CREATION OF A SYSTEM OF FEDERAL HOME LOAN BANKS THURSDAY, FEBRUARY 18, 1932 UNITED STATES SENATE, SUBCOMMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY, The subcommittee met at 10 o'clock a. m., in the hearing room of Committee on Interstate Commerce, the Capitol, pursuant to adjournment on February 17, 1932, Senator James E. Watson presiding. Present: Senators Watson and Couzens. Senator WATSON. The committee will come to order. The first witness on the list this morning is Mr. C. J. Haase. Is Mr. Haase present? (There was no response.) Senator WATSON. Mr. E. A. MacDougall. STATEMENT OF EDWARD A. MacDOUGALL, PRESIDENT QUEENSBORO CORPORATION, JACKSON HEIGHTS, NEW YORK CITY Senator WATSON. Where do you live, Mr. MacDougall? Mr. MACDOUGALL. New York City. Senator WATSON. What is your business over there? Mr. MACDOUGALL. Real estate development and building. Senator WATSON. You are put down here as the president of the Queensboro Corporation. Mr. MACDOUGALL. That is a corporation engaged in building homes. Senator WATSON. Building homes? Mr. MACDOUGALL. Yes, sir. Senator WATSON. Any other business? Mr. MACDOUGALL. That is our principal business-the development of real estate and the building of homes. Senator WATSON. How long have you been engaged in that business? Mr. MACDOUGALL. About twenty-odd years. Senator WATSON. What is the process that you go through in building a home? What do you do? Mr. MACDOUGALL. Well, it is a long story, Senator. If I might have an opportunity to discuss that with you and the committee after I have presented my views on your particular bill, I will be very happy to do so. Senator WATSON. In order to bolster up your opinion, whatever it may be, you might tell us how you are engaged in this enterprise. Just shortly. You do not have to tell a great long story about it. Mr. MACDOUGALL. Twenty years ago I bought 300 acres of land in the city of New York to develop and sell to builders. We found, after we had spent several million dollars in the improvement of the land, that it was necessary to engage in building ourselves for the reason that, with a large land operation of that kind, we had to anticipate the ultimate use of the land. That is to say, we found that the increased assessed values of real estate in our cities of large population grows so rapidly that a real-estate operator to earn any profit whatever must anticipate the ultimate use of the land. So we organized a very large building corporation known as the Jackson Heights Apartment House Corporation, with a capital of two and one-half million dollars, to build apartment and private houses. Before we engaged in this building operation we went to Germany, to France, to many of the important cities of Europe to find standards, as well as the principal cities of the United States to find standards. We learned that the Prussian Government had what, in our opinion, was the most sound economic basis for housing to be found anywhere in the world. And we predicated our building operations upon a plan that the Prussian Government had laid down to encourage good living conditions in Germany. Senator WATSON. When did you start that? Mr. MACDOUGALL. That was about 1916. Senator WATSON. You have been working on that since then? Mr. MACDOUGALL. Yes, sir. That was the introduction, Senator, of what is known in the United States to-day as the garden apartment plan. The idea of building apartments around large central gardens to insure permanent air and light, and detached apartment buildings, for the reason that people are willing to pay, we find, a little more per month rent where they are sure of cross-ventilation and permanent air and light. Upon that principle we have built and financed now about $50,000,000 worth of housing in the city of New York, and I think it is generally accepted as a sound business principle. I know it has been accepted so because throughout the United States practically every builder to-day that builds an apartment house uses the word "garden." Senator WATSON. How many houses of that kind have you built, Mr. MacDougall? Mr. MACDOUGALL. About twenty million dollars worth. Senator WATSON. I do not mean in millions of dollars. Have you built a thousand or 10,000? Mr. MACDOUGALL. No; I should say there are living accommodations for about 3,300 families. That is what we are taking care of now. I have illustrations of them here. Senator WATSON. What about the average cost, Mr. MacDougall? Mr. MACDOUGALL. I should say about $10,000 per family. Many of those apartments we sold cooperatively, because after the war we found it was a difficult problem to house people. There was a great shortage in New York. Some landlords tried to take advantage of the shortage as the result of the war, and they had to go to the legislature in New York and get an enactment called the rent law, an enactment which curtailed the rent that they could charge. Senator WATSON. Yes. Do you build these houses as builders and then sell them or rent them? Mr. MACDOUGALL. Well, we build some of them and others we finance; we finance other builders. Senator WATSON. Other builders or home owners themselves? Mr. MACDOUGALL. No; no home owners. The land is too expensive for that. Senator WATSON. You finance the builders? Mr. MACDOUGALL, Yes. Senator WATSON. Now go on and give us your impression, Mr. MacDougall. Senator COUZENS. Before you start with that, will you tell us how you finance them? Mr. MACDOUGALL. I believe it is Senator Couzens I am addressing? Senator WATSON. Yes. Mr. MACDOUGALL. Principally through long-term mortgages with the large insurance companies. I felt that it would be unsound business to invite the public to buy securities in a cooperative apartment home which we sold on installment payments over a period of 10 or 15 years, unless they had a first mortgage-no second at all— a first mortgage that ran for at least 15 years-from 10 to 15 years. And that is the plan upon which we have operated, fortunately for the tenant owners that bought those apartments. If they were met with the situation that prevails to-day and could not renew those mortgages, they would be in a very serious condition, when you take into account that we sold $12,000,000 of them that way. Senator COUZENS. Give us an example of the cost of financing any such scheme. Mr. MACDOUGALL. I will give you an illustration of one particular mortgage I have in mind on one group of buildings, at the very inception of our building operations. I went to one of our title guarantee and trust companies. The cost of construction was advancing very rapidly. I asked for a loan of $560,000, if I remember the figure correctly. They examined the plans and said that they would only loan $475,000 as a building loan mortgage. The mortgage money is advanced in installments, usually two or three installments, one when there is the enclosure, when the roof is on (the inclosure), one when the brown mortar is on; and the balance finally on completion. Senator COUZENS. I suppose that is on an architect's certificate of the amount you have got invested? Mr. MACDOUGALL. Yes. They have their inspections that are made as the work progresses. They said that they would only loan four hundred and some odd thousand dollars. I asked them if they would consider a proposal that they write the mortgage for the gross amount and we would have it reappraised on completion, which they finally did. The labor costs advanced very rapidly during the period of 1919 and 1920. On the completion of the building I went to the Prudential Life Insurance Co. of America and obtained a loan from them for the gross amount, which was five hundred and some odd thousand dollars, and the total cost was $835. A very nominal fee, because they took it by assignment from the Title Guarantee & Trust Co. of New York. Senator WATSON. What interest? Mr. MACDOUGALL. I think the interest on that loan was 6 per cent. I negotiated other first mortgages with the Metropolitan Life Insur ance Co. on a basis of 6 per cent for the first five years, 52 per cent for the next five years, and 5 per cent for the last five years. Because they were amortized mortgages I was able to obtain the interest at a lower rate; and further, Senator, for the reason that it was only a 50 per cent mortgage. I could have borrowed probably several million dollars in the aggregate more than I did on short-term loans at 6 per cent. But I do not think that is sound and safe business, and we do not operate our business upon that plan. Senator COUZENS. What did the title company charge you for their service? Mr. MACDOUGALL. Their charges are about 3 to 32 per cent, to include a mortgage tax which in the State of New York we are required to pay, of one-half of 1 per cent. Senator COUZENS. So in addition to the interest rate they charged you 3 per cent? Mr. MACDOUGALL. That is their charge. That represents the examination of title, which represents about 14 per cent. That is the charge of the Metropolitan Life-about 114 per cent. They have to examine the chain of title. We do not have in New York, like in some States, a State certificate of title, but they have to examine the chain of title, and that represents, usually, about 14 per cent. Senator COUZENS. That does not mean that that percentage is each year? Mr. MACDOUGALL. No. That represents the original cost, and that includes the building loan inspection, and includes all of the charges, the one-half of 1 per cent to the State for mortgage tax, and all that sort of thing. Senator WATSON. Have you any defaults in the payment of interest? Mr. MACDOUGALL. On apartment houses, yes, sir. We have had to foreclose four or five million dollars worth in the last two years. I stopped building operations last year. We had $2,000,000 in land sales. Conditions did not look good, so I canceled those, and canceled mortgage financing for about 800 homes-apartments. Senator WATSON. Did you ever build through the building and loan association? Mr. MACDOUGALL. Only when I was first married I bought through the building and loan. I think that is how I became interested in the real estate business. I bought at that time through the building and loan, and I sold and made a profit, and bought another, and sold it and made a profit. Senator CouZENS. I would like to ask the witness if he understands that this bill applies to these cooperative apartment houses? Mr. MACDOUGALL. No; I do not think it does. Senator COUZENS. Certainly not. Mr. MACDOUGALL. No; I understood the bill limited the discount to $15,000 in individual homes. But we financed and built some $20,000,000 worth of individual homes, and I have plans now that I have been working on for a year and a half, to build four or five hundred 1-family houses when mortgage financing becomes more favorable. Senator COUZENS. At what price? Mr. MACDOUGALL. I think the market for small houses to-day in New York City is to accommodate people that can buy homes costing from five thousand up to fifteen and twenty thousand dollars. I think $25,000 would be the maximum. Senator COUZENS. So this bill might safely provide then for about $10,000 loans? Mr. MACDOUGALL. I do not think so. I think this bill as you have it drawn is merely a step in the right direction. You will learn, I think the Congress of the United States will learn the requirements of the practical builders of this country, and you will have to amend it to meet their requirements, so that you will ultimately take in mortgages to accommodate people that have to live in apartment houses, as well as individual houses, because, Senator, there is a very great social and economic need in all of our large centers of population where people to-day have to live in apartment houses, for the practical reason that many men and women, wives and husbands, have to work to support their families and an apartment best suits their needs. As a landlord to-day I am not only giving them housing accommodations in 2 or 3 room apartments-where they formerly lived in 5 and 6 or 7 room apartments-but we are taking care of their babies for them in organizations that we had to develop, because in many instances the wife has to go to work to make a living as well as her husband. Does that answer your question, Senator? Senator COUZENS. No. I was not discussing that question at all. Mr. MACDOUGALL. I thought you were. If I understood your question correctly it was whether or not you could afford to reduce the maximum in this bill to $10,000, and I said no, and my answer is on the record, for the reasons that I have stated. Senator COUZENS. Well, you are talking about apartment houses. Mr. MACDOUGALL. Yes. I think that ultimately your bill should and of necessity will provide for apartment-house loans. The economic necessity and the ultimate success of this legislation will ultimately require you to take in the needs of the apartment-house people as well as the individual householders. Senator COUZENS. That was not the question that I asked you, as to whether you should have apartment houses in this. Mr. MACDOUGALL. You asked the question, sir, as I understood it, whether or not you could afford in this legislation to reduce the maximum to $10,000. Do I state that correctly? Senator COUZENS. Yes. Mr. MACDOUGALL. Well, now I have given my answer to it. Senator COUZENS. I asked you whether or not for individual homes, which this bill contemplates Mr. MACDOUGALL. Yes. Senator COUZENS (continuing). Whether there was any reason why we could not reduce it to $10,000. Mr. MACDOUGALL. I do not think so. Senator COUZENS. Wait until I complete the question, please. |