much of a debt as they ever had, and that money that they were going to save was meanwhile used to buy a car. In our agency they have to pay monthly, and they share in the profits.

Mr. REILLY. In other words, you take the money away from them so fast that they can not get enough to buy an automobile? Mr. CAMPBELL. That is a benefit, is it not?

Mr. STICKEL. We think it would be better for them to have a house over their heads.

Mr. WILLIAMS. I am not entirely clear as to whether the home builder can start with nothing except the land. Of course, he must have that on which to build.

Mr. STICKEL. Yes. He may start with nothing except the land. In other words, he comes in and says, "I have a piece of land, and here are my plans. I want a construction loan." They look at the plans and the land, and the appraisers in the building and loan. determine from that how much they want to lend him. They may, as a legal matter, loan up to 80 per cent, but as a practical matter they usually loan between 70 and 80 per cent.

When he knows how much he is going to get he has to supply the rest to build his home.

Do I make myself clear?

Mr. WILLIAMS. I do not know that you do. In other words, he would have to raise 20 per cent of the money?

Mr. STICKEL. Yes.

Mr. WILLIAMS. And furnish the land?

Mr. STICKEL. Not necessarily 20 per cent and furnish the land. He has to furnish 20 per cent in value, the difference between what he can borrow from the association and what his land and building will cost him.

Mr. WILLIAMS. He may start a home on nothing except the land? Mr. REILLY. If the land is worth 20 per cent of the total value. Mr. STICKEL. That is true.

Mr. REILLY. Under that plan, where does the second-mortgage shark come in?

Mr. STICKEL. He rarely comes in, because we will loan him in New Jersey so much of the value of the property, because of the monthly amortization, that the average borrower succeeds in raising enough money to pay 20 per cent, and the instances where the second mortgages are necessary are rare, but even in those instances the fact that he may pay his payments monthly and reduce the building and loan mortgage monthly makes it an admirable mortgage contract, because when he has paid that down far enough he can frequently go back to the building and loan and reinstate his loan, recast his loan, and get enough money out of the building and loan to pay for his second mortgage.

Mr. WILLIAMS. What are the interest rates?

Mr. STICKEL. Six per cent on the amount loaned, and he pays in many States a premium to get the loan, and it is because of the premium he pays, plus the 6 per cent that he pays on the full amount of his debt at all times, that the building and loan associations are able to make a profit, in good times, of sometimes as much as 8 or 9 per cent, and that profit is, in turn, allocated to his shares. So, although he pays 6 per cent for his money, sometimes he earns 8 or 9 per cent on his shares.

Mr. WILLIAMS. What does the loan cost him?

Mr. STICKEL. Six per cent.

Mr. WILLIAMS. You say he gets some of that back in dividends? Mr. STICKEL. Yes; dividends on his shares.

Mr. WILLIAMS. And he also pays a commission?

Mr. LUCE. No.

Mr. WILI IAMS. Does he not pay a commission for the loan?

Mr. STICKEL. He pays a premium of 3 per cent which, in turn, goes into the common funds and is divided among all the stockholders. Sometimes he pays that in a lump sum, and sometimes periodically.

Mr. WILLIAMS. In other words, your buildings and loan associations in your State are operated in behalf of the home builders on a 6 per cent basis, or less, to him?

Mr. STICKEL. Yes, sir.

Mr. WILLIAMS. His loans, then, cost him over 6 per cent?
Mr. STICKEL. Oh, no.

Mr. WILLIAMS. How much under that?

Mr. STICKEL. As much as 4 or 41/2 per cent, over the period.

Mr. WILLIAMS. How does it run in your State? How much does it actually cost the home builder?

Mr. STICKEL. About 4 or 42 per cent where they charge a premium, but in many of our associations they do not charge a premium at all.

Mr. LUCE. I interrupted Mr. Williams because in my State they do not charge any premium.

Mr. STICKEL. Many of our building and loan associations do not charge premiums at all. Sometimes it is only 1 per cent; sometimes it is 2 per cent. Some associations have a rule that they will not make any charge, and sometimes, as I said, there is a premium, that is payable monthly, a few cents each month, in addition to their monthly payments. One is the gross premium plan, and the other is the minimum.

Mr. CAMPBELL. He shares in the earnings on that premium that he pays, and at maturity he receives all of it back?

Mr. STICKEL. Exactly. Then the profits of the association go into a common fund, and our associations are limited as to the amount of money that they may spend for expenses. In our State it is about one-half of 1 per cent, and we keep the expenses down to a minimum. Our boards of directors, for instance, get $5 or $10 a meeting night, and they meet once a month, and in many instances. never, and the only paid men are, as a rule, the secretary and the treasurer. The other payments are very small.

Mr. WILLIAMS. I understand that your urgent need is for money to pay off the matured certificates and the withdrawals from your institutions?

Mr. STICKEL. That is true. If we could get sufficient money from some governmental source to meet maturities and withdrawals at one fell blow, it would stamp out much of the hysteria, panic, and fear that exists now, because it has been our experience in many instances that when these shareholders know that they can get the money they do not want it. But there is a great number of people that have found it absolutely necessary to get these savings, people who are not in a hysterical state. They are people who are up against it, who

need the money for living expenses, and those people are entitled to consideration, as I have said, quite as much as the fellow who is in a failed bank.

Our condition to-day is due to the failure of the banking group. In our State, in 1925, the bankers agreed with us that we could borrow 30 per cent of our installment dues to meet the situation there, where we had to keep our money invested in long-term loans, and had to be ready to pay our investing shareholders out of assets, and that situation was met by the borrowing capacity agreed upon with the banks. To this day we have tapped that legal capacity only 37 per cent. If we tapped it to the extent of 50 or 60 per cent, we could pay every withdrawal at maturity in the State, but the bank credit has failed us and they are asking the banks for further loans, but in many instances the banks refuse to make more loans to us, even to meet maturities, and in one county at least 10 banks have failed altogether, with the building and loans having their money tied up.

Those situations could be met, and if met would prevent a serious financial situation.

Mr. WILLIAMS. In normal times, where do you get your money to carry on operations?

Mr. STICKEL. From our receipts plus the borrowing capacity from

the banks.

Mr. WILLIAMS. To what extent do you borrow from the banks? Mr. STICKEL. Thirty per cent of our installment dues, and in that State to-day we owe the banks $63,000,000.

Mr. WILLIAMS. Are you consistent borrowers?

Mr. STICKEL. We have been consistent borrowers in that State, and the banks have regarded our paper as the finest kind of paper. In fact, we think they have loaned us too much money, and I do not think the future will find us borrowing as much as we did. I think that is one of the lessons that has been taught both to the banker and to the building and loan man.

We have an amendment to our law in the legislature now that would prohibit the continuance of the policy of borrowing on shortterm paper to make long-term loans.

Mr. REILLY. Would that interfere with the proper functioning of all your associations?

Mr. STICKEL. No; it will not. The proper function of our associations is to use our assets to invest in long-term mortgages.

Mr. REILLY. In other words, under your ability to borrow, you have made loans that you should not have made?

Mr. STICKEL. Under our ability to borrow, in which our banking friends encouraged us, we borrowed money on demand paper, in short-term loans, and invested it to make long-term loans to our members; yes.

This bill, in my judgment, is an excellent bill. It has splendid potentialities, but I think it could be made an even more useful instrumentality if it clearly appeared that its primary purpose was to meet existing conditions, to make that the paramount, evident purpose; and then when you come to the time when it is thought that money is needed to help in building new construction, and for expansion purposes, I hope that such changes will be made in this bill to encourage the use of that money for the kind of a mortgage

that a man ought to obtain to get a home; the kind of a mortgage that, by monthly payments and profit sharing will ultimately remove that jacket, and not the kind of mortgage that at the end of a year may be called, or the kind where at the end of three years he may have to pay another premium to let it stand, or at the end of 15 years be as big as when first put on.

Mr. REILLY. You have thoroughly studied this bill. What money can be used by this home loan bank for the purpose of rediscounting bonds or mortgages of a local association?

Mr. STICKEL. Do you mean how much money it would take?
Mr. REILLY. What money belonging to the association?

Mr. STICKEL. I am afraid I do not quite understand you.

Mr. REILLY. In that bank there will be money put in by the joining members.

Mr. STICKEL. Yes.

Mr. REILLY. And there will be money put in by the United States. Mr. STICKEL. Yes.

Mr. REILLY. For what purposes are those two funds available?

Mr. STICKEL. The subscriptions of members are earmarked for emergent purposes, short-term purposes. There is no earmarking either of Government funds or of the proceeds of bonds. By inference, it would be possible to use the Government funds and the proceeds of bonds for other than liquidity purposes, although it is possible that the board would conceive that it had the power to use them for liquidity purposes; but the earmarking of a part of the fund for liquidity purposes may, by negation or exclusion, indicate that the balance is not so usable.

Mr. REILLY. In other words, when the institution is organized, we will say that there is $100,000,000 put in by the Government and its members, before the sale of any debentures. Could not that money be loaned to the members for the purpose of liquefying their assets and to pay withdrawals, as well as to take care of maturing certificates and taxes?

Mr. STICKEL. I wish that the language were unquestioned on that point.

Mr. REILLY. What is there in the language of the bill, as you construe it, that would make it appear otherwise?

Mr. STICKEL. I think the fact that only part is definitely so earmarked may leave the impression in the minds of the board that the rest of it is needed for expansion purposes.

Mr. REILLY. And that is why you suggested that language a little while ago?

Mr. STICKEL. Yes; that is the reason why I thought there ought to be a legislative declaration of policy in this bill that would clearly indicate that it should be used to meet the emergency that is now existing.

May I have this brief included in the record?

Mr. REILLY. Let me see it.

It is rather long; do you want all of this included?

Mr. STICKEL. There are certain amendments suggested in it that I did not refer to.

Mr. REILLY. Suppose that you shorten it, and then send a copy to each member of the committee.

STATEMENT OF JOHN C. HALL, OF ST. LOUIS, MO., PRESIDENT OF THE ST. LOUIS BUILDING AND LOAN ASSOCIATION

Mr. REILLY. Give your name and address.

Mr. HALL. My name is John C. Hall, of St. Louis, Mo., I am president of the St. Louis Building & Loan Association, and a member of the legislative committee of the United States League.

Mr. REILLY. Did you appear before the Senate committee, Mr. Hall?

Mr. HALL. Yes, sir; very briefly.

Mr. REILLY. We are going to read those Senate hearings, so just confine yourself to something new, or to sort of a short summarization of your views.

Mr. HALL. I will do that.

The success of the Federal home loan bank bill depends in a measure on the number of States in the Union whose building and loan associations can participate. Under the law, as it is now drawn, there are a number of States in the Union where the building and loan associations will be unable to participate in the provisions of this act, especially where the power of borrowing money is concerned.

For the past 100 years in building and loan association work, the laws of the various States have provided generally that they shall lend their money on nonnegotiable deeds of trust or mortgages. That has been changed from time to time in the different States, but that condition prevails largely to-day, and it has been the practice that when these associations borrow from banks for temporary purposes, they give their unsecured note as security, on the theory that the relationship of debtor and creditor does not exist between the building and loan association and the shareholders. Therefore those from whom the building and loan association has borrowed are preferred over the shareholders of the association. Some States have changed that, as I say, and they do actually deposit as collateral security certain deeds of trust or mortgages.

Mr. REILLY. What do you propose to remedy that situation?
Mr. HALL. I have an amendment here.

If you

will permit me to name the States as I have them that can

Mr. REILLY. Do you have that amendment in the Senate hearings? Mr. HALL. Yes.

Mr. REILLY. Then we do not need it here. We will study the other hearings.

Mr. HALL. I have sent out a questionnaire to the State secretaries of the leagues of all the States, asking them whether or not their States could participate in the provisions of this act. I have heard from about half of them. I have them summarized very briefly here and will tell you what they can do.

The following States are prohibited by law from filing their notes or mortgages, all being nonnegotiable: Missouri, Pennsylvania, Illinois, Vermont, Oklahoma, Florida, and Iowa.

Mr. CAMPBELL. Pennsylvania does not prohibit it. There is no prohibitory statute in Pennsylvania.