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FURTHER STATEMENT OF HON. ROBERT LUCE, A REPRESENT. ATIVE IN CONGRESS FROM THE STATE OF MASSACHUSETTS

Mr. LUCE: Mr. Chairman, I would like to supplement my statement of this morning by furnishing the results of a questionnaire sent out by the Department of Commerce to which eight thousand or nine thousand replies were received, showing or giving a complete statistical statement of the situation to which we are addressing ourselves.

Mr. REILLY. Later on you ought to put in what that shows, interpret that.

Mr. LUCE. I will put in an interpretation of it.

THE DEPARTMENT OF COMMERCE QUESTIONNAIRE

The Department of Commerce sent out the following circular letter and questionnaire, accompanied by President Hoover's statement of November 13, 1931:

DEPARTMENT OF COMMERCE,

Washington, January 15, 1932.

Circular letter to Presidents of Banks, Building and Loan Associations, and other Mortgage Institutions.

DEAR SIR: The inclosed material in regard to the proposed system of 12 Federal home loan discount banks is sent you at the request of Representative Robert Luce, who has introduced in Congress a bill designed to carry out the suggestions outlined by President Hoover in the attached statement.

Mr. Luce, a member of the House Committee on Banking and Currency, which will hold hearings on the measure, has asked this department to ascertain the probable effects of the system upon the operations of local mortgagelending institutions. Accordingly, a questionnaire is attached which I hope you may fill in and return.

A full response from local institutions that make mortgages on homes should throw much light on the probable usefulness of the proposed measure. Thanking you for your cooperation in this matter, I am

Very sincerely yours,

R. P. LAMONT, Secretary of Commerce.

TEXT OF PRESIDENT HOOVER'S STATEMENT ON THE PROPOSED ESTABLISHMENT OF HOME LOAN DISCOUNT BANKS

(November 13, 1931)

I shall propose to Congress the establishment of a system of home loan discount banks for four purposes:

1. For the present emergency purpose of relieving the financial strains upon sound building and loan associations, savings banks, deposit banks, and farm loan banks that have been giving credit through the medium of small mortgage loans upon urban and farm properties used for homes; thereby to relieve pressures upon home and farm owners.

2. To put the various types of institutions loaning on mortgage in a position to assist in the revival of home construction in many parts of the country and with its resultant increase in employment.

3. To safeguard against the repetition of such experiences in the future. 4. For the long-view purpose of strengthening such institutions in the promotion of home ownership, particularly through the financial strength thus made available to building and loan associations.

The immediate credit situation has for the time being in many parts of the country restricted severely the activities of building and loan associations, deposit banks, including country banks, and savings departments, savings banks

and farm loan companies in such fashion that they are not only not able to extend credit through new mortgages to home and farm owners, but are only too often unable to renew mortgages or give consideration to those in difficulty with resultant great hardships to borrowers and a definite depreciation of real estate values in the areas where such pressures exist.

A considerable part of our unemployment is due to stagnation in residential construction. It is true there has been some overbuilding in certain localities in the boom years. But even in these localities the inevitable need is obscured by the tendency of the population to huddle temporarily due to unemployment. The real need steadily accumulates with increasing population and will become evident and insistent as we come out of the depression. The high importance of residential construction as a matter of employment is indicated by the fact that more than 200,000 individual homes are erected annually in normal times, which with initial furnishing contribute more than two billions to our construction and other industries. This construction has greatly diminished. Its revival would provide for employment in the most vital way. As a people we need at all times the encouragement of home ownership, and a large part of such action is only possible through an opportunity to obtain long-term loans payable in installments. It is urgently important, therefore, that we provide some method for bringing into continuing and steady action the great facilities of such of these great national and local loaning concerns as have been under pressure and should provide against such difficulties in the future.

The farm-mortgage situation presents many difficulties to which this plan would give aid.

I have consulted with representatives of the various groups granting credit on mortgage loans for the home and farms as well as Government officials and other economic agencies, and as a practical solution from the various needs and the various ideas advanced I propose the following general principles for the creation of an institution for such purpose:

(a) That there be established 12 home loan discount banks (if necesary), one in each Federal reserve district under the direction of a Federal home loan board.

(b) The capital of these discount banks shall be initially of minimum of five to thirty millions as may be determined by the Federal board upon the basis of the aggregate of such mortgage loans and probable needs of the particular district.

(c) The proposed discount banks to make no initial or direct mortgages but to loan only upon the obligations of the loaning institutions secured by the mortgage loans as collateral, so as to assure and expand the functioning of such institutions.

(d) Building and farm loan associations, savings banks, deposit banks, farm loan banks, etc., may become members of the system after they have satisfied the conditions of qualifications and eligibility that may be fixed by the Federal board.

(e) The mortgage loans eligible for collateral shall not exceed $15,000 each and shall be limited to urban and farm property used for home purposes. (f) The maximum amount to be advanced against the mortgage collateral not to exceed more than 50 per cent of the unpaid balance on unamortized or short-term mortgage loans and not more than 60 per cent of the unpaid balance of amortized long-term mortgages, and no advance to be made on mortgages in default. Such loans are to be made on the basis that there are sound appraisals of the property upon which such mortgages have been made. In other words, given sound appraisals, there will be advanced in the case of short-term or unamortized loans 25 per cent of the appraisal and in case of amortized long-term loans, 30 per cent of the appraised value of the property. (g) The discount banks as their needs require from time to time to issue bonds or short-term notes to investors to an amount not to exceed in the aggregate twelve times the capital of the issuing bank. The bonds of these discount banks would be thus secured by the obligations of the borrowing institutions, the mortgages deposited as collateral against such obligations and the capital of the discount banks. These bonds to be acceptable for security for Government and postal deposits. The result would be a bond of high grade as to quality and security.

(h) If the aggregate initial capital of the discount banks should in the beginning be fixed at $150,000,000, it would be possible for the 12 banks to finance approximately something over $1,800,000,000 of advance to the borrowing institutions, which could be further expanded by increase in their capital.

(i) It is proposed to find the initial capital stock for the discount banks in much the same way, in so far as is applicable, as the capital was found for the Federal reserve banks-that is, that an organization committee in each district should first offer the capital to the institutions which would participate in the service of the bank. And as was provided in respect to the Federal reserve banks, if the initial capital is not wholly thus provided, it should be subscribed by the Federal Government; and further, somewhat as was provided in the case of the Federal land banks, other institutions using the facilities of the discount banks should be required to purchase from time to time from the Government some proportionate amount of its holdings of stock, if there be any. In this manner any Government capital will gradually pass over to private ownership, as was the case in the Federal land banks.

The above details of the proposal are put forward as suggestions in order to give clarity to the central idea rather than as inflexible conclusions. The whole plan would necessarily be subject to the action of Congress, and many parts of it will no doubt need development.

There is no element of inflation in the plan but simply a better organization of credit for these purposes.

This proposed institution does not in any way displace the National Credit Association, which occupies an entirely different field of action.2

DEPARTMENT OF COMMERCE, Washington, D. C., January 15, 1932.

When you have replied to the following questions, please mail to the Secretary of Commerce, Washington, D. C., in the attached addressed envelope, which requires no postage:

1. Would the facilities provided by the proposed home loan discount banks for borrowing on your home mortgages add desirable flexibility and security to the conduct of your institution?---

2. Would operation of the discount banks increase the amount of credit now available for legitimate use in your community?___.

3. Is there a demonstrable need for actual home construction, either new houses or remodeling work, that could be undertaken in your community if credit facilities were widened at the present time?.

If so, could you estimate the probable extent of such contemplated construction?_

4. Would the facilities afforded by the proposed discount banks help to relieve the dangers of foreclosures on urban homes and farms?_

5. If the proposed system had been in operation, to what extent do you think foreclosures, local bank failures, etc., could have been avoided during the past two years?

6. It would be helpful in interpreting the results of this questionnaire if you furnish the following information for your institution:

Number of home mortgages---.

Outstanding principal amount of mortgages now held__.
Total assets__.

7. General comments

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1 Some attention has been directed to restrictions in some State laws that might now prevent certain types of institutions from purchasing stock in the home loan discount banks. It is expected that this obstacle will be surmounted in the legislation now being considered by temporary provisions, pending the time when necessary changes could be made in State laws.

A summary of the replies, with breakdown of them by States, appears in full in part 4 of the hearings of the subcommittee of of the Senate Committee on Banking and Currency, March 9, 1932. It is of importance to reprint here only the following:

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The replies to question 5 could not be tabulated, but a summary of them may be found on page 651 of part 4 of the Senate hearings. It is to be noted that the bill now before us, not having been perfected, did not accompany the questionnaire, and no inference may be drawn that judgment was passed on the details of the bill. The instructive things are the general attitude toward the proposal of. the President, the information as to the situation in all parts of the country, and the opinion as to the matters covered by the questions asked. Answers came from every State and Alaska, with distribution corresponding nearly enough to populations and banking resources to warrant the assumption that the summaries give a fair picture of the whole situation."

The total of assets reported was $17,338,707,113.

It is also to be noted that while the bulk of the testimony before the Senate subcommittee related to the situation and needs of building and loan associations, more than three-quarters of these replies came from National and State banks, savings banks, and other institutions handling mortgages, with about three-quarters of them apparently approving the purpose of this bill.

It would appear that the men at the head of a little more than three-quarters of these institutions believe that the facilities of discount banks of the class proposed would add desirable flexibility and security to the conduct of their institutions, and increase the amount of credit now available for legitimate use in their communities.

The 8,743 answering are about equally divided as to whether there is a demonstrable need for actual home construction, either new houses or remodeling work, that could be undertaken in their communities if credit facilities were widened at the present time. This may confirm the impression to be gathered from the testimony before the Senate subcommittee that the need varies greatly. Some localities report real need for more housing; some stress the need for remodeling. Some witnesses before the Senate subcommittee thought there had been overbuilding in their particular localities. Few faced the question of whether the huddling now taking place may not impair judgment on this question, and whether when the credit jam is broken and employment conditions become normal again, there may or may not be need for more housing.

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The figures as to replies to question 4 are particularly significant. They show that nearly three-quarters of the those answering believe that the proposed system would help relieve the dangers of foreclosures, which are the most distressing feature of the present situation.

Answering question 5 about 3,000 were of the belief that if the proposed system had been in operation in the last two years, foreclosures, local bank failures, etc., would have been avoided to greater or less extent.

It seems fair to point out that although it would appear some localities feel the need of the proposed system more than others, it does not follow that provision should not be made for the evident need of those that are suffering the more. When three-quarters of the most cautious and conservative group in the country, the banking group, say in effect that the purpose of this bill should be accomplished, it may be taken that the need is widespread and urgent. Mr. REILLY. We will hear Mr. William E. Best.

STATEMENT OF WILLIAM E. BEST, PRESIDENT UNITED STATES BUILDING AND LOAN LEAGUE, BEAUMONT, ALLEGHENY COUNTY, PA.

Mr. REILLY. I understand that you appeared before the hearings in the Senate?

Mr. BEST. Yes, sir.

Mr. REILLY. Now, we do not care to have any repetition of that testimony, because we will consider it, but if you have anything additional to offer here we would be pleased to hear it. If you have nothing additional, and if you can summarize in a short time what you have said here we will be pleased to hear you.

Mr. BEST. In order to save the time of the committee, Mr. Chairman, I am prepared to offer here a very brief statement, or sumary, which I would like to read and file.

Mr. REILLY. Proceed.

Mr. BEST. The common folks are looking to this Congress to pass the Home loan bank bill. Not one but several measures involving not millions but billions of dollars have been passed to assist banks. Building and loan associations are peculiarly institutions dedicated to thrift and to encouraging home ownership. The members or investors approximate 10,000,000, practically all of whom are small savers; in fact, the average savings account of building and loan associations to-day is less than $720.

Public policy has led to the establishment of the Federal reserve system to serve the commercial interests of the country and the farm owner or buyer has been provided with the Federal farm loan system to supply agricultural credit. To-day the institutions in the cities which serve the small savers and finance home needs have no finance system to help them serve the people in the small towns and cities. The Government should not hesitate to do for the ordinary urban population what they have successfully done for the commercial and agricultural interests.

In addition to the 10,000,000 investing members in building and loan associations, there are approximately 2,000,000 people in the United States paying for their homes on the building and loan plan.

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