by the Corporation for services actually rendered for examination and perfecting of title, appraisal, and like necessary services. Any person, partnership, association, or corporation violating the provisions of this subsection shall, upon conviction thereof, be fined not more than $10,000 or imprisoned not more than 5 years, or both.

Mr. HOEPPEL. That does not prevent the man giving a note, does it?

Mr. KOPPLEMANN. Is it your argument that the officials of the Home Owners' Loan Corporation of Los Angeles countenance such a practice?

Mr. HOEPPEL. They know of that. Their appraiser spoke to me in reference to it, and they were suggesting to the mortgagor that is the way they could get relief.

Mr. KOPPLEMANN. Have you written to the Home Owners' Corporation in regard to it?

Mr. HOEPPEL. I wrote to them and told them about their inefficient force.

Mr. KOPPLEMANN. Did you get any replies?

Mr. HOEPPEL. They begged me not to expose it.

Mr. WOLCOTT. If it is not brought to the attention of the Home Owners' Loan Corporation here in Washington, or in their local administration, there is no remedy the law can give them.

Mr. HOEPPEL. In Los Angeles their Home Owners' Loan Corporation worked in connivance with a crooked lawyer and worked a family out of a farm, and I am still working on that.

Mr. BUSBY. Let me ask you, Do any of those people go into the courts to maintain their rights, because, of course, that is their only forum?

Mr. HOEPPEL. In this case they went into court on the advice of the Home Owners' Loan Corporation, and the lawyer not only permitted their property to be taken away from them, but they were procured to sign an assignment of their crop, and now they have taken their crop away from them.

Mr. WOLCOTT. Who was the lawyer representing that did that? Mr. HOEPPEL. The lawyer I speak of was recommended to the distressed people by a representative of the home owners' bank in Los Angeles.

Mr. WOLCOTT. They just got the wrong lawyer?

Mr. BUSBY. I am sure this committee would like to see the law made air-tight in that regard, but, after all, you have got to administer rights of that type in court, and if you get the wrong lawyer or the wrong court, it is no fault of the statute.

Mr. HOEPPEL. That is an extraneous point, anyway.

Mr. BUSBY. Do you have a memorandum prepared to submit for the correction of that condition?

Mr. BROWN. Mr. Chairman, the amendment I have introduced is for that purpose, and this is the way it reads:

That before any bond issued prior to the effective date of this amendatory provision shall be exchanged, the applicant for such exchange shall be required to satisfy the board that the mortgagor who first obtained said bond for the purpose of paying his obligation to his creditor received the full face value of said bond prior to the application for exchange into a guaranteed bond. The Corporation is authorized to make such rules and regulations as are necessary to carry into effect this provision. Substituted bonds so issued shall not be included in ascertaining the aggregate amount of bonds which may be issued under this section.

Mr. BEEDY. You suggested an amendment on that a while ago, Mr. Hoeppel, in a few words and very clearly; can you restate that?

Mr. HOEPPEL. I suggested these bonds be not considered valid as to principal unless the original mortgagor signs a statement to the effect that he did not suffer loss in the transfer of his mortgage for the bond.

Mr. BROWN. That is the same thing, but I may say I became convinced after bringing this to the attention of Mr. Fahey, and talking to Mr. Russell, that the fault I sought to remedy was very small; but if it is large I change my attitude in that respect. I know it happened in northern Michigan to some extent, but I did not hear of it happening anywhere else.

Mr. WOLCOTT. May I make this statement, under section (e) the attorney referred to by you would be liable for a penalty of $10,000 or imprisonment for 5 years in that case?

Mr. HOEPPEL. It was turned over to the United States attorney, and they are doing nothing.

Mr. WOLCOTT. That is not the fault of the act, yet I quite agree with you we possibly should make it more definite, but under section (a) of section 8 Mr. Russell just informed me that the mortgagee, before these bonds were turned over to him, makes a statement that it is in full consideration of the mortgagor's indebtedness to him.

Now, I cannot see for the life of me where any suit would lie upon any additional paper, notes, mortgages, or anything else in connection with that transaction, because the mortgagor has a perfect defense under this act and under that agreement which was signed, and I assume those agreements are available for that purpose.

Mr. HOEPPEL. What I would like to ask, Mr. Brown, are you going to introduce that as an amendment to this pending bill?

Mr. BROWN. I was convinced by the Home Owners' Board's testimony here that the evil was very small.

Mr. HOEPPEL. Why couldn't you incorporate that amendment in this pending bill?

Mr. REILLY. If it is deemed advisable by the committee, it will be incorporated, but the difficulty of administering it is the evil. However, any of your constituents who signed a note have a complete defense, and you should so notify them.

Mr. MEEKS. I have something to say on this subject. At first, when Mr. Brown suggested his amendment, I was a little skeptical about it, but I have been making some investigation since and I was interested in hearing what Mr. Hoeppel was telling us about it today.

There is, however, one point that is not covered in his discussion, and that is, in States where they have judgment notes and a mortgagor is obliged under moral duress to sign such a note, if that note should be put in judgment in any court of record, it becomes a lien against all property which he possesses, and the moment it gets in the hands of the sheriff it is a lien against his chattel property, household goods, and other property.

Now, there is nothing said here which would relieve the mortgagor from the necessity of going into court on his own initiative to get rid of that lien. He must hire a lawyer, he must appear in court with his case and move to set it aside, setting up these facts. It is not in fact a defensive action but an affirmative action on his part.

49036-34- -9

Mr. BUSBY. May we hear Mr. Russell's reply to your statement, if he will, please?

Mr. MEEKS. Just a moment, please. Mr. Brown's amendment to the bill might be broadened to cover that sort of case. I don't know whether you have judgment notes in your State or not.

Mr. HOEPPEL. No; I don't know anything about that.

Mr. BUSBY. We have one or two other witnesses, and in fairness to them, in view of the time limit, I believe we might get to that point quickly if we would hear from Mr. Russell, the attorney for the farm-loan organization, briefly, in reply to you, Mr. Meeks.

Mr. RUSSELL. Mr. Chairman and gentlemen, on this question of the enlargement of the penal section of the statute I do not think the board has any objection to enlarging that section.

It is our opinion that the practice referred to by the Congressman of the mortgagee taking bonds for the amount of his debt and, in addition, making a cash charge or a charge by way of an open note or second mortgage securing a note, is already completely condemned by the statute.

Mr. BUSBY. Mr. Russell, you understand that a person who is not advised of his rights under the law is often imposed upon illegally, and ninety-nine times out of a hundred he will not go out and incur the expense of employing a lawyer; and don't you think there should be some positive assertion outstanding in this statute declaring to him his rights and declaring to the mortgagee his wrong and setting up a penalty for that wrong in the event he strives to use duress or in any other way imposing on the uninitiated?

Mr. RUSSELL. I think we understand fully every possible effort ought to be made to avoid such a practice.

Mr. BUSBY. The best way to avoid that would be to assert boldly what you say the law already is, if the court is called upon to administer it, and clarify the act by saying that this shall not be done, by reference to the mortgagor; and if he does, this penalty is provided for the mortgagee.

Mr. CROSS. I think it should go further. Take the average manhe knows nothing about courts; and having been a district attorney for many years, I know. He goes to the loan company, and he will agree to almost anything, and I think it not only ought to do that but it should have a provision in there calling on the Federal judges to call attention of the Federal grand juries to it, and the Federal district attorney should look into it at every grand-jury meeting, and that will keep these birds from doing that kind of thing. Otherwise the fellow doesn't know; he just gets a loan, and he is imposed on.

Mr. BEEDY. Mr. Chairman, I do not think there is any member of this committee who would not vote for an amendment even broader than Mr. Brown's, and I don't think there is any need for further discussion of this.

Mr. KOPPLEMANN. I want to make this statement: All of these people are depending on the Government and its agencies for justice and fair dealing; and it is very evident, not only from what I have heard in my district but what I have heard from other districts, that the administration of this law is not being carefully safeguarded in the interest of those we are trying to help.

Mr. BROWN. Mr. Chairman, as the man who wrote this amendment, I think I will have to agree with some of the things that have been said here, but I do not see anything wrong about a man with whom I am attempting to change these bonds saying to me, "Here, Brown, these bonds are selling at 85; I will take the bonds, but I will take them at the market price, and I want you to give me the difference."

I do not think, if you will read this act carefully, any criminal liability would lie. I do think possibly a civil action would lie on the ground there was no consideration, but I am not certain about that.

However, my amendment seeks to clear up the evil from another angle. What does the Government do when it guarantees the bond I take at 82? It makes it worth 100 today. I say we want to get the difference between the market value at which the mortgagee took that bond and the present value into the hands of the original mortgagor. That is all my amendment seeks to do.

It would simply say you cannot have your bond guaranteed unless you get an affidavit from the original mortgagor that he, prior to the date of application for the exchange and guarantee, received 100 cents on the dollar.

That is what he can do, Mr. Beedy; he can say, "Here, you took that bond at 82, and it is now worth 100, and I will give you $18 credit on it ", and then the exchange is quickly made.

Mr. RUSSELL. On this question I would like to make one short statement. We think it is impractical and improper to restrict the guaranteeing of the bonds for two or three reasons.

First, we think very few of the bonds have been dealt with under par. We think it is improper for the corporation to conduct refunding operations, because these are bearer bonds and are hard to trace.

We think, as far as the people who have taken these bonds are concerned, they have taken the bonds on the faith of the statement of the President of the United States that they were going to be guaranteed and on the statements of many Members of Congress that they would be guaranteed.

We think people bought them yesterday and the day before and every day at about 96 on the faith of these statements that have been made, and it would be a hardship on the people who have relied on the administration and paid 96 for the bonds to prove they are innocent purchasers. They do not know what the original purchaser paid for the bonds.

And finally the result of such a course would be to leave a certain amount of the bonds outstanding, and, those being 4-percent bonds, it would do nothing except hit back at the corporation itself, because the corporation would be compelled to continue to pay 4 percent for that money over the 18-year period, or until it took the bonds up, or be compelled to call those bonds in at par and pay them off. We think for those reasons it is improper. Then, the last reason is the vital reason, and it is this: If you put these conditions on, and there are a hundred million of these bonds out, we cannot refund the whole, and we have got to pay them off at par if we do not carry them, and when you put that condition on we cannot hurt the man who holds the bond, because we will have to pay them or we will have to re

deem them at once at par, so it will cost the corporation pretty heavily either way.

Mr. BUSBY. We thank you, Mr. Russell, for your statement and information.

Congressman Hoidale, of Minnesota, desires to be recorded as having appeared in favor of the bill we are now considering, so we ar» glad to have his backing and support for the proposed bill.

We now have another Member of Congress, Mr. Kenney, to appear before us.

STATEMENT OF HON. EDWARD A. KENNEY, A MEMBER OF THE HOUSE OF REPRESENTATIVES FROM THE STATE OF NEW JERSEY

Mr. KENNEY. Mr. Chairman, I appear here to urge the guaranteeing of the principle of the bonds as quickly as possible. I come here because I feel I would be derelict in my duty in case there should be any change of mind or heart on the part of this committee or others responsible for this legislation. The last requirement for the successful refinancing of the mortgages of the distressed home owners of the country lies, I believe, in the guaranteeing of the principle of these bonds.

If you read the act as originally written-and there, of course, is where the lawyers will go there seems to be some question as to whether or not interest would not continue as an obligation on the part of the Government even after the maturity of the bonds. Of course, the bond actually given in exchange for a mortgage limits the payment of interest up to the maturity of the bond, but, after all, there has been some hesitation on the part of lawyers who go to the act itself in advising their clients as to the advisability of accepting the corporation's bonds.

In my section of the country we have very conservative investors who have been accustomed to put their money in first mortgages in reasonable amounts, yielding a profit of 6 percent. Many of these people have had their mortgages guaranteed by the title companies, and the title companies and other institutions are not now in their former condition, so that many of the mortgagees have had to take mortgages over, bereft of the guaranty of some of the companies whose guaranty is no longer what it used to be. That class, of course, is accustomed to some kind of guaranty of their mortgage.

There is another class of investors today who need cash, and there is some hesitation on the part of such people, feeling if they exchange for bonds of the corporation that they will be held up indefinitely or else suffer a loss, and I had an instance of that the other day. The mortgagee felt he would like to cooperate in every way, but he needed cash and did not like to take a loss and declined to exchange his mortgage for the bonds. When I pointed out the principal of the bonds would unquestionably be legally guaranteed, and that the bonds selling pretty close to par on the market, there was a change of heart and the mortgagee consented to accept bonds in the hope of going into the market and getting the cash without a loss.

Building and loan associations and other institutions have shown a disposition to cooperate in the saving of distressed homes, but