cases, particularly with regard to banks, and it is most distressing to me to give those people 100 cents on the dollar or guarantee bonds acquired under those conditions.

The CHAIRMAN. Wouldn't it be possible, however, for a borrower or mortgagor to find himself in exactly the same distress in that situation that he would in any other situation. If the mortgagee holds the mortgage, which he is about to foreclose, and for which he will not accept the bonds tendered

Mr. FAHEY. Yes.

The CHAIRMAN. And is about to sell the man's home, the only thing the man can do to get relief is to get such relief as he can from the Home Owners' Loan Corporation, and then deal as best he can with the mortgagee.

Mr. BROWN. He bought an $82 bond, and I want to let him keep an $82 bond if I can, and not get 100 cents on the dollar for it.

Mr. RUSSELL. I would like to make clear to Mr. Brown that we have taken the position constantly that any such notes taken by the mortgagee are worthless, without consideration, without the policy of the law, and void. We have just disposed of a case in Baltimore where that had been done, and where the court did not enter a final order or decree in the case for the reason that the court had concluded hearings on the matter and the fellow who charged the mortgagee did not want to press his case any further and it was dismissed. We have constantly taken that position.

The CHAIRMAN. But, adhering to the fundamental purpose of the law, which is to give relief to distressed home owners from the danger of losing their homes, if we fail to extend the provisions to banks that are being liquidated or to any other institutions or individuals where the situation develops necessary foreclosures, as to such borrowers we defeat the purposes of the law unless we give them the benefit of that in situations of that kind.

Mr. REILLY. We have already done that. Under rule 9 the fellows who got those bonds at 85 percent, I do not know why they should not be required to make an affidavit whether they got their bonds below par. If they did, they are not exchangeable for new bonds.

The CHAIRMAN. There might arise a legal difficulty about it, but I will let the gentlemen who wrote the law talk about it.

Mr. BROWN. If there was a sale made, Mr. Chairman, from the man who took the bonds at 82, a sale made at 90, we will say, to an investor.

The CHAIRMAN. Yes.

Mr. BROWN. It might be said that it was unfair to make the present holder in succession, a sale having been made previously to two or three other holders, such as A, B, C, and D, it might be unfair to last holder of those bonds not to give him a guaranteed bond, but it seems to me the answer to that is we are letting him keep the kind of a bond he bought. He is a speculator and it is up to him to know what he is buying.

Mr. REILLY. In other words, a bond of that kind is not exchangeable.

The CHAIRMAN. This thought has occurred to me in connection with this section, it is limited to obligations against homes held by institutions in liquidation.

Mr. BROWN. Yes.

The CHAIRMAN. That would not cover all cases of distressed mortgagors. Individuals might be in bankruptcy, and their estate might be under the process of administration, presenting identically the same difficulty to a mortgagor debtor as would be presented in the case of a bank, or whatever is represented by the language "these institutions." So that I should think if that provision in the bill remains we could broaden that language.

Mr. BROWN. It is on page 5.

The CHAIRMAN. You limit it to institutions in liquidation. That would not cover an individual, would it?

Mr. RUSSELL. No, sir.

The CHAIRMAN. It is just as desirable to relieve the individual. Mr. BROWN. There are many individuals in liquidation nowadays. The CHAIRMAN. They are in bankruptcy all over the country, unfortunately.

Mr. REILLY. Those fellows in distress will come under the law anyway.

Mr. RUSSELL. This subsection he refers to is one which is a limitation upon the corporation and first limits the corporation to dealing with cases where a man was in default and therefore being in distress, being in default with his debts.

The CHAIRMAN. Yes.

Mr. RUSSELL. Then the exception he refers to permits us to go into any kind of distress, resulting in a community from an institution in liquidation and to take up mortgages which are not in distress. I think the chairman has in mind the situation where an individual is in liquidation, such as in bankruptcy, for instance.

The CHAIRMAN. Yes.

Mr. RUSSELL. And the mortgagee in question who is not in default if they were in default we could take it up

The CHAIRMAN. Yes.

Mr. RUSSELL. But if it is not in default the home owner is not in distress on that account and it is not the same situation you have with reference to a closed institution which has public deposits and the general public has an interest in it.

The CHAIRMAN. But, you do not limit it to banks and deposits. Your language is "institutions in liquidation."

Mr. PRALL. Any mortgage they might hold would be covered by this.

The CHAIRMAN. You will undoubtedly find many instances throughout the country where mortgages are held by individuals in bankruptcy, and, of course, in the same identical circumstances in cases of that kind as in the case of an institution.

Mr. REILLY. Mr. Russell, if a man is in bankruptcy, what help can you give him? You do not give that man any help. He is beyond help.

Mr. RUSSELL. A receiver in bankruptcy may have a large number of mortgages in his possession that are in default.

The CHAIRMAN. And there is nothing left but to foreclose.

Mr. REILLY. You are not providing for the mortgagee. You are providing for the mortgagor. If you are in bankruptcy where they owe you money and they are in default they can come in and take advantage of the law as it is now.

The CHAIRMAN. The difficulty about that is, Mr. Reilly, they might not be in default, but the mortgagee would not be in a position to take and to carry the mortgage.

Mr. PRALL. He would be in distress by reason of the situation of the other man.

Mr. REILLY. This takes care of mortgages, not mortgagees.

Mr. RUSSELL. I would like to answer the chairman's question to this extent, at least, that if this mortgagor in the event of the bankruptcy of his individual mortgagee, were in default, and that default had occurred since June 13, 1933, I think we could clearly construe that under the other exception here.

The CHAIRMAN. Yes.

Mr. RUSSELL. To be an economic condition beyond the control of the applicant or misfortune beyond his control.

Mr. BROWN. But would you, Mr. Russell, construe a private bank in liquidation to be an institution in liquidation? In Michigan private banks are merely partnership associations.

Mr. RUSSELL. I think I would be compelled to if it were an institution.

Mr. BROWN. That word "institution " seems a little difficult to define. A private bank is considered under the law of the State of Michigan as a partnership of individuals.

Mr. RUSSELL. I do not think that would be an institution.
Mr. BROWN. I think they should have this relief.

The CHAIRMAN. There are many of those cases.

Mr. BROWN. Yes; many in liquidation, because like all of the others they can be advanced after June 15 of this year, but my further question is this: I do not know whether I want to press my own amendment on the guaranty or not before either the committee or in the House, but I would like to know if it is physically possible for the Corporation to determine by the number or some other designation on an individual bond where that bond came from; that is, what property it originally was issued against. For instance, we will say that my own home in Michigan was mortgaged, and I got $1,000 worth of your bonds to turn over to your Corporation. Would you be able to determine by the number of that bond its origin?

Mr. REILLY. Why do you want to amend an amendment?

Mr. BROWN. Because we ought to know against what property that bond was issued.

Mr. REILLY. Why don't you make comparison with the home owner's application, which has the bond set out and where he got it. Mr. BROWN. If it went direct from the mortgagee to the Corporation, that is all right; but if it went through the hands of three or four people, it would be difficult.

Mr. RUSSELL. I think it would be manifestly difficult, and it seems to me impossible to administer such a proposition as this. I believe that the Corporation does preserve in its record the number of bond authorization when it analyzes one of these loans, and in turn when it issues the bond, and also of the number of the bond delivered to the mortgagee. I would like to call attention to this fact in this

connection, that it seems to me perfectly essential to leave this substantially as it is. If we pursue the course suggested, it compels the Corporation either to leave out the 4-percent bonds or else call those bonds at par and pay those fellows that get them at 82, pay them 100 cents on the dollar.

Mr. BROWN. If you have followed the market for the last 3 or 4 months, I do not think the market on your guaranteed bonds would be very good for a while, but the Corporation could pick up a substantial number of those bonds that were not guaranteed.

Mr. FAHEY. On the other hand, Mr. Brown, there is a difficulty there in that we are compelled under the law to retire them in cash at par, and with the limited number out they know perfectly well those bonds have got to be retired within a comparatively short time. Mr. BROWN. I find that today they are at 96; that is the quotation this morning.

Mr. FAHEY. There are very few bonds ever sold around 83 or 85. That was more or less a fictitious price. There was never any market of that sort, as a matter of fact.

Mr. BROWN. It was fluctuating.

Mr. FAHEY. It was used in some instances as an argument, but it was pretty effectively met by our people all over the country, because we had an organization that was making known the character of these bonds, and we had the opportunity without any expense to the Corporation to explain them on a Nation-wide hook-up over the radio.

Mr. BROWN. Yes; I think you did a very excellent job in that respect.

Mr. FAHEY. I really do not think the number, out of the total number of bonds issued, that the number where they were able to chisel the mortgager was comparatively very large. I think it would be very, very difficult to try to trace that situation.

Mr. BROWN. Would it be too much to ask you to have someone down there give Mr. Reilly, the chairman of our subcommittee, or myself, whichever you choose, a short statement of what the administrative difficulties would be, because if they are too great I do not want to press it.

Mr. FAHEY. I would be glad to do so. I want to look into it, because if we see any way that we can do it at all we would be in entire sympathy with it.

Mr. BROWN. You recognize the justice of my position.

Mr. FAHEY. Yes. In some cases it has been very effective, even in cases where loans were closed, such as Mr. Russell has pointed out, where the mortgager has consented to an excessive figure, we have been able to find it out and have refused to deliver the bonds, and got the thing cut down. Only yesterday we had a case where we knocked off $1,000 after the whole thing had been closed, and we found that they imposed upon the home owner.

Mr. BROWN. I will tell you what I had in mind, and instances of this have come to my knowledge. When I advised the banks to take notes for the difference, where they insisted they would not take the bonds except at market, I told them that they were to pay, and take a note for the difference, and if by July 1, 1934, these bonds were guaranteed they would then consult the Corporation.

Mr. KOPPLEMANN. Mr. Fahey, one further reference to Mr. Brown's amendment, and one of the reasons I favor it if it is at all possible to put it into effect: I read a very powerful editorial characterizing the giving out of information that those things would be guaranteed as racketeering on the part of some of the present administration. That probably would come to light either in the debate of this bill or shortly after it, or be brought up by the critics of this administration. I think in defense of your own administration and the President who recommended this measure, you ought to make strenuous efforts to, in some way, put language into this bill that would protect the good name of the Government against any who may have "racketeered" in the purchase of these bonds just as soon as it was found that there was a chance of them being guaranteed by the Government. If I can find that editorial I will send it to you, but if not, I am giving you now my best recollection of the substance of it.

Mr. FAHEY. I thought it might be interesting to you to know the facts. A lot of this talk about the market of the bonds has been highly superficial. Before there was ever a talk of a guaranty at all the volume of bonds that actually came to the markkets was very small, and indeed it has been since. We have kept in very close touch with the market and we have every reason to believe that out of the entire volume of bonds out, until within the last 2 or 3 weeks, not more than 5 or 6 million have gotten into the market at all.

Mr. KOPPLEMANN. That may be, but, nevertheless, you can see the possibility for criticism.

Mr. FAHEY. I can't conceive of any basis for that. No member of this Board or anybody connected with the administration under any conditions had ever intimated that these bonds might be guaranteed.

Mr. KOPPLEMANN. I want to say to you that I said I was in favor of guaranteeing these bonds.

Mr. BEEDY. I want to call Mr. Fahey's attention to the provisions of subsection N, in section 1 on page 4, the last part of that section, since this subject of dealing in bonds on the market has been brought up, may I ask you if you subscribe to the principle embodied in the authorization contained in lines 14 to 18, inclusive, authorizing this Corporation to gamble in its own bonds on the market?

Mr. FAHEY. Of course, the Corporation would not gamble in its own bonds.

Mr. BEEDY. Why do you say that?

Mr. FAHEY. There is a provision in the act now that the Corporation may buy and sell.

Mr. BEEDY. Why do you say, Of course the Corporation would not gamble in its own bonds? Why wouldn't it?

Mr. FAHEY. I think it would be pretty bad business for the Corporation to go into it and do that.

Mr. BEEDY. In other words, you do not subscribe to this?

Mr. FAHEY. I think the Corporation should be free to buy any of its bonds in the market at any time.

Mr. BEEDY. What for?

Mr. FAHEY. It is up to us to retire these bonds as rapidly as we may, and if bonds are offered in the market at a favorable price, there is no reason in my view why the Corporation should not buy them. We have that authority today.