Total number of counties in each Federal home-loan bank district and number and percent of counties without eligible1 home-financing institutions

Number of counties in each State, number of counties and percentage of population in counties without eligible1 home-financing institutions, and number of counties having building and loan associations, savings banks, and insurance companies

Number of counties in each State, number of counties and percentage of population in counties without eligible home-financing institutions, and number of counties having building and loan associations, savings banks, and insurance companies-Continued

STATEMENT OF FRANKLIN B. LORD, ATTORNEY AT LAW, NEW YORK CITY

Senator BULKLEY (chairman of the subcommittee). Mr. F. B. Lord is here at the suggestion of Senator Wagner. Will you please give your name and connection to the reporter?

Mr. LORD. Franklin B. Lord, 25 Broadway, New York City.
Senator COUZENS. What is your occupation?

Mr. LORD. I am a lawyer, sir.

Senator COUZENS. Whom do you represent?

Mr. LORD. I am here on account of a letter I wrote Senator Wagner, because I am secretary and treasurer of the Gibson Corporation, of which Mr. Gibson is president.

Senator BULKLEY. What is the Gibson Corporation?

Mr. LORD. It is a building corporation. Mr. Gibson has built 2,500 houses, and he came down here at Senator Wagner's request

to

Senator COUZENS (interposing). So you are interested in building; is that it?

Mr. LORD. We are interested in building, but we are also interested in some 1,280 people who own our homes, and we are trying to help them out.

I understand that Mr. Gibson and I appear before the committee at the suggestion of Senator Wagner. His suggestion was prompted by a letter I wrote him stating that as secretary and treasurer of the Gibson Corporation I was naturally interested in the so-called home mortgage bill. I also informed Senator Wagner that Mr. Gibson had built over 2,500 homes in Queens and Nassau Counties and was very familiar with the situation in regard to the mortgages on small homes and that he would be very glad to be of service to the committee. That is why Mr. Gibson and I are here.

It is not our purpose to criticize the general plan of the bill, to pose as economists, nor have we any knowledge of the likelihood of to what extent mortgagees will be inclined to accept the Home Owners' Loan Corporation's bonds in lieu of principal.

In the first place, as Mr. Gibson will show you, in Nassau and Queens Counties, the first mortgages made by the mortgage companies and other institutions rarely exceed 50 percent of the value of the property at the time when the mortgage was made; that usually there is a substantial second mortgage which carries an amortization clause.

The following is an example of what is happening. In 1925 the Gibson Corporation sold a house with a first mortgage of $2,600 and a second mortgage of $3,400 for a total consideration of $6,500. That is, there was $500 cash, $3,400 second, and $2,600 first.

Senator TOWNSEND. Were you talking about both mortgages? Mr. LORD. Both mortgages, Senator. The second mortgage has now been reduced to $986.85 and the first mortgage remains at $2,600. Together these mortgages amount to $3,586.85 which is less than 54 percent of the value of the house.

Senator COUZENS. You mean of the sale price of the house?

Mr. LORD. Of the sale price of the house, Senator. I do not think that has depreciated very much, because there are none being sold. Senator TOWNSEND. They are 7 years old now?

Mr. LORD. Six or seven years old, sir.

The first mortgagee threatens to foreclose its mortgage for failure to pay taxes and interest. It would afford this home owner no relief to have the proposed corporation take over the first mortgage. If the proposed corporation advances money to pay interest and taxes, it will be benefiting the second mortgage, but it will not benefit the home owner, because he will still be faced with the necessity of meeting the demands of the second mortgagee and subject to foreclosure and loss of his home notwithstanding the purchase by the proposed corporation of the first mortgage and its advances for taxes and interest on the first mortgage.

It seems to me, therefore, that the scope of the bill should be so enlarged as to include the amount of the first and second mortgages where their aggregate amount does not exceed 80 percent of the present value of the property.

I believe that such a provision will be found to apply to many cases. The correction could be made appropriately, it seems to me, by inserting in subdivision (d) of section 4, at line 23, authority to make advances to pay not only taxes and assessments on the mortgaged property but also junior mortgages and other liens on the property. That would not take it above your 80 percent. Senator COUZENS. What would Mr. Russell say about that, as long as you kept within the 80 percent?

Mr. RUSSELL. I do not understand the gentleman's question. Senator COUZENS. He wants you to take second mortgages and any other lien on the property as long as it did not exceed the 80 percent. What would you say as to that?

Mr. RUSSELL. Under this bill if the home owner, however many liens he has against his home, can get the lien holders to take the bonds in lieu of the liens, the transaction could be closed up to 80 percent of the home value.

Mr. LORD. So that your conception of the bill is that the bill would allow a consolidated mortgage of 80 percent?

Mr. RUSSELL. Yes, sir.

Senator TOWNSEND. That would cover your point, would it not? Mr. LORD. That would cover my point, Senator, but it was not clear to me.

Second mortgagees-this is just in answer to Mr. Russell-might well be induced to settle for a considerably less sum than the face of their mortgages in cases where a first mortgagee would feel amply secured by his first mortgage, and the second mortgagee felt insecure and is not so situated as to be able to take over the property and carry it.

There is one other feature of the bill to which I want to call attention, and that is the provision on page 6, lines 4 to 11, to the effect that if the amount of face value of bonds and accrued interest accepted by the mortgagee is less than the amount of the unpaid obligation of the mortgagor to the mortgagee, the corporation shall credit the difference between such amounts to the mortgagor and shall reduce his obligation under the mortgage to that extent. In other words, the profit made by the efforts of the corporation is to go to the individual who has perhaps defaulted instead of to the corporation that is taking over a doubtful mortgage. It seems to me that any profits made by the corporation should go into the earnings of the corporation so as to meet some of the losses which the corporation is sure to sustain. You need only to consider the situation of the guaranteed mortgage companies to see the necessity of having some sort of fund to offset the certain loss in a proportion of the cases. Solvent mortgagors should not be encouraged to default in order to seek a reduction in principal. The better the security behind the Home Loan Corporation's bonds, the more readily a mortgagee will agree to accept them.

On that last proposition, it is simply this, Mr. Chairman: If my brother and I go out and borrow on two exactly similar houses and I have borrowed $7,000 and my brother has borrowed $5,000, my

mortgage of $7,000 is not as good as his $5,000. So that the man takes these bonds for $5,000 on mine and I do not have to ever pay the other $2,000, but my brother with his $5,000, which is a good mortgage, and a man refuses to take it or the Home Loan Board takes it at par, he gets off that $2,000, which does not seem to me in the first place to be equitable, and there is no reason why the Government should not get some sort of a sinking fund to better the situation.

Senator BULKLEY. Had you concluded?

Mr. LORD. I have concluded, Senator.

Senator BULKLEY. Are there any further questions? pause.] Thank you very much, Mr. Lord.

[After a

We will hear Mr. D. E. McAvoy, who is also here at the suggestion of Senator Wagner.

STATEMENT OF D. E. MCAVOY, SECRETARY OF THE HOME MORTGAGE ADVISORY BOARD, NEW YORK CITY

Senator BULKLEY (chairman of the subcommittee). Will you give your name and business connection to the reporter, please?

Mr. McAvoy. D. E. McAvoy; treasurer of Wm. D. Bloodgood & Co., Inc. Am also secretary of the Home Mortgage Advisory Board, a volunteer organization that is cooperating with the Reconstruction Finance Corporation in the Second Federal Reserve District, headed by Mr. Frank A. Vanderlip and instituted last year by Mr. Chas. A. Miller, former president of the R.F.C.

Senator BULKLEY. Have you a statement to make to the committee?

Mr. McAvoy. I have a brief here to present, Senator, if you wish, in duplicate for the record, that represents the survey of the Home Mortgage Advisory Board, an outline and summary of the recommendations of the Long Island division of that Board of which division I am chairman, as to a bond issue, which was presented in March to the Home Mortgage Advisory Board and sent out generally to the administration and legislators principally interested.

The Long Island board, which our division is administered by, is preparing some amendments for the existing bill, in which we have suggested amendments to take care of what we feel are points from practical observation in our work dealing with home owners in distress.

Senator BULKLEY. This document that you have handed me seems too voluminous to print in the record.

Mr. McAvoy. The bill as amended is on the way. It is being prepared now, in short form. This pamphlet contains information as to the administration of the Home Mortgage Advisory Board in the second Federal Reserve district. We feel it necessary that similar advisory bodies be formed in all Federal districts to work out the readjustment of the home owner in distress, who would receive exceptional aid under this new bill. I can reduce to several pages the matter pertinent to the records.

(Inserted at end of Mr. McAvoy's remarks.)

Senator COUZENS. What have you to suggest? Are there any amendments to this pending bill now?