Mr. LUCE. Mr. Stevenson, yesterday I was delighted to learn that the Home Owners' Loan Corporation had already exchanged mortgages, secured mortgages, to the number of more than 100,000. Mr. STEVENSON. Yes.

Mr. LUCE. And we were also then told that 50,000 of these, it was estimated, were in the case of persons in distress. My self-satisfaction at having any small share in this matter was rapidly chilled by discovering that 50,000 people have been helped who were not in distress. I am sure that the thought is that the Home Owners' Loan Corporation never contemplated that that machinery should be used solely for the purpose of helping a man get a lower rate of interest, particularly if the man was in good circumstances and did not need that relief. I gather that on page 4, section (O), there is an attempt made to meet that situation by restricting the relief in case of morgages not in default prior to the date of the Home Owners' Loan Act of 1933. Will you tell us why that restriction should not be extended to those who were in default prior to 1933?

Mr. STEVENSON. You mean where default has occurred, but there is not any distress?

Mr. LUCE. Not any distress. There are thousands of people who are taking advantage of the situation and are not paying up their mortgages or their interest, because they hope to get out of it some

way.

Mr. STEVENSON. I do not concede, although it may be true, that there are 50,000 who have been relieved who were not in distress. It may be true. We, of course, have been bombarded with every kind of a scheme to get loans where people were not in distress, and in many cases I have no doubt that has been done. I do not know where you got the information.

Mr. LUCE. Yesterday, Mr. Fahey told me.

Mr. STEVENSON. He has probably gone into it.

Mr. LUCE. It was simply an estimate.

Mr. STEVENSON. Yes. You cannot absolutely tell whether a man is in distress or not. They come along and they comply with all the regulations, and they make the showing, and our managers in the States reach a conclusion. We have to deal through our State managers, you know, and they reach the conclusion that it is a distress case. When they do, that makes it an eligible loan, and they have a right to make it.

Mr. LUCE. I am informed we made the mistake in drafting the original bill, in not restricting it to persons in distress.

Mr. STEVENSON. Yes; I know you did. We did not make that mistake, however. We impressed it upon them, and every instruction that has gone out has been that they must be people in distress. But they succeed in impressing our managers with the fact that they are in distress.

Mr. LUCE. When you discover later that they have deceived you, is there any way to undo the mischief?

Mr. STEVENSON. If you have made the loan and got their paper and given them 15 years in which to pay it, and if they go along and pay, there is no recourse.

lot of

Mr. LUCE. The administration is just putting an end to contracts because they were supposed to have been secured through collusion and conspiracy.

Mr. STEVENSON. I do not know whether you would call it collusion and conspiracy or not. What is distress is a very difficult proposition. But in this provision that you speak of, we are attempting to put a stop as far as possible to it.

The most common method of imposing on our agents was a method that threatened to ruin many building and loan associations, because the minute this bill was passed everybody that wanted to swap over stopped making payments and got in default and thus came within the act. Then they would get a notice from the creditor that, "If you do not proceed, if you do not pay, we are going to institute foreclosure." That is one of the requisites there, that there must be evidence that foreclosure is imminent before we go ahead and make the loans. That being the case, they have come within the rules.

This provision here will certainly stop that. If they are not allowed to take advantage of a default that occurred since the passage of the original act, why, the fellow who goes and defaults willfully and asks to be foreclosed on, and all that, he will be out. That is the reason of this, to tie that very thing up.

Mr. LUCE. What I am driving at is whether or not there is any way of getting at that part of the 50,000 people who lied to you.

Mr. STEVENSON. If you can establish they have lied to us, they are indictable under the act. We have impressed that upon them.

Mr. LUCE. Have you given any thought to proposing some penalty, hardship or making more trouble, at any rate

Mr. STEVENSON. Yes, sir.

Mr. LUCE. For the 50,000 people who have gone out of the building and loan associations and the cooperative banks in order to save a dozen dollars a year on interest?

Mr. STEVENSON. We have a legal representative who is looking after the violation of this criminal feature of this act, wherever they make a misrepresentation. Section 8 (a):

Whoever makes any statement, knowing it to be false, or whoever willfully overvalues any security, for the purpose of influencing in any way the action of the Home Owners' Loan Corporation or the Board or an association upon any application, advance, discount, purchase or repurchase agreement, or loan, under this act, or any extension thereof by renewal defermen, or action or ctherwise, or the acceptance, release or substitution of security therefor, shall be punished by a fine of not more than $5,000, or by imprisonment for not more than 2 years, or both.

That was in there for the purpose of keeping them from doing this, but notwithstanding that, people take that chance.

Mr. LUCE. It looks to me as if $150,000,000 of the people's money had gone to people to whom it was not intended to go.

Mr. STEVENSON. They may not have been in distress under that view, but they were able to offer proof which entitled them to get the loans. I do not admit, as I said before, that the amount is as large as that.

Mr. LUCE. That proof was not of distress; that proof was of failure to keep up an obligation where they might have been perfectly able to do it. What I am really trying to bring out is that we ought to use every possible effort to prevent the draining of the membership of the building and loan associations and the cooperative banks. Mr. STEVENSON. Yes, sir. It has been a great misfortune that a great many people have taken that course. They have injured the

building and loan associations, which are the natural source of that class of money, and which are going to have to be relied on for the next decade, at least, to finance the homes of this country outside of this temporary financing we are doing. It has been an abuse.

Mr. LUCE. Still you feel that this language in paragraph (0) is the strongest that we may put in?

Mr. STEVENSON. I defer to our general counsel who drew that language. He knows more about this business than anybody I know of, from a legal standpoint. I think he has done the best he can with that. I am taking his judgment for it, that this is the best we can do.

Mr. LUCE. I submit that we can find a few more teeth to put in. Mr. MEEKS. Has this kind of a situation been called to your attention: The building and loan association, in cases where they think they have excessive loans on property, beginning immediately upon default-we will say that they may be in default so many months or weeks with the payments-but immediately when the time elapses, the association has the right to foreclose. Have cases been called to your attention where they have demanded of the borrower all payments under threat of foreclosure, although the next term of court in which they can file suit is weeks away or maybe 3 months away—and have pursued the borrower with threats of doing something, dispossessing him if it is his home, in order to drive him into application for a loan from this Home Owners' Loan Corporation? Have you had cases of that kind?

Mr. STEVENSON. I take it that there have been cases of that kind when they want to unload a mortgage that they think is weak. They may be doing that. But before they can unload that on the Corporation, they have to get past the appraisal, and if it turns out that they have loaned more than the property is worth, they cannot get anywhere unless they shave their mortgage. It is 80 percent of the appraised value, which we are trying to make a real appraisal.

It is very hard to fix absolutely what is the value, but by a very careful system of appraisal we are endeavoring to do that. If they do that, if they have overloaned, of course, they are not going to get the full amount of their mortgage. They are going to get only 80 percent of the actual value of the property.

I have no doubt there have been many cases of that kind, although I will say this for the building and loan associations, they have not been offenders in that line so far as it has come to my attention. The building and loan associations have shown a great disposition to continue to carry their members. In many cases when our agent contacts the building and loan association and asks them to carry this and refinance it if necessary, many of them, there have been hundreds, have done it.

I am chairman of the committee that passes on the cash loans, which have to be passed by the board, and they make a very thorough showing there that not only have they no way to meet the loan and are about to be sold out, but that an effort has been made to refinance them elsewhere. In many cases we get them refinanced elsewhere. An effort has been made to get the original mortgagee to refinance and carry them. In many instances they do it.

The building and loan associations by and large have cooperated splendidly with this institution in trying to help to remedy the deplorable situation we were in when this was acted upon. They, of course, get their relief from the home-loan banks in their region.

But there are cases, just as you submit.

Here is another set of cases, and many may have gotten across in that way. There was a tremendous lot of real-estate mortgages in closed banks and conditioned banks. The minute the banks close, the receivers have to proceed to realize. They have to liquidate, and cannot do anything else. In many of those cases we have undertaken to facilitate the taking of those distressed borrowers out of the hands of those receivers to enable them in turn to turn loose deposits that are in those institutions, to enable them to liquidate and turn it loose; because this was one entire financial problem that we had on our hands, and the more deposits you could release, the more depositors that could get relieved, the more the country was relieved of its incubus of debt and distress. In taking those out of the hands of many of the closed banks, which is done under what is known as a "wholesale" operation, I take it that a good many men who ordinarily would have been in distress were relieved.

Mr. BUSBY. Are there any other questions? If not, we will hear Mr. Bodfish.

STATEMENT OF MORTON BODFISH, EXECUTIVE VICE PRESIDENT OF THE UNITED STATES BUILDING AND LOAN LEAGUE

Mr. BODFISH. My name is Morton Bodfish. I am executive vice president of the United States Building and Loan League. We are a national trade organization, representing the building and loan associations. Our members hold about 65 percent of all the small home mortgages in the country. By that I mean the mortgages under $3,500. We have members in every State, and our business is confined exclusively to the financing of small homes. In that business we rely almost entirely upon the savings of the people in the humbler walks of life in this country.

We have about 2,000,000 mortgages on homes. The capital for those 2,000,000 mortgages has been furnished by slightly over 10,000,000 people, as members of our association.

Mr. Chairman, we are in accord with the general principles and most of the provisions in this bill that is before your committee. We have had the privilege of being before the Federal Home Loan Bank Board, and we have great confidence in their judgment. They work with us very constructively and have considered our views.

There is one phase of this matter that should be clearly before the committee, and that is that the objective of all this legislation should be to establish a resumption of normal activity. In the 11,000 to 15,000 local thrift and home-financing institutions throughout this country, the home-mortgage financing problem of the country is a 20-billion-dollar proposition. That 20 billion dollars has been contributed almost entirely through systematic savings of ordinary folks.

Some of the points that I want to make, Mr. Chairman, have a bearing upon the effect of this and other phases of legislation on the activities of these institutions. I want to touch on the inter

est-rate question and also on the Home Owners' Loan Corporation matter that has been under discussion.

About 2 weeks ago in this city, we had a meeting of our executive committee. That is composed, Mr. Chairman, of some 65 men from every State in the Union. We spent 2 days discussing the home-mortgage situation throughout the country. At the conclusion of that meeting, we adopted a resolution which has been presented to the President of the United States and to the Federal Home Loan Bank Board, proposing a program to deal with this home-financing situation, both in its emergency aspects and in its long-time aspects.

I have a copy of that resolution here, and I have put some notes in several places in the resolution, because this bill covers and deals with four of the points covered in our resolution. I would like to comment, just for a minute or two, on each of these points, and with your permission possibly submit the resolution for the record, if you care to receive it.

Our group approves thoroughly the guaranty of the Home Owners' Loan Corporation bonds, which is covered in your H.R. 8403. We are very sympathetic with the proposal to give the Home Owners' Loan Corporation additional funds for the repairing of homes on which they have made loans. They are going to need those funds before very long.

Our resolution is very sympathetic to giving the Federal savings and loan associations additional capital, because that capital is managed by local people, it is participated in by local savings, and it is thoroughly cooperative and local, rather than being paternalistic, so far as its lending import is concerned.

Our resolution, Mr. Chairman, did include this proposition, that there are 11,000 existing institutions, the bulk of which are in satisfactory financial condition. They are carrying on, and they are even lending money at the present time. We see no reason why in a later phase of this legislation this committee should not provide for the purchase of shares in existing State-chartered institutions on condition that those institutions put their money into active service in connection with loan activities.

You do not need to be afraid to give our building and loan associations funds if you want the money reloaned. After 4 years of depression, we still have 87 percent of our money in loans. In the year 1932 we loaned $522,000,000. We submit that we are the only financial agency that did not get scared and go liquid. In the main, our institutions are small, locally managed, and we have carried on and continued lending right through the depression.

We hope and we have discussed this with Mr. Fahey-that as this legislation develops, if it seems wise to attempt to give employment in the building field that it will be done through the device of purchase of shares in existing institutions, with them loaning the money. So you have covered half of our proposal in your giving the Federal savings and loan associations additional capital, but you have overlooked, or have not yet come to giving the State institutions such assistance.

Point 4 in our resolution dealt with additional capital for the home-loan banks. We thoroughly approve that proposition, which is in this bill. I would like to call your attention to this one fact,