At this time there are ten million savers in these institutions, and there are two million borrowers. The building and loan associations of the United States, about 11,000 in number, have more than 65 percent of all the small-home mortgage loans in America. And 35 percent in volume of dollars. The directors of these associations are, mainly, public-spirited men who consider these institutions community benefits.

I should like for the sake of the record to put a statistical table of the institutions in the various States at this time, before you, showing the increase or decrease of assets over the past 2 years.

The CHAIRMAN. That may be made a part of the record.

(A summary table of number of associations, total membership, and total assets of building and loan associatitons, by States in 1932, is made a part of the record, as follows:)

Summary table of number of associations, total membership, and total assets of building and loan associations, by States, 1932

The CHAIRMAN. You may proceed with your statement, Mr. Friedlander.

Mr. FRIEDLANDER. I should like to say that even during the depression these associations, at least as the best they have been able to do, have been attempting to function in their field. Where the flow of savings into these institutions has been steady the institutions have continued to lend their money upon home mortgages. For instance, here in the District of Columbia, where there seems to be a situation that they are the favored child of fortune, where savings have continued in these institutions uninterruptedly until the bank debacle of 1933, the institutions have continued to increase their reserves and have put their resources into mortgages. In fact at no time have the building and loan associations of the Nation ever had as much as 5 percent of their total resources in cash. In other words, they do not hoard the cash but as they get funds they lend them in their field, which is the home-mortgage field.

The United States Building and Loan League, for which I am speaking, was organized in 1892, forty-odd years ago, as the result of the need for a national organization to combat the various practices of the old national building and loan associations which then operated all over the United States, and also to try to encourage proper supervision and regulation of building and loan associations. It has an individual membership of some 4,000 institutions in the country, which institutions represent 73 percent of the total assets of building and loan associations. And it represents all of the State leagues. The president of the United States Building and Loan League himself would have been here but for the fact that he is in California attending to the duties of his office.

I wish to say that the United States Building and Loan League desires to endorse the message of the President of the United States to Congress, and to state that we are for about four fifths of this proposed bill. We are certainly in favor of emphasizing any practical way of meeting the question of reemployment for the building trades. We think it is quite important to see that homes and real estate are maintained. We think it important to see that funds are available for that purpose; that there should be adequate financing for home construction as the demand becomes more effective; and we also believe it is important that private capital be diverted into the proper field for home financing; and we want to say for the building and loan associations that they will cooperate in every way with the program that revolves around those ideals.

The CHAIRMAN. There was a gentleman here yesterday from Baltimore who took the view that this bill would put building and loan associations out of business. What about that view?

Mr. FRIEDLANDER. Senator Fletcher, there are some parts of the bill which we consider a very serious threat to building and loan associations, and which I should like to discuss as I get to them.

The CHAIRMAN. Very well. Proceed along your own line.

Mr. FRIEDLANDER. The first part of the bill, title I, which provides for the repair and alterations program, we are absolutely 100 percent for. We think there is a need for it and that it will be constructive and that the funds provided will be used.

We have some doubts, which doubts were expressed by a witness before this time, as to the extent to which commercial banks may

enter the field, even with the guarantee. But so far as building and loan associations are permitted by the rules and regulations that may be adopted are concerned, we can safely say we will be very glad to use all the funds we may be able to obtain for that purpose.

The CHAIRMAN. Do you favor the Home Credit Insurance Corporation?

Mr. FRIEDLANDER. I will get down to that in a moment, if you will permit me.

The CHAIRMAN. Very well.

Mr. FRIEDLANDER. We favor the modernization plan, title I, all of it, with the exception of section 5. Now, section 5 treats with something more than the proposal for repair, alteration, and improvement. Section 5, in very broad language and without any details, undertakes to set up a system of guaranteeing mortgages, both new mortgages to be created and existing mortgages. We feel that based on the experience we have had in this country, and some of it in your State, Senator Wagner, in regard to the guaranteeing of mortgages

Senator WAGNER (interposing). Did you say some of it?

Mr. FRIEDLANDER. Well, we have had some of it in our State too, in Texas.

The CHAIRMAN. And the Government has had some experience, too.

Mr. FRIEDLANDER. As I say, we feel that based on the experience we have had in this country, the Congress of the United States can afford to pause and consider very seriously the question of setting up, with unlimited bonding capacity, to which the credit of the United States is pledged, a system that would place the Government back of the insured mortgage field. We feel that, particularly with reference to existing mortgages, the Congress having set up the Home Owners' Loan Corporation, functioning in the taking up of distress mortgages and issuing now Government bonds back of those mortgages, perhaps has gone for enough in the field of existing mortgages. And that now to set up a system of taking up and guaranteeing the good existing mortgages is carrying the United States pretty far into the mortgage-guarantee field.

We do not think there is either any social or any economic necessity for the insurance of present mortgages. There might be some such field when it comes to the question of new construction mortgages, basing it on employment. However, if the Congress in its wisdom determines that there is any reason for such a set-up, then we think the Congress ought to face very frankly the implications of that sort of set-up.

Senator COUZENS. What do you say with respect to the 80 percent loans on that matter?

Mr. FRIEDLANDER, I was getting right to that point, Senator Couzens. When they say you should set up a system that contemplates the guaranteeing of mortgages up to 80 percent of value, I say that based upon the experience of private capital attempting to guarantee mortgages on a basis of 50 percent, it must certainly be known that they are getting into a field that might result in very serious losses to the Government.

Senator COUZENS. Mr. Friedlander, during your discussion of the bill are you going to interpret the language of the housing project proposition? I wondered how you interpreted that language."

The CHAIRMAN. Low-cost housing projects.

Mr. FRIEDLANDER. Senator Couzens, I should prefer that some one else would discuss that. But I assume there is some specific object in having that put in there.

Senator COUZENS. What would you interpret the meaning of the language to be?

Mr. FRIEDLANDER. I would interpret the meaning to be the development of additions based upon limited-return corporations set up in the various States.

Senator COUZENS. Do you mean that it refers to single homes or to apartment houses and a series of attached houses?

Mr. FRIEDLANDER. It may be that it refers to any house.

Senator WAGNER. As a rule, when we talk about low-cost housing projects we are thinking of congested areas in the cities where we are making available at a reasonable rental sanitary houses with modern facilities, so that the worker may enjoy at least the privilege of living in a decent home.

Mr. FRIEDLANDER. I imagine it is something like the P.W.A. has had in mind in starting the Euclid project near Cleveland, Ohio, and things of that kind.

Senator WAGNER. I do not mean that that is the definition to be followed in the case of the language contained in the bill, but usually when we speak of low-cost housing projects we have that kind of housing in mind.

Senator COUZENS. I thought you interpreted that as a collection of homes in one building. Is that true, Senator Wagner?

Senator WAGNER. I do not know how it is intended to be interpreted, as far as the language contained in the bill is concerned, but if you mention it to me that is the way I would visualize it.

Senator CouZENS. And not a collection of individual homes? Senator WAGNER. Well, in the building of new homes, and making them low cost so that the rental may be reasonable, and with decent facilities. I suppose that kind might be included, too.

Mr. FRIEDLANDER. The language of section 5, of course, as the Senator points out, uses terms that are probably capable of several interpretations. The language of section 5 is so broad that almost anything can be read into it, as to the plan in contemplation for insurance of mortgages. Therefore, I cannot discuss it from the point of the proposed legislation here before you. I can only discuss the public statements that have been made, and statements that have been made to me by those who are proponents of the plan, as to what they have in mind-and which, by the way, might be changed immediately after the bill was enacted into law and the board was set up, which board might not be composed of the persons who have proposed the bill.

I want to call attention to the fact that section 5 merely states that he Corporation shall insure amortized mortgages and like liens. Now, what sort of insurance that shall be is left entirely out of the bill; and as to amortized mortgages, or as to the type of the homes. It might be short-term mortgages, although I am sure the proponents of this bill have in mind long-term loans. However, there is nothing in the bill which would prevent a change of plan at any time.

Senator COUZENS. Is there anything in the bill which proposes to set up a fund for this insurance?

Mr. FRIEDLANDER. There is a proposal that the Corporation shall have 200 million dollars capital, and

Senator CoUZENS. I mean outside of that 200 million dollars capital.

Mr. FRIEDLANDER. And outside of that there is the proposal that the insurance shall be based as far as practicable on the mutual principle, so as to be self-supporting and involve no greater cost to mortgagors or mortgagees than to cover administrative expense.

However, there is a provision in section 6 that the Corporation is authorized and empowered to issue and have outstanding its notes, debentures, bonds, or other obligations, to be approved by the Secretary of the Treasury, and fully and unconditionally guaranteed by the United States, which are permitted to be issued without limit for new construction projects or as to the guaranteeing, and as to existing mortgages apparently limited to a billion dollars, except that with the approval of the President of the United States it might be extended to any amount above that. The bill, apparently, is rather wide open as to the powers conferred.

As I understand the plan, the guaranty is supposed to operate in this way: That the existing mortgage companies, and such other companies as may be created under this act, which I shall discuss in a few moments

The CHAIRMAN (interposing). You mean prior to July 1, 1937?

Mr. FRIEDLANDER. Yes; prior to July 1, 1937-always unless extended after that by an act of Congress. And I cannot see any need for a perpetual corporation such as is attempted to be created here if we are only going to have such a short time of lending. It is provided that they shall make loans on mortgages up to 80 percent of the value, and for a period of from 20 to 25 years, at a rate of interest discussed as 5 percent, from 5 to 6 percent. And these amortized mortgages will be held by the company making them. However, as default occurs, presuming that some of them are not paid, the mortgage company then shall foreclose, and after foreclosure a reduction of the debt to judgment and title and possession of the property, there will be a tender of the property to the Insurance Corporation, which issues one of its debentures, guaranteed by the Government of the United States, in exchange for the property. That is the insurance plan as I understand it, or as it has been related to me, which simply means that the United States Government under this act will be in the position of taking over, under the insurance plan, all the foreclosed real estate which they have insured and which is protected by such security.

Now, we think that is a rather unsound proposal, and that it will and does offer a very serious threat, as stated before you by the gentleman who appeared on yesterday, to the existing institutions that cannot obtain money on the basis of 5 percent over a period of 20 or 25 years, and who by reason of that situation will not be able to participate in such a program, and therefore would not be able to tender to the United States Government their foreclosure, which would have to carry them in the working out of the matter as best they could.