HOME OWNERS' LOAN AND NATIONAL HOUSING ACT THURSDAY, MARCH 21, 1935 UNITED STATES SENATE, ON BANKING AND CURRENCY, The subcommittee met at 10:30 a. m., pursuant to adjournment from yesterday, in room 301 of the Senate Office Building, Senator Robert J. Bulkley presiding. Present: Senators Bulkley (chairman of the subcommittee), Barkley, Townsend, and Steiwer. Present also: Senator Barbour, of New Jersey. Senator BULKLEY. Senator Barbour is present and wishes to make a statement in connection with a suggested amendment to the bill. STATEMENT OF HON. W. WARREN BARBOUR, A UNITED STATES SENATOR FROM THE STATE OF NEW JERSEY Senator BARBOUR. Mr. Chairman and members of the committee, I should like to submit for your consideration an amendment to the Home Owners' Loan Act of 1933, as amended, namely, at the end of section 4, subsection (k), add the following subsection, which would be (1) [reading]: The Home Owners' Loan Corporation may invest funds in bonds secured by first mortgage on leasehold estates of real property of camp-meeting associations: Provided, That such real estate is free and clear of all encumberances of every kind and character whatsoever: Provided further, That such leasehold at the time of the giving of said bond and mortgage has an unexpired term of not less than fifty years and is a lease of the entire interest in such real estate except the reversion thereof: Provided further, That any such campmeeting association shall consent to the giving of such bond and mortgage and subrogate its rights to that of the Home Owners' Loan Corporation, subject nevertheless to the conditions of the lease: Provided further, That no loan shall be made until the camp-meeting association shall first have been approved for such purposes by the Home Owners' Loan Corporation. Very briefly, we have an unusual situation in my State in respect to the town of Ocean Grove, which is a large town. It is a very old camp-meeting association. Senator TOWNSEND. Senator, do they own the whole town? Senator BARBOUR. They own the whole business. Senator TOWNSEND. The whole town of Ocean Grove is owned by this association? Senator BARBOUR. Yes. I want to impress upon the chairman and the other members of the committee that they must not visualize it as the usual camp-meeting site, so to speak. In other words, it is a there are vast sums of money available for investment. In the State of New York the savings banks, during the past year or 18 months, established a savings-bank trust company as the basis for mortgage discount as between the savings banks of the State of New York, and as soon as that institution was established there became evident very little need for the discount. It was the credit structure that they needed, and not the money. Several benefits will accrue ultimately from the establishment of such an institution. It will provide a means of unfreezing the mortgage situation and on the expiration of the various moratoria in different States a possible means of refinancing existing sound mortgages. There will be an ultimate reduction in interest rates to borrowers on real-estate mortgage due to the flow of funds into the securities of such an institution. It is our observation, in the State of New York, particularly, where we have a moratorium which provides that they cannot foreclose where interest and taxes are paid, that when a building has become rehabilitated-speaking more especially, now, of mortgages on large apartment buildings, although it likewise applies to the rehabilitation of houses on which there are individual mortgages that do not come under the classification or within the scope of the Home Loan Bank because the mortgages may be $1,000 or $2,000 beyond that, or not_distress_mortgages-as soon as those buildings are rehabilitated, redecorated, and repaired, and with modern equipment, and the building is rented on the basis of income enough to take care of the fixed charges, the mortgagee proceeds to foreclose. Nowadays a home owner apparently feels that he must have all the latest appliances, the latest types of gas range, and everything that goes with that. It is our opinion that the mortgage situation will become very much more serious as the general business conditions of the country improve, unless there is some large Federal agency established to take care of those mortgages on a rediscount basis. It is our opinion that such an institution will cause the flow of money from places where it is plentiful to portions of the country where it is scarce but where the needs of new capital are great for proper development. The Government has attempted in the Home Loan Bank Act to meet this need for small-house loans but on so conservative a basis that it has not been possible to do as much good as might otherwise have been possible. The act originally applied to distressed home owners, and particularly or essentially those who were in possession of their homesowner-occupied homes. The Government has also established, through the Home Loan banks and emergency organization to assist distressed holders of individual homes which has done a great deal of good at a time of great stress. The insurance of mortgages under the Federal Housing Administration has also been of use in regard to the small homes, with suitable modifications simplifying the insurance provisions, may be of great benefit. In talking with financial institutions it appears that the form of the insurance, on the point of guarantee, does not meet the require ments of the situation. We have a bill, which I want to put into the record, in which we offer definite and specific amendments to the Federal Housing Act, that we believe will be of some value in correcting that aspect of the problem. Within the past week the superintendent of insurance, Mr. Van Schaick, under date of March 15, presented a statement to the press; and we believe that his thought on the subject of mortgage financing is worthy of the consideration of the committee, because he has had direct charge of the rehabilitation, in the city of New York, of hundreds of millions of dollars of mortgages. It has become such a serious and important problem that the legislature, at the last session, has appointed, at the request of Governor Lehman, a mortgage authority to take over or supplement that work. I would like to submit for the record an extract from the remarks of Mr. Van Schaick. (The statement referred to will be found at the conclusion of Mr. MacDougall's statement.) Mr. MACDOUGALL. In viewing the mortgage problems of the future, Mr. Van Schaick predicted that agencies established by or under the supervision of the Federal Government would be a dominant factor in financing small mortgages on homes. The large mortgage financing, he declared, was within the sphere of State legislation. In other words, he agreed, in principle at least, that a central mortgage bank was needed to meet the requirements of the situation. I believe that there are before this session of Congress and before the Banking and Currency Committee recommendations for amendments to the Federal Reserve Act. The National Association of Real Estate Boards has suggested that the Government create within the Federal Reserve System, to be operated by it, a central mortgage bank, empowered to buy from members, mortgages which were sound exactly along the lines of our original proposal to the previous Congress, as an amendment to the Home Loan Bank System, and later, at this session of Congress, to amend the Federal Housing Act. In other words, the bill that we have prepared is applicable to the needs of a Federal mortgage or central bank, either as an amendment to the Home Loan Act, the Federal Housing Act, or the Federal Reserve Act, with minor changes. With your permission, I would like to have that bill appear in the record. Senator BULKLEY. Without objection it may be placed in the record. (The proposed bill will be found at the conclusion of Mr. MacDougall's statement.) Mr. MACDOUGALL. I would like to emphasize, in this connection, these three very brief points. If the amendments to the Federal Reserve Act were made to comprehend the need of this central banking institution, the advantages, in our opinion, would be these: First. The Federal Reserve System would by this means control. through agencies appropriate to the different character of the credit, both the short-term and long-term structures, so far as banks were concerned. 122165-35--4 big situation. It is a large town, with many dwellings, hotels, and a very large auditorium, one of the largest in the East. Under their deed of trust, they cannot make sale of any real estate, and that, of course, has made it impossible for the lessees, who are really owners, you might say, to get these home-owners' loans. I am very anxious, on behalf of the association and all those who comprise it and who live there, to bring their situation in some way within the purview of this legislation. I realize that there are certain legal technical difficulties, but I am convinced that loans can be made under this amendment whereby the Government could not possibly lose anything in the end. The idea most certainly is not that any exception should be made in respect to this situation which would give the Government any less security than it has a right to demand in other respects and in other quarters, but their set-up is a different one from the one usually encountered. It is to meet that difference that I feel that some amendment is necessary and justified. I do not want to take up more of the time of the committee, because I think that explanation is quite as good as a lengthier one would be. As I say, I feel that on an examination of the amendment you will find that the Government will have quite as much security as it will have in other instances, and I think in many ways more security, because this is a very prosperous, well-organized municipality. Senator BULKLEY. There is nothing that confines your amendment to this one municipality, though? Senator BARBOUR. No; it does not. It purposely avoids that. On the other hand, it would include that municipality and such others as would be in the same category. Senator BULKLEY. If any others could qualify. Senator BULKLEY. I think we ought to take advantage of the fact that Mr. Fahey is here, to see whether or not he would like to comment on that or ask Senator Barbour any questions about it. Mr. FAHEY. I will say to the Senator that we already have a considerable file on this very subject. I do not know just what the effect of the suggested amendment would be, and I suggest to the Senator that if we might have a copy of it we will take it up with Mr. Russell and see what the effect of it will be, and what might be worked out, and report back to this committee. Senator BARBOUR. That is entirely satisfactory. Senator TOWNSEND. You are not insisting on your amendment especially? What you want is results? Senator BARBOUR. That is entirely true. The only reason I drew up an amendment was to have something constructive to try to help the committee. I have no pride of authorship and, of course, I do not want to participate beyond that. I think it is a very good suggestion that Mr. Fahey has made. In fact, I would suggest it myself. I think it should be looked into, just as Mr. Fahey has said. Senator BULKLEY. We will expect to hear further from Mr. Fahey about it, and if he disapproves it we will give you another opportunity to talk about it, and see if it can be readjusted. Senator BARBOUR. I am very grateful to you. As a result of Mr. Fahey's comment, we will then perhaps have some suggestion so far as any corrections from the point of view of the committee are concerned. Mr. FAHEY. There is one thing I would like to ask for my own information, because I am not entirely sure of it. Is that a community of year-round homes, or merely summer cottages? Senator BARBOUR. It is becoming more and more a community of year-round homes, as nearly all our communities are becoming. There is a growing population, for instance, from Philadelphia, that has moved there. That is something new, and it has been helpful. It certainly can be truthfully said that it is far less simply a summer resort than it used to be 40 years ago. It is becoming increasingly a year-round community. Mr. FAHEY. Of course, we could not do anything with it under the act just as a matter of summer homes. Senator BARBOUR. I think what I have said is a truthful answer to your question, which is a very pertinent one. Mr. FAHEY. We will be glad to take it up. STATEMENT OF EDWARD A. MacDOUGALL, CHAIRMAN FINANCE COMMITTEE, NATIONAL ASSOCIATION OF REAL ESTATE BOARDS Senator BULKLEY. Mr. MacDougall, will you please state your name, address, and connection for the record? Mr. MACDOUGALL. My name is Edward A. MacDougall. I am chairman of the finance committee of the National Association of Real Estate Boards, Congress Street, Chicago. The National Association of Real Estate Boards, for several sessions of Congress, has been asking for favorable consideration in the establishment of a Federal or central mortgage-discount bank. It is our belief that during the past 2 years more substantial evidence of the economic need for such an institution is apparent, and from the memorandum that I wish to present for your record, we will try to establish our views on that subject. The need for a discount bank for long-term realty investments has been felt for a number of years. An institution to be set up like great European mortgage banks and the Credit Foncier to act for long-term securities in the same way that the Federal Reserve bank does for short-term securities. The need for this is emphasized by the break-down of mortgagelending facilities, due to the depression, to provide funds for refinancing existing mortgages as well as for new building. It is our experience, in talking with the heads of large financial institutions in an endeavor to interest them in mortgage investments on new construction, either with or without the mortgage insurance under the Federal Housing Act, that there is apparently no money on terms and under conditions under which the average builders of the United States can afford to operate at this time. It is our belief that such an institution, to command public confidence, must be very large and if possible national in scope, so that its securities will have a free market and persons having small amounts to invest could be reasonably sure of liquidating their holdings at any time that they may need the money. The statements of the savings banks of the United States, and particularly those of the State of New York, would indicate that |