Mr. LA ROQUE. No; I have not. The vacant dwellings, except in some localities, is a negligible quantity. Asheville, for instance, has a good many vacancies. The building and loan association owns a good deal of property in Asheville. Fortunately for the building and loan associations in Asheville, during the boom period the big insurance companies came in there and took all the large loans, $40,000, $50,000, or $60,000, and the building and loan association loans were confined to $2,000, $3,000, $4,000, or $5,000 homes. Now they have those $2,000, $3,000, $4,000, and $5,000 homes and are selling them every day, while the insurance companies are trying to keep somebody in their $50,000 homes to take care of them. We were very fortunate.

Mr. WILLIAMS. I was just wondering about the purpose of this bill. I have been deluged by communications from material men. They seem to think if this bill establishes a home loan bank they will get a pretty big part of it.

Mr. LA ROQUE. Now, I should think, in the first place, they are probably under the wrong impression, to a certain extent. It is also true in some instances they are probably not, because in some places there is demand for new buildings-I do not know just where, but this country is a big place, and, of course, there are some places where there is demand for new construction, but not particularly in North Carolina, though in some parts of North Carolina we do need new construction, while in other parts we do not. But we need this money to help them take up the vacant property that is appreciating the value of that property, because the minute the house is being occupied the value goes up, and when you overbuild you depreciate the value of the security that you already hold. That was one reason I do not think the building and loan associations will attempt to overbuild.

Mr. WILLIAMS. Primarily it will assist the man who already has a loan and his obligations to the building and loan.

Mr. LA ROQUE. Yes, sir; that is, during the emergency. When this emergency is over-and I hope it will be some day

Mr. WILLIAMS. We all hope so.

Mr. LA ROQUE. We are bound to reach that corner sometime, but when we do it is going to be necessary to have a building program, for the very reason that when a man loses his job he immediately goes and lives with his mother or father or mother-in-law or father-in-law and two or three families mix up in one little house, and as soon as they begin to get work and move out they are going to move back as they wanted to live in the beginning.

Mr. WILLIAMS. Necessarily they will have to get a job and have some kind of an income before they start to build a home?

Mr. LA ROQUE. Yes, sir; that is true. May I get back to one question of the strength of those bonds? The difference between this and the farm loan act and the others, and particularly the joint stock-I am not going to discuss that, because I am not altogether familiar with all its workings, and I know if the system is sound, assuming it is sound, a great many places it fell down on the job. In this case we have a greater security for bonds than the Federal land bank. The Federal land bank makes those loans for 33 years; our loans are made for 6, 8, 10, or 15 years and the payments are made weekly or monthly, that is, self-liquidating. Any

depreciation on the property is more than offset by the weekly or monthly payments. The land bank payments are usually made every six months, and the loans, in this instance, are made to sound and solvent financial institutions, with additional assets greatly in excess of the amount borrowed, whereas the national farm loan associations have only 5 per cent of the stock as additional margin, in addition to the value of the property.

May I suggest-I am not going to get into the legal field, Mr. Williams, particularly with you gentlemen who are lawvers, but you brought up the point of the right to pledge mortgages in your State. I heard the gentleman say there were States. I happened to have a conversation with a gentleman from your State, a Mr. Hall, on that subject, and he told me that his attorney general had rendered an opinion that while papers in your State of building and loans were nonnegotiable that they did have a right to pledge as collateral those papers. That is, of course, the legal opinion, and the difference between those two gentlemen that I will not bring out at this hearing.

Mr. WILLIAMS. Did he tell you what he thought of that opinion? Mr. LA ROQUE. He did not think much of it.

Mr. WILLIAMS. Neither do I.

Mr. LA ROQUE. I want to suggest this: In North Carolina we have no specific right to pledge, but there is no prohibition against pledging, and the right to borrow carries with it the right to borrow on such terms and conditions as the board of directors mav deem proper, and they have the rights of corporations generally-the general corporation law applies when not in conflict with the building and loan, and they have the right to pledge under that.

In your case, however, your banks and trust companies and insurance companies do have the right to pledge, I will assume.

Mr. WILLIAMS. I am not sure.

Mr. LA ROQUE. I just assume that, of course, because they are members of the Federal reserve system.

Mr. WILLIAMS. You mean to put up their securities to borrow money?

Mr. LA ROQUE. Yes.

Mr. WILLIAMS. There is no question about that.

Mr. LA ROQUE. This act applies to savings banks, trust companies, and insurance companies as well as buildings and loans, and my judgment is that our mutual friend, Mr. Hall, before long will be perfectly willing to arrange some provision in his law by which they would be collateral for this particular bank.

Mr. WILLIAMS. You understand the positions of the States where they passed that law and the principle back of that idea, of course? Mr. LA ROQUE. Yes, sir.

Mr. WILLIAMS. They seem to think their principle is sound?
Mr. LAROQUE. Yes, sir.

Mr. WILLIAMS. But that is a matter about which difference of opinion might exist.

Mr. LA ROQUE. That is a legislative matter, of course; that is entirely up to the general assembly to change or not change.

Mr. WILLIAMS. But do you think it is in a way holding a club over

the legislatures in the various States?

Mr. LA ROQUE. Oh, no; I would not suggust that, of course.

Mr. WILLIAMS. That is a rather strong term, of course, but it is rather trying and is to a large extent dictating the policy of the State on that question.

Mr. LA ROQUE. That same situation was used and that same club was used and dictation was used in the establishment of the Federal reserve act, by which the States had to pass legislation enabling State banks to become members. It was a club, but not in the obnoxious sense of the use of the term club."

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Mr. WILLIAMS. It is, after all, the central government controlling the policy of the State government.

Mr. LA ROQUE. That is good democratic doctrine, sir. I am with you and the associations do not need to come in. Membership is purely optional.

Mr. WILLIAMS. That is good doctrine.

Mr. LA ROQUE. Good doctrine of State rights. But we have about forgotten about what State rights means anyway.

There are a gcod many things they could discuss, but you gentlemen are interested in and know those things.

Mr. REILLY. You heard the discussion this morning on the proposed amendment to this law. Have you anything to say on these amendments?

Mr. LA ROQUE. I can not agree there should be anything done to let down the bars to any and every institution that wants to come into it. My judgment is, Mr. Chairman on that, that this bill is intended to help and to serve the little men, the small home owner. He is the backbone of our Nation. When our country went to war with Germany we found over there those old Frenchmen fighting, and we did not find Frenchmen living in apartments and tenements. They were fighting for their homes; they were no fighting for tenements and apartment houses or boarding houses. We want to establish that same situation in our country, where all of our people have homes for their own, and they will fight for them against other Nations. Of course, we will fight for them anyway, for that matter. We will fight for somebody else's home now.

But we want to fix this so that the little man will be protected, in my judgment if you let down the bars to any and every institution that wants to come into this thing, you are going to fix it so that the big institutions are going to jump in and gobble everything up and the little fellow will get very little after all.

Your judgment is this with reference to the amendments to those sections: I suggested to Senator Morrison in the Senate hearing an amendment to one section there, which provides for the naming of the institutions which are eligible. That section provides that certain institutions are eligible for membership. It says on page 3, Mr. Williams, section 4

Mr. WILLIAMS. I think I know what it is.

Mr. LA ROQUE (reading):

Such of the following as are duly organized under the laws of any State or of the United States, and are subject to inspection and regulation under the banking laws, or under similar laws, of the State or of the United States, shall be eligible to become a member of the Federal home loan bank.

I do not think any concern ought to be allowed in which is not subject to examination and supervision of the State authorities.

Here are the ones which are eligible:

Building and loan associations, cooperative banks, and homestead associations;

Any of the following whose time deposits and financial condition, in the judgment of the board, warrant their making such home mortgage loans as, in the judgment of the board, are long-term loans.

I think that is a good provision. I think, however, if there is any question raised-the only question raised in that connection, as I recollect it, in the Senate hearing, was about the discrimination under which the building and loans could come in without being subject to the judgment of the board. I think it is entirely proper to add that same provision as to building and loan associations and add to insurance companies.

Mr. REILLY. You propose an amendment to the bill providing that all members or organizations joining the system are to be subject to approval of the board of directors?

Mr. LA ROQUE. That is, such whose time deposits, as in the judgment of the board warrant their making such home mortgage loans. I do not think a commercial bank without time deposits ought to make mortgage loans. The bank failures we have had in North Carolina come very largely from the banks without sufficient time deposits who made too long real estate loans and could not keep them up.

Mr. REILLY. What are the banks going to do with their money? Mr. WILLIAMS. Where is the home owner going to get the loan? Mr. LA ROQUE. Mr. Williams, I said not every commercial bank. The home mortgage is not a commercial banking proposition. You gentlemen fully agree on that, I know. The commercial bank without time deposits and all demand deposits, certainly should not be allowed to make mortgage loans to any extent. The national-bank act provides that national banks can make only mortgage loans to a certain percentage of their time deposits or capital and surplus, which is a very wise provision, in order to keep them in such condition that they would have short-time paper that could be convertible into cash more quickly than a mortgage loan.

Those banks that have such time deposits as enable them to make these mortgage loans, then they would have this as a reservoir from which they could draw in time of need.

Mr. WILLIAMS. What do you mean by "time deposits?

Mr. LA ROQUE. In savings banks they have a provision for 30

or 60 or 90 days for notice for withdrawal.

Mr. WILLIAMS. They have to be subject to withdrawal on notice? Mr. LA ROQUE. Subject to withdrawal on notice.

Mr. WILLIAMS. That does not mean that is necessarily a permanent fund extending over a period of ten years?

Mr. LA ROQUE. No. But as a matter of fact, we know that savings banks

Mr. WILLIAMS. And may be drawn out the same as demand deposits.

Mr. LA ROQUE. That is true, after a time. The National Government recognizes that and permits the banks to make real-estate loans under certain conditions up to a certain percentage of those time deposits. I was formerly a national-bank examiner and am somewhat familiar with that end of it.

Mr. WILLIAMS. I had more in mind the State banks.

Mr. LA ROQUE. Of course, what is good for the national banks would be good for the State banks.

Mr. WILLIAMS. I mean by that, the ordinary, every-day commercial bank in the State that transacts the business, and especially the country banks in the small towns must have and does have home loans and farm loans.

Mr. LA ROQUE. Yes, sir; time and again; and they also have, Mr. Williams, those savings deposits. The small town bank builds up a nice little savings account.

Mr. WILLIAMS. But they are comparatively small, in most cases, at that.

Mr. LA ROQUE. The percentage is fully as good as in the larger cities the percentage of time deposits to demand deposits.

Mr. WILLIAMS. I am not entirely satisfied that that part of it makes a great deal of difference.

Mr. LA ROQUE. I do not think so. My suggestion in that connection is instead of taking out that provision which gives to the board the right to decide whether they should come in or not, whether their condition is such that they should be allowed to come in, instead of taking that out, just let it apply to everybody, building and loan as well.

The amendment I suggested is as follows:

In section 4, page 4, strike out lines 4 through 11 and insert in lieu thereof: “(1) Building and loan associations, savings and loan associations, cooperative banks and homestead associations, which in the judgment of the board make long-term home mortgage loans and whose financial condition is satisfactory to such board.

"(2) Any of the following whose time deposits and financial condition, in the judgment of the board, warrant their making such home mortgage loans as, in the judgment of the board, are long-term loans-savings banks, trust companies and other banks;

"(3) Insurance companies, which in the judgment of the board, make longterm home mortgage loans and whose financial condition is satisfactory to such board."

Mr. HANCOCK. Mr. La Roque, what do you think of the suggestion that has been made to amend the act so as to enable mortgage brokers to become members?

Mr. LA ROQUE. I do not think much of that. Now, I do not want to be understood there as casting any reflection on mortgage brokers. I do not mean it in that sense. A mortgage broker is in business, and a legitimate business for personal gain, and a very open business, of course. Then his business as a rule is that of making loans and very often building homes himself. They buy vacant lots and build houses on them and sell those houses at a good profit. If they do not, they are foolish, of course, and then, in addition to that, they make those loans and they sell those lands to insurance companies and other concerns. If they cannot sell them for the full amount, they sell them for what they can get, and take a second mortgage for the balance. The second mortgage, Mr. Williams, has been one of the worst things that ever happened to this country, wherever it has been used, because we all know that the second mortgage borrower has to pay an enormous rate of interest through commissions and discounts.