Mr. POTTER. But that is a very small portion of the entire mortgage field. It is not only limited in amount, but it is of necessity unable, because of the magnitude of the field, to function sufficiently to loosen the mortgage market as I think it should be, and to cover the field of construction as widely as it should be covered.

Mr. LUCE. In my own home State it was publicly announced that $100,000,000 can be obtained for this purpose, and $20,000,000 is in hand, ready for use.

Mr. POTTER. The money available in your State, I take it, is for loans of from 40 to 50 or 55 percent of the appraised value.

Mr. LUCE. Eighty percent.

Mr. POTTER. That is not the case in my State, and whatever may be the condition in your State, I hope and feel that Congress will take into consideration the conditions in the southwestern part of the country in considering legislation of this type.

Mr. LUCE. Why should you not go to your State legislatures for legislation providing for the facilities you want.

Mr. POTTER. Because we want a national instrumentality that will function in all the States where such service is needed, without the enormous labor and delay that will come from undertaking to secure in the various States of the Nation legislation of this type.

Mr. LUCE. That is a tendency that some of us very much deplore, when, because the States will not pass the legislation that some people want they will come to Congress and get the money out of the National Treasury.

Mr. POTTER. I join with you in deploring it, but it is a fact, and we come to you because the problem is national in its scope.

Mr. LUCE. You come to us because you think it is easier to persuade us than to persuade the State legislatures.

Mr. POTTER. I would never say that is the case.

Mr. LUCE. But I say it.

Mr. POTTER. I want to leave with you as a part of this record the draft of an amendment which sets up a Federal mortgage discount corporation, and I also want to reiterate the suggestion I was making when you asked me your question, Mr. Luce, that the Home Loan Bank system be made available to all home lending institutions, and not by its terms be limited to building and loan associations, or to insurance companies, or to savings banks, but that any institution which can otherwise qualify and is bona fide, engaged in the homebuilding field, have available to it, if it can meet the other requirements of the Home Loan Bank Board, the right to become a member of that Board.

In your case, Mr. Luce, I did not know about the operations of the home loan bank and the magnitude of its operations in Massachusetts, which, of course, is good news to me, and I am glad the operations are so large. But institutions engaged in the mortgage field, other than those associations, which constitute, if you please, two-thirds of the existing mortgages on homes in this country, cannot belong to the home loan bank board under the terms of its own limitations.

Mr. LUCE. Let me ask you to put me on the track of the figures you have just summed up. I had understood that the great mortgage agencies of the country are the life insurance companies, that they

hold more mortgages than anybody else, and that next to them come the building and loan associations.

Mr. POTTER. I cannot dispute that; it may be true.

Mr. LUCE. Would it surprise you to learn that the savings banks handle only one-third of the mortgages handled by such institutions? Have you any reason to question the accuracy of those figures?

Mr. POTTER. My statement was that the building and loan associations handle approximately one-third of the present existing home loans.

Mr. LUCE. And the life insurance companies?

Mr. POTTER. The life insurance companies handle a very large proportion of them.

Mr. LUCE. There is well over one-half handled by those two institutions.

Mr. POTTER. Suppose it was 90 percent. I still think that if any of the bona fide home loaning institutions wants to come into the home loan system it should not be prevented from doing so, within the limitations.

Mr. LUCE. I agree with you, but you had said that two-thirds of the mortgages were outside of the present possibilities.

Mr. POTTER. I said outside of building and loan associations.

It happens that in our state, as Representative Cross probably knows, the insurance companies have not joined the home loan banks, for reasons best known to themselves. I do not know whether they have elsewhere, and the only institutions that have become a part of that system are the building and loan associations.

We do have in our State a large number of private institutions, sound in every respect, engaged in the home-mortgage field. I think it only right that those institutions have the privilege of membership in the system, and I take it from what you say that you agree with me.

Mr. LUCE. I always like to hear both sides of the question before committing myself.

Mr. POTTER. I know that this committee is worn out with the presentation of this proposition, and I would be happy at this time to undertake to answer questions.

Mr. WILLIAMS. What are the institutions in your State not eligible for membership in the home loan bank?

Mr. POTTER. A mortgage company engaged in the home-loan field would not be eligible.

Mr. WILLIAMS. I agree with you. I was one of the members of the subcommittee that helped to prepare the bill which was in favor of the thing you are talking about.

I was wondering what class of institutions are not eligible now under the terms of that bill. It is simply the mortgage-loan companies; is that all?

Mr. POTTER. The ones I have particularly in mind are corporations chartered in my State which engaged in the mortgage business.

Mr. WILLIAMS. What percentage of the mortgages in your State do they hold?

Mr. POTTER. I am not able to say. I can only say a substantial number of them are there; they hold a substantial number of home loans and other real property loans.

Mr. WILLIAMS. From your study of the conditions, do you think that is Nation-wide in its extent; that there are a number of institutions throughout the Nation engaged in the mortgage-loan business not eligible for membership in the home loan bank?

Mr. POTTER. That has been my impression, although I do not know whether that statement is accurate.

Mr. WILLIAMS. You say your plan will eliminate the secondmortgage feature?

Mr. POTTER. I say I think this legislation as whole, which I favor, although some features of it to me, at least, arouse my skeptical reactions, will have a tendency to, and in fact, will accomplish, where used, the elimination of the second mortgage.

Mr. WILLIAMS. To what extent does the second-mortgage feature exist in this country now?

Mr. POTTER. In my State, if I may speak, perhaps, more about that because I am more familiar with it, the practice during the past decade has been for loans to be made for 3, 4, or 5 years' duration, up to 50 percent of the appraised value of the property. That was the theory of it.

Then, because the great bulk of the people who buy homes, particularly in the lower priced field, do not find themselves in possession of an amount of money to pay for an equity, they are forced into the second mortgage field.

I believe that more than half of the homes valued at under $10,000 that have been erected during the past two decades in my community have second mortgages on them, and for those second mortgages our citizens have had to pay, I am ashamed to say, as high as 15 or 16 percent interest, which, of course, results in an excessive cost for small homes.

Mr. WILLIAMS. Under this plan, will it take care of those mortgages?

Mr. POTTER. As I understand it, new construction can be insured up to 80 percent of the present appraised value, and the difference between the 50 and 80 percent would represent what stands in the way of a second mortgage.

Mr. WILLIAMS. That will not take care of existing second mortgages, will it?

Mr. POTTER. No; there is a provision, as I understand it, which will permit the insurance of existing mortgages up to 60 percent of the present value, providing they are revamped in accordance with the requirements of this law. But I do not expect that there will be any large amount of them, of that character of insurance or guarantee.

Mr. WILLIAMS. Then it will not take care of existing conditions. Mr. POTTER. Not to that extent.

Mr. WILLIAMS. So far as the second mortgage feature is concerned. Mr. POTTER. Not to that extent; that is true.

I think the abuse of the second mortgage system will have to continue to be handled in some such way as we have handled them in the past.

Mr. WILLIAMS. You do not feel that this legislation would take care of that class of existing loans?

Mr. POTTER. Not completely; no, sir. I know that under the terms of the act, if the first and second mortgages run alone as high as 80 percent, to come within the purview of this legislation they will have to be so revamped as to reduce the total amount of obligation to 60 percent of the appraised value, and therefore it would not take care of the loans which run higher than that at the present time.

Mr. WILLIAMS. Do you think that the lending agencies of the country will take care of the real estate loans of the Nation, generally, under this act?

Mr. POTTER. I do not know. I think it is a step in the right direction.

Mr. WILLIAMs. And if so, at what rate? At what rate do you think they ought to be refinanced?

Mr. POTTER. I do not believe that in any section of the country the builder of a home should be required to pay higher than 6 percent, and I think in many sections it should be lower.

Mr. WILLIAMS. By that you mean to cover the entire expense to the mortgagor?

Mr. POTTER. Plus perhaps a nominal fee for examination of title, the preparation of title papers, and the other incidental expenses of negotiating a loan; that should be limited to a very small amount, as it is in this act.

Mr. WILLIAMS. So far as a permanent charge is concerned, in the way of interest or insurance, or penalties or fees, or things of that kind, it should not exceed 6 percent in total?

Mr. POTTER. That is my judgment.

Mr. WILLIAMS. Do you believe that the mortgage lending institutions of the country, including the building and loan associations, can and will take care of the situation on that basis?

Mr. POTTER. I would be very hopeful that they would. I think the influence of the legislation will be in that direction, but I would not like to risk a prophesy as to whether the entire problem will be taken care of by this legislation.

Mr. WILLIAMS. Are you in favor of the National Mortgage Associations provisions as contained in title II?

Mr. POTTER. I am in favor of all of the instrumentalities set up in the bill in all its sections. I am skeptical as to the success of certain portions of it, but I see no way to definitely determine whether it will function as hoped, except to try it.

Mr. WILLIAMS. Have you any knowledge as to whether or not one of them would be organized in your State if this legislation were passed?

Mr. POTTER. I think one of them could be, but whether or not it would be is an entirely different question. I do not think it would be right now. I think that feature of the act, for instance, as well as the insured mortgage feature, would probably take some time to get into operation, and that is one reason why we favor the addition of a provision for a mortgage discount corporation which, I think, would commence to function immediately.

Mr. WILLIAMS. Do you mean in addition to all the other agencies? Mr. POTTER. Yes.

Mr. WILLIAMS. You want still another one?

Mr. POTTER. Yes, sir.

Mr. WILLIAMS. I am afraid we have too many now.

Mr. POTTER. That may be, but I do not think we have the ones that will accomplish the purpose that we seek.

Mr. GOLDSBOROUGH. Under normal conditions in this country we have deposits in all our banks amounting to about $55,000,000,000. That constitutes the circulating medium of the country; it constitutes the money with which we do the business of the country, most of which is credit currency. At the present time the amount is about thirty-five billions.

In addition to that, the rapidity of circulation in normal times gives us an actual circulation of $1,200,000,000,000; at this time it is less than $500,000,000,000.

In the judgment of a great many people who have been studying this matter for many years, as long as that condition continues they feel that not only as to the farm lands of the country that are mortgaged, but also the homes that are mortgaged, if the homes were sold the mortgages could not be paid.

They also feel that switching the load of debt from one institution to another, whether it be public or private, will not make it any easier for the mortgagors as a class to pay their mortgages.

In other words, there are many of us who feel that the mortgage debt of the country, both on farms and homes, cannot be paid under present conditions, and that switching debts one way or the other will not help the solution of that large problem.

And as far as I am concerned, that is my difficulty. All of these measures, as far as I can see, are deflationary. They put the Government into the market again selling bonds. That does not create another new dollar; it simply makes society assume another burden of interest payment. It is all deflationary.

There is nothing, as far as I can see in any measures offered that will tend to raise the price level, that is, the general price level.

That is the problem. You can create all the agencies with all the letters in the alphabets, English, Greek, Sanscrit, and everything else, but until you do something with the monetary system it is all idle, and the only thing you have done is to create another bunch of job holders. That is the way I feel about it.

Mr. POTTER. So far as your comments upon the monetary system are concerned, I am in no position to deny the accuracy of your statement. I want it understood I am not advocating the usage of governmental money for building purposes in any way; that I only seek to set up instrumentalities which will tend to restore confidence to those who have money to lend, to make it easy, if you please, for one who really wishes to invest money, and there is plenty of it for investment in long-term real-estate and development securities, and to sell them when the time comes when the need is for money.

All of the institutions that are declining at this time to make loans except upon very rigid appraisals, and upon low percentages of those appraisals, are doing it, I think, because of their fear that their liquid position may be endangered, if and when another depression comes.