NATIONAL HOUSING ACT

FRIDAY, MAY 25, 1934

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C.

The committee met at 11 a.m., Hon. Henry B. Steagall (chairman) presiding.

The CHAIRMAN. Gentlemen, the committee will be in order. Now, I believe that we agreed in our discussion at the former hearing that the four gentlemen who made their statements could be interrogated later. Among them was Mr. Fahey, and I want to permit Mr. Fahey to supplement his statement if he desires to do so, and then we shall be ready to cross-examine gentlemen who have appeared before the committee in the order named. I agreed with Mr. Hopkins that he need not be here today.

I believe you called attention to a chart, Mr. Fahey, when you were before the committee, and I suggest that you supplement your former statement by including that chart in your statement today. STATEMENT OF HON. JOHN H. FAHEY, CHAIRMAN FEDERAL HOME LOAN BANK BOARD

Mr. FAHEY. Mr. Chairman and gentlemen, when I appeared before this committee I made some reference to the tendencies of the foreclosures in the country over recent years; also, to the issuance of building permits for housing; and also to the issuance of bonds in the refinancing of mortgages by the Home Owners' Loan Corporation. The Senate committee asked me to give them some more definite statements on those three points. And so we are finishing two charts and a table which give that table in very complete and graphic form and, with your permission and for the interest of the committee, I would be glad to send copies of those charts up here, which I am sure you will be glad to have, and they can be included in the record if you desire.

The CHAIRMAN. We shall be glad to have them, and I suggest they be incorporated in your statement before the committee at this point.

Mr. FAHEY. Yes, sir.

(The material referred to is as follows:)

Mr. LUCE. Mr. Chairman, reference has been made to the lack of private funds with which to secure more construction. Let me inform you-possibly you already have the information-that the 200 or more cooperative banks in our State have sent out, or at least

they have sent me a statement to the effect that they have $20,000,000in hand that they can lend; that there is $30,000,000 more quickly to be secured, and $100,000.000 more which can be raised in no long time. It would look as if the problem was not lack of money, but the lack of borrowers. A little incident with which I am personally familiar may illustrate the general situation: As a trustee I have in my hands a set of 4 houses in the best location of the city where they are situated, and one of those tenements I cannot rent; it has been idle for months. People apparently do not want new houses. How are we going to get around that condition by any legislation? Mr. FAHEY. I think, Mr. Congressman, that it depends upon conditions in particular communities. What is true of the State of Massachusetts certainly is not true of the United States as a whole. Moreover, it certainly is a fact that the condition to which you refer has not obtained until within recent months.

Moreover, if we are informed correctly, as the result of a recent meeting of cooperative banks in Boston, a release was given to the newspapers outlining some of the facts to which you have referred. We are told that the immediate result of it-at least, in the metropolitan area of Boston-was the application for some hundreds of loans, and examination of which indicates that a substantial part of them are what are commonly referred to as "good loans."

Another incident: In one of our large cities a single Federal savings loan association was given a charter, and there was a brief announcement of that in the newspapers. Within 3 or 4 days they received over 400 applications for loans, both for refinancing and for reconstruction, and some for modernization. The president of that association stated to me 10 days ago that, as they have proceeded with the examination of those examinations, they have found more than 75 percent of them good applications.

In that same area the savings banks, with plenty of money, and the building and loan associations, with money to loan, have been practically inactive, except within the last few months, so far as the releasing of any money is concerned. Within a few days after the announcement of the charter of this one loan association, several of them proceeded to loosen up in the matter of loans and began offering money. One of them, we know, although having some millions of dollars of cash idle, made loans last year of less than $75,000; and that institution has something like $34,000,000 or $35,000,000.

Now, that condition has existed in various other parts of the country.

Let ine illustrate it in another way: In attacking the problem of closed banks in the country, the Home Owners' Loan Corporation sent its own representatives into the various localities to deal with the problem presented by the loans in closed banks. At that time we endeavored to list and did list the cooperation of open banks and the insurance companies to take a certain part of the loans, instead of the Home Owners' Loan Corporation taking them-I mean all that they could take. And we were unable to get any response that was worth while. That situation has changed within the last 30 days; and in establishing contacts we have now begun to work with them in various directions to take over those loans which they regard as good loans, but which only a few months ago they were unwilling to consider.

Now, the other side of it is this: Now, our experience shows, clearly enough, that in many sections of the country there is a demand for money for modernization purposes, which the community is wholly unable to supply. The banks, in some instances-at least, until now-have not had surplus funds available, and such as they had they appeared unwilling to use. It seems to us that that attitude has changed very substantially as the result of the insurance of bank deposits and the flow of money back into the banks where it is piling

up.

Now, as you know, the modernization section of this bill is intended to encourage the use of that money freely, while at the same time leaving the responsibility for a proper checking of such loans, and making such loans, on the financial institutions themselves.

May I say further, that, of course, the situation now, as always in some of the Eastern States, with reference to the accumulation of money for mortgage lending is quite different from what it is in the country as a whole. For a great many years, as you know, the savings have accumulated in Massachusetts, and mortgage rates have been low, and it has been comparatively easy to get money for mortgages on homes. But when you got outside of a certain number of States, no such freedom of action exists as existed back over the last 10 or 15 years.

Mr. CAVICCHIA. Mr. Fahey, I am surprised to hear you say that money can be had readily in Massachusetts. I know that such is not the fact in New Jersey. The savings banks have a lot of money on hand, but they are afraid to lend it out on mortgages. And with that being true, and the mortgage companies being in the hands of receivers, it is not any easier today than it was 3 or 4 years ago to get any money. Building and loan associations cannot supply the need. So I am much surprised to hear Mr. Luce say that there is plenty of money there in Massachusetts in the banks for mortgage purposes.

Mr. FAHEY. Please do not misunderstand me. I did not mean to say that the money was to be had readily. What I said was that it was there. But I did not intend to indicate that it was to be had readily, even in Massachusetts; that would be a misconception of my meaning.

Mr. CAVICCHIA. Do you mean that these banks have money on hand but they are afraid to lend it on mortgages?

Mr. FAHEY. They certainly have been up to the present time. I say the attitude in that respect is changing, in the areas where that money has accumulated.

Mr. GOLDSBOROUGH. Mr. Fahey, as I understood, in the course of your argument the other day, the gist of it was that the Home Owners' Loan Corporation found that its resources would be utterly insufficient to take care of applications that were being received; and if that is true then it seems necessary to subsidize mortgage companies and building and loan associations, in order for them to be induced to make what would ordinarily be considered conservative loans; and with that in view, your recommendation was that they should be subsidized, if necessary, up to 20 percent. Is that about a fair statement?

Mr. FAHEY. Yes; with this supplementary statement: You authorized us, in the case of the Home Owners' Loan Corporation, to set

aside out of our resources $200,000,000 which we might use for the modernization of homes where we were to refinance the mortgages. We are not allowed to go outside of that. Consequently, we cannot deal with any applications for money for modernization, except in connection with the taking over of mortgages.

Now, of course, that touches only a part of the community where the demand exists. The rest of the field is left wide open. Consequently, because of the demand which we know exists in some localities-information coming to us shows it clearly enough—it seems to us that an effort should be made to induce the private lending institutions to take care of that situation.

Now, so far as guaranteeing those losses are concerned, our conviction is that the losses are not likely to be very large. We do not feel that there will be any such margin of loss as that provided in the bill. That margin was provided only to make assurance doubly

sure.

Mr. GOLDSBOROUGH. As I remember the testimony of yourself and the other witnesses, it was to the effect that the policy of the bill was to confine these loans to very conservative prospects; there was no disposition, insofar as this particular legislation is concerned, to be liberal.

Mr. FAHEY. To be liberal?

Mr. GOLDSBOROUGH (continuing). In the loan parts.

Mr. FAHEY. Well, obviously, it would not be sound policy to induce people to incur obligations of this sort; they have no chance of discharging. The purpose should be, however, to make the money available to those who desire it and who have every reasonable chance of taking care of the obligation within the 5 years provided for.

Mr. GOLDSBOROUGH. Yes; well, I fully agree that, to loan a man money who is not in a position to return it is not doing him any favor. But in view of the fact that this policy is to be conservative and along the ordinary business lines, do you think it is economically sound for society to subsidize loaning organizations under any circumstances?

Mr. FAHEY. Under ordinary circumstances, no. We are, however, dealing with extraordinary conditions. In my judgment, it is a far better policy to risk the comparatively small sum of money involved here to induce employment and stimulate and encourage really constructive work, as against facing the possibility of appropriating another $500,000,000 or $900,000,000, or $1,000,000,000, to maintain people in comparative idleness through the P.W.A. In my personal judgment, it is far better to have our carpenters, and our bricklayers, and our plasterers, and all the other workers of the building trades, engaged on truly constructive work, than to have them raking leaves, or helping to widen streets, and do a lot of things that they are not accustomed to do at all, and doing them on a more or less luxury basis, in other words, your "make work " program.

Mr. GOLDSBOROUGH. Well, of course, there would not be any serious disagreement between you and me on that score. That is not the issue I was raising. The issue that I was raising was whether or not these private loaning organizations have the funds, and if the intention is that they shall confine their operations to legitimate loaning operations why they should be subsidized at all by society? It is a