think if the R. F. C. would organize one of these associations it could sell the stock in the association and we would have private capital operating these national mortgage associations, but the thing is so entirely new. The CHAIRMAN. Nobody would accept our good faith or protestation of good faith in undertaking to render this service to the country if we rely upon private capital, in the light of our experience. Mr. ABNER H. FERGUSON. I think so myself. There have been a number of very serious difficulties in connection with the organization of this national mortgage association, and I think we have remedied all we have encountered. Mr. MCKEOUGH. Is the remedy in your judgment the exception of their obligations from taxation, is that the controlling remedy? Mr. ABNER H. FERGUSON. I think there have been several. The first was the limit of July 1, 1939. They were not willing to put effort, money, and time into a corporation and get started and have the guaranty go off. The next objection has been these associations have been authorized only to issue debentures up to 12 times their capital, although they cannot have debentures outstanding in excess of the amount of their insured mortgages, so their debentures are always backed by insured mortgages, Government bonds, or cash. Now we have in these amendments changed their rate to 20 times the capital which gives them a larger spread. Mr. MCKEOUGH. And the possibility of larger return by tax exemption? Mr. ABNER H. FERGUSON. That is right. Mr. WOLCOTT. May I suggest that we remedy that objection by this new law, whereas national mortgage associations have to have $5,000,000 paid in capital under the old law, which undoubtedly discouraged the idea, that is amended to authorize only 25 percent of paid-in capital? Mr. ABNER H. FERGUSON. That is right. Mr. WOLCOTT. The R. F. C. can purchase the initial 25 percent which will allow them to get started? Mr. ABNER H. FERGUSON. Yes, sir. Mr. WOLCOTT. It seems to me we are talking about historical things which will be taken care of by enactment of this new law? Mr. ABNER H. FERGUSON. That is right. Mr. WOLCOTT. Probably that will give encouragement to private capital to organize national mortgage associations. Mr. MCKEOUGH. May I ask a question there following up my first question? The CHAIRMAN. Yes. Mr. MCKEOUGH. Is it your idea then with this exemption for your obligation the national mortgage association will get a sufficient amount of private capital to really organize? Mr. ABNER H. FERGUSON. I think so. As I said a moment ago, I have some doubt if we can get private capital otherwise. Mr. LUCE. May I ask the witness if any businessman has suggested that he is ready to go into any of these enterprises? Mr. ABNER H. FERGUSON. I would not say, Mr. Luce, any businessman has said they had the money to go in and would put it in. We have had literally hundreds of people in to see us since the act was passed and some of them were people who were certainly able to put in any amount of money they wanted, but when they looked into the thing they found it was not workable. So, I do not know whether anybody came in with a certified check for $5,000,000 or anything of that sort, but we have had people in by the dozens who have been financially able to go into the thing and appeared to be seriously interested. Mr. GOLDSBOROUGH. What was it they found was not workable except the dentures were only guaranteed to 1939? Mr. ABNER H. FERGUSON. Well they found they did not think they could work on 12 times their capital basis, and they found that they did not have a sufficient volume of insured mortgages outstanding to immediately fill their portfolio so they would have their money idle until they could get them. That gave rise to the amendment which changes the law and permits organization of the National Mortgage Association on 25 percent of paid-in capital but does not permit them to issue debentures until fully paid. Suppose the association is formed with $2,000,000 capital. They go out and buy $500,000 worth of mortgages and then they buy another $500,000 and pay in $500,000, and when they had $2,000,000 they could sell debentures against $2,000,000 of mortgages. The CHAIRMAN. I want to ask Mr. Jones a question that has a little to do with the successful operation of this bill. Is the R. F. C. equipped with necessary funds to do this work if the authority is properly conferred? Mr. JONES. Yes, sir. Mr. LUCE. I have gathered from time to time that the understanding is the R. F. C. was to be a temporary organization. Would not this legislation be one more addition to make it a permanent organization? Mr. JONES. Only to the extent of this enterprise. Mr. LUCE. Well, you have an investment you would have to have a working force, office and other paraphernalia and it would inevitably become a permanent organization. Do you think that is desirable now? Mr. JONES. I think this legislation is desirable. Mr. LUCE. I have been here long enough to go through the history of the R. F. C. and when the question was raised as to extending its life it was extended several years beyond the recommendation of the Secretary of the Treasury and the President of the United States. Under those circumstances it seems to me pertinent to make this inquiry. Mr. JONES. I do not believe the investment in the stock of a mortgage association would prolong the life of the R. F. C. or keep it in existence 1 more day longer than necessary. We have stock in 5,000 banks and numerous other activities, but the administration of that investment will keep somebody busy for a good many years. Mr. LUCE. That could be turned over to the Treasury Department. Mr. JONES. That could be done. This is just one more of the many things we would have an investment in. I am just as anxious to get out of business as you are. Mr. GOLDSBOROUGH. What do you think of the probability of the original home owner who puts up only 10 percent on his home not having it sold from under him? Of course I know in some cases these homes will be paid off, but I am talking about the collective purchaser and not the single purchaser. Mr. JONES. I do not think it makes a great deal of difference whether they pay 10, 20, or 30 percent or nothing, and if you make the payment small enough-which the bill does-it will about equal rent. Mr. GOLDSBOROUGH. I am talking about the standpoint of the home owner. Mr. JONES. Yes.. I think it makes no difference whether they pay 10 percent, or 20 percent, or 30 percent, or nothing, if the monthly payments are something like rent. I do not believe for instance if there were no down payment or if only 10 percent it would make a great deal of difference. We have completed the purchase of 10,935 F. H. A. loans. Very few are delinquent. Very few are delinquent. We have only foreclosed on about 40 and 30 of them were not well-selected loans, but got in trouble due to some local legislation about sewerage or something like that. They do not amount to very much, being about $2,000 apiece. The payments have been very regular. We have agreed to purchase about 15,700 loans but after the applicants got our commitment they sold 2,353 of the mortgages some place else although they had paid us a commitment fee of one-half percent. We collected something like $55,000 in commitment fees on mortgages sold elsewhere. Mr. GOLDSBOROUGH. Mr. Jones. Mr. JONES. May I finish? Mr. GOLDSBOROUGH. I thought you had finished. Mr. JONES. Of the 10,935 loans we have 1,771 paid entirely, or we have sold them-one of the two. We buy at 991⁄2 and sell them 101. We have that coverage there to take care of the expense. I do not think we will have any delinquencies to speak of. I think the percentage of delinquency will be very small. Mr. GOLDSBOROUGH. I do not doubt that a moment and I say this in a very complimentary sense, unless we have been very much misinformed the loans extended by the R. F. C. have been rigidly selected. Mr. JONES. Not these F. H. A. loans. Mr. GOLDSBOROUGH. They are only 2 years old. Mr. JONES. They are only 2 years old but for many years I built and sold homes on the installment plan and never lost a dollar on any of them. I do not know whether we are as frugal now as we were 25 years ago but I have no fear about this being an expensive operation for the Government. The only thing I am afraid of is that they will not use it. Mr. FISH. You say you have enough money to finance it? Mr. JONES. The amount is limited to $50,000,000. The President said he expected to ask the R. F. C. for up to $50,000,000. Mr. FISH. Is that all the money you will pay Mr. ABNER H. FERGUSON. This could continue under the provision. authorizing the R. F. C. to buy debentures. Mr. JONES. I think, as in the case of the RFC Mortgage Co. we will start this machinery going. If we cannot get anyone else to organize a national mortgage association the President will ask the R. F. C. to do it. Mr. FISH. And the most you will put up will be $50,000,000? Mr. JONES. We could not go much beyond that because we do not have the authority. Mr. FISH. If that is all you are going to put up, do you not think you ought to have additional legislation to make it possible to put up more? Mr. JONES. No; we have the legislation. Mr. FISH. They limit you to $50,000,000. Mr. FISH. Yes, Mr. JONES. If we put up $50,000,000 and we are fortunate enough to get somebody to put up $25,000,000 and multiply that by 21, which can be done by selling Government-guaranteed debenturesMr. LUCE (interposing). Are they Government-guaranteed? Mr. JONES. Yes. Mr. LUCE. Only through insured mortgages?. Mr. JONES. Yes. Mr. GIFFORD. Do you not think under this plan of insuring mortgages that will dry up the activity of the other fellow in business? Mr. JONES. I do not think it will. I do not think that altogether it will do harm to the building-and-loan associations and savings banks. Mr. HANCOCK. Mr. Jones, assuming it may be desirable for the R. F. C. to set up a national mortgage association, provided its operations are restricted to large-scale projects, what is the sense in one governmental agency insuring another against loss? Mr. JONES. You had better answer that since you are making the laws. Mr. HANCOCK. We have not made this one yet. I would like to have an answer to that, if you have a good one, because I think it is important before passing on this legislation. You see the whole theory or philosophy of the F. H. A. is there was to be no Government lending but they were simply to stimulate lending by making it safer for other agencies to furnish the money. And the announced purpose of these amendments is to encourage housing and home owning through private enterprise. Are we doing that or something else? Mr. JONES. The Government would not insure our investment in the stock. Mr. HANCOCK. I am talking about the purchase of the insured mortgages. Mr. JONES. We are buying them and selling them. Mr. HANCOCK. That is exactly what I thought. You are serving more or less as a broker. You are also acting as a mortgage-discount bank. Mr. JONES. We have sold about $7,000,000 of these mortgages. Mr. HANCOCK. Then too, the fact that you are able and willing to take them sort of adds attractiveness and strength to them? Mr. JONES. I do not know. Mr. HANCOCK. The public thinks so, do they not? Mr. JONES. I expect a lot of people do. Mr. HANCOCK. Mr. Jones, I would like to know what is your diagnosis of the economy of a country whereby it is more attractive usually for a citizen to rent a home than to own it. What is wrong with an economy that seems to make it more financially attractive for 33604-37- -4 its citizens to rent rather than own homes? Is it building cost, lack of easy terms and low-interest cost or what not? Mr. JONES. I am sorry but I cannot answer that. Mr. FORD. I would like to hear an answer to that. Mr. HANCOCK. I gladly yield to the gentleman from California. [Laughter.] Mr. FORD. I will tell you what has been the trouble is too much interest. The CHAIRMAN. And too many incidental charges. Mr. FORD. Plus incidental charges which have a great deal to do with it. Mr. HANCOCK. All those things enter into the rent? The tenant has to pay them in the last analysis. Mr. GOLDSBOROUGH. Let me ask one question. The CHAIRMAN. Let me make this suggestion at this point which I think is pertinent. I do not see anything unconstitutional in the mechanics of this bill insofar as one department of the Government attempts to insure another department of the Government against loss. The R. F. C. has to act as a substitute temporarily for the private investor and the buying contemplated by the R. F. C. will inaugurate and set this machinery going so that the investment will be observed by private enterprise and the purpose is to always keep the R. F. C. free from any direct loss, that this plan of temproary service is included in this bill. Mr. HANCOCK. I was not criticizing that practice. I was merely seeking light as to its practical operations. But are we not colliding with the original purpose of the F. H. A. I am certain that we are and the public should understand it. Mr. LUCE. May I shed a little light on Mr. Hancock's question. The Federal Mortgage Corporation issued $7,000,000 worth of bonds and swapped them with the Federal land bank for other bonds which were not guaranteed and the R. F. C. took quite a quantity of those bonds, I think. Mr. JONES. Yes. Mr. LUCE. So that is a case of one agency insuring another. Mr. JONES. We do not have to do it any more. Mr. LUCE. What? Mr. JONES. We do not have to do it any more. Mr. LUCE. But you did do that? Mr. JONES. Oh, yes; in the beginning. Mr. PATMAN. Mr. Chairman, I would like to ask Mr. Jones a question. The CHAIRMAN. Mr. Patman. Mr. PATMAN. It is contemplated this will encourage mass production of homes rather than individual building of homes. Mr. JONES. It should. Mr. PATMAN. It is contemplated that the mass producer can deal directly with the sawmills and the lumber manufacturers and with the manufacturers of plumbing and heating material, with all these different people in purcahsing the different commodities that go into making the homes and thereby save the middleman's profit and many other expenses that are originally connected with the building of individual homes? Is that right? Mr. JONES. I think that is part of the theory of the bill. |