The subcommittee met, pursuant to adjournment, in the caucus room, House Office Building, at 10.15 o'clock a. m., Hon. Michael K. Reilly (chairman of the subcommittee) presiding.

Mr. REILLY. The committee will be in order, and I will ask Mr. Rosenbaum to come forward, please.

STATEMENT OF EDWIN J. ROSENBAUM, NEW YORK CITY

Mr. REILLY. Give your full name to the reporter.

Mr. ROSENBAUM. Edwin J. Rosenbaum.

Mr. REILLY. Where do you live?

Mr. ROSENBAUM. New York City.

Mr. REILLY. What is your business?

Mr. ROSENBAUM. At the present time I am retired; I am doing nothing.

Mr. REILLY. Who are you appearing here for?

Mr. ROSENBAUM. For myself.

Mr. REILLY. Representing nobody but yourself?

Mr. ROSENBAUM. No one whatsoever; no, sir.

Mr. REILLY. Did you appear before the Senate committee on this matter?

Mr. ROSENBAUM. No, sir.

Mr. REILLY. Now, will you proceed to tell the committee what you know about the subject of home-loan banks?

Mr. ROSENBAUM. Mr. Chairman and gentlemen of the committee, I respectfully submit to your earnest consideration first, that over $300,000,000 can be released with sound banking for the purchase of food and clothing in the proposed home-loan bank bill.

Second, such provisions are necessary, otherwise the bill is a menace to property owners and can not accomplish its purpose. President Hoover has suggested that bonds aggregating $1,800,000,000 shall be sold for home-loan banks. The bank shall rediscount straight mortgages up to 30 per cent of the appraised value and amortized mortgages up to 40 per cent of their appraised value. There should be added a third class; namely, amortized home loans where amortization is suspended, but interest and taxes, and so forth, are maintained. When the principal of the loan does not exceed

50 per cent of the present appraised value, this type of loan should be eligible for rediscount.

The average amortized home loan running 14 years, the principal being reduced at 7 per cent per annum, is 98 per cent extinguished over a 14-year period. We shall call it 100 per cent for convenience, and divide it into two 7-year periods. In so much as 100 per cent of amortization payments for seven years previous to the stock market debacle are a complete loss, practically only those loans will be eligible for rediscount which have been on the building and loan books for seven years.

An average loan of $6,000 will have been reduced to $3,000, on which the building and loan or bank can borrow $1,500. The mortgage of $6,000 I have now reduced to $3,000. The annual amortization of $6,000 at 7 per cent equals $420; the interest charge on $3,000 at 6 per cent equals $180, a total of $600.

Now, if that $3,000 is treated as a straight 3-year loan the $420 amortization can be used by the mortgagor.

This benefits the unemployed home owner and a very substantial number of home owners working for reduced wages or under the stagger plan.

In the case of a home owner who started with a $15,000 mortgage and has reduced it to $5,000, for example, the result is almost startling. At 6 per cent interest he pays $300 per year; at 7 per cent annual amortization on $15,000, he pays $1,050 per year, which is enough to feed himself, wife, and three children.

Possibly two-thirds of the contemplated bond issue of $1,800,000,000 or $1,200,000,000 will be loaned on this type of loan and at $1,500 each would lift a burden from 800,000 home owners; an average of $420 each relinquished from amortization would produce a spending power of $336,000,000 per year for purchase of food and clothing. This would stimulate business, it would stimulate consumption, it would stimulate employment, it would stimulate and stabilize the market for small homes; it would work a step toward recovery.

The Metropolitan Life Insurance Co. points with pride to a straight mortgage, now cancelled, which was on their books for 47 years; the Mutual Life Insurance Co. was recently paid a mortgage that ran for 85 years, but they have a mortgage still robust at 78

years.

The suspension of amortization when the loan is amply secured, is not a charity; it is iron-clad banking. But, according to the present plan, no loan on which amortization has been suspended is eligible for rediscounting.

The statement that part of the funds raised should be used for further construction is a grievous error, and does not merit the consideration of any one conversant with existing conditions. There must be approximately four million vacant houses and apartments to-day. Any new construction must be absorbed and it further aggravates the present unsound condition.

To guard against the plan that part of these bonds should be utilized for new construction, there should be incorporated a clause in the home-loan bank charter that no bank or building and loan association using the privilege of the home-loan bank should be per

mitted to loan for new construction; that upon their making such loans, the loans discounted by the home-loan bank shall be due and payable. This does not preclude them from making new loans on properties built previous to the formation of the home-loan banks. Without this clause we shall eventually develop a situation similar to the farm condition. The Federal Government encouraged the farmer by lending him money, and then on account of the overproduction which the very loans developed, it set up a farm board with a few hundred million dollars to help rescue him, and how unsuccessfully is self-evident.

If the present banking facilities can develop such overproduction as now exists, then neither Federal capital nor governmental encouragement are necessary for building construction. The home loan banks are formed to meet a national emergency, and when that emergency ends, the less they function the better for the country. They are formed to help real estate and home owners, not to crush real estate with further overproduction.

It has been my privilege to discuss the foregoing recommendations with the bankers representing a very substantial volume of capital; only the building and loan assaciations have taken exception to them. Their exception is based on the fact that they do not believe there should be legalized permission to relinquish amortization. That the home owner should come to them and pray for remission of amortization. That the best thing for the home owner is to get his home paid for. I grant that he should get his home paid for, if possible. This home loan bank bill emerges from national calamity. The voluntary release of amortization as outlined will provide sufficient money to feed 2,000,000 people. If the major part goes into food it will stimulate food consumption, help the farmer and industries allied to farming; if it goes into shoes and clothing, it will provide a stimulus to prices and employment in those industries. If it goes into construction, the present home owners can not eat the new bricks and mortar.

The building and loan associations want to satisfy their customer who has saved a few thousand dollars to purchase a new home; this is very laudable. But for every hundred thousand new homes built, there will be a hundred thousand vacancies in existing apartments or houses; the new construction must be absorbed, and it is absorbed through lowered values of existing properties. The spirit of this act is to help the present home owner facing foreclosure and hunger, not to help the potential home owner with funds that make his position impregnable.

This does not preclude 'new construction, but it does preclude new construction through the sale of these bonds and the privilege of rediscount.

The Federal Government knows the economics of production, overproduction, and further production. We must try for once the economics of consumption which makes production necessary. Senator James Watson, just previous to published criticisms of the home. loan bank bill by the American Bankers Association, stated that none of the money raised would be used for new construction. That is not my interpretation of the bill. The building and loan associations can discount the mortgages on hand and use the proceeds of those discounts for new construction. An explicit provision must be

made to prohibit this unsound banking and its potential menace to the property owner. And further, the morale and courage of the American home owner must be sustained and strengthened by a provision that when his home loan is amply secured, he can use the further payments during a limited time for the purchase of food and clothing for his family. This provision is not mandatory; the banks shall determine when the loan is amply secured. This provision merely puts on record that mortgages, which are amply secured, are not ineligible for rediscount when only amortization payments are in default.

The bonds which are amply secured constitute gilt-edge securities, but the home loan bank should not be set up as a permanent institution along proposed lines. Provision should be made for the retirement of the major part of outstanding bonds within 12 years. If this reservoir of credit, created through the sale of home loan bank bonds is continued indefinitely, when an emergency arises again, there must be created another reservoir of credit to save the situation. For instance, if this bank had been functioning during the past 10 years, when this present emergency arose, its credit would have been absorbed long ago, and another and larger credit would have had to be found to meet the emergency. Again you have the analogy in the farm banks and the continuous increases of credit voted by Congress.

Now there can be no denial of this reasoning. One billion, eight hundred million is a large amount of money. But our national wealth has been estimated at $400,000,000,000, of which real property comprises over 54 per cent, so that $1,800,000,000 is less than 1 per cent of the total value of all real property; but confining this to our present 12,000,000 home owners at $7,000 each, we get $84,000,000,000, of which $1,800,000,000 is about 24 per cent. That this credit would have been absorbed in further overproduction long before the market debacle, there can be no possible question.

After a given number of years this bank must function as a skeleton organization.

It may be superfluous to add that no appraisal of a property should be accepted that was made more than six months previous to the formation of the home loan bank.

Mr. REILLY. Mr. Rosenbaum, what was your business before you retired?

Mr. ROSENBAUM. Well, I was in the stock market a number of years, and I have been in the construction business.

Mr. REILLY. Construction business?

Mr. ROSENBAUM. Yes, sir.

Mr. REILLY. Your principal objection to this bill is that it will result in the overproduction of homes?

Mr. ROSENBAUM. Yes, sir-no; further than that, it aggravates the present overproduction; the result is here already.

Mr. REILLY. It would result in the bringing about of a situation that you think now is overproduced?

Mr. ROSENBAUM. Yes, sir.

Mr. REILLY. If the bill is to be passed, have you any suggestions as to any amendments?

Mr. ROSENBAUM. Well, the suggestions I submitted are here, Mr. Chairman.

Mr. REILLY. Thank you, Mr. Rosenbaum.

Mr. CAMPBELL. Mr. Chairman, I would like to ask a question. Mr. ROSENBAUM. Yes, sir.

Mr. CAMPBELL. Suppose a man has saved up a couple thousand dollars, and he wants to build a home. Would you deny him the right to build a home if he wants to do so instead of having to buy one of the homes already built?

Mr. ROSENBAUM. I think he should have to buy a home already built.

Mr. CAMPBELL. It is not what you think about it, but what the man wants to do.

Mr. ROSENBAUM. Those are the facts.

Mr. CAMPBELL. I do not care anything about what are the facts. He wants to build a home according to the ideas he has had for a long time. Would you deny him that right?

Mr. ROSENBAUM. I certainly would.

Mr. CAMPBELL. Has he not a right to go and borrow money and use that money as he sees fit to build a home?

Mr. ROSENBAUM. Will you permit me to answer you?

Mr. CAMPBELL. Yes, sir.

Mr. ROSENBAUM. I think that the spirit of this proposed act certainly emanates from a condition where homes were facing foreclosure and people actually facing want and hunger, and those are outstanding features in our economic condition to-day. I think that the money will accomplish a great deal more good and answer its primary purpose in establishing this act to help those men who are losing their homes and whose families are facing want and hunger. But that is the spirit of it.

Mr. CAMPBELL. Whose credit is that?

Mr. ROSENBAUM. It is the Government's credit.

Mr. CAMPBELL. In the case of any man using his own money and his own credit, you would not permit that man to make a loan to get that? You mentioned about a number of vacant houses? Mr. ROSENBAUM. Yes, sir.

Mr. CAMPBELL. There are probably thousands of pieces of property that have not been occupied for five years and which never will be occupied, because people have moved away from that community and it will never again be a residential section; and yet those vacant houses are unoccupied, and that condition exists in most cities throughout the country from year to year.

Mr. ROSENBAUM. If that is the condition, why aggravate it? Mr. CAMPBELL. Because people want homes in that section of the country.

Mr. ROSENBAUM. Then, we are going to use this money in order to satisfy the individual whim of some people?

Mr. CAMPBELL. It is not a whim. You take the slums part of New York, from which people are moving outside the city, are they not? Again, take Pittsburgh, and they are moving to the outside sections, moving away from the congested section, getting out in the country where transportation is easy, and they are vacating homes that have been occupied for 50 years.

Mr. ROSENBAUM. I think in the final analysis that the way provided to permit new construction through this bill is really a

menace