restrict it to what you now say you would insist upon, a clear title after foreclosure?

Mr. RUSSELL. As the bill is drawn it could be done either way.

I have understood in conferences at which I have appeared, the plan would be not to require a showing as to title until the Insurance Corporation was requested to take title. Mr. Watson is here, who drew this legislation in conference with Mr. Riefler, Mr. Walker and others, and he could tell you about that.

Senator ADAMS. When you put the question of title at the end, it is a sort of additional mortgage then.

Mr. RUSSELL. Yes, sir.

Senator BULKLEY. The point is that the lender is not insured against defect of title, but only insured against the failure of the borrower to pay.

Mr. RUSSELL. The insurance contract as I have understood it is that in event the lender has to take the property over and does deliver a fee-simple title to the Insurance Corporation, the Insurance Corporation would give him a debenture of so much for it.

Senator BULKLEY. The effect of that is that the lender is not insured against any title defect.

Mr. RUSSELL. That is true.

Senator BULKLEY. He is only insured against failure to pay.
Mr. RUSSELL. Yes.

Senator KEAN. What would the borrower have to pay for this? In the first place, he would have to pay down so much, and what is it that he would have to pay?

Mr. RUSSELL. The plan is that this would be amortized over 20 years, we will say, and

Senator KEAN (interposing). But I mean to say, to begin with he would have to pay on his mortgage to the building and loan association, and he would have to pay 6 percent, wouldn't he?

Mr. RUSSELL. Of course, this is written so that any kind of financial institution can make a mortgage, a building and loan association or anybody else. But I do not think a building and loan association could borrow under it under their present laws.

Senator KEAN. So you do not think this applies to building and loan associations?

Mr. RUSSELL. I do not think under present laws that building and loan associations could operate under that method of lending; no, sir.

Senator STEIWER. Then who could?

Mr. RUSSELL. A great many lenders could, and banks could, I think.

Senator STEIWER. Do you mean that a national bank could?

Mr. RUSSELL. Special provision is made for national banks to do it in an unlimited way. And State banks could, and mortgage companies could, and

Senator KEAN (interposing). Well, let us see what you have. You have mentioned banks.

Mr. RUSSELL. And trust companies could, and mortgage companies could.

Senator TOWNSEND. Could a State bank operate as freely as a national bank under it?

Mr. RUSSELL. Well, that would depend upon State laws, but I think under most State laws State banks could operate under it. I am not well enough acquainted with the State laws, of course, to give you that in detail.

Senator COUZENS. Does this bill only apply to owner-occupied houses?

Mr. RUSSELL. Yes, sir; with the exception that it applies to lowcost housing projects.

Senator COUZENS. In the case of corporations or individuals, or both?

Mr. RUSSELL. There is not a thing in this bill on the question of low-cost housing projects except the four words, to be found in section 5, which are:

Low-cost housing projects.

That is all there is in the bill as to low-cost housing projects.

Senator CoUZENS. So that a man who owned 5 or 6 houses he was renting might not get any relief under this bill.

Mr. RUSSELL. I do not think this bill would make provision for rented houses; no.

Senator COUZENS. Then there is no provision in the bill that provides for that?

Mr. RUSSELL. Well, of course, there is this provision, that a lot of national banks lend on real estate and they have a remedy that would give relief to commercial property; and the provision to insure savings in building and loan associations, if it starts them back to functioning and that would help, for they lend on property substantially. Senator KEAN. Do you say that building and loan associations could not take advantage of this bill?

Mr. RUSSELL. I say the insurance of individual mortgages under title I.

Senator KEAN. What do you figure they could lend on? What would they get? What would they have to charge the home owner?

Mr. RUSSELL. It is limited here not to exceed 6 percent. And Mr. Riefler thought yesterday, as I heard him testify, that in the East money could be had at 5 percent on this type of mortgage.

Senator KEAN. And they would charge him 6 percent, plus what? Mr. RUSSELL. Plus whatever the insurance cost.

Senator KEAN. Plus one half of 1 percent?

Mr. RUSSELL. Well, I do not know what the insurance would cost. Of course, the mortgage guarantee companies tried one half of 1 per cent, but it did not work out so well. This does not fix the cost. It just says that they shall assess what it would cost to make it selfsupporting.

Senator KEAN. That is all quite indefinite. And you cannot tell us what it will be.

Mr. RUSSELL. That question is left to regulation.

Senator KEAN. For instance, if I wanted to build a house to cost $5,000 I would have to pay 6 percent plus something that you do not know what it would be, and neither does anybody else, is that it?

Mr. RUSSELL. That is right. Of course, this just simply authorizes this corporation to approve rates not to exceed 6 percent. And it is the thought that when these mortgages are insured they can bring that rate down to 5 percent. Of course, whatever the rate

might be, you would have to pay it in addition to the cost of insur

ance.

Senator KEAN. But I am now trying to get at the cost of the insurance.

Mr. RUSSELL. Well, I do not know what the cost of the insurance will be.

Senator KEAN. That is important, don't you think?

Mr. RUSSELL. Yes, sir; I think it is important, but I do not know. I simply cannot answer your question, because I do not know.

Senator KEAN. Well, what basis are they going to figure it on? Mr. RUSSELL. Mr. Riefler said yesterday, I believe, that it was based on 1 percent of the original face of the mortgage, per annum. A $10,000 mortgage would be $100 a year until paid off.

Senator KEAN. One per cent?

Mr. RUSSELL. Yes, sir.

Senator COUZENS. That would make the mortgagor pay 7 percent if he was paying 6 percent.

Mr. RUSSELL. Yes, sir. Well, it would be more than that, because his statement was 1 percent of the original face of the mortgage for the period of the loan. If you figure it out in that way, it is 2 percent.

Senator KEAN. That would be 2 percent, then.

Mr. RUSSELL. This, however, does not fix the rate. But it fixes it so that this corporation shall make it as low as the actual cost. Senator KEAN. That would make a total of 8 percent for the money.

Mr. RUSSELL. That is the absolute maximum; yes, sir.

Senator TOWNSEND. That is on the assumption that the rate is fixed at 6 percent.

Mr. RUSSELL. Yes, sir. It is on the assumption that the rate mentioned by Mr. Riefler yesterday would be applied. But as I say, I do not know whether that is the proper rate or not.

The CHAIRMAN. That would not save the borrower very much. Mr. RUSSELL. On that basis it would be higher than the average cost of money today; yes, sir.

Senator COUZENS. Have you any record of what the officials of building and loan associations receive by way of salaries and compensation?

Mr. RUSSELL. Yes, sir. We have some 3,400 of them down at the Federal Home Loan Bank Board, with a record of their compensation. I will say, Senator Couzens, I think it is the lowest that anybody gets in the United States. We could get you the record on it. But I will say that their compensation is down very, very low.

Senator COUZENS. Is that because they share in the profits inasmuch as it is a mutual corporation?

Mr. RUSSELL. I do not know why it is. It just looks like they work cheaper than anybody else, to me. I have started these things, and know of them, and know that they do not get paid very much. There doesn't seem to be any good reason at all for it that I know of. Senator WAGNER. Is it because it is a sort of community enterprise?

Mr. RUSSELL. Yes, sir.

Senator WAGNER. And there is a civic motive in it?

Mr. RUSSELL. Yes, sir. In New York there are about 400 million dollars in savings and loan associations, and they are almost the only things that there has not been a failure in in the State.

Senator WAGNER. I know that the men who administer them are very low paid.

Mr. RUSSELL. Yes, sir. They are paid just nominal salaries. Senator KEAN. The original building and loan associations were started as community enterprises, and the people practically gave their services for nothing.

Senator WAGNER. That is right.

Senator KEAN. They worked in the evening once a week, and they gave their services practically for nothing.

The CHAIRMAN. The secretary would receive a nominal salary for his work.

Mr. RUSSELL. Yes.

Senator KEAN. Since that time they have gradually grown up where they have been successful, and they have come around and wanted more money. And one of the troubles of building and loan associations so far as the State of New Jersey goes is that the money in them usually goes to lawyers for examining titles. And every young lawyer wanted to start a building and loan association so that he could be counsel for it.

Mr. RUSSELL. And the most of them did, didn't they?
Senator KEAN. Yes.

Mr. RUSSELL. There are 1,500 of them up there I see.

Senator TOWNSEND. Would you care to express yourself more fully on title II of the bill?

Mr. RUSSELL. I do not remember title II, but Mr. Watson is here, if you would like to hear him.

Senator TOWNSEND. We would be glad to hear him.

Senator COUZENS. Suppose we let Mr. Watson testify.

Mr. RUSSELL. I would prefer that you get Mr. Watson to discuss that title of the bill.

Senator STEIWER. One more question about title I of the bill. Have you any suggestions to make to the committee about further safeguarding the interests of the corporation and the Government with respect to insurance on mortgages?

Mr. RUSSELL. I do not know of any suggestion I could make on that subject. The subject of insurance on mortgages is one that I do not know much about.

Senator STEIWER. Is Mr. Watson familiar with that also?

Mr. RUSSELL. I hope so. There he is, right over there.
Senator COUZENS. Suppose we call Mr. Watson.

The CHAIRMAN. I understand that Mr. Riefler is prepared to go into that.

Mr. RUSSELL. I think Mr. Riefler has made extensive studies of it. The CHAIRMAN. I am informed that he will come tomorrow morning.

Mr. RUSSELL. Is that all, Mr. Chairman?

The CHAIRMAN. I believe that is all, if there are no other questions. (After a pause, without response.) We thank you, Mr. Russell. Mr. RUSSELL. I am glad to give any information I can.

The CHAIRMAN. Mr. Stewart, you wanted to be heard on this matter, I believe?

Mr. STEWART. Yes, Mr. Chairman.

The CHAIRMAN. Come forward to the committee table and state your name, residence, and occupation.

STATEMENT OF MACO STEWART, ATTORNEY AT LAW, GALVESTON, TEX., CONNECTED WITH BUILDING AND LOAN ASSOCIATIONS AND TITLE INSURANCE COMPANIES

Mr. STEWART. My name is Maco Stewart. I am a lawyer. I am now and have been since its organization the president of the largest building and loan association in Texas. I am also now and have been for many years president of the largest title-insurance company in the South, that operates throughout Texas and has about 100 offices. I have been for many years a member of the national organization of the title-insurance people of this country, and by reason of being president of a building and loan association that I have mentioned

Senator KEAN (interposing). Did you start it?

Mr. STEWART. Yes. I started it in 1911-no, in 1921, as to that association. I have been connected with the national organization of the building and loan associations, the United States Building and Loan League, for a long time. For nearly 40 years I have been attorney for the Peoples Loan and Homestead Co., of Galveston, Tex., and for about 25 years for the Galveston Building and Loan Co., being the only companies of any size that operate in my town. I merely mention that to show you that I should at least know something about this subject. I own a great deal of real estate personally. And, incidentally, I have a hotel, and mortgage notes, and am in touch with the business pretty largely over the country, and I belive, or at least I hope, that I will be able to be of some assistance to this committee in this matter.

The CHAIRMAN. What is the name of the company that you referred to?

Mr. STEWART. The Stewart Title Guaranty Co.

The CHAIRMAN. It is not a life-insurance company?

Mr. STEWART. No; but I have a fire-insurance company. I have no life-insurance company.

The CHAIRMAN. You may proceed.

Mr. STEWART. I have had many conferences about this housing proposition with Senator Sheppard, with Senator Connally, and both of these Senators and myself have had numerous conferences, first with Mr. Ickes and then with Mr. Robert D. Kohn of the Housing Corporation. And I have talked also with Mr. Riefler concerning this matter, and also Mr. Frank Walker.

I have given this matter all the study I am capable of or could give it. I believe that what is needed in this country is to start housing the people. I have driven thousands of miles over this country in order to get first-hand personal knowledge of the housing conditions.