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discriminated against in favor of new. It starts off one third based on capital stock and decreases in percentage as mortgage holdings. increase above capital stock.

Senator BULKLEY. What discrimination is that last one you referred to?

Mr. McAvoy. The 80 and the 60 percent was my first.
Senator BULKLEY. What about the last one?

Mr. McAvoy. It says here on line 23, section 5, page 6:

Provided, That except with the approval of the President, insurance of mortgages on existing homes shall be limited to an aggregate principal obligation on all such mortgages of not to exceed five times the aggregate par valueof the Corporation's outstanding capital stock.

Senator BULKLEY. What was your suggestion now?

Mr. McAvoy. My suggestion is that they should be on a complete parity with loans on new construction.

Senator BULKLEY. You would just strike out that limitation,. would you not?

Mr. McAvoy. Yes; and change the percentage.

Senator BULKLEY. Change the percentage to 80 percent?

Mr. McAvoy. To 80 percent. The appraisal should determine the difference.

Senator WAGNER. The old 80 as well as the new?

Mr. McAvoy. Yes. I might say that I am tremendously in favor of a sufficient mortgage that will do away with second mortgages. A second mortgage has been a curse. Up to the panic, however, I have seen home owners wade through and pay their second mortgages and their heavy bonuses. I have sold houses with three mortgages on them, and I have never had an occasion to lose a dollar on a third mortgage, because the home owner will pay. He pays and pays. And if you eliminate that awful overhead that you have to pay for second mortgages you have accomplished something: definite toward home ownership.

I think that on page 13 under title II, section 203, there should be a greater definition under sub.-3, under the parentheses 3 section 203, page 13, there should be a greater definition as to the type of mortgage collateral; that maturity should be made or extended to at least 20 years, with an interest rate not to exceed 5 percent. At the present time there is no stipulation as to maturity of the mortgage nor the interest rate.

And I would also add that the payments should be made monthly,. the amortized payments, not allowed to be run semiannually.

In 1924 I put home operations through aggregating several million dollars where I got both the second mortgagee and first to take 15-year payments, amortizing payments. I would have made it 20or 25 years had I been able to so arrange it, but it was a novel idea then. I made it monthly payments instead of semiannual. And those people have come through and they have absolutely made good in their houses and there has not been a single foreclosure in several hundred houses. The feature of a monthly payment to a small home owner takes away the problem he has of accumulating money. The most charitable people are the poor, and if they have got a relative or two or sister Sue gets sick and they have several months savings on hand they will take care of them, but if a monthly payment of $40 is to be made next month they cannot do it; it is put off on

some other thing. But I feel we should not permit small shortterm mortgages to be insured. Here is our chance to eliminate that evil.

And I might say that another deep interest in my work is to eradicate rotten construction. We have seen horrible evidences of it. I would like to see that eliminated, because it is a positive evil, and if we do not take this opportunity to make mortgagees make 20-year mortgages, not to accept them unless they are amortized monthly for 20 years, with better standards of construction and design in new construction, and to keep the interest rate at a stipulated amount, I recommend not to exceed 5 percent, we will lost a great opportunity.

Page 21, section 302, line 16.

(b) The management of the Insurance Corporation shall be vested in a board of trustees consisting of five members.

I feel that that Insurance Corporation should be broadened and to include a representative, someone representing the home owner, that would be specifically appointed by the President. As far as I see at the hearings of last year, as far as I see this year, the home owner is not represented. I do not mean to say that other people haven't got them in their minds, but they have their own interests; they know better the things that pertain to them, and the home owners viewpoint and contact are not represented in these situations. I know it peculiarly because of my long home-building experience, and in view of the obligation I owe to my customers who are home owners I feel that is a very serious and important point.

I think I have covered all I have to say, if you will permit me to give for the record a prepared article so as not to take much time. I have been asked to prepare an article recently for the Economic Forum, outlining the Home Owners' Loan Act of 1933 and its future problems, and outside of the first couple of pages, which are in a narrative vein, I have advanced the viewpoints that I have entertained as the future coordination of the mortgage debt from individuals and the protection of the Government's collateral, and I would like to present that into evidence, as I think it might be useful for your committee.

Senator BULKLEY (presiding). Yes; I think that is very appropriate.

(Article submitted by Mr. McAvoy appears at the end of today's proceedings.)

Mr. McAvoy. Mr. Chairman, I would like to close by reading the following release published by me in the World-Telegram of May. 12, 1934, which outlines dire need of additional home-loan bond authorization at this session of Congress. [Reading:]

H.O.L.C. FUNDS TO BE EXHAUSTED THIS YEAR-MCAVOY URGES CONGRESS TO APPROPRIATE $2,000,000,000 ADDITIONAL RELIEF FOR DISTRESSED OWNERS, ETC.

(By James L. Holton, World-Telegram real estate editor)

D. E. McAvoy, secretary of the Home Mortgage Advisory Board, declares that unless Congress at the present session authorizes an additional $2,000,000,000 or more in Home Owners' Loan Corporation bonds, the mounting numbers of distressed home mortgages will exhaust the resources of the H.O.L.C. before the end of the summer.

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It has lately been publicized that relief for unfortunate home owners and equally unfortunate mortgagees can be looked for through the H.O.L.C. program", states Mr. McAvoy, who has championed the cause of the distressed mortgage-burdened home owner for several years. 'However, such high hopes of mortgage holders and owners will be blasted when they find the H.O.L.C. out of bonds and funds, and a stupendous waiting list already on file, in the months to come.

"That a million homes have been saved from foreclosure through the H.O.L.C., as stated by me over the radio last Sunday, has been challenged by several statisticians ", Mr. McAvoy explains.

400,000 TO NEED HELP

"This challenge serves to bring sharply to light the cold, distressing fact that unless additional home-loan bonds are authorized at this session of Congress 400,000 or more home owners, at the end of their rope, are doomed to tragic disappointment—their mortgagees likewise—and we will witness the deplorable break-down this summer of a continuance of remarkable constructive operations by the Home Owners' Loan Corporation.

"It is impossible to describe the resultant human and economic loss if this is permitted to occur.

Those contending an error in my count of the home owners saved from foreclosure point out that the national average of loans made by the corporation is $3,000, and that 1 million loans would require 3 billions in bonds, whereas only $2,200,000,000 represent the present authorized issue.

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Congressman Brown's remarks, at a hearing of the House Banking and Currency Subcommittee, before which I recently appeared on the Brunner bill, was that $3,300,000,000 was represented by applications then on file with the corporation.

CITES NEW CASES COMING

"The amendment tightening up distress requirements will eliminate, it is true, a certain number of unentitled applicants, but it is powerless to eliminate true distress cases yet to flow into the corporation from the following sources: "1. Many mortgagees, who had been according owners in default temporary leniency, will now serve notice upon these owners to pay defaulted interest and taxes, enforcing a heavier increase in applications.

"2. The amendment in the act, widening the scope of the bill in respect to the regaining of homes, lost by foreclosures-going as far back as January 1930. As soon as this act of restitution becomes generally known, another inpouring of applications will ensue.

"3. It must be realized that there are still 11 million or more people unemployed. Every month a new group of distressed home owners, many long unemployed, will further swell the total. This is a type that have been making their interest and tax payments, not from income, but from savings, insurance, and by personal borrowing. The exhaustion of such resources is inevitable.

ANOTHER INFLUX SOURCE

“4. In many cities we have the guaranteed mortgage situation. In New York alone it runs into billions of dollars, a substantial portion of which is on homes eligible to the benefits of the act. When legal procedure permits the signing of mortgagee consents in behalf of these owners who are bereft, not only of income, but of administrative powers, there will be another heavy influx of qualifying applications.

"At a meeting arranged by our advisory board this week ", Mr. McAvoy said, representatives from several prominent organizations in Brooklyn and Queens included William McDermott, chairman of the mortgage and finance committee of the Long Island Real Estate Board; A. J. Swenson, chairman of that board's appraisal division and a director of the Queensboro Chamber of Commerce; George W. Cassidy, president of the Queensboro Chamber of Commerce, and Herbert L. Carpenter, president of the Midtown Club, of Brooklyn, and director of the Brooklyn Chamber of Commerce.

AT LEAST TWO BILLIONS

"At this meeting it was resolved that those present would urge the organizations represented by them, as well as several hundred other associations and organizations in the metropolitan district to form a joint committee to urge Congress to authorize the additional issue of at least $2,000,000,000 of homeloan bonds at this session. Also, that such issue should provide, as well, for an additional 10 percent for repairs and modernization, as in the present act." I am very much indebted, Mr. Chairman, to you and the members of this committee for this opportunity. I would be very glad to answer any questions.

Senator BULKLEY. Thank you very much, Mr. McAvoy. You have made a real contribution. Then we will hear Mr. Stone if he is here.

STATEMENT OF HAROLD STONE, PRESIDENT OF THE ONONDAGA COUNTY SAVINGS BANK, SYRACUSE, N.Y.

Senator BULKLEY (presiding). State your full name and business, Mr. Stone.

Mr. STONE. Harold Stone, president of the Onondaga County Savings Bank, Syracuse, N.Y.

I would like to put in there that for a short time I was one of the directors of the Guaranteed Mortgage Protection Corporation, which was organized by Governor Lehman on this guaranteedmortgage situation. The reason why I am putting that in is because I want to endorse what Mr. Miller said about the guaranteed-mortgage situation, to show that I have had some connection with it.

Our bank is about a 56-million-dollar institution. We have 33 million dollars of mortgages, between 8 and 9 thousand in number, that average less than $4,000 apiece.

Senator BULKLEY. Those are all home mortgages?

Mr. STONE. The great bulk of them. Our average loan, as I say, is $4,000. That means that practically all of them are on homes. Senator WAGNER. All in the vicinity of Syracuse?

Mr. STONE. Yes; they are practically all in that vicinity there. But I feel I have some knowledge of the home-mortgage situation. I don't want to take any of your time at all, because I can say everything I want to say by stating that everything that Mr. Miller said this morning, I agree with completely. I had one or two little observations, but I would like to have my record what he said.

I would like to say in reference to the last speaker or witness that it seemed to me he lost sight, when he was talking of these debentures, of the fact that this money was in the first instance loaned by private concerns. It is not Government money that is being paid out; it is finance corporation bank mortgages or whatnot, and if it goes sour the private lender is losing money, so that he is going to be interested to see that it is a good loan. It seemed to me in his talk about the Government putting out these debentures and the people thinking they are Government securities as such, he has lost sight of the fact that in the first instance it is private money.

Also he said, and it has been said before here, that the distressed home owner who needs some repairs is not in financial condition to get credit. I think that is very largely true, but there is quite a class of persons that that does not apply to. To illustrate what I

mean, I will give an example of a case that happened just as I was leaving yesterday. A man owns a little house that he has changed over for two families, one upstairs and one downstairs. If he could get a hundred dollars to fix his roof he could rent the upstairs flat for $25 a month and it would be a good credit risk for the hundred dollars. There is not any way at the present time, and people do not bother with it, and we cannot do it without taking a mortgage.

Senator BULKLEY. You say you cannot do it without taking a mortgage?

Mr. STONE. No; we are only allowed to loan on mortgages.
Senator BULKLEY. Under your State law?

Mr. STONE. Under our State law we could not do it. You would have to get a change in State legislation to permit a thing like that. If we take the property over under foreclosure we can put anything we want to in it, but as long as the title is in the other man we cannot loan it to him without security.

Senator WAGNER. Without the title how could you do very much; how could you loan?

Mr. STONE. We could not, that is, our institution.

Senator WAGNER. That is what I thought.

Mr. STONE. But if you could develop other loaning institutions for that purpose a great deal could be accomplished.

I would like to just raise the question-I am not at all sure that I am in favor of it-but on this repair loan, alteration loan, Mr. Miller said this morning that it would take a long campaign of education to get you bankers and others to make these small loans. I agree with him entirely, and when he said that I was wondering in my own mind if you raised your guaranty from 20 percent to 40 percent or even 50 percent I do not think your losses would be any greater, and I think before you get through the afternoon you will hear some, to me, very astonishing figures on losses on these personal small loans. But I do not believe your losses will be any greater, and it might be an inducement to the banker to make these small loans.

Senator BULKLEY. What was your statement about astonishing figures about losses?

Mr. STONE. Well, I was talking with one of the men who is going to talk to you later from a small-loan-business point of view, and the ratio of losses to my mind was so astonishingly small that I do not believe in this thing you will lose any more if you guarantee it up to 50 percent than 20 percent. The City Bank is what I refer to. Senator KEAN. The City Bank has about 6 or 7 millions out. Mr. STONE. Yes.

Senator KEAN. And they do not lose a tenth of 1 percent.

Senator WAGNER. That is an extraordinary record. We had some testimony here of, I think, the Johns-Manville, and they had a loss. of about 2 percent.

Mr. STONE. I think he said this morning they had been operating only about 2 years.

I like this bill primarily because it uses private money in the first instance and that it does not involve the forming of such a large organization as your Home Owners' Loan Corporation neces

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