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Mr. WILLIAMS. Under this bill as written, this national association may issue debentures and bonds to the extent of 15 times its capital, regardless of what kind of securities they have.

Mr. MILLER. No; the debentures must be limited to 15 times the capital, and the debentures must be limited to the same value that they have in guaranteed mortgages, but so far as I can see, they might use capital, and probably will use capital, for acquiring mortgages not guaranteed; and until they have gotten on the books, they might, by a further increase in capital, begin to deal in those mortgages before they are guaranteed. I think that should be prevented, because it might work a fraud on the public, who think they are buying guaranteed mortgages, when they are not.

Mr. WILLIAMS. I mean the association may buy and sell mortgages that are not insured; that is, under the law now proposed here.

Mr. MILLER. And that is what I think should not be done.

Mr. WILLIAMS. And it also provides that they may issue debentures to the extent of 15 times the aggregate par value of the outstanding stock of the company, which would mean $75,000,000 in each case.

Mr. MILLER. That is true.

Mr. Brown. I do not think so; I think the limitation is a double limitation.

Mr. MILLER. There is a double limitation. Mr. Brown. I think pages 14 and 15 of the bill clears that up; it provides that bonds may not be issued in excess of either 15 times the capital stock, or the current value of insured mortgages held by it, and there is a double limitation; it is not one or the other.

Mr. MILLER. That is what I tried to point out; that is so, but there is another provision which provides that funds of any national association not invested in first real estate loans shall be in cash or equivalent or invested in bonds or other obligations, and so on. The CHAIRMAN. There is a limitation under subdivision (b).

Mr. MILLER. That provides for limitations of first real estate liens; it does not say guaranteed under this provision. So far as capital goes, they would always have a fund free of use to buy unguaranteed mortgages, as I read the subdivision.

Mr. Brown. Mr. Watson, was it not the intention to put the double limitation upon the power of the corporation?

Mr. Watson. Yes, sir; the words are, “ shall not be in excess of either."

Mr. WILLIAMS. It is not necessarily limited to insured mortgages.
Mr. Watson. Either (a) or (b).
Mr. WILLIAMS. It reads, “either or "; it does not say “and."

Mr. MILLER. There is a double limitation to the extent of the debentures, but I cannot find any limitation whatever as to the investment of the capital being in the guaranteed mortgages, and as to that, this double limitation does not apply. Therefore, that capital could be used unless there is a restriction, for the unguaranteed mortgage.

Mr. WILLIAMS. Suppose they went out and invested it and issued bonds to the extent of 15 times the capital; they would have that right? Mr. MILLER. Yes, sir.

Mr. WILLIAMS. And then they went out and invested every cent in mortgages not secured.

Mr. MILLER. That is not true under subdivision (b); they must have guaranteed mortgages to the full par value of the debentures issued.

The CHAIRMAN. Or cash or Government bonds to supplement whatever that lacks.

Mr. MILLER. The point I am making is there is a lap over which need not be in guaranteed mortgages.

Mr. REILLY. That would be no loss to the Government, would it?

The CHAIRMAN. Mr. Miller, one of the witnesses who appeared here before this committee, and who had something to do with the drafting of the bill, stated that it was his understanding that this corporation was not to make any direct loans for construction purposes; is that right?

Mr. MILLER. Do you mean this corporation?
The CHAIRMAN. This $5,000,000 corporation.
Mr. MILLER. I do not think that is necessarily so.

The CHAIRMAN. Is it your idea that this corporation is to engage entirely in the purchase of insured mortgages to provide a reservoir for furnishing money for building purposes !

Mr. MILLER. That is not quite the way I read it.
The CHAIRMAN. That is his statement.

Mr. MILLER. The way I read it was that the corporation, if it operated as expected here, would lend its capital for mortgages that would be guaranteeable; after having acquired those mortgages by its capital, it would then have them guaranteed by proper application; it would then have a certain amount, say $5,000,000, in guaranteed mortgages. They could then issue $5,000,000 of debentures and when they sell those, that would give $5,000,000 in free capital to invest back in mortgages, and it would probably go on in that way as they gradually build up the mortgage portfolios.

The CHAIRMAN. The building and loan people are objecting to that section of the law, because they say it creates a competing lending institution. Those witnesses stated that it was not intended to compete at all, as they were not intended for building purposes.

Mr. MILLER. I had a long talk with the building and loan man who appeared before you and I thought he had completely

The CHAIRMAN. (interposing). Mr. Bodfish?

Mr. MILLER. Yes, Mr. Bodfish. I thought he had changed his mind when I saw him. Of course, the same thing must be said of savings banks; that I would regard as competition with savings banks. To my mind, the competition is of no consequence at all. The question is, is this thing going to bring back general prosperity ? If it is, we will take care of the competition. That is my argument. It will do the building and loan corporations more good by restoring the market, than it will harm.

Mr. BEEDY. Can Mr. Watson answer the question as to whether the mortgage associations will lend to individuals?

Mr. Watson. It is my impression, and I stand to be corrected by Mr. Miller, that as a business proposition, these mortgage associations operating over wide areas, will be forced by the sheer necessity of operating in a business-like manner, to deal in most cases in the purchase of mortgages already in existence.

The CHAIRMAN. The question is, what may they do? Can they make a direct loan?

Mr. MILLER. Under the law, they can.

Mr. CAVICCHIA. Just one or two questions. It is your opinion, as I understand, Mr. Miller, that these will not be competing organizations insofar as the building and loan associations and savings banks are concerned?

Mr. MILLER. No; I would not say that; every lender competes with every other lender in his neighborhood.

Mr. CAVICCHIA. You said we are suffering from fright, and I agree with you. We must restore confidence and credit in order to bring back prosperity; you do agree with me?

Mr. MILLER. Yes.

Mr. CAVIOCHIA. If this measure is enacted into law, do you think that building and loan associations and savings banks will be able to continue doing business, or will they be hurt?

Mr. MILLER. I think they will continue to do business and that the general effect on the real-estate situation will benefit building and loan associations and the other lenders who have moneys frozen up in securities that are not saleable for their real value. It seems to me they will have competition.

Mr. ČAVICCHIA. I wish you could show me just how they are going to be helped; because I have a stack of letters and telegrams, telling me they will be going out of business if Uncle Sam becomes a Santa Claus and holds out a bag of gold to competing institutions.

Mr. MILLER. I think I could.

Mr. REILLY. Isn't this the way the law expects to work: Suppose you were president of a life insurance company and you had a lot of money that you could not invest. You organized this corporation for the purpose of buying insured mortgages and home construction mortgages, for using capital which you could not otherwise use. In that way, you would furnish money for building purposes.

Mr. MILLER. You can do that now, if I were president of a life insurance company; they are doing it now.

Mr. REILLY. But life insurance companies only take mortgages up to 50 percent. Here they can invest their money in insured mortgages up to 80 percent, and stand no loss except possible foreclosures.

Mr. MILLER. If they are limited by law to 50 percent, then they could not lend up to 80 percent, no matter who guarantees.

Mr. REILLY. They can buy stock in this corporation, can they not?

Mr. MILLER. I believe in New York State none of the large life insurance companies can buy stock under the law, but I do not think that is the way this is going to work.

Mr. REILLY. If it doesn't work that way, it will not work at all.

The CHAIRMAN. We will now adjourn until 10:30 tomorrow morning.

(Thereupon, at 12:55 p.m., the committee adjourned until 10:30 o'clock tomorrow, May 31, 1934.)


THURSDAY, MAY 31, 1934



Washington, D.C. The committee met at 10:30 a.m., Hon. Henry B. Steagall (chairman) presiding.

The CHAIRMAN. The committee will come to order. We will continue the hearings on H.R. 9620.

The first witness this morning is Mr. Potter. Will you give your name, your address, and your connection to the reporter!



Mr. POTTER. Mr. Chairman, my name is Hugh Potter, of Houston, Tex. I represent the National Association of Real Estate Boards, and am president of that institution. It is composed of about 25,000 members now. Before the depression there were about 40,000 members, and the membership got as low as 16,000 in 1932.

The CHAIRMAN. Do you mean there are that many different boards?

Mr. POTTER. No; there are that many different members, with about 500 different boards in the various cities of the United States.

The CHAIRMAN. We will be glad to have you proceed to discuss the bill in your own way.

Mr. POTTER. My discussion of the bill will be wholly from the standpoint of the policies and the plan presented instead of the technical contents of the bill, because I had nothing to do with drafting it.

Our association wants to urge the passage of this legislation, feeling, after a study of it, that it will accomplish these things:

First, a lowering of the interest rates available to those who build homes or make repairs on homes.

Second, that it will eliminate the second mortgage, which has been an abuse in the home building field for many years, particularly in our section of the country, that is, in the South and Southwest.

Third, we believe it will relieve unemployment in the construction industry, where according to our survey, there are still 80 percent of the three and a half million men normally engaged in that business unemployed.

Fourth, we believe that there is a real necessity for more homes, particularly in the single-family field and in the lower-price brackets.

Not only does the survey that has been conducted by our association show that, but there is now coming out the first report, I believe about 25 will be available, of the real-property inventory taken by the Federal Government during the past 5 or 6 months.

Both of those collations show, speaking in round numbers, a vacancy in single family double units of about 7 percent, that the doubling up of these families who would not normally be doubled up, is also about 7 percent, and that about 3 or 4 percent of these structures are in such condition, physically, as to make them uninhabitable, for sanitary and other reasons.

These are the figures shown by the inventory taken in my own home city of Houston, and they indicate that there is clearly a housing shortage there.

We do not contend there is everywhere a housing shortage, and we know that there are certain communities in which building should not be stimulated. But we are just as sure that in many communities in the country a housing shortage is already upon us, and I feel that legislation of this type if enacted now, will stimulate a return to the construction industry of those men who are now unemployed.

In addition to those features that are in the bill as it has been presented here, the National Association of Real Estate Boards desires to suggest the inclusion of an additional feature, the details of which we have put into a draft, which I will leave here for inclusion in the record.

(The draft referred to will be found at the conclusion of Mr. Potter's statement.)

Mr. POTTER. The suggested addition that we present provides for an organization in the nature of a discount bank or corporation to function somewhat similarly to the Federal Reserve System, except in the field of long-term credit. This suggestion has been made by us before, and provides, we think, for an instrumentality which will tend to make fluid long-term funds more readily than perhaps any other device that has been suggested.

Another suggestion I want to make, which seems to me to be pertinent to this bill

The CHAIRMAN (interposing). Are you not aware that we have recently passed a bill, which is now in conference between the two Houses of Congress, empowering the Federal Reserve banks to make loans of the particular type to which you refer?

Mr. POTTER. Yes, sir. I am not interested in the Federal Reserve or any other institution making direct loans from the Government, through any of its institutions. I want to see loans made through existing instrumentalities of a private nature. I want to see mortgage companies, building and loan associations, savings banks, and insurance companies stimulated in the making of loans directly to individuals, and not the Government making loans.

I want to see set up an instrumentality which does that, and which will give to those private institutions a greater feeling of confidence, resulting, as I see it, in a loosening of the present semifrozen market.

Mr. LUCE. May I bring to your attention the fact that the very purpose of the Home Loan Bank Act was to create a rediscounting facility, and that it is now functioning to the tune of hundreds of millions of dollars.

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