A further objection to section 5-and as I say, I am considering section 5 and title 2, because they go together there is no need of this legislation at this time, because it is intended primarily for new construction. And yet the testimony of Mr. Walker himself is that there is no need for it; he says it is spotty, and Mr. Deane agrees with him in part. In order that we may be sure that the plan in section 5 is for new construction, we find it in the language where they discriminate by at least 20 percent between new construction and the existing home. There is not a line in the bill respecting this low-cost housing project. I have used the exact language.

Mr. GOLDSBOROUGH. Do you know who originated the name "housing bill"? It has been propagandized all over the country, and I heard last week several Members of the Senate, at least, express their difficulty in opposing the bill, not because they were not opposed to the matter of the bill, and not because if the people of the country understood the matter of the bill they would be opposed to it, but because this insidious name, "housing bill ", had been propagandized to such an extent that a false impression as to the terms of the bill and its operations has been created in the public mind. It is interesting, in connection with this measure, as in many others, to find out who hatched the name.

Mr. FARRINGTON. Mr. Goldsborough, I could not answer you of my own knowledge. I note, however, a letter from Mr. Fahey to Senator Fletcher, at page 14 of the Senate hearings, in which he refers to a summary of the internal debt situation of the United States as it was printed in the Graphic Survey in June of 1933, and he encloses a copy of that article. That is a complete outline of the whole bill and the plan.

Mr. GOLDSBOROUGH. I mean the name "housing bill"; who originated that name?

Mr. FARRINGTON. I cannot tell, but it did appear as early as June 1933.

Mr. GOLDSBOROUGH. Do you think it has any fair application to this legislation?

Mr. FARRINGTON. As I have tried to convey, this entire bill is not framed in the interests of the home owner. While we are all willing to agree that there is some need for home repairs, and confining it entirely to the first part of the bill, this bill does not help the home owner to accomplish it, as we have been told by the testimony of the very men who framed it; it has been done by those who have been looking at the problem from the financing end of the thing. There is not the slightest thing in it for the benefit of the home owner for his protection.

Mr. GOLDSBOROUGH. The committee will now adjourn until 3 o'clock.

(Thereupon, at 12 noon a recess was taken until 3 p.m. of the same day.)

AFTER RECESS

The committee reassembled, pursuant to the taking of recess, at 3 p.m., Hon. Henry B. Steagall (chairman) presiding.

The CHAIRMAN. You may proceed with your statement, Mr. Farrington.

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

Mr. FARRINGTON. Mr. Chairman, when the committee took a recess we were discussing section 5. I desire to go back and pick up one or two thoughts in reference to section 3 in reference to modernization.

This bears upon the character of financing corporations that can engage in the repair campaign. While they include building and loan associations as among those to be insured under that section, it is obvious that building and loan associations cannot engage in this campaign because they are required to have first liens only.

When this particular subject was under discussion in the Senate committee hearings Mr. Deane, testifying at page 37 of the Senate. hearings, engaged in this colloquy :

Senator BARKLEY. Whoever advanced money for such a home would have to take a second mortgage. He could not take one prior to the one already in existence.

Mr. DEANE. No; but there is no second mortgage, no mortgaging required in this thing. See what I mean?

Senator BARKLEY. Yes; that is true. That is, it is not a specific requirement. Mr. DEANE. It is not a specific requirement.

Senator COUZENS. Is it a lien upon the property?

Mr. DEANE. No; however, I think, by reason by certain State laws, a building and loan association loaning money under this plan would have to take a second mortgage. The chances are that they would simply take that instrument and put it in their files.

That comes from the author of this particular part of the bill, and you know, gentlemen of the committee, nothing like that would be done. The answer is that under the bill as drawn, with no liens to be taken, a building and loan association will not be able to engage in any part of the repair program.

Another feature I overlooked this morning was to tell you when the insurance matures on these repair loans. I know of no better way of finding out what the thing means than to take the words of the man who framed the bill.

And again I refer you to Mr. Deane, testifying at page 41 of the record of the Senate hearings. This is the way your insurance matures. This is what Mr. Deane said:

If the item was defaulted the local banking institution would take the normal steps to find out why it was defaulted, get in touch with the purchaser, and so forth, and if it got to the point where they determined that collection was impossible to make, they would have to take the necessary steps to reduce it to judgment; not necessarily secure judgment, for the reason that under some States today it would take 2 or 3 years to get a judgment. But they would have to take the first steps to reduce it to judgment. The minute they had done that they could make claim on the insurance company.

Which, of course, is the Home Credit Insurance Corporation set up here.

Under the method of doing business by firms like the Standard Sanitary Co., and the American Radiator Co., liens are taken; but the John Manville Co. does not take any liens, but the General Motors Acceptance Corporation does take a lien.

Referring again to the General Motors Acceptance Corporation, which I referred to this morning, I want to call your attention to

what seems to be an omission on page 187 of the Senate hearings, where the heading, "General Motors Acceptance Corporation is left out as to the figures respecting the profits of that income for the 2 years of 1932 and 1933.

You will recall this morning I did not have at my tongue's end the amount of the undivided profits for those 2 years, and this is really interesting.

For 1932 it was $9,490,000, and for 1933, the real slump year, it jumped to $14,360,000. I mention that because they are the beneficiaries under section 3 of the bill.

Now, if I may, I will go to section 5, and again I refer to the author of that section, because it is Mr. Riefler. At page 52 of the Senate hearings it is Mr. Riefler who is testifying, telling about section 5. He is telling how the insurance of the amortized mortgage will work. He said:

To make new mortgage money effective, and to get resumption of activity in the mortgage market, we are proposing to set up an insurance feature to insure the lender on the best type of home-mortgage instrument. These will be model home-mortgage instruments, and not distress instruments. In other words, any lender will be able to apply for insurance of a home mortgage which comes within the standards set up. The standards are designed to be the highest type.

As I told you this morning, in connection with regimentation, I invite your careful perusal of Mr. Riefler's testimony before the Senate committee, because there it sticks out all over the testimony as to what is going to be done by the board, and the plenary power provided by Congress for that board.

Mr. Riefler, continuing, said:

In the first place, the lender himself must be one who is satisfactory to the board that is running this. We want to be sure that the lenders are accredited institutions who are capable of servicing a loan properly, and who are not engaged in speculative building.

In the second place, the mortgage itself must be a home mortgage on an owner-occupied home, except for the slum-clearance features, which I will describe later. But the general residential home mortgage must be a home mortgage on an owner-occupied home, in which the owner also meets the sound credit standards, similar to those Mr. Deane described in connection with the rehabilitation-credit instrument.

In the third place it must be an amortized mortgage. It must provide in its terms for a complete repayment over a period of years, so that it will not come up for renewal and it will not be subject to renewal charges of any kind. That is, the owner gets the mortgage and agrees to pay it off. You would remove from the mortgage market the problem of meeting maturities and renewals, and also from the borrower the expenses and fees that go with that.

In

Finally, because of its insurance feature, because it is an insured mortgage, the interest rate must be lower than now is prevalent in the market. general, we think that this type of mortgage, particularly in the East, where mortgage money is more plentiful, will sell for around a 5-percent interest rate. In certain sections of the country, where money is scarce and mortgage rates are particularly high, we are permitting it to pay as high as 6 percent. Senator Adams asked this question:

Senator ADAMS. What type of charge, if any, will be made for the insurance? Mr. RIEFLER. The insurance feature is worked out on a net cost to the borrower. This insurance does not cost the Government anything, except that the Government underwrites the whole transaction. What happens is that the borrower will pay to the lender, who will transmit on to the insurance corporation, a charge of usually 1 percent on the original outstanding value of the mortgage each year. That will be segregated in a separate insurance fund. That is a very high interest rate, but it will be segregated in a separate insurance fund with the insurance premiums of other mortgages of similar risk

characteristics, of the same year of maturity, the same general residential type of property, and the same general locality, and the same appraised value of the property, so that the risks will be segregated. Any loss on the fund will be charged against that particular segregated risk fund.

Then a little farther along Mr. Riefler continued:

That high rate is for the protection of the Government, but in the end it is no more than the actual cost of the insurance. The way this would work out is that any lending institution can apply for this insurance on their prime loans. They bring it in, and the mortgage must conform to these requiremetsamortization in not more than 20 years; an interest rate in general of not more than 5 percent, although 6 percent will be allowed in those localities where the mortgage market demands it. The property must be of a kind which is beneficial to the market and does not lead to overbuilding in a particular area. The borrower must be an owner-occupant who is of good financial standing in relation to his loan. If that happens, they can insure the property with this Government Insurance Corporation. The borrower will pay to the lender-the whole insurance is between the lender and the corporation-the lender and the borrower maintain all of their existing relations, except that the mortgagee turns over to the insurance corporation the insurance premium each year. If the property gets into default, the lender can still foreclose or defer foreclosing, as he does at present. There is no compulsion on him to realize on the insurance fund.

Now, all of this, gentlemen, is not in the bill. It is in the plan, and the plan calls, as we have heard testimony on, for 5-percent money, with a 1-percent insurance premium.

Now let us take up that part of section 5 again and let us see what happens when this insurance matures.

At the bottom of page 53 of the Senate hearings, Mr. Riefler, continuing, said:

There are the plans.

That is what he has been telling the committee.

These are the rules and regulations. At the same time the mortgagee will submit a certificate of claim for his extra expenses in connection with foreclosure;

that is, if he elects to collect on his insurance.

Mr. Riefler goes on to say:

And when the property is sold by the insurance corporation, or realized upon, they will honor those certificates of claim if the property gives enough to honor them, and if it does not, they will honor them up to their own participation in the sale. Suppose a property is mortgaged for $15,000. The mortgage is insured for $10,000. After 5 years this mortgage becomes delinquent. It is then amortized down to, say, $8,000. The mortgagee turns the property over to the corporation and receives a debenture for $8,000. He also puts in a claim for $800 additional costs of foreclosure and expenses incurred in connection with the foreclosure. He will get, on turning over the property on this insured mortgage, a debenture yielding not more than 3 percent and maturing 3 years after the mortgage would have matured; that is, in that

case

the case he is speaking of—

maturing in 18 years-for $8,000. He will also get a certificate of claim for $800.

If the property is sold

that is, sold by the insurance corporation, of course

for $9,000, the insurance fund reimburses itself for $8,000, honors the certificate of claim for $800, and turns $200 over to the original owner. If the property should be sold for only $6,000, however, and the insurance fund takes a loss, they would then honor that certificate of claim for only $600 instead of $800. They would honor it out of the insurance fund, but prorate it with their own participation.

Those are all very splendid plans-maybe. But they should at least be incorporated in the bill if Congress is going to pass this kind of legislation.

You will find through his testimony the claim is made for it that it will stimulate reemployment. And yet you will find both Mr. Walker and Mr. Deane telling you, quoting Mr. Walker

I think one is just merely hazarding a guess when he says how many people can be brought back to work by the use of these funds. I do not think that one could give an intelligent estimate.

So much for all this talk about what this bill, particularly section 5, will do by way of reemployment. When Mr. Walker was speaking he was speaking not only with reference to the campaign for amortizing mortgages but also the campaign for repairs and modernization. It is problematical; nobody knows. There has been a great deal of loose talk, and it appears in the colloquy between Mr. Deane and Senator Barkley about 5,000,000 men being put back to work, and finally Mr. Walker has to come to the rescue and explain that that was an estimate; that that was the number of men involved in the building industry, and when asked to give an estimate of how many were going to be reemployed, no one can do it.

Mr. SISSON. In reference to the testimony you referred to as to the amount of $800 which you say was given as an estimate, was that the estimated cost of the expenses of foreclosure?

Mr. FARRINGTON. I judge it was. It was Mr. Riefler giving an illustration as to when and how the insurance would mature under section 5.

Mr. SISSON. But the $800 was given as the estimated cost of the expenses of foreclosure of a $8,000 mortgage?

Mr. FARRINGTON. That is correct.

Mr. SISSON. Of course, that would be a very liberal estimate.
Mr. FARRINGTON. Very.

Mr. SISSON. In most cases it is limited by statute to very much less than that.

Mr. MEEKS. Would it be an overestimate? A lot of fees would be allowed in a foreclosure that are not recognized in our State by statute.

Mr. PRALL. There is no doubt in your mind that if this bill became a law it would not help to relieve unemployment materially, is there? Mr. FARRINGTON. Not the slightest doubt in my mind.

Mr. PRALL. You would not have the committee believe that, because you cannot estimate, nor can anyone else, whether it will be five million or three million, it would not be a great accelerator in putting men back to work?

Mr. FARRINGTON. No; I would not have you believe that, but I cannot see it. I have tried to point out

Mr. BROWN. I think you did not understand Mr. Prall's question. Mr. PRALL. I will ask the reporter to read my question and the answer of Mr. Farrington.

(The reporter read the question and answer as above recorded, as follows:)

Mr. PRALL. There is no doubt in your mind that if this bill became a law it would not help to relieve unemployment materially, is there?

Mr. FARRINGTON. Not the slightest doubt in my mind.