NATIONAL HOUSING ACT

MONDAY, JUNE 4, 1934

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

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

STATEMENT OF MARVIN FARRINGTON, WASHINGTON, D.C., REPRESENTING HOME OWNERS PROTECTIVE ENTERPRISE

The CHAIRMAN. Mr. Farrington, please give the stenographer your name and your connections.

Mr. FARRINGTON. My name, Mr. Chairman, and gentlemen of the committee, is Marvin Farrington; I appear at the request of the Home Owners' Protective Enterprise. That you may know something of my qualifications to appear before you to discuss this bill, may I say that I have been engaged in the practice of law exclusively for the past 27 years. During that time I have had considerable experience in the unamortized and straight mortgage field, on both improved and unimproved real estate. I have had some considerable experience in the construction of statutes passed by Congress, in connection with my work as assistant general counsel of the Federal Trade Commission and as a commissioner of the Court of Claims. My experience in the mortgage field was in Cooke County, Ill.

I am a resident, home owner, and taxpayer of Montgomery County, Md.

In approaching this subject I desire to do what I would say break down the bill by considering the subjects in the order in which they are set forth in the bill. The first is found in title I, which deals with the so-called "modernization program." Sections 3 and 4 cover that entirely. By section 3 you are asked to set up a Home Insurance Corporation, with capital limited to 200 million; which is to insure everything from personal banking companies, which, I take it, will include 42 percenters, insure them against loss which they may incur by reason of loans and advances of credit to home owners and others for making repairs, alterations, and improvements. We may assume, although this bill does not say so, that the alterations, repairs, and improvements must be on improved property. The bill is silent on that point.

As I follow the testimony by the proponents of the bill, both before the Senate committee and before this body, it seems to me the greatest amount of confusion has been caused by the fact that they have put in before you a skeleton; it is a bill that you can drive a

team and six through, anyway you look at it. I am looking at it from the standpoint of the home owner.

The first question arises, when you consider section 3, why the United States Government should insure loans and credits of the organizations and institutions named in this bill. You will find in the testimony before the Senate committee, if it has not been true here, a great deal that has been based upon the Twentieth Century Report, which has been referred to here, dealing with the credit extended to the consumer, and the organizations that have been engaged in that business. Generally speaking, and I am using round figures, that business runs to 10 billion a year. One of the outstanding concerns engaged in that business is the General Motors Acceptance Corporation. They did a business in 1932 of 417 million; and in 1933, which was certainly the bottom-at least we want to believe it was-they did 105 million more, or a total of 523 million. They did it on a capital of 50 million, entirely subscribed for by General Motors. They made a net dividend of 16 percent, and they paid General Motors a net dividend in both years of 12 percent. Their undivided profits run into the millions. You will find the figures given in the testimony of Arthur Gross, who appeared before the Senate committee. I have checked them against the Twentieth Century Fund, and I find them accurate. I am giving you that in connection with policy. After all, this is a bill that has been advanced in the name of the home owners of the country. We have at least 46 million of them. We have 23 million that own homes and a great many think that the other 23 million should join in determining what may be done with reference to the home, so that they have a vital interest in the thing.

This bill lets the United States Government in for an unlimited amount of insurance of this type of loans to the types of companies named, and it is not to be confined to loans made after the passage of this act, gentlemen, but covers loans and advances of credit that have been made at any time prior to January 1, 1936. It is not going to cost the companies who seek the insurance one penny. I do not believe Mr. Deane has appeared before you. We all know he drew this particular section of the bill. We all know who he is; we may know it was properly and carefully drawn, so far as the credit companies are concerned.

Mr. GOLDSBOROUGH. For the purpose of the record, just state who

he is.

Mr. FARRINGTON. Mr. Albert L. Deane, special assistant to the National Recovery Administrator in Washington, according to his testimony loaned to the National Recovery Administration.

Mr. GOLDSBOROUGH. By whom?

Mr. FARRINGTON. By the General Motors Acceptance Corporation; that is in his testimony.

Mr. CROSS. Do I understand you to say that General Motors had set up an organization from which they had gotten a dividend of 12 percent over the 2 years, 1932 and 1933?

Mr. FARRINGTON. Yes, sir, Mr. Cross; that is correct. If you would like, I would refer you to pages 184, 185, 186, 187, and 188 of the hearings before the committee of the Senate. I think it is found around pages 187 and 188 of the Senate record. Those figures I have checked up with the Twentieth Century Fund.

Mr. CROSS. Mr. Deane comes from that organization?

Mr. FARRINGTON, Yes, sir.

Mr. SPENCE. What position did he hold with General Motors? Mr. FARRINGTON. He was president of the Acceptance Corporation.

Mr. GOLDSBOROUGH. President of General Motors Acceptance Corporation?

Mr. FARRINGTON. That is my recollection.

Mr. MEEKS. I brought that out last week in interrogating Mr. Eccles.

Mr. GOLDSBOROUGH. I know, but it is just as well to have it in the record again.

Mr. FARRINGTON. You will find my statements corroborated by Mr. Deane's testimony. He was an officer in both of the corporations. I infer from his testimony that he was called upon to draw this because he was familiar with the methods by which the General Motors Acceptance Corporation did business. That business was on a vast scale, even growing during the depression year of 1933. They sell not only automobiles, which we are not concerned with under this bill, but oil burners and Frigidaires, both of which become a part of an improved home and are otherwise conveniences.

So that you may further understand that General Motors Acceptance Corporation is interested in this particular bill, I will read at the bottom of page 33, where, after being interrogated by Senator Bulkley with reference to the methods by which they did business, and acquiescing in the Senator's request that he file a certain form which they submit to customers, he said:

Yes; we can do that. I mean we have the forms, of course, in this other type of financing, and we are preparing forms that could be used for this, which would have to be somewhat different.

In what way will they have to be somewhat different? Mr. Deane tells us that the General Motors Acceptance Corporation does business on the basis of 15 percent true interest. I have respect for the candor and frankness of Mr. Deane, as compared with Mr. Brown, who testified before the same committee, Mr. Brown being president of the Johns-Manville Corporation. Mr. Deane says in the evidence that his corporation does business on a 15-percent basis.

You may search sections 3 and 4 and you will find nothing as to the precise modus operandi by which this insurance of credit is to be made. It is not here; it is in the plan. The plan was prepared by a number of estimable gentlemen, and then it was boiled down by attorneys; they got rather a long bill, but they concluded not to put that in. Mr. Reifler told the Senate committee-and he is next in importance to Mr. Deane, when you consider this legislation-that the reason they gave you the skeleton bill was because there was danger in too much restriction if they gave you the detailed bill. From the standpoint of the home owner, it does not make a whit of difference whether they give the skeleton or the detailed form, as I will show when we come to that in a little while.

Mr. GOLDSBOROUGH. Mr. Farrington, has there been any evidence anywhere or anything said which would indicated that any member of the Committee on Banking and Currency of the Senate or of the House, throughout this entire period when this bill was in its formative stages, was consulted by anybody?

Mr. FARRINGTON. There has been nothing; I have found nothing in the record of the Senate committee, nor have I here in this committee. I can go a step further; of all of the persons mentioned who framed the first plan, and then the bill, there has not been a representative of any home owners' organization or any outstanding man who was acting for the unorganized home owners. The bill has been prepared by and with the advice of men who have had very much experience in this installment financing business. It is a big business; it is tremendous; I am not going into the question of whether it is good or not. Personally, I do not think it is. I am trying to keep myself within the limits of an attorney for the Home Owners Protective Enterprise, because I am not an officer of that organization. I am endeavoring to present their theory of the bill as it is proposed, in its effects upon the home owners.

The insurance does not cost a penny; the United States Government is to issue that to such of the corporations named, financial institutions, as present themselves and are found acceptable by the board. The business that is done by such concerns as Johns-Manville, Standard Sanitary, American Radiator, and so forth, is done on a considerably higher basis in cost to the home owner than General Motors Acceptance Corporation charges in connection with its frigidaires or oil burners. They do business on a true 15-percent basis. Johns-Manville do it on a true 22.8-percent basis per year, on the basis of 1 year.

Mr. Brown testified before the Senate committee that the total charges of that company were 12 percent. As I spoke a moment ago about the candor of Mr. Deane, he said it is confusing to talk about true interest, because that is not the way it is done. Before the Senate committee I offered in the record, and it is printed in the record, the pamphlet put out by the Johns-Manville Corporation, entitled "One Million Dollars to Lend." I have no desire to expand your record here, but I call your attention to the entire pamphlet as it is printed in the Senate record; I assume that will be sufficient.

The CHAIRMAN. Let it go into the record here.

(The pamphlet referred to, entitled "A Million Dollars to Lend. The New Johns-Manville Non-Recourse Deferred Payment Plan" is as follows:)

A MILLION DOLLARS TO LEND! THE NEW JOHNS-MANVILLE NONRECOURSE DEFERRED PAYMENT PLAN

A MILLION DOLLARS TO LEND TO PEOPLE WHO BUY FROM YOU

(Charts accompanying this pamphlet will be found on pp. 431-435) Two years ago Johns-Manville announced a deferred payment plan to its dealers a plan operated by Johns-Manville itself, independent of finance corporations or other lending agencies. This plan has brought amazing resultshas been instrumental in closing hundreds of thousands of dollars worth of business for you and your carpenter-contractor customers. It has proved an indispensable tool in selling home repairs and remodeling during times like these. Now JohnsManville has taken another important progressive step-goes all the wayand makes the J-M deferred payment plan a nonrecourse plan. This new plan is simplicity itself. Not even a rate chart is necessary. It involves no cost of any nature to dealer or contractor, Johns-Manville assumes all the expense, including the credit risk.

Then

The news of this easy way to buy home remodeling is being told to your customers in a Nation-wide advertising campaign, and you can easily reap its benefits. Read over carefully the details of the plan in this booklet. apply today to the nearest J-M office (see inside back cover) for an application form and any further details on this plan which you may want. The JohnsManville representative will be glad to help you get started.

DEFERRED PAYMENTS-BUILDERS OF EXTRA PROFITS

We have long recognized the vital need for a sound deferred payment plan, especially adapted to the requirements of the building materials industry. It has required much time, investigation and research to provide a plan which would overcome the many objections to hitherto existing financial programs. At last it's here a deferred-payment plan operated and financed entirely by the manufacturer with no expense of any nature to dealer or contractor, and with the manufacturer assuming the full credit risk.

No contingent liabilities-no recourse to dealer or contractor. He can't lose. Sound deferred-payment plans have long been recognized as builders of extra sales volume and profits on durable goods. As you well know, many of the important industries are today merchandising from 50 percent to 90 percent of their entire production on deferred payments. But while American industry has already recognized tremendous sales possibilities through deferred payments some leading economists have questioned the soundness of these plans from a financial standpoint. Now, for the first time, deferred-payment selling has passed through the acid test of subnormal business conditions and has emerged triumphant. The records of the Nation's leading finance companies show that, even during depression, deferred payments are met with remarkable promptness and with a minimum of bad debt losses.

A very large and increasing percentage of homes are purchased with a comparatively small amount of cash and financed through one or more mortgages with provision for the reduction of the principal through periodic payments.

If it is sound for a man to purchase his home on deferred payments and no one will deny that it is-it is at least equally as sound for him to provide for the proper maintenance or improvement of his home in the same manner. When he does so, he does not really make an expenditure but adds an investment, maintaining or increasing the value of his property as well as adding to his comfort. From the industry standpoint there is every reason for using deferred-payment selling widely in the field of home improvements. First, because there is a truly tremendous market in the remodeling field, the surface of which has been barely scratched- -a market which ordinary sales methods cannot hope to touch.

Second, the financial responsibility of a home owner is usually considerably more reliable than that of a man who rents his home. The mere fact that he owns his home and has a reasonable equity in it is evidence of industry, thrift, and per

manence.

Third, the home owner has already learned the advantages of deferred payments through the active solicitation and advertising of the manufacturers of electrical appliances, automobiles, radios, etc., and is, therefore, entirely receptive to the presentation.

There never has been a time in the history of the building-material industry when there has been so great an opportunity for the sale of building materials for repairs and remodeling as there is today. Much needed repairs and greatly desired improvements have been deferred during the prolonged period of business decline to the point where action has become a question of absolute necessity. Proper financial arrangements are all that is necessary to convert this dormant market into immediate and profitable sales.

Read what Johns-Manville, interested only in assisting you to sell more JohnsManville building materials-not in making a profit from the financing-has done to increase your business and insure its profits.

Johns-Manville accepts the leadership expected of it in the building-materials field and offers you for the first time a sound financing plan, backed by its entire resources and its many years of experience in the building field.

WHAT THE PLAN IS

1. Johns-Manville does the financing.-Not a disinterested finance company concerned only with making a profit from the financing. Johns-Manville's interest is in creating extra sales for its distributors and not in profiting through a finance plan.