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I am not prepared to say that anybody knows at this time just what that complete machinery is, and I think it has to be a matter of gradual evolution and very clear and constructive thinking, but in its general principles, except the matter pertaining to the building and loan associations, I think I would feel that I and the people with whom I am associated in the savings banks are favorable to the bill.

I eliminate from my consideration the question of the building and loan associations because I do not profess to know what the desire of the building and loan associations is and what the need may be for the guarantee of their funds. We have, of course, in our institutions, a guarantee of deposits, and I take it this is designed to accomplish something of the same ultimate and practical purpose.

I am like the rest of these gentlemen. I do not want to take too long a time. The first element of this bill which pertains to the extension of credit for improvement of existing properties clearly is something that, if it is taken advantage of, should be effective, both in giving employment to men, and in starting, in some small degree, at least, the building industry back toward a normal state.

I have two observations with respect to the statement here of the bill. One is that there is a very great deal of property in this country that needs to be improved. We come in contact with it every day because, out of necessity, going through this depression, we have become substantial owners of such property, taken by necessity in foreclosure. We undertake, when we get property that needs improvement, to do it out of our own funds. The great majority of such properties need some attention.

In the second place, the idea of providing this credit through private agencies with the cooperation of the Government seems to me to be a sound principle. In common with many, I have the idea that most of the business of this country must still be carried on by private enterprise, and perhaps the sooner we get to the point where that is clearly understood and the sooner we begin to work toward that principle, the better.

I appreciate the fact that we all want to work in harmony with anything the Government does in its recovery program; but somehow, somewhere, there must be an acceptance of responsibility on the part of institutions and private enterprise generally, to take a substantial part of this load.

Of course, no piece of legislation is of any great practical value unless it can be put into application in specific situations. I am not so sure that I can be very helpful in advising as to how far this legislation may be used. The fact is that I represent the kind of institution that is pretty highly restricted by the law, and pretty conservative. In a great deal of this we could not take any part. For example, we could not make loans of the type specified, in the improvement section of this bill.

Senator BULKLEY. Why not?

Mr. LESTER. We are not permitted to lend on that kind of security. We cannot make a personal loan, except on our passbook. The law of the State of New York provides that mutual savings banks

Senator BULKLEY. This does not prevent you from taking security, does it?

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Mr. LESTER. This would be a personal note.
Senator BULKLEY. Necessarily?

Mr. LESTER. That is my understanding. It is purely a credit agency. It is an effort to extend credit to individual owners of property, on their individual note, without collateral.

Senator BULKLEY. I understand that is permitted, but I did not understand that was required.

Mr. LESTER. I had understood that that was required.

Senator BARKLEY. You could add to the mortgages you already hold, in order to make those loans?

Mr. LESTER. We could, by permission of the banking department; but, you see, we are restricted in the beginning to accept not more than 60 percent of the appraised value, and, as you well know, in all parts of the country it is difficult to get an appraisal that would permit us to go above that.

Senator BARKLEY. But you could, if you had not exceeded the legal percentage upon which you could make a loan, add to such loans as you already have, secured by mortgages.

Mr. LESTER. Yes; and we do that on occasions, and particularly when we take over property. We analyze it. We are working in this respect, and I think we can complement this bill in some degree in the city of New York, because of our efforts to collectively take the position that all property which needs improvement, both as a means of helping put men to work, and as a means of preservation of the property, should be analyzed and improved to the degree that conditions may justify.

Senator BARKLEY. In that connection, have you had any experience that leads you to the entertainment of specific views as to the appraisal situation with respect to property all over the countrywhether there is really a need for study to be made of that, as carried out in section 7 of this bill, with a view to getting appraisals upon a more equitable, scientific, and permanent basis? If you have some views on that subject I would like to have you express them.

Mr. LESTER. I prefer not to speak of the country generally, although I have had a little experience outside of New York. I have

I been there only 10 years. I am completely satisfied that we must revise our whole conception of appraisals and undertake to do it on a highly scientific basis-as highly scientific a basis as possible, taking into consideration, in the determination of the value of a piece of property, all the factors that tend to destroy or to enhance its value, and that in the future the basis upon which we shall judge the mortgage security shall be upon the principle of an adequate and properly distributed income. The conditions that justify that as a security will be determined upon those factors that tend to make that income consistent over the period of the life of the mortgage.

Senator BARKLEY. In other words, instead of taking the cold, abstract value of a piece of property today on a certain street, you will also consider the element of the responsibility of the owner and his income, and his general situation, in undertaking to fix a fair appraisal?

Mr. LESTER. And the entire influences of the community around. I think communities tend to drag down values and end income more than the intrinsic value of the property. We must, of course, look at the land and the construction of the buildings, and look at the reputation and honesty of the builder, and the owner's responsibility, and all that; but we must go far beyond that. We must interest ourselves in zoning policy. We must interest ourselves in the whole question of the planning of the community, and by all means we must know, by actual factual information, that if a man or a group of men want to build a building there, and they want a loan from our institution or any other corresponding institution, that there can be a reasonable certificate of necessity supplied, in order to show that the building is not going to be filled by tenants occupying other good buildings, which will break down existing investments just merely to satisfy the desires of somebody.

Senator BARKLEY. Is there any likelihood that any such study will be or can be made, in a broad sense, by haphazard organizations that spring up in communities for purely commercial or profit purposes, outside of the guidance of some Government institution or organization such as is provided in this bill--not that it shall impose its opinions upon owners of property or lenders of money, but that these relationships shall be coordinated so as to arrive at something approaching a scientific determination with respect to it?

Mr. LESTER. Answering your question directly, I am sure that responsible lenders will welcome some such arrangement in New York—and I speak only for New York. That is one of the essential purposes of our Mortgage Conference—that we shall come to a position where we will set up standards that will determine the basis upon which we shall judge mortgage security and set up fact-finding agencies responsible to us and financed by us, whereby we can hur. riedly get the facts with respect to a particular section of the City of New York.

But that does not say that some supplementary, complementary, or any other kind of influence and service from any central source is not desirable. This thing is so much of a pioneering problem that even with all our experience in mortgages, every community, I dare say, needs help; and you will find many communities throughout the country, speaking broadly, that would not be able to set up such machinery on their own account. It is bound to be relatively expensive.

The CHAIRMAN. Do you lend outside the city of New York?

Mr. LESTER. We can lend anywhere in the State of New York, but our institution's activities are confined to the area of greater New York, Westchester County, and Long Island.

The CHAIRMAN. Do you make many loans on homes?

Mr. LESTER. No. You see, being as large as we are, we have had a large amount of money to put out. We have many homes, but a great many business properties. We have over $300,000,000 invested in mortgages, out of our total assets, and it would be almost impossible for a bank as large as that it would be quite possible for Mr. Miller's bank, one of the best run banks in the State of New York, to do that. It would be impossible for a bank as large as ours to do it. We like homes.

Senator BARKLEY. What is your bank?
Mr. LESTER. The Bowery Savings Bank, a mutual institution.
Senator BARKLEY. The one with which Mr. Bruere is connected ?
Mr. LESTER. Yes. He is my immediate boss.

Senator BARKLEY. I just want to get you identified in the record.

The CHAIRMAN. The next title deals with the mortgage companies, with which you have been dealing to some extent.

Mr. LESTER. With regard to the insurance feature of this bill, if I may return to that for a moment, in principle I am in full agreement with what Mr. Miller has said here with respect to the payment of debts. I do not care whether a debt is made on a piece of real estate, or where it is made. It ought to be made with the intention of progressively paying it off. Personally I think that is a sound basis upon which to make mortgage loans.

The CHAIRMAN. But you do not make them on that basis now.

Mr. LESTER. It has not been the custom in the city of New York to do it, but I think—and I think I speak rather for the larger institutions of New York, particularly savings banks——that the tendency is going to be in the future to insist that there shall be a consistent program and plan to amortize all kinds of real-estate mortgages.

Senator BARKLEY. That would bring about the facility for making more loans and accommodating more people, because there would be a greater turn-over.

Mr. LESTER. Precisely.

Senator BARKLEY. If a man borrows money for 3 years and does not expect to pay anything on it until the 3 years are up, that amount of money is frozen. It is not available for anybody else until the 3 years expire, and perhaps not even then unless he pays it.

Mr. LESTER. It is a sound element of the protection of security. At one time in Pennsylvania I was chairman of an appraisal committee, and I followed the thing very closely in many communities. The old idea of making an appraisal was that if you could find a very high land value and a very low improvement value with that, you had a very sound loan. Of course, that is a fallacy, because if you have a $100,000 loan and $75,000 in land value and $25,000 in buildings, the buildings are not suited to the land, and therefore the loan should not be made at all. In making mortgage loans, I do not think we can assume that the potential appreciation in land values is going to take care of obsolescence and depreciation of buildings and improvements. Therefore we have got to make our amortization scientific, consistent with the depreciation of the improvement, whether it is a home or an income-producing property. That, to my notion, is a sound basis upon which to make a loan on any piece of real estate.

The element in the proposal for mortgage insurance which undertakes to get rid, if possible, of the second mortgage is something that appeals to me very strongly. That has caused a lot of the difficulty in real estate, because of the high cost of getting it, and it has amounted, in many instances, to this, that when the owner got his property entirely financed he did not have much in the way of equity in it at all. After all, we have to remember that the sound basis upon which to make any loan to anybody is that there is some cushion of actual assets. Therefore he ought to have a reasonable equity. If we could somehow reform the methods of making second mortgages I think it would be a desirable thing.

As Mr. Miller has said, I cannot say to you to what extent the lending institutions of the city of New York will use this mortgage insurance. So far as I know, there is no concerted opposition to it. We are open-minded on this, as we want to be on all questions of the future of mortgage lending. Like the fellow who was to be hung, this experience may be a lesson to us. We think that when we come out of all this we are going to make home mortgages more conservatively and have them all amortized. Yet the time may come when we would want to use some kind of mortgage insurance. That is as much as I can say about that.

With respect, Mr. Chairman, to the mortgage companies, again, I think it is pretty hard to be specific about how much they may be developed throughout the country or how many of them may be organized. In New York City the title-and-mortgage companies, up until recently, up until the panic came on, were the marketers of mortgages. We take mortgages and hold them in our portfolios as permanent investments, but apparently, in a center as large as the city of New York, there must be a way of attracting the capital in the hands and in the possession of private individuals. Therefore, those companies became the agencies to distribute mortgages to the common citizen. It would seem obvious that there must be some machinery set up to take up that thing, now, that has collapsed in those organizations.

While I do not know whether any such agency would be organized, it is my opinion that we must have some means, since our instrument itself is not particularly mobile-we must have some instrument of getting a certain amount of mortgages out into the hands of the public, and when they go out they must be of such character that they will command the confidence of the public, and there will be no question on their part as to whether or not a realestate mortgage is really a sound security. I am of the opinion that, properly handled and carefully and cautiously considered, and appraised under sound principles of appraisal, real estate, in any good section of this country, is still one of the prime investments of any kind of an institution.

The CHAIRMAN. Can you say whether new savings have gone into your institution faster than they have been withdrawn? Mr. LESTER. No. There is a tendency in New York City to go

that is, for withdrawals to be heavier than deposits In my own particular institution, effective during the last quarter, that is, the quarter from January 1 to April 1, 1934, we applied and adopted a new interest policy. It was a reduction in the interest policy, which pays 3 percent on balances up to a thousand dollars, and 21/2 percent above a thousand dollars; so that since the first of April or since that policy was announced we have been going out substantially. That is, our withdrawals have exceeded our deposits by a substantial amount. But the last general statement put out at the end of last month, of all the savings banks, showed that very few of them made gains.

I think it should be said that savings institutions represent, in their depositors, the great masses of plain people, people who get their savings out of their ordinary work, labor, and salaries. A great many of these people have had to withdraw very consistently; being out of work or having incomes reduced, they have had to withdraw from our banks rather consistently. We have a bank on the lower East Side, a $220,000,000 institution, in one of the worst areas of the city of New York. These people, representing many of

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