Hon. ROSCOE C. PATTERSON, WM. B. HENDERSON & Co., Kansas City, Mo., January 14, 1932. Senator of Missouri, Washington, D. C. MY DEAR SIR: I am addressing you in regard to House bill 5090. I am not accompanying this communication with the usual command or urge for you to vote one way or the other. I am crediting you with enough interest in your responsibility and the bill in question to form your own judgment and vote your own sincere convictions. Whether your final judgment will agree with mine, I do not know, but I deem it my duty as a citizen to acquaint you with my viewpoint. I am mindful of the fact that I am very much in the minority. And I regret that (although I am a Republican) I find I can not bring myself into harmony with the provisions of this bill. Although I am engaged in the building and loan business and most of the building and loan men in this community seem to favor this bill, I am, nevertheless, opposed to it. And I do not find that most of the building and loan men with whom I have talked, who favor the bill, have studied it carefully and anticipated the possible ultimate results, if the bill is passed. To begin with, I am unalterably opposed to the continued trend toward centralizing responsibility and authority in the Federal Capital, and the minimizing and nullifying of the influence of the State. I am fearful that if the present trend continues, the effect will be decidedly detrimental to the future possibilities of the United States of America. If bill 5090 is passed it will not be possible for any savings and loan association in the State of Missouri to transact business with the Federal home loan discount bank because the laws of Missouri very specifically limit the authority of its savings and loan associations in that respect. The more recent building and loan laws contain a provision that the local associations "may become members of the loan bank of the State of Missouri when such land bank is established and may invest its assets in stock of said loan bank not in excess of 10 per cent of the assets of the building and loan association." The phraseology above is not accurately quoted, but the meaning is accurate. Building and loan associations of the State of Missouri are not permitted to hypothecate as collateral any portion of their assets, and they can not borrow money for a longer period than two years, nor an amount in excess of 10 per cent of their assets. It is very clear, therefore: First, that the Legislature of Missouri anticipated that a land bank might be established in the future and the way is now clear for our legislature to establish such a land bank. Second, that there is no provision in the laws of Missouri which would enable a Missouri savings and loan association to borrow money from the Federal home loan discount bank. Third, there is no provision in the Missouri laws for a local savings and loan association to own stock of the Federal home loan discourt bank. Fourth, the laws of Missouri provide that Missouri savings and loan associations shall be supervised by the bureau of building and loan supervision of the State of Missouri, and the provisions of House bill 5090 would transfer that control to a board to be selected by the President of the United States with, and subject to the approval of the Senate. There is a land bank in the State of New York, established for the purpose of rendering service to savings and loan associations and saving banks. It is significant that the bonds of said New York Land Bank have been in demand during the present depression at an interest rate not in excess of 42 per cent. It is also significant that said land bank has been the means of enabling all of the New York savings and loan associations to meet their demands without requiring notice. Inasmuch as the way has already been paved for the establishment of a land bank in the State of Missouri, and in other States, it occurs to the writer that it would be very much more desirable if land banks could be established in Missouri and other States by authority of their respective legislatures, the stock to be owned exclusively by the savings and loan associations of respective States, the control of said land banks to be exclusively in the hands of the stockholders, and the service to be rendered to be only to the institutions owning said stock. If the Federal Government wants to help it could provide for the establishment of a Federal home loan discount bank and in connection therewith name the various State land banks as legal depositories for public funds, exempt State land banks from taxation, subject them to investigation by the board of the Federal home loan discount bank (providing the State land bank was asking for credit from the Federal home loan discount bank) and establish such rules and regulations as it might agree upon which would be applicable to the State land banks if they wanted to avail themselves of the credit facilities offered by the Federal home loan discount bank. It is the writer's judgment that the State land banks would find it possible to finance themselves without the aid of the Federal institution. Some of the building and loan men with whom I have talked have expressed the opinion that the influence of a State institution would be so "localized" as to seriously limit its usefulness. That has not appealed to me, because I can visualize that if all of the States have institutions similar to the land bank in the State of New York it would be feasible for such State institutions to be mutually helpful, and there would be no reason why a State land bank in one State where there is plenty of money could not buy the bonds of a State land bank in another State where money might be needed. If the situation becomes so tense that the States are unable to be mutually helpful the Federal funds could be placed in the treasuries of the various State land banks. It would be feasible for the laws establishing the Federal home loan discount bank to establish the type of State land bank with which it could transact business, and then the State legislatures could exercise their own judgment as to whether they would authorize State land banks endowed with authority to transact business with the Federal home loan discount bank. Referring to section 9, page 14, line 13, would it not be feasible for the Federal Congress to pass a bill containing a modification of said section 9 which would read: "The obligations of each State land bank and the interest payable thereon, shall be exempt from all taxation now and hereafter imposed by the United States, Territory, dependency, or possession thereof, provided said obligations are exempt by the State in which said land bank is domiciled and by the counties and municipalities within said State." Would it not be equally feasible to modify section 10, page 14, line 19, to read: 'When designated for that purpose by the Secretary of the Treasury, each State land bank authorized by the laws of its own State to transact business with the Federal home loan discount bank shall be a depository of public money, etc." Although I have not presumed herein to influence your own judgment I would very much appreciate it if you would advise me at your convenience what is your own opinion of H. R. 5090. Thanking you in advance, yours truly, W. B. HENDERSON. Senator WATSON. The subcommittee will now hear a statement by Mr. Henry R. Robins. STATEMENT OF HENRY R. ROBINS, COMMONWEALTH TITLE CO., PHILADELPHIA, PA. Senator WATSON. Your name is Henry R. Robins? Mr. ROBINS. Yes. Senator WATSON. Where do you live? Mr. ROBINS. Philadelphia. Senator WATSON. What is your business? Mr. ROBINS. I am president of the Commonwealth Title Co. of Philadelphia. Senator WATSON. What does that institution do? Mr. ROBINS. It insures the titles to real estate and mortgages and lends money on mortgages. Senator WATSON. City or country? Mr. ROBINS. City and suburban. Mr. ROBINS. Yes. Senator WATSON. No farms? Mr. ROBINS. No farms; no, sir. Senator WATSON. Have you studied this bill, Mr. Robins? Senator WATSON. The last print of it? Mr. ROBINS. Yes. The first one that was printed, and then this Senate bill 2959. Senator WATSON. For the benefit of the record, I wish you would give your impressions of the bill and what you think about it. Mr. ROBINS. Generally, I think the whole scheme is inadvisable. It is more in the nature of an idealistic dream than a thing that can be put into operation, in my opinion. Senator WATSON. Why? Mr. ROBINS. In the first place, I don't think there is any need of such a structure in the United States. The fault has not been lack of money. It has been the size of the mortgages. There has been too much loaned by the various mortgage institutions generally on mortgages. That is what has been the cause of this foreclosure storm that has hit the country, and not the lack of money. Senator WATSON. What is the capitalization of your institution? Mr. ROBINS. Two million capital and three million surplus. Senator WATSON. How old is it? Mr. ROBINS. This present company is only about 3 years old, but it is a combination of others, some of which have been in existence for over 40 years. Senator WATSON. How many mortgages on homes or residences in Philadelphia has your institution? Mr. ROBINS. We have about 200 small mortgages. Mr. ROBINS. Yes. Our institution has only that number, because we are not in the mortgage buying and selling business. We invest part of our capital in mortgages and our active business is the title insurance of mortgages for institutions that do that business. We insure the titles to mortgages amounting to twenty-five or thirty or possibly fifty million dollars a year. Senator WATSON. Does that bring you into contact with the home ownership interests of Philadelphia? Mr. ROBINS. Yes, because the settlement of all these mortgages that we insure is made in our offices, and we are in contact with every home owner that makes one. Senator WATSON. How many would that be in the course of a year? Mr. ROBINS. Somewhere around twenty-five or thirty-five millions. Senator WATSON. Yes, but how many different homes would be involved? Mr. ROBINS. The average mortgage would be, I would say, about five or ten thousand dollars. Senator WATSON. Are these payments promptly made? Mr. ROBINS. The payments of interest? Senator WATSON. Yes. Mr. ROBINS. And amortization? Senator WATSON. Yes. Mr. ROBINS. Fairly promptly made. They have not been as promptly made the last two years as they were up to then, but that has been due to conditions and the fact that a great many home owners realize now that the burden they assumed was too heavy. They were induced to go into these home purchases without making a proper study of their own ability to carry them through. Senator WATSON. How many defaults have taken place, would you say, in the payment of interest? Mr. ROBINS. The sheriff's sales of homes have been running about a thousand or twelve hundred a month. Senator WATSON. A thousand or twelve hundred a month? Senator WATSON. Of homes? Mr. ROBINS. Yes. The total number of sales have amounted to about 20,000 a year and about 12,000 of those are homes. That condition has arisen, I fully believe, by reason of there having been too much money loaned to cursbstone builders. Senator WATSON. Was that the fault of the appraisers? Mr. ROBINS. It is not altogether their fault. When the values were inflated and people were paying ridiculous prices for houses, new houses particularly, every curbstone builder in the vicinity would go into the business of building houses, whether he knew anything about it or not. By paying big commissions he was able to get mortgages that he should not have obtained, and then he sold the houses subject to those mortgages to home owners, who were unable to carry them. Now, then, when values have come down about 20 to 40 per cent, those mortgages really represent the value of the houses. So people have let them go. They will not carry them. Senator WATSON. How are you going to help those people, if they are going to be helped at all? Mr. ROBINS. For any legitimate mortgage of the proper value there is plenty of money. Senator WATSON. But where there are from twelve to twenty thousand foreclosed in a year, how are you going to help those fellows? Mr. ROBINS. I can not see how you can help a man who is borrowing more than the security that he puts up. Senator WATSON. I am asking you a question, whether there is any chance for those people. Mr. ROBINS. Those people who are in the stew? Senator WATSON. Yes. Would this bill help that class of people? Mr. ROBBINS. I can not see that it would be of any help at all, because these mortgages are for 50 to 60 per cent of the value of the property when created, and these people need from 80 to 90 per cent of the value of the property when bought. Senator WATSON. When foreclosures are had, to whom do the properties go? Mr. ROBINS. To the people who hold the mortgages. Senator WATSON. What do they do with them? Mr. ROBINS. Fix them up, rent them, and sell them for what they can get for them. Senator WATSON. Do they take a loss? Mr. ROBINS. They certainly do. Senator WATSON. They really take a loss? Mr. ROBINS. They really take a loss. There will be this situation: There will be three mortgages in a block, on all equally valued property. One mortgage may be for $3,000 on a house, another one for $4,000 and another one for $5,000, on houses that sold originally for $7,500, which are cut down in value now to $4,500. All three of those mortgages go to a sheriff's sale. The holders of the mortgages buy the properties in. This man who holds the $3,000 mortgage on the first property wants to get his money. Somebody comes along and says, "I will give you $2,500 for it." He replies "make it $2,750." And the deal is closed on that basis. That fixes the value for the whole row, and these people who have the higher mortgages have to take a terrible loss, but they take it to get rid of it. That has happened over and over again. Senator WATSON. Are these people actually living in the homes? Mr. ROBINS. Until the sheriff puts them out. Senator WATSON. Where do they go then? What happens to them? Mr. ROBINS. They double up: For example, I can tell you of an instance right now. I am treasurer of an institution that held a mortgage and we had to buy the property in last July. We found a widow woman in there with children. We are a charitable organization. We do not want to put any widow and here children out on the street in order to get possession of the house. They had no money to pay. The Jewish Welfare Association was paying a little money for their food. They appealed to us and asked us to let her stay in until the first of the year. We said we would let her stay there until the first of the year free of rent. The first of the year came around and we went down to see her and asked her what she could do. She replied, "Well, I haven't a thing, but my daughter is going to get married about the middle of January and she and her husband have promised to take me in and let me live with them for the present." The daughter hasn't been married yet, but she will get married this month and that woman will move out of our house. We will then have that property on our hands, with a lot of repairs to put on it, and then we will sell it for nowhere near what we have in it. Senator WATSON. Then you take an actual loss? Mr. ROBINS. We take an actual loss on the property; yes. Mr. ROBINS. We have not done that particularly, but I know of other trust companies and title companies and mortgage companies that have been doing that right along. Senator WATSON. Do you refinance any building and loan securities of any kind? Mr. ROBINS. No; we do not. Senator WATSON. You do not? Senator WATSON. Do you know the condition of the building and loan associations in your city? Mr. ROBINS. I certainly do. Senator WATSON. Tell us about that. Mr. ROBINS. At the time when the boom in real estate was on, properties were bringing about 30 to 40 per cent more than the equitable value. Every curbstone real-estate broker in town organized a building association in order to finance the sales that he wanted to put through at those prices. Those building associations that were organized for that purpose and were carried along, pretty near all of of them have been taken over by the banking commissioner of the State. The associations that are left are the ones that were properly |