When I introduced my bill, the latter situation was not there. It was an effort on my part to give to the small owners of homes, who were not engaged in agricultural pursuits, the same advantages of borrowing that the farmer has had. Of course, this is applicable to farmers also; in other words, for the building of farm homes. The purpose was to aid the construction of homes, at that time. The situation has so changed, however, that it becomes now a matter principally of saving homes already built; and I may say that, by the thousands, they are now being lost, and I should say a large percentage, something like one-half, of the small home owners are in distress over their mortgages, and their homes will be lost, if this situation continues much longer.

It is my observation that the lenders have adopted a very liberal policy toward the borrowers, and are willing to carry them as long as they can pay what would be rent, but many of these borrowers can not pay rent, they can not pay taxes and even the small rent, and have no prospects of paying the principal. So that unless they can refinance them, when a lender finds that situation, he realizes he might just as well clear it up, and he goes ahead and takes the property.

In my town, which is of something like 250,000 people, and in a county with 431,000 people-that is, before the crash, and I suppose we have lost probably 15 or 20 per cent of our population; I do not know what, but we have lost a lot of them-in that community, we have had as many as 150 foreclosures a week, publicly, probably exceeding that, for the past two years.

Mr. LUCE. Mr. Huddleston, the Federal farm-loan system has had my warm sympathy; and the chief reason has been my interest in, and hope for, the cooperative features of that system, or trying to work to the cooperative idea as that which most promises to lessen the waste in our distributive system; but much to my own disappointment, at any rate, that cooperative basis has not functioned.

Mr. HUDDLESTON. It has not functioned.

Mr. LUCE. We, of the Banking and Currency committee, have been told, generally, that when one of these associations is formed by a group of men desiring to borrow money on their farms, after they have received their money, they lose all interest in the association, itself, and do not try to get other members. They make it a closed corporation; in fact, they become inert; and when we inquired how that came about, we were told that in many cases the secretary, or whoever is the executive official of one of these little associations, is also engaged in placing mortgages for one of the big life insurance companies and other financial institutions, and that it is to his interest that his association shall not function.

So we have, from time to time in the full committee, had proposals to wipe out the cooperative part of it as a superfluous piece of machinery. For one, I have shared in opposing that, in the hope that we might find some way to make these cooperative associations a real part of the structure; and if anybody can suggest a way to do that, I am sure it will have a receptive hearing on the part of the Committee on Banking and Currency.

Mr. HUDDLESTON. My feeling about that is that the cooperatives, the local associations have not functioned. I think that is due,

in some measure at least, to the administration of the act. I think the land banks have not taken enough interest in seeing that the local associations did function. Perhaps that might be remedied, to some extent, by a system of closer inspections; perhaps an officer of the bank should be sent, periodically, to call the members of the local associations together and see to it that they have bona fide meetings. I am impressed that many of these local associations never hold any meetings, never have any notices of meetings, and simply feel that when they have borrowed money all they have to do is pay it back, and that is all they can hope for and that is the end of it. Either the cooperative features should be abandoned or they should be made to function, one or the other.

Mr. LUCE. When drafting this bill I imagine that the authors of the bill-it came out of the Department of Commerce-felt that, inasmuch as they had right at hand the cooperative idea functioning in the shape of building and loan associations, it would perhaps be more prudent to accept the situation as it is than run the risk of having the same result follow if we copied in that respect the farm loan system.

Mr. HUDDLESTON. I think the farm-loan system has been a failure; I would not say a total failure, but it is far from being an unqualified success. That perhaps is due to several things: First, I should say to the making of excessive loans; and, second, not seeing to it what use was made of the money. I have known of numerous loans being made which were used to buy the property, either directly or indirectly. I have in mind just now an instance in which the party agreed with the owner to buy a plantation on terms. The trade included that the owner should borrow all he could from the farm loan association, put that money in his pocket, credit the purchase price with the money, and allow the purchaser to assume this loan that he had contracted for. By the way, that loan is right now in default, about to be foreclosed.

Loans have been made too large in amount, not altogether on excessive valuations-I do not mean that altogether-but more money advanced than the borrower could use for any legitimate purpose. That induces speculation, both in lands and in other things, and I am impressed frequently with the thought that probably agriculture, as a whole, had been hurt by the farm-loan system. Farmers have been induced to involve themselves in debts that they can not pay, or have improved their property, or bought other property, or gone beyond their means. I doubt if agriculture, as a whole, has received any net benefit out of it.

It is a very poor favor to anybody to lend him some money and require him to pay it back-it has a very doubtful value, to my mind. And to encourage a man to go in debt under the farm-loan system has just been merely another installment-sales trouble, which constitutes one of the most serious factors in the present depression.

Proceeding on from the question of loss, I think the second failure of the system has been in the failure of administration, and I do not attribute that altogether to the officers of the banks or to the Farm Loan Board, but to subordinates, to the local officials who have been more interested in themselves than they have been in the system and who have exploited the system in several ways. I have not observed cases where they have discouraged loans in order to make

loans for other companies, but I have seen cases where they have unduly encouraged the making of loans in order to get the fees; they have tried to build them up and make loans which were not sound, so that they might get the fees which came out of it. And, of course, there have been many instances of defalcation and embezzlement in connection with the business, because men of business experience and character could not be found to take these places, or were not found. The farm-loan situation in my State is bad. Mr. REILLY. Bad all over.

Mr. HUDDLESTON. Yes; it is bad and there are many defaults. I do not know what is going to happen. I do know this, that the effect upon agriculture and the underpricing of farm lands through foreclosures and forced sales has been disastrous.

Now, there is one other point I want to take advantage of my presence here to present to your committee: My territory is under the jurisdiction of the land bank at New Orleans, and they have a system there under which they will not recognize a sale of property mortgaged to them, unless the purchaser will personally assume the debt to the bank. Now, get that! A borrower, having an equity in his land, finds himself unable to go ahead with his payments, and he finds some one who is willing to buy and who is willing to let the mortgage rest on the property and take his chance of paying, and who has other property and solvency outside of that, and who is unwilling to jeopardize his outside property by assuming the debt, personally, but the land bank will not recognize such a transaction. That same thing happened to me, is why I know about it.

One of my friends had a mortgage on his farm to the land bank; he had a second mortgage for a tractor that he had bought, and in a misguided effort, when he was pressed, I told him: "Well, I will take up your second mortgage and carry it for you," and I did so. The time came when it developed that he could not pay his farm loan installments, and I thought he owed more to the land bank and to me than the property was worth. I allowed him to deed me his equity in the property for what he owed me, very much against my will, and when I presented the matter to the land bank they told me: "We can not recognize you, unless you will assume, personally, the amount of this debt," which I was not willing to do, because I had all in it that I wanted to put in it. I did not want the farm, and I regretted very much that I had ever been brought into the picture.

I presented my protest against that practice which, of course, rendered the equity of less value. I presented it to the Secretary of the Treasury, not because I cared about the matter from my personal aspect, but I thought it was a great injustice to borrowers and to others, and hurting the business; and he very courteously replied, referring my letter to the land bank, and that has been several months ago and I am without any further reply.

Mr. REILLY. We thank you very much, Mr. Huddleston.

Now, Mr. Kelly, we are considering particularly the home loan bill introduced by Mr. Luce in the House, and a similar bill upon which they had hearings in the United States Senate. Now, we understand that you have introduced a bill here, and that you have probably given considerable study to this matter, and we would like to have your views on your own bill, and also on this bill.

STATEMENT OF HON. CLYDE KELLY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF PENNSYLVANIA

Mr. KELLY. Thank you, Mr. Chairman. I will not take much time, but I should like to express my interest in the problem you are considering in the subcommittee. I consider it is one of the greatest before the country to-day, the problem of not only promoting home ownership, but of helping to deal with the fundamental question of unemployment in this country. After all, that is the real problem, and in my estimation Congress could not do anything better than to deal with it through such a constructive purpose as the promotion of home ownership and home building. I believe that Mr. Luce's bill is a step along the line that this country must take.

I want to give a brief history of the bill that I have proposed. When President Hoover called his conference on home building and home ownership in December of last year, several men from the Pittsburgh district came here as delegates. They sat through the entire conference, and were very much interested. After the conference was over, I held a conference with them in Pittsburgh, and after many interviews and considerable time, drafted a bill on a somewhat different basis than the measure which was introduced by Representative Luce. It was not, however, to put forward any opposing idea, but to add another suggestion to this committee as to dealing with the problem on a little different basis. My bill is a suggestion and is laid before this subcommittee to be considered along with others.

We aim, in the set-up, not to establish a new form of organization, such as home loan discount banks but to provide for boards within the present Federal reserve districts. We have provided that the mortgages to be issued and the money to be advanced should be on new homes, and on homes less than five years old. We have the idea that the unemployment problem can be met by advancing new building to-day. The task that we desired to direct our attention to was how we could put more workers to work on the building of these homes, which are needed in various parts of the country. We provided for appraisal by appraisers now employed in agencies, such as national banks and State banks, and that mortgages should be approved to 65 per cent of the current values, based on appraisals now recognized under governmental sanction.

We provide that those mortgages should be used as the basis for the issuance of special Federal reserve notes, home ownership notes, of the Federal reserve bank itself within the district, with the homes themselves as security.

My associates in Pittsburgh, who are deeply interested, believe that there should be before Congress a proposal to make the home itself the basis of issue. In their estimation and in mine, no better security exists in the United States to-day than homes in the possession of Americans; and on a valuation of 65 per cent of the current value which, as we all know, is down now to certainly the lowest possible point, it should be the safest and best security possible.

It is this suggestion that I wanted to place before the committee. The home loan discount bank bill, introduced by Mr. Luce is con

structive and I believe it should be extended along the line I have mentioned.

I believe we have gotten away from the one problem that confronts this country. The unbalanced Budget that we are talking about is not the real problem; it is not the cause; it is a result. The rates that we have in the present taxation laws ought to produce more money annually than we need to run this Government. Three years ago we turned back to the taxpayers $180,000,000 that we said was in excess of what we needed. Now, with those same rates, we find that the Budget is not balanced, and it has become necessary to put through emergency taxes. So that is not the problem; the problem is the 8,500,000 men in this country out of work. That is the real disease and all the rates that we write in the tax bill and all of the credit that we give the banks and other corporations, are not going to solve that problem. Somehow or other, we must get those men back to productive work, secure a pay envelope on Saturday night for the unemployed man. Then you will find that our tax rates at present are sufficient, and you will find that our business is going along as it was in 1928, before this vicious cycle of unemployment began its disastrous swing.

Therefore, I believe, in this building program, we can strike a blow against the real business depression, this unemployment. I would like to see you, in this committee, work out a comprehensive plan and bring it before the House and give us a chance to deal with it. With the tax bill out of the way, we could get down to the problem of the unemployment; and with this program, of advancing home building and home ownership, we can put the building trades to work over this country, and increase purchasing everywhere. This pay will go into circulation and into channels of business.

Mr. REILLY. What is the fundamental difference between your bill and the Luce bill?

Mr. KELLY. Well, the fundamental difference is, that the Luce bill provides for a system of banks to be established, and that the mortgages will be taken and financed through bonds and debenture issues. The bill that I have introduced and laid before the committee as a suggestion, provides that those mortgages, themselves, are used as the basis for the issuance of home ownership notes by the Federal reserve banks. Those mortgages become the security, and the amortization plan is laid out in the bill as to how they are to be paid, and what is to be done with the payments as they come in, year by year.

Mr. REILLY. In other words, the individual home builder would give a mortgage to the Federal reserve bank and get the money on it?

Mr. KELLY. Yes; through district home-loan boards, and they would guarantee the payment.

Mr. REILLY. Do you not think it is a better method to try to encourage the home builder through an institution already constructed, that is already doing that line of work?

Mr. KELLY. Well, this plan of Mr. Luce's will, of course, mean a new system, but it will take care of the mortgages now in existence which are more than five years old, for instance, and that would - help to relieve these frozen assets of the banks. This measure of mine is on a different basis. It is to advance new building and