country is the inadequacy of local savings available for mortgage financing in growing communities. Settled communities, on the other hand, where there is less economic demand for new building, are characteristically those in which per capita savings are high and in which there is consequently a large available supply of mortgage funds.

Those associations, by reason of their size, will be located in such settled communities and will provide an attractive outlet for accumulated savings, often in excess of the economically valid local demand for construction, by utilizing them for the purchase of mortgages in communities where funds are scarce. Rather than competing with insurance companies and other large institutional mortgage lenders, these mortgage associations should, and probably will, perform a distinct service to such lenders. By pooling its mortgages in such an association and taking back in place of them the securities of the association, an insurance company can add an important element of liquidity to its portfolio without any additional expense or loss of income. These associations should, in the immediate future, contribute measurably to the solution of the present frozen condition of the mortgage market.

The legislation authorizing their charter and creation, in addition to granting almost plenary powers to the Federal Home Loan Bank Board in connection with the manner in which their business is conducted, subjects them to the following specific limitations:

(1) They may issue their own debentures only against amortized or selfliquidating mortgages on the safest type of residential properties, insured under the mutual mortgage plan, and for maturities consistent with repayments on these mortgages.

(2) They will be chartered, supervised, and examined by the Federal Home Loan Bank Board and will be required to satisfy the Board that they are in a position to service the insured mortgages held by them.

(3) They will be required to have a minimum paid-in capital of $5,000,000 and their debentures will be limited to a maximum of 15 times their capital. These limitations will insure the soundness of these institutions. They will not be subject to the hazards arising out of short-term renewal loans on commercial property. They will be large institutions, and therefore sufficiently limited in number to be subject to careful individual supervision. Their size will (1) justify the listing of their bonds or debentures on the security exchanges, thus providing the individual or institutional investor with a readily salable instrument, and (2) insure that their operations receive constant scrutiny by the financial press and the investment services.

The insurance feature of their underlying mortgages will constitute the equivalent of a substantial guaranty of their debentures. Because they will raise their funds in centers where capital is most reasonable, they will be in a position to make lower cost money available for home financing. By the basic terms of their organizations they will of necessity be confined to conservative financial operations and not be subject to stock-selling promotional abuses. Because their investments will be limited to insured mortgages, for which they are in a position to provide adequate servicing, they will not be able to recapitalize properties for the purpose of selling securities nor to act as a mortgage outlet for speculative real-estate affiliates.

IV. INSURANCE OF SAVINGS AND LOAN SAVINGS

No thorough consideration of the mortgage problem can overlook the importance of the building and loan associations and other similar thrift institutions in this field. If the mortgage market is to function again in normal fashion, these institutions must be able to participate and carry their fair share of the burden. The home-mortgage holdings of the principal private lending agencies is, roughly, as follows:

Building and loan associations.
Individuals----

Mutual savings banks.

Mortgage companies.

Banks..

Insurance companies..

$6,500, 000, 000 4, 000, 000, 000 3,500, 000, 000 3, 000, 000, 000 2, 500, 000, 000 2, 000, 000, 000

These figures do not represent the true importance of the building and loan associations in the mortgage picture, for while they hold little more than a third of the home mortgages in terms of amounts, by reason of the fact that

they serve the small home owner principally, they hold almost two thirds of the total number of home mortgages.

The advent of deposit insurance for banks has resulted in a substantial deflection of wage earners' savings from investment in building and loan associations to deposit in banks where they will be insured. Not only principles of fair treatment but the economic necessity of keeping funds from flowing out of institutions where they are needed and into institutions where they will presently be unused calls for the erection of a system of insurance for building and loan associations comparable to that presently in operation for the protection of bank depositors.

A satisfactory system of insurance is worked out in detail in title III of the bill. It calls for an annual premium charge of one half percent with possible additional assessments of one fourth percent. This premium charge is to continue until a fund has been built up equal to 5 percent of all insured accounts and thereafter the premium is adjusted to keep the fund at that point. As in bank insurance, accounts are only insured to a $2,500 limit. The insurance corporation is given broad powers to prevent unsound practices in insured institutions.

V. SUPPLEMENTARY AMENDMENTS TO EXISTING LEGISLATION

The proposed amendments to existing legislation are of three types: (1) Amendments to enable building and loan associations and production credit associations to participate in the home modernization and repair program. (2) Amendments to let national banks into the mortgage program and to encourage them to lend on insured mortgages.

(3) Amendments to increase the discount facilities now offered by the Federal home-loan bank system.

(4) Amendments to permit the Federal Reserve banks to rediscount sound construction loans.

These amendments are self-explanatory and require little or no comment. Their soundness follows from the soundness of the general program.

The CHAIRMAN. You may proceed, Mr. Walker.

STATEMENT OF FRANK C. WALKER, EXECUTIVE DIRECTOR THE NATIONAL EMERGENCY COUNCIL, WASHINGTON, D.C.

Mr. WALKER. Mr. Chairman and gentlemen of the committee, my name is Frank C. Walker. I am executive director of the National Emergency Council.

The CHAIRMAN. You may proceed with your statement.

Mr. WALKER. Sometime since the President asked me if I would make an attempt to coordinate the various housing activities of the Government. As you gentlemen know much better than I, we have many departments of the Government that are interested in the various branches of housing. For instance, homestead, slum clearance, low-cost housing, planning commissions, home-owners loan, and various other departments of the Government interested directly and indirectly in the housing problem.

In the first instance we got as many as the active heads of departments together as we could and held a series of conferences. Arising out of all this effort it became manifest to us that certain conditions existed that were most obvious. In the first place, the commodity goods situation in the country had improved very considerably, but we found a great lagging in the capital goods industry. We also found insofar as the mortgage market was concerned that it was in a frozen condition. There had been some attempt to aid it through the home-owners' loan, and yet, as you gentlemen know, there is merely an authorization there of 2 billions of dollars, and

as I understand it, there are something like 21 billion dollars or more in home loans alone; that is, in mortgages of that type and character.

We elected to approach this subject along the line of trying to stimulate private capital; to see if we could not work out a plan that would bring about a result that would mean as little cost to the Government as possible, to stimulate private capital, and also to stimulate private industry.

We found, as you know, 912 million unemployed people throughout the country. We felt that our observations of the facts properly brings us to the conclusion that of that number of unemployed the building trades industry contains the greatest proportion of unemployed.

There are in normal times directly employed in the building industry more than a million people, and indirectly involved there are from 32 to 5 millions of people. As you gentlemen know, in the last 5 years there have been practically no repairs made, no reparation of any kind throughout the country, and that applies not only to homes but to industry and commerce.

Senator BARKLEY. Did you say during the last year?

Mr. WALKER. No; I said in the last 5 years, or since 1929.
Senator BARKLEY. Very well.

Mr. WALKER. And it is most obvious that so far as repairs and reparation and rehabilitation are concerned there is a most manifest need.

Senator WAGNER. Mr. Walker, I think it is also true that before that time there was an average of about 4 billion dollars a year by way of construction in the country. Isn't that about the figure? Private construction I mean.

Mr. WALKER. Do you mean for homes or in the matter of general construction?

Senator WAGNER. I mean general private construction.

Mr. WALKER. There was an average of $11,000,000,000, on the average, as I understand, and home construction meant approximately an average of about $3,000,000,000. It has gone down now, in the last year I mean, to something like $300,000,000.

Senator COUZENS. Mr. Walker, have you any figures to indicate how much of the $21,000,000,000 is in default?

Mr. WALKER. The Home Owners' Loan Corporation have those figures. We hope to submit to you supporting figures on all of the propositions which we bring before you, that is, in reference to unemployment, in reference to the building industry, in reference to construction over the long period, and with reference to present construction, bringing it down to home construction. And we also have supporting figures to show you what existing mortgages there are in the country, what percentage of those are home loans, and how the home-loan mortgages are broken down into insurance companies, mortgage companies, building and loan associations. We have all these figures ready, and if it is agreeable to you gentlemen as we go along we will present them in their order. I might say that we have four different features of this subject, and I should like to submit those who in my opinion are most expert and best informed on each feature of the bill, to talk to you about each feature.

Senator ADAMS. Mr. Walker, in this $11,000,000,000 figure of construction cost that you referred to, is that the peak cost or is that the average run covering various periods?

Mr. WALKER. I think that was the average prior to 1929. That is, that was construction of all kinds, Senator Adams.

Senator ADAMS. That was what I understood, but I wondered whether it was the 1928-29 costs or the general average.

Mr. WALKER. It covered the average construction of all kinds. Senator WAGNER. I believe that construction was generally accepted as a barometer of the prosperous condition of the country. That is, when there was employment in the construction industry it was generally regarded as showing that there was general prosperity in the country, and I take it, the reverse is also true.

Mr. WALKER. Yes, sir.

Senator COUZENS. Mr. Walker, in making your general study of this matter at the request of the President, have you ascertained in any way the matter of security of future income of home owners? Or, in other words, have you any figures that would justify the assumption that these loans would be repaid?

Mr. WALKER. I do not know that I quite understand your question. Senator COUZENS. Well, it is quite obvious that based on an estimate of 10,000,000 unemployed there must be some 30 or 40 millions of our citizens who are lacking in security in the matter of income. Mr. WALKER. Yes.

Senator COUZENS. They have no future outlook as to what their income may be, no assurance of a future income. I wondered if that factor was taken into consideration when this proposal was submitted.

Mr. WALKER. Yes, Senator Couzens; that has been taken into consideration. And I will say that I do not think there is any great demand at the present time for new housing; nor do I think we should start out and try to stimulate new housing where conditions do not warrant it. Nor do I think that we should start any kind of campaign based upon a "buy now" proposition. But I do feel that there is an absolute demand for rehabilitation, modernization, and repair; one that is patent and obvious.

Senator COUZENS. And that demand comes from people who have some security of income that justifies the undertaking?

Mr. WALKER. Yes. In commerce and industry I think there has been a large amount of deferred maintenance. I think the money has been set aside but has not been used.

Senator COUZENS. But that does not come under this bill, does it? Mr. WALKER. Yes; a feature of it does, a feature trying to open up your market generally. We are not trying to have the Government step in to aid or assist in any manner in doing any financing for other properties than homes; but if you are going to open up your mortgage market, that will make money available, I think, in general directions, and will increase buying power throughout the country and bring about the result desired in that fashion.

Senator COUZENS. Well, then, the bill does contemplate rehabilitation and repair of buildings other than homes?

Mr. WALKER. The repair campaign does; yes. You see, the repair campaign contemplates setting up a guaranty on the part of the

Government, not to exceed 20 percent, and that applies not only to homes but to any loans of that character up to $2,000 under very fixed and definite conditions.

Senator COUZENS. But that would not contemplate the repair or rehabilitation of hotels or apartment houses or office buildings, and all that kind of thing, would it?

Mr. WALKER. It would be limited to $2,000.

Senator COUZENS. That would not go very far in connection with that type of buildings?

Mr. WALKER. No. But I feel that modernization and repair, a campaign of that kind, would merely be a bridge, would merely start the wheels moving. It would have to be complemented by other and further and additional aid and assistance.

Senator BULKLEY. Mr. Walker, will you tell us a little more about what you mean by the use of the word "campaign"? Just what is contemplated in that direction?

Mr. WALKER. Well, we feel that there is an absolute need for repair and rehabilitation. The only thing the administration contemplated was the providing of a method of financing. I think in order to do that you will have to inform the public, you will have to stimulate bankers, you will have to stimulate all the financial agencies. In other words, I think in that connection it is going to be necessary for us

Senator BULKLEY (interposing). In what way is it proposed to stimulate them?

Mr. WALKER. Well, according to the plan, this is going to be an innovation for the average commercial banker. Of course, the plan does not contemplate security on the loan. In other words, we are not going to demand mortgages, nor are we going to demand collateral. Loans will go in amounts from $200 up to $2,000 to any individual who is desirous of making repairs. The finance credit companies and I might say that we had practically all of them down here with us-evolved a plan which they think will work out successfully; and experience shows that in case of loans of this kind. the loss is from 2 to 5 percent. Now, in order to stimulate bankers

Senator BULKLEY (interposing). I do not quite follow you there. Will you make this a little more clear to me? I thought you said a minute ago that this was a new kind of loan, and yet you are referring to experience in the past in the matter of loans of this kind.

Mr. WALKER. It refers to loans repayable in from 1 to 5 years. Senator BULKLEY. What loans do you refer to as being "loans of this character ", where experience has already been had?

Mr. WALKER. Well, the finance and credit companies have had some experience along this line. For instance, the General Motors Acceptance Corporation, and the Johns-Manville Co., and companies like them, like the American Radiator & Standard Sanitary Co., and companies of that kind, have made loans of this character over a period of years.

Senator BULKLEY. Do you mean under 5-year terms?

Mr. WALKER. I do not know that they have gone to a limit of 5 years, but from 1 to 3 years. And it has been worked out by us to 5 years.