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Mr. ScHMIDT. Only if the bank desired to take the mortgages. We have left that to the regulation of the bank. Senator Couzens. If a man who builds a hundred speculative houses, and he is going to come under the protection of the Government because he happened to build that kind of a house, it seems to me that you would have to include every other speculative builder. Senator BULKLEY. I suppose Mr. Schmidt's objection could be met by limiting him to one home, whether he lived in it or not. Mr. ScHMIDT. I think that would be very practicable. But I do not think it is feasible to require owner occupation. I do not think the bill meets the situation at all. Senator Couzens. It all depends upon what theory the bill was undertaken. As I understood, the theory of the bill was to prevent persons from being thrown out of their homes. That was the primary motive behind the bill. And the only way you could prevent a man from being thrown out of his home is to require him to occupy it. Senator BULKLEY. I suppose Mr. Schmidt would say that some of them are out already, would you not, Mr. Schmidt? Mr. ScHMIDT. Yes; but I think there is a further purpose in the bill, and that is to save the equity which people have built up, maybe through 15 or 20 years of toil. They may have moved out of their house in order to save that equity, to get rent from it, and live in cheaper quarters. I know of hundreds of cases of that nature, and I have encouraged owners to do it to protect their equities. That is another thing, Senator, that I think is very vital. We cannot have the savings of our Nation continually wiped out and people, you might almost say, their lifeblood eliminated. Senator CouzFNs. Of course, I do not want to see any of them wiped out. I want to see them saved, if possible, but we still have got the limitations of government. Mr. ScHMIDT. Yes; that is true. We feel further weakness in this bill is a provision for a 15-year complete amortization of the mortgage. We think that that is entirely too much. Senator CouzFNs. Too long a time? Mr. ScHMIDT. Fifteen years. Senator CouzENs. Is too long a time, you think? Mr. ScHMIDT. Too short a time. Senator CouzFNs. Too short a time? Mr. ScHMIDT. Entirely too short a time. Senator BULKLEY. What do you think it should be? Mr. ScHMIDT. Our provision was that the mortgage must be amortized up to 50 percent of its face within 15 years. This bill provides for complete amortization within 15 years; and those of us who have had experience in business know— Senator BARKLEY. What about the 50 percent, then? Mr. SCHMIDT. Your mortgage is then reduced to an amount that should be obtainable. Senator BARKLEY. Then in what length of time is he required to Pooh other 50 percent? r. ScHMIDT. That is then subject to a new mortgage. Senator BARKLEY. What is the limitation in the new mortgage?

Mr. ScHMIDT. That depends on what he can get. The Government's obligation ceases with the 15-year term. , And that is happening every day. Mortgages are made for a period of years and they expire and the property has to be refinanced. We felt that while it is probably true that a great percentage of owners would be able to pay off their mortgages in 15 years, and would do so, yet that that requires too heavy an annual payment in every case. Senator BARKLEY. Of course, the average building and loan association has a much longer period than the average loan obtainable from other sources. Senator CouzFNs. Absolutely. Mr. ScHMIDT. Fifteen years? Senator BARKLEY. Yes. Mr. SchMIDT. No. The Metropolitan has a 15-year loan. So has the Prudential. So has the Equitable. Senator Couzens. That is not what Senator Barkley said. He said the majority of them are not lending for 15, and I think that is true. Mr. ScHMIDT. I think that is true, and I think that is one of the greatest injustices that is done to the home owner, too, Senator. You go in the o and the banks make your mortgages, and the trust companies and they make your 1-, 2-, or 3-year mortgage callable. They make it for 1 year frequently, and then the mortgage is callable during every year thereafter and you have got short-term financing for what should be a long-term investment, and I think that is a very vital weakness of the situation that must be corrected. Senator CouzFNs. I am still old-fashioned enough to believe in thrift. Mr. ScHMIDT. So am I. Senator CouzFNs. And you do not encourage it by inviting a man to go in a house and give him 30 years or 40 years to pay for it. I do not subscribe to any such theory as that. Mr. ScHMIDT. Don't you figure that the life of the house Senator CouzFNs (interposing). Absolutely not. Mr. SchMIDT. Is not 30 years? Senator CouzENs. No; it is not 30 years in the first place. And in the second place, there is no reason why a man should not pay for his house in less than 30 years, or 20 years, if he exercises thrift. In other words, this procedure of postponing till you die the payment for the things you use every day is one of the fundamental bases of all our troubles today. We have invited people to keep on spending without regard to thrift or ever paying for it, and now }. * them to live in a house all their life without ever paying Or 1U. Mr. SCHMIDT. I think what you say is absolutely true, provided your article is consumed in the use. But the home is not consumed in the use. Senator CouzFNs. Oh, yes; the home is consumed in the use. Mr. ScHMIDT. Not completely. Senator CouzFNs. By depreciation and by changing of territory and environment and direction of industry and the intrusion of industry and garages and buildings, and the whole place changes in many, many cases in less than 15 years, as a matter of fact. Mr. ScHMIDT. That is true, Senator, but not completely.

Senator Couzens. And not in 30 years?
Mr. SchMIDT. Not completely.
Senator BULKLEY. Have you finished, Mr. Schmidt?
Mr. SchMIDT. I have finished.
Senator BULKLEY. Thank you very much.
Mr. ScHMIDT. Thank you very much.
Senator BULKLEY. Mr. Hennessy.

STATEMENT OF CHARLES O'CONNOR HENNESSY, PRESIDENT SAVINGS & LOAN BANK OF THE STATE OF NEW YORK, AND PRESIDENT THE FRANKLIN SOCIETY FOR HOME BUILDING AND SAVINGS, NEW YORK, N.Y.

Senator BULKLEY (chairman of the subcommittee). Mr. Hennessy, will you come around to this side of the table? I believe the reporter will be able to hear you better. Mr. HENNESSY. M. I, Mr. Chairman, take the liberty to qualify myself, not at all that I may exalt my importance as a witness here but in order that the committee might have some idea of my competence to discuss the matter that is before you. I am president of the Savings & Loan Bank of the State of New York. That institution is the central credit organization for the savings and loan associations of the State; that is to say, institutions which elsewhere would be called building and loan associations. We have 180 of such associations affiliated with our central credit institution, representing approximately 80 percent of all the savings and loan association resources of the State. I am also president, sir, of the Franklin Society for Home Building and Savings, the second largest savings and loan institution in the State, which has some 6,300 small home mortgages on its books. I have also had, Mr. Chairman, the endurance to read through the Congressional Record very thoroughly in the last session of Congress and also to read the reports of the hearings both before this committee—that is, the committee of the Senate—and the committee of the House with respect to the Federal home loan bank bill. So I know the provisions of that act, and I have endeavored to examine this Senate bill 1317 and have some views to express on that matter. Senator BULKLEY. We appreciate your coming here, Mr. Hennessy. We will be glad to hear your views. r. HENNESSY. I may differ, I feel that I do differ, with a number of the gentlemen who have been offering observations to you, sir, on this matter, as I believe that the Federal Home Loan Bank Act ought to be entirely repealed. It has not served any of the purposes for which it was created. Senator BULKLEY. Would it follow that this bill 1317 should not be passed at all? Mr. HENNESSY. I do not think it should be passed at all. It is entirely unwise, as it seems to me. It is based upon, as it seems to one, a lack of information as to the mortgage structure of the character that it undertakes to deal with. And it will not only not do what is sought to be done by those who propose it, but in my opinion it will involve the Government of the United States in very serious obligations and potential difficulties later on.

At the time when the home-loan bank bill was pending here last year I had the honor, upon request of the chairman of the committee, to submit a brief expressive of my views, and I would venture to read just one paragraph from it now. It is published in the records. I read it now simply because it still expresses the opinion which I hold, which, may I say, is an opinion that was in substance expressed on the floor of Congress in both Houses by some distinguished Members of Congress. I believe it especially reflected the opinion of Senator Couzens, Senator Glass, and I think the chairman of this committee Senator Fletcher. I do not assume to speak for Senator Bulkley. I said at that time [reading]:

For myself, after careful study of the bill and the reading of the testimony taken in the hearings before this committee, I offer the opinion that this proposal if made law would not solve any of the emergent problems that relate to a wise and adequate distribution of Sound mortgage credit to home owners or home seekers. Nor would it be likely, because of the proposed structure of this home-loan bank system, to efficiently and economically serve the long-time needs of lending institutions that particularly devote their resources to the encouragement of home building and home ownership.

I wish to say that the result of the operation of this system, so far as that result has been made public, Mr. Chairman, seems to have completely vindicated that point of view. The Federal home-loan bank system has been a failure. It has not effected any of the purposes for which it was created.

And may I say as not irrelevant to the whole subject which you are considering that if it were not for the association of the word “home * with this thing the bill itself, it seems to me, would have had very much less support in Congress last year than it had. The sentimental associations of that word and the very rightful disposition on the part of Congress to conserve so far as it might the interests of poor or moderately circumstanced people who were living in homes in this country was the moving principle, if I may say so, plus, of course, I think it is only fair to state, the great influence of the late administration, which was put behind the enactment of the legislation. This influence was brought to bear primarily, I think, because the late President of the United States was sincerely interested in home ownership and, secondly, because, if I may be permitted to say so, he thought it was very good politics in a presidential year to be associated with a movement of that kind.

But the fact is, nevertheless, that this system has been a failure and I beg to offer some reasons for that statement. When the bill was pending you were told in Washington that there was an abnormal demand for the passage of legislation of this kind in the interest of the home owners and the home seekers of the United States. I could point you to literally tons of propaganda that was sent out to the o: that both the savings banks and the savings and loan or building and loan associations of the country were a unit in demanding this system. I have a quotation here from the distinguished Member of Congress who sponsored the bill in the lower House, a gentleman who has the respect I believe of everybody who knows him but who was, like other Members of Congress, I think, gravely misled by the propaganda that was circulated at the time and by the agents of interests that wanted this bill passed. But at any rate—

Senator BULKLEY (interposing). Now, Mr. Hennessy, does that have a bearing on the desirability of S. 1317 that is before us now? Mr. HENNESSY. If you do not wish me to pursue that, I will drop that aspect of it, Mr. Chairman. Senator BULKLEY. Unfortunately, how, through no fault of yours or mine, we are a little behind on our schedule of the time, and the time is getting away from us. Mr. HENNEssy. Yes, sir; I appreciate that. Well, as to this bill, I ought to justify my statement that I believe the Federal home-loan bank system had been a failure, because I understand that you have before your committee a bill to repeal the act. Senator BULKLEY. That is true. But assuming for the sake of argument that that is true, would it follow necessarily that this one would be? Mr. HENNESSY. Well, Senator, the administration of this bill is placed in the hands of precisely the same organism that has been controlling the operation of the Federal home-loan bank system. Senator BARKLEY. Do you think the failure, if it has been a failure, is due to the organism or to the law itself? Mr. HENNESSY. I think it is due to both. I think that the foundations upon which the system was proposed to be built are hopelessly defective. They cannot be made good. You cannot build a sound structure upon unsound foundations. That is to say, the idea of building a Federal organization upon 48 different types or units in which State laws vary in the greatest possible way is bound to be futile. You cannot successfully build a Federal mortgage system upon mortgages assembled under 48 different State systems, because, as has been pointed out in some of the testimony before Congress last year, there is the greatest diversity of character and of practice among the lending institutions of the different States. This system is to function by the issuance of bonds, tax-exempt bonds. These bonds are to be based upon mortgages assembled from the member institutions, and these member institutions are State institutions; they are not institutions that are controlled by the Federal Government or operating under Federal law. Senator BARKLEY. Well, you have either got to have it that way or set up an entirely new local organism or have no law at all. Mr. HENNESSY. That observation of yours, Senator, I venture to say, proceeds from the theory that there must be some system of this character. Senator BARKLEY. I am assuming that you have got the three prongs: You have either got to base it on present home-loaning organizations in the States or set up an entirely new local organism and abolish those that exist and make it all national, or do nothing. Mr. HENNESSY. It is my opinion, sir, that there is no need for the system. Senator BARKLEY. You do not believe in any national law on the subject? Mr. HENNEssy. No, sir; I do not. Senator BARKLEY. Well, that is plain enough. Mr. HENNEssy. Yes. Now, the Federal Home Loan Bank Act, Mr. Chairman, provided three types of institutions lending on home mortgages, that were to constitute the membership of the system:

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