tendency in the up-State institutions to operate under it, and there will be some tendency on the part of

Senator BULKLEY. Why do the city banks reject it?

Mr. MILLER. For this reason, that they say their kind of mortgage borrowers will not stand for the amortization features. Of course, on the island of Manhattan they have not the individual houses. That is another thing. Their loans are not in $20,000 units. They are more nearly in $100,000 or $200,000 units. But leaving that aside, even if it applied to those loans, they tell me, and the real-estate people tell me, that on the island of Manhattan the borrower is so accustomed to borrowing every cent that he can, and not reducing his mortgage loan, that the borrowers themselves will resist the amortization feature and will not go into the thing. I personally believe that they will in the course of time. I think they will find they have to sooner or later, because I do not think the banks are going to repeat the errors of the past, but I find all the support I have been able to find for it among my own class. They are savings bankers, the country institutions, rather than the large city institutions.

But, going back to these national mortgage associations-because I think that is a tremendously important feature of the bill-with 15 percent they can make money. I was figuring on the back of the bill as I sat here to see whether I thought they could get away with 5 percent, and I thought it was close. With 15 percent they can. With 15 percent and an amortization feature, there will not be the dangers that overwhelmed the old companies. The things that overwhelmed the old companies, even with their unrestricted amount of certificates, were two:

In the first place, there was this process of charging large fees for making the loans and large fees for renewing the loans and, of course, the worse the loan the larger the fee the people would make, and the mortgage companies got their business and their profits by the large fees that they charged. That is one thing that does not appear here, and cannot appear here at all. In the next place, their loans were made for either 3 or 5 years, and were then renewed, ordinarily, for the full amount, and the people who bought their certificates were accustomed to renew their certificates automatically. As long as the certificates were payable, they were very glad to put the money right back in mortgages. There was no reason for having a run on them. These things are going to liquidate themselves by the gradual payment of the funds, and the certificates will be gradually absorbed, and new certificates will come in. You will not be subjected anywhere, it seems to me, to what you might call the run that has overwhelmed mortgage companies. But, with all the bad management and the mistakes that were made in the mortgage companies, I am perfectly sure that, except for the extraordinary extent of this panic, they would have pulled through all right, even at that. It was not until the banking holiday, which was not brought on by them, but came from other sources that you know about-it was not until then that I really gave up hope. Even at that, I expectedand I knew a great deal about their position at that time-I really expected that even with all their mistakes they would get through alive and go on. Nothing was further from my thought than that

there would be the general collapse that there has been in the guaranteed mortgage business. But this avoids those mistakes.

There is only one thing more that I beg an opportunity to say, and that is this: that this bill is general in its terms, which I like immensely. It assumes that you are going to have a reasonably honest and able body of people to operate the Government end of this thing, and it leaves much in the way of detail to be determined by the boards that are created. I am begging for that. I have seen so much more harm done in the course of my experience by legislation trying to make things foolproof, and handicapping good operating men by attempting, in legislation, to regulate every detail, every interest rate, and everything of that kind, that I am thoroughly in favor of these general terms. I have seen so much more damage from that cause that I have seen happen by turning a great amount of discretion over to proper agencies, and then seeing that the agencies are kept proper, that I want to make every kind of a plea I can to this committee to follow, in general, the lines of this bill, which is to my mind one of the finest pieces of legislative draftsmanship that I have come across-and I was for 15 years counsel for the Savings Banks Association before the legislature in New York, and I am familiar with legislative draftsmanship. Follow the general lines of this bill instead of attempting to put in a detail here and a detail there, and handicapping boards under conditions which may be entirely different, when they have to operate, from the conditions which you have in mind when the bill is drafted. You are providing for good boards. You will have devoted men to carry it out, at least during this process, and I am begging for the largest part of discretion and liberality on the part of Congress toward the boards that are set up here.

Senator BARKLEY. Mr. Miller, awhile ago you remarked that you thought the insurance feature of this bill was foolproof. Would you mind going into some detail about that and giving your reasons and reactions?

Mr. MILLER. I meant to emphasize that my reason for thinking that is that you have these features:

In the first place, you have the amortization feature, beginning at the time the thing is put in operation.

You have the lowest depression, era of real-estate values in my experience. It is not as if you were making your appraisal and lending 80 percent on the real-estate values of 1929. You are lending 80 percent on the most depressed real-estate values-and I think artificially depressed real-estate values-that I have ever known anything about.

Senator CoUZENS. How about the cost of material?
Mr. MILLER. The cost of material is high.

Senator COUZENS. If you lend 80 percent on that, what about that? Mr. MILLER. I am not afraid of the cost of material, because either we will go back into an era of prosperity, in which case I do not think material will go down, but rather go up, or, if we do not go back into an era of prosperity, other financial things could happen which, in my judgment, will not lower the price of materials. As to labor costs, I am not one of those who think that labor costs should go down in the building trades, in spite of the fact that it is supposed that they are higher than in any other occupation. As a

matter of fact, that is so seasonal, and the chaps that work at it are so interrupted in drawing their wages that, considering the skill necessary in the building trades, I personally have never been able to see that they were seriously overpaid. Then, with the organization of labor, which is very complete and active in the labor trades, I do not believe the cost of labor will come down.

Senator COUZENS. I am glad to hear you say that, because that is the first encouraging statement I have heard since I have been sitting here all these hours and hearing about driving down the cost of this work under the bill.

Senator BARKLEY. Let me ask you another question. Are you prepared to comment on the fear that has been expressed that these agencies will compete with existing lending agencies of the country?

Mr. MILLER. I have talked with Mr. Bodfish, whom I have known pretty well for some time, and I have read that section of the bill. I did not even know, until I got the bill, that the building-and-loan associations were mentioned in the bill. I do not believe that this will in any way harmfully interfere with the building-and-loan associations, any more than I think it will interfere harmfully with savings banks. I am just as much interested in getting good loans for the savings banks, when we get in the loan market, as anyone can possibly be in getting good loans for the building-and-loan associations. I am an old building-and-loan man myself. I am anxious to hear Mr. Bodfish's views. I did not hear his statement yesterday, and I have agreed to talk to him when I get through here.

Senator COUZENS. Will these national mortgage associations compete with the savings banks, the trust companies, and the building and loan associations, which you say will be anxious to get good loans?

Mr. MILLER. Of course, there is always some competition in that sort of thing, but I think not. As a matter of fact, I think they will be helpful to those institutions. The fact is, as I say that we have great parts of the country, and great parts of my own State, which I know best of all, where we have a supply of money that considerably exceeds the supply of mortgages. If that money, for instance, is all spent in the city of Utica, if all the money that we have is loaned on mortgages in the city of Utica, it would be very competitive to the savings bank there. On the other hand, if it is spread over the country in regions where there is more demand for building and more demand for loans than there is money to supply it under the agencies of these associations set up, then I think it will have, really, a beneficial effect on us.

Senator BARKLEY. The theory is that they would not be set up except in case they were needed.

Mr. MILLER. My feeling is that they are needed. I feel that that is the way to get the reservoir of private capital back into the mortgage market.

I think it will do great good in another way, both to the building and loan associations and the savings banks. There is one thing by which both of us are hurt. We might as well be frank about it. That is by the general depreciation in real estate, which is due, more than any one thing, to the drying up of the reservoir of mortgage money. People cannot buy the real estate that we have had to take

on foreclosure, because there is no mortgage money generally available. There is no market created, and therefore the prices are so low that we would not even be willing to sell at those prices.

There is just one thing, perhaps, that I can add to your knowledge a little contrary to the information you get from Philadelphia-and that is in regard to the market, and the condition of home building. As part of our savings bank work, you may know-probably you do not-that we have another institution besides the trust company, called the Institutional Securities Corporation, which operates to liquefy the mortgage situation for the savings banks. We have adjoining offices, and although I have no official connection with it, we practically run it as one shop. That is operating in very many millions of mortgages. It has $22,000,000 of old guaranteed mortgages which it has taken over to service for the savings banks at a distance. I spent some time, before coming down here, in cross examination of their best men as to the home mortgages. Those are practically home mortgage loans. They are not the big things.

I asked them concerning the condition of the home-mortgage market in the suburban area around the city of New York. This has no application to the Borough of Manhattan, with respect to which my evidence would be the same as that of the gentleman who spoke about Philadelphia. But in the suburban area, including Queens, Westchester, and Brooklyn, Mr. Lindsey, the head of that organization, who was with me in the R.F.C., and went from there to the new organization, tells me that there are practically no vacancies at present in these relatively small private houses. There are some vacancies in the palaces because people move into the apartments my friend was talking about for purposes of economy. But to my mind the tendency in that is the other way, to get out of the tenements, to get out of the place where you have to live with a stove heating 3 or 4 rooms, and with a toilet room at the head of the stairs, and no bath. The tendency is, among every class of the community, to get out of that and get into the small house where possible. I found it in my own city. It is tremendous, too, in New York, where it has affected the lower East Side to an enormous extent. I think the movement has been in that direction. He tells me that practically every house in that surrounding area-and he and his men are doing that work there every day-practically every house is occupied, some of them with low rent, some of them where they are just letting the old owner stay until they get a chance to sell it, but he said he thought that with the return of prosperity and the further desire of the east sider and others to move into more comfortable living quarters, there is going to be, even in New York, where we thought we were overbuilt, a tremendous shortage of smallhome construction. I am anxious to shorten up the time of that recovery and see some advance possible in that direction as soon as the demand requires it.

The CHAIRMAN. Do you not think the capital requirement of $5,000,000 is rather high, in each of these associations?

Mr. MILLER. Not on acount of the overhead. Of course, you will have more associations if you lower it, but, on the other hand, in order to do a good piece of work with these associations you have to

have a relatively large operation. You have to have something that can afford to pay reasonable compensation. They will not be run entirely by altruists after the emergency is over. You can get them, perhaps, to run them now, but the people will want some salaries after this thing is over, and you cannot get the best men in the real-estate busines-and they should be the best men in the realestate business-to come in on that if the concern is so small that it cannot turn off enough to pay its overhead and pay reasonable compensation.

I am inclined to think that that is about as low as it should be, but I am not an expert on that.

The CHAIRMAN. Mr. Lester.

STATEMENT OF ORRIN C. LESTER, VICE PRESIDENT, BOWERY SAVINGS BANK, NEW YORK CITY

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

Mr. LESTER. My name is Orrin C. Lester. I live at Scarsdale, N.Y., and my position is vice president of the Bowery Savings Bank of New York City. I might add that I am an officer in what we speak of in New York as the mortgage conference, which is an association of mortgage-lending institutions endeavoring to work toward more standardized practices and joint thinking and joint action with respect to the whole problem of mortgage financing in the city of New York. It is a voluntary association.

The CHAIRMAN. Mr. Lester, have you examined this bill, S. 6303? Mr. LESTER. Yes, sir.

The CHAIRMAN. If you have considered the plan suggested here, I wish you would give us your views about it.

Mr. LESTER. Mr. Miller, who has had so much better experience in actual practice, and a more seasoned judgment than most of us in the savings-bank business, has made a very complete statement here. We younger fellows sometimes hesitate to follow him, because he usually says about all there is to be said. I think I should apologize, perhaps, for not having a formal statement. I have not, but I am just here to be as useful and helpful as I can.

I have read this bill more than once, and it appeals to me as having very commendable elements, as a general thing. It is obvious, I think, that our mortgage machinery needs to be reexamined. We need to have some new conceptions and new policies and practices with regard to the financing and development of real estate.

I think we would agree that it is a difficult thing to set up the kind of permanent and complete machinery that may be necessary after an experience of this kind, for the permanent needs of mortgage financing, at the time we are trying to dispose of a very bad depression and to put back to work men who are now unemployed, but I should like to say this, that this bill strikes me as having the elements that would be very useful in the direction of doing something to carry out the program of recovery.

I am inclined to think that it contains the factor-the foundation, perhaps for building the kind of a complete mortgage machinery that we need for the future.