A further thing is that there are a great many mortgaged homes where first, second, and third mortgages perhaps are so heavy that the man can go down the street and buy almost the same home, where there is only a first mortgage on it, and it has got rid of obligations of junior liens, particularly if it has been foreclosed. Those junior liens very often are obligations put on by a straw man as a part of salesmanship.

But this is a subject we might talk on all day, and I am not unmindful of my promise to be brief on it.

With respect to the national mortgage associations, that subject has a great many angles to it. It presupposes that it is necessary to set up activity for mortgage lending. It is doubtful if it is necessary or could be used for the reason that, assuming that there was a normal flow of money for mortgages, that it was adequate to the needs of the past, that flow is still available and will be here without mortgage companies coming in.

Investors who make investments for the purpose of holding them, not to sell them, not to speculate in them, but to hold them to maturity, ask nothing better than to get a mortgage that can be preserved in good standing, and establish a relationship that is wholesome between the borrower and the lender, bringing about its reduction and ultimate payment, giving all sorts of indulgences where necessary. It might surprise you to know that companies today are carrying a tremendous number of mortgages on a 3-percent basis temporarily.

Senator COUZENS. You mean 3 percent interest?

Mr. KINGSLEY. Yes, sir. They will not foreclose against a man unless the man simply throws the thing in their lap. Many of them offer you deeds. They are not always safe to take, but if the companies were to acquire all the real estate they could you would find a very great increase in the loss of property and homes.

I know you gentlemen have not the feeling that insurance companies and other kindred organizations are hard-hearted Shylocks that are just trying to take homes away from people, because they have advanced taxes, suspended installment payments, curtailed interest, and done all sorts of things-even given a little money for repairs because the last thing a company wishes to do is to acquire real estate.

Senator BANKHEAD. I have found in my section a very liberal attitude on the part of insurance companies.

The CHAIRMAN. One of the complaints here is not about the disposition to foreclose the mortgage, but when they undertake to get a renewal of the mortgage the borrower claims that the commissions which have been exacted-in some cases 4 percent-are very objectionable.

Mr. KINGSLEY. That would be so if it were true. As a matter of fact, practically all the insurance companies today are under very heavy expense for so-called "servicing charges." The major purpose and undertaking of your operators is to bring about a renewal of the mortgage without expense. Here and there mortgages have been secured by brokers who feel that they have a vested interest in the renewal, and that they must deal with the owner, and if you cannot make terms he will go elsewhere. That has faded out, because it is very difficult to place. I am speaking now of larger mortgages on

business properties. I think you will find, Senator, that is the least of the trouble. Investigations that we have made of instances of commissions show that they run about 2 percent, and the broker usually divides that into five payments or takes commission notes payable in installments, so that they can be lifted comfortably by the borrower. But I think that commission element has practically faded out, and I doubt whether it will be revived.

Senator BANKHEAD. Mr. Kingsley, have you given any consideration to the effect this bill, as it stands, would have on building and loan associations?

Mr. KINGSLEY. I have not studied that situation, Senator, to the point where I could satisfactorily answer that question. The building and loan associations in Pennsylvania, unfortunately, have had the second mortgage habit, and it gives us an entirely different picture than you would get in some other States. If you have in mind the thought that junior financing means multiplied expense, and things of that sort, a plan that would do away with that would be very helpful to the property owner.

We must not forget that building and loan associations, properly managed and there are thousands of them in the country-serve the thrift needs of a large mass of people, and in many instances where their assets have been frozen, they have been victims of conditions. The insurance companies, particularly prior to this quite recent collapse of real estate, went out into the State of Ohio, for instance, by invitation, and took over, as I recall it, approximately $70,000,000 of mortgages that the building and loan associations had that were perfectly good, in order to defreeze them, or liquidate them. Those mortgages were just as prime as anything you could have. We went up into Grand Rapids, to a savings fund, and it was not a large transaction, but we took close to $1,000,000 of mortgages from the savings bank up there, and were surprised to find that they were loans, in the main, that were nearer $700 to $800 apiece than they were $2,000 or $2,500, which you would expect. We just cashed those, took them over by assignment, and there has been a great deal of that going on. I am not competent to speak of the bearing of this bill upon the building and loan associations.

Senator BANKHEAD. The chief objection I have heard here has been from them.

Mr. KINGSLEY. I think the building and loan associations, always keeping in mind that there are many of them that are very well and honestly managed, are serving an extremely good purpose. They have been very helpful to people in every way, but, as I say, I have trouble enough with the major things on which I try to keep posted. I have only this thought about that, if I may conclude with it, that, without going into the subject of insurance of building and loan and kindred shares, it is submitted that these organizations appeal very strongly to the wage-earning investor, whose faith has been shaken, and who has had to suffer great losses. Any safe plan to insure the preservation and return of the investment to those people is very worthy. I have approached this subject more particularly from the standpoint of reconditioning and mortgage lending, being conscious of what I believe to be the underlying purpose of putting people to work decently and letting them hold their heads up at their own vocations. It is not going to get us anywhere if we keep on manu

facturing goods that we can not dispose of, and I do believe that the greatest opportunity that is presented at this time would be that of so-called "renovation ", to be followed later by construction if found necessary. But you will find, I am sure, no shortage of houses or habitations for any class of people.

Senator COUZENS. Do you believe there is any necessity for title II, providing for the creation of national mortgage associations?

Mr. KINGSLEY. I do not like it. I say I do not like it. That is not quite the way to put it. I do not think there is a place for it that would write any history in comparison to the elements of mortgage lending that have been functioning all these years. I do not know what burdens that would bring down on the Government, but I fancy you do not want to take on indigestible material.

Senator BARKLEY. Would that tend to loosen up the sources of private capital for mortgages?

Mr. KINGSLEY. Private capital?

Senator BARKLEY. Yes.

Mr. KINGSLEY. That is hard to tell. There is this to be said about corporate capital, and particularly organizations that operate under statutes. The plan would involve debenture bonds in the ultimate, would it not?

The CHAIRMAN. It provides for debentures and bonds, yes.

Mr. KINGSLEY. It has been provided in the statutes of a great many States that trust and insurance companies and savings funds may not buy debenture bonds. That was put in with respect to railroad debentures, but the principle was that you have got to hold directly the specific debt, and not a collateral debt.

Happily none of you gentlemen is old enough to remember the Jarvis-Conklin Mortgage Co., and the Lombard Investment Co. in the West a great many years ago. They put out $100,000 of debentures against $125,000 of bonds, just as your Federal instrumentalities did later. I was talking yesterday to a gentleman who is living here now. He told me he inherited some of those bonds, and sold them for 7 cents on the dollar, which was the reclamation value of them. They just cannot preserve their collateral of the type that is necessary to support the debenture. I think that is a very ingenious plan, but I doubt very much if it would be of much help.

The CHAIRMAN. Your company does not invest in these debentures or bonds of collateral, but loans direct.

Mr. KINGSLEY. Yes. Thank you very much, gentlemen. I did not mean to take so much time.

The CHAIRMAN. We are very much obliged to you.

Senator BARKLEY. Mr. Kingsley, I would like to ask you this question: In the light of your testimony and your views here, how is it safe for insurance companies to make real-estate mortgage loans at all at this time?

Mr. KINGSLEY. They are making them entirely upon current values, where the property has stability, is well located, and is owned by someone who has some assured income.

Senator BARKLEY. You are making them on deflated values, in other words, now?

Mr. KINGSLEY. It would be on what you would term deflated values, with a tendency to take that into consideration. In normal times you lend 60 percent upon average values.

Senator BARKLEY. You are making your loans on what you call the cream of the prospects"? You are taking no very long

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chances?

Mr. KINGSLEY. We do not go down to the bottom of the milk can, but you must bear in mind that we have to be very careful. We have responsibilities to recognize. I do think that the minute the mortgage market opens up helpfully and wholesomely, you will get a flow of money.

The CHAIRMAN. Your usual interest rate is how much?

Mr. KINGSLEY. Our interest rate would average-on all investments, you mean?

The CHAIRMAN. I mean on mortgage loans.

Mr. KINGSLEY. On mortgages?

The CHAIRMAN. Yes.

Mr. KINGSLEY. I should say at the present time 5.2. Into that, you have to take into consideration the circumstance that quite a number of rates have been reduced, but in normal times interest rates will run about 5.45. That means that on superlatively good mortgages you will come down to 5 percent. Those are mostly large mortgages. The CHAIRMAN. Very well. Thank you, Mr. Kingsley.

Mr. Miller, will you come around? We will be glad to hear from you now.

STATEMENT OF CHARLES A. MILLER, BARNEVELD, N.Y., PRESIDENT SAVINGS BANKS TRUST CO., NEW YORK CITY

The CHAIRMAN. Will you please state your name and place of residence?

Mr. MILLER. Charles A. Miller; residence Barneveld, N.Y.; president of the Savings Banks Trust Co., New York City.

The CHAIRMAN. You were at one time a member of the Reconstruction Finance Corporation Board?

Mr. MILLER. Yes. With your permission I will state my experience, because I do not represent anyone but myself, and it is necessary to know whether I have had experience that justifies me in discussing the question.

Since 1890 I have been rather actively engaged in running a fair sized up-State savings bank in New York, with deposits of upward of $30,000,000, and was president of that institution until I left it to go to work for the R.F.C. When the R.F.C. was formed, I became manager of the New York agency and remained in that position until late July or August, when I became a member of the Board and president of the R.F.C., and remained there until March 4, 1933.

After that, when the trust company that I represent was formed, which has for its stockholders only the mutual savings banks, and has all the mutual savings banks in New York as its stockholders and customers, I was asked to be the president there, and I have been the president ever since.

I have personally appraised many thousands of properties in various parts of the State of New York. In my R.F.C. experience I reviewed the appraisals on literally thousands of properties in New York State, and subsequently, down here, I spent very many nights making personal reviews of the reports on mortgage loans all

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over the United States. I think I am fairly familiar with the mortgage situation generally on that account.

I have come here to say that, having first familiarized myself with the original plans which finally eventuated in the bill before you, S. 3603, I am not only genuinely in sympathy with the plans of the bill, but fairly enthusiastically in sympathy with the plans of the bill.

To save the time of the committee, I will simply say, in regard to the first part of it, in regard to rehabilitation, that I have had some experience with that, owing to the fact that, in the first place, I helped get up, and until the last 2 or 3 months, when I went into the trust company, I was one of the directors of the Remedial Loan Association, dealing with small loans, gotten up to do away with the pawnbroking expense and that sort of thing, in my native city of Utica. So that I have had years of actual experience with the small-loan business, as distinguished from the general banking loan. I thoroughly believe in this provision. Just before I left Utica, just at the time when I came to New York to run the R.F.C., we started to campaign for rehabilitation there, very much the same kind of thing as here, getting the credits where we could, although in those cases we took mostly additional mortgage credits, and with the campaign we pledged people to rehabilitate their houses. aim we had was to get $500,000 spent in the city on rehabilitation. As a matter of fact, we got cards signed up for that amount, and then they were to report in when the work was completed, and the cost. When the reports came in they were, as I recall it, considerably more than twice, in amount, the amount agreed upon.

The

So that, in regard to the rehabilitation, I believe that the loans will be safe, because those small loans have a very remarkable record, as anyone who has dealt with them knows. I not only believe that the Government, in assuming the 20 percent, is taking no risk of any considerable amount, but that the actual result on the building trades will be many times the amount that is involved in the actual loans made in the banks. When you get people working at rehabilitation, for everyone that borrows money to do his work, there are two or three that dig up the money without borrowing, and do the work. To my mind that will be a most useful result of this, and if you do not underestimate the time necessary to work it out, if you do not look for results in the next 2 or 3 weeks, or 6 weeks, I think the thing will be tremendously helpful. I do think that it will be a little slower in operation than perhaps some of the advocates of the bill feel. I feel that it is not the sort of thing where you can have a ballyhoo campaign and stir up people to modernize their houses, when, obviously, they have no business spending any money on it. I think it has to be worked out slowly. The main thing is to educate the country banker as to the safety of those very small loans if based on a proper credit examination. In other words, the slowness of operation will be the education of the lending body, which has to be guaranteed, rather than the education of the public to borrow money.

One thing I like about the whole bill is that it implies a system of amortization. The worst thing that has happened to our country is the fact that we have had no systems of amortization worthy of the name. People have thought that when they succeeded in bor