considerable amounts in excess of their contractual accruals. We are encouraging that, but they have been doing it on their own account, also. Of course, it is highly desirable that these borrowers should be encouraged to reduce their indebtedness during this period, when their incomes are greatly increased. It is obviously to their interests, when they have the money, to guard against the uncertainties of the future, by paring down their debts as rapidly as possible.

The other interesting development is the one to which Dr. Husband referred a moment ago. Out of the number of loans authorized for foreclosure, the proportion where borrowers have been able to make a satisfactory settlement before we reach the point of final action and where the Corporation has thus been enabled to withdraw its proceedings has increased very greatly over what it has been in the past. Mr. FITZPATRICK. And it is more encouraging at the present time. insofar as any loss by the organization is concerned when it is finally liquidated?

Mr. FAHEY. It is. In addition to the improving income picture, real estate values in most sections of the country are stiffening perceptibly. In those States which were slowest to recover from the real-estate depression, in the northeastern States particularly, this is something that has come about for the first time within the past year. Only within the last year have those areas shown any really encouraging recovery, but they are showing signs of it now.

Mr. FITZPATRICK. And with reference to those houses that you have foreclosed, they are gradually increasing prices?

Mr. FAHEY. Well, we are able to cut down the losses from what they have been in the past.

Mr. FITZPATRICK. That is what I mean. You are gradually getting more money, say, at the present time, than you could get a year ago for the same houses.

Mr. FAHEY. That is right.

Mr. HOUSTON. In the final analysis, will the net loss be any appreciable amount?

Mr. FAHEY. It is a mere guess as to what it will be. A lot is going to depend upon what happens during this particularly critical period. There are encouraging features, such as those that I have just referred

to.

At the same time, we have to recognize that, in some areas, there is going to be a considerable amount of dislocation. Though it may be temporary, this so-called priority unemployment is nevertheless a factor very much to be reckoned with, and the migration of workers from one town or city to another has a very definite bearing upon what happens to our collections, our property sales, and everything else.

Mr. HOUSTON. What has the sale of property been in recent months; I mean in recaptured property?

Mr. FAHEY. There has been a steady increase in recapture as against the experience of earlier years.

Mr. FITZPATRICK. What approximate percentage of the total amount of loans has been foreclosed?

Mr. FAHEY. About 19 percent.

Mr. FITZPATRICK. And the other 81 percent are in the process of carrying on?

Mr. FAHEY. The other 81 percent have either been paid in full on are carrying on.

Mr. FITZPATRICK. In a way satisfactory to the organization?

Mr. FAHEY. Of course, some of these accounts we have to follow pretty carefully. For example, there are the so-called Mead-Barry accounts, which were extended under the law, and of which there are now approximately 230,000 outstanding. This group of loans has to be serviced very much more closely than the unextended original loans, since, of course, it was the loans in difficulty that were recast, the others, in the main, being in relatively good shape. Mr. FITZPATRICK. How many loans have been granted on a 25year payment?

Dr. HUSBAND. There are now some 230,000 outstanding, but they do not all go up to 25 years.

Mr. FITZPATRICK. You do not get as many complaints now as you did a few years ago of hardship cases?

Mr. FAHEY. No. Of course you always have a certain number. Mr. FITZPATRICK. Of course; but the number has been reduced as compared to other years?

Mr. FAHEY. Yes, sir.

Mr. FITZPATRICK. And not any of the money requested here is coming out of the Treasury of the United States?

Mr. FAHEY. No.

Mr. FITZPATRICK. It is out of your own funds?

Mr. FAHEY. That is right.

Mr. FITZPATRICK. Otherwise it is self-supporting?

Mr. FAHEY. That is right

Dr. HUSBAND. We have about 30 to 40 borrowers dying every day, which means that some difficulties are to be expected at all times. Mr. FITZPATRICK. I see.

Mr. FAHEY. You see, this after all, is a very large operation. It is the largest of its kind ever undertaken at any time in history, and there are a lot of different phases to it.

Mr. FITZPATRICK. You took over some of the worst loans in the United States?

Mr. FAHEY. Well, on the average they were

Mr. FITZPATRICK. The banks and insurance companies were ready to close on them, and you saved about 81 percent, and I think it is a fine record.

Mr. STARNES. I agree with you, Mr. Fitzpatrick. I think the work of the H. O. L. C. has been outstanding.

On that 19 percent that has been foreclosed, don't you resell a lot of that property, so that it is not a loss?

Mr. FAHEY. Yes; we sell it all. When we sell on the deferredpayment plan; that is, when we finance the sale ourselves, taking back from the purchaser a mortgage or other security instrument, we classify the accounts thus set up as vendee accounts. The full record is in our justification here.

AVERAGE LOSS ON FORECLOSURE

Mr. HENDRICKS. What do you find is the average loss on foreclosures?

Mr. FAHEY. The last average figure was a little over $1,200. Including commissions and selling expenses, it was a little over $1,400. All of that data is in our justifications.

With respect to these losses, I should like to say that we feel we have been very fortunate. As explained in my preliminary statement, tests by outsiders in some of the most difficult areas have shown that the Corporation's recapture has been fully as favorable as that of private agencies; in fact better.

Again, in the case of our loan service operation, I should like to recall the facts have been covered in more detail in my introductory statement that our costs come to approximately one-third of 1 percent of the unpaid principal balance of the Corporation's mortgage loan portfolio. This includes not only the costs of the Loan Service Division itself, but all costs of other departments and units that are applicable in any way to the Corporation's loan collection and loan servicing activity. This rate of one-third of 1 percent is less than one-half of the three-quarters of 1 percent on unpaid principal balance which is generally regarded as a fair mortgage-servicing charge. In other words, during the present fiscal year, the entire cost to the Corporation of all activities relating to its loan portfolio will come to some $5,850,000. If we were paying the prevailing rate of threequarters of 1 percent, it would be about $13,500,000.

Mr. FITZPATRICK. Do you loan around 80 percent of the valuation? Mr. FAHEY. We did.

Mr. FITZPATRICK. The average bank or insurance company would only loan about 50 or 55 percent, and yet your loss compares very favorably with theirs?

Mr. FAHEY. Well, it depends upon the law in the several States. In some States they are allowed to loan up to 66% percent; in other States, 60 percent. That applies to mutual savings banks and insurance companies. Generally, savings and loan associations have loaned up to a slightly higher proportion of property value than have other lenders. On insured mortgages, of course, all of these institutions can lend more liberally. Just what the ratio ever was on the average, the country over, it is very difficult to say. It is a fact, however, that except for F. H. A. insured loans, no private institutions have ever been permitted to lend as high a ratio as did the H. O. L. C. None of them, of course, would lend at all on the kind of risks that the Home Owners' Loan Corporation took over. On the average, the obligations refinanced by the Corporation were approximately 2 years in default on principal and interest, and 3 years behind in taxes at the time the Corporation's loans were granted. We could not take loans under the statute unless the home owner was either threatened with foreclosure or had already been actually foreclosed.

Mr. FITZPATRICK. In fact, most of them have been foreclosures? Mr. FAHEY. A large portion of them.

Mr. WOODRUM. The prime qualification for you to make a loan was that the chances of collecting were not very good?

Mr. FAHEY. As I have often said, this is the only financial institution I have ever heard of that was organized to make risky loans on poor credits.

Mr. FITZPATRICK. With as much success?

Mr. FAHEY. Well, a great many things have contributed to whatever success the H. O. L. C. has had. For one thing, there is the return of better economic condition. In the second place I think it only fair to say that the thousands of people that came into this organization in the hectic days of heavy work just never spared them

selves. Working day and night, they did a splendid job. They had a real enthusiasm for it. They were interested in it from the standpoint of the welfare of their fellow citizens. They applied themselves to it with a real devotion, thinking neither of hours nor of pay.

Another thing to be said is that the people employed in this organization have had an experience in the mortgage business, more varied and intensive than that ever before offered by any other mortgage institution. As a result of this training, they have, with few exceptions encountered very little trouble in obtaining satisfactory employment in private organizations as we have had to drop them out. Although we have reduced the number of our employees by something like 75 percent, very little in the way of hardship has been occasioned by it.

BALANCE OF ORIGINAL LOANS AND ADVANCES OUTSTANDING

Mr. WIGGLESWORTH. Mr. Fahey, in your justifications, pages 4 and 5, you show original loans of something over three billion and advances to borrowers making a cumulative gross indebtedness of $3,263,000,000. You deduct from that principal repayments of $956,000,000, and you make a further deduction of $786,000,000 which is entitled "Balance transferred to property or other accounts." What is the meaning of that?

Mr. FAHEY. That is the book value transferred from loan to property account as a result of the properties we have been obliged to repossess.

Mr. WIGGLESWORTH. That you have taken over?

Mr. FAHEY. Yes.

Mr. WIGGLESWORTH. So that the figure of original loans and advances outstanding today of $1,521,000,000 is on the basis of realizing 100 percent on that property?

Mr. FAHEY. The $786,000,000 has reference, not to loans outstanding, but to loans foreclosed.

Mr. FITZPATRICK. But you would not have to realize 100 percent on the value of that property because the interest on the loans will form a surplus?

Mr. FAHEY. We have accumulated reserves against losses and are continuing to do so.

Mr. WIGGLESWORTH. You say there is $1,521,000,000 outstanding

Mr. FAHEY. That is the balance of our original loans.

Mr. WIGGLESWORTH. That is what I am talking about; but to arrive at that figure in this table you have made a deduction of $786,000,000 plus, entitled "Balance transferred to property or other accounts."

Mr. FAHEY. "Other accounts" means vendee accounts.

Mr. WIGGLESWORTH. Is that the cash value realized from the property?

Mr. FAHEY. That is the book value transferred to property

account.

Mr. WIGGLESWORTH. Then is not the statement correct that if you realize less than the book value the amount outstanding will be increased to that extent?

Mr. CATLETT. Your $1,521,000,000 is the total of principal and interest now due on the outstanding loans.

Mr. WIGGLESWORTH. $786,000,000 in property having been accepted?

Mr. CATLETT. That is the property we foreclosed on.

Dr. HUSBAND. And of that amount only $288,000,000 represents the book value of the property we owned as of September 30, 1941. Mr. FAHEY. The rest of it we have sold. As a result of these sales, we have set up new loans, which we call vendee accounts to differentiate them from the original loans. The first figure that you read there, Mr. Wigglesworth, is for original loans.

Mr. WIGGLESWORTH. I understand. So there is about 50 percent of the original loans outstanding today?

Mr. FAHEY. Yes; in dollar amounts, just about that.

ORIGINAL LOANS PAID IN FULL

Mr. WIGGLESWORTH. Now, if I read your justification right, about 109,000 loans aggregating $263,000,000 have been paid in full? Mr. FAHEY. That is right.

Mr. WIGGLESWORTH. That is, about 10 percent have been paid in full?

Mr. FAHEY. That is right.

EXTENSIONS ON LOAN

Mr. WIGGLESWORTH. And there have been, or will be shortly, about 342,000 cases of extension, or about 33 percent in number of the loans originally made?

Mr. FAHEY. That is right.

Mr. FITZPATRICK. Pardon me.

Would it be 33 percent of the

original loans made that will get an extended time?
Mr. WIGGLESWORTH. In number.
Mr. FAHEY. In number.

Of course, some of those extensions are not for 25 years. We make extensions in some cases for shorter periods.

Mr. WIGGLESWORTH. In that connection, will you furnish for the record a table which will show those 342,000 extensions, broken down by periods of extension?

Mr. FAHEY. You mean by years?

Mr. WIGGLESWORTH. No; I want to see what percentage of them have been extended for each period.

Mr. FAHEY. We have that figure here of how many have been extended up to 15 years and how many of them run to 25 years. Mr. WIGGLESWORTH. Are those the only two classifications? Mr. FAHEY. That is what practically all of them are.

Mr. WIGGLESWORTH. Either 15 or 25?

Mr. FAHEY. Some of them are in between.

20 years. It depends upon the particular case. two classifications we have here.

Some might be 18 or

But those are the