In my judgment securities of this bank would be very much sought after.

The CHAIRMAN. What do you think about 12 times the capital and surplus? The New York plan contemplates 20 times.

Mr. SCHMIDT. I think 12 times is extremely conservative. However, I think that this bank should be operated as a conservative agency, to take care of the base mortgage structure.

Senator RADCLIFFE. You mean capital and surplus combined? Mr. SCHMIDT. Yes; the bill provides that 25 percent of the earnings shall be set aside in a surplus account before dividends are paid, until it reaches a certain amount. 25 percent of earnings would be equivalent to a little over one-half of 1 percent. In my judgment, Senator-and I went over this with the Federal Housing Administration authorities at great length before that bill was passed-it will cost approximately one-half of 1 percent to operate this bank. Another one-half of 1 percent going into surplus would mean that you should have a differential of 1 percent, and earn a fair dividend at the same time.

Senator RADCLIFFE. Do you think it would be feasible to set up some form of reserve, irrespective of earnings?

Mr. SCHMIDT. Yes; perfectly feasible.

Senator RADCLIFFE. Based on percentage of business written, or some other basis?

Mr. SCHMIDT. Yes; however, I think this is perhaps more practical. If you take a percentage of earnings, the bank is bound to

earn money.

Senator RADCLIFFE. Of course, you always think of a reserve as something to protect your business, and as not being contingent upon the amount of profits.

Mr. SCHMIDT. Yes. But, inasmuch as this bank, if it were in operation at all, and having expenses of operation, would be bound to have mortgages yielding it 5 or 6 percent, depending upon the character of the mortgage in its possession, it would be bound to earn money. If it had capital to invest and could not get mortgages, it could at least invest it in Government bonds, and earn very much more than its expenses.

An agency of this kind cannot help but earn money. It is impossible to conceive that it would not earn money.

I want to answer a question you raised on the insurance companies and their investment: Unquestionably they will want to take mortgages direct, but also an agency of this kind would be useful to many of them. The five or six largest ones do not need it. They are looking for investments at all times. But there are hundreds of smaller insurance companies in this country, and they become nonliquid and in a dangerous position if they have not a marketing agency for mortgages. There is no place, gentlemen, in periods of stress, where you can sell a mortgage to anybody. It becomes frozen. I wish to read you this letter, which I received from the president of one of the large banks in this country, with a capital of $12,000,000 and surplus of $5,000,000:

It was a pleasure to meet you the other day in St. Louis and I think all of those present enjoyed the luncheon very much.

After we left you u Mr. Hord Hardin, of the Mississippi Valley Trust Co., asked me to let him have the copy of the bill you had furnished us and he

has been giving it some study and consideration, after which time I expect he will send the bill over to me.

Feel that it is highly desirable to have some organization such as you describe, which would afford some marketability and liquidity to mortgage loans. It is regrettable that in our periods of depression, regardless of the security afforded by a real-estate loan it becomes absolutely frozen for lack of any market whatever, and I think something such as you have been planning will go a long way toward making real estate loan investments more attractive. This letter is from the president of one of the large institutions in this country, engaged largely in making real-estate loans. That is just one of many that I have had.

I do not wish to take too much of your time, Senator. If there are any questions you wish to ask me, I shall be glad to try to answer them.

The CHAIRMAN. Are there any other questions? If not, we are very much obliged to you, Mr. Schmidt.

Is there anyone else, Mr. MacDougall, that you would like us to hear?

Mr. NELSON. Senator, there are several people here from different parts of the country who simply wanted to express their interest and their approval of this bill. If it is agreeable, may their names be entered in the record? I have given you a list of the names. I would like to say just a few words myself about this matter.

STATEMENT OF HERBERT NELSON, SECRETARY, NATIONAL ASSOCIATION OF REAL ESTATE BOARDS, CHICAGO, ILL.

The CHAIRMAN. We will be very glad to hear what you have to say on this subject, Mr. Nelson.

Mr. NELSON. I am secretary of the National Association of Real Estate Boards, which has 430 local units, like the Washington Real Estate Board, throughout the country. I am not a financial expert, Senator, but during the past 12 years I have heard a great deal about this matter. I have had thousands of letters and complaints from people who were interested in mortgage bonds, who bought them and who suffered in their purchases.

We have built, during the past 15 years, thousands of great structures, including hotels, apartments, and office buildings. To meet that building activity there grew up private mortgage banks, such as Straus & Co., the American Bond & Mortgage Co., and two or three hundred institutions of that kind. They functioned largely without regulation. The State regulation that was given them was perfunctory, and, in general, we did not know how to do that job of banking business properly and conservatively. As you know, the result was disaster. There were some 10 billion dollars of mortgage bonds issued by those various companies. Nobody knows what they are worth today. There have been investigations of various kinds, but I have heard it said, and the common gossip is, that probably they are worth about $3,000,000,000.

We are going to have mortgage bonds issued in this country again, because we need these great structures, and it seems to us, after watching this development during the last 12 to 15 years, that if mortgage bonds are issued, they should be issued under a type of regulation and control by the Federal Government, which we be

lieve is the only agency which can do it properly, which will assure investors in the future that their mortgage bonds are prudent and safe investments.

So we believe that this bill, or something substantially like this bill, is essential for the protection of the public.

Senator WAGNER. Mortgage certificates, it must be recognized, have received a black eye recently.

Mr. NELSON. Yes.

Senator WAGNER. Therefore you have to do something to assure the public that the mortgage certificates to be issued now have a certain provision which prevents any overvaluations or careless administration.

Mr. NELSON. That is right, sir.

The CHAIRMAN. We are very much obliged to you, Mr. Nelson. That is a very excellent statement.

There are some gentlemen here representing groups from different parts of the country who want to have their names entered and state what their position is. We shall be very glad to have each of you state it for the record.

STATEMENT OF AUBREY MADDOCK, HARTFORD, CONN., FORMER PRESIDENT, CONNECTICUT ASSOCIATION OF REAL ESTATE BOARDS

The CHAIRMAN. Please state your name, residence, and occupation. Mr. MADDOCK. Aubrey Maddock; Hartford, Conn. I am former president of the Connecticut Association of Real Estate Boards, and I am now a member of the advisory committee of the Connecticut Association of Real Estate Boards, embracing 14 boards, with a membership of about 250.

The Connecticut Association of Real Estate Boards has endorsed the principle of the Federal mortgage-discount bank, which bill is before you for consideration this morning. We feel especially that our Hartford insurance companies would welcome such legislation. There are 41 of those companies having home offices in Hartford, with assets of 22 billion dollars, and the annual premium income is $600,000,000.

The Connecticut Association trusts that your committee will give favorable consideration to the passage of legislation along these lines. Thank you, sir.

The CHAIRMAN. We are very much obliged. That is a very interesting statement.

STATEMENT OF J. R. BRADY, PITTSBURGH, PA., EXECUTIVE SECRETARY, PITTSBURGH REAL ESTATE BOARD

Mr. BRADY. Mr. Chairman and gentlemen, my name is J. R. Brady. I am executive secretary of the Pittsburgh Real Estate Board.

My board, Senator, and the real-estate boards of Pennsylvania, have endorsed this bill. We feel that it will go a long way toward curing some of the evils in the mortgage structure.

The CHAIRMAN. Thank you.

STATEMENT OF MARK HODO, BIRMINGHAM, ALA., PRESIDENT, ALABAMA REAL ESTATE ASSOCIATION

Mr. HODO. Mr. Chairman and gentlemen, my name is Mark Hodo; Birmingham, Ala. I am president of the Alabama Real Estate Association, and we are on record as favoring the Fletcher bill substantially as written. We represent, in addition to real-estate operators, hundreds of real-estate clients who feel that this would be a very necessary function of government.

The CHAIRMAN. Thank you very much, Mr. Hodo.

STATEMENT OF S. WILLIAM WALSTRUM, RIDGEWOOD, N. J., REPRESENTING NEW JERSEY ASSOCIATION OF REAL ESTATE BOARDS

Mr. WALSTRUM. Mr. Chairman and gentlemen, my name is S. William Walstrum, Ridgewood, N. J. I represent the New Jersey Association of Real Estate Boards, a board member of the National Association of Real Estate Boards. I could not presume to add anything to what Mr. Schmidt, Mr. MacDougall, or others have said about this proposed Federal mortgage bank, but I do want to say-and I am glad to have the opportunity to say-that our New Jersey Association of Real Estate Boards, at its annual convention in December last year, passed a resolution unanimously urging the support of its members to the passage of this bill, and we feel that if it is passed it will provide a very great need in the mortgage and financial structure of our country.

The CHAIRMAN. Do you think it interferes with private enterprise at all?

Mr. WALSTRUM. No, sir; we do not.

The CHAIRMAN. You think it will help the investment of private capital?

Mr. WALSTRUM. We do.

The CHAIRMAN. You think it is practical and needed?

Mr. WALSTRUM. Very much so.

The CHAIRMAN. Thank you very much.

The hearing will stand adjourned subject to call. I will get the committee together whenever you gentlemen have something more to submit.

(Whereupon, at 12:40 p. m., the committee adjourned subject to

call.)

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