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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.

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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 you 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 I-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.

They were not in arrears. They were taken ill. They were taken to the hospital, five of them, with flu. The mother died the following day, and the report came back that flu was incidental. Malnutrition was the basis. Three years they had been starving themselves to make payments. Over and over we have them.

I won't take your time unduly, but I want to assure you that we have contacted 15,000 people through the divisions. Personally I have contacted a lot of the 4,000 at my headquarters at 33 Liberty Street. These things are facts. My time has been given night and day for a year to this work. It is not based upon hearsay. It is not based on rumor. It was said by an economist afterward that it was uncanny how my percentages were in line with the factual survey. It was not uncanny; it was the fact that I had read thousands of letters or had contacted with these people, that I had my findings from Buffalo, from Syracuse, from Dutchess County, from Long Island, from Brooklyn, from the checks of these divisions and because of Mr. Vanderlip's broadcast from all over the country.

Senator TOWNSEND. If this bill is amended along the lines that you suggest, do you think that $2,000,000,000 will be sufficient to take care of the situation?

Mr. McAvoy. I do not.

Senator TOWNSEND. What is your estimate?

Mr. McAvoy. My estimate is that probably $9,000,000,000.
Senator ToWNSEND. Nine billion?

Mr. McAvoy. Yes. Our suggestion as to the amendment to the bill was that, instead of the Government servicing these loans, or the governmental units, that each institution that turns these mortgages over continue to service those mortgages. They know the territories. They know the owners. They could do it more economically. I feel that they should have, in a sense, the responsibility of foreclosure. And I feel that the bonds should be so attractive to people that they would come in and do this. At the present moment on this bill I feel that it is not attractive enough to the mortgagee to operate.

Senator TOWNSEND. What is your estimate of what it would require as amended along the lines that you suggest?

Mr. McAvoy. I think it should be an open-end proposition, in a

sense.

Senator TOWNSEND. No limit?

Mr. McAvoy. No; I would not say that; because you are not contemplating at this time new construction in connection with it. But I think that the principle should be that some method of utilizing this up to the extent of all qualifying mortgages, home mortgages, be devised.

Senator TOWNSEND. Have you any estimate of what it would require?

Mr. McAvoy. I think about $9,000,000,000 would be the limit. Now whether that would be--this is not compulsory. It is a question of the mortgagees and the institutions availing themselves, is it not, of this conversion?

Senator ToWNSEND. Yes.

Senator BULKLEY. Is that $9,000,000,000 of the amount to be loaned? Is that the face of the loans?

Mr. McAvoy. No. In our plan we contemplated this: We will say that a savings bank turns into the Government unit $20,000,000 of qualifying mortgages, and they get back $20,000,000 of bonds. They might get back $2,000,000 more in order to make the necessary expenditures as trustee for the mortgagors, who would have increased their mortgages by that amount. Those bonds would be then held by the company who had turned over their mortgages one at a time to service those mortgages at a fixed service charge. Then a borrowing power established on those bonds, so that they could borrow and throw their doors open like a savings bank, make themselves liquid. It is our recommendation that they should be made eligible to the Federal Reserve rediscount or to some other borrowing power. Senator BULKLEY. I did not understand what that $9,000,000,000 figure represents. Will you explain that again, please?

Mr. McAvoy. That represents approximately the home mortgages now existing.

Senator COPELAND. The total number of mortgages?

Mr. McAvoy. The total number of urban home mortgages.
Senator BULKLEY. On homes?

Mr. McAvoy. On homes owner.occupied.

Senator BULKLEY. That is all homes, is it?

Mr. McAvoy. All homes that are owner occupied.

Senator BULKLEY. Or did you mean to confine that to cities? Mr. McAvoy. All owner-occupied homes except farm homes or those held by realty companies.

Senator BULKLEY. Yes.

Mr. McAvoy. Our estimate by including farms would bring it to about 172 billion or 18 billion. But under this plan we propose it does not represent 18 billions of new money, because the money is now frozen in those mortgages.

Senator BULKLEY. I understand.

Mr. McAvoy. The 9 billion is now frozen. It might take a billion more or a billion and a half to two billion more to make those mortgages safe for a period, say, of 2 years.

Our suggestion on that recommendation of a 2-year period was this, that the various real-estate boards would continue to function throughout the districts, so as to act as counselors of these people to help them readjust their situation, to call the second mortgagees in to get them to subordinate, to get them in many cases to discount the mortgages, as they often are willing to do, and at the end of a year call back that individual whom they have certified to and helped and say, "Now, what is your position? Have you regained ground? Do you think that you are going to be able to live in this home of yours, or is it oversized for you now?"

Now he may be coming back again with his worry of his own loss taken off his mind, without the burden of rent upon him. He may have been making new grounds with turning business. So he may say, "I am going to be in wonderful shape at the end of 2 years, so that I can hold my position." On the other hand, he may still say, "I have no job."

Then I feel that these bodies should say, "Now, the thing for you to do is during the year-because at the end of the 2 years the emergency is over; we cannot extend this leniency to you again—

you should put that house in the market and try to sell it, with this mortgage that you have on it of $6,000, and take $2,000 for your equity. You have had 2 years out of it. Then we will turn around and with that $2,000 we will get you a smaller proposition that will suit you. Perhaps you are only handicapped, and in this way you have got a thousand to turn around with and recoup a lot of your lost equity in this bargain that you will get. You will get a similar bargain to that which you have given, and in turn it will rescue somebody down the line."

I feel there is a tremendous social readjustment to be done there; that this money should under no circumstances be extended to the individual, because pressure will be used to make him extend it to other people who need it. It will be bound to go to distressed relatives, so for the good of the cause, I feel that that money should be placed as a credit to his account and that he should be guided a bit.

Too often do I hear the statement made, "Why, that man is living beyond his means." Of course he is living beyond his means, but he is entrapped. He is attempting to save his possessions. I have just guided out a young chap from a $28,000 home that he had. It had a $10,000 first mortgage, $18,000 paid-in equity. And yet someone has said, "He is living beyond his means." But he was formerly a man of high earning power. He paid in $18,000 for a home. He had other things besides. He exhausted his other possessions, but he had this one thing and that was his home and that he prized most.

I worked him out for the moment. It was a terrific job because of money lack. A little excess money would have done it easily. At the present moment he is slated for foreclosure sale, April 25th.

He is not included in this proposition. I told him when he came on March 29 as I was sending this factual survey and our plan to our President, the Governors, and to the Cabinet and various other members, and I was signing the papers, and I said, "Don't worry about this. I feel that in the next two weeks something is going to break as to Federal relief," and I want to tell you when I read of the $10,000 limitation of value that was the first thing I thought of, with many other cases, that it was totally wrong. I felt sick enough for them, but you know how they must have felt. That was a $28,000 proposition with a $10,000 first mortgage, which is a home, yet it does not qualify. It is a wrong principle, in our judgment.

Senator BULKLEY. Did you have anything further, Mr. McAvoy? Mr. McAvoy. There is considerable, but it is embodied in the first part of the summary of our plan which criticizes several points not yet mentioned by me, following the amendment that is being drafted, which did not reach me at the train last night, but is being forwarded by special mail.

Senator BULKLEY. Then you will submit that later on?

Mr. McAvoy. I will submit it on receipt, Mr. Chairman, and I wish to express my appreciation of the opportunity afforded me by your committee to give this expression.

Senator BULKLEY. Thank you very much, Mr. McAvoy.

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