PRE-AUDIT AND POST-AUDIT Mr. WIGGLESWORTH. I want to ask you about a few details here. I notice you refer to both pre-audit and post-audit in connection with your auditing division. To what extent, if any, are the expenditures of H. O. L. C. subject to the General Accounting Office? Mr. LOVELL. All of our administrative expenses are audited, and likewise we submit our monthly accounts, and all our expenses are reviewed. Mr. WIGGLESWORTH. By the G. A. O.? Mr. LOVELL. That is right. They do not do any post-auditing in the field to cover our receipts at various points of operation, but they do audit our administrative expenses 100 percent, and review our nonadministrative expenses. Mr. WIGGLESWORTH. Are you still carrying a personnel set-up of 152 people? Have not we got to a position where we can pretty much liquidate that? Mr. FAHEY. No; not yet. That department carries a tremendous amount of detail. Right now, of course, it has the heavy extra burden involved in the transfer to civil service. It will take some time yet to get that completed. PUBLIC RELATIONS DIVISION Mr. WIGGLESWORTH. You have got a small Public Relations Division? Mr. FAHEY. Yes. Mr. WIGGLESWORTH. Do you still need that? Mr. FAHEY. Yes; but I might say that we have been cutting there. It is to be remembered, of course, that the Public Relations Department serves not only the Home Owners' Loan Corporation but the Bank System and the Insurance Corporation, as well. ASSISTANTS FOR BOARD MEMBERS Mr. WIGGLESWORTH. I notice there are three new assistants for board members. Why do we need that increase in view of the liquidation? Mr. FAHEY. Of course, these, too, are positions that apply to all three agencies. In addition, they are, in reality, vacancies that are open at the present time. Mr. WIGGLESWORTH. They appear in your justification. Mr. FAHEY. Yes; I know. Mr. WIGGLESWORTH. They appear as if they were new positions. They are not new positions? Mr. FAHEY. In a sense they are. But they are places that have not yet been filled. We have not found the way to fill them. SECRETARY'S OFFICE PERSONNEL Mr. WIGGLESWORTH. "Secretary's office." There has been some cut, but it still has 50 more people than it had a couple of years ago? Mr. FAHEY. Of course, we are still carrying an immense amount of detail that involves the keeping of minutes and records of all kinds. Mr. RHODES. That increase, Mr. Wigglesworth, is due to the fact that within the last year we have established and extended a stenographic pool in order to cut down so many individual stenographers, and that has more than doubled the stenographic pool. That is not wholly the duties of the secretary; it includes mail and messenger service, telephone service, and the stenographic pool. DIVISION OF RESEARCH AND STATISTICS PERSONNEL Mr. WIGGLESWORTH. You have another small increase in your research and statistics. Mr. FAHEY. Yes. Mr. WIGGLESWORTH. You have got 61 now, and you want an increase. Why cannot that be cut down? Mr. FAHEY. The fact of the matter is that the Board and the executives of its three agencies are continually confronted with the need for improved informational facilities in order to get better operating results. Mr. CATLETT. I think those are almost entirely replacements, are they not, Mr. Rhodes? Mr. RHODES. Yes, sir; entirely. Mr. WIGGLESWORTH. What do you mean by "replacements"? They are additional positions as compared with 1942, are they not? Mr. CATLETT. They are not filled at present. Mr. RHODES. Here is what we are up against to a certain extent. Research and Statistics is dividing its operations between here and New York, and we have to maintain a department here and also in New York, and that naturally is going to cause some little addition to that overhead expense. QUESTION OF LIQUIDATION OF THE H. O. L. C. Mr. WIGGLESWORTH. When are we going to be able to liquidate? Mr. FAHEY. What do you mean by "liquidate"? Do you mean, to wind up the corporation as a whole? Mr. WIGGLESWORTH. Yes. Mr. FAHEY. You cannot wind up the corporation as a whole until practically all these loans are in such shape that private institutions would be willing to take them off our hands, all at once. Mr. WIGGLESWORTH. When will that be? Mr. FAHEY. Of course it will not be until they are in better shape than they are today. Mr. DIRKSEN. Is that true of all the loans, Mr. Fahey? Mr. FAHEY. Well, your difficulty is that, if the Corporation were to sell off all its prime loans, it would then be left with the losing and nonproductive assets, and with the heavy servicing expense that these more dubious assets would entail. With its better loans transferred, the Corporation, while retaining the losses and the burden of servicing expense, would be minus the income, that it would otherwise have, to set off against them. The loss it would suffer would be tremendous. Mr. FITZPATRICK. The loss would be much greater if you sold the prime loans? Mr. FAHEY. Oh, tremendously. Mr. FITZPATRICK. They would be turned back to the banks who wanted the Government to come to their rescue, when this organization took over all those bad loans? Now the idea is, when they are in good condition, they would like them turned back, letting you hold the bag and letting you lose more on the bad loans? Mr. FAHEY. If you could get these loans into 100 percent condition, then that would be a different matter. Mr. FITZPATRICK. Oh, certainly. Mr. FAHEY. But, of course, private institutions do not want to take the doubtful loans or those that are expensive to service. Now, steadily these loans have been getting into better shape. They are now in a condition where less than 10 percent of them are delinquent by 90 days or more. In other words, over 90 percent of these loans are current, or less than 90 days delinquent. Approximately 230,000 of them, however, are loans extended under the provisions of the Mead-Barry Act. These, for example, are loans that private institutions would hardly care to take over. If, on the other hand, the Corporation were to sell off all its good loans, there is the loss of income it would suffer, and the resultant loss, additional to any others that might be sustained, that would thus be thrown back onto the Treasury to be made good through taxes. That is what would happen. Mr. FITZPATRICK. The loaning institutions were very happy to turn over all those bad loans to your organization, and we took them out from under that heavy load. It seems now there are some of our people who would like to return that part of it that is in good financial condition, and our loss would be much greater, and I think it would be a very dangerous thing to do, and I think we ought to continue the good with the bad until you could liquidate at a smaller loss. Mr. HOUSTON. The bankers and the associations might pay up the ultimate loss that you have in your organization. Mr. FAHEY. Of course if private institutions were prepared to take over all of the Corporation's loans and all of its properties, then it could liquidate quickly. Even on that basis, however, there would still be a problem, since a large proportion of these loans came from commercial banks and mutual savings banks, and these institutions, under the law, cannot take loans for more than some 60 percent of the value of the property. The Corporation's loans in many instances, moreover, are secured by properties in areas where there are no local institutions that could take them over at all. The lending practices of insurance companies, of course, would be equally restrictive. Mr. DIRKSEN. Mr. Fahey, the record ought to show, in all equity and fairness, at this point, that in the case of building and loan associations and parenthetically, I do not know whether my friend, Mr. Fitzpatrick, has had any experience with them-they are obligated, they are mandated, under State law, that after a certain time, differing according to the different States, they have got to sell a property that is in arrears. I served for years on a building and loan board. We had no choice under the laws of Illinois, when a property got delinquent up to a certain point you were mandated under the law to sell it. Mr. FITZPATRICK. That is why so many people lost their homes. That is why this body was created. Mr. DIRKSEN. But you generally charge banks with being loan sharks. You had just as well charge me, when under the laws of Illinois as a director I had no choice except to vote for the foreclosure of a property, because the law said so. Mr. FITZPATRICK. Would you like to have turned back to the institutions those individuals we rescued them from? Mr. DIRKSEN. Certainly, if they are sound institutions and sound loans, and the institutions want that thing. Mr. FITZPATRICK. The institutions that we rescued, and to whom we gave 100 percent on their loans? Mr. DIRKSEN. I am thinking about building and loan associations. I am not thinking about the banks, because I doubt very much whether banks would want to take those loans. Mr. WOODRUM. Is there anything else, gentlemen? Mr. WIGGLESWORTH. Mr. Fahey, would you put in the record, if have not already, the figure for your nonadministrative expenditures? you Mr. FAHEY. Yes, sir. Mr. WOODRUM. Thank you, Mr. Fahey, and thank you, gentlemen. WEDNESDAY, JANUARY 7, 1942. RECONSTRUCTION FINANCE CORPORATION STATEMENTS OF HON. JESSE H. JONES, FEDERAL LOAN ADMINISTRATOR; CHARLES B. HENDERSON, CHAIRMAN; H. A. MULLIGAN, DIRECTOR AND TREASURER; CLAUDE E. HAMILTON, JR., GENERAL COUNSEL; M. J. McGRATH, CHIEF, EXAMINING DIVISION; R. A. BROWNELL, CHIEF, AGENCY DIVISION; AND D. B. GRIFFIN, ASSISTANT TREASURER ADMINISTRATIVE EXPENSES Mr. WOODRUM. We will take up the Reconstruction Finance Corporation, the item for which is as follows: Not to exceed $10,335,292 of the funds of the Reconstruction Finance Corporation, established by the Act of January 22, 1932 (47 Stat. 5), shall be available during the fiscal year 1943 for administrative expenses of the Corporation and of The RFC Mortgage Company, including personal services in the District of Columbia and elsewhere; travel expenses, in accordance with the Standardized Government Travel Regulations and the Act of June 3, 1926, as amended (5 U.S. C. 821-833); printing and binding; lawbooks, books of reference, and not to exceed $1,500 for periodicals and newspapers; procurement of supplies, equipment, and services; typewriters, adding machines, and other labor-saving devices, including their repair and exchange; rent in the District of Columbia; transfer of household goods and effects as provided by the Act of October 10, 1940, and regulations promulgated thereunder; use of the services and facilities of the Federal Reserve banks; and all other necessary administrative expenses: Provided, That all necessary expenses in connection with the acquisition, operation, maintenance, improvement, or disposition of any real or personal property belonging to the Corporation or The RFC Mortgage Company or in which they have an interest, including expenses of collections of pledged collateral, shall be considered as nonadministrative expenses for the purposes hereof: Provided further, That notwithstanding any other provisions of this Act, except for the limitations in amounts hereinbefore specified, and the restrictions in respect to travel expenses, the administrative expenses and other obligations of the Corporation shall be incurred, allowed, and paid in accordance with the provisions of said Act of January 22, 1932, as amended (15 U. S. C. 601-617). JUSTIFICATION OF ESTIMATE Mr. MULLIGAN. We submit the following detailed justification of the estimate for the Reconstruction Finance Corporation and the RFC Mortgage Company. JUSTIFICATION OF INCREASE The estimate of $10,335,292 approved by the Bureau of the Budget for administrative expenses of the Reconstruction Finance Corporation and the RFC Mortgage Company for the fiscal year 1943, represents an allocation from the earnings of the two corporations, rather than an appropriation for the payment of administrative expenses. $260, 432 Outside professional services_ This sum is $444,612 more than the amount approved by the Congress for the fiscal year 1942. The increase is made up as follows: Personal services.. Supplies and materials_ Communication service. Travel expense--Transportation of things. Printing and binding__ Special and miscellaneous $10,000 25,000 20,000 Furniture and fixtures.. 25, 000 10,000 agencies... 14, 100 15,000 10, 000 Total PERSONAL SERVICES 444, 612 Although the defense affiliates of this Corporation have been organized especially for the purpose of handling defense activities unprecedented in the history of this country, the Reconstruction Finance Corporation has had a marked increase in its defense work and other functions. Therefore, while most of new employees' salaries will be reimbursable, which has been considered in the preparation of the 1943 Budget estimate, some of the salaries will be due to increased business of this Corporation, hence the Budget increase $260,432. Of that amount $30,292 is for administrative promotions authorized by act of Congress approved August 1, 1941. SUPPLIES AND MATERIALS Considering the increased cost of supplies and materials, it is doubtful whether the increase of about $20,000 over the actual for 1941 is sufficient. COMMUNICATION SERVICE The estimate is less than $12,000 over the actual for the fiscal year 1941. TRAVEL EXPENSE Experience from year to year has indicated that some of the older loans are becoming much more troublesome and require closer supervision, which increases the cost of travel. The estimate was made without considering a possible increase in per diem allowance now under consideration by the Congress. TRANSPORTATION OF THINGS The Corporation is now confronted with the scarcity of equipment and supplies and is compelled to buy where the goods are available and pay the additional cost of transportation. It will be observed that the actual for 1941 is about $8,000 less than for 1943. . PRINTING AND BINDING The increase appears reasonable, in view of increased costs, and by comparison with the actual for 1941. SPECIAL AND MISCELLANEOUS The increase is less than 10 percent over the estimate for 1942. OUTSIDE PROFESSIONAL SERVICES The increase is to provide for the increase in cases in litigation and the resultant increase of cost of handling. CUSTODIANS It will be observed that the 1943 estimate is only $6,000 more than the actual for the fiscal year 1941, or an increase of about one-half of 1 percent. |