rowing the money that was all they had to do, and that is just as true of municipalities as of individuals. It is true of the farmer, and the city man alike. They felt that when they got their loan, if they had to replace it they would replace it in the end by borrowing from somebody else, and they lost the habit of gradually having the ambition to pay off their debt.

This bill takes into consideration that situation, because every feature of the bill calls for an amortization of some kind in the matter, and to my mind the United States is not going to save itself until we, in some way or other, have an idea in the future that, although it may be very slow work, we are going to pay our debts. The payment must be made easy enough so that we can pay them, but, by and large, I am reasonably sure from my own experience that the public will do that.

I have been, perhaps, a crank on this subject of amortization, and I have taken up more time with it than you would like, perhaps. But my experience with it began about 1892. You remember that was at the end of the farm-loan panic, that was very bad. At that time I was just coming into the active work in the bank from a subordinate position, and we were bothered by foreclosing farm loans. Every time we foreclosed a farm loan-and the loans were very largely farm loans in those days-when we foreclosed a farm loan and took possession of the property we could not run it. In those days you could not sell it. You could not do a blamed thing with it, and your real estate turned out to be less valuable than the mortgage before you got through with it, to say nothing of the social effect of turning a perfectly decent self-respecting farmer loose on the community.

So that it was about 1892 or 1893 when we conceived the idea of offering to all our farm borrowers a proposition. Either he must keep up his payments-and they were defaulting in their interest payments or we offered him, as an alternative, the proposition that if he would make those same payments, which were 6 percent in those days, if he would pay that 6 percent, we would credit 4 percent to our interest account instead of 6, and we would credit the 2 percent on his mortgage loan. From the day that we made that offering, it was accepted practically universally. We do not have any more farm foreclosures, and the thing finally resulted in the substantial payment of all those loans. I think we had only one farm loan left when we went into this tail-spin, and that was made since the amortization feature was adopted, and had no amortization feature, except the ordinary one applied to city property. But we practically had no farm-loan problem after we made that arrangement. They paid off the loans.

I still remember one old farmer whom I did not know at all, but he came into the office only a few years before this tail-spin, and said, "Look here. Are you Mr. Miller?" I said, "Yes; why? He said, "I want you to come out with me. I want to buy you the best dinner there is to be had in the city of Utica." I said, "I am very pleased to dine with you, but why should I go out and get dinner with you?" He said, "If it had not been for you and this amortization business, I would never have paid for my farm. My father had not paid for it before me, and I had always borrowed on

it. Today I just made the last payment, and I got the satisfaction of my mortgage, and I want to buy you the best dinner that can be bought in the city of Utica."

That convinced me that the borrower, when it is presented to him in the right light—at least the country borrower—will pay his amortization. He will welcome the opportunity to get his loan paid. We have been running since 1915, on all our mortgage loans, except our guaranteed loans, amounting to $12,000,000 or more, an amortization, by which they pay 8 percent per annum, instead of the regular going interest rate of 6 percent. That 2 percent is credited to their principal account and amortizes their loans in a little longer than the time contemplated here about 25 years. We were told when we started that the thing was impractical; that the people would not stand for it; that they would draw away their loans rather than make these amortization payments. We made it apply to all the old loans, too. On the contrary, they came to us again and again, with the same sort of thing the old farmer did, and thanked us. We never had more than 2 complaints out of some 4,000 or 5,000 loans that were amortized by compulsion. We had only two complaints, and those were justified for reasons I need not bother you with owing to trust estates, the life tenant not wanting to amortize for the benefit of the remaindermen. But everyone else received satisfaction, and it is still in operation, and we still get very large amortization payments, even in these days, when the law is that we cannot foreclose if they do not make the payment, but we get it voluntarily. It has become a habit with them. I think that is one of the most important features of this bill that I would not sacrifice for anything in the world. It starts the idea and sets the example, which is very necessary all over the country, and more necessary in the city of New York, where I am now engaged, than anywhere else. It sets the example and gets the idea into people's heads that they can, if given the opportunity, gradually get out of debt and have some property that is worth something, that is not encumbered by mortgage.

With your permission I will just go on, in the few minutes left

to me

The CHAIRMAN. Your idea is that with efficient management there need not be any loss by the Government under this plan?

Mr. MILLER. Under this 20 percent proposition?

The CHAIRMAN. Yes.

Mr. MILLER. There will be a loss. I see no reason why there should not be a loss to the Government. From the very best figures I have heard about it, the loss on remedial loans of that kind runs from 2 percent up to 7 percent, but I think the Government has got to foresee some loss. However, it will be very slight under that provision. I think it is worthwhile. There is no use deceiving ourselves and saying that there will not be any loss on these loans. Of course, there will be a loss, no matter how carefully they are selected. But here again you adopt another principle that I think is very important. You draw private capital, private business, into the enterprise. It is not as if you were making these loans directly. You are making them through lending agencies, such as bankers and finance corporations, who are primarily interested in not making a loss themselves. You are guaranteeing only 20 percent. They have

got to be fairly careful to see that they do not lose the other 80 percent. You are going to have interested people who really have an object in trying to pass on the credits.

Again, it sets a fine example of the Government backing up private capital to do the work, instead of the Government doing all the work itself. I like that feature of the bill tremendously. If I had found details that I did not like in the bill itself-and I do not think I have-I would like it immensely because of that example and of that step in the right direction in stimulating the action of private capital to do the work, the Government taking

Senator COUZENS. When you say that, Mr. Miller, I understand you give wholesale endorsement to title II of the bill.

Mr. MILLER. Yes; I do. I want to tell you about title II, because I think I can throw more light on that than has been thrown on it yet. I have a real knowledge about it.

The last witness was rather discouraging on the subject of national mortgage associations, and I think perhaps not improperly so, considering his affiliation. Perhaps if I were a savings banker alone, and that had been the extent of my experience, I would take the same attitude he took as an insurance man, but I have for years been connected with various trust estates, advising and helping in the investment of small capital in various kinds of loans-women who were left widows and had to be taken care of, and so forth. A great quantity of that capital drifted, in one way or another, into mortgage loans. When I first began operations it drifted entirely into individual mortgage loans, and my office then was really a servicing office for the small lender, who would have $10,000 to $30,000 in small loans, and we collected the interest, watched the insurance and taxes, and took care of it.

Gradually it drifted further into the trust companies, so that I had practically none of that left in recent years, but the money went on into the mortgage business. It went in largely through guaranteed mortgage certificates, where the individual woman, who could not watch her own mortgage, having probably undue confidence in the guarantee-mortgage companies, bought mortgage certificates without much examination as to what property they covered, and was well taken care of, as it seemed to her, until the whole thing broke loose.

Senator COUZENS. Do you think that was a good experiencethese guaranteed mortgages?

Mr. MILLER. I can tell you about that. I know quite a lot about it, and I intended to discuss it. In the savings bank where I used to work, which began in 1839, in connection with our operations in mortgages down to about the year 1927, which is the last time I remember anything about it, at that time our entire losses on mortgage loans, running, as you see, for nearly a hundred years, amounted only, as I recall the figures, to about 0.03 of 1 per cent of the loans that we had had during that period. I was interested at that time because at that time, feeling that building costs were high, it seemed to me wise to begin to set up a reserve fund which might lap up any losses that would be occasioned by reason of the collapse of building costs in the future, and after making those figures we decided to set up a reserve fund from then on-I think this was in 1925amounting to one quarter of 1 percent a year on our mortgage loans,

to take care of any mistakes we might make in appraisal, or any collapse that might take place. We did not have the kind of collapse we foresaw. It was a collapse, as you know, that was perfectly unprecedented, and, of course, my reserve was not as great as it should have been, but the point must be remembered that up to that time, after 100 years' experience, the total loss was less than 0.05 of 1 percent.

It is true we specialized particularly in my day, and have always specialized, in small loans. Out of our $19,000,000 loans all together,. our average loan is between $4,500 and $5,000, which is quite different in its result, even in these days, perhaps, from what it would have been if we had been in other things.

But the point I am trying to make in regard to the national mortgage associations is that there are an inconceivably large number of geographical areas in the country where there is more money seeking mortgage investment from the kind of people I have been talking about than there are possibilities of it getting out into mortgages in that location. In the city of Utica, until we went outside and bought our guaranteed mortgage loans, my bank was able to get out, doing the best we could, only between $300,000 and $400,000 a year, and, of course, we had paid off, under our amortization, considerably more than three or four hundred thousand dollars a year, and we had to find outside places to put the money if we were to keep up our average mortgage loans.

Those mortgage companies, even so, would have been sound, in my judgment, and would have gotten through, except you must realize that there was exactly the same sort of run on guaranteed mortgage companies that we had all experienced on banks. People began to be thoroughly frightened as to their money in the mortgage companies, and they began to demand payment of all loans as fast as they came due. I spent any number of anxious hours trying to persuade the people to renew their loans instead of calling them for payment.

Again, if those had all been amortized loans, they would have paid themselves off instead of coming to an end at the close of a 3-year period or a 5-year period, and having to be paid in full. The reason it was not done that way, I suppose, was because the mortgage companies liked these fees for renewal, which I am so opposed to. Renewal fees have been the great enemy of the borrower in the mortgage-loan business and must be stopped, if we have learned anything in this thing.

There is another reason why you must have something analogous to the national mortgage associations. I think they are well set up here. I am not sure how much money they will make. It will be a slow process for the stockholders. That is the one thing I am not quite sure of, as to whether this set-up, with a 5-to-1 basis, gives adequate opportunity for the building up of surplus and gives enough money to the stockholders to induce money to come in. But assuming that is so, without attempting to pass on that detail, I think you have to have something of the kind, because without it you will not draw on the tremendous reservoir of uninvested funds that are waiting around, anxiously hoping for a chance to get back where it will produce a reasonable rate of income, in the meantime getting practically nothing on it. That is not true so much in the large

centers. Those large amounts in the great central banks are not necessarily all waiting for mortgage-investment opportunities, although there is much of that money, owned by trustees, that is waiting for an opportunity to invest safely in mortgage loans. It is scattered all through the United States-money waiting anxiously, where the people do not know enough to make their own loanswaiting for some agency that they can trust through which to make loans. This will give them an agency that they can trust, set up in this way, because it is backed by this guaranty that they can trust, through which they can make those loans; and that is particularly necessary because, in my judgment, a reservoir of institutional money, except so far as the life-insurance companies go, is going to be shut off very largely and is going to stay shut off.

Banks have learned that it is not safe to put 70 percent of their assets, or even 60 percent, in mortgage loans. Savings banks, which have been allowed to put 70 percent of their assets, and have put in 60 percent, have found that with the withdrawal of deposits the percentages increase automatically until they have nearer the 70 percent than they should have, and it will be a long time before they will come back generously and with large funds into the mortgage market.

It

Senator BARKLEY. Mr. Miller, may I ask a question here? has been claimed that this mortgage insurance plan, as carried forth in this bill, is practically the same as the prior mortgage guarantee plans or schemes that have been in vogue in different parts of the country in the past. Would you mind explaining to the committee the difference?

Mr. MILLER. One difference, for instance, is the fact that under this bill you can only issue debentures to five times the amount of your capital. There was practically no limit to which they could issue mortgage certificates if they had the mortgages behind them. That was one thing.

Senator COUZENS. You said five times. I understand the bill reads 15 times.

Mr. MILLER. It is, perhaps my mistake.

The CHAIRMAN. The amount of bonds or debentures which the mortgage association may have outstanding at any time shall not be in excess of either 15 times the aggregate par value of its outstanding capital stock or the current value of mortgages held by it and insured under the provisions of the National Housing Act. Mr. MILLER. That is my faulty memory. I only got the bill last night.

Senator COUZENS. Does it not make quite a difference whether it is 15 or 5 times?

Mr. MILLER. Yes. I think 15 times is as liberal as I should like to see it.

Senator BARKLEY. You had in mind mortgage associations rather than the insurance plan with regard to that?

Mr. MILLER. The guarantee insurance plan is foolproof. I am not even talking about that, because I do not think that has been brought up, really, for debate here. The only question I have about it is that it will operate much more slowly, I think, than anyone thinks. The large New York City banks, for instance, are not interested at all and will not operate under it. I think there will be a