These associations have borrowed many millions of dollars from local banks, but no bank, so far as we know, has ever lost a penny on such loans. The extremely narrow margin of profit on which these associations operate makes it almost, if not entirely, impossible for them to pay for the sort of State supervision which would have any effect in increasing the safety of funds invested in their shares. The record of the Maryland associations, extending over more than half a century, in so far as safety of funds invested in their shares is concerned, is far better than that of the State supervised associations in many other States-certainly far better than the record of banks subject to State and Federal supervision from the standpoint of losses to investors or depositors. Practically all of the very few failures of small building associations in Maryland have been due to causes which could not have been prevented by the sort of supervision provided in most States. More money was lost in the failure of a single small State supervised bank in Baltimore in 1931 than has been lost through all building association failures in the State during the past ten years. In view of these facts and the fact that one of the proposed amendments gives the discount bank board unlimited power to inspect and supervise institutions applying for membership, it seems to us that the Government as well as all other stockholders would be justified in recognizing the existing laws of the various States as being adequate. After this barrier comes another which, unless removed, would be just as effective in depriving most of the mortgage loan institutions of Maryland of the privilege of participating in the benefits of the proposed discount bank. Ninety per cent of all the mortgages in Baltimore on small homes are subject to what are known as ground rents, and while we consider these mortgages as first mortgages, we are certain that from a technical standpoint these liens could not be construed as first liens under the provisions of the bill. A ground rent is not a mortgage, but represents a lease for ninetynine years, renewable forever; and all such leases made on residential property since 1888 are redeemable at the will of the leaseholder on 30 days' notice after a period of five years at a price arrived at by capitalizing the definite annual ground rent at 6 per cent. The only practical effect of these ground rents is that they increase the annual carrying charges on the property. The same practical result would be presented if the city should at any time increase its tax rate to a comparable degree. In loaning money on these leaseholds, it is the practice of building associations to deduct the capitalized value of the ground rent from the amount which would be loaned on the same property in fee simple. In addition to this, the associations require the borrower to include in his weekly payments a pro rata part of all taxes, public charges, and the ground rent. This plan of financing the sale of small homes has proven safe and sound over a long period of years. It represents a local custom of long standing; difficult if not impossible to change. Certainly in view of the splendid record which our building associations have made in loaning money on these mortgages and the fact that the discount bank could not loan in excess of 60 per cent of the balance due on such mortgages, there would be no possibility of loss to the discount bank on such loans. Mr. LUCE. I think there is a provision to take care of that in the bill. Mr. KARR. I have studied over the amendments. I have not seen the new draft of the bill. Mr. LUCE. I will ask Mr. O'Brien to assure you of that. Mr. KARR. Mr. O'Brien knows my views, because I spoke before the Senate Committee; and I have sent over to Senator Goldsborough and to Mr. Goldsborough, our Representative. Mr. LUCE. According to your statement you would not have much use for the bill at all as it is. We will certainly try very hard to fix that. Probably Mr. O'Brien can call your attention to that. Mr. KARR. If the bill does not take care of that, may I have the privilege of putting into the record our views on that subject? Mr. REILLY. Yes. Mr. KARR. The proposed amendments as submitted on behalf of the Real Estate Board of Baltimore and the Maryland League of Building Associations. Their committee on home loan banks bills is composed of the following: Robert G. Merrick, chairman, president Maryland Title Securities Co. Wm. S. Dubel, president Maryland League of Building Associations. Morris Macht, home builder. Morton, Prentis, president First National Bank. Chas. H. Roloson, jr., president Central Fire Insurance Co. Maurice E. Skinner, attorney West Baltimore Building Association. C. K. Wells, jr., home builder. Anton Svejda, secretary Bohemian American Building Association. (Whereupon, at 12 o'clock noon, an adjournment was taken until Monday, March 21, 1932, at 10.30 o'clock a. m.) CREATION OF A SYSTEM OF FEDERAL HOME LOAN BANKS MONDAY, MARCH 21, 1932 HOUSE OF REPRESENTATIVES, The committee met, pursuant to adjournment, in the caucus room, House Office Building, at 10.30 o'clock a. m., Hon. Michael K. Reilly (chairman of the subcommittee) presiding. Mr. REILLY. The committee will be in order. We will this morning hear Mr. Bodfish, to conclude his statement commenced last Friday. STATEMENT OF MORTON BODFISH-Concluded Mr. BODFISH. Mr. Chairman, on Friday, on behalf of the United States Building and Loan League, I covered some five or six points. Also I stated that: (1) The bill in our judgment, with the exception of some very incidental perfecting amendments which we had submitted, and we are urging, was in excellent form. (2) There was a desire on the part of building and loan associations to have the measure drawn on a conservative, sound basis, so that you would have none of the problems that you have had with one of the other financial systems. (3) We desire to emphasize the point of view expressed by the President in his point No. 4, in which he desired that this system be so set up that it would encourage home financing largely of the type that was now being done by building and loan associations. Before speaking specifically to the bill, I do want to answer, for the benefit of Mr. Williams and the inquiry that he raised at the beginning of the testimoney. He inquired as to the number of financial institutions in the country which would be eligible to participate in this system, and I have brought with me this morning the report of the Comptroller of the Currency, in which it is indicated that there are some 13,000 banks-State banks, savings banks, and institutions of that character. By the way, for the benefit of the reporter, that appears on page 3 of the Report of the Comptroller of the Currency, 1931. On page 117 the number of mutual savings banks summarized, with supporting statistics, of which there 654. On page 143 of the report of the Comptroller of the Currency there is a sumary table of building and loan statistics, indicating that there are 11,777 building and loan associations, and it shows there distribution by States as follows: BUILDING AND LOAN ASSOCIATIONS IN THE UNITED STATES Statistics relative to all building and loan associations in the United States have been obtained through the courtesy of the secretary of the United States Building and Loan League, with headquarters at Cincinnati, Ohio, and are published in the following statements: Number of building and loan associations, total membership, and total assets, etc., for the year ended in 1930, by States 8. Indiana. 398 429, 447 306, 870, 182 1 5, 460, 102 6,094, 556 1 14,753, 601 175, 901 662, 541 1, 135, 722 867, 295 2. 866, 554 1,066, 215 2, 433, 196 1 1, 292, 790 910, 998 890, 007 305, 818 195, 142 11, 823 15,767 162, 416 27,500 2,767 1 20,926 1,454 16, 257 13, 566 1 1.950 1 27,638 13, 120 11,655 12, 400 5,028 19, 143 3, 210 1,730 4,831 922 12,554 13, 484 18, 500 2,459 1,000 11, 160 1,000 5, 192 1,000 1, 435 500 3,800 13,000 1 606 1,648 60, 438,950 19, 063, 250 33, 294, 374 21. 649, 950 18, 587, 734 1 10,679 1 31,273 200 462 400 12,350 303 46. Idaho... 14 8,565 11,767 Total.. 12, 336, 754 14, 174 11, 777 12, 350, 928 8,824, 119, 159 Mortgage loan investments of building and loan associations, by States Mr. REILLY. How many are there in your organization? Mr. BODFISH. Our organization represents over half of these associations. We have some 44 State leagues affiliated with our national building and loan associations, which include in all over 6,000 building and loan associations. Practically all of the other institutions Mr. LUCE. What is the total of national and State banks? Mr. BODFISH. National banks 6,805; State banks, loan and trust companies and savings banks 13,728, mutual savings banks 600, and private banks 284. Mr. LUCE. About 20,000? |