the basis of their home loan mortgages and their capital contribution to the banks without regard to whether they are insurance companies, banks, or building and loan associations; and then have three directors from the medium-sized associations or banks and three from the smaller institutions which are participating. This insures a voice to all members and the eleven directors would be as follows: Two representing the public and the Federal board; and three, three and three representing the large, the medium-sized and the small participants or members of the system.

Mr. Monks seemed to object to directors of necessity being chosen from the home-financing business. He said that he did not know what it meant to be in the home-financing business. Well, I submit that that is a very simple thing. A man is in the home-financing business if he is an officer or director in an institution that is making loans to home owners. It is all very simple, and I doubt if any question would be raised on that score.

Now, we absolutely disagree with their proposition that a representation of all pursuits of business on the board is desirable. I am not competent to discuss proper banking practice, but I am not so sure that the practice of our commercial banks or our savings banks in going out and picking up individuals from different business pursuits, and the building of a wonderful façade in the form of a directorate is entirely the best practice and policy. I am not so sure but what the banks that have moved most steadily through this depression were banks that were managed by excellent bankers rather than by indifferent directors who only attend meetings once a month. We feel that if this institution is to serve primarily the needs of the home owner and develop the type of credit he should have, which we believe is long-term installment credit, you can probably best do that by having all your directors, outside of those two who represent the public interest, selected from people who are familiar with the home-financing business. So much for that.

I want to comment for a moment on the advances that shall be made to members. There was suite a bit of discussion in the Senate hearing regarding the advances to members, and Mr. Williams asked a question about them on Friday. The first important thing in the question dealing with advances to members is the distinction between long-term and short-term loans. As we said Friday, there is a dif ference between the bank and the building and loan point of view when it comes to long and short-term loans. Judged from what I prefer to call the "banker point of view "-and I do not say it in disrespect-the shorter the loan the better the collateral. That is true from the point of view of good banking management, but that is not necessarily true from the point of view of the home owner or the home buyer, and building and loan associations without excep tion take the point of view that the sound and proper type of loan for the home owner and home buyer is the long-term, weekly, monthly, or even, in rare cases, quarterly repayable installment

mortgage.

This bill, in the sections that appear on page 15, as I recall, setup a distinction between long-term monthly repayment installment mortgages or amortized mortgages, as we call thein, in the building and loan business, and all other mortgages. The bill says that when a member institution brings mortgages to its bank for discount that

onthly repayment mortgages the bank is to give them larger advance in proportion to the amount of coled than it is to give them on 1, 2, or 3 years term or ges.

the justification for that? It seems to me that half tion for the participation of the Government in this rise, the justification for the Government setting up banking system, to increase the credit in the homeis in order to encourage the long-term type of financvay this bill attempts to encourage that is to say to 3 that make that type of mortgage, "We will lend dvance you a little more money per dollar of collateral we will lend to the institution that submits short-term Light mortgages.

stification for that, gentlemen, is entirely a matter of nd home ownership is concerned. We have found that o turn out a man with his home debt free is to make re that reduces a little bit each month. Make him a t the can just keep paying on each month, until absolutely cleared the debt. He can not do that in one not do it in two years, and he can not do it in three a man of small and ordinary means. It takes a man -quick variety to buy a home and be able to pay for it thin two or three years.

. Right there, is it not a fact that it is the policy of and loan societies to write the kind of mortgage that is geous to the borrower?

H. Absolutely.

. Then, why do they write a short-term mortgage be more advantageous to write a long-term mortgage? H. The building and loan associations do not write m mortgages, Mr. Chairman, but the banks do. Good tice indicates that the shorter the term of the collateral, r the term of the mortgage, the better it is from the v of the bank. But that is not true of building and ons. Our mortgages are made on the long-term inis, without exception. I think that is desirable public o a large extent justifies the system and practices that ent is attempting to encourage through this bill.

7. I have received a few letters from building and loan sting against the provision limiting the amount of they can get on mortgages to 60 per cent. In these ions that ought to be raised, and it can be raised safely up you have for this bill?

[SH. Yes. There are two things involved there, Mr. In the first place, we want to urge that no limitation on the percentage of mortgage in relation to the value rty; in other words, as the bill now reads, a mortgage e for rediscount if it exceeds 75 per cent of the value of The 60 per cent applies, as the bill is now written, to on of the unpaid principal that the bank can advance ing member. Now, it might be possible to raise that a in the main we feel that we want to keep the mortgage

collateral that is submitted and that underlies these bonds seasoned, prime collateral, so that as they are deposited with the trustee or registrar for the benefit of the bondholders, the bondholders will consider that their bonds are just as prime security as there is outside of the direct obligations of the Government. I think the success of the system will turn largely around the bonds being secured, beyond all measure of doubt, and consequently they will be very popular and very marketable.

With respect to that point, the men in building and loan circles who have been discussing this matter of the requirement of mortgages for rediscount to the 60 per cent have attempted to redraft page 15. As now written it seems to me a bit confusing in some ways, and we have attempted to clarify it by redraft. The redraft reads as follows, starting on line 3-this is, of course, advances that may be made by each of the 12 banks to any of their applying members [reading]:

limitations as the board may prescribe. Any such advance shall be subject to the following limitations as to amount:

(1) If secured by a home mortgage given in respect of an amortized homemortgage loan which was for an original term of eight years or more, or in cases where shares of stock, which are pledged as security for such loan, mature in a period of eight years or more, the advance may be for an amount not in excess of 60 per centum of the unpaid principal of the home-mortgage loan; in no case shall the amount of the advance exceed 40 per centum of the value of the real estate securing the home-mortgage loan.

(2) If secured by a home mortgage given in respect of any other homemortgage loan, the advance shall not be for an amount in excess of 50 per centum of the unpaid principal of the home-mortgage loan; in no case shall the amount of such advance exceed 30 per centum of the value of the real estate securing the home-mortgage loan.

(b) No home mortgage shall be accepted as collateral security for an ad vance by a Federal home loan bank if at the time such advance is made (2) the home-mortgage loan secured by it has more than 20 years to run to maturity; or (2) the unpaid principal of such home,

Those are the provisions that are in the bill at the present time, with this one exception. At the present time the bill says that no mortgage may be submitted for callateral that exceeds 75 per cent of the appraised value of the real estate. Well, it seems reasonable that when you are only advancing 60 per cent of the unpaid principal and the amount that you advance can not exceed 40 per cent of the value of the real estate, it does not make any difference whether the face of the mortgage is 75 per cent or 80 per cent or even 85 per cent, and we therefore suggest that rephrasing in order to eliminate that one particular restriction, which I want to say in all frankness was written into the bill at our suggestion, as we raised it in one of the amendments that we submitted to each member of this committee some months ago when the original bill was first advanced.

Mr. LUCE. That brings us back to the same thing that happened in the Senate; that shuts out all the mortgages that were in the Senate pointed out as to those people with big assets.

Mr. BODFISH. To go ahead: In section 2, in the suggested rewriting of page 15, we merely deal with all the other mortgages that might be discounted. That in the straight mortgages or amortized mortgages for terms of less than 8 years, if there be such. Beyond that we do not suggest change in any of the other provisions with regard to advances,

Williams, if I have answered the question that you riday regarding the eligibility of the advances? I I can.

I do not now recall what I asked about it. You referred to page 15 and raised an inquiry. It the present time, the Federal land bank advances per cent of the mortgage. The joint-stock land honey up to 100 per cent of the mortgage. In this sets of the borrowing company equal to 8 per cent That has been testified.

Invested in stock?

You have the stock of the corporation. Now I can why it was necessary to limit to 60 per cent of unpaid per cent of the value of the property on loans made the home-loan banking institution. It seems to me g unnecessarily the loaning or the borrowing ability banks, making it 200 per cent. Why is it necessary es for sale with 200 per cent of the property value

Of course, our objective and our approval of the two is what it amounts to practically, of collateral beis our desire to contribute to making these bonds rimest security that there is. We are very zealous e safety record of the building and loan associations, want this system, which is going to be participated in Iding and loan associations, to ever have anything ect upon it and cause its bonds to fall below par or t kind.

that in the case of the land bank of the State of New a sort of example in this sort of banking has been ew years. Those bonds have not had a broad market, remained right at par all through this depression y put up collateral, as I recall, on the basis of about for one, instead of 190 per cent; that is the minimum We urge that you sin, if at all, on the side of conis enterprise. We do not want to use it as an inor permitting undue expansion. As a matter of fact, nd loan associations, Mr. Chairman, in many States n their borrowing to 10 or 20 per cent, and in some it of their resources.

ussing the long-term installment mortgage, we feel umber of advantages for the home owner and home s him a chance to pay the mortgage without any rewal cost, and without any of the worries of having year mortgage refinanced or renewed. He does not his mortgage from one institution to another. As a we feel that experience has proven it is the only wise small borrower to have this type of mortgage, to point out one thing that happened in the Senate Monks, representing the Ohio Bankers Association, that this preference between long-term and short-term entirely eliminated from the bill, and Senator Couzens nks, "Do you want to discount 1 and 2 year mort

gages?" And he did not answer the question. We think it would be somewhat aside from the ends that are desired in this bill if it should become a device for encouraging unduly 1 and 2 year mortgages. I do not mean 1 and 2 year mortgages exactly in the legal sense-I mean in the practical operating sense.

Mr. WILLIAMS. On the other hand, that would practically cut them out of participation in it. Will not that be the practical effect of it! Mr. BODFISH. Well, I do not think so; and I think there is another side to that, Mr. Williams.

Mr. WILLIAMS. Well, is not that really the situation, though? Will not that be the practical result?

Mr. BODFISH. Well, it is going to establish a decided preference for the other type of mortgage. I do not think it will cut them out, because those mortgages are eligible for rediscount under the clause which deals with mortgages other than long-term amortized-they can raise money on them. But there is this distinct preference for the monthly long-term mortgage. So I would not say that that would be cut out; I do not think it is necessary or desirable to do

that.

Mr. WILLIAMS. The Ohio Bankers Association, as I understand it, is against this bill?

Mr. BODFISH. Well, I would be perfectly willing to stand and mak the statement that the Ohio bankers are unqualifiedly against this measure, unless it is rewritten for the convenience of the large, commercial banks in that State, who are engaged, to a certain extent, ip making 1-year mortgages. One of the gentlemen who testified before the Senate on behalf of the Ohio Bankers' Association, in an inaccurate and irresponsible way, attempted to villify building and loan, is a vice president of a large commercial bank that hasn't any mortgage loans eligible under this bill. I do not believe that the gentlemen who appeared before the Senate hearings represented the small banks and the savings banks of the State of Ohio, and I speak with some knowledge as I was a resident of Ohio for several years. They are opposed to anything which strengthens the installment-mortgage institutions, which are the building and loan associations. I do not believe that this bill should be changed to accommodate the type of institution that already has the Federal reserve system designed to service them. It is my judgment that these gentlemen would not approve the measure unless it is redrawn in a way to make it useless to building and loan associations and all the preference for long-time and installment home financing removed. I dislike to make any ref erence to the sincerity of individuals appearing as witnesses, but the gentlemen who have appeared on behalf of the Ohio Bankers Association have a selfish interest in the matter and desire to defeat this measure, if possible.

Mr. WILLIAMS. Are not the banking associations generally opposed to this bill in its present form?

Mr. BODFISH. I do not think that is true. So far as I know, the smaller banks which it is designed to take care of, and who are the ones who are expected to participate in it, because such bankers do not have the type of collateral that they can go to the Federal reserve with, are enthusiastic about this measure. I would refer to the testimony of several bankers before the Senate committee.