIRMAN. The Federal Land Bank has a margin of one-half of 1 percent to cover the expense of administration. Mr. BARKER. Yes, sir. Senator RADCLIFFE. If that could be done, why should not one-half of 1 percent be put up as reserve without waiting for the question of the profits to be determined? Mr. BARKER. I am open-minded on that. It has been suggested. Senator WAGNER. That is pretty high, is it not? Mr. BARKER. I should say it is plenty high. I think one and a half would be the absolute maximum of differential. We are having some investigations made, but it will not run more than one and a half. The CHAIRMAN. Mr. Walter Rose, president of the National Association of Real Estate Boards, Orlando, Fla. Mr. ROSE. Mr. Chairman, in view of the limited time, I am going to ask that Mr. MacDougall, chairman of our finance committee, and Mr. Walter Schmidt, immediate past president, present our arguments, STATEMENT OF EDWARD A. MacDOUGALL, CHAIRMAN, FINANCE COMMITTEE, NATIONAL ASSOCIATION OF REAL ESTATE BOARDS, NEW YORK CITY The CHAIRMAN. Mr. MacDougall, please state your name, place of residence, and occupation. Mr. MACDOUGALL. Edward A. MacDougall; New York City; real estate. The CHAIRMAN. Mr. MacDougall, you are familiar with this bill, are you not? Mr. MACDOUGALL. Yes, Senator. I have some knowledge of the bill. The CHAIRMAN. We will be glad to have you discuss it. Mr. MACDOUGALL. With your permission, Senator, I should like to submit first for the record a resolution passed by the National Association of Real Estate Boards at its convention at Atlantic City, at which there were a thousand delegates represented. I will not undertake to read that resolution, or the one from the State of Florida, but they are characteristic of the resolutions that have been passed by real-estate boards throughout the United States, and I should like to leave with your office these records for your examination and reference. [NOTE.-Resolution passed on October 25, at National Association of Real Estate Boards' twenty-eighth annual convention at Atlantic City, to Federal Mortgage Bank.] Mr. E. A. MACDOUGALL, NATIONAL ASSOCIATION OF REAL ESTATE BOARDS, Jackson Heights, New York City. DEAR MR. MACDOUGALL: Enclosed herewith is a copy of the resolution passed at our Atlantic City convention with reference to the Federal mortgage bank, as requested in your wire. Following is an excerpt from the minutes of the directors' meeting which has to do with amendments to the Fletcher bill: "It was moved by Mr. Harry A. Taylor, seconded and unanimously carried, that the committee on real estate finance be authorized to make such amendments as may be necessary in negotiations upon the passage of the Fletcher bill." I presume that this is what you have reference to in your wire. Sincerely yours, HERB NELSON, Secretary. RESOLUTION PASSED OCTOBER 25 AT NATIONAL ASSOCIATION OF REAL ESTATE BOARDS' TWENTY-EIGHTH ANNUAL CONVENTION AT ATLANTIC CITY Whereas the Federal Government has established various great instrumentalities concerned with mortgage finance; and Whereas these agencies cover but a portion of the field and do not assure marketability of the mortgage; and Whereas mortgage lending should be kept in private hands with such safeguards thrown about it as will make investors and institutions secure; and Whereas the security resulting from the establishment of a Reserve system for long-term mortgage credit providing marketability would induce the lowering of interest rates: Now, therefore, be it Resolved, That we urge the Federal Government immediately to provide a major agency upon some plan as that outlined in the Fletcher bill (S. 2914), and establish this agency as the focal point for synchronizing the work of various Federal corporations and administrations dealing with the mortgage to the end of inducing standardization of practice and providing marketability for the mortgage. The CHAIRMAN. Very well. We will put those resolutions in the record. Mr. MACDOUGALL. Our committee has sent to our membership, bankers, and mortgage investors throughout the United States, several hundred letters inquiring as to whether or not if this Federal Mortgage Bank were incorporated as provided for in S. 2914, they would invest in the stock of a Federal Mortgage Bank. The second question was, "Will you cooperate in urging the passage of this bill?" I have some 50 letters representing very responsible institutions on that subject. I should like to leave those also in the record for your consideration. The CHAIRMAN. Very well. Mr. MACDOUGALL. As you can see from our directors' resolution, we are quite prepared to recognize that bill which you introduced at the last session may have to be amended in some respects to satisfactorily meet the requirements or suggestions that we have developed in the course of the interval which has elapsed since the bill was introduced. Those recommendations we will submit to your committee at a later time. The emergency feature of the Federal Mortgage Bank has been emphasized far too much, in our opinion, as against another far more important function of the bank. I refer to the transfer of funds from where they may be available to where they may be needed for mortgage purposes. That is one of the greatest functions, if not the greatest function, that this bank will exercise. It will have a tendency to equalize interest rates on mortgages throughout the country, as the Federal Reserve banks have done in connection with short-term financing. We cannot emphasize too greatly this function of the bank. The benefits which it would confer to the South and the West, where interest rates are proverbially higher than they are in the eastern section of the country, need no emphasis. The value to the investors in the east, in putting their money in first-mortgage securities in the West and South, is equally important. We believe that a Federal mortgage bank should cooperate closely with the Federal Housing Administration, since that is a permanent agency set up by the Government, which has done already a great deal of good in encouraging loans and in creating new standards for neighborhoods and housing developments, upon which any sound mortgage structure must be based. The form which such a central mortgage-discount bank should take, in our opinion, has been set forth in the bill introduced by Senator Fletcher at the last session of Congress. The bank may issue notes or bonds against mortgages held up to 12 times its capital and surplus. We believe that this type of privately conducted but publicly supervised agency is the best method of getting Government out of the private mortgage field. We doubt if there is any other way in which this can be achieved. We believe that the Federal mortgage bank should be free to deal in all types of urban mortgages. We believe that some form of sound mortgage bonds is desirable, as a safe investment for the savings of the public. We believe that mortgage bonds should be issued by a central agency so that standards will be uniform and liquidity assured. We believe that a Federal mortgage-discount bank is necessary to the ultimate success of the State mortgage banks, which Mr. Barker, chairman of the Mortgage Commission of the State of New York, has so clearly defined to you and the committee this morning. We are convinced that the mortgage associations, which are provided for in title III of the National Housing Act, are too limited. We ask that your committee, in its deliberations, take a broad view of this matter, and we hope that you will find it possible to recommend the passage of this bill by Congress, which will create a comprehensive Federal mortgage bank for urban mortgages. Thank you, sir. The CHAIRMAN. You will hand us later the proposals with regard to amendments? Mr. MACDOUGALL. Yes, sir. We will do that; and, bearing directly on the bill, I would ask you to invite our former president, Mr. Walter Schmidt, to address you on those questions. The CHAIRMAN. We will do that. When can you have those proposed amendments? Mr. MACDOUGALL. In the course of a few weeks, or probably 30 days, we can submit something. The CHAIRMAN. Very well. We would like to have it for the record. NOTE. At the time this portion of the hearing, part 1 on S. 2914, went to press, the above-referred-to amendments to be submitted by Mr. MacDougall and his association had not been received. They will be incorporated in subsequent hearings, reference to which will be made in the index or table of contents thereto. The CHAIRMAN. The next witness will be Mr. Walter S. Schmidt. STATEMENT OF WALTER S. SCHMIDT, CINCINNATI, OHIO, FORMER PRESIDENT, NATIONAL ASSOCIATION OF REAL ESTATE BOARDS The CHAIRMAN. Please state your name, Mr. Schmidt, your place of residence, and your occupation. Mr. SCHMIDT. My name is Walter S. Schmidt; my address, Fifth and Main, Cincinnati, Ohio. I am engaged in various businesses, including real estate, engineering, and so forth. The CHAIRMAN. Mr. Schmidt, you have examined the bill, have you? Mr. SCHMIDT. I have read the bill very carefully, Senator. First, that it is an absolute function, and, further than that, an obligation of government, by directive action, to protect its credit structure. The real-estate-mortgage credit structure has not been protected in the past. The short-term credit structure has its reserve system in the Federal Reserve banks, whereas the long-term, which is of much greater amount than short-term credit, has not only had no reserve system, but practically no directive action, whether that direction was in the practice followed in the operation of such an agency, or in such economic direction as would make for the stability of a mortgage system. It is therefore our measured judgment that government must establish a comprehensive agency covering not only the housing of the Nation, but, as well, the other types of mortgage investment. We feel that the mortgage structure is one unit whole, and that you cannot have collapse in one portion of that mortgage structure without pushing down the remaining portions of it. We therefore feel that Government has an obligation to cover that entire longterm-credit field by a measure or a group of measures that will provide marketability for the mortgage and a reserve system for the whole structure. The sociological problems involved in housing and the farm have naturally first engaged the attention of Government in these recent years, but we feel, having studied the situation from every angle for many, many years, that one of the weaknesses of our situation has been that partial coverage of the field and the attempt to take it piecemeal. It is our judgment that there must be a synchronization and a pulling together of the various agencies that are concerned with the mortgage, and that therefore the reserve system must cover urban mortgages of every type, in addition to the housing mortgage and the farm mortgage. This bill, as I read it, does not do what Senator Couzens suggested in his statement, namely, permit the investment of a central mortgage bank directly in mortgages. As I read the bill, it definitely provides that the bank can buy mortgages only from originating sources. For that reason it is a supplementary agency to existing lending institutions and not an actor in the first instance. The bill does provide that the Federal Government shall subscribe to a portion of the capital stock, and, in that respect, many might say that it was an entry of Government into business. However, I invite your attention to the fact that subscription is limited to 10 percent of the stock of the bank. Inasmuch as Government properly should have some interest in this agency in order that it may secure the right of supervision and some control, it is my judgment that that is a very wise and necessary provision. The CHAIRMAN. Is there any plan whereby that stock may eventually go out of the Government, or is the Government to keep that stock? Mr. SCHMIDT. There is absolutely no reason why the Government. could not, at any moment, sell that stock, so far as I read the bill. |