Mr. BROWN. Would you have this low rate of interest on those bonds?

Mr. ELLENBOGEN. Yes.

Mr. BROWN. I do not see how you can justify it.

Mr. ELLENBOGEN. I justify it on this basis, and I don't think I am alone in this sentiment; I think the President has expressed it, that in the next few years we are going through a period of low interest rates, and the homeowner is entitled to the benefit of these low interest rates as well as anybody else.

As a matter of fact, I do not believe you can carry on extensive building operations for some time in the future unless you have a low rate of interest. I think 5 percent is plenty high.

Mr. SISSON. What about the banks, what do you think of the interest they should get?

Mr. ELLENBOGEN. The banks will have to do the same; not charge in excess of 5 percent.

Mr. SISSON. How about the mortgage companies, do you not think they are in a position to take care of loans for these purposes you have in mind?

Mr. ELLENBOGEN. They are not doing it at the present time, but I think they should not be permitted to charge more than 5 percent. I feel also that the bonding power of 2 billion dollars is utterly out of relation to the facts. As has been pointed out to you, there are applications pending for a total of more than 3 billion dollars, while the bond authorization is only 2 billion dollars, and how can that amount take care of it? Are they going to throw them out; are they going to say, since we have only 2 billion dollars we will try and throw out worthy applications that should be considered? Let no one tell me 30 percent will be rejected and that they will come close to 2 billion dollars, because I have statistics submitted by the Home Owners' Loan Corporation that over 22 billion dollars, or to be exact, $2,491,161,089 of applications have already been approved preliminary to appraisal. Still they only propose to issue 2 billion dollars of bonds.

I feel, gentlemen, that the bonding power for ordinary purposes should be raised to approach 32 billion dollars, or perhaps even more. I think in addition to that we should have a billion and a half earmarked for repairs, modernization, and for new construction. In addition, if you will pardon me, I would like to point out one injustice observed throughout many counties in each State, including my own. At the present time many banks, instead of taking a mortgage from a person in good standing, take what is called a "judgment note." They do not put it on record, because it is good, therefore that note is not eligible under this act, and I think that should be made so, because when the bank took the judgment note it was on the lien of his home, while the act says no lien recorded shall be considered.

Mr. BROWN. The original act so provided, but that has been changed, and the act does not require now that it should be recorded. Mr. ELLENBOGEN. As I read it, that provision has not been changed.

Mr. HANCOCK. A judgment note is not a lien, it is an agreement to confess judgment in case of nonpayment.

Mr. ELLENBOGEN. I feel even though those notes were not put on record, they should be entitled to a loan.

I have some figures on the extent of the mortgage indebtedness of the country in numbers and totals, and if the committee wants to have them I will be glad to submit them for the record.

Mr. Chairman, unless there are some questions, I think I have made plain my purpose.

Mr. BUSBY. You say you have completed your statement?

Mr. ELLENBOGEN. Yes, sir.

Mr. BUSBY. I believe the time limit has been agreed upon, and we will now hear from Governor Christianson.

OF

STATEMENT OF HON. THEODORE CHRISTIANSON, MEMBER
THE HOUSE OF REPRESENTATIVES FROM THE STATE OF
MINNESOTA

Mr. CHRISTIANSON. Mr. Chairman, it has been my experience when I have anything to say and confine myself to what I know, I have no difficulty in getting through in 5 minutes.

I want to call the attention of the members of the committee to this fact, that in the recovery works so far we have been fairly successful so far as consumers' goods industry is concerned, that industry is satisfied and making money 100 percent today. But the reason for the persistence of the depression lies in the fact that the capital goods industry is almost dormant.

To make money it is necessary to employ 5 million men, out of which only 1 million are working today, leaving approximately 4 million out of 8 or 10 million out of work, as belonging to the industries that would be helped directly or indirectly by the passage of this legislation.

It appears to me if this committee wants to do anything substantial to bring about recovery, it must be something to put these 4 million back to work.

We are trying to attack the problem by the expenditure of huge sums of money in public works, and I call your attention to the fact that in the type of work and building done by the P.W.A. program, machinery plays a great part and manual labor much less.

Last summer I observed the construction of the huge post-office building in St. Paul, and I was shocked to see the small number of men actually employed. The placing of one great stone upon the other, the pouring of mortar, do not involve the expenditure of very much human labor. On the other hand, in the erection of a home a different situation obtains, and a very great percentage of the effort that goes into the erection of homes is human labor, and consequently the largest part of the money expended is expended for

wages.

I am for this bill because to me it presents one of the most efficient and one of the most hopeful measures offered so far to bring enough of these people back into the ranks of the employed so as to revive our situation.

I have some figures from my own State of Minnesota where inquiries were made that elicited answers from 64 dealers in building material, living in 38 counties of the State. Of these 64 ther were 42 who reported absolutely no facilities for new construction;

17 reported facilities were limited; and only 5 reported there were adequate facilities, and that report comes from a county which happens to be the site of a number of finance companies which finance their own construction.

Mr. KOPPLEMANN. Who do you get these figures from?

Mr. CHRISTIANSON. They were from questionnaires sent out to 64 building trades people.

Now, these 64 reported that in their respective communities there were 1,296 bona fide home-building projects that awaited only financial assistance in order to proceed with the erection of homes that would involve an expenditure of from two to five thousand dollars each, that is, modest homes of the average working man.

I am not going to proceed to encumber the record with a lot of extraneous material, but I would call your attention to the fact that these projects would involve the use of 30,710,000 feet of lumber and would take over 30,000,000 feet of lumber out of the local lumber yards, and this would make necessary the restocking of those lumber vards to the extent of 17,843,000 board feet. That, of course, would reach back into Washington, Oregon, and down into the southern lumber district, revivifying industry, not only in the lumber mills, but back in the woods where the trees are cut. So that it appears

to me that the result of the expenditure of the amount of money here proposed, or any other sum, making it available for loans of this kind, would make an effect that would be felt throughout the country. I think it would do infinitely more to restore prosperity in America than the $300,000,000 we have furnished and thrown into the hopper for the P.W.A. work in erecting $100,000 post offices in 25,000 towns.

The CHAIRMAN. If there are no questions from the members, we thank you, Governor Christianson, for your statement.

We will now call upon Congressman Hoeppel.

STATEMENT OF HON. JOHN H. HOEPPEL, MEMBER OF THE HOUSE OF REPRESENTATIVES FROM THE STATE OF CALIFORNIA

Mr. HOEPPEL. Mr. Chairman and gentlemen, I will try to confine myself to 5 minutes or less.

When this Home Loan Act passed Congress it was understood it was to bring relief to the mortgagor, and instead of bringing relief to the mortgagor it has perhaps in half of the instances brought additional mortgage indebtedness.

Instead of bringing relief in the case to which I will refer here, and which will be an example of hundreds of thousands, it brought additional indebtedness. This individual I refer to is a personal friend of mine living on the same street I do. In financing a mortgage of $4,199, to which was added a certain foreclosure expense, he was saddled with an additional sum of $671, which amount went to the original mortgagor. As a matter of fact, he gave $671 to the original mortgagor to accept the depreciated bond.

Mr. BROWN. The attorney for the Home Owners' Loan Corporation has ruled, as I understand, or has said that such a note is given without consideration and cannot be enforced.

Mr. HOEPPEL. It may not be enforceable, but I saw papers of the Home Owners' Loan Corporation in Los Angeles where in their own

papers prepared themselves, on a $3,000 mortgage, the mortgagor was required to accept $450 less, that amount to be given back to the mortgagee.

I would suggest a provision be written in this bill that the holder of a bond

Mr. HANCOCK (interrupting). In the last case you mentioned, where the Home Owners Loan Corporation prepared the papers themselves, is it not a fact that the mortgagee had allowed the full face of the bond to be accepted in lieu of the mortgage, and this was the difference between that value and the appraisal of the Home Owners' Corporation?

Mr. HOEPPEL. No; he took the full face of the mortgage in bonds, and the depreciation in the price of the bonds the mortgagor was forced to absorb himself. They have been doing that throughout southern California everywhere, and I think, while I am in favor of the bill as written, that provision should be written into it to provide that the holder of any bond must obtain a release from the original mortgagor before any bond which he holds will be guaranteed as to principal.

If you do that it would protect the interest of this man here, for instance, he would be absolved from paying that note of $671. Unless we have something of that kind in this legislation over half of the people who are supposed to have received mortgage relief will be under an additional burden, in some cases a second mortgage, but in most cases a note.

Mr. BUSBY. Mr. Russell, would you object to that kind of an amendment?

Mr. RUSSELL. I would like to make clear the gentleman has stated two different propositions. One of them is a case where the corporation took up all of the indebtedness.

Mr. HOEPPEL. No; they only took up the mortgage for foreclosure making a total of $4,573.

Mr. RUSSELL. In the first case cited, he states the Corporation took up the indebtedness of the home owner and some other person took an additional note. In that case we take the position that the note is not only without consideration and it is void, but it is also void because it is contrary to the policy of the law.

The second case is one where the Corporation did not take up the full bona fide indebtedness of the home owner, but took up 80 percent of the appraised value of the home, permitting the original mortgagee to take a second mortgage for the balance on a bona fide debt owing to the original mortgagee. Those two propositions are entirely separate.

Mr. HANCOCK. In the second case the mortgagee allowed the full value of the bond, did he not?

Mr. RUSSELL. According to his statement, that is the way I understood it. In this first case he mentioned, we do not countenance such a transaction, but we even go to the trouble of assisting the home owner to defeat this second note, or second mortgage, or to recover the money if he has paid out the cash.

In the second case, where the home owner has given out a note for a difference that is bona fide, we are not concerned.

Mr. HOEPPEL. In the two cases I have cited the note was given to absorb the depreciated value of the bond, in both cases.

Mr. RUSSELL. As I understood, you stated the Corporation wrote the debt down a few hundred dollars.

Mr. HOEPPEL. Before the mortgagee would accept the bond the home owner had to subscribe to an additional indebtedness to absorb the depreciated value of the bonds.

Mr. RUSSELL. In those cases we take the position it is a criminal act for the mortgagee to take a note, and that the note is void because it is without consideration, and because it is contrary to the policy of the law.

Mr. BEEDY. Mr. Russell, under the existing law, in this kind of a case, the mortgagor under such facts is protected without any additional law.

Mr. RUSSELL. The first case is covered by the law at present, as we take it, but in the second case he has given a note for the difference in the value of the property and the amount of the mortgage, which is a bona fide debt of the mortgagor to the mortgagee.

Mr. HOEPPELL. In both of these cases the home owner was forced to give, one of them a note for $671, in order to absorb the depreciated bonds, and in the other he was forced to give $450 on a $3,000 mortgage to absorb the depreciated value of the bond. Hundreds of those cases have occurred in southern California, and perhaps in other places throughout the United States, and in some cases I was told they even gave back a second mortgage.

Mr. BEEDY. All Mr. Hoeppel has to do is to write these people that the note is void, and that it is a criminal offense to take it, and the Home Owners' Loan Corporation has so held.

Mr. WOLCOTT. What makes it a criminal offense?

Mr. RUSSELL. That is the position we take. If a home owner has been required to give some additional note, he can ignore the note, or he can bring suit to cancel it. It is not only a void note as being without consideration, but it is a note like a gambling debt, given in the first instance in violation of the policy of the law. It is a question also of violation of the criminal section 8 of the act.

Mr. HOEPPEL. Your agencies in California are permitting that every day. All I did the past summer was to confer with people in mortgage distress, and your organization in Los Angeles is inefficient.

Mr. RUSSELL. I am not disputing that question, but I do think on your first statement of this proposition, as you stated it yourself, there is a difference in the two cases. We do permit the home owner to give an additional note where we are not able to finance the whole of his debt.

Mr. HOEPPEL. That is not the question I am advancing. I am advancing the case where the mortgagor is having additional indebtedness foisted on him because the mortgagee will not receive the bonds unless the mortgagor accepts that additional indebtedness to absorb the difference in the value of the bonds.

Mr. RUSSELL. We condemn that practice.

Mr. HOEPPEL. Yes; I know you condemn it, but why don't you have it stated in the statute that it shall not be paid?

Mr. BEEDY. Will you listen to this a minute, Mr. Hoeppel. The original act, section 8, subdivision (e), reads as follows:

No person, partnership, association, or corporation shall make any charge in connection with a loan by the Corporation or an exchange of bonds or cash advance under this act except ordinary charges authorized and required