mortgages not exceeding $15,000. And what is the price this country would have to pay for the thawing out of the minor part of the frozen collateral? The bill provides, section 16: "There is hereby authorized to be appropriated the sum of $500,000 for salaries, travel, and subsistence expense," etc., "to the organization and establishment of the banks, until the end of the calendar year 1932." After January 1, 1933, it has to be borne out of the profits of the banks. But if, when times become normal and there is no further use of the banks, does anyone believe that the constituent banks are going to be dis banded by their officers and employees just to save the taxpayers' money? The bill provides that when withdrawals of members take place the Treasury of the United States will supply the capital so w.thdrawn, so that each bank shall at all times have a minimum capital of $5,000,000, and there are 12 banks, or a combined $60,000,000 of the taxpayers' money, the income of which must be used to pay the salaries and operating expenses of each home loan bank and the central board. If the bill were drawn as an emergency measure and the banks would cease when the emergency was past, there might be some slight excuse for it, if it could not be covered in some other way, but to saddle this country with a permanent institution at this time when "economy" is being preached is uncalled for and ridiculous. It is just creating another Federal institution for salaries and expenses. Do we want any more like the Farm Board? The Mortgage Bankers Association of America has come out unequivocally against the bill and is distributing a "Digest of Sound Opin.on" with “ 15 reasons" for disapproval. I also understand that the sound insurance companies can not see any value in it, and I, a realtor, am certain it will not help us. There are also many individual realtors opposed to the passage of the proposed law. BUCKINGHAM CHANDLER, Chairman Mortgage Loan Committee. Mr. REILLY. Mr. Cody, I believe you appeared before the other hearings. STATEMENT OF HIRAM S. CODY, PRESIDENT OF MORTGAGE BANKERS ASSOCIATION OF AMERICA-Concluded Mr. CODY. Yes, sir. This memorandum contains entirely new material. Mr. REILLY. Proceed. Mr. CODY. As requested by the chairman, our presentation will be limited to facts in rebuttal or in answer to questions by the committee. A clear understanding of the actual cost to the borrower of the different types of loans from different sources must prove helpful to this committee. The facts are shown in the following tables: Table 1 is taken from pages 509 and 510 of the textbook prepared under the direction of the United States Building and Loan League, entitled "Elements of the Modern Building and Loan Association," by Mr. Horace F. Clark, Ph. D. (Wis.), associate professor of engineering economics, Iowa State College, and Frank A. Chase, educational director American Savings Building and Loan Institute. This book is one of the Land Economic Series, edited by Dr. Richard T. Ely, director for the Institute for Research in Land Economics and Public Utilities. It is approved for the standard real-estate course by the United Y. M. C. A. schools and the National Association of Real Estate Boards, as well as by the educational division of the United States Building and Loan League, known as the American Savings, Building & Loan Institute, and was prepared under the direction of the textbook committee of the league. It was published in 1924, and the figures in Table 6, issued by the Department of Commerce in December, 1931, indicate somewhat higher percentages at this time. (Table 1 and the other tables submitted by Mr. Cody are as follows:) [Appendix, p. 509, Elements of the Modern Building and Loan Associations, by Clark and Chase] TABLE 1.-Building and loan interest rates in United States in 1924 (based on $1,000 loan) I The number which occurs most frequently in any given series of items. It must be remembered that these actual interest figures are based on transactions to be completed in the usual way, i. e., the borrower will complete his payments on the stock and the stock will cancel his loan. In cases of default, or when the loan is paid before maturity, the membership and loan fees and the fines and forfeitures of 25 to 50 per cent of the dividends and profit on the stock will result in a much higher actual cost than is shown in this table. (Clark and Chase, pp. 259-260.) 1926 1927 1928 1929 1930 TABLE 2 TABLE 3 No commission charged__ Commission paid to correspondent by borrower varies from 1 to 5 per Mortgages purchased from banks, etc., for commission ranging from Per cent 5. 738 5. 705 5.725 5. 734 5. 792 Replied Table 6.-Premiums charged by building and loan associations [1931 National Survey by Department of Commerce] Arithmetical or mean average, 2.72 per cent per year. Cases 20 79 23 60 13 71 6 16 32 14 1 1 2 6 1 1 347 Average commission on renewal Average total charges for appraisal, survey, title examination, drawing and recording mortgage, etc., on $3,000 loan on completed building (in addition to interest and commission or premium). For renewal. Average total charges on $3,000 construction loan (in addition to above charges) covering additional premium or commission, fees for performance bond, inspection of job, disbursing funds, etc... 1 $2.72 per year X 10.1 years (average term) = 27.47 per cent. 27.47 per cent - 1/6, or 4.58 per cent, leaves 22.89 per cent average net premium paid by borrower for 10.1 year loan. 2 Total. Mr. CODY. Table 1, showing the ostensible interest rates and the average ostensible rate in the States of the Union, and the actual interest rates, which we shall explain in a moment, is analyzed as follows: Mr. REILLY. Just a second, Mr. Cody. What relevancy have these tables to this bill? Mr. CODY. The relevancy is, Mr. Chairman, that several times references have been made to commissions charged by mortgage bankers and bankers ranging from 7 to 60 per cent. Mr. Sherlock referred to 60 per cent discount but did not state whether it was a second or third mortgage, or a land contract. It seems only fair to submit the actual facts prepared by the Department of Commerce Mr. REILLY. What has that got to do with the merits of this bill? Mr. CODY. A great deal, Mr. Chairman, because if the members of your committee know what rates are actually being charged at the present time, they can form a better judgment as to the need for new financing and a new credit structure for mortgages. In other words, if the building and loan associations, mortgage bankers, and the bankers, are now charging exorbitant rates, and have been doing so for years-which I say they are not and the figures show it for all of them-then it becomes an important point in connection with the need of new mortgage money, for if our Government finds them charging outrageous and exorbitant rates as a rule-there are always exceptions in all camps-but as a rule, throughout the country, it would certainly feel it should step in and provide means that would get those rates down to a reasonable figure. The analysis shows the "ostensible interest rates" charged by building and loan associations throughout the country; 93, 6 per cent; 11, 7 per cent; 26, 8 per cent; 35, 10 per cent; and 13 ranging from 6.24 to 6.96 per cent; 17, ranging from 7.02 to 7.8 per cent. The actual interest rates; that is, the actual net cost to borrow from building and loan associations, reveal that in four States the borrower was actually paying from 5 to 6 per cent; and in 13 States from 6 to 7 per cent; in six States from 7 to 8 per cent; in 12 States 8 to 9 per cent; in five States 9 to 10 per cent; in two States 10 to 11 per cent; in three States 11 to 12 per cent; and in two States 13 to 14 per cent. And I think Mr. Luce will be especially interested in this, because he spoke yesterday of the fact that he was not aware of any rates in excess of 6 to 62 per cent to the borrower, and all we want is the facts, all of us, to form a fair judgment and conclusion, and the facts for each type of loan, Mr. Luce, immediately follow the figures just mentioned. Mr. LUCE. That was in my own State, of course; I was not speaking for other States. As this table wants to be made clear, I shall ask questions. Mr. CODY, I believe they will be cleared up in just a moment, but if you wish me to stop, I will be glad to do so. Mr. LUCE. Yes; but some of your terms are not clear. Mr. CODY. In explaining the ostensible interest rate and the actual interest rate, the authors state: The ostensible rate is seldom the actual rate of interest which the borrower pays. Many other items of cost affect the rate. In order to set forth the actual situation in use to-day, we have asked association officers in all parts of the United States to tell us their exact charges and have made a careful study of these reports from practically every State in the Union. Mr. LUCE, Right there, in order to have a basis of understanding. These figures are all building and loan? Mr. CODY. This particular group in Table I is for building and loan associations, but those for banks and mortgage bankers are in the tables following and are taken from the reports of the Department of Commerce. Continuing, the authors state: Actual rates in use to-day are almost invariably higher than the ostensible rate. In only three instances out of the 233 reports studied were the actual rates the same as that which was stated as the ostensible rate; 196 associations were charging more than the stated rate and 37 were charging less. The actual rates charged vary from a figure 1 per cent less than the published ostensible rate to more than twice the published rate. The latter instances occur where no earnings are credited to dues paid by the borrower, the borrower thus paying the full amount of the loan in dues and interest on the full amount for the full time as well. On the average, over the whole United States, the actual rate is more than 2 per cent greater than the ostensible rate. To state this fact is to indicate the remedy, which is that the actual cost of the loan should be determined by the association officers and then this cost should be stated in their published circulars. Explaining the premium charged by the building and loan associations, the authors state: 66 Combined with interest is the peculiar use of a premium," which has persisted since the earliest building societies. It is one legalized method of secur ing a higher interest rate for the association's funds. It is still possible, by the use of premiums, to charge considerably more than the highest contract interest rate in some States. Premiums charged by associations are used as an adjustment to increase the published rate. The ostensible rate advertised by an association is largely determined by competition with other lending institutions in the same city. If it is customary for commercial lenders to charge |