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not realize they have already been granted a station and power that are most extraordinary, and in times like these they do not give a man a chance to keep his home. It is a terrible condition to have those great institutions, with millions, yes, billions behind them, to shut off and say, "We will not lend you a dollar in this community and that community, even if it would be in the best interests of the country."

All of the great banking institutions which lend money on mortgage credits are not opposed to this bill, as is shown in the testimony before this committee by Mr. Wilson W. Mills, chairman of the board of directors of the First Wayne National Bank, of Detroit.

In answer to Senator Morrison's question: "Do you favor this bill, or are you opposed to it?" Mr. Mills answered: "I am in favor of the bill." Mr. Mills's bank has a very large reserve and carries between $155,000,000 and $160,000,000 of mortgages, practically all of them on improved property, such as homes. His bank has deposits of $460,000,000 to $470,000,000. The opinion of Mr. Mills, the master mind of such a gigantic institution, is worthy of the deepest consideration. This bank has not forgotten the interests of the common people.

I want to state that there are really two fundamental principles underlying this bill. The vital point about the bill is this: That money must be had in order to make it successful. A limitation of borrowing should not be put upon banks or trust companies who want to borrow so high that they can not afford to borrow or that they will not borrow.

Section 8 is really the most vital part of the bill. It provides 60, 50, 40, and 75 per cent. It means that you can borrow 25 or 30 per cent of the value of the real estate-I think it will take about five minutes to discuss that, because it is the vital part of the bill. There are only two really vital points: First, whether the banks will pay if started; and second, whether frozen assets can be thawed out.

Mr. REILLY. Do you object to the limitation as to borrowing power?

Mr. OAKMAN. The limitation of the amount that you can get upon the value of the property?

Mr. REILLY. How much do you think it ought to be?

Mr. OAKMAN. I think 50 per cent of the cash value of the property appraised at the time you ask for the loan. It does not make any difference whether it is hard times or good times, or whether the `mortgage is old or young. All the time you are seeking value, and any other conception of lending money upon mortgages is wrong. It can not be done by percentages. A mortgage given in 1927, when prices were high, can not be fixed by percentages. The value of that mortgage can be ascertained just as easily as a new mortgage can be ascertained to-day, because all the time the appraiser is seeking value and not percentages.

Mr. LUCE. May I interrupt you there?

Mr. OAKMAN. Yes, sir.

Mr. LUCE. We have had a pretty big scare by the great drop in values in real estate, especially in the Northwest. We have seen examples of many thousands of properties in the West and in the South that are selling to-day far below 50 per cent of what they were appraised at only a few years ago?

Mr. OAKMAN. Oh, yes.

Mr. LUCE. Would we be justified in taking that 50 per cent figure, in view of the situation in which all the farm loan banks now find themselves by reason of this depreciation?

Mr. OAKMAN. Of course, that makes two questions. The first. is very easy. That is, what you have in the cities is just the same as they have in the West. It would not be fair to take the 50 per cent of the old valuation. But, now, suppose there is a new mortgage to-day. Say, a man out West wants a mortgage upon his farm that has been depreciated 30, 40, or 50 per cent. Instead of getting a mortgage of $5,000 on a $10,000 valuation made three or four years ago, he can only ask for a 50 per cent mortgage on the $5,000 valuation. This valuation is made at the time the advance is made for him. It brings it right up to date. There is not any possible chance to escape it.

Mr. LUCE. Yes; but our question is, in the course of the next 10 years the price level on real estate may again get up to a swollen figure. If, then, this law is on the statute books 10 years from now, there would then be the danger of the repetition of what we have just gone through, would there not?

Mr. OAKMAN. That is an important point. Swollen figures would be treated very much the same as they are now. A home-loan bank would be as urgent a necessity 10 years hence as it is now.

But I feel certain that the member banks would in the future prevent to a great extent the repetition of our present difficulties.

There is nobody on earth more close to values than the fellow living in the community. He knows the value of the property at the time the mortgage is asked for. Inasmuch as he must guarantee it, he is not placing any mortgage on that which will make him any weaker in the future.

Then, many of these banks, especially the large ones, have millions of money in what we call the "morgue," that is, mortgages taken over and converted into real estate. That must be moved. They are not going to hurt themselves, and they have mortgages now away beyond the level that they are supposed to retain under the law. During hard times throughout the country the bank commissioners say, "Well, get them down as fast as you can."

Those mortgages must be taken care of. It does not make any difference what that mortgage reads, the banker will find out what is the value of the property behind the mortgage, and that is the basis on which the loan will be made.

He knows when building is going to be increased and he knows also whether there is going to be overbuilding. We do admit that there has been overbuilding and there always will be more or less in some places; for instance, in Detroit there is one section which is overbuilt, an old section, and old homes by the thousands are going to be torn down. Yet there is a market for new homes.

Mr. LUCE. You will appreciate, Mr. Oakman, that if we are overcautious it will be because "the burned child dreads the fire."

Mr. OAKMAN. There is no question about that. I went through some other panics, and to think of them makes me shiver. I have visited nearly every State in the Union. I have seen hardships, ar 1 I have known what the other fellows have done. The crooks hav› skinned me. But the day of the racketeer in mortgages is prac

tically over in this country. The people have learned a serious lesson.

Now, we have had our lesson in Detroit. Now, as a matter of fact, there is, and always will be an extra charge for second mortgages in some instances; in other instances there is none. There is none in the regular banks. I am a director in one of the largest companies in the country in that line; I am also a director of a bank; and I know. Here is what we do: A customer comes in and we know he is all right, and we find that his property has gone down under what it was three or four years ago. If he wants to mortgage we make the mortgage fit the value of the land. Then we take back the second mortgage and carry that mortgage upon terms that may be agreed upon by the borrower and the bank. That is the rule.

I carry possibly 1,200 second mortgages, which would run into about $1,600,000. There is not a single one of those mortgages that draws more than 6 per cent interest, the same as the original first mortgage. But you can not stop racketeering, only to the extent that people now know more than they did. That point has not heretofore been fully discussed.

Another matter that has not been discussed is the importance of having a bank of this kind for rehabilitation and for the repair of homes, which would employ hundreds of thousands of men.

There is not a place that you can go to unless you go to the United States Government to carry a man through certain situations.

Suppose you figure that a bank wants to borrow a million dollars. The bank must put up $1,911,000.

Mr. REILLY. How much securities should a bank be obliged to put up to borrow money from this bank or building and loan association to borrow money from this bank?

Mr. OAKMAN. I could not answer on the building and loan association matter.

Mr. REILLY. They have all got to be on the same basis.

Mr. OAKMAN. Then I would answer this way: That a mortgage coming in would mean 50 per cent on the face of the mortgage-50 per cent of the value of the property ascertained at the time the loan is asked for. That applies whether times are high or low or medium. It makes an absolute certainty of financial arrangement that has stood the tornadoes of distress for a hundred years in this country. and you find last fall it was reported that the loss on mortgages throughout the United States was about 1.32 per cent. As a matter of fact, those mortgages checked suffering in the West and checked suffering in Florida. They were on 15 to 20 story buildings, and so forth. I would stake my life on it that if those mortgages were confined to homes of the working men there would not be a one-thousandth part of 1 per cent loans on mortgages in the entire United States based on 50 per cent of value.

Not only do the banks carry on this thing-it has been carried on for ages-but the bank itself must guarantee it, and it is up to the district bank to see that that banks does not get any more money than it can take care of.

Mr. REILLY. Right on that point, how much do you think the bank ought to loan on a mortgage valued at 50 per cent?

Mr. OAKMAN. There is an item in there allowing a $15,000 mortgage for a working man's home. I thought my suggestion was very

liberal at about $6,000 or $7,000 mortgage on that working man's home. In other words, I do not think a bill like this should be in competition with the larger concerns.

Mr. REILLY. Leave out that point. Assume we were considering 50 per cent valuation at the time of the loan, how much money should this Federal bank loan to the member bank on a mortgage?

Mr. OAKMAN. I would make it not less than $7,000.

Mr. REILLY. What percentage of that mortgage?

Mr. OAKMAN. That is the thing that is a curse to the bill.

Mr. REILLY. What are your views on it? That is the proposition. Mr. OAKMAN. I think it is a fool proposition. It is a proposition that does not mean anything. It is uneconomic; it is unsound. There is not any possible way of arriving at the value of a mortgage percentage.

Mr. REILLY. Now, take this problem: Suppose I represent a home loan bank. I have taken a hundred thousand dollars of mortgages to this district bank. How much would they give me on it, valued at 50 per cent, takinging 50 per cent of the value? How much should the bank loan me, in your judgment; what percentage of that?

Mr. OAKMAN. That is if you are engaged in the home loan business?

Mr. REILLY. Yes.

Mr. OAKMAN. Explain further.

Mr. REILLY. Should it be 40, 50, 60 per cent, or what?

Mr. OAKMAN. If it was secured on the base of value, you ought to get 50 per cent of the full value of the property.

Mr. REILLY. Would it be 60 or 40 per cent?

Mr. OAKMAN. Of the unpaid balance?

Mr. REILLY. Of the unpaid balance.

Mr. OAKMAN. Which means 30 or 35 per cent.

Mr. REILLY. My purpose is to get your views on how far they should go; that is all.

Mr. ŎAKMAN. Of course, I would make merely a guess, if I was answering about building and loan associations, because I have not had any experience in that line.

Mr. REILLY. Then take a mortage bank.

Mr. OAKMAN. Well, if it was a mortgage bank, I can not conceive of any other way, with all my experience in the business—any way of figuring the value of the mortgage, except based upon the value of the real estate, and, inasmuch as it has lasted for generations and generations and found to be correct. I would lend 50 per cent upon the value of the property, whatever that would be in percentage.

Mr. WILLIAMS. Let me see if I understand you. Following the line of questions that the chairman has been asking you, representing a mortgage bank, suppose you went to this home loan bank with a hundre dthousand dollars of mortgages. You would expect to get $100,000 loan from those mortgages. Assuming that they represented the value of $200,000, you would expect not 50 but 100 per cent on the mortgages?

Mr. OAKMAN. Yes; exactly.

Mr. WILLIAMS. If the security back of them represents a valuation of $200,000?

Mr. OAKMAN. Exactly.

Mr. WILLIAMS. That is the way I understand you.

Mr. OAKMAN. That is exactly it.

Section eight contains the most vital defect in the bill.

The weakness in section 8 is that value has been replaced by guess work percentages. The provision in section 8 "in respect to an amortized home mortgage loan, which was for an original term of eight years or more " the advance may be for an amount not in excess of 60 per cent of the unpaid principal of the home mortgage loan," seems to be discrimination. Why a 5-year mortgage should be "fined" for being three years younger than an 8-year mortgage, surpasseth my understanding. It may be a case of old wine being more choice than young wine. This whole mess may be cleaned up by eliminating all that portion of section 8 pertaining to percentages, down to and including the clause that prevents a workingman from borrowing more than fifteen on his humble home. The clause in the same section, page 16, and reading as follows "At no time shall the aggregate outstanding advances made by any Federal home loan bank to any member exceed 12 times the amount paid in by such member for capital stock subscribed for it," should be stricken out of the bill and the following should be inserted instead:

Each Federal home loan bank is authorized to make advances to members who have become eligible to apply therefor; for the security of home mortgages, such advances to be made subject to such regulations, restrictions, and limitations as the board may prescribe. Any such advance shall be subject to the following limitations as to

amount.

No amortized mortgage whose unpaid principal exceeds 50 per cent of the value of the real estate appraised at the time the advance is petitioned for, shall be eligible for a loan.

Mr. REILLY. The chairman sent a telegram yesterday to Mr. Frederick H. Ecker, president of the Metropolitan Life Insurance Co., inviting him to testify before this subcommittee or to send a representative. Mr. James L. Madden is here this morning to represent Mr. Ecker. I sent the telegram because Mr. Ecker was chairman of the finance committee of the President's conference on home building and home ownership and some people desired that he should appear at this hearing.

STATEMENT OF JAMES L. MADDEN, THIRD VICE PRESIDENT METROPOLITAN LIFE INSURANCE CO., NEW YORK CITY

Mr. REILLY. Give your full name, the position you occupy and your address.

Mr. MADDEN. My name is James L. Madden, third vice president Metropolitan Life Insurance Co., New York City.

Mr. Ecker has instructed me to convey to you his desire to cooperate with you gentlemen to the fullest extent because he realizes that you are endeavoring to secure a factual background upon which you may base your decision. As chairman of the finance committee of the President's conference on home building and home ownership, Mr. Ecker directed an investigation of the fundamental principles involved in the bill which you now have before you, using both the facilities of the committee as well as our own research staff for this purpose. In addition he is interested in this proposal as the presi

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