Mr. SCHMIDT. Well, there is the Swiss bank, there is the Swedish bank, there is the Credit Foncier, there is the Argentine bank, banks all through South America. Practically every country has its banks. And the people of our country have financed the homes in the foreign nations in a degree that is very tremendous.

Senator BARKLEY. You mean recently?

Mr. SCHMIDT. Not in the last couple of years, Senator. But they did. Those bonds were brought to this country and sold here. Senator MCADOO. You mean during the sap period?

Mr. SCHMIDT. Well, that has been for years.

Senator MCADOO. I would like to ask this question. At what rate of interest do you think the Government of the United States could sell or this corporation could sell bonds-at what rate of interest now-with the interest alone guaranteed by the Government? At what rate of interest do you think those bonds could be sold?

Mr. SCHMIDT. My personal judgment is 32 percent to 4 percent. Senator MCADOO. Three and a half to four percent?

Mr. SCHMIDT. Yes.

Senator TOWNSEND. You are an optimist.

Mr. SCHMIDT. These bonds, gentlemen, in other countries sell on a lesser yield basis than do straight Government bonds for the reason that they have behind them mortgage security, which has held up even when Government bonds have become worthless, and people subconsciously recognize the fact that the ultimate security after all is real estate, which always retains some value. That has been some_value. an actual experience for foreign countries. It is true in Germany. Senator MCADOO. Have you any authentic figures that you could put into the record as to the rates of interest and the prices at which the bonds are sold generally in markets by the Credit Foncier and the Swedish and the Swiss banks that you referred to?

Mr. SCHMIDT. My last investigation of the Credit Foncier showed that its bonds were selling at 4.2 percent. I do not know what the rate is today.

Senator MCADOO. How about the others? Have you any figures on them?

Mr. SCHMIDT. I have not.

Senator MCADOO. Can you secure them and put them in the record? Mr. SCHMIDT. I could procure them.

Senator McADOO. I wish you would do so.

Mr. SCHMIDT. I will be happy to do that.

We provided as an emergency provision that bonds of the bank might be exchanged for existing first mortgages to the extent of 80 percent of the fair worth of the property on individual homes and 55 percent on unamortized homes.

We provided conciliators in our bill, whose function it should be to investigate cases where mortgages cannot be maintained by the mortgagor in an endeavor to adjust the interest and principal as a means of meeting situations where property value is so depreciated that the mortgagor cannot continue or where the mortgagor, due to the difficulties of his situation, cannot meet even the interest upon a sound mortgage.

We feel, gentlemen, that these provisions would set up a mortgage bank of Federal character which would function.

I might say that I myself happen to be president of Realty & Management Corporation of America which is servicing distressed properties in 38 States of this country, and that the terrible situation as regards mortgages is such that if the lenders of money had not been extremely good in the majority of cases our country would be in such shape today that its situation would be one that could hardly be remedied. There have been concessions made consistently by the major insurance companies. Unwillingness to press

Senator MCADOO. You mean merely in the matter of time?
Mr. SCHMIDT. Time and interest; yes.

Senator McADOO. Chiefly time?

Mr. SCHMIDT. Time. Both on interest and amortization.
Senator MCADOO. But they have not reduced interest rates?
Mr. SCHMIDT. They have not reduced interest rates.
Senator MCADOO. Nor principal?

Mr. SCHMIDT. Nor principal. We feel that the capital structure of our country is endangered and that real estate is the last bulwark in that whole fabric. The mortgage has always been the sacred investment, and we feel that if that is permitted to go, and there is destruction of its capital structure, then we have completely destroyed our economic fabric.

Senator COUZENS. I do not want to interrupt if you have already answered this question. I wondered if you have any opinion as to what effect the President's inflationary program would have upon the general uplift.

Mr. SCHMIDT. I expressed that previously.

Senator CouZENS. You need not answer it then.

Mr. SCHMIDT. My judgment is this, that that inflationary program will not be felt by real estate for probably a year.

Senator BARKLEY. That is, it will not be felt to the same extent that it would be felt by other activities, but it would be felt some? Mr. SCHMIDT. Some, perhaps; but real estate always lags quite a distance behind. It always lags. And experience in other countries is exactly that, that your expense of operation went up and your rents, for instance, or values did not. You have rent legislation.

Senator BARKLEY. What I have in mind is this: The fact that there might be inflation, assuming that there will be, does not make the real estate situation any worse?

Mr. SCHMIDT. Yes; it does.

Senator BARKLEY. Even conceding that it makes it no better? Mr. SCHMIDT. Yes; it does make it worse.

Senator BARKLEY. How?

Mr. SCHMIDT. Well, for the reason that it lags, in the first place, and in the second place experience has proven that sales almost cease in real estate. People put their money, when they can get it, into tangible goods-the more personal goods.

Senator BARKLEY. That is a natural consequence.

Mr. SCHMIDT. That is a natural consequence. That has been the experience of the world under inflationary periods.

Senator COUZENS. So you do not want any inflation, then?

Mr. SCHMIDT. I think it will be terrible for our particular commodity. Terrible.

Senator McADOO. Do you think that to cut the gold dollar, instance, in half would be helpful?

for

Mr. SCHMIDT. I think if it were done at once, as they did in France when they reduced the franc from approximately 20 cents down to 4 cents-it was done at one swoop-I think it would be very valuable.

Senator McADOO. Do you mean that if you guillotined the dollar today and did not have the question pending a long time and have the man under sentence for 6 months before you let the ax fall on him, that you think it would do good?

Mr. SCHMIDT. Yes. I am not competent to discuss, perhaps, such major economic questions, Mr. Senator.

Senator BARKLEY. I do not know of anybody who is.

Senator McADOO. I was interested in Senator Couzen's question about that. I agree with you, Senator Barkley, that I do not know of anybody who is, either. It reminds me of the story of the professor who asked the class for an explanation of the aurora borealis. No one answered for a moment, and then one of the students got up and said, "Well, I did know, Professor, but I forgot." The professor said, "My God! The only man who ever lived that knew the explanation of the aurora borealis and he has forgotten!" I rather feel that way about some of these economists sometimes.

Senator COUZENS. Yet during the present discussion we hear a great many dogmatic statements of what they know about the

matter.

Mr. SCHMIDT. Well I do think it is common knowledge based upon experience of the past that real estate is pretty hard hit by inflation. Other things are helped. For myself, I would like to see inflation of some type. I would like to see it stabilized, for myself.

Senator McADOO. Let me ask you this question, not as an economist, but as a guesser. Suppose the gold dollar were cut in half today, would it help real estate or not?

Mr. SCHMIDT. No. Your prices would immediately go up in all the commodities that serve real estate and the price of real estate itself would not go up in the same proportion.

Senator BARKLEY. Would it facilitate the payment by people of their debts on real estate, their mortgages?

Mr. SCHMIDT. Yes, it would have that advantage.

Senator BARKLEY. It would tend to lift from real estate this cloud that seems to be irremovable at present?

Mr. SCHMIDT. Yes, I think so. I agree with that. I said I thought it would have advantage.

Senator McAdoo. But suppose, for instance, that you did not have any money to pay anything with, and you cut the gold dollar in half, how would that benefit you?

Mr. SCHMIDT. I do not think it would help you at all.

Senator McADOO. Well, the trouble is that most people haven't got the money.

Senator BARKLEY. It is not going to help the fellow that has not got a nickel.

Senator COUZENS. I do not agree with that at all. I think it will help by giving him a job.

Senator MCADOO. If it gives him a job.

Senator COUZENS. I think it is going to give him a job.
Senator McADOO. If you can find employment.

Mr. SCHMIDT. Gentlemen, that was one reason why we made our bill comprehensive to include especially low-cost housing. Since we feel and know that the construction industry is the biggest industry in this country, and it has simply got to revive before there can be any other revival of business. The same thing is true of this underlying mortgage problem. Before any mortgage money will be available for any new financing you have simply got to take care of your base situation.

Senator BARKLEY. Do you provide in your bill for the advancement or lending of money for new construction?

Mr. SCHMIDT. No; we do not, but we feel that if you provide for the discounts of such mortgages by a Federal institution that money will naturally follow.

Now gentlemen, I do not wish to take more of your valuable time, but I would like to just point out some of the reasons for which we feel the proposed legislation must be remedial.

Mr. Chairman, in order to correct a misapprehension, occasioned perhaps by Senator McAdoo's remark, we do not suggest or provide that the Government take any obligation as to the principal of bonds upon which it guaranteed the interest. In these respects, Mr. Chairman, we feel that the bill as proposed will fail to meet the situation.

In the first place, we do not think that under its provisions mortgages will be exchanged for bonds. In other words, we think it would be merely holding out another hope, such as was held out by the Federal home-loan bank when it was initiated.

Senator COUZENS. Did you support it when it was initiated? Mr. SCHMIDT. I did; but not in the form which it took. It was directly contrary to our proposals. We proposed what we have suggested to you today. I have my testimony here at that hearing to confirm that statement. I objected strongly. You were present, I think, Senator Bulkley.

Senator BULKLEY. Yes, sir.

Mr. SCHMIDT. I said that such a measure was absolutely necessary. I did give the bill general support, but subsequent to that time there were so many changes made in it and its restricted provisions were so increased that it became almost a useless instrument. I think, however, that it gave the groundwork upon which today a very much more usable instrumentality can be built, and in that respect I think its formation was a most fortunate thing.

I do not think under the provisions of this bill that mortgages will be exchanged for the bonds, as provided. In the first place, I have talked this matter over with one after another of the major financial interests of this country, and they have said they would not accept such bonds, they would not under any circumstances trade their mortgages in.

Senator BULKEY. Are you at liberty to name some of those that expressed that opinion?

Mr. SCHMIDT. I do not think I ought to, Senator.

Senator BARKLEY. Let me ask you a question there about these bonds. You say that their proposal is that the interest should be guaranteed paid by the Government until the bond is paid?

Mr. SCHMIDT. That is right.

Senator BARKLEY. Which might be forever. As long as the bond remains unpaid the Government keeps on paying the interest on it until it might pay out more than the bond amounted to, many times over. Have you estimated the amount of these bonds that would be probably outstanding necessary to issue in order to cover your program?

Mr. SCHMIDT. I think that is a very difficult estimate to make. Our bill provides that the amount shall be from time to time determined by the President during the emergency period.

Senator BARKLEY. It might go as high as 10 billions?

Mr. SCHMIDT. It might.

Senator BARKLEY. Or more?

Mr. SCHMIDT. The total home mortgages in the country, I understand, are $20,000,000 approximately.

Senator BARKLEY. How much are the total real-estate mortgages? Mr. SCHMIDT. I think 39 billion.

Senator BARKLEY. Thirty-nine billions?

Mr. SCHMIDT. Yes. But practically none of the commercial mortgages with the one-third provision would be traded in under any circumstances. We simply provided for that general mortgage situation, Senator, for the reason that we felt that many of our home owners have been the bond buyers; they own bonds in these projects which are in default. These projects are going to pieces, and the property is going to pieces, because no money of any kind is available on mortgages with which to reorganize them and to put the properties in shape.

Senator BARKLEY. Your bill does not include farm property at all? Mr. SCHMIDT. It does not. It distinctly excludes it.

Senator COUZENS. Does it include apartment houses, hotels, and office buildings, and all?

Mr. SCHMIDT. We took care of that by providing that the bank might make regulations from time to time, and further we provided that only sound mortgages should be eligible for discount.

Senator TOWNSEND. Who is to pass upon the question of the soundness?

Mr. SCHMIDT. The bank itself.

Senator BULKLEY. Mr. Schmidt, you have not suggested any specific limit on the amount that could be loaned upon a home?

Mr. SCHMIDT. Yes. We have limited that amount to $20,000. I was going to mention that in connection with one of the very grave objections that I feel exist to the proposed legislation.

Senator BULKLEY. You think the limit in that is too low? Mr. SCHMIDT. Entirely too small. It does not at all meet the urban situation, which it is designed to help.

Senator BARKLEY. Does your bill propose any limit on loans, individual loans upon real estate?

Mr. SCHMIDT. We propose a limit of $20,000 on home property. Senator BARKLEY. On the homes, but what about the other? Mr. SCHMIDT. To the regulation of the bank. Now, we feel that that limitation as placed in this bill does not take care of the very class of citizens in our country which it is designed to help. We know that, because we know the average value of properties that are owned by the average citizen, and we do not feel that the pro