ture. In fact my recollection is that banks nationally have only about 8 per cent of their deposits invested in mortgages. The answer, therefore, is that undoubtedly many of these local institutions whose mortgage loans are frozen would favor the bill, but they come primarily from certain definite localized areas. Therefore, we submit that this committee should interpret this evidence in conjunction with the failure of approximately 24,000 mortgage lending institu tions to reply to the questionnaire. Mr. LUCE. That is all right; of course we ought to, but I am trying to find out about what these people thought. Mr. MADDEN. I do not know specifically who answered the ques tionnaire. Mr. LUCE. I will tell you one thing about the matter of localized areas. These replies have been broken down by States, and as I glance down the columns, just to give you the high lights, I see that every State in the Union and Alaska answered and that the replies were roughly proportionate to the population in the States. Ohio appears to lead, with 511 replies; Pennsylvania is next, with 447; then Illinois, with 429; and then there are a number of them with 200 replies-here are eight States with more than 200 replies. Mr. MADDEN. Each of those eight States is in a concentrated area where the situation of the building and loan associations and the State banks has just been described, and their condition should not be allowed to color the national picture. Mr. LUCE. With 6,500 institutions scattered throughout 48 States in proportion to population your concentrated area is bounded on the north by Canada, on the west by the Pacific, on the south by the Gulf, and the east by the Atlantic. That is the "concentrated area and that is the area we are legislating for. Mr. MADDEN. If you will study the reports of the Comptroller of the Currency and the Federal reserve system on the percentage of mortgage investments to deposits and the percentage of property owned to capital and surplus, you will find these eight particular States Mr. LUCE (interposing). There are 48 of them. Mr. MADDEN. No; the point is that, as far as the concentration of mortgage investments on a volume and percentage basis goes, the demand for this bill comes largely from the areas containing these particular institutions previously referred to. Mr. LUCE. But I point out that these are scattered throughout the whole country, roughly in proportion to population. Mr. MADDEN. That may be; but I am pointing out that the eight States which you have read to me, and I have not seen thatMr. LUCE (interposing). Do you want some of the others? Mr. MADDEN. Read them in the order of their importance. Mr. LUCE. Here are those in the hundred class: Arkansas, California, Kansas, Kentucky, Massachusetts, Nebraska, North Carolina, Oklahoma, Texas, and Virginia. If that is concentration, for Heaven's sake, what is not? Mr. MADDEN. I still maintain that the major volume of support for this bill comes from limited particular areas, and I base my remark upon a study we made of the volume of mortgages and property owned in comparison with total deposits and capital and surplus, respectively, of banks, as well as information dealing with building and loan associations, and the results thereof explain why the first five States you mentioned have given the highest percentage of replies in favor of this bill. Mr. LUCE. And they also correspond to the largest population in the country. Mr. MADDEN. That does not change my statement. Mr. LUCE. But I am trying to point out that with such an array of figures as this, roughly proportionate to population, the attempt to say that this is a localized demand seems to be untenable. Mr. MADDEN. We maintain that this is largely a localized matter, because the building and loan associations and the banking structure are nationally sound, so you can see from an economic standpoint this is a matter of viewpoint. Mr. LUCE. No; it is a matter of our conception of mathematics. Mr. CAMPBELL. You mentioned the American Bankers' Association. Mr. MADDEN. Yes, sir. Mr. CAMPBELL. Do you know they opposed the Federal reserve system? Mr. MADDEN. I am not familiar with any of the background of the American Bankers' Association. Mr. CAMPBELL. They did. They opposed the Federal reserve system. Mr. MADDEN. This is not a reserve system. It can not be compared with one. Mr. CAMPBELL. I know, but the American Bankers' Association, which you have quoted, have been opposed to this bill. Mr. MADDEN. They have been said to represent 20,000 banks. Mr. CAMPBELL. They misrepresent about 95 per cent of them. They are responsible for the conditions which exist to-day. I want to correct you on your idea with reference to the Reconstruction Finance Corporation. It was not passed with the idea of helping building and loans. Mr. MADDEN. It says so in the bill. Mr. CAMPBELL. I grant you that, but it was put in there to catch votes. It has not made a loan to a building and loan association yet that has not been passed immediately to the banks or that will not. It only helps them to pay the banks. Mr. MADDEN. We are business men and are not familiar with legislative technique and therefore with the motive of putting building and loan associations in the bill, but I would think that the Government administrative agency would carry out the law. In fact, the building and loan associations evidently expect some assistance from this institution because only recently they have recommended a man to pass upon building and loan mortgages which are to be discounted by the Reconstruction Finance Corporation. Mr. CAMPBELL. But solely to pay the banks. Mr. MADDEN. Regardless of the motive, it is quite clear that the buildingand loan associations are getting money and will continue to get it. Mr. CAMPBELL. To repay the banks. Mr. MADDEN. Not being a building and loan man, I can not comment upon the motive or uses. 113235-32-17 Mr. CAMPBELL. Every loan is contingent upon the fact that they shall pay the banks. Mr. MADDEN. Undoubtedly you know more about them than I do. Mr. CAMPBELL. That is what the Reconstruction Finance Corporation is doing to-day. Mr. MADDEN. All I know is what the corporation is supposed to do and that the building and loan associations are taking proper steps to get loans. Mr. CAMPBELL. It is discretionary with that board as to what loans they shall make. The object in passing that bill was to liquify the assets of banks, first, and next the railroads, and they have not enough money to go all along the line. There is just as much demand for this bill to help the building and loans and the home owners as there was on the part of the banks and the railroads for the Reconstruction Finance Corporation. Mr. HANCOCK. Mr. Madden, I was not here when you commenced your testimony. You are connected with the Metropolitan Life Insurance Co.? Mr. MADDEN. Yes, sir. Mr. HANCOCK. You said in your testimony that last year you loaned about $49,000,000 for the construction of homes. Mr. MADDEN. I said that last year we loaned in new money about $138,000,000 in city mortgages, of which $49,000,000 went on homes. Of the latter sum, about $23,000,000 was invested in about 5,000 loans on new homes and about $26,000,000 was placed in about 9,000 loans on older homes. Mr. HANCOCK. You started to give us the average loan. Mr. HANCOCK. You stated a few minutes ago that competition was the greatest public servant-is that right? Mr. MADDEN. Yes. Mr. HANCOCK. Do you contend that the passage of this bill will eliminate competition among mortgage-loaning agencies? Mr. MADDEN. I contend that the passage of this bill, if the proponents carry out their national standardization idea, is not in the interest of the home owner. Next, it is maintained that from the standpoint of mortgage-lending institutions, the State of Massachusetts probably is showing us how to meet our mortgage problems in so far as they exist by introducing bills to set up a central discount bank for cooperative banks in that State and a separate central discount bank for the savings institutions there. In other words. the executives in the mortgage-loan business in Massachusetts realize that it is necessary to maintain their separate entities and in the public interest to improve the service of their own competing sys tems. The proposed home loan discount banking system will interfere with further development along this line. Mr. HANCOCK. You impress me as knowing something about what you are undertaking to tell us, but your answers are more or less evasive. I want to know whether it is your opinion that the passage of this bill will eliminate competition among home-loaning agencies! Mr. MADDEN. I think the passage of this bill will be detrimental to the present competitive situation for the reasons I have advanced. Mr. HANCOCK. You mean it will be detrimental to your company? Mr. MADDEN. No, sir. So far as our company is concerned, we do not care whether it passes or not. Mr. HANCOCK. You have no interest in the passage of this bill, so far as your company is concerned? Mr. MADDEN. We are down here by invitation to answer your questions. Mr. HANCOCK. I think your testimony has been very helpful, but I would like to know how much interested you are. Mr. MADDEN. We believe that this bill should not be passed. As I said while you were out, we think it is detrimental to the interest of the home owner, and as far as mortgage-lending agencies generally are concerned, it is unnecessary. Mr. Ecker believes that the Reconstruction Finance Corporation will take care of the present emergency. As to the need of a permanent institution, he thinks that in normal times there will be no need for it. Who is going to discount good mortgages in normal times? As to the present emergency and the need for this home loan banking system, where would it get money in times of depression? If your land banks can not get money on its bonds now, how could this institution? Mr. HANCOCK. You think that the facilities of the Reconstruction Finance Corporation would meet the present emergency so far as small homes are concerned? Mr. MADDEN. I certainly do. Mr. HANCOCK. There is another thing that I would like to hear from you, in order that I may appreciate the weight of your testimony here. Did I understand you to say a while ago that as a general rule the building of a new home in a given area or residential section had a tendency to depreciate other homes already existing in that particular area? Mr. MADDEN. Yes, sir. The answer to that is the building of new homes in a given area does tend to depreciate the value of existing homes because the buying public prefers new homes. Invariably there are new things in new homes, such as the kitchens being painted and equipped in a more modern way, more up-to-date bath-room improvements Mr. HANCOCK (interposing). Do you not think that the most powerful argument we can advance in any way is the law of emulation? Mr. MADDEN. What do you mean by emulation? Mr. HANCOCK. Modeling after. Do you not think that going into a community and painting a house, rejuvenating it, and all that kind of thing is a more powerful argument in favor of civic improvement than all the lectures telling the facts that you may have? Mr. MADDEN. Surely; providing you really can afford to do it, but there is a question as to whether the people to-day have the money to make improvements of that type now. Mr. REILLY. Thank you. Mr. MADDEN. Gentlemen, I want to express to you our appreciation for the opportunity to cooperate with you through answering questions, and it is sincerely hoped that the information given will be helpful. There has been no desire to set forth any viewpoint which is detrimental to any agency or to urge any preconceived ideas, but only to give you our viewpoint as we have developed it from our own investigations. (Thereupon, at 12 o'clock noon, an adjournment was taken until Wednesday morning, March 23, 1932, at 10.15 o'clock a. m.) |