If these amendments, or their substitutes, are not effectuated, we think it far safer for national advancement that no urban bill be passed.

With no governmental relief furnished, the mortgagees may be forced to abstain from any foreclosures by a moratorium or in self defense. With partial aid for the poorer types he will certainly recourse to foreclosure in the better types, and that strikes directly at the most thrifty.

We seriously feel that class discrimination that the proposed bill includes, even though unwittingly, will result in such social chaos that no governmental relief at all would be far preferable to that which would relieve the mortgagee at the expense of some type of home owners.

SCOPE TOO LIMITED

In my testimony it has been pointed out that only $2,000,000,000 is provided to care for $9,000,000,000 in urban-owned occupied home mortgages and the fear is well founded that this may precipitate a wholesale calling of mortgages, particularly those in default.

Since statistical facts show those in or apprehending default constitute the majority, it will be seen that several times this amount of bonds would be required to care for the situation in the urban-home mortgage field. This will bring chaos in the realty home world if not anticipated and should be provided for.

Parity of position in any relief move should be of prime importance. If the bond conversion is limited to $2,000,000,000 it is impossible to envision how parity can be given to home owners. The Government loan, if amended to meet practical needs, will be superior to customary financing in many ways; it will be fuller, that is, if the method of appraisal of value is predetermined and the bonds made attractive to the mortgagee. Its duration will be 5 times longer than the average home mortgage and the interest lower. This will make the houses so financed more salable and the only gate of salvation to many home owners, it must be borne in mind, lies in a future sale, probable only after refinancing. The credit expansion provided if amended to operate will save approximately a lucky 25 percent. What about the remainder? It would seem if the bill be limited to $2,000,000,000 that some "open-end" plan should be set up to further the idea to encompass all home owners alike step by step.

ENTIRE FINANCIAL STRUCTURE DEMANDS SOLUTION OF THE MORTGAGE PROBLEM

With the enormous sum in home mortgages at stake, the center of our financial structure can be preserved only with a practical solution of the mortgage problem as it affects the home owner, the investor, and their intermediary-the loaning institution. There are the vast sums invested by the insurance companies, the savings banks with two thirds of their deposits represented in the mortgage portfolio-the building and loan associations with all their assets in mortgages, and the national banks with their collateral dependences. Even the Government has vast sums at stake in the home-mortgage field in the loans of the Reconstruction Finance Corporation secured by home mortgages held by various financial institutions borrowing from them.

The total invested in home mortgages is well in excess of $20,000,000,000. This stupendous figure would indicate that the safety of the financial structure depends upon the safety of the mortgage structure. Any impairment of home mortgages as securities concerns the security of these financial institutions and the impending legislation is of vital concern therefore to the insurance companies, banks, and building and loan associations involved, as well as the investors, depositors, and policyholders.

Instead of a partial plan, a plan should be evolved that would put all interests in homes on a parity. The home owner has the most at stake and it is he who really supports the entire structure. Help him and the whole industry of financing, building, and selling homes can carry on, and mortgages on commercial properties are correspondingly benefited, for if institutions are liquefied to the extent of home mortgages held they can then grapple with their commercial-mortgage problem in different fashion.

WIDESPREAD REEMPLOYMENT IN REPAIRS

A new viewpoint is needed toward reconditioning and modernizing present structures to conform to the " long-term commodity" they truly represent, with a proper life of 50 years, instead of being outmoded in 10 years as they have by exploitation of nonbuilder operators. Reconditioning we deem as most important to keep collateral sound and to create employment.

In Washington there is agreement among nearly all members of the Senate and the House, as there is among business leaders, that there must be an increase of consumer purchasing power if trade and commerce is to revive. Not merely a standstill agreement on capital payments and easier interest but actual credit must be supplied the vast home-owning public to bring their houses into better condition. This would not only create work and trade but would tend to safeguard the investment, insure interest payments which in turn insures purchasing power.

It could be provided by a plan embracing both rural and urban mortgages, a plan that would require no more new money than has already been requested by the administration, but would let the existing institutions, banks, insurance and mortgage companies, and building and loan associations factor these exchanges of mortgages for bonds under governmental supervision. It would retain these experienced private agencies in a government supervised credit structure.

The valuations of 1928 plus improvements discounted by 25 percent should be the basis of appraisal for the time being. The Government by proper guarantee could grant borrowing power on these bonds until the public had absorbed them. Where appraisals warranted, loans would be increased to prevent the default of interest and taxes during this crisis, the new funds to be disbursed by the original institutions which could continue to service the mortgages at a total charge to the home owner, advocated by the Long Island division, not to exceed 61⁄2 percent, including interest, amortization, and service. The modernization of homes by reconditioning would be financed where advisable to protect the collateral.

CONTROL ON NEW CONSTRUCTION

Loans on new construction should be controlled by surveys to prevent overbuilding, and to insure as well sound building, and this new financing should, in our opinion, set up some such control for the safety of the home owner and mortgage security to investor.

The plan suggested by the Long Island division of the Home Mortgage Advisory Board in March included the extension of similar advisory boards with divisions and subdivisions and community organizations, of which the Sunnyside Gardens Community Association is a splendid example, as volunteer boards throughout the territory of the 12 Federal Reserve districts to provide local contacts, and to aid governmental units in the readjustment required by the home owner.

While this work would be of a volunteer nature, such as has been conducted during the past year by the Home Mortgage Advisory Board in the Second Federal Reserve district, headed by Frank A. Vanderlip, nevertheless the Government should defray the clerical expenses, stamps, stationery, etc., incurred in the numerous personal contacts with distressed home owners.

Many small home owners are in need of readjustment, and advice is needed which can only be given by community-minded people who know their community. This must be done by personal contact. The Home Mortgage Advisory Board and its divisions have proven in the past year the need of this, and they have contacted thousands upon thousands of our country's finest citizens who are badly in need of advice and who are exhausted financially to the point that they cannot even afford the expense of traveling any distance. This applies equally to homes of all values whether $5.000 or $50,000. Sympathetic, understanding, personal contacts of a local nature must be afforded them in the best interests and safety of the social and family life of our country. D. E. MCAVOY,

Chairman Long Island Division Home Mortgage Advisory Board.

Senator BULKLEY. Is Mr. Dunn here?

Mr. DUNN. Yes, sir.

Senator BULKLEY. Are you going to be here tomorrow, Mr. Dunn? Mr. DUNN. Yes, sir.

Senator BULKLEY. Come back tomorrow, if you will, please. We want to conclude now for this morning.

Mr. DUNN. Yes.

Senator BULKLEY. Do you want to make a statement, Senator Copeland?

Senator COPELAND. Yes.

STATEMENT OF HON. ROYAL S. COPELAND, A UNITED STATES SENATOR FROM THE STATE OF NEW YORK

Senator COPELAND. Gentlemen, I have been very much impressed by what Mr. McAvoy has said. I know he tells the exact facts as they relate certainly to New York. For 40 years I have been interested in this home-ownership idea, through the building and loan originally. I am satisfied there is not anything in the world that ties a family to our country and the highest principles that we stand for more than home ownership. Nothing equals it in doing that very thing.

This bill is much needed in the rural sections of our State, that is, in the small villages of our State; but it does not go far enough as regards urban homes. The limit is too small. Mr. McAvoy has brought that out. It costs more in a city or in an immediate suburb of a city to build a home than it does in the country.

Senator BULKLEY. What limit do you advocate?

Senator COPELAND. $20,000. The additional cost of land, the cost of pavements, of curbs, of sidewalks, the building standards to which they have to conform, the underwriting conditions, the fact that the building is erected by union labor with higher prices than in the country, makes the same sort of home in the city cost materially more than it does in the country, and I strongly urge the committee to extend the limit to $20,000.

Senator TOWNSEND. Mr. McAvoy, I think, advocated no limit. Wasn't your thought that there should be no limit?

Mr. McAvoy. A limit of $25,000 to an individual as a loan, but no limit as to the house eligible for that $25,000 limit; 80 percent on the first $20,000 of its value, with a decreasing percentage on each $5,000, and so on each succeeding $5,000, until the $25,000 is reached, when it automatically stops. That would then take in a half a million dollar proposition, take in a 40,000, take in a 50,000. It would correspondingly give more equity.

Senator COPELAND. I think Mr. McAvoy and I are not far apart. I have not discussed the matter with him, and I am simply representing in what I am saying to the committee the appeal made to me by hundreds of persons in New York who are anxious to have this change made, and so I do hope that in reporting the bill you will liberalize it just to the greatest possible extent.

Mr. McAvoy. I might say, Senator, that our calculations show 250,000 homes in the metropolitan area that would be excluded by

that and at least a million in the country, on the $10,000 basis, the present proposed basis.

Senator COPELAND. And Mr. McAvoy is entirely right when he speaks about the effect upon the life and upon the health of the people trying to struggle along and carry their mortgages under present-day conditions, which is resulting in the very thing that he says, malnutrition, undernourishment, and certainly in the production of disease.

But I know that the heart of the committee, and I am sure that you will seek to liberalize the bill so as to make possible our people taking advantage of its privileges. I am much obliged.

Senator BULKLEY. Thank you very much, Senator.

Senator TOWNSEND. I would like to get a definite idea from Mr. McAvoy, if I might, how much he would feel that this corporation would have to be increased from 2 billion dollars to carry out the ideas that he has conveyed. It is confined to 2 billion at the present time.

Mr. McAvoy. Yes. I feel that that is insufficient to meet the situation.

Senator TOWNSEND. What do you suggest it should be?

Mr. McAvoy. I think it should be extended, as explained, to 9 billions of dollars.

Senator TOWNSEND. All right.

Senator BULKLEY. Very well; the subcommittee will meet again at 10 o'clock tomorrow morning.

(Whereupon, at 12 o'clock noon, the committee adjourned, to meet again at 10 a.m. of the next day, Friday, April 21, 1933.)

HOME OWNERS' LOAN ACT

SATURDAY, APRIL 22, 1933

UNITED STATES SENATE,

SUBCOMMITTEE OF COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C.

The subcommittee met, pursuant to adjournment from Thursday, April 20, 1933 (no meeting having been held on April 21), on Saturday, April 22, 1933, in room 301, Senate Office Building, Senator Robert J. Bulkley presiding.

Present: Senators Bulkley (chairman of the subcommittee), Barkley, McAdoo, Couzens, and Townsend.

Senator BULKLEY (chairman of the subcommittee). The committee will be in order. Mr. Walter S. Schmidt is here this morning, representing the National Association of Real Estate Boards. You may proceed, Mr. Schmidt.

STATEMENT OF WALTER S. SCHMIDT, CINCINNATI, OHIO, REPRESENTING THE NATIONAL ASSOCIATION OF REAL ESTATE BOARDS

Mr. SCHMIDT. Mr. Chairman and gentlemen of the committee, our association originally presented the idea of the home-loan bank, and Mr. Herbert Q. Nelson and myself wrote the proposals that were originally presented to the legislature for action into law.

Senator TOWNSEND. Are you speaking of the Ohio Legislature now, or the Federal?

Mr. SCHMIDT. Federal. Our proposals at that time were SO emasculated that when the bill was finally enacted into law it did not meet in any way the situation as we originally felt it was necessary that Federal action should provide for.

Some months ago we came to Washington feeling that something must immediately be done to remedy the situation as regards home mortgages or our country would be in anarchy. We marshalled our ideas, had a committee upon which was represented men of ability from every section of the country and men intimately connected with real estate, and prepared anew proposals which when prepared we found almost paralleled our original suggestion for a Federal mortgage bank. At the request of members of the Treasury Department we prepared to put that proposal in the form of a bill, and did so. But in the interim period a bill was prepared by the Home Loan Bank Board, as I understand, and was submitted as legislation.

Senator TOWNSEND. Are you familiar with this bill, S. 1317?
Mr. SCHMIDT. Yes.

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