The CHAIRMAN. You have a great enterprise, the Johns-Manville Co. You have been doing a great deal in the way of financing construction, repairs, and modernization, and all that sort of thing. Would you give us, if you will, a description of some of your activities in that field, and your experience?

Mr. BROWN. I will be very glad to do that. We tried 10 years ago a plan of selling modernization of structural appliances on a time-payment basis. The cost was high and the plan failed largely because of the red tape involved in making it effective. Three or four years later we tried it again and the plan did not succeed. We finally evolved a plan out of our experience and put it into effect for ourselves. That has been in effect now a little over 3 years. We have sold all over the United States to home owners modernization and repairs. The average amount of those sales is something over $200 a job. It is divided about 50 percent for materials and about 50 percent for labor. Those were sold on time payments, the most of them for 12 months, but running up to 2 years. The total for financing that plan runs 12 percent as an added charge, not interest but 12 percent for the whole thing, the carrying and the financing charge. It was lower than any plan that had been in operation before, primarily because we were able to reduce our overhead expense by utilizing our own credit departments.

We have sold something close to 12 million dollars of goods under that plan. Our losses have been 2.07 percent, or practically 2.1 percent.

The plan has not returned a profit up to date, but it is practically breaking even on the 3 years' operations.

Senator BANKHEAD. What security do you take?

Mr. BROWN. We take the home owner's note without recourse on the contractor who did the work, which had always been required in other plans. And it was simply based upon a credit investigation of the home owner who wanted to have the job done, his source of income, the indebtedness status of his property, and the need for the repairs. That is a very simple note, and it is based on consumer credit, the individual's credit standing.

Senator BANKHEAD. You spoke of the labor item also included in the average of about a $200 job. How is that handled?

Mr. BROWN. In the same way. It is for all of the job. From the home owner's standpoint, from the standpoint of the man who wants a remodeling job done, our own requirements are that our materials must constitute 25 percent of the total amount. The rest of it may be material from other manufacturers, and for labor. From the home owner's standpoint he gets a job of $200, say

Senator BANKHEAD (interposing). Then he gets an advance with which to pay labor?

Mr. BROWN. Yes. For instance, a home owner wants some remodeling done. His credit standing is looked up, and the standing of the contractor who is to do the work is looked up. The contractor, after the job is completed, must get from the home owner a statement that the work has been satisfactorily done. And the contractor agrees that if there is any complaint about the workmanship he will make it good or buy back the note.

Senator BANKHEAD. Then you really deal with the contractor?

Mr. BROWN. The deal is with a contractor, the man who actually installs the job. But he gets his money immediately, and the home owner pays for the work on a monthly payment basis. It is substantially the same basic plan as that outlined in this bill.

Senator BARKLEY. Then you do not have anything in the form of a mechanic's or material lien?

Mr. BROWN. No; we take a note. We have simplified it down until we have the whole thing on a small sheet of paper, have the whole thing brought down to the simplest possible basis, so that the home owner is not bothered with all sorts of legal papers and documents and that sort of thing.

Senator BARKLEY. Have you stated what the percentage of losses has been that you have sustained by that process?

Mr. BROWN. Yes. It is about 2.1 percent, based over 3-year period.

Senator COUZENS. How much money have you outstanding on that class of paper now?

Mr. BROWN. I think in the turnover-and you see it is being paid off all the time-it is about $400,000.

Senator COUZENS. You have that amount outstanding at this time? Mr. BROWN. Yes, sir.

Senator COUZENS. Out of an aggregate amount of how much?

Mr. BROWN. Close to 12 million dollars. It runs about a third of the amount, as you are turning it over in the varying terms of payment. We find from our experience that only 5 percent possibly under this plan are delinquent in their payments as much as 30 days past due. Ninety-five percent of them are paying up on time.

Senator BANKHEAD. How do you arrange the installment payments, monthly or quarterly?

Mr. BROWN. Monthly.

The CHAIRMAN. The amount of interest on the face of the note is how much?

Mr. BROWN. There is no interest on the face of the note. It is simply a financing charge added to the amount of the note, amounting to 12 percent, which covers interest, financing charge, charge for the credit investigation on each note, and all the factors, in one lump

sum.

The CHAIRMAN. Are there any further questions of Mr. Brown? (A pause, without response.) We are very much obliged to you. Mr. BROWN. And I thank you for hearing me.

The CHAIRMAN. Now if Mr. Kingsley will come around to the table and take a seat opposite the committee reporter.

Mr. KINGSLEY. I thank you, Mr. Chairman.

The CHAIRMAN. Will you please state your name, place of residence, and occupation?

STATEMENT OF WILLIAM H. KINGSLEY, PHILADELPHIA, PA., VICE PRESIDENT OF THE PENN MUTUAL LIFE INSURANCE CO. IN CHARGE OF MORTGAGE INVESTMENTS

The CHAIRMAN. Mr. Kingsley, you have examined the pending bill (S. 3603), I take it?

Mr. KINGSLEY. I have, Mr. Chairman, and I will try to be as brief as possible in presenting this situation, if I may.

The CHAIRMAN. We are very glad to hear from you about it. may proceed in your own way.

You

Mr. KINGSLEY. I come as one not representing any single lifeinsurance company or any group of life-insurance companies, but as one who, having had over 40 years' experience in mortgage lending throughout the United States, has by invitation participated in conferences with Government officials for several years.

Now, as to the consumers' credit feature: Unreserved encouragement and heart-whole support should be given to the residence reconditioning and repair provisions of this bill. Everyone knows of the continuous undertaking of the Government to provide work for the idle but efficient artisan, who asks only for an opportunity to earn money at his trade in order to support his dependents. Thousands of this class have been given employment of a nature unrelated to their vocational training so that they might have money for the bare necessities of life and thus avoid subsisting on welfare aid. A Nation-wide urge with governmental backing and facilities afforded by this bill would give wide-spread employment and have visible results of an enduring nature.

I might say that life-insurance companies, or at least the one I am engaged with, has been for quite a while engaged in reconditioning all types of properties throughout the country. And it has had a very good result on reemployment.

As an instance of what may be done under this plan, there may be quoted the "Renovication plan ", generated in Philadelphia 2 years ago. Well-organized forces set a goal of $15,000,000 to be expended. Commitments totaled $17,000,000, and this sum was exceeded in cost of work actually done. It gave pronounced employment to builders, material men, artisans, and laborers. Particularly would this plan appeal to the involuntary owners of residence property acquired under foreclosure, and it would bring to the hands of real-estate men an enlarged number of properties which could be sold on very easy installment terms.

Now I will take up the Home Credit Insurance Corporation proposal, if I may. The proposed Home Credit Insurance Corporation might well be studied from the viewpoint of apprehension rather than enthusiasm. While Government funds are not timidly appropriated in these times, the necessity of safety of undertaking and assurance of ultimate return to the Treasury, are essential.

The factors that enter into guaranteeing mortgages are so numerous, uncertain, and uncontrollable in final outcome as to put results beyond proof by mathematical calculation. Experience should guide our minds on this feature of the bill.

To set up loans of 80 percent of valuations, running for 20 years, amortized at 5 percent per annum for an annual premium of 1 percent is to assume that such premium would protect the guarantor against obsolescence, unfavorable location trends, business reverses, unemployment, sickness, or death of owner, local zoning laws, and other features of indeterminate bearing.

It is well known that corporate and institutional lenders whose mortgages by statute are required not to be in excess of 60 percent of appraised value-which represents a large volume on new homeshave been obliged to foreclose loans that have been materially reduced by principal payments and are finding scant, if any, market

for residence property even on a 5 or 10 percent down payment, with low figure reductions.

Wide-spread evidence of the result of thin margins on mortgages is furnished by the liquidation and receiverships of many lending associations throughout the country. It is quite evident that the present generation has not the same reverential feeling for home ownership that was imbued in our forefathers. Old-fashioned tenacity of holding homes seems to be diminishing.

I think that is reflected to a very great extent by the transition from unit homes into apartment life. In the discussions which have taken place in respect to vacancies, I feel that the figures have only been given as to unit homes, and it is very generally known that the occupancy of the higher type of apartment houses is about 55 percent of capacity. The fact should not be lost sight of that there are hundreds of thousands of what were originally constructed to be individual homes which have been transformed into apartments, two apartments or three apartments, and in those cases the actual occupancy is probably on the average not to exceed 35 percent. There is a tremendous vacancy existing in that type of house. And that must all come into this picture.

Senator BANKHEAD. Let me ask you a question right there. You speak of the trend from the individual home to apartment occupancy. Do you attribute that primarily to the difference in cost of living?

Mr. KINGSLEY. It is rather difficult to prove the cause of that tendency. I think people are living different modes of life than they used to. They regard the home as a place in which to sleep, to entertain to some extent, but the introduction of outdoor activities and the whole change in the inclination of the people I think has introduced a different situation, has induced a great many of them to go into apartment houses and avoid the responsibility of housekeeping. At least that is a part of it. It is rather difficult to center upon conclusive proof of that kind. But that is the tendency, and I think it is very pronounced and real.

Senator BANKHEAD. How does the cost compare on the average? Mr. KINGSLEY. Well, the cost is undoubtedly lower in the case of apartment-house living in these days. And added to that we have the popular expression that one does not have responsibility. You turn the key in your front door and wander off and it is there. You have your electric light and refrigeration and a few other things supplied, and it is much easier as a manner of living, and even if the cost were equal in the matter of dollars and cents it is preferred by a great many people. But if you are speaking of the average apartment occupant I think you will find the cost would be cheaper. Senator COUZENS. What have you to say to the old statement that fools build houses for wise men to live in?

Mr. KINGSLEY. I have gone through that as a personal experience; yes, on both sides of the question.

Senator BARKLEY. Most people now would rather sit in an automobile that is moving than to sit quietly on the front porch. Mr. KINGSLEY. Yes; things have changed.

The CHAIRMAN. Very well, Mr. Kingsley. You may proceed. Mr. KINGSLEY. The large numbers of mortgages that have been foreclosed have brought to the real estate sales market an equivalent

amount of modern residence property which is offered for sale at from 40 to 50 percent of its ground and construction cost. Lower sales prices prevail as to obsolescent and speculatively located property. There are large numbers of residences in these times that are either courtesy-occupied to prevent vandalism, rented at nominal figures, or tenanted by those who have ceased to pay rent, but whose circumstances preclude the thought of dispossession processes.

If we were now happily facing a fullness of returned prosperity it would take at least 6 months to reaccumulate resources, undouble merged families, pay contracted debts, and get our bearings so as to avoid repeating past mistakes, and during such period all the additional homes then needed could be built.

I think that is a fair statement of fact with respect to construction. I might add that while I am not appearing for any one life insurance company or any group of life insurance companies, incidentally I will say that I am connected with one. And I do want to correct the statement that has been made so frequently, and which I heard repeated this morning again, that life insurance companies are or have been out of the mortgage business. We have not been out of it. There was a period of a few weeks following the bank holiday when we all had to see just the way things were going to turn in order to hold our resources, because we did not know what demands would be made on us. But 4 months ago many companies, including our own, and since then practically all of them, have requested every one of their mortgage representatives throughout the country to dig up and send in mortgage offerings, particularly on residences. That has not been fruitful of result.

In our own case, if I may take a moment to explain it, and it is a typical institution, we had the country divided up into five sections, and each is in charge of a well-trained home office man. And then every city in each section has a mortgage correspondent for the procurement of loans, collection of interest, and the servicing of any real estate. Now, the earnestness with which those people approached that subject was very real, and we found that in many, many cases the offerings that were made were of damaged goods or diseased mortgages, so to speak.

Now, of course, you cannot lend your money for relief for the mortgage holder. In many instances foreclosure was pending. In other instances foreclosure was threatened. In other instances there was a large accumulation of taxes, and that increased the principal amount required.

So we have not been able to get any flow of loans, nor do we look forward to it at the present time. What the companies are doing is selling or at least offering for sale a tremendous amount of residence property on any favorable terms, 5 percent down, monthly payments, the making of repairs and keeping it going.

Now, there is a certain percentage of that, and it is rather high, of repossesion of such property after you have made these contracts. These contracts are not made as deeds and mortgage transactions, but under contracts of sale, and when a certain amount has been paid then a deed is given and the mortgage taken back.

So that there does not sem to be an indication of that fixity of purpose in the people of owning their homes or of repurchasing that we wish were the case, or that we think should exist.