dent of our company which invests substantial sums in home mortgages.

You gentlemen appreciate that as the custodian of funds contributed by policyholders throughout the United States and Canada, that due caution must be exercised in investing these moneys. At the same time the Metropolitan strives to improve continually its methods of investment to the end that they may fulfill an increasingly important rôle in our social and economic structures without diminishing in any way our paramount consideration, namely the safety factor. Accordingly Mr. Ecker was glad to have investigated the fundamental principles underlying the bill you now have before you, in the thought that if they really would improve the financial status of home owners and senior mortgage financing institutions, the measure would be in the public interest and should be supported. In this event a factual investigation would justify this conclusion. It is apparent, therefore, that Mr. Ecker had two reasons for being interested, first, as chairman of the finance committee of the President's conference on home building and home ownership, and next as President of the Metropolitan Life Insurance Co.

As the telegram from your chairman was received late yesterday afternoon we have not had an opportunity to prepare any formal statement, and therefore it is our purpose only to indicate briefly the object and scope of our investigation and then to answer such questions as you gentlemen see fit to raise. Before proceeding, though, I would like to take cognizance of a statement which the preceding speaker made in reference to life insurance companies and his allegations of their practices which are detrimental to home ownership. Certainly this can not be reconciled with the actual practices of life insurance companies as portrayed by public records. In addition to increasing the amount of funds invested in city mortgages last year, about $1 out of every $20 received by the American people last year came from these companies. In other words, a tremendous sum of money-$2,500,000,000-was paid by these institutions, much of which undoubtedly was spent for the maintenance of homes, for the payment of interest and taxes, and for other purposes to safeguard home ownership. In addition the foreclosure rates of life insurance companies, with over $4,000,000,000 of city mortgages, was about 1 per cent. Then, too, a substantial part of the new mortgage investments of the life insurance companies went to local institutions which were in trouble, the exact amount we have not figured but which has been estimated by others as being in the neighborhood of about $70,000,000. Instead, therefore, of the life insurance companies being open to the accusation which has been made, they have "done their bit " in the public interest during a period when many other credit agencies were having difficulties.

Reverting now to my purpose for being here as the representative of Mr. Ecker, factual investigations of the underlying principles of the bill which you now have before you were made in the hope that we would find in the arguments advanced in favor of this measure sufficient substance to enable mortgage lending institutions to improve their services to home owners. That our own interest is very real is apparent from the fact that the Metropolitan has made loans in probably every State in the United States with the exception of

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three, and that we have invesed about $449,000,000 in mortgages on homes out of our total city mortgage portfolio of about $1,289,000,000 and exclusive of about $201,000,000 invested in farm mortgages.

Our investigations indicate that this particular measure as drawn will be detrimental to the home owner instead of helping him; that generally speaking it will not facilitate the renewal of mortgages and reduce foreclosures; in fact, it will tend to make the existing trying situation more difficult through depreciating existing values and undoubtedly in many cases increasing foreclosures. So much for the effect upon owners of encumbered properties. But now a word in reference to the effect upon owners of unencumbered homes, who, according to the latest information we have, are greater in number than owners of encumbered property. In this case the objectives underlying this bill, if carried out, will bring about a shrinkage in the savings of thrifty and aged people which have been stored in their homes.

Mr. REILLY. That statement is based upon the fact, however, that in your judgment this bill will encourage excessive home building? Mr. MADDEN. Yes; but there are other reasons, too.

From the standpoint of mortgage lending agencies it is apparent that the title of the bill is misleading because the proposed banks are discount banks and will not render direct service to home owners. In order to learn just how helpful this bill would be to mortgage lending agencies in improving their service to home owners we consulted with building and loan associations, mutual savings banks, commercial banks, life insurance companies, and other types of mortgage banking institutions. We went to some of our European friends for factual information about their mortgage banking institutions. In the course of these phases of our investigation we paid particular attention to the arguments of the proponents of this bill, namely, that it would improve the liquidity of mortgages, insure a broader distribution of mortgage funds, and reduce interest rates. In addition we weighed the merits of the proposed national standardization of home mortgage finance in comparison with the existing competitive situation under the supervision of the respective States. We studied the contingent guaranty of the bonds of the proposed home-loan banks by the Federal Government from the standpoint of the effect upon the credit of the Government, the availability of funds in times of depression, and the soundness of this particular method of financing private enterprise which should either be self-supporting or cease to do business. We investigated the justification for setting up under this measure a competitive banking system with our existing financial structure, the availability of mortgage funds in connection with the general economic credit situation. and the possibilities of the Reconstruction Finance Corporation. Certainly the answers to the foregoing and other questions would indicate the value of the structure contemplated in the bill you have before you. In point of fact, though, our conclusions indicated that from the standpoint of mortgage-lending institutions, generally speaking and I add this qualification because I realize there is a small minority in favor of this particular proposal-this particular bill is unnecessary.

Under present conditions there is a need for an emergency institution which will "unfreeze" all types of sound assets regardless of

their nature in order to provide cash. There are undoubtedly many cases where banks with assets primarily in bonds would be willing to lend money to home owners providing they could "unfreeze" their bond account. We must not lose sight of the fact, though, that the cause of the emergency need for credit by industry and commerce is essentially the same as that of those home owners whose local institutions are unable to satisfy their demands and that the problem in these cases arises from frozen portfolios of investments for which there is practically little or no immediate market, or one in which quotations are known to be below fair values. Mr. Ecker realized the need of an emergency institution to meet this situation and accepted an invitation from those in charge of the Reconstruction Finance Corporation bill in the Senate to appear in behalf of that legislation.

To summarize, we believe this bill is detrimental to the well-being of home owners, that it is unnecessary from the standpoint of the mortgage-lending institutions, and that only a relatively small percentage of the approximately 32,000 mortgage-lending institutions in the United States have indicated any particular desire for it. There is no need for the home-loan banks as an emergency measure because the Reconstruction Finance Corporation is more competent to render the "unfreezing" service which is necessary. As for the need of the home-loan banks as a permanent institution, we believe that they not only can not be self-sustaining, but they are unnecessary. In fact, a number of States are indicating a degree of leadership, which we think is preferable to this proposal. For example, in New Jersey we find the building and loan associations developing an interesting plan for meeting the problems which are peculiar to them because of local conditions and their State laws. In New York for many years the building and loan associations have successfully operated their own discount bank, which works in conformity with the customs and laws of that State. Then, too, the savings banks of that State have recently taken constructive action to safeguard their institutions in the event of an emergency. In the State of Massachusetts from which Congressman Luce comes

Mr. REILLY. Mr. Madden, other States have not done that. Mr. MADDEN. Quite true; but if a demand existed, why did they not take some action?

Mr. REILLY. Because this is an emergency.

Mr. MADDEN. Then the Reconstruction Finance Corporation will take care of them.

Mr. REILLY. What information have you as to what the Reconstruction Finance Corporation has done to date for the building and loan people?

Mr. MADDEN. The corporation has not completely organized as yet, but it appreciates the need of helping certain building and loan associations. During the past several weeks the officers of the corporation have been looking for competent men with a mortgage background. In fact, I am informed that certain representatives of building and loan societies have been consulted on this matter. Furthermore, I do understand that regardless of this difficulty, the Reconstruction Finance Corporation has authorized loans to some building and loan associations. In consideration of the time within.

which the Reconstruction Finance Corporation has existed and the organization problems which it is facing, this emergency body has been doing a splendid piece of work.

Mr. REILLY. Do you consider the Reconstruction Finance Corporation as having sufficient funds

Mr. MADDEN. Absolutely.

Mr. REILLY (continuing). To undertake the liquefying of all bonds and mortgages and things of that kind?

Mr. MADDEN. Absolutely, and in the event it develops that it has not, then it would be easier to provide that body with additional funds than to set up the home-loan discount banks as competing agencies for mortgage discounts.

Mr. REILLY. There are 7,000 building and loan associations in this country.

Mr. MADDEN. There are approximately 12,000.

Mr. REILLY. Are they not suffering to-day from frozen assets? Mr. MADDEN. Nationally speaking, the building and loan associations are sound, but in some localities they are frozen.

Mr. LUCE. You said this would be detrimental to home owners. I do not quite understand what you had in mind in that regard.

Mr. MADDEN. In our opinion this bill will be detrimental to the interests of home owners. Just to illustrate, one may, let us assume a home owner has a piece of property worth $10,000. Under present conditions this property has depreciated probably 20 to 25 per cent. A number of new homes are put up in this neighborhood as a result of this bill one of the purposes of which is to stimulate new building. What is the effect upon this home owner?

Before considering this particular case, let us briefly review the housing situation generally. In view of the surplus homes which have resulted from foreclosures and reduced incomes, there is a relatively small market for new houses. We are aware of the estimates of the need of new buildings made by proponents of this measure, and although we are a national mortgage lending institution with the necessary facilities for keeping our hand upon the pulse of the demand for new housing, we are not in accord with the estimates advanced in behalf of this measure. We know only too well the difficulties which mortgage-lending institutions alone are having in trying to dispose of homes at prices with which new homes can not compete.

Then, too, we must realize that a study of the past 10 years and our expected increase in population during the next decade tends to lead one to believe that the construction industry will function at a slower tempo for a period of time in the future than it has since 1920. If this is so, it will be most unfortunate to try to curb the economic readjustments through legislative processes and Government and subsidies. As evidence supporting this viewpoint, we find that from 1920 to 1930 there were from two to three million homes built. In 1925 the greatest number of houses were constructed. From that date until the present there has been a decline. You will recall that during 1926, 1927, and 1928 the American people had plenty of money so that the decline was not due to lack of funds. It is a reasonable assumption that the downward trend reflects a gradual slowing-down process which naturally would result after the

normal supply of houses was restored because of the shortage of home building which accumulated during the war.

There is a definite relationship between the increase in population and the demand for housing under normal circumstances. Between 1920 and 1930 there were about 16,648,000 new people in the United States. During 1930 and 1940 it is estimated that our population will be increased about 7,906,000, or about half of the increase during the last decade. It is readily apparent that the demand for housing, based upon the housing trend and the growth of population, necessarily will be below the number of homes constructed during the last 10 years. Now, we are well aware of the argument that there is much huddling due to economic conditions, but we believe that this huddling is substantially less than the number of homes which are available for sale either as the result of foreclosures, weak home ownership, the reported drift of people to the farms, and other causes. Now, if, in view of the foregoing, you inject into the present situation a new building program, you will make the problem of disposing of existing foreclosed and other properties much more difficult, and in addition in the case of the man whose home is worth $10,000 and which has already depreciated about $2,000 because of economic condition, you are bound to decrease further the value of his particular house when you build additional homes in his neighborhood, because we know that the home-buying public prefers new houses to others. Furthermore, a man's property is very apt to be depreciated because of obsolescence.

Mr. REILLY. So your principal objection to this bill is that it will unduly increase home building and depreciate the value of homes already built?

Mr. MADDEN. That is one objection.

Mr. REILLY. Is not that your principal objection?

Mr. MADDEN. No; there are other objections; for example, we believe that the existing competitive situation under which the four major leading institutions are working under the supervision of their respective States, is superior to the proposed standardized and nationally controlled system. Intensive competition among banks, building and loan associations, mutual savings banks, and insurance companies is in the public interest because it tends toward improved service to home owners, flexibility in meeting the varying demands of home owners, and compliance with the laws and customs of the respective States. Contrast this with the system proposed in this bill whereby an effort is made to force home owners to take longterm mortgages, and mortgage-lending institutions to comply with the fixed requirements which will be made by the proposed home loan board in Washington.

Furthermore, you must realize that all of the benefits alleged by the proponents of this bill can be made effective only if the mortgagelending institutions generally go into the home loan banks system. In other words, the success or failure of the proposed home loan banks is going to depend upon the extent to which these banks are used by mortgage-lending institutions. Although we have endeavored to determine the extent of the sentiment in favor of this bill, we find that only a small minority of the mortgage-lending institutions are for it. The American Bankers Association has gone on record against it, and various State banking associations have taken