regulations, moreover, foreclosure must begin promptly in the event of default. Loans of this class must be considered prime loans as compared with those which the H. O. L. C. took over.

During the fiscal year 1942, we estimate that the total costs involved in the handling of the Corporation's loan portfolio will come to $5,850,000. This, it should be explained, includes not only the costs of the Loan Service Division itself, but the costs involved in the maintenance of our loan records and the cost of the services contributed to our collection and servicing activity generally by the Accounting, Appraisal, Reconditioning, Legal, and all other units of the organization. It also includes not only pay roll, but travel, rent, and communication costs, and other overhead items of this sort. This is one-third of 1 percent on the declining unpaid loan balance of the Corporation for the present fiscal year, or less than one-half the rate paid to private lending institutions for servicing prime insured mortgages. If our loans were being serviced at the same rate threequarters of 1 percent-the cost to the Corporation would be $13,500,000, or about 2 times the amount it is now costing the Corporation to do this work itself, and only $1,650,000 less than the entire appropriation requested for the 1943 fiscal year.

On the average, during the fiscal year 1941, the employees of the Corporation's Loan Service Division numbered 2,061. We estimate that the average for the fiscal year 1942 will be around 1,451. Our estimate for 1943 calls for an average of 1,135 employees, or 315 less than the number estimated for the present fiscal year.

PROPERTY MANAGEMENT

On October 31, 1941, the Corporation's Property Management Division had under its jurisdiction a total of 49,125 properties. Of these, it owned 40,614 outright. The remaining 8,511 were properties which the Corporation had authorized for foreclosure but which it had not yet actually acquired.

Over the 12-month period ending October 31, 1941, we sold 27,286 properties, bringing the cumulative total of our property sales at that date to 146,856 for an aggregate sales price of $509,652,000. The properties then owned and on hand had a book value of $282,904,000.

The 40,614 properties owned by the Corporation at the close of October 1941 represented a total of 57,401 units. Because analysis indicated that they could be dealt with to better advantage in this manner, the Corporation, rather than proceed with the reconditioning of certain of these properties, is offering them in their "as is" condition instead. For this and other reasons, units available to yield income numbered 48,769, rather than the total of 57,401 owned. Of those available to yield income, 44,576, or 91 percent, were actually rented, the average monthly rental coming to $36.67. Rental collections during October of $1,653,000 represented 99.4 percent of the month's accruals. During the fiscal year 1941, total rental property income amounted to $20,774,000. Expenses for all properties owned, including taxes, insurance, maintenance, management, commissions and miscellaneous items, amounted to $16,680,000. Thus, from the management of its owned properties over that period, the Corporation received a net operating income of $4,094,000.

On the 146,856 properties that it had sold through October 1941, the Corporation had sustained an aggregate loss, commissions and

selling expense included, of $211,000,000. Viewed by itself, this may seem a rather substantial figure. It is to be remembered, however, that the Corporation has been conducting a $3,000,000,000 emergency program and the properties on which we made 80-percent loans had an average age of 17 years. The properties we now have average nearly 23 years old. It should be mentioned also that, up through October 1941, the Corporation had accumulated a total of $241,000,000 of reserves. With these losses charged against them, the balance in reserves on October 31, 1941, was $30,000,000. The Corporation is continuing to add to its reserves at the rate of $3,350,000 per month. With respect to these property losses I might also add that from all the evidence that has come to our attention, the Corporation is securing as favorable a recapture on the sale of its acquired properties as are other holders. An examination made during the last year of sales in Massachusetts by one of the leading mortgage institutions showed recoveries of 45 to 54 percent of the costs at which the properties were acquired. The Corporation, on the other hand, has realized an average recapture of 63 percent in the resale of its Massachusetts properties. In New York State two surveys by business organizations reported recovery on a group of representative properties of 51 percent of assessed valuation. The corresponding H. O. L. C. ratio for houses in the same locality disposed of about the same time, was 70 percent. Another group of privately held properties in a metropolitan area sold at prices averaging 52 percent of assessed valuation. A study of Corporation sales throughout the same area showed that it was securing approximately 79 percent of the assessed valuation on properties of the same class.

No institution, of course, makes money on its foreclosed real estate, but all indications are that the Corporation has been fully as successful as other mortgage lenders in holding these losses to a minimum.

On October 31, 1941, the properties under the jurisdiction of the Property Management Division numbered 19,873 less than they did a year previously. It is expected that sales will continue to exceed the number of loans authorized for foreclosure and that the number of properties under the jurisdiction of the Property Management Division will continue to decline during the balance of the fiscal year 1942 and during 1943. A large percentage of those that remain, however, are the less attractive properties and properties located in decadent neighborhoods or in communities where the real estate market has long been dormant. It was in New York, New Jersey, and the New England States, for example, that the Corporation encountered the most difficult market conditions in the country, with the result that, of the total of 40,614 properties that it owned the country over on October 31, 1941, 30,370, or 75 percent, were concentrated in that one area. While the volume, then, is less than in previous years, a high proportion of the properties with which the Corporation is now dealing are of the type to offer unusual sales and management problems. If they are to be competently handled, and if heavy losses are to be avoided, a trained and adequate staff must be maintained to give them the intensified servicing that they require. During the fiscal year 1942 we estimate that the average employments of the Property Management Division will be 1,453. Our estimates for the fiscal year 1943 anticipate an average of 1,015 employees. This represents a reduction of 438, or 30 percent.

APPRAISAL AND RECONDITIONING

The function of the Appraisal and Reconditioning Division is to furnish the technical services essential to the effective conduct of the Corporation's loan service and property management operations. Among other things, the Appraisal Section is responsible for the periodic evaluations and for the continuing study of market factors, that are necessary if the Corporation's acquired properties are to be handled to best advantage. Similarly, one of the major duties of the Reconditioning Section is that of supervising the reconditioning work needed to place the properties taken over by the Corporation in acceptable condition for rental or sale. During the fiscal year 1941, roughly some $15,000,000 was spent for the maintenance and reconditioning of the Corporation's owned properties. Some falling off in these expenditures is anticipated for the fiscal years 1942 and 1943. Although this does not enter into our budget, since the Corporation is reimbursed 100 percent for what it does in these directions, it might be mentioned that the services of the Appraisal Section are available both to the Federal Home Loan Bank Board and to the Federal Savings and Loan Insurance Corporation. In addition, in connection with the defense program, it has done a substantial amount of appraisal work on a reimbursable basis for the War, Navy, and Justice Departments, and for other agencies as well.

In the interests of advancing the defense housing program, the Reconditioning Division is expediting the rehabilitation of the properties owned by the Corporation in defense areas. In addition, it is cooperating with the Defense Housing Coordinator in the conduct of the homes registration program. Under this program, the experience and technical facilities of the section are available for the guidance of private owners in order that additional units may be made available in defense localities through the modernization and alteration of existing properties.

There are great advantages in this method of increasing defense housing wherever it is practicable to employ it. Valuable time is saved since the work can be done much more quickly than by building new houses. The undue use of critical materials is avoided, as well as the duplication of existing utilities such as water, gas, and electricity in addition to sewage-disposal facilities. Taxable values are likewise preserved to cities and towns instead of being depreciated by the overexpansion of new construction in adjacent areas.

The architectural and inspection services involved in this work are handled on a fee basis, the costs defrayed from a fund of $100,000 which the President has allocated to that purpose from his emergency funds. The function of the Corporation's Reconditioning Section is a supervisory one, its salaried staff exercising a general oversight of the program so far as its technical aspects are concerned. The section is exceptionally well equipped to be of real assistance in the development of this type of defense housing work since it has handled more than three-quarters of a million repair, alteration, and modernization jobs of various kinds in all parts of the country, an experience without precedent.

As the volume of fee assignments in the different localities declines, it becomes possible for the Corporation to take care of the regular work of the Appraisal and Reconditioning Division more economically,

when handled, not on a fee basis, but by its salaried personnel. With respect, then, to our estimates for the Appraisal and Reconditioning Sections, it is to be borne in mind that the Corporation is absorbing into its pay-roll costs a substantial expense that was previously carried in the nonadministrative category. In the fiscal year 1941, the Corporation's fee disbursements for appraisals and reconditioning inspections came to $650,232, or $881,616 less than the year before. For the fiscal years 1942 and 1943 we estimate that these disbursements will continue to decline to some $450,000 and $324,000, respectively.

During the fiscal year 1942, we estimate that the Appraisal and Reconditioning Sections will have an average of 833 salaried employees. Our estimates for the fiscal year 1943 provide for an average employment of 644, or 189 less.

In this preliminary statement, I have attempted to convey a brief summary of the work of the Corporation's three major operating divisions. All other Corporation units supplement the work of these three divisions, and the estimates we have drawn up for the others are explained in detail in the justification aready furnished you.

In conclusion, may I recall that the Government and the American public have a tremendous financial stake in the Corporation's administration of the 2%1⁄2 billion dollars of assets for which it is responsible. The wartime period will represent a very important and critical epoch in the history of the Home Owners' Loan Corporation. In some sections of the country where real-estate values have shown little recovery from the years of extreme depression, demand is now stronger and losses on acquired properties should be less. In other sections present values may be adversely affected. Wages and employment have improved so much in some areas that people are now much interested in acquiring homes when there was no such inclination a year or two ago. Our borrowers, as a result of improved economic conditions, are also meeting their obligations better and are disposed to reduce principal payments in excess of the regular accruals. We are, however, faced with the uncertainties which will result from the conversion of industries in many localities from peacetime operations to war production.

While we are mindful of the need for every possible economy in operations, it is of the highest importance that the Corporation should have the facilities and the experienced organization to secure the greatest possible realization on the assets which it has in charge. While we have cut out estimates as close as we dare to go, we intend, as in the past, to make every possible saving within the appropriation.

ADMINISTRATIVE EXPENSES

Mr. FAHEY. For the year 1941 the amount the Corporation was authorized to make available for its administrative expenditures was $22,000,000. Its actual expenditure came to $19,768,000, leaving an unobligated balance for that year of $2,232,000.

For the fiscal year 1942 our authorization for administrative expenditures is $19,400,000. We are now satisfied that we will be able to save about $1,780,000 out of that, thus holding our expenditures for the 1942 fiscal year down to $17,620,000.

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For 1943, our budget request calls for $15,153,712. That represents a reduction below the budget approved for the present year of $4,250,000. The cumulative reduction since the period of our lending operations previous to 1936 is roughly $21,000,000. In other words, we have been able to cut this budget by something more than half since we stopped lending.

REDUCTION IN PERSONNEL

Eighty-five percent of our administrative expense is pay roll. For the fiscal year 1941 the Corporation had an average of 8,559 employees. The pay roll for that year amounted to $16,623,000. During the present fiscal year we figure our employment will average 6,979, and that the pay roll will be some $14,500,000. In other words, we have been able to save a couple of million dollars. The reduction in personnel is 1,580 and, in pay roll, $2,123,000.

The budget which we are submitting for 1943 provides for an average of 5,733 employees, and an estimated pay roll for the 12-month period of $12,519,000. On this basis the Corporation's employments will average 1,246 less than the number estimated for the present year, and the pay roll will be reduced by approximately $1,981,000. The estimated average of 5,733 for the fiscal year 1943 compares with our peak employment of nearly 21,000 people.

We have been able to work out these reductions in spite of the fact that we are called upon to absorb about $1,150,000 into our projected 1943 pay roll to provide for the within-grade advances required under recent legislation and for the salary increases that will result when, as required by law, we go under civil service.

Mr. FITZPATRICK. According to that, you have reduced your personnel about 75 percent during that period?

Mr. FAHEY. That is right.

Mr. FITZPATRICK. From its peak?
Mr. FAHEY. That is right.

FORECLOSURES

Mr. FITZPATRICK. Could you give the committee the number of foreclosures for the present year compared with the previous year? Mr. FAHEY. Yes, sir.

Dr. HUSBAND. We can give it to you by months.

In October, 779 gross; withdrawn, 501; net, 278.

The net in September was 271; the net in August, 383; the net in July, 212; and the net in June, 352.

Mr. FITZPATRICK. How do the foreclosures compare in 1941 with 1940?

Dr. HUSBAND. Oh, much less; at least 50 percent.

Mr. FITZPATRICK. What I am trying to bring out is that the owners seem to be in better financial condition to meet their payments? Mr. FAHEY. Yes, indeed.

In

There are some interesting things about the present situation. the first place, as a result of increased employment and higher wages, the corporation's borrowers are not only meeting their regular payments in better fashion, but, as a matter of fact in some sections of the country, are beginning to exceed them. Already they have paid in