nies pick and choose as to their loans. Do you lend on any old houses?

Mr. SMITH. Yes, sir.

Mr. LUCE. How old?

Mr. SMITH. Well, we have loaned on houses as old as 100 years. Mr. LUCE. Yes; but if a new loan was requested on such a house, would you lend it?

Mr. SMITH. Well, I am trying to think of loans that have gone over my desk in the last six months.

Mr. LUCE. Let us not confine ourselves to instances. Is it your practice to use age as a factor in loaning?

Mr. SMITH. Yes; when it is coupled with the effect on the neighborhood of a lot of old houses. But an old house per se might very readily get a loan to-day in our office. It might be 60 years old, if it is in a good district where people would want to move to.

Mr. LUCE. The testimony in the Senate was to the effect that this, however, was not customary with the big life insurance companies, to lend on old houses? Would you contest that?

Mr. SMITH. I would say it was customary for the life insurance companies to lend on some old houses in limited quantities. Mr. Madden's testimony yesterday showed that, I believe, that of $23,000,000 of residence loans, about $8,000,000 were on old houses. Mr. LUCE. Old at the time the loan was made?

Mr. SMITH. Yes. Those were loans in the last few years.

Mr. LUCE. Then, we will set that down as "Evidence on that subject contradictory." We have it, then, that the large life-insurance companies pick and choose to the extent of sections and in some degree of the age of houses. Are there other particulars in which they discriminate against part of the community?

Mr. SMITH. Mr. Representative, every loan is taken up in great detail and business judgment is used in every available aspect of the property and the borrower and the location and transportation.

Mr. LUCE. Well, so far as it can be commended, that is at the recourse of every lending institution?

Mr. SMITH. Yes.

Mr. LUCE. Is it not true that in order to meet the needs of all the people the building and loan associations perform a useful function in lending for certain classes, areas, sites, and ages, that you will not take?

Mr. SMITH. As I said in the beginning, I think the building and loan associations are very worthy institutions.

Mr. LUCE. In the next paragraph you say that the total gross rate to the home owner is seldom, if ever, 612 per cent, and usually runs 6 per cent. That is the gross rate for insurance-company money and in it I suppose you include commissions, bonuses, and all other expenses?

Mr. SMITH. Yes.

Mr. LUCE. That is in direct contradiction to the testimony of numerous witnesses in the Senate committee. How do you reconcile it? Mr. SMITH. Those witnesses were endeavoring to build up a case for other types of institutions.

Mr. LUCE. Do you intimate that they did not tell the truth?

Mr. SMITH. No, indeed. I indicate that all interest rates are a matter of a very careful computation. It takes actuaries to do it, and it is not possible for each witness to know actuarial computations and to haye made a study over the country of the practices of insurance companies.

Mr. LUCE. But, you are speaking here of the practice?

Mr. SMITH. Yes.

Mr. LUCE. In which you say that the total gross rate to the home owner is seldom, if ever, over 62 per cent. I point out to you that numerous reputable witnesses have testified directly to the contrary. Mr. SMITH. That is their privilege. It is my opinion against theirs.

Mr. LUCE. Then, somebody is inaccurate?

Mr. SMITH. Yes.

Mr. LUCE. On the next page, down toward the bottom of the page. in the next to the last paragraph, you said:

I think we will all agree that there is no way for any banking system to assist a man who is not able to meet his interest payments and taxes.

We have been informed that it is the practice, at least of some building and loan institutions, when a man can not meet his interest and taxes, to wipe out the mortgage and replace it with a new one by which the payment of interest is very materially reduced. That has not come to your attention?

Mr. SMITH. No, sir.

Mr. LUCE. On the next page, you say that in your opinion "this bill is institutional in character and the possibility of its helping the home owner indirectly is rather slight. Few loans are being made to-day."

I have checked up numerous statements in the Senate hearings that I do not want to take the time to go over, but that are directly to the contrary. Witnesses have come before us and said that new loans are not being made in their localities. May it not be that your information is spotty in its nature?

Mr. SMITH. Of course, that is a possibility, Mr. Representative, but in thinking this over and preparing this, I have talked with a great number of the large life-insurance companies, nearly all of which lend in a great number of communities. Now, the composite picture in all of the communities that all of the life-insurance companies lend in, would pretty nearly cover every community in the country, and I find that they are making loans.

Mr. LUCE. But, the witnesses tell us they are not.

Mr. SMITH. First, those are witnesses who may not have been able to get a loan where the loan itself was not acceptable on the merits of the loan.

Mr. LUCE. Your statement here is not confined to what the insurance companies are doing, but it is a general statement relating to the subject that new loans are being made.

Mr. SMITH. In our city the trust departments are making loans. I have seen loans go through the savings banks. We have made loans. We are making them all over the country. They are coming over my desk and being passed in the normal flow of business.

Mr. LUCE. One witness said that Hartford and Providence are the only places in the United States to which that applies. Now, assum

ing that the previous witnesses have been prejudiced in their statements in these matters, will you accept me as a witness, possibly prejudiced? I will inform you that I received a letter within a short time from a constituent in the wealthiest town in the United States, Brookline, telling me of a neighbor who had just moved into a new house costing him $10,500, and desired to make a loan of $7,000; that he went to 12 savings banks and 11 of them refused under any circumstances to make any loans. I can buttress that with numerous statements to like effect from my letter files.

We are getting, from members of the House with whom we discussed these things, from every quarter of the country, the same reports, that new loans are in many places not being made. Among them are members of this committee from the South, one of them from Alabama, for instance, who, will tell you that in a group of counties every bank has failed, and there is not a dollar to be had. We get so many of these stories that I feel you are misinformed in this matter of new loans.

Mr. SMITH. Mr. Representative, my statement pertains to the fact, as I say there, new loans are being made. New loans are being made. We are making them.

Mr. LUCE. Let us not quibble over them. You meant to tell the committee that to-day there is no shortage of money?

Mr. SMITH. I do not say that. I say new loans are being made, Mr. Representative, and the insurance companies have taken $80,000,000 of loans that they have purchased in blocks from building and loan associations and banks in the last six months in addition to keeping their regular flow of mortgages flowing.

Mr. LUCE. Were those new loans?

Mr. SMITH. Those were loans the building and loan associations and the banks had. Those institutions were frozen. They had to have money. The president called up one of the big life-insurance officials and he got in touch with one of the life-insurance officials, and a meeting was held and it was decided the life-insurance companies had to pinch-hit in the emergency, and they did that in addition to their regular lending.

Mr. LUCE. That statement has nothing to do with your intention to intimate to the committee that there is no shortage of money for loans. I won't say you intended it. I will say that you permitted the reader or the listener to draw that inference from what you said, while we know the contrary is the fact.

Let us go on to the next point. You object to this because it puts the Government in business. Would you have us abolish the Federal reserve system?

Mr. SMITH. No; but two wrongs do not make a right.

Mr. LUCE. Do you think the Federal reserve system is a useful institution?

Mr. SMITH. Very.

Mr. LUCE. Then it is not a wrong, is it?

Mr. SMITH. Well, the principle of it, I might disagree with the principle of it and still say it has done and is doing a world of good. I might say that the same thing could have been accomplished by another move.

Mr. LUCE. Would you say it?

Mr. SMITH. That would be a personal opinion and would not be relevant to this discussion. It would not be on the home loan bank system.

Mr. LUCE. Is it not fair to point out to you that, as in the case of the Federal Farm Loan Board, the intention here is not to keep the Government in business, but by lending institutions to enable the people to help themselves?

Mr. SMITH. Of course, Congress has gone back in the farm loan business by advancing $125,000,000.

Mr. REILLY. We are much obliged to you, Mr. Smith.

Mr. LUCE. I have a number of other questions to ask, Mr. Chairman. Mr. REILLY. I think we will adjourn at this time, and come back

at 2.30.

STATEMENT OF THOMAS F. CLARK

Mr. CLARK. I have been asked by Mr. Stires, Mr. Chairman and gentlemen, the witness who preceded Mr. Smith, and who had to make a train-Mr. Stires made a statement to the effect that when a person applied to the Prudential Insurance Co. of America at Newark, N. J., for a loan in Westchester, that he was referred to a correspondent in Westchester County, to whom he was obliged to pay to get that loan a bonus of 5 per cent for its expense. I asked Mr. Stires, after he said that, what the circumstances were that gave rise to such an opinion. He said, “I wanted to build; I wanted to get construction money." He said, "I realize now I made a mistake, that I should not have included the cost of construction on top of the cost of the service charge that the correspondent makes." He said "I know that there is a limit on that charge and it is not 5 per cent or 6 per cent, and that 5 per cent or 6 per cent covers all the expenses in connection with the loan." He said, "I will make that correction." He came to me just before he left and asked me if I would make it for him.

Mr. REILLY. He will get a copy of his testimony.

Mr. CLARK. I would like this in the record, so that he will know that I complied with his request.

Mr. REILLY. All witnesses can get a copy of their testimony, let it state what they wanted to state.

and

Mr. LUCE. Are you going to take the stand as a witness? Mr. CLARK. I expect to during the week after the opponents have completed their testimony.

Mr. CAMPBELL. Did you appear before the Senate?

Mr. CLARK. I d'd.

Mr. LUCE. I wish to ask him some questions bearing on his Senate testimony.

Mr. ROSENBAUM. Mr. Chairman, in many sections of the country where institutions have closed their doors and there are no banking facilities, and practically all of the building and loan associations are out of funds besides, how will this bank meet the demand for those loans that are facing foreclosure? In other words, an institution has to be a member institution in order to have the privilege of rediscount.

Mr. REILLY. Will you be here after lunch?

Mr. ROSENBAUM. Yes, I will.

Mr. REILLY. Then if you will be here at 2.30 o'clock, we will hear what you have to say further.

We will now recess until 2.30 o'clock.

(Whereupon, at 12.30 o'clock, a recess was taken, the committee to reconvene at 2.30 o'clock to-day, March 23, 1932.)

AFTER RECESS

The subcommittee met at 2.30 o'clock p. m., pursuant to the taking of recess.

FURTHER STATEMENT OF R. GRAEME SMITH

Mr. Luce. Mr. Smith, do the practices of the insurance companies vary as to these restrictions placed upon the kinds of houses they will make mortgages on?

Mr. SMITH. Yes, sir. It is a matter of company policy with each company.

Mr. LUCE. I have here the testimony of Mr. Robinson, of Ohio, a man of high standing in the banking world, who intimates that they-this is his own phraseology: "The insurance companies won't make a loan in some parts of that suburb. Why? Because the houses happen to be 15 years of age. I don't blame the insurance companies. It is a sound policy." That might not be true of other companies in that same neighborhood?

Mr. SMITH. Yes, sir.

Mr. LUCE. Now, Justin Matthews, president of the Metropolitan Trust Co., of Little Rock, Ark., said this: "The insurance companies of course are making loans there but they are only loaning on certain types of new houses, and there is a great need felt for some agency whereby these loans can be handled."

Again, it may be a matter of policy as to what types of new houses? Mr. SMITH. Yes, sir; perhaps in Little Rock, Ark., there might be only three or four of the companies lending. It might be that in years to come there will be 10 or 15 companies lending there. After all, it is like the operation of any business. You can only conduct your affairs in a certain number of places, and cities vary according to the companies that happen to be lending there.

Mr. LUCE. Here is the statement of Edward A. MacDougal, president of the Knickerbocker Corporation, Jackson Heights, New York City. He says: "You can not get anything from the life insurance companies or banks of any kind, no. All they can do is to take care of refinancing people who are in distress. This is the most serious situation that has ever confronted the industry that had to do with building." That is a pretty strong statement from New York City.

Mr. SMITH. Yes; but it does not necessarily have to be founded on facts. Mr. MacDougal may not have been acquainted with the operations of all the companies in Greater New York. It so happens that the New York companies, from my knowledge, are still making loans in Greater New York. Mr. MacDougal might not have been able to get money on account of some characteristics of the particular loans that he wanted to get. He may not be able to get