future all over this country than anything else, and the way to start is right here with this bill, and that is why I am here. I do not want to put anything else in the record-that is, on the other side-but that one fact that Senator Couzens is in error when he made the statement that it has been abundantly taken care of in the past. The fact that greater numbers of people own their homes to-day than they did in 1850 is irrelevant, because there are more families in the country to-day than there were then. Mr. REILLY. The next name on our list is Mr. La Roque, and we will be glad to hear him. STATEMENT OF 0. K. LA ROQUE, DEPUTY INSURANCE COMMISSIONER, IN CHARGE OF BUILDING AND LOAN BUREAU, RALEIGH, N. C. Mr. REILLY. Please state your full name, the position you occupy, and your address. Mr. LA ROQUE. Mr. Chairman, my name is O. K. La Roque. I happen to be the deputy insurance commissioner for the State of North Carolna, in charge of the building and loan bureau of that department; address, Raleigh, N. C. appeared before the Senate committee and shall promise you to make my statement very brief. I will not touch on matters touched on there, if possible, and my testimony is printed in full, of course. I would, if I could have permission, suggest the possible insertion of an article which appeared in the United States Daily of issue January 30 on the subject of Supervision of Building and Loan Associations in the State of North Carolina, which gives some explanation of their workings and their supervision that may be of some assistance to you gentlement who may not be building and loan men. I think it might be of some interest to have this in the record. It is not a long article, but I do not want to insist upon that. Mr. REILLY. I do not see what the supervision of the building and loan societies has to do with this hearing. Mr. LA ROQUE. It is entirely for you to say. Mr. REILLY. You might give us the substance of the article, giving us a statement of things within your own knowledge about the building and loan associations in your own State. Mr. LA ROQUE. I was only suggesting the insertion of the article, and I would be glad to do as you say. The building and loan association is a cooperative organization purley and simply. It is a non-profit organization. Something has been said about making profits for the private organizations. The building and loan associations' profits are divided equally among their shareholders, borrowers and nonborrowers alike. Something has been said about the stock of the building and loan associations, the stock certificates. In my hearing before the Senate committee, at the bottom of page 533, Exhibit 1, is a copy of the stock certificate in use, which shows its absolute mutuality. The organizations are absolutely in my State solvent and safe, but as thoroughly nonliquid as it is possible to get. Mr. REILLY. Right there, do they function in the way of making loans at this time? Mr. LA ROQUE. No, sir; they can not function and make loans at this time. Mr. REILLY. Is there within your knowledge any demand for loans? Mr. LA ROQUE. Yes, sir; there is considerable demand that cannot be supplied. In addition to that, Mr. Chairman, may I not say that they are right hard put at this time, for the reason that their borrowers are unable to keep up the payments on the loans on the stock pledged to secure the loans that have previously been made. That automatically makes it hard to get the money to mature stocks, and when they mature, and, of course, the maturity of the stock is dependent upon the receipts, and if they mature this stock on time all of their receipts must be used for that purpose, thus retarding the growth of the associations and the service they are rendering in the community in which they are operating. It is to get the funds to provide this relief, in order that the associations may use their receipts. for maturities and use this additional funds for making loans where necessary. Mr. WILLIAMS. May I ask a question? Mr. LA ROQUE. I am delighted to be interrupted at any moment by members of the committee, of course. Mr. WILLIAMS. I have not been able to get much information on this, and I am satisfied you have it. Mr. LA ROQUE. I will be glad to give it to you, if I have it. Mr. WILLIAMS. Just in connection with what you are saying, how, if at all, will this institution help those who are already borrowers from you? Mr. LA ROQUE. In this manner, may I suggest? Mr. WILLIAMS. Yes. Mr. LA ROQUE. An association in North Carolina loans money on real estate and requires additional collateral stock the par value of which is equal to the amount of the loan when it is matured. In other words, the payments are made on the stock and not on the loan. Mr. WILLIAMS. Your loans are amortized? Mr. LA ROQUE. Yes, sir. Mr. WILLIAMS. Extending over a period of how long? Mr. LA ROQUE. It is an indefinite maturity in reference to the maturity of the stock; it runs from 7 to 12 years. Mr. WILLIAMS. It is based on monthly payments? Mr. LA ROQUE. It is based on weekly or monthly payments. Mr. LA ROQUE. Yes, sir. Mr. WILLIAMS. That has been running, we will say, for some time? Mr. LA ROQUE. Yes, sir. Mr. WILLIAMS. How will the borrower, I will call him, get the benefit of this act? Mr. LA ROQUE. I think I can show you in just a moment. Mr. LA ROQUE. I will use $4,000 as illustration of the loan. Say you borrowed from the association $4,000, and have given a mortgage. You subscribed for and got 40 shares of stock. On that stock you pay $40 a month and $20 per month interest on the loan, and 6 per cent is the rate of interest in our State. That is a total of $60 a month payments on the stock and interest as long as that loan runs. You receive back, of course, your pro rata share of the earnings, and therefore in that manner reduce your interest in the long run. You have made payments on that stock to the extent, I will say, of $2,000. You have now reached the point where you can not keep up those payments, and in order to protect the other shareholders in the associations who are not borrowers, the associations must necessarily secure some funds from some place or foreclose your mortgage. If they can not get the money from some source to help them mature their stock, they can credit your loan with the $2,000 paid in, withdraw the stock, make a new loan, and you are paying them $30 per month instead of $60 per month. Mr. WILLIAMS. You mean refinance it? Mr. LA ROQUE. Exactly. Mr. WILLIAMS. With the loan you get from this home loan bank? Mr. LA ROQUE. That is refinancing for smaller amounts, thus reducing your payments and taking the money from that source to take the place of that $60 matured and maturing and nonborrower stock. Mr. WILLIAMS. It is not clear to me. What difference would it make? In what way would that help them to refinance? Mr. LA ROQUE. Well, it would mean this difference, Mr. Williams Mr. WILLIAMS. They have already the indebtedness there, have they not? Mr. LA ROQUE. The borrower? Mr. WILLIAMS. Yes. Mr. LA ROQUE. As the indebtedness to the association? Mr. WILLIAMS. Yes. Mr. LA ROQUE. Yes, sir. He has a credit in the association on his stock of $2,000 in that particular case that they can not deliver to him unless they can get some funds to retire this matured stock, this "free stock," we call it. Mr. WILLIAMS. How will we finance him and put him in any better shape than he is now? Mr. LA ROQUE. It will reduce his payment to $30 instead of $60 a month. Mr. WILLIAMS. And extend it over a longer period of time? Mr. LA ROQUE. It will extend it over a longer period of time; yes, sir. He will start over with a new loan of $2,000 instead of the original loan of $4,000. Mr. REILLY. What becomes of the other $2,000? Mr. LA ROQUE. The other $2,000 is credit, credited, and the stock withdrawn, and the credit applied on his loan. In order to do that, Mr. Chairman, the associations must have some funds to use to 113235-32 -8 mature free stock, the nonborrowing stock, when it reaches its maturity date. Mr. WILLIAMS. The primary object is to get money to pay off the obligation that comes due? Mr. LA ROQUE. That is correct, and at the same time relieve those borrowers who can not keep up their present payments. If those borrowers could keep up their present payments, Mr. Williams, in this particular case it would not be necessary to borrow money from any source to take its place, for the reason that his payments coming in automatically every month would automatically come in to help pay the man who has not borrowed. It is a rather complicated explanation, I will admit. Mr. WILLIAM. I do not see yet how the borrower is benefited. Suppose he can not meet his obligation, as you say. What is done with him? Mr. LA ROQUE. We are refinancing and cutting the loan in half, and reducing the payments so that they are instead of $60 per month $30 per month. Mr. WILLIAMS. Under the present plan, without this aid, what do you do with him? Mr. LA ROQUE. We have to foreclose on that property. Mr. WILLIAMS. To what extent are you foreclosing? Mr. LA ROQUE. Our real-estate holdings in North Carolina in building and loan associations has increased approximately $1,000,000 last year. It was $2,000,000 the year before, and it is $3,000,000 now. Mr. WILLIAMS. Your real estate? Mr. LA ROQUE. Our real-estate holdings which the building and loan associations have. Mr. WILLIAMS. As the result of foreclosures? Mr. LA ROQUE. As the result of foreclosures; yes. Mr. WILLIAMS. What per cent of the business does it represent? Mr. LA ROQUE. Our total real-estate holdings represent about 4 per per cent of the total resources of the associations. Mr. WILLIAMS. Running about on a par with the Federal land banks? Mr. LA ROQUE. I presume so. I understand it is about 4 per cent. Mr. WILLIAMS. I am honestly and earnestly inquiring about the aid. Mr. LA ROQUE. I appreciate you are. Mr. REILLY. That is very important. Mr. LA ROQUE. I fully appreciate your question and the interest you have in it. May I ask that I make one explanation that does not go into the record, because it is a matter entirely within our State? (Informal conversation thereupon took place which the reporter was directed not to record.) Mr. LUCE. Following along in the line of the questions which have just been put by Mr. Williams and the chairman, you have spoken of the cutting off of your income by the present crisis. I have been told that about four out of five of the members of the building and loan associations are investors, and one out of five borrowers. Those proportions may not be exact, but, using them for the time being, let me ask how far, by reason of withdrawals, has the investing wing of the business diminished? Mr. LA ROQUE. I can give you one or two instances. I have in mind one association whose normal income is about $38,000 per month. Their income has dropped to $20,000 per month. Some of those payments come from borrowers who have been unable to keep up their payments. But I do not want to mislead you on that-a great number of the nonborrowing members have necessarily stopped because they did not have the money, and now the rainy day they have been saving for has come and they need the money. The bank closes; their money was in the bank, and the only thing they have left was this rock, this building and loan association. So they had to go there to ask for some money to pay their taxes, and buy food. That is not an unusual instance. There are numbers of those. I have in mind one association that has borrowed from the Reconstruction Corporation $400,000 in North Carolina. I do not think that the Reconstruction Corporation has a better-secured loan in their entire portfolio. That has saved that organization. But here is what the organization is up against now: They have got to pay that money back within three years. We speak of six months. That is true that they make loans for six months, but undoubtedly they may be renewed from time to time. But the reconstruction act fixes three years, of course, with the privilege to extend it to five years. Now, that association which borrowed that $400,000 must repay it monthly as they make collections from their members on the collateral pledged, and that is a very proper provision, of course. The Reconstruction Corporation must have security for their advances. In order to do that in three years, to pay back $400,000 plus the interest on it at 52 per cent, it will require, I would say, from $12,000 to $14,000 a month. The total income of that association is between $20,000 and $25,000 a month, and you take $12,000 to $14,000 out and it leaves very little to take care of the withdrawals and maturities every six months and other necessary expenses and disbursements of the association. You can readily see their business will begin to stagnate. If that same organization, however, had been able to go to the Federal home loan bank and borrow $400,000, put up as collateral with that bank $800,000 of unpaid balances on home mortgages, which it says were valued at $1,200,000, your home loan bank would have as security for that $400,000 a potential value of $1,200,000, and an additional lien on all other assets of the concern, of course, as a creditor, and it would enable that association to go along, and its payments would be extended over a period of 8 or 10 years rather than 3 years, and that organization could continue to function because a small part of their income would necessarily be used to retire this indebtedness with the home loan bank. That brings us to the question of security on the bonds of the home loan bank. We have in North Carolina-I speak more of North Carolina because I am familiar with it. I have been over the Southeast pretty well, but North Carolina is home-this situation: I have worked out an instance in round figures-and you gentlemen are interested in facts and figures and not in sentiment. In North Carolina we have a |