. With a 90 per cent of margin. So that, as a e securities are very much better from that point etter secured. They are sure of prompt payment, the elements that pretend to make a sound

ou also asked, what spread must there be between onds issued by these proposed banks and the rate ing institution. Well, it is provided, of course, or a spread, as you probably know-this is on (e), commencing with line 14

all provide such margins between interest rates received o members and interest paid upon obligations which the ink may issue as will cover expenses of operation and uch regulations as may be provided by the board, some nay be devoted to retirement of the stock subscribed by

what the chairman had in mind. Of course, he nind the situation that has arisen with reference rediscounts at the Federal reserve banks. I know of Iowa was in Chicago recently at a conference th reference to a question as to whether something for the Iowa farmers to lower the rate that they said that they were paying, under the guise of ion in one way or another of from 8 to 11 per cent and he came to discuss with the Federal reserve e possibility of something being done to lower the s to the farmer. He was shown all of the Iowa e Federal reserve bank, and was shown that the I to the Iowa institutions at something less than at the spread occurred in Iowa, due to the fact ons were small or inefficiently operated or were ver you want to lay the cost to.

hat the question of necessary spread that would be which in this case would be fixed and not left to depend somewhat upon the volume of business. tion here by a banker from Cleveland, Mr. Monks, perated for less, probably; that it would not need I should say that one-half of 1 per cent should

hat spread have the farm loan banks? EY. I think it is the same as this bill.

any of the friends of the farm loan banks state that the banks originated when they were not given to start with; that there should have been a larger e a fund.

EY. These Federal reserve banks are supposed to be units. They are not like a small bank.

mean the land banks; they claim that the Federal not permitted a sufficient spread.

EY. But we are talking about a spread for the disere, and the spread would not have to be so large, arge institution, because it would be a sufficiently a low operating cost, which is not true of a smaller

Mr. Hancock asked if there was any provision in this bill that would prevent the banks from using funds derived from the sale of foreclosed properties to purchase their securities? I understand that the Federal land banks are doing this in some instances. Of course, that situation does not arise here at all. That question, I think, grew out of a misrepresentation in the pamphlet issued by the Mortgage Bankers Association with reference to the foreclosures, intimating that this was going to put the Government in the foreclosure business, which was an undesirable position for the Government of the United States to occupy with reference to its citizens.

In the first place, it is not going to put the Government in the foreclosure business, and, in the second place, the provisions of this bill provide for substitutions and empowers this institution to call upon the discounting institution to substitute, so that if a mortgage was defaulted they would immediately call upon the borrowing institution member to replace it with something else and it would go back to the borrower and that borrower would have to substitute good collateral for it.

Mr. HANCOCK. Does not that same situation exist with the Federal land banks?

Mr. MACCHESNEY. Not as I understand it.

Mr. HANCOCK. They are required from time to time to substitute and to keep their reserves up to the limit.

Mr. MACCHESNEY. Yes; but they do the foreclosing.
Mr. HANCOCK. That is true.

Mr. MACCHESNEY. The difference there is that they do the foreclosing, whereas here this gets outside of the system. That is the point that I am making. This goes back to the building and loan association or to the local bank, where it is just where it is now. What I am saying, so far as the foreclosure situation is concerned, is that this bill, in contradistinction from the land bill, does not change the situation at all, because if the layman defaults it goes back to where it is now.

Mr. WILLIAMS. But, after all, if your member institution was not able to put up the solvent security, what shape would it be in?

Mr. MACCHESNEY. That is a long question, but it is a fair question. However, it takes some time to answer it.

In the first place, this gives a right to examine that institution, its solvency and position, and presumably if this bank is on the job it does not wait until a borrower gets into that situation before taking action. In the second place, they would hold these mortgages by way of collateral, and their first action would be brought against the institution, and under those conditions, under the laws in most States, the foreclosure would take place in the name of and on behalf of the borrower and not the institution.

Mr. REILLY. Is it not a fact, that these Federal home loan banks would never have to start a foreclosure proceeding unless the borrower went broke?

Mr. MACCHESNEY. That is absolutely true, and even then I doubt if they would start it.

Mr. REILLY. To protect themselves they might have to do it. Mr. CAMPBELL. Would not the borrowing institution have additional collateral or interest in the bank making the loan, inasmuch as

ecurities and had subscribed their money to

might have borrowed so heavily and gone ak might be holding the bag.

it all of their mortgages would not be out. They embership fee, and 1 per cent of their capital

. As the chairman says, it could not happen g institution went broke. The probability is ve ample warning of it and the substitution ly before that. But I want to call your attenat under the process of liquidation ordinarily d to satisfy the note as a banking proposition, would take place by the purchaser of the colote and not by the bank which held the redisway we do it now in banking circles. I can not see get to a point where this bank would foreclose, bes not take title to the collateral itself. In fact, form of collateral now, a bank can not buy the offer it for sale and the purchaser of the collat

se.

ink it is very remote, too, when the bank would

Y. I think it is impossible. As I think of the ch collateral notes are made, they are made on a es not that the bank shall forfeit, but offer for

questions that were asked yesterday, but there are at were asked by the Senators which I think it ting to discuss for a moment, because they have pon the matter.

otation with reference to interest to the United covered that, because we are prepared to favor the he Government in the profits while the money resely the same basis as other investors.

hink that is a very fair proposition.

EY. Second, Senator Couzens raised a question with 15,000 limit in the bill, and I want to discuss that. › distinguished Senator's suggestion with reference enator Couzens said that originally it was his unders rediscount privilege should be limited to homes han $30,000, and where the mortgage should be not 0. Now, that bill is not so drawn, and we do not De. We think the bill is right as it is. In other nt of the mortgage is $15,000, it ought to be possible ner to get that relief, and for the institution which age where that is the unpaid balance, even though tgage might have been beyond the limit, and that now. In other words, the unpaid balance should ot the original amount of the mortgage. There are right now, and in that event, of course, the loan would ronger. In other words, it would be a much better s now written, and we see no reason why a man who

had a house that cost $35,000 or $40,000 when the prices were high and where the mortgage was originally, say, $20,000, and he had paid down, say, about $10,000 why he should lose his $40,000 home for failure to get a $10,000 mortgage when, if his house had only cost $20,000, he would have been given relief.

So, in reply to that, we want to say that we favor the bill as written, which makes the unpaid balance at the moment determinative of its eligibility for rediscount.

Mr. WILLIAMS. On page 2, a home mortgage is defined.

Mr. MACCHESNEY. Subsection 6.

Mr. WILLIAMS. Is there any limitation there as to the amount of land involved?

Mr. MACCHESNEY. Not as to the land.

Mr. WILLIAMS. On which the dwelling is located?

Mr. MACCHESNEY. NO.

Mr. WILLIAMS. Then, under the bill here, they may restrict collateral to a home standing on 1,000 acres of land?

Mr. MACCHESNEY. Yes.

Mr. WILLIAMS. And on any farm land throughout the Nation? Mr. MACCHESNEY. Yes: if the home as such is worth it, I suppose. Mr. WILLIAMS. Is that it?

Mr. MACCHESNEY. What?

Mr. WILLIAMS. Is that the intention of this act, to make it apply to dwellings regardless of the place where located?

Mr. MACCHESNEY. This act primarily is intended to give relief to urban homes, but, as a matter of fact, it covers farm lands as well, but it would have to be on the home.

Mr. WILLIAMS. You mean the home independent of the land upon which located?

Mr. MACCHESNEY. That could not be done, but may I call your attention to the general situation? The average farm mortgage is a mortgage of the farm as such, and, generally speaking, includes the improvements thereon, but it looks primarily to the land. This mortgage would be a mortgage on the house as such, and would incidentally include the land.

Now, there is no limitation as to how large the yard should be. The gentleman from Texas might regard 1,000 acres as a reasonable yard, but we would think that was rather large in Illinois.

Mr. REILLY. These mortgages are going to be regular home mortgages.

Mr. MACCHESNEY. These mortgages are going to be regular home mortgages.

Mr. REILLY. Yes; but it takes in the home and the land.

Mr. MACCHESNEY. Certainly it would take the land under it, but the point is that the average building mortgage is different from the average farm mortgage. That is what I am getting at. The farm mortgage, in language, usually covers the land, and, incidentally, the improvements; whereas this covers the improvements and, incidentally, the land.

Mr. WILLIAMS. Let me ask you what kind of a description you would put in a mortgage under this act if enacted?

Mr. MACCHESNEY. Of course, you would have to describe it by legal reference the same as in any other mortgage.

it involved 1,000 acres of land, you would de

Mr. Williams, I suppose that if I were in the ess, I might. I hope not; not on the ordinary not expect to cover 1,000 acres of land, if it had a possibility, I admit.

ist as a practical proposition, how else could had a separate survey?

. I should say, if this loan were made, in the siness on the farm house as a house there would tial showing of value, in the house itself, and it it is possible-that there would come under the nortgage on 1,000 acres of land, including a house um home loan mortgage.

I interrupt at this point?

se in the conferences preliminary to the redraftuggested the question by reason of the fact that I ummer home which is surrounded by a considerndeed about 200 acres, but the land is the unime property. The house is worth three times as and in trying to think of such a definition as you have in mind, I could not succeed, and thought it stead of attempting to put a limitation in the act, ntral board to handle by regulation.

EY. I think that answers the question. Now, hat was raised, of course, was the question of tax ave already discussed that. Paragraph fourth is praisals-as to who is to make the appraisals. I ritten is adequate on that matter. It provides for borrowing institution, which a certificaton of ght of inspection and check-up upon the part of ank. It is all the authority that is necessary; rable to what an insurance company does in the ans offered by its correspondents without the neal appraisal and the expense of it.

ese banks, you feel, will take no securities that are

EY. No.

ou think that they have good judgment?

EY. Yes. Absolutely.

There is no need of their accepting any until they as sufficient.

EY. No. Proven securities.

as one section discussed with reference to reserves. uch reserve may be devoted to retirement of the by the United States."

as raised as to whether these notes should be desigor profits. I don't quite know what the gentleman O raised that question. I rather thought the quesclear. I thought that the gentleman who asked it practice of banks in transferring certain earnings it would not be available perhaps for distribution; e had in mind was that the reserve was used or was xed surplus which could not be borrowed. I don't