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probably 10,000,000 of the owned homes, or another half million, and those are just rough estimates based on the census figures.

This act provides a 200 million cash capital and authorizes $2,000,000,000 of bonds, the interest on which would be guaranteed by the United States. It does not provide for loans in cash to take up mortgages, but provides for the exchange of these bonds for mortgages and for cash to pay the necessary taxes and incidental items essential in the transfer and refinancing of the home owners, provided the mortgagees will accept the bonds for his mortgage. Then the Home Owners Loan Corporation can take up the mortgage and pay taxes and incidental items in cash and give the home owner a new mortgage for all his indebtedness, not exceeding 80 percent of the value of the home.

Senator TOWNSEND. 80 percent?
Mr. RUSSELL. Eighty percent of the value of the home.

Senator COUZENS. Then that would be a maximum of $8,000, is that it?

Mr. RUSSELL. That is right; yes, sir. " Which would bear interest at the rate of 5 percent per annum on the unpaid balance, and would require a monthly payment of about $8 a thousand a month, to be applied first to interest and the balance to principal, over a period of 15 years until the loan is paid.

The Corporation would have the right to grant a moratorium of interest and principal at any time or from time to time not exceeding 3 years. By. this means, if the mortgagee will take the bond, the home owner whose mortgage is due and who is about to lose his home, or whose monthly or other payments are excessive, could have all his home financing obligations brought up to date and put in one mortgage, the payments on which would be less than the rental value of his home, and if he got out of work or in the hospital his payments could be extended to save his home. In addition to the exchange of bonds for mortgages the Corporation could make cash loans for the sole purpose of paying taxes to such home owners whose homes are otherwise unincumbered. The act does not protect the home owner whose home is mortgaged in cases where the mortgagee might refuse to take one of the bonds in lieu of its mortgage. LIt has been discovered that in probably one third of the counties in the United States there is no kind of an institution providing funds to finance homes. The banks which used to render this service are either out of business or have entirely, and apparently permanently, discontinued making long-term loans on real estate.

Senator COUZENS. Have you any information as to the number of counties in which there never was a home financing institution?

Mr. RUSSELL. I have not definite information, Senator. I can only illustrate by certain States. In my own State, Georgia, for instance, there is no kind of a home financing institution except to the extent that State banks did home financing in a little over a hundred counties in the State.

Senator TOWNSEND. You mean there has not been?

Mr. RUSSELL. There has not been for at least a generation, and in those counties the State banks and other banks have substantially discontinued real estate lending.

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Senator COUZENS. At some time or other there were home-loan facilities in those communities, is that correct?

Mr. RUSSELL. In most of those communities there has never been any home loan facilities. They have depended upon foreign lenders.

Senator COUZENS. Such as insurance companies?

Mr. RUSSELL. Yes. The insurance companies which formerly did much of the home financing in these communities have withdrawn and are not now making any such loans in most of these places, and if they are making home loans at all, they are selecting the most select risks in the most select cities in the United States.

Therefore, it seemed desirable, and, in fact, essential for the protection of home ownership and 'for the promotion of good citizenship in this country, that some provision be made for home financing in these counties. Therefore section 5 of this act provides for Federal savings and loan associations as local mutual thrift and home financing institutions in these communities. Each such association would be an entirely separate unit, organized in the community under a Federal charter and managed in the community to accumulate the miscellaneous savings of the people of the community to finance their neighbors' homes. These associations would be permitted to lend their funds on homes or to invest in Government bonds or Federal home-loan bank bonds, but they would be limited to this business.

Senator TOWNSEND. Do I understand that these institutions will accept deposits ?

Mr. RUSSELL. No, sir. The plan is that they shall take money only on shares, similar to the present system of savings and loan associations in New York State and the building and loan plan in States like North Carolina, where they do not take deposits but receive funds from the purchase of shares.

Senator COUZENS. In other words, this Home Loan Board in Washington would grant the member charter; is that right?

Mr. RUSSELL. That is right, Senator.

To encourage the development of such local thrift and homefinancing institutions an appropriation of $250,000 is proposed to assist in the organization and development of them, and an appropriation of $100,000,000 is proposed to take preferred stock in these associations, provided the people of the community first subscribe and pay in an amount equal to that subscribed by the Government. The Government subscription is limited to $100,000 in any one association and is preferred stock, and is to be retired after 5 years.

It is thought that these associations can raise in the country very large sums of money and render a very large service to home owners and that they will prove to be permanent institutions tò continue the long-term financing of local homes by local people.

Senator COUZENS. May I ask you on what you base your statement that large sums can be raised for this purpose ?

Mr. RUSSELL. That statement, Senator, is based upon the experience of the past in organizing local thrift institutions. There are about eleven or twelve thousand of them in the country now that have accumulated about $8,000,000,000 of cash.

Senator COUZENS. But that is not recent experience, is it?

Mr. RUSSELL. Well, in my own State it is. We had none 10 years ago, and our local thrift fund increased last year and the year before and the year before and the year before.

Senator COUZENS. You think that that is a safe statement, then, that adequate money can be raised in these communities?

Mr. RUSSELL. I do not believe I said “ adequate money," but “ large funds.” I do not think that very quickly adequate funds could be raised, Senator, but I do think that very large sums could be raised by that means.

Senator COUZENS. What would you say could be raised in the hundred counties in Georgia to which you referred a while ago? Mr. RUSSELL. Such funds would grow very, very slowly, and,

if I would limit myself to a year, I would say that probably $10,000,000 might be raised in that State in a year.

Senator COUZENS. That is, in the hundred countries?
Mr. RUSSELL. In the hundred counties; yes, sir.
Senator COUZENs. How many counties in Georgia altogether?
Mr. RUSSELL. One hundred and fifty-nine.

These associations, of course, could borrow money on their mortgages from a Federal home-loan bank. The result would be $2 or $3 of home mortgages made for each dollar of money invested by the United States.

Senator TOWNSEND. That would be the profit?

Mr. RUSSELL. That is, if one of these intitutions were organized down in West Point, Ga., and they saved a hundred thousand dollars of their money and invested it, the United States put a hundred thousand dollars of its money into this preferred stock, which is almost identical with the preferred stock now going into national banks, that would be $200,000 to make loans with, which is $2 of home-mortgage money for $1 of Federal funds. They could take those $200,000 of home mortgages and pledge them with the Federal home-loan bank of Winston-Salem and get another $100,000 and loan that and have outstanding $300,000 when the United States had put up $100,000.

The question has been raised as to whether or not it is sound and proper for this act to limit to $10,000 the value of homes to be dealt with. This raises the question (1) of whether we are able to raise enough money to finance all the homes, and (2) whether we should undertake first to protect the small-home owner and leave the larger home owners, which constitute a more wealthy and independent class, to their private resources. There are about $20,000,000 of money loaned on homes in this country and probably four or five billion dollars of these mortgages are in default.

Senator COUZENS. How many?
Mr. RUSSELL. Four or five million, now in default.
Senator TOWNSEND. About 25 percent?

Mr. RUSSELL. Yes, sir. That is an estimate, but it is based upon a survey of that field that I think is reasonable.

Therefore, it is thought that it is not practicable to supply sufficient funds to absorb the whole mortgage market or to take up all the mortgages in default or even after eliminating the unsound and unsafe mortgages

have any

Senator TOWNSEND (interposing). Pardon me. Do

you estimate there of what percent of those mortgages that are in default are below $10,000?

Mr. RUSSELL. No; I have not, Senator, and I would not know hardly how to make an estimate except based upon the census figures. I will say that our experience indicates that there is a smaller percentage of the small-home loans in default than there is of the larger home loans in default.

Senator TOWNSEND. Yes.

Mr. RUSSELL. Therefore, it is thought that it is not practicable to supply sufficient funds to absorb the whole mortgage market or to take up all the mortgages in default or even after eliminating the unsound and unsafe mortgages amongst those in default, to take up all the remainder of the same. The conclusion was therefore reached to confine the operation of this bill to homes of not more than $10,000 of value thereby seeking to render as much service as is possible to the smaller home owners of the country.

Senator COUZENS. When you say $10,000 that means today's values ?

Mr. Russell. Yes, sir; based on present-day value.

Senator COUZENS. So that in all probability it might take into consideration homes that had cost as high as $20,000?

Mr. RUSSELL. In some cases it would.
Senator COUZENS. Yes.

Mr. RUSSELL. It would take in a much higher percentage of the homes than the Federal census of 1930 would indicate.

Senator COUZENS. Yes.
Mr. RUSSELL. Because of the decline in value.
Senator TOWNSEND. Have you any standard for valuing the homes
of today?

Mr. RUSSELL. The bill does not fix a standard of valuation. It just merely authorizes loans on homes up to a value of $10,000.

There has been a very strong insistence upon a Federal mortgage discount bank to discount real-estate mortgages of all types, except farm mortgages. Of course, farm mortgages are provided for in another bill.

There are two principal reasons why this course has not been suggested in this bill. One reason is that the total real-estate mortgages, excluding farm mortgages, is about $30,000,000,000, and the conclusion was reached that the United States should not undertake such a responsibility. Of course, there is much more difficulty in the speculative-mortgage field than there is in the home-mortgage field.

The other principal reason why a general mortgage discount bank was not proposed in this bill is that home mortgages are safer than commercial and speculative mortgages on hotels, apartments, vacant property, miscellaneous property, or even central business property and therefore to put the two classes of mortgages together would dilute the safety of the enterprise and thereby resulting in money costing more and the home owner who furnishes the better security would suffer and be compelled permanently to pay higher rates of interest on home mortgages.

Senator BULKLEY. Would it not be practical to separate the classes and charge a different rate on one class from on the other?

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Mr. RUSSELL. Senator, it might be possible to undertake in the same system to make a differentiation, but if an organized system of home financing goes forward in this country it probably will have to go forward on its own resources in the long run. That is, I anticipate that the Government will not propose to go behind all of the home mortgages or all of the mortgages in the country. If the Government is going behind it and going to raise the money, that would be a different question, but it has to go forward on its own resources, and bonds have to be issued, and if an investor is considering the purchase of a bond and that bond is secured only by home mortgages, he would buy it at a low rate. If it has i apartment-house mortgage on it or 1 hotel mortgage, assuming 20 million of bonds and there is 1 apartment or hotel mortgage in the list, it would cause all of those bonds to carry a higher rate.

It is assumed that the system of real-estate financing in the country should be a private system and not a Government system, and if it is to mix them up and put a speculative mortgage in with the home mortgages, then the investing public, in our judgment, will require higher rates on those bonds, and therefore the home owner will have to pay a higher rate on his money.

Now, it would be possible if you issue these bonds, and assuming that you could issue bonds and get them sold at 312 percent on home mortgages and it cost 5 percent on miscellaneous mortgages, it would be possible to raise the money at 5 percent maybe, and then lend on the home mortgages at 4 and on the others at 6.

But it seems pretty clear that if you dilute the security by putting any of the speculative type mortgage in that there has been so much trouble with, the bond issue type of mortgage, it will make the total funds cost a substantially higher rate, and that it would be almost inevitable that the home owner would have to suffer on account of the misdeeds of the speculators in the real estate bond issue schemes of the past, and it is not thought that the home owners ought to have to suffer on account of the unsound practices of issuing bonds against apartment houses and hotels and other speculative enterprises.

Senator COUZENS. Would it not be defeating the whole purpose of the bill? As I understand, the whole purpose of the bill is to protect the home owner and not the investor.

Mr. RUSSELL. I agree entirely, Senator, that it would defeat the whole purpose of the bill if you mix the home owner up.

Senator COUZENS. This bill is not any way to protect the investor; this bill is to protect the home owner.

Mr. RUSSELL. That has been the effort.
Senator COUZENS. Why, certainly.

Mr. RUSSELL. Is to guide the home owner and protect him and not to involve him with the speculative financing of real estate that has gone on to such a degree in the last 10 years.

Gentlemen, here are figures that indicate

Senator TOWNSEND (interposing). Pardon me; this bill is designed to take care of new home builders as well as old?

Mr. RUSSELL. This bill as it is written, Senator, does not provide new cash for new homes at all.

Senator TOWNSEND. Nothing at all?

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