There are some of them which are not sound.

There are some of

them in some parts of the west where, to my personal knowledge, they have not been conducted on sound lines, where they have been almost banks of deposit, paying in and out on checks, which is not the proper function of a building and loan association.

I do not care to discuss that feature because I do not feel that I have enough detailed knowledge of its advisability or nonadvisability to give you any advice that would be worth anything. To my mind the important section of the bill is the first section, which endeavors to make possible, by the theory of averages or the theory of insurance, the use of private capital for renovation and improvement and for the construction of new homes for the double purpose of putting men to work and for the purpose of building a home, which is a very desirable thing to have. Above all things, in my own mind, that section is the important section, though I should like to see that section spelled out more at least than it has been in this bill, and contain more of the definite provisions for reserves, and so forth, which were set up in the longer bill.

I further feel that the commission that is to be created to control this Home Credit Insurance Corporation should not be merely a commission made up of other Government representatives. This commission has got a real job to do, and I think that at least a majority of the commission should be men or women who give their sole time and attention to it, and who are not continually pulled and hauled this way and that way by a multitude of other governmental duties. In other words, I do not think this is a job for a chief clerk, operating under a commission of cabinet officers, but that it should be at least in part an independent commission. I very much appreciate this opportunity to have outlined some of these features of the bill.

(At this point Mr. Busby took the chair.)

Mr. BUSBY. Mr. Cross.

Mr. CROSS. Mr. Harriman, of course, the object in all of the bills is most commendatory; but do you really think that people in these times, and a considerable number of people, would have their houses renovated and improvements made when they are fearful of their jobs, and when they are in little businesses, and when they cannot make ends meet now? Do you think they would take advantage of it if they had it?

Mr. HARRIMAN. I think that depends upon two factors: How well the matter is publicly presented-for there has got to be a campaign of renovation just as there was in Philadelphia last year, where it was reasonably successful. I am not sure that the whole billion dollars will be taken up, but if one-half of that amount is taken up it is a step in the right direction.

I further believe that as we put men to work, as we do one job, that will create a desire on the part of other people for jobs. If Mrs. Smith has her house painted, Mrs. Jones is very likely to go and have her house painted also. It is always the experience that if you can get improvements of this type started, that they spread. And a great deal of the spreading is done without borrowing. The fact that work is being done, that wages are being paid, stimulates confidences and induces people who have got a little money to spend it, whereas they would otherwise hoard it.

Mr. BUSBY. Mr. Williams.

Mr. WILLIAMS. Mr. Harriman, as I understand it, you question the advisability of title II, the necessity of making a law nationalizing mortgage associations.

Mr. HARRIMAN. In its present form; yes. Whether there is time in the short few days remaining of the session-as I understand you expect to adjourn soon-to perfect that section, I do not know, but I do not think I would pass it in its present form. I think it needs. perfection.

Mr. WILLIAMS. I further understand from your statement that you are not familiar with, or at least you did not discuss, title III. Mr. HARRIMAN. I do not pretend to be very familiar with that; no, sir.

Mr. WILLIAMS. If we enact title I at all, you would rewrite it? Mr. HARRIMAN. Only in certain features.

Mr. WILLIAMS. That would not leave very much of the bill which we have before us.

Mr. HARRIMAN. I am talking about the spirit of the bill. I am not talking about its technic.

Mr. WILLIAMS. We are all in favor of the spirit of the bill. There is no question about that. The point is to get the machinery on a sound, safe basis, so that those ideas can be carried into execution.

Mr. HARRIMAN. Mr. Webster, who has been the draftsman of the bill, has the longer bill. I think he can show you title I and other titles, for that matter, spelled out in greater detail than they are here. I do not think it has got to be done again.

Mr. WILLIAMS. Let me ask you this: If you care to discuss title III at all, you understand that the provisions of that title, as written into this bill, would compel all the building and loan associations and like lending associations to go into the Federal home-loan system before they are entitled to insurance?

Mr. HARRIMAN. I do; but, frankly, I may be mistaken about that. That is my understanding.

Mr. WILLIAMS. Are you in favor of that idea?

Mr. HARRIMAN. As I said before, I have not given it enough study to say. I will say this, however: That I believe that the insurance of bank deposits resulted in a very careful review of the assets of the banks and determined their real value. Now, I believe that this would have a tendency to review the values and to determine whether these building and loan associations were sound enough. Mr. WILLIAMS. Undoubtedly; but the point is whether or not they would first be compelled, as a preliminary step, to join the homeloan bank system.

Mr. HARRIMAN. I certainly think, Mr. Representative, that it would be very wrong to have the Government not guarantee them until they had made a thorough examination of their assets.

Mr. WILLIAMS. We will certainly all agree with that proposition. That is really not the question. You understand that there are about one-fifth of the building and loan associations in this country that are now in the system?

Mr. HARRIMAN. Yes, sir.

Mr. WILLIAMS. What are you going to do with them-I mean those which are not in, which constitute, I believe the records will show, about four-fifths?

Mr. HARRIMAN. I assume that the guaranty is not compulsory that it is up to the loan associations to come in or not. Again, I may be wrong on that.

Mr. WILLIAMS. As I understand this provision, they must first come into membership.

Mr. HARRIMAN. If they want their funds guaranteed up to $2,500, they have first got to come in and join the Home Loan Association. Mr. WILLIAMS. Home-loan bank system?

Mr. HARRIMAN. Home-loan bank system; yes, sir.

Mr. WILLIAMS. That is the first consideration. Now, the question is whether or not you think it is sound in principle and wise policy to compel them to do that before they are entitled to insurance, providing always that they are sound institutions.

Mr. HARRIMAN. I do not think I care to express an opinion, because I really have not studied it, sir.

Mr. WILLIAMS. All right.

Mr. HARRIMAN. All I want to say is that whether they join the system or not, they certainly should not be guaranteed until we are sure that they are sound.

Mr. WILLIAMS. Nobody will question that.

Mr. HOLLISTER. May I ask a question?

Mr. BUSBY. Yes, sir.

Mr. HOLLISTER. Mr. Harriman, I want to ask you about considering the improvement loans. Do you consider it a weakness in the bill that the banks may be insured to the extent of 20 percent of all loans granted, rather than 20 percent on any individual loan? In other words, is there not a danger in this: That an eligible institution will be pretty careful themselves up to a certain point, but if it is up to 80 percent they will take a rather long chance on the 80 percent because the insurance covers 20 percent of all the losses, whereas, if the insurance was 20 percent on each individual loan, they would be just as careful as they could be on each individual loan. Is there not a real danger involved there of the impairment of the 200 million dollars?

Mr. HARRIMAN. The actuaries who have studied it say not. Your suggestion would be sounder, from a strictly financial standpoint, but the matter rests in the banks failing to make the loans. Mr. HOLLISTER. I realize that.

Mr. HARRIMAN. I think the fundamental question is to get money to work.

Mr. HOLLISTER. We want to get money to work, but we do not want to get it to work in such a day that it will result in a substantial loss.

Mr. HARRIMAN. Of course, you have a definite limitation of 200 million dollars. It is not running into the billions.

Mr. HOLLISTER. I realize that. After all, that is a substantial amount.

Mr. HARRIMAN. That is a substantial amount, but, after all, I would rather see the present principle maintained, if the losses were 100 million dollars than to see the other principle maintained with losses of 50 million dollars, because I think the additional value that would come from putting men to work at this time would amply pay the Government for the slightly greater risk.

Mr. HOLLISTER. Thank you.

Mr. WILLIAMS. I will ask you this further question, Mr. Harriman, because you are familiar with this bill: Do you consider that there is any limitation at all on the power of the corporation to issue bonds?

Mr. HARRIMAN. For what purpose?

Mr. WILLIAMS. Anything.

Mr. HARRIMAN. If there is not, there ought to be.

Mr. WILLIAMS. I

agree with you there.

Mr. HARRIMAN. There is, I think, a definite limitation on the 1 billion dollars for alterations and repairs. I am not sure whether the language or the words "unless the President increases the amount" applies to that feature or not. I think that is definite. I think the 1 billion dollars for existing mortgages is definite.

Mr. WILLIAMS. With the approval of the President, it may be indefinite.

Mr. HARRIMAN. Is that where that applies [addressing associates]?

Mr. WEBSTER. Yes, sir; that is where that applies.

Mr. HARRIMAN. Then I would take those words and make it definite. There is another Congress going to sit before a great while, and it can be amended if necessary.

Mr. WILLIAMS. There is no limit on new construction.

Mr. HARRIMAN. No; but I feel there that the revisions I referred to should be made. I would spell out not less than 3-percent amortization and not less than 1-percent insurance premium, and I would cut down the amount loaned to not exceed 75 percent, personally, but I am not sure I am right on that. With those limitations, I believe the bill is sound.

Mr. WILLIAMS. Why make a difference between existing homes and new, so far as the appraised value is concerned?

Mr. HARRIMAN. The reason which led the committee to do that was that they felt that they could appraise a new home. They had the valuation of construction, and so forth, before them, and they could get a more definite and positive appraisal or an appraisal which was nearer actually right than they could of an old house, where you are never sure what its exact condition is. Furthermore, that puts men to work and the other loan does not We have a double object here, to put people to work and to make the loan. Mr. BUSBY. Mr. Kopplemann has a question.

Mr. KOPPLEMAN. Mr. Harriman, I was interested in what you said about the Philadelphia situation a year ago. I take it from that that you have had some experience which might prove interesting, as well as of value, and for that reason I ask you this question: In what way, under this bill, it is possible to insure renovation of homes more so than was possible a year ago in Philadelphia, or is possible today without this bill?

Mr. HARRIMAN. Because of the insurance feature of 20 percent, and because of the rediscount privilege which the banks that make the loans have. Those are two very important provisions. The rediscount provision means that a national bank can make a loan. If I needed money it would be unwilling to make a 5-year loan if it did not have some way to rediscount it, but with the rediscounting privilege contained here, they are willing to make the loan.

Mr. KOPPLEMAN. How did they manage it in Philadelphia a year ago?

The CHAIRMAN. I am not familiar with the details, but, as I am informed, it was through very active work on the part of those who had charge of the job.

Mr. BUSBY. Mr. Luce.

Mr. LUCE. Mr. Harriman, you and I are in complete accord as to the fundamental objects and desires, and yet the fundamental objects raise questions as to some fundamental principles where we ought to have understanding, at least, if not agreement. This bill appears to contemplate two classes of activities: the building of new homes and the improvement of old homes. Taking them separately and first discussing the matter of the new homes, I received the other day from the Massachusetts Association of Cooperative Banks, which, as you know, has something more than 200 members and some millions of dollars invested, a notice that they have in hand 20 million dollars ready to lend; that they coud quicky get their hands upon 30 million dollars more, and, all told, could raise 100 million dollars to lend for home building. There appears to be no scarcity of money in Massachusetts for persons who want to build their own homes and are able to borrow.

Would it not seem unwise to endanger the situation, if we have a Federal system of loaning for the purpose of building new homes, where there is today money awaiting investment?

Mr. HARRIMAN. I do not think, Mr. Luce, that the two are necessarily antagonistic. There are certain sections where it is very true that there are not the funds available for this purpose, such as there are in Massachusetts. I further feel that building and loan associations might themselves be the agency that would advance the money under the Federal system.

Mr. LUCE. This bill contemplates as of its essence a supply of capital for building purposes, both new and renovated, not only in larger abundance but at lower cost than is now available. It contemplates securities by first giving the tax-exempt privileges to the new institutions, and, secondly, contemplates it by creating a lower rate of interest than is found anywhere in the United States for the lending of this money.

Now, if a Federal institution with tax exemption and lower interest, spreading from the Atlantic to the Pacific, comes into existence, what chance is there for the survival of the present lending agencies?

Mr. HARRIMAN. Mr. Webster could answer that with very much more detailed information than I can. Let me say that in the bill here there is no definite limitation of 5 percent. I believe it is from 5 to 6. I think that the Government rate should not be made so low as to drive private industry out.

Mr. LUCE. But the arguments which have appeared in print for this bill, as well as those which we have heard from the floor of the House for some years now, are based upon the belief of the men presenting them that interest rates in this country are too high and that, therefore, either by legislation or by competition, we ought to lower them.

Now, let me get your point there, because you, as a representative of the United States Chamber of Commerce, its president, can likely