provide a way by which the money could be secured on what we think is ample security. Certain bankers that I have talked to insist that it is not the best security. I believe there is no better security in the world at the present time. Under the Federal reserve system, the banks will take the note of a business man and give in notes 100 per cent of the value of that note on rediscount. Should it not be possible to get 65 per cent, or 50 per cent, of the value of a home in the possession of an American, and use it for the issuance of notes, the same as they do on a business man's promise to pay? Mr. REILLY. That would be regular bonds, would it not? Mr. KELLY. It would be notes issued by the Federal Reserve Board and retired as the payments are made on the amortization. Mr. REILLY. Would not that lead to unlimited inflation? What does your bill provide as to the total amount necessary? Mr. KELLY. It shall not be, at any time, over $2,000,000,000. Mr. REILLY. In other words, it might lead to $2,000,000,000 inflation. Mr. KELLY. It would counteract the present deflation and every note would be backed by a home in the possession of an American. Mr. REILLY. Any questions? Mr. WILLIAMS. I did not get here in time to hear Mr. Kelly's beginning. As I understand it, his plan does not provide for any new set-up at all. Mr. KELLY. No; the Federal reserve district banks are used. It takes the 12 districts as they are now, and lays the work upon district boards which will pass on these various applications for loans; and of course, the idea of that is not the taking over mortgages that are now in existence, so much as to aid in building new homes, and that would help the unemployment situation. Mr. WILLIAMS. And it would provide also for the refinancing of present mortgages providing the security is satisfactory? Mr. KELLY. A home must not be more than five years old. My bill would cover the new and less than 5-year-old home. Mr. WILLIAMS. Do you not recognize the real need to try to refinance the present home owners? Mr. KELLY. Absolutely, and for that reason the principle of the Luce bill would have to be carried, anyhow; there would have to be some way of joining it in with this plan of mine. I will say this bill is largely the work of friends in Pittsburgh, who were at this conference of the President. We tried to reach this unemployment problem, and should take new building as the real basis of our bill, realizing that the plan in the Luce bill would have to be carried out to take care of the frozen assets in the banks, and to protect those who have mortgage loans already. I have a letter, received this morning, from a friend, a very pathetic letter, in which he states that he started building a home last year and was promised by a banker that he would take the mortgage on it. He went ahead and built the home, and the bank refused to take the mortgage. As a result he is going to be closed out by the supply companies and he is losing all he has. Now, that man should be able to get credit some place; and under this bill of mine he would, without doubt, get credit. Mr. REILLY. Mr. Kelly, you do not think, for a moment, a bill of your kind would ever get by a presidential veto, do you? Mr. KELLY. I do not know anything about that. I wanted to lay the suggestion before Congress as the law-making body. Mr. REILLY. Can you make a short, concise outline of your plan and put it in the record, just what you propose? Mr. KELLY. Yes; I will be glad to do so. (The statement is as follows:) H. R. 7920 is a bill to promote home building and home ownership. Section 2 provides for a district home loan board of five members within each of the 12 Federal reserve districts. Section 3 provides for loans not exceeding $6,500 at 65 per cent of the appraised valuation of new home buildings or 50 per cent of the appraised valuation of homes not more than five years old. Appraisals shall be made on current market value by appraisers employed by national or State banking institutions or those appointed by approved real estate boards. Section 4 provides that the district home loan board shall take an approved mortgage under agreement that the mortgagor shall repay the loan received within not less than 20 years amortized in equal monthly payments. These mortgages shall be security for United States home ownership Federal reserve notes issued by the Federal reserve banks. The total amount of these notes outstanding shall not exceed $2,000,000,000. Section 5 provides for the payment from amortization receipts to the various funds for redemption of notes, expenses, etc. Section 6 provides for an insurance fund for the guarantee of the payment of the mortgage. Mr. REILLY. We will recess now until 10 o'clock to-morrow morning. (Thereupon, the committee recessed until 10 o'clock a. m., Tuesday, March 29, 1932.) CREATION OF A SYSTEM OF FEDERAL HOME LOAN BANKS TUESDAY, MARCH 29, 1932 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY, The committee met, pursuant to call, at 10 o'clock a. m., in the caucus room, House Office Building, Hon. Michael K. Reilly (chairman) presiding. Present: Messrs. Reilly (chairman), Luse, Campbell, and Williams. Mr. REILLY. Gentlemen, the subcommittee will come to order. We have first Congressman McDuffie. STATEMENT OF HON. JOHN MCDUFFIE, REPRESENTATIVE IN CONGRESS FROM THE FIRST CONGRESSIONAL DISTRICT OF ALABAMA Mr. McDUFFIE. Mr. Chairman, I am relying more or less upon certain suggestions and statements made by a Mr. Irvin, who has had a good deal of correspondence with a member of this committee, Mr. Luse. I am relying upon his suggestions, because I think he knows more about this proposal than I do. Frankly, I am in no wise an expert when it comes to legislation of this kind; and I wish to submit for the record, if you please—that is, if you are permitting pertinent suggestions to go in the record. I do not mean all of these letters, all of this correspondence, but the pertinent suggestions made by Mr. Irvin, who is in the real-estate business in Mobile, and has for many years, and I think is a man whose views are very sound, touching upon this problem, and I want to have the privilege, if I may, to insert in the record, or put into your files, or do whatever the practice of this committee is, with reference to communications for your consideration, letters, or suggestions from Mr. Irvin. Are you copying those in the record? Mr. REILLY. We are not; but can you not give us just what they are, what points they cover? Mr. McDUFFIE. They cover the whole proposal. Mr. Luce may be as familiar with his suggestions as I am, but he takes up the question Mr. REILLY. Is he in favor of the bill? Mr. McDUFFIE. Yes; very much so. He is very much in earnest about it, and I would like to have the committee have all of his suggestions, but if you have not got the time now for me to read those Mr. REILLY. How long are those? Mr. McDUFFIE. There are several pages of them, Mr. Chairman. Mr. REILLY. You may file them with the committee, and we will consider them. Mr. McDUFFIE. That is the way to do it, and not burden you with a lengthy statement, but with your permission I will give these to the clerk and mark those pages which I think are pertinent and might be considered, if you see fit. There is some correspondence in here from Mr. Luce. I see you ask him some questions in a letter or two, and he sets out the answer with reference to certain phases of this proposed legislation; and it might be of some interest to the committee, because I think that you will find that his views are quite sound. He is a man of unusual ability and fine integrity, and wants to be helpful, of course, like everybody else. I thank you very much. Mr. REILLY. Leave them with me, and we will consider them. Now, Mr. Crosser, the committee understands that you have a bill before the House at this time in regard to home loans and building, and that you have given some study to this question, and we would be glad to hear your views. STATEMENT OF HON. ROBERT CROSSER, REPRESENTATIVE IN CONGRESS FROM THE TWENTY-FIRST OHIO DISTRICT Mr. CROSSER. Mr. Chairman, back as far as 1921 or 1922 I became interested in the idea of providing for a home-loan system. Not, however, until 1924, early in the session, did I introduce any measure on the subject. Perhaps it might be interesting to the subcommittee to know how I reached the conclusion that something of this kind ought to be done. I was out of Congress, practicing law, for about four years, after having first served with Mr. Reilly. After the war was over, when there was a good deal of building going on, we lawyers had, of course, considerable work to do in protecting clients who were purchasing real estate. Almost invariably, at least among the small home owners, those who were building what you might call modest desirable homes, I found that the purchaser was required to pay an unreasonable amount for financing. Our State, for example, like most States, has a law against usury. If nothing is said about the rate of interest in the contract, the loaner of money is entitled to 6 per cent. Persons may contract for 8 per cent. I found, however, that most of those loaning money for the purpose of enabling people to build or buy homes, were, in addition to the legal rate of interest, collecting as much as 10 and 15 per cent, and I have known it to be as much as 30 per cent. was called a bonus. This This is about the way in which it was done in most cases: The person desirous of securing a loan would go to a money lending institution and say, "I want to borrow some money to buy a home or build a home." The officer of the loaning company would say, "Well, we will be very glad to take the matter under consideration; I will put it before the committee. You come back in three or four days." At the time specified the man would come back and he would |