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The CHAIRMAN. I also sent out a questionnaire to about 400 people, and all replies have not as yet come in. However, I have an analysis of those replies we have received, which I wish made a part of the record at this point.

(The matter referred to follows:) Answers to questionnaire on Federal Mortgage Bank Bill, S. 2914

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The CHAIRMAN. I also wish to say that I have received, from time to time, a number of letters on this subject, and I will not burden the record with all of them; but, for the purpose of showing the rather typical views expressed, I wish made a part of the record at this point a letter received from Mr. L. A. McLean, president of Mortgage Bankers Association of America, also president of the Southern Trust Co., of Louisville, Ky., dated December 26, opposing the bill:

SOUTHERN TRUST Co.,

Louisville, Ky., December 26, 1935. Senator DUNCAN U. FLETCHER, United States Senate, Committee on Banking and Currency,

Washington, D. C. DEAR SENATOR FLETCHER: Responding to your favor of the 20th, I have given a great deal of thought to the proposed Federal Mortgage Bank, and I am going to endeavor to give you my reaction to your questionnaire as fully as possible.

1. There is no necessity for a Government-chartered and supervised Central Mortgage Bank. There is a surplus of private funds available for sound mortgage investments in all parts of the United States, excepting only some remote areas where conditions are unfavorable, and where there will always be some difficulty in getting an ample supply of credit. The established mortgage-loan institutions, the building and loan associations, the mutual savings banks, the insurance companies, the fiduciary institutions, the trustee institutions, and the individual investors are seeking good mortgage loans everywhere at exceedingly low interest rates.

2. The existence of the proposed agency would not prevent the freezing of mortgage credit in times of stress. It would be impossible to distribute the debentures of the agency under conditions of stress.

3. The proposed Federal mortgage bank would not tend to reduce interest rates on urban mortgages unless general financial conditions were to dictate. such a tendency.

4. I do not believe it would be possible with safety to have a Federal mortgage bank in addition to covering the home-mortgage field, to venture into the purchase of mortgage loans on large income properties or manufacturing properties.

5. Preference for Federal Housing Administration insured mortgages should absolutely not be given.

6. If it were necessary to have a Federal mortgage bank, it is my opinion that all reputable, experienced firms and corporations in the business of using their own funds for the creation of mortgage investments, should have the right to become stockholders.

7. Our institutions would not be interested in purchasing bonds of a Federal mortgage bank, especially if they were to bear interest rates from one-half to 1 percent above rates on Government bonds. I seriously doubt that many banks or financial institutions would be interested at all in purchasing this class of debentures at anything approaching the interest rates mentioned.

I believe that if the debentures or bonds of the Federal mortgage bank were exempted from taxation, it would be class legislation of a a rather vicious character, and I am sure it would be unpopular. The exemption of the debentures of the Federal mortgage bank would place all the independent institutions in the same business at a very serious disadvantage. The taxpayers are becoming very firmly convinced that the tax-exemption feature on all bonds, municipal and Government, should be eliminated.

8. Certainly a billion-dollar mortgage corporation would have some influence on mortgage practices, and possibly to a lesser extent in having some of the real-estate laws amended.

9. Were there a Federal Mortgage Bank I would think that it should be permitted to make commitments under very rigid requirements to purchase mortgages on buildings to be erected. This is a very dangerous practice, especially on account of the lien laws in some of the States.

To sum up my important objections to the proposed bank, the purpose would be to set up a corporation with a capital of $1,000,000,000, of which the Government would provide $100,000,000. In order to be in position to do business with the corporation it will be necessary to own one share of stock costing $1,000, and as the only incentive to purchase the stock would be to have the outlet for mortgage loans, it would be necessary to find 900,000 stockholders. To empower this corporation to issue tax-exempt securities would be class legislation, and contrary to the demands of taxpayers which is becoming more vehement that tax-exemption features be removed from all classes of securities. The President of the United States would be empowered to appoint the chairman of the board of directors, plus two other directors, each of whom would be connected with a mortgage enterprise of the Government, so it would eventually resolve itself into a Government-controlled Central Mortgage Bank, to which you will find great opposition.

No mortgage loan is any better than the servicing which that loan receives during its entire life. The proposed bill would permit stockholders to sell mortgages to the bank without recourse, and the bank would then have to evolve a very expensive system of servicing the mortgages, which would be weakened by the fact that those concerned with the servicing would have no direct obligations such as they would have morally had they been responsible for the actual making of the loans.

I have had a long experience in the mortgage-loan business, and I am convinced that instead of making it possible for the mortgage-loan business to function steadily throughout a depression, a depression would pull down the very foundation from under such a top-heavy corporation, that our Government would be compelled to step in to save the situation. I am convinced that such a corporation could not weather a depression similar to what we have passed through, without Government aid on some very large scale, and that is not to be desired.

My reaction to the tenor of the bill is—that it was designed to serve the purposes of the realtors of this country, who are in fact borrowers instead of lenders. They have advocated a central mortgage bank for some years as an aid to them in consummating real-estate sales. It would be very unsound.

I am glad to have had the opportunity to give you my personal views, and if I can be of further service to you, I will do my best. Yours very truly,

L. A. MCLEAN, President. (Pen and ink notes.) We have many millions invested in urban mortgages in Kentucky, Indiana, and Tennessee.

And, on the other side, a letter from the American Radiator & Standard Sanitary Corporation, dated January 6, 1936: AMERICAN RADIATOR & STANDARD SANITARY CORPORATION,

New York, January 6, 1936. Hon. DUNCAN U. FLETCHER,

United States Senate, Washington, D. C. MY DEAR SENATOR FLETCHER: Answering your letter of the 20th ultimo, I beg to return herewith the questionnaire which you enclosed therewith.

Federal mortgage banks such as you have described I am sure would prove of great value in rectifying the existing mortgage situation. Short-term mortgages, with consequent high rates for renewals, bonuses, and commissions, have frequently brought the total rate for financing, after the current renewals, to 10 percent and upward, so that on the small house more than 30 percent of the total cost is sometimes paid for finance fees alone. This practice should be corrected. I am delighted to observe that a man of your distinguished reputation and understanding of these financial matters has undertaken to study these problems.

The removal of building, in the manner you have outlined in your questionnaire, from the speculative to the investment field, with long-term mortgages to be paid off in installments, will result in a demand for improved methods of construction and thereby assure the soundness of investment and financing, since under proper auspices no loans would be made unless specifications submitted with all applications therefor were carefully examined by competent and honest officials specially trained for such work. Such practice will inevitably create an incentive for improved methods in all the industries concerned with building, and construction will begin to play the part that informed people are increasingly coming to believe it should play in our economic and social destiny.

The Credit Foncier of France has conducted business on the basis you have outlined for more than 75 years, and has proven to be a sound and helpful instrumentality. Its debentures are among the most attractive of any in that country and, until the recent flurry in France, were in great demand at rates as low as 242 percent. I do not know what their rates are presently, but a number of years ago our company, which operates a factory in France, put up an office building in Paris and borrowed the money from the Credit Foncier at the rate of 4 percent per annum, with annual amortization covering a period of 75 years, at the end of which time the entire principal was to be paid off. When the franc went down to almost nothing a number of years ago we invoked the privilege under the mortgage to anticipate the full payment thereof. I presume their rates are much higher than 4 percent now since the rate of the Bank de France has only recently been reduced from 6 to 5 percent.

The building industry when operating normally employs, directly or indirectly from forest and mine through transportation, manufacturing and workers in the building trades, an aggregate of over 4,000,000 men and is one of the largest, possibly the largest, in the country all things considered. Before a home is completed and occupied it touches almost every department of our national industrial and commercial life. When that industry sinks into a deep decline it carries with it a depression in all business. That has been the record of the 45 years during which I have been connected with this industry.

A curious thing is revealed by statistics, which show that 8 months minimum and 11 months maximum after a continuing decline in building activity is started a stock-market panic occurs, followed by the usual business depression with all the ills and embarrassments of unemployment attendant thereupon. It is, then, important and vital that the building industry should be surrounded with a financial system under some sort of Federal supervision which will prevent inordinate booms incident to cheap money loaned by persons who are not qualified to examine the character and dependability of construction for in due course it contributes its full quota to the creation of a general collapse in, I might say, the controlling if not the most influential industry in the country, since the larger part of its activities are dependent upon the heretofore short-term mortgages. Practically every real-estate mortgage matured during the recent depression and placed a weight upon the banking situation which was responsible for quite the largest measure of frozen, if not worthless, loans that were found in the portfolios of many banks. Faithfully yours,

J. M. WOOLEY.

Also a letter from Mr. Hugh L. Clary, vice president, Bank of America, San Francisco, Calif.

BANK OF AMERICA,

San Francisco, Calif., January 20, 1936. Hon. DUNCAN U. FLETCHER, Chairman, Committee on Banking and Currency,

United States ate, Washington, D. C. DEAR SIR: I am returning the attached questionnaire which I have filled in.

I believe that a mortgage bank of the type you propose would be helpful. However, I have answered your second question, as to whether or not the existence of such an agency would prevent the periodic freezing of the mortgage credit in times of stress, in the negative. As I read the act, the mortgage bank's money for purchasing and lending on mortgages will come primarily from the sale of debentures, and, inasmuch as these debentures are not guaranteed, I do not believe that they will sell freely in times of stress. This was clearly illustrated by the attitude toward Home Owners' Loan Corporation bonds prior to the time they were guaranteed. Nor is there any provision in the bill, as I read it, whereby a mortgage bank could rediscount its own assets with some agency which had the power to issue currency. For these two reasons it would appear to me that at a time when everybody was needing to turn their mortgages into cash there would be no practical way by which the mortgage bank could raise the cash which was needed; nor do I believe that the public would consider these debentures as equivalent to cash at such a time in the absence of a guaranty.

I am not suggesting that these changes be incorporated in the bill, and I believe a mortgage bank would be a helpful thing in spite of these defects. Very truly yours,

Hugh L. CLARY, Vice President. The CHAIRMAN. The first witness this morning will be Mr. Wendell P. Barker, chairman of the Mortgage Commission of the State of New York.

Mr. Barker?
Mr. BARKER. Yes; Mr. Chairman.

The CHAIRMAN. If you will come forward to the committee table and take a seat opposite the committee reporter.

Mr. BARKER. Thank you, Mr. Chairman.

The CHAIRMAN. You will have to hurry because the Senate meets at 12 o'clock noon today, and we will have to get along as fast as we can.

Mr. BARKER. All right.

The CHAIRMAN. Mr. Barker, please state your name, residence, and occupation.

STATEMENT OF WENDELL P. BARKER, CHAIRMAN OF THE MORTGAGE COMMISSION OF THE STATE OF NEW YORK, NEW YORK CITY; RESIDENCE ADDRESS: YONKERS, N. Y.

The CHAIRMAN. Mr. Barker, have you examined this bill? If you have, we will be glad to have your views about it, stated in your own way.

Mr. BARKER. Senator Fletcher, I have not given to the particular bill before you a critical examination. My thought in coming before you today was to state my views and the result

of the study by the commission, of which I am chairman, with respect to the general subject of mortgage banking and the necessity for that type of institution.

Within the last week our commission has caused to be filed with the Governor of the State of New York and with the Legislature

a

of the State of New York a report containing our recommendations as to the proposed legislation. The principal recommendation which we are making is for the establishment of privately owned and publicly regulated State mortgage banks.

This report is rendered pursuant to the provisions of the mortgage commisison law of the State of New York, which, in addition to vesting in the commission jurisdiction over some $600,000,000 or some $700,000,000 of certificated mortgages, and the problems of salvaging and rehabilitating those mortgages, also is the problem of recommending legislation which will prevent a recurrence, if possible, of the evils which we believe led to the debacle as respects mortgage guaranty companies.

I have with me a copy of that report which I will be very happy to submit to the subcommittee for what it is worth.

The CHAIRMAN. Will the subcommittee desire to have that spread on the record ?

Senator COUZENS. I do not think that it all needs to be printed in the record.

Mr. BARKER. I have also prepared a statement of the views of my colleagues and myself with respect to the subject of mortgage banking which I think will fairly well summarize what is in the rather bulky report which I will be glad to leave with you.

The CHAIRMAN. I think we will receive and file the report, and we thank you for it, and will put in the record your statement regarding it. I think that ought to go into the record.

Senator COUZENS. Yes.

The CHAIRMAN. And the report will be filed with the subcommittee.

Mr. BARKER. May I proceed, Mr. Chairman?
The CHAIRMAN. Yes.
Mr. BARKER. The mortgage bank idea is—

The CHAIRMAN (interposing). May I ask first, Mr. Barker, how was this commission created ?

Mr. BARKER. This commission was created in the early spring of 1935, and the commissioners were qualified on the 23d day of February 1935, and we immediately undertook our tasks.

Senator COUZENS. Was the commission created by an act of the legislature?

Mr. BARKER. It was created by chapter 19 of the laws of 1935 of the State of New York.

The CHAIRMAN. How many persons compose the commission? Mr. BARKER. There are three commissioners, my associates being Mr. Louis S. Posner and Mr. Lawrence B. Cummings.

One of the earliest moves that we made in the commission was the creation of what we called the bureau of legal research, which consisted of 8 or 10 lawyers, to whom was delegated the task of making an intensive and exhaustive study and search into the whole subject of mortgage banking, particularly as it has prevailed and been practiced in about 22 countries of the world. The report which I am leaving with you contains some rather interesting exhibits with respect to mortgage banking in these 22 countries and forms the foundation of the recommendations which we have made.

Senator WAGNER. Might I interrupt you right there?
Mr. BARKER. Yes, sir.

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