They were not in arrears. They were taken ill. They were taken to the hospital, five of them, with flu. The mother died the following day, and the report came back that flu was incidental. Malnutrition was the basis. Three years they had been starving themselves to make payments. Over and over we have them.

I won't take your time unduly, but I want to assure you that we have contacted 15,000 people through the divisions. Personally I have contacted a lot of the 4,000 at my headquarters at 33 Liberty Street. These things are facts. My time has been given night and day for a year to this work. It is not based upon hearsay. It is not based on rumor. It was said by an economist afterward that it was uncanny how my percentages were in line with the factual survey. It was not uncanny; it was the fact that I had read thousands of letters or had contacted with these people, that I had my findings from Buffalo, from Syracuse, from Dutchess County, from Long Island, from Brooklyn, from the checks of these divisions and because of Mr. Vanderlip's broadcast from all over the country.

Senator TOWNSEND. If this bill is amended along the lines that you suggest, do you think that $2,000,000,000 will be sufficient to take care of the situation?

Mr. McAvoy. I do not.

Senator TOWNSEND. What is your estimate?

Mr. McAvoy. My estimate is that probably $9,000,000,000.
Senator ToWNSEND. Nine billion?

Mr. McAvoy. Yes. Our suggestion as to the amendment to the bill was that, instead of the Government servicing these loans, or the governmental units, that each institution that turns these mortgages over continue to service those mortgages. They know the territories. They know the owners. They could do it more economically. I feel that they should have, in a sense, the responsibility of foreclosure. And I feel that the bonds should be so attractive to people that they would come in and do this. At the present moment on this bill I feel that it is not attractive enough to the mortgagee to operate.

Senator TOWNSEND. What is your estimate of what it would require as amended along the lines that you suggest?

Mr. McAvoy. I think it should be an open-end proposition, in a

sense.

Senator TOWNSEND. No limit?

Mr. McAvoy. No; I would not say that; because you are not contemplating at this time new construction in connection with it. But I think that the principle should be that some method of utilizing this up to the extent of all qualifying mortgages, home mortgages, be devised.

Senator TOWNSEND. Have you any estimate of what it would require?

Mr. McAvoy. I think about $9,000,000,000 would be the limit. Now whether that would be-this is not compulsory. It is a question of the mortgagees and the institutions availing themselves, is it not, of this conversion?

Senator TOWNSEND. Yes.

Senator BULKLEY. Is that $9,000,000,000 of the amount to be loaned? Is that the face of the loans?

Mr. McAvoy. No. In our plan we contemplated this: We will say that a savings bank turns into the Government unit $20,000,000 of qualifying mortgages, and they get back $20,000,000 of bonds. They might get back $2,000,000 more in order to make the necessary expenditures as trustee for the mortgagors, who would have increased their mortgages by that amount. Those bonds would be then held by the company who had turned over their mortgages one at a time to service those mortgages at a fixed service charge. Then a borrowing power established on those bonds, so that they could borrow and throw their doors open like a savings bank, make themselves liquid. It is our recommendation that they should be made eligible to the Federal Reserve rediscount or to some other borrowing power. Senator BULKLEY. I did not understand what that $9,000,000,000 figure represents. Will you explain that again, please?

Mr. McAvoy. That represents approximately the home mortgages now existing.

Senator ČOPELAND. The total number of mortgages?

Mr. McAvoy. The total number of urban home mortgages.
Senator BULKLEY. On homes?

Mr. McAvoy. On homes owner.occupied.

Senator BULKLEY. That is all homes, is it?

Mr. McAvoy. All homes that are owner occupied.

Senator BULKLEY. Or did you mean to confine that to cities? Mr. McAvoy. All owner-occupied homes except farm homes or those held by realty companies.

Senator BULKLEY. Yes.

Mr. McAvoy. Our estimate by including farms would bring it to about 172 billion or 18 billion. But under this plan we propose it does not represent 18 billions of new money, because the money is now frozen in those mortgages.

Senator BULKLEY. I understand.

Mr. McAvoy. The 9 billion is now frozen. It might take a billion more or a billion and a half to two billion more to make those mortgages safe for a period, say, of 2 years.

Our suggestion on that recommendation of a 2-year period was this, that the various real-estate boards would continue to function throughout the districts, so as to act as counselors of these people to help them readjust their situation, to call the second mortgagees in to get them to subordinate, to get them in many cases to discount the mortgages, as they often are willing to do, and at the end of a year call back that individual whom they have certified to and helped and say, "Now, what is your position? Have you regained ground? Do you think that you are going to be able to live in this home of yours, or is it oversized for you now?

Now he may be coming back again with his worry of his own loss taken off his mind, without the burden of rent upon him. He may have been making new grounds with turning business. So he may say, "I am going to be in wonderful shape at the end of 2 years, so that I can hold my position." On the other hand, he may still say, "I have no job."

Then I feel that these bodies should say, "Now, the thing for you to do is during the year-because at the end of the 2 years the emergency is over; we cannot extend this leniency to you again—

you should put that house in the market and try to sell it, with this mortgage that you have on it of $6,000, and take $2,000 for your equity. You have had 2 years out of it. Then we will turn around and with that $2,000 we will get you a smaller proposition that will suit you. Perhaps you are only handicapped, and in this way you have got a thousand to turn around with and recoup a lot of your lost equity in this bargain that you will get. You will get a similar bargain to that which you have given, and in turn it will rescue somebody down the line."

I feel there is a tremendous social readjustment to be done there; that this money should under no circumstances be extended to the individual, because pressure will be used to make him extend it to other people who need it. It will be bound to go to distressed relatives, so for the good of the cause, I feel that that money should be placed as a credit to his account and that he should be guided a bit.

Too often do I hear the statement made, "Why, that man is living beyond his means." Of course he is living beyond his means, but he is entrapped. He is attempting to save his possessions. I have just guided out a young chap from a $28,000 home that he had. It had a $10,000 first mortgage, $18,000 paid-in equity. And yet someone has said, "He is living beyond his means.' But he was for

merly a man of high earning power. He paid in $18,000 for a home. He had other things besides. He exhausted his other possessions, but he had this one thing and that was his home and that he prized most.

I worked him out for the moment. It was a terrific job because of money lack. A little excess money would have done it easily. At the present moment he is slated for foreclosure sale, April 25th.

He is not included in this proposition. I told him when he came on March 29 as I was sending this factual survey and our plan to our President, the Governors, and to the Cabinet and various other members, and I was signing the papers, and I said, "Don't worry about this. I feel that in the next two weeks something is going to break as to Federal relief," and I want to tell you when I read of the $10,000 limitation of value that was the first thing I thought of, with many other cases, that it was totally wrong. I felt sick enough for them, but you know how they must have felt. That was a $28,000 proposition with a $10,000 first mortgage, which is a home, yet it does not qualify. It is a wrong principle, in our judgment.

Senator BULKLEY. Did you have anything further, Mr. McAvoy? Mr. McAvoy. There is considerable, but it is embodied in the first part of the summary of our plan which criticizes several points not yet mentioned by me, following the amendment that is being drafted, which did not reach me at the train last night, but is being forwarded by special mail.

Senator BULKLEY. Then you will submit that later on?

Mr. McAvoy. I will submit it on receipt, Mr. Chairman, and I wish to express my appreciation of the opportunity afforded me by your committee to give this expression.

Senator BULKLEY. Thank you very much, Mr. McAvoy.

STATEMENT FOR SENATE RECORD BY D. E. MCAVOY, CHAIRMAN' OF THE LONG ISLAND DIVISION AND SECRETARY OF THE HOME MORTGAGE ADVISORY BOARD, AND ACCOMPANYING AMENDMENTS MARKED ON HOME MORTGAGE BILL, S. 1317, SUBMITTED APRIL 21, 1933, TO THE BANKING AND CURRENCY SUBCOMMITTEE, SENATOR BULKLEY, CHAIRMAN, AND REFERRED TO IN TESTIMONY OF D. E. MCAVOY AT HEARING BEFORE THAT COMMITTEE ON APRIL 20, 1933

The urban mortgage bill as introduced by Senator Robinson of Arkansas carries a sincerity of purpose on the part of our President and those who drafted the measure to salvage a large class of our home owners, that marks a new era in the history of home ownership in America.

While it represents a splendid advance in the recognition accorded the home owner that his equity possesses a borrowing power to tide him over this crisis, the scope of the bill is not wide enough to accomplish the purpose intended. This is the opinion of financial, realty men, and economists who have dealt for some time with the home-mortgage problem.

A. J. Swenson, president of the Long Island Real Estate Board, has pointed out that the whole structure of home ownership is at stake in the proposed urban mortgage legislation.

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"The Long Island Real Estate Board from the beginning of the crisis has felt that the home owner was the man who most warranted consideration. He represented the basis not only of realty values, but community and national strength. It is economic folly to permit a single family to disintegrate by the loss of their home.

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Financially exhausted by the effort to retain their home the family or parts of it are certain to become public charges at a cost many times in excess of any loss possible to incur from aid that practical legislation could give. These amendments have the support of the Consolidated Home Owners Mortgage Committee, and groups allied in the home field are rallying to urge that they be put into effect."

OUTLINE OF AMENDMENTS TO THE HOME-MORTGAGE BILL S. 1317 INTRODUCED APRIL 13, 1933, BY SENATOR ROBINSON OF ARKANSAS, AS SUGGESTED BY THE LONG ISLAND REAL ESTATE BOARD

(Copy of bill S. 1317 marked in red ink or with riders, hereto attached)

The principles contained in these suggestions are along the lines suggested March 1933 by the Long Island division to the Home Mortgage Advisory Board-the proposals embodied in the McAvoy all-homes" plan approved by the Long Island division are:

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(1) Government financing in the form of 34 percent bonds for 30 or 33 years to exchange for all qualifying home mortgages, sufficiently increased to provide for a period of several years for taxes, interest, and reconditioning of homes where appraisal of value warrants.

(2) These bonds to be eligible for rediscount through the Federal Reserve System. With a borrowing power to bondholders and a constant "market this conversion privilege will make the existing frozen situation of mortgage and loaning institutions immediately liquid, which will insure its usage by mortgagees for their "good" as well as poor" home mortgages and this liquidity will vitally affect the fate of the commercial mortgages held by these institutions.

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(3) These bonds to be offered to the public during a period of a protective moratorium to the institutions, and cash prorated periodically from sales to the participants in this conversion.

(4) Appraisal warranting mortgage loans to be increased where needed for arrears to prevent the default of interest and taxes for approximately 2 years, and to provide for needed repairs, or for settlement of second mortgages. This recommendation is made regardless of the existence of the provision of a 3-year waiver of payments as contained in the bill. Where the equity warrants, and the surplus over existing mortgage is sufficient, it may obviate the necessity of the waiver of payment. We suggest it because it puts the owner on a better parity with those whose mortgages and arrears entailed a full loan, and would operate favorably in the sale of the house, for this is the only way out for many home owners who might be tided over until a selling market is re-created, which will be greatly expediated by the mortgage stability insured once this long-time low-cost financing is in force.

(5) Appraisals to be based on valuations of 1928, plus subsequent improvements, discounted by 25 percent for the time being. If appraisals as the basis for any governmental financing are to be left in the hands of departmental field employees, without a prescribed method, they will be forced to use the standard of the innumerable forced sales that have taken place at virtually the mortgage figures. It is a question then whether the figure of "80 percent" computed upon such a depression appraisal will cover even the existing first mortgage, much less taxes and needed repairs.

(6) All homes, regardless of value or temporary absence of owner to be eligible. Percentage of loan on the value of homes up to $20,000 not to exceed 80 percent; above $20,000 the percentage to be 40 percent. No loan, however, is to exceed $25,000 to a home owner.

(7) Original loaning institutions to continue to service these mortgages under a fixed service charge not to exceed one half of 1 percent. New funds to insure protection from default for two years or to pay off second mortgage and to cover needed repairs are to be disbursed by the institution as trustee for the owner. If this sum in excess is not so utilized at the end of two years, the mortgage is to be reduced by the unused balance. Conversion of mortgages will carry certain responsibilities to the original lending institution.

(8) Provision for home owners foreclosed since depression period to recover property where appraisals warrant necessary coverages.

(9) Total annual charges to the home owner to be 34 percent for interest, 2 percent for amortization, three fourths percent for servicing, a total annual payment of 62 percent, payable monthly.

(10) The extension of home mortgage advisory boards with divisions. and subdivisions as volunteer bodies throughout the territory of the 12 Federal Reserve districts to provide local contacts and to aid governmental units in readjustments required by the home owner, particularly where second mortgages exist. Reasonable expenses should be allowed these boards.

(11) Governmental control to be maintained over new building in order to protect existing investments against overbuilding.

(12) The plan to be administered by a governmental unit with subordinate units in the 12 Federal Reserve districts.

MORTGAGE PROBLEM COUNTRYWIDE

Fifteen thousand cases of home owners in distress that have come before the home mortgage advisory board and its various divisions attest that mortgage aid of a generous nature must be speedily furnished if home ownership is to be salvaged.

Acute distress is reported from the divisional headquarters of the Home Mortgage Advisory Board from Buffalo, Syracuse, Rochester, Niagara Falls, Dutchess, and Westchester Counties, Brooklyn, and the entire area of Long Island with its 500,000 homes, and the northern portion of New Jersey which is included in the second Federal Reserve district.

As Secretary of the Home Owners' Advisory Board I received so many hundreds of letters from all parts of the country, after the radio broadcasts by Mr. Frank A. Vanderlip, chairman of the board, particularly that on Christmas Day, that I communicated with our President, Cabinet, and other high Federal officials and the Governors of every State, forwarding them data of our organization and its work and of these letters. which clearly indicated the need of a national organization of this sort. A home owner in distress will counsel with a friendly outside interest where he is fearful to even approach hs mortgagee, regardless of how kindly that mortgagee may now feel toward him. Pressure regarding interest payments, principal reduction, prompt tax payments with the foreclosure casualties of the past 3 years, have left a deep fear in the heart of the home owner, not easily eradicated.

Home mortgages distress, widely felt in the spring of 1932, has spread with such velocity that three quarters of the home-owning public of over 2,000,000 in this district are either in default or with default impending in the payment of interest and taxes, as foretold last fall in the printed report of the Long Island Division widely distributed throughout the country. Startling as this statement then was, but now more generally accepted, it is borne out by the Friedrich-Herendeen economic survey of Sunnyside Gardens, made in March 1933, a group formerly of above-average home