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ing and loan investments have had an opportunity to demonstrate their usefulness.

Building and loan associations today have the savings of over 10,000,000 persons and home-mortgage loans to over 2,000,000 persons. It is hoped that the Federal Government will continue its encouragement and sponsorship of these great cooperative thrift and home-financing instrumentalities, who have for 103 years done the bulk of the small-home financing in the United States.

The CHAIRMAN. We will be unable to go on this afternoon. We will resume tomorrow morning at 10 o'clock and will endeavor to dispose of the bill.

(Whereupon, at 1:15 p.m., the committee adjourned until tomorrow, Wednesday, May 23, 1934, at 10 a.m.)

NATIONAL HOUSING ACT

WEDNESDAY, MAY 23, 1934

UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C. The committee met at 10 a.m., pursuant to adjournment on yesterday, in room 301 of the Senate Office Building, Senator Duncan U. Fletcher presiding:

Present: Senator Fletcher (chairman), Barkley, Bulkley, Bankhead, Townsend, and Couzens.

The CHAIRMAN. The committee will come to order, please. Mr. Schmidt, if you will come forward to the table and take a seat opposite the committee reporter. Mr. SCHMIDT. Thank you.

The CHAIRMAN. Please state your name, place of residence, and occupation.

STATEMENT OF WALTER S. SCHMIDT, CHAIRMAN OF THE MORT

GAGE FINANCE COMMITTEE OF THE NATIONAL ASSOCIATION OF REAL ESTATE BOARDS, CINCINNATI. OHIO

The CHAIRMAN, Mr. Schmidt, you have examined the bill we are now considering (S. 3603), have you?

Mr. SCHMIDT. Mr. Chairman, I have read the bill very carefully. Our organization, the National Association of Real Estate Boards, is in full sympathy with the objects sought to be served by this bill. But we feel that in order to make it more effective in accomplishing the objects covered in the bill, and to provide the certain and immediate assurance of bringing back employment in the construction industry, which industry accounts probably for 75 percent of our unemployment today, there should be an additional title to the bill. That additional title we wish to submit to you for insertion, and we will say that it will not bring about any disturbance of any of the other titles or provisions contained in the bill.

This additional title provides for the setting up of a mortgage discount corporation, with $200,000,000 capital, the duty of which would be to purchase through and from existing lending agencies, that are approved by the corporation, mortgages on new construction commencing with the date of the enactment of the bill with a definite exclusion of owner-occupied homes.

We feel that this provision would assure the immediate commitment of mortgage-lending agencies on needed new construction that is economically sound.

In our judgment, the trouble with our present situation is the nonliquidity of the mortgage; that it has no place of sale, and that once in the possession of the original taker of the mortgage it must remain in his possession until the mortgage is paid.

Now, with the present condition of things financial institutions hesitate to commit themselves to the proposition that they will accept new mortgages. They may have funds in hand, but the necessity of maintaining a liquid position on their part has resulted in a condition that mortgage money in the most of the centers of our country has completely disappeared, except for mortgages on residences that represent some 40 percent of value, which is the type of mortgage that is not required in the most of our communities. Those who handle mortgages based on 40 percent of the value of the property are of the more conservatice type, and they do not seek as much money.

The CHAIRMAN. As to this new construction that you contemplate, does that have reference to homes or to business houses?

Mr. SCHMIDT. To any type of construction.
The CHAIRMAN. To hotels, apartment houses, and business houses ?

Mr. SCHMIDT. Only if they are economically sound. We have guarded that provision very carefully in the memorandum of amendment which I would request be inserted in the record.

The CHAIRMAN. Very well. That may be made a part of the record at this point.

(The amendment to the National Housing Act, submitted by the National Association of Real Estate Boards, is here made a part of the record, as follows:)

AMENDMENT TO HOUSING ACT SUBMITTED BY NATIONAL ASSOCIATION OF REAL

ESTATE BOARDS

TITLE II. FEDERAL MORTGAGE DISCOUNT CORPORATION

SEC. 201. There is hereby created a body corporate to be known as the “ Federal Mortgage Discount Corporation ", which shall be an instrumentality of the United States, having a capital stock of $200,000,000 subscribed for by the Secretary of the Treasury of the United States, with the same directors, with the same general powers, and created under the same general conditions as provided for the Home Credit Insurance Corporation all as set forth in title I, section 2 of this Act.

SEC. 202. The Corporation is authorized and empowered to purchase and commit to purchase from banks, trust companies, mortgage companies, insurance companies, building and loan associations or other like agencies engaging in the business of making first mortgages on real estate, and approved as eligible by the board of directors, and without recourse upon the seller, firstmortgages or equivalent liens on improved urban real estate other than owneroccupied homes, but with such minimum and maximum amounts as may be fixed by the board of directors and subject to these conditions:

First. The building must have been constructed subsequent to the enactment of this bill.

Second. The mortgage must(a) Be not more than 18 years in life. (b) Be amoritized at a rate of not less than 2 per centum per annum. (c) Meet the requirements of regulations established by the board of directors.

(d) Not exceed 80 per centum of the appraised value of the property, if the purchase or commitment to purchase is made prior to July 1, 1937, and thereafter not exceed 60 per centum of the appraised value of the property.

(e) Be upon property adjudged by the Corporation a needed new improvement and economically sound.

Third. Where application is made to the Corporation to commit that it will purchase a mortgage where an impovement is about to be constructed, plans and specifications must be furnished before construction is commenced ; the Corporation may commit that it will purchase the mortgage at any time within eighteen months after the date of commitment, provided the building has been completed in substantial accordance with plans and specifications submitted, or in an enlarged and bettered manner, and is a sound building evidencing good workmanship; and upon a finding that the appraised value of the property has not exceeded the fair worth of the land, plus the cost of the building, which cost may include a fair allowance for taxes paid during construction and interest on moneys advanced.

Fourth. (a) The Corporation shall refuse to discount mortgages the rate of interest upon which exceeds 6 per centum per annum, or upon which the total cost for placement to the original borrower for all charges, including legal fees, title search, and other collateral expenses exceeds 5 per centum of the face of the mortgage. It shall be the obligation of the borrower to present satisfactory evidence to the Corporation that there have been no commissions, bonuses, discounts, premiums, or other charges made which, after proper allowance for credits of like nature, have raised the cost to the borrower for interest or fee for placement above the amounts set forth herein.

(b) Before discounting any mortgage, the Corporation shall require the seller to furnish satisfactory evidence of the title to, and of the fair worth of, the property given to secure the mortgage. An independent appraisement of the value of the property by actual view, shall be made by the Corporation before a mortgage is discounted.

(c) The Corporation may arrange for the servicing of mortgages discounted by it or transferred to it through appropriate agencies designated by it, preferably the agency from which the mortgage was purchased, at fees to be established by it from time to time. Such fees shall not exceed one half per centum per annum of the unpaid principal of the mortgage serviced.

Fifth. A discount of not more than 2 per centum from the face of the mortgage purchased may be charged the seller.

SEC. 203. In order to make available to the Corporation adequate resources for the discounting of mortgages, the Corporation is authorized and empowered, with the approval of the Secretary of the Treasury, to issue and have outstanding its notes, debentures, bonds, or other obligations, in an amount not in excess of either (a) fifteen times its authorized capital plus accrued surpluses, less adequate reserves for losses, or (b) the principal sums due it on mortgages owned by it (less 5 per centum thereof) plus the amount of cash and its equivalent and bonds or obligations of the United States which it holds; such obligations to have such maturities, bear such rates of interest, and contain such other terms and conditions as the Secretary of the Treasury shall approve. Such obligations shall be fully and unconditionally guaranteed both as to principal and interest by the United States and shall be exempt, both as to principal and interest, from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States or by any State, or by any political subdivision of either. The Secretary of the Treasury is authorized to purchase such obligations and for that purpose is authorized to use as a public-debt transaction the proceeds from the sale of any securities hereafter issued under the Second Liberty Bond Act, as amended, and the purposes for which securities may be issued under the Second Liberty Bond Act, as amended, are extended to include any purchases of the Corporation's obligations hereunder.

SEC. 204. When designated for that purpose by the Secretary of the Treasury, the Corporation shall be a depositary of public money, except receipts from customs, under such regulations as may be prescribed by said Secretary ; and it may also be employed as a financial agent of the Government; and it shall perform all such reasonable duties, as depositary of public money and financial agent of the Government, as may be required of it.

SEC. 205. The earnings of the Corporation, after setting aside as a reserve against possible losses such annual sums as good practice dictates, shall be paid into the Treasury of the United States until the capital advances made by the United State have been returned, and thereafter used for corporate purposes.

SEC. 206. The provisions of sections 9 and 10, title I of this bill insofar as applicable and with the substitution of the words “ Federal Mortgage Disscount Corporation” for the words “Home Credit Insurance Corporation" wherever same occur, are extended to apply to contracts or agreements of Federal Mortgage Discount Corporation as created under this title.

SEC. 207. The Federal Mortgage Discount Corporation annually shall make a report of its operations to Congress as soon as practicable after the 1st day of January in each year,

SEC. 208. If any provision of this act, or the application thereof to any person or circumstances, is held invalid, the remainder of the Act, and the application of such provision to other persons or circumstances, shall not be affected thereby.

NOTE.—Present title II to become title III; present title III to become title IV; section numbers to be altered accordingly.

The CHAIRMAN. You may proceed, Mr. Schmidt.

Mr. SCHMIDT. We have provided in the proposed amendment that the directors of the Corporation shall be the same directors as those set up in title I of the bill for rehabilitation.

On that point, Mr. Chairman, it is our judgment that a great deal more is to be expected from new construction than can be expected from rehabilitation. We are in full accord, you understand, with the provisions of the bill for rehabilitation financing, as it is set forth. But we feel that we can say with assurance that the repairing of existing properties will not equal, even in small measure I might say, the amount of money that could be expended for new construction in our country.

During the past year vacancies have been decreased by some 25 percent according to surveys that we have from the different cities of the country. And while there are many communities in which new construction is not needed, yet we do find that there is needed at this moment now construction in various fields. That is especially true, of course, of residential construction, where the vacancy is approximately 3 or 4 percent. I would say that it ranged from 3 to 6 percent in the different cities of the country, the most of the vacancies being made up of dwellings that are hardly fit for habitation, and vacancies resulting from the doubling up of families which under any renewal of decency in living will unscramble themselves.

We feel that the improvement already made in conditions means that the unscrambling process is coming, in fact that it is here now. We feel, therefore, that there will be great need for new construction.

We do not feel, as many do, that we have had a great overproduction of real-estate facilities, except in some few lines. And we further feel that with any revival of business such overproduction as does exist will very quickly be absorbed. There is some overproduction in ceriain sections of the country, but generally speaking, just as in other fields, we think that overproduction is a bugaboo that is overestimated.

We feel that there is need for new construction, and that that need is about equal outside of the residential field. And we feel that if the design of this bill is to revivify the construction industry, provision must be made whereby these lending agencies which desire to lend on mortgages but are not doing so because they fear to tie their money up, can have a commitment that in the case of such mortgages they can be disposed of to a Federal agency if the lending agency so desires.

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