Senator BULKLEY (interposing). Do I understand you correctly that your criticism of this bill is that it just won't work, that people won't borrow money that way, and that people won't lend money that way.

Mr. McAvoy. I think it is going to be very slow and represents the minority field for the moment. The repair and modernization in distress cases under the Home Owners' Loan Corporation is the majority market. I am recommending that that be extended to $400,000,000, and that it be vigorously prosecuted.

Senator BULKLEY. Do you mean without any change of language of the Home Owners' Loan Act but simply by providing a larger amount of money?

Mr. McAvoy. I am recommending that we have $2,200,000,000 additional in bonds so that they will not hold back on repairs and modernization in order to try to make their 2 billion dollars cover 4 billion dollars but to go ahead courageously and at once with sufficient bonds to meet all distress cases, because the new National Housing Act would not be able to take care of all distress cases anyhow.

Senator BULKLEY. What I do not understand in your remarks is this: Are you proposing a change in the authorization to the Home Owners' Loan Corporation or simply an enlargement of the amount? Mr. McAvoy. I am proposing simply a doubling of the present amount of bonds and of the purposes to which they apply. The recent amendment as to modernization covers that phase.

Senator BULKLEY. It only permits loans for modernization to those who are otherwise qualified to borrow from them.

Mr. McAvoy. That is true. What I want to bring out here is that I consider your majority market as one applying to me, as a contractor, if I were going out to work and somebody would finance the work. I wouldn't go to the people who could qualify as good credit risks. They wouldn't have much work to do. There is 4 or 5 years of intercession work in distress-mortgage cases.

Senator BULKLEY. You think a lot of these people that are in distress on home loans are people who ought to make repairs and renovize their properties?

Mr. McAvoy. I think the policy of the Home Owners' Loan Corporation should be totally changed. Instead of holding back and trying to make as few repairs as possible they ought to vigorously prosecute the plan of making repairs, ought to have men go out and say to the home owner something like this: If you will put a bathroom in there, and divide this off, you can get $30 a month, and that will carry you through. I have done that many times myself, and I know that it works. That I say is where the big field at the moment lies.

And the next point is this: Senator Wagner, you know when my brother and myself built your home some 20 years ago at Woodmere? Senator WAGNER. Yes.

Mr. McAvoy. When business was bad we would go to the poorest neighbor in a community and would give him a low figure and terms in order to induce him to make repairs, and then the more prosperous ones would come along and see it and be ashamed to see their poorer neighbor fixing up, and we would thereby get five or six jobs as a result of that one job.

Senator BULKLEY. But you could not do that if the owners were without any resources.

Mr. McAvoy. Well, I feel that this would be the situation: If you put out sufficient bonds to take off this curb in policy on repairs and modernization in the matter of the Home Owners' Loan Corporation, and if you will vigorously prosecute that matter you will get a tremendous accrual in repairs from people who can pay for it through the power of visual example close to home. I am not opposed, however, to the renovizing plan in the act as proposed, except to point out that I do not think we want to look for quick results from it as it now stands.

But I do want to say that I object to other buildings being included in the insurance on such risks, because I feel the home owners' risk under the renovizing plan is a much finer risk than that on business buildings, apartments, and things of that sort, where they are dropped the minute the income is insufficient to carry. On the other hand, the home owner will stick. I think the home owner should have a separate insurance fund. I feel that the home owners' surety, both in the case of new financing and existing construction, should be totally separated from low-cost housing.

Senator BULKLEY. Well, of course this is not insurance in the sense that the beneficiaries pay for it, but is a guaranty by a Government corporation.

Mr. McAvoy. Yes. The beneficiaries will have to pay for it in some manner through the interest rate.

Senator BULKLEY. No. I do not so understand it.

Mr. McAvoy. Well, that is the way I understand it.

Senator BULKLEY. Where do you find that in the pending bill (S. 3603)?

Mr. McAvoy. I would say that it comes under the Insurance Corporation, in title II of the bill.

Senator WALCOTT. I think the borrowers have to pay for losses. Mr. McAvoy. Yes; they have a premium to pay.

Senator BULKLEY. Well, let us stop right here and get that straightened out. I will ask Mr. Watson to explain that point for the record.

Mr. WATSON. I should like to say as to renovizing, the cost of the insurance is undoubtedly borne by the Government. It is not. borne in any part whatsoever by any of the people who borrow in the renovizing campaign, the theory being that if the Government could be paid by that guaranty fund getting out five times as much money in the work, it will be worth it. The home owner does not contribute a cent toward that cost, Mr. McAvoy.

Mr. McAvoy. I thought the insurance clause covered that. Senator BULKLEY. That is a different matter, in title III of the bill. There is provision for a separation into groups as to classes of risks. Am I right about that, Mr. Watson?

Mr. WATSON. That is right, in the insurance on mortgages. There is a division so that the home owner will be entirely separated from the low-cost housing project as to mortgage insurance, and he will not carry it.

Mr. McAvoy. Well, then, that answers my objection that the home owner should have a lower risk, and undoubtedly it will run lower.

Senator BULKLEY. I think it will according to the way the bill is set up.

Mr. McAvoy. I do not think the bill separates that. It leaves the rate open.

Senator BULKLEY. I think it is a little difficult to find it, but there is provision for separation according to the characteristics of the risk.

Mr. WATSON. While it is not in the bill, the committee have been furnished with the differing rates.

Mr. McAvoy. Well, that answers my objection on that score. Senator BULKLEY (presiding). Very well. You may proceed with your statement.

Mr. McAvoy. I will pass now to renovizing. I am heartily in accord with that, except that I should like to see broadly liberalized the policies of the Home Owners' Loan Corporation in that field, for practically all are cases which cannot qualify under the renovizing plan. I know the distress cases would not qualify as credit risks.

Senator BULKLEY. Then you would let them just add that amount to the amount they owe the Home Owners' Loan Corporation? Mr. McAvoy. Yes, sir.

Senator WAGNER. Do you mean to that individual that you think needs funds to make repairs who would be financially so situated that the lender would not regard him as a fair risk?

Mr. McAvoy. He would not consider him at all.

Senator WAGNER. And he would have to come under this plan for an umbrella.

Mr. McAvoy. Yes, sir. My theory, as you know, Senator Wagner, has been this: That half of the homeowners helped by the Home Owners' Loan Corporation cannot come through. We do not know what half that is. And the only way out will be to sell, not foreclose, but sell. After they have had their gambling chance and recovery has come, some cannot keep their homes and they have to sell. Now, unless the house is modernized it will not be salable.

I will now pass from the renovizing plan because on that point I am entirely in accord with the insurance factor cleared up.

Now, under title II of the bill, national mortgage associations, my recommendation is the same recommendation that I make before your subcommittee last year, Senator Bulkley. That was that five or more homeowners could be permitted to form a mutual organization, the same as in the case of the Farm Loan Act, qualifying in the way of appraisals as those farm organizations can qualify. And in their case they put up their 5 percent of capital, I believe. That they have if they have not been able to finance themselves through other mediums then the Home Owners' Loan Corporation would advance sufficient fully guaranteed bonds to meet their obligations up to appraisal limits.

I would further suggest that any mortgage associations should be made mutual nonprofit noncommercial corporations.

Perhaps the men serving on them would be paid a salary, but it would not be primarily from the angle of profit. The history of the land banks show the dangers in profit-making mortgage arrangements sponsored by the Government, for the color of the Government. security behind it permits it to be easily driven too far and come to grief.

Senator BULKLEY. You are speaking of the difference between the Federal land banks and the joint-stock land banks.

Mr. McAvoy. I am speaking of the joint-stock land banks, where pressure was brought upon them to have a farmer borrow to buy beyond his means. I believe we have to think very seriously if we are to learn by past events, such as the guaranteed-mortgage situation, which is a horrible lesson we should learn something from.

I think in our renovizing plan we benefit solely if it wisely places money in the hands of individuals on credit. I found in the great percentage of the trouble cases that came to me, the final wreck came after they were able to borrow some money on a financing plan. They had a surcease from their trouble for about 30 days, and paid a pittance on their taxes and interest, and then were confronted with the new problem of monthly repayments. And that was their final wrecking. I think we have to weight the installment selling very carefully.

I shift now from the mortgage problem over to renovizing, and we could cite radio selling and installment overselling in general as examples to seriously weigh.

Senator BULKLEY (interposing). Insofar as your argument goes it applies to the whole renovizing section of the bill, does it?

Mr. McAvoy. I mention that with caution. I think it is something we have to regard with thought. I do not mean to say not to do it but that we have to think of all these things. I think that is so in the formation of these mortgage companies, because if you will turn to page 16 of the bill, section 209, you will see that it provides:

Subject to reasonable rules and regulations as the Federal Home Loan Bauk Board shall from time to time declare, any national mortgage association shall have full power to, and may, manage properties purchased or turned over to it as the result of foreclosure proceedings.

Now, that reads to me, if I am not incorrect in my interpretation of it, and I asked the vice chairman of my board, Mr. Robert D. Elder, a New York attorney of note, to tell me if I were incorrect in my reading of it, and he said not, that, for instance, a guaranteed mortgage company of New York could organize a $5,000,000 guaranteed national mortgage association, and then could purchase a lot of foreclosed properties, say $50,000,000 worth of foreclosed properties, and refinance it, and put out debentures, and sell them to an eager investing public and indirectly repurchase this wreckage that they created, when it should more properly find itself under better management.

My principal argument and my fear on that is not alone the bad economic situation to be created but I fear this: I have been trying to educate the public that the Home Owners' Loan Act of 1933 covers the redemption of homes, and it has been amended, as you know, to include those foreclosed as far back as January of 1930, and in spite of the fact that that has been printed people do not generally know about it. People have been evicted from their homes and have given up hope and often do not read the papers on a subject so sore to them.

I have seen numerous efforts to start movements to amend the Home Loan Act of 1933 to permit repossessed homes to be rennanced through the Home Loan Act to new buyers, and I have protested vigorously to these people every time I could get in touch with

them. I have said: You mortgagees who have foreclosed these homes must take the trouble to find the old owners. Look the old owner up and get him back, even if it costs you some money. If you have to pay something to get him back, get him. It means a rehabilitation of that man and his family. It represents restitution.

I have urged that the Government should have community bodies that could do that kind of work. I have done some of it myself. And, Senator Wagner, you know of a case that you figured in and I gave as much attention to that case from the time the man came into my office from yours, until it was finished, as I have given in the closing of a $50,000 contract.

Senator WAGNER. And everybody was a volunteer who was connected with it.

Mr. McAvoy. Yes, sir. Now, there is just one case, but if I had a staff I could do it by the thousands.

They say there is no large amount of foreclosures but there are. Take Mr. Fahey's figures. I looked over the number in Queens County, and out of $10,000,000 of home mortgages I found two and a half million dollars were in foreclosed homes. And there was a case of $5,000,000, and the man was writing circulars to holders of certificates that they expected to convert them into home-loan bonds. I said: "If you succeed, where will you get the money?" I said: "There are obligations of three and a half billion dollars." He said: "No; until I get the consent of two thirds of the certificate holders I cannot do anything."

Now, under the provision of page 16 of the bill, one of these national mortgage associations could turn around and purchase those foreclosed homes and then sell 15 times in debentures against them of Government-sponsored and insured mortgages. I feel that that is something that could absolutely be stopped.

Senator BULKLEY. Have you an amendment to suggest there?

Mr. McAvoy. This one. I would make the proviso that before a foreclosed home could be refinanced under that insurance plan, satisfactory proof should be furnished by the titleholder that he has sought the former owner, with an affidavit from the foreclosed home owner that he does not care to avail himself of governmental-mortgage aid. If the owner cannot be found, and I presume there will be cases of that, then reasonable methods can be established to advertise, through post offices of the United States, possibly, or other means, and after a certain lapse of time then permit governmental refinancing.

But I would like to see that act amended so that these companies should be non-profit-making commercial mutual institutions; that we should not permit profit-making institutions to sell debenture bonds and repeat any performance that might approach the guaranteed mortgage-certificate debacle.

On page 6, section 5, I would like to go on record that selling debenture bonds on low-cost housing projects in slum areas will be certain to carry heavy losses; that under existing rents available in slum areas you cannot build today, under construction costs, and come out; that certain construction must be done by a capital grant or an interest rate not to exceed 2 percent.