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having to have an operation, comes along, this family is not able to take care of that by getting an emergency loan because he is loaded down with a modernization.

Senator WAGNER. What do you mean by the average? That is very interesting. Just what do you mean by the average family?

Nr. STEFFAN. Oh, I mean the type of people we loan to.
Senator WAGNER. Yes.

Mr. STEFFAN. That is a fellow with a salary of about $2,800, is the kind of man that we have carried, and has about a child and a half, according to our averages.

Senator WAGNER. Has not much opportunity to lay anything aside?

Mr. STEFFAN. Not much, but is willing and able to meet his obligations.

Senator WAGNER. Yes.
Mr. STEFFAN. The most revealing thing, of course, in our entire
history has been the capacity of people of moderate means to meet
their obligations. It was a great surprise to us.

Senator WAGNER. That is, their desire to?

Senator BULKLEY. And would you say that the defaults over a 5-year period would be a good deal more than five times as much as what they would be in 1 year?

Mr. STEFFAN. I doubt if they would run that high.

Senator BULKLEY. They would not be much more from year to year? Of course, what you were saying before would lead me to think that you were going to say that the risk was very materially enhanced by the longer time.

Mr. STEFFAN. I am thinking of the risk of the borrower. I am always thinking of him more than I am of the lender.

Senator BULKLEY. I think that is the right way to look at it.

Mr. STEFFAN. There is much covered by this 20-percent guarantee that it is ridiculous.

Senator BULKLEY. I mean apart from the 20-percent guarantee.

Mr. STEFFAN. Well, I think it would increase it. It would simply be a guess, Senator. I haven't any idea. I was thinking of the 5year danger to the borrower than to the lender, although I think the losses would increase.

Senator BULKLEY. If you lose three quarters of 1 percent in 1
year, would you lose more than five times that amount over the
5-year period?
Mr. STEFFAN. I would not think so. No; I would not think so.
Senator Kean. But you think you would lose considerably more?

Mr. STEFFAN. I do, sir.

Senator KEAX. And do you think that it was not a good loan to make because it was hard on the borrower?

Mr. STEFFAN. In many cases I am afraid it would work out that way.

Senator BULKLEY. If they all ran exactly the same, it would be about a 4-percent loss?

Mr. STEFFAN. That is right.

Senator WAGNER. There is another aspect I was just thinking of that may work another way: that having incurred this obligation for a period of 5 years, at the end of 3 years an operation is needed

and the man is not able to borrow, so he cannot, perhaps, have the operation.

Mr. STEFFAN. That is undoubtedly true, and it would endanger a family greatly by that situation.

I wanted to comment on this factor: Of course, the one important difference between our paper and the paper that is proposed here is the fact that we have these two comakers, but in spite of the fact that we only collect less than a half of 1 percent from them, the fact that they are there makes that paper much better than it would be with them not being there, even though it has been shown that the borrower pays 9914 percent good, the comaker acts as an invisible collector for us.

Senator BULKLEY. He helps you to collect it, doesn't he?

Mr. STEFFAN. He not only helps, but the mere fact that he is there prevents it from becoming delinquent. While some borrowers might be glad at times to stick the bank, and perhaps even the Government or the bank and Government jointly, they do not want to stick their friends, and that is the big force I think that helps this type of business, without having to call on them in an actual way. They will be a little different, of course, in this paper that is proposed here. That is why I think that your loss will be probably higher, say more than 5 percent.

Senator BULKLEY. It will be substantially higher on account of having no comakers?

Mr. STEFFAN. I think so. I don't think you could avoid it being some higher.

Senator BULKLEY. I think that is true.

Mr. STEFFAN. I do not think it would be a very large figure. I am glad to leave this tabulation of the figures I gave. I have nothing to recommend, but if I can give any information I will be glad to.

Senator BULKLEY. Yes. Thank you very much,
(The tabulation submitted by Mr. Steffan is as follows:)

Experience of the personal-loan department of the National City Bank of New

York in making emergency and constructive small loans to average-type consumers in New York City

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Senator BULKLEY (presiding). Now, Mr. Harriman.




Mr. HARRIMAN. I will make my comments very brief.

Senator BULKLEY. If you will just state your name and connection, please.

Mr. HARRIMAN. W. A. Harriman, Mayflower Hotel, Special Assistant Administrator of the National Recovery Administration. I was assigned by the N.R.A. to the Emergency Council to work with those in the Emergency Council that were considering this modernization and mortgage situation. During the winter I have discussed the matter with a good many of the men on the code authorities and have yet to find anyone that is not enthusiastic on this question of modernization and repairs. I will speak particularly about that.

I suppose among the damaging things of the depression the deferment of maintenance has been one of the disasters, not only because of the increase of unemployment but also because of the fact that perhaps the deferment of maintenance, if postponed too long, will destroy property, and yet in that there is a hope for the future in really creating new employment at this time if the dead center can be broken through.

There are certainly two fundamental reasons for the deferment of credit: One is psychology and the other is the lack of credit. Although from the credit that we have made I believe that there should be several times more money spent on modernization and repair, if the drive can be undertaken, than will be lent under this credit plan, at the same time the credit plan is of the essence in order to get the thing started. If that credit plan is worked out and is followed through there are definite indications that not only individuals but also industry itself will put on a drive to píck up deferred maintenance in industry, and some of the code authorities have been at work to make certain estimates as to what that can amount to, and it runs into a good many tens of millions of dollars in the preliminary estimates that have been made in a few of the industries.

The code authorities under the N.R.A. will cooperate with this drive if it can be undertaken, both in getting back of it from the standpoint of doing repair and modernization work within their own industries and also to try to make the drive attractive from the standpoint of the home owner, who it is hoped will pick up his deferred maintenance.

On the mortgage feature of the bill, that is a matter that I am expressing a personal opinion on. That has nothing to do with the N.R.A. There is no doubt but that to create new construction something must be done to revive the mortgage market, and it is my personal opinion that this bill is a very constructive bill along those lines. I know there have been some criticisms of it, but by and large it seems to be the best solution that can be presented at this time, and I am very hopeful that it will go a long ways toward breaking the stagnancy in the mortgage-market situation that exists today.

I do not know if there are any questions which the committee would care to ask as to the N.R.A. or from the code authorities'

point of view on this legislation, but I assume that it was for that reason that the emergency council wanted me to appear.

Senator KEAN. I will ask you some questions. Where did you come from?

Mr. HARRIMAN. I come from New York City.
Senator KEAN. Where were you educated?
Mr. HARRIMAN. I was educated at Yale.

Senator KEAN. And have you ever had any business experience before you came here?

Mr. HARRIMAN. I was trained in the railroad business.
Senator KEAN. What railroad?
Mr. HARRIMAN. Union Pacific.
Senator WAGNER. His father was Mr. E. H. Harriman.
Senator KEAN. How long were you in the railroad business?

Mr. HARRIMAN. I have been in the railroad business, off and on, all my

life. Senator KEAN. When did you graduate from Yale? Mr. HARRIMAN. In 1913.

Senator KEAN. And then you went right down to the Union Pacific ?

Mr. HARRIMAN. I went to work with the Union Pacific; yes. Senator KEAN. And what did you do, with the Union Pacific?

Mr. HARRIMAN. Well, I worked out West for a while and subsequently was purchasing officer of the Union Pacific.

Senator KEAN. You were in the purchasing department. You know prices of rails?

Mr. HARRIMAN. I know prices of rails. Senator KEAN. And then you came down here to figure out some of these questions here, but you have had no training in the mortgage business?

Senator KEAN. You had no training in the housing business?

Senator KEAN. I think that is about all I want to ask him. I do want to ask one thing more

Mr. HARRIMAN (interposing). I can say that I have made a studyas a matter of intellectual interest, I have made a good deal of study of it, and I am convinced that if the Government will cooperate there is a great opportunity, perhaps the greatest opportunity in the next period in the development of decent housing for the major part of our population, which are certainly living in substandard housing

Senator KEAN. Substandard to what?

Mr. HARRIMAX. Substandard to what I believe-all Americans believe—is a proper and decent place for American citizens to live in.

Senator BULKLEY. Will we not have to have an increased earning power to sustain the improvement in housing ?

Mr. HARRIMAN. You have to get low-cost housing, not only in the sense of low rentability but, in my opinion, low cost of construction.

Senator BULKLEY. How are we going to maintain that if the N.R.A. is going to advance prices?

Mr. HARRIMAN. I do not believe that particular problem has anything to do with the N.R.A. I think that fundamentally requires the cooperation of the manufacturers of material with those that

construct houses, and labor, because at the present time a man gets for a dollar in the house that he builds far less than he does in automobiles or radios or something else.

Senator WAGNER. If the wages go up the purchasing power is there to continue it?

Mr. HARRIMAN. It is a question of organization.

Senator KEAN. Will there not be a great many poor houses put up? Mr. HARRIMAN. I think we have a lot of poor houses now.

Senator KEAN. No; I don't mean that. I mean poor houses, of cement, and so forth.

Mr. HARRIMAN. There are a good many plans. One gentleman who was here this morning could give you a good deal more about it than I can.

Senator BULKLEY. Thank you very much. Now, Mr. Pugh.



Mr. Pugh. My name is Jordan A. Pugh, representing structural clay products. I believe you said you wanted something of the background of the witnesses ?

Senator BULKLEY. Yes, sir.

Mr. Pugh. I was at one time traveling auditor for the Standard Oil Co. I have been engaged in the quarrying of slate

Senator Kean. Where did you quarry slate?

Mr. Pugh. Down in Albemarle County, Va. I was associated with a firm of investment bankers at Norfolk, Va. I was in the brick business and had retired from that and then took charge of the Washington office of the Brick Manufacturers Association, and I have been a director of that organization for about 10 years.

Senator BULKLEY. That is your present connection?

Mr. Pugh. I am Washington manager of the Brick Manufacturers Association and handle all structural clay products there for the different divisions under that code.

Senator KEAN. Did you carry hollow brick there?
Mr. Pugh. You must be from Toledo?
Senator KEAN. No; I am from New Jersey.
Mr. Pugh. No; hollow brick is included in the common brick.
Senator KEAN. At Perth Amboy they make hollow brick.

Mr. Pugh. It is conceded by all the most desirable of adequate housing. Admittedly, low-interest rates, low-finance charge and long-term financing would possibly induce one to favor the bill who otherwise would not.

May I suggest for your consideration that these corporations that are to be authorized to make loans during some stated period after the passage of this bill should do it at the lowest permissible rates of interest and for the longest permissible periods, and that the rate of interest be increased and the time of the loan decreased during successive periods until eventually the financing terms approach those now obtaining. My thought about that is that it would be desirable to induce the construction of residences, and the fact that

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