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situation brought to my office letters from every State in the Union, every letter of which I read, giving me a general cross-section, perhaps an unusual cross-section, which led to make the statement last fall that probably three quarters of the home owners were insolvent. While perhaps they were not in arrears on their mortgage payments, they were nevertheless insolvent, due to the fact that they had borrowed in order to make their mortgage payments from private companies, friends, or otherwise.

That statement being a generality was not taken in the light in which I felt it deserved. Proof has been founded through A. Anton Friederich, professor of economics in New York University. In the back part of this book you will find a factual survey made by him together with Mr. Herendeen, a member of the American Statistical Association, in which they sent out a questionnaire to the 530 families in the Sunnyside Gardens, a little better than average group of small-home owners, and one of the particular reasons I wanted to submit this pamphlet was that the survey is in it.

It is divided into three groups, the entire group as a whole showing their net worth of $3,401,000 of 1928 now reduced 78 percent. All figures are exclusive of home, mortgage liabilities, or equities.

That is broken down into two groups of " solvent "and" insolvent" home owners.

The “solvent" group, representing 26 percent of the entire group show a minus of 56 percent of that net worth.

The “insolvent " group, which is 74 percent of the entire group in 1928, had assets of $1,937,000, and liabilities of $46,000, or a net worth of $1,890,000.

In January 1933 their total assets were $348,000, or a decline of 82 percent. Their net worth was $92,000, a decline of about $1,798,000, or 95 percent, leaving 5 cents net worth on the dollar.

Some 13 to 15 percent of that group hold the $92,000, which is questionable as to the realization of certain securities put in as assets, whether it exists or not. The balance are in debt an average of $862.

Those people are not foreclosed. They are in arrears not a great deal. They have turned and borrowed, for instance. Their personal borrowings in 1928 were $7,600, and that has increased now until it is $125,200, or plus 1,547 percent, and they have further complicated their position by the fact that those borrowings call for monthly repayments.

Now, the mortgagees, as I have many times pointed out to the heads of mortgage companies, insurance companies, and savings banks, are not aware of the facts that we possess, for the reason that the owner is apprehensive of telling his mortgagee the true situation or the true status. He is being asked for a reduction or seeking a definite renewal and he feels that to come in and say “I have borrowed from a financing company” will put him in the light of a poor risk. So he comes in with his best foot forward and pays as promptly as he can, and many times the heads of these companies think that their people are carrying them very nicely, despite the obvious fact that they ought to know that where incomes are cut in half at least, those commitments made at a different day mav not still be sound, viz, in accordance with an old economic rule that it is sound to put 25 percent only of a monthly income into shelter.

This factual survey shows that originally these people entailed but 22 percent of their income--and this is all contained in the detail-into their homes. Today that is 44 percent of their monthly income, forgetting those that have no employment whatever. When their savings banks accounts are exhausted, as they now are, when their insurance funds surrender values are exhausted, such as in this insolvent group, where originally they had $269,000 cash surrender value and today it is $83,000, a decrease of 69 percent, when those other collaterals are exhausted, as they rapidly are now, and finding no market and regulatory features upon the remaining insurance, default is inevitable. A revision of terms is necessary. It is 2 years too late. Therefore, it calls for a borrowing power upon their equity, and if the appraisal basis is not established other than by field appraisals, home ownership, according to our findings, is doomed.

Whether or not the companies foreclose is not the thing that I am most afraid of. I am afraid of the home owner becoming convinced that he has no equity because of the failure to have that equity recognized either as to a revision of terms or as to a borrowing power upon a substantial paid-in equity. I am afraid that he will become convinced that he has no equity and get out from the struggle and the load, from the tragic despair, from the fear that they have when notices are sent them that legal processes will be taken. No matter how polite the tone of the letter is, it strikes terror into the heart of the owner.

I particularly want to stress that it strikes despair in the heart of the wife. It brings illnesses on. We contact cases that are virtually mental borderline cases. We contact cases that are malnutrition brought on by making oversize payments at the deprivation of the table. Constantly we come across those things. And yet that person is rated at the institution a good payer and in good shape.

Pardon me for diverting on that.

Senator TOWNSEND. What assistance has the Reconstruction Finance Corporation been able to render in this situation ?

Mr. McAvoy. Most indirect assistance, which is not recognized by the small individual. I am quite in sympathy with his failure to recognize it. No doubt last year in making the loans to the mortgage companies they saved a general collapse. In that indirect fashion it could be termed that the owner was spared the pressure, additional pressure, of paying $250 or $500 or $1,000 off of a mortgage. We can recognize, experienced business men or economists, no doubt recognize that, but the small individual unversed in finance cannot, and furthermore, it does not ease his individual problem as he knows it.

Our recommendations last fall to the Reconstruction Finance Corporation was that they loan half a billion dollars on second mortgages where equities warrant, based upon a generous appraisal, not based on the market but based somewhat upon the faith in the collateral value that exists beyond appraisals of the material value only in the home. Much as I am interested in other forms of real

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estate, I have divorced all other real estate problems from the home world, because the home world only possesses that additional collateral value that I speak of, a spiritual value if you like, the associations that are intertwined in the home into which a man has brought his bride or in which his children are born or in which his wife likes the kitchen or the closets and every stick and timber and the lilac trees outside or the rose bushes. Those are the factors that make the small home owner disregard appraisals. He does not care what this man or that man thinks his home is worth.

He has got $4,000 or $5,000 in that place. It is his home. It is his ambition to make it free and clear and his, and somebody, is trying to take that priceless possession away from him, into which he may have put $2,000 or $3,000 additional in improvements, which generally are disregarded by the appraiser. Somebody is trying to take that away from him for the mortgage he thinks.

Now, I want to tell you, to destroy that feeling, that tremendous additional collateral asset to a loan, as it is slowly being undermined, the more home owners are coming to me and telling me, “ I am going to throw up this house. Why, how foolish. It costs me $80 a month$100 a month to pay off and carry it. I can rent something very decent for $35 or $40. I will put that $50 away and compound it, and I will have an equity accumulating, which is not there now, because the bank demands that I pay off on top of that $25 or $50 a month, because the mortgage at the old amount is not safe.

Now, that is exactly what is happening, and they are saying that there is nothing in the world that would ever bring them back, and I want to say that home ownership-and I have been connected with it for 30 years, have a love for it; my interest in this thing is to service my customers, and I hope to build many more homes and sell them—I want to say that I feel definitely that if some relief is not given more than the gestures that have been made and nothing but gestures have been made; perhaps the intention back of them was good, but they were not planned so that they worked—that unless this help is given and given soon and definitely, home ownership will be destroyed.

Senator TOWNSEND. Are you in favor of this bill?

Mr. McAvoy. I am in favor of the bill in the spirit and intent in which it is written, but I feel that unless some vital questions are met, it will be unavailing. One important one is that appraisals and another is making inclusive all homes and not distinguishing as to $10,000 homes, for which limitation I feel no reasonable fundamental can be presented as a base.

I see two neighbors, one with a $14,000 house, one with a $10,000 house, adjoining. I see one saved by the Government. The other one loses his home. He does not understand why. I think the social unrest, that very feeling, must be considered.

We have advocated that all homes should be included, 80 percent up to $20,000 in value, with a decreasing percent in brackets of $5,000 and above, with a stipulation that no loan shall be over $25,000, would be an equitable basis.

In the case of a person with a $50,000 home, many of them were free and clear. Perhaps they have placed during this panic period a loan of $10,000 or $15,000 on them, as many of them have, I know.


They could not borrow from a loan company, but they borrowed from a friend and they got a mortgage of 5, 10, 15, or 20 thousand dollars. And that would be applicable up to $25,000. The equities would be so much better than $8,000 on a $10,000 value. You would get advantages as to equity.

And then, gentlemen, another factor that we have recommended is that this sum should be sufficient to include reconditioning, to keep the neighborhood from getting shabby, you know, and keep the collateral good so as to keep the house salable, and, above all, to give employment and to stimulate business.

Senator TOWNSEND. Does this provide for repairs and maintenance ?

Mr. McAvoy. It provides it if the machinery of appraising permits that additional sum over the existing mortgage. I say that a field appraizer going down in this block of $12,000 homes with $6,000 mortgages finds eight of them apparent sales--I call them foreclosure off record. He finds that they sold for about $7,200. He finds six more people who will be willing to sell for $7,400 or $7,500. Why? Because two or three hundred dollars over their indebtedness to eat on is now more important than equity.

And that little field appraiser-and obviously from an overhead standpoint you cannot pay an experienced appraiser, a virtual economist with special powers to use his discretion-but that appraiser goes down there and he is faced with this fact, that those houses have been sold for $7,500 or $7,200. These houses can be bought for $7,400 or $7,500. That man is in a position that if he knew enough and had even enough experience to establish such a theory as this, he just would not do it, because he would be afraid of being accused of taking a hundred dollar bill on such an appraisal. And everybody, says, “Why, it would be silly: There is no equity in these houses.” He cannot argue, “ These sales took place under a forced situation and were not indicative or true indices of value," because the evidence of force has been buried by taking a deed."

And I claim that it is unjust in this bill to place upon the shoulders of this field appraiser—incidentally not on the appraiser, because he will play safe, it's really a penalty on the home owner, because in this bill I think there is a point that anyone who willfully brings in an excess valuation is subject to a term in prison and a fine. That fellow is going to play safe. He is not going to have anybody able to say to him that he appraised something for $9,000 when it could be bought for $7,000 or $7,500 in that block.

This thing, I tell you gentlemen, will not operate if it is left to field appraisers, and it will bring back to the doors of these divisions the tragedies that I have experienced from the home-loan bank applicants and a stigma on well-meaning legislators as well. I had literally hundreds and hundreds and hundreds, and our division had hundreds of people come back cursing their country and their institutions. They had gone through this. First, when the R. F. C. opened its doors and this is why Mr. Miller was so anxious that this advisory board be set up. They saw the mortgage companies being helped while they were threatened with being foreclosed and they felt that the Reconstruction Finance Corporation would solve their problems. They came to us afterward, and they cursed the situation..

Well, then they heard the Young plan, the $10,000,000 central savings bank. The publicity-the newspapers naturally like headlines, and they flashed" the small home owner helped." They rushed down to the Federal Reserve building and they found it was not applicable to them.

And then they heard the Federal Reserve System was being opened to individuals, and they misunderstood that and they rushed there only to find the doors closed to them.

Then the home-loan bank came along and they rushed there with similar result.

I want to tell you gentlemen the temper of these people is getting somewhat like the farmers out West. It will not stand, and should not stand, another grievous disappointment.

I called the president of the Newark Bank the day his doors opened, and I told him at the end of his day how many individual applicants he had there. I did not tell him before, because I was fearful that they would misunderstand my motive.

And I want to tell you that if you ever dealt and sat with 25 of these cases, a run of 25 of these cases, and


had a man tell you that he had this much in a two-family house, as I had just yesterday at 33 Liberty Street, he had $10,000 in it, and he told me how he had gotten this $10,000, and when he reached the point where he had his sister's money in it and where he had his mother's money in, he broke down and tears streamed down his face, you would speedily remedy such a tragic situation by a prompt, generous, and workable act.

Over and over-I had the other day a policeman on the beat downstairs where I park may car. He brought his brother-in-law and sister in.

He is an engineer. The oldest girl has tuberculosis from overstudy and undernourishment. She has been working her way through college. His salary is reduced to a point where, after carrying his house at 6 percent and his amortizations, $60 per month is left to take care of six children-food, gas, electricity, clothes, and so forth, and paying off $160 on a house, a man that always made five or six thousand and bonuses. Under reduced circumstances $250 a month is all he has.

I am trying to save home ownership, but here is what I told that man when they finished. The mother said—and they were fine, handsome, strapping people, of the finest sort-she said, " I don't owe a bill. I know just where I can get the cheapest things, clothes and all. I told my daughter not to worry so much at the thought of death. Life is a little too hard.”

I said to this chap, “I am going to ask the mortgagee to waive your amortization for a year and temporarily at least cut interest. Don't be afraid if they foreclose, because if they refuse I want you to forget your $8,000 in that house and take this money and make that girl well and feed those other five children and make them strong and forget that $8,000 equity.”

Now I want to tell you that, much as I–and I don't believe there is

anyone that wants to save ownership more than 1-yet I want to tell you, if help is not given to the home owners, that is the course they should pursue.

You have a situation there at Sunnyside-a family named McTavish. Everybody in the neighborhood felt they were well to do.

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