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Home Owners' Loan Corporation balance sheet at Nov. 30, 1941-Continued Cash:

Operating funds (includes $19,113,

105.54 payable to bond retire-
ment fund in December 1941; and
$19,493,950.81 deposited by bor-
rowers, see contra).

$55, 086, 189. 53
Special funds held by l'. S. Treas-
ury for payment of interest cou-
pons (see contra)...

7, 659, 488. 99

$62, 745, 678. 52 Fixed assets: Home office land and building, at cost.

2, 987, 819. 93
Furniture, fixtures, and equipment,
at cost.

2, 457, 977. 75

[blocks in formation]

2, 416, 560, 750.00

LIABILITIES AND CAPITAL Bonded indebtedness (guaranteed as to

principal and interest by the United
States, except $210,650 of unpaid ma-
tured 4 percent bonds guaranteed as
to interest only):

Bonds outstanding, not matured.. $2, 408, 920, 850.00
Bonds matured, on which interest

7, 639, 900.00 Accounts payable:

Interest due Dec. 1, 1941 and prior
thereto (see contra)

7, 659, 488. 99
Vouchers payable --

69, 115. 23 Insurance premiums.

138, 914. 85 Commissions to sales brokers..

89, 728. 62 Special deposits by borrowers.

19, 493, 950. 81 Miscellaneous

38, 039. 14 Accrued liabilities:

Accrued interest on bonded in-
debtedness -

10, 153, 682. 60
Other accrued liabilities.

409, 773. 90 Deferred and unapplied credits:

Unamortized premium on bonds

1, 121, 352. 68

1, 541, 462. 47 Reserves: Fidelity and casualties.

233, 572. 67 Fire and other hazards.

1, 061, 008. 81

27, 489, 237. 64

10, 563, 456. 50

2, 662, 815. 15

1, 294, 581. 48 Home Owners' Loan Corporation balance sheet at Nov. 30, 1941-Continued

LIABILITIES AND CAPITAL-continued Capital stock less deficit:

Capital stock, authorized, issued, and outstanding

$200, 000, 000. 00 Deficit.

100, 773, 023. 91

$99, 226, 976. 09 Total.-

2, 557, 797, 816. 86 NOTE.—Property owned and property in process of acquiring title are stated at values represented by unpaid balances of loans and advances, unpaid interest to date of foreclosure sale or judgment, foreclosure costs, net charges prior to date of acquisition, and permanent additions, initial repairs, and reconditioning subsequent to acquisition. Unpaid interest included in these values amounts to $14,389,741.35.

The reserve for losses is being accumulated at an annual rate which, it is intended, will approximate eventually the total losses which may be sustained in the liquidation of mortgage loans, interest, and property. During the period of accumulation, therefore, the carrying value of these assets, less the reserve, will not necessarily represent their probable realizable value.

Except for property transactions which are recorded on a cash_basis, major items of income and expense are recorded on an accrual basis. Therefore, no asset value has been recognized with respect to uncollected rentals or prepaid taxes nor liability for accrued taxes.

Mr. WIGGLESWORTH. How much are we in the red now, according to that balance sheet?

Dr. HUSBAND. About $70,000,000.
Mr. FaHEY. Net, it is about $70,000,000.
Mr. WIGGLESWORTH. A hundred million gross?
Mr. Fahey. And $67,000,000 net.
Mr. RHODES. There is a $29,000,000 reserve.
Mr. WIGGLESWORTH. That would be $71,000,000 net?
Mr. RHODES. Not quite $71,000,000.
Mr. Fahey. Yes; that is right.

Mr. WIGGLESWORTH. And how much are we going in the red by the month?

Mr. Fahey. In some months we really are not going in the red at all. Our monthly income is sometimes more than enough to absorb both our operating expenses and the property losses sustained during the course of the month. In such months, except that we are adding regularly to our reserves to provide for future losses, we would actually be out ahead. We charge up to reserves about $3,300,000, monthly.

Mr. WIGGLESWORTH. You are still doing that?
Mr. Fahey. Yes; we are still doing that.

Mr. WIGGLESWORTH. That is a reserve of something less than 2 percent?

Mr. Fahey. You mean the reserve left now?
Mr. Fahey. The balance in the reserve.

Mr. WIGGLESWORTH. Something less than 2 percent against outstanding loans?

Mr. Fahey. We have got the exact figures here.

Mr. LOVELL. It is about 10 percent of the outstanding property at the present time.

Mr. WIGGLESWORTH. I was thinking of the $1,500,000,000 or thereabouts of outstanding loans.

Mr. RHODES. Of the total loans outstanding, it is less than 2 percent. It is about 1.5 percent.

Mr. WIGGLESWORTH. That is about the picture you gave us last vear. You had a $33,000,000 reserve there against $1,900,000,000, I think.

Mr. Fahey. Yes; approximately that.

Mr. WIGGLESWORTH. Now, you tell us in this justification that in the sale of properties with a book value of $652,000,000 we have experienced a loss of about $168,000,000?

Mr. Fahey. It is more than that now.
Dr. HUSBAND. It is $207,000,000 now, Mr. Wigglesworth.
Mr. RHODES. That figure was as of June 30.

Mr. WIGGLESWORTH. Yes; that was as of June 30. It says here in the justifications that 139,764 properties have been disposed of for a total sales price of $483,900,000, and that these properties were carried on the books of the Corporation at a capital value of $652,381,663, thus reflecting a cumulative loss on sales of properties at June 30, 1941, in the amount of $168,402,668.

Mr. CATLETT. You have to add to that your commissions and selling expense.

Mr. WIGGLESWORTH. Yes; exclusive of commissions and selling expense?


Mr. WIGGLESWORTH. That is a loss of about 25 percent, exclusive of commissions and selling expense?

Mr. Fahey. We have brought that down in the statement here to a later date, to October 31, 1941, and have shown the total loss, including commissions and selling expense. The total amount as of that date was $211,000,000. Reserves accumulated as of that date were $241,000,000, leaving, in round numbers, a net balance in the reserve of $30,000,000. This is approximately the figure that Mr. Rhodes quoted a few minutes ago.

Mr. WIGGLESWORTH. How has that loss of $211,000,000 been offset?

Mr. FaHEY. Well, against that, of course, you have to consider the Corporation's income which brings you finally to the figure that Mr. Rhodes just quoted of a net operating deficit of around $70,000,000.

Mr. FITZPATRICK. In other words, that would be the total loss up to date?

Mr. Fahey. Yes.

Mr. CATLETT. You see, the interest income has enabled us to offset the loss by something like $143,000,000.

Mr. Fahey. What saves us, as in the case of any other mortgage institution, is the difference between the rate we pay on our borrowed funds and the rate we receive on our loans. It is from the spread between the two that we are able to offset our losses.

Mr. WIGGLESWORTH. Does that explain this footnote to your last year's balance sheet, which says:

The reserve for losses is being accumulated at an annual rate which, it is intended, will approximate eventually the total losses which may be sustained in the liquidation of mortgage loans, interest, and property. During the period of accumulation, therefore, the carrying value of these assets, less the reserve, will not necessarily represent their probable realizable value.

Just what does that mean?

Mr. FaHEY. What it means is this: with respect to the property on hand, you cannot tell exactly what loss you are going to sustain, or whether you are going to sustain any. Until you have disposed of it, you cannot tell how you will come out. Under changing market conditions there is no way of forecasting what the loss will be.

Mr. WIGGLESWORTH. It is carried as book value, and if you sustain a loss of 25 percent on it

Mr. Fahey. If the loss continues at that rate; yes.

Mr. WIGGLESWORTH. That would make this balance sheet entirely out of line except for that paragraph?

Mr. Fahey. The 25 percent is to be figured, of course, not on our loans, but on the book value of the property now on hand.

Mr. WIGGLESWORTH. What is the book value of the property we now have on hand?

Mr. Fahey. As of the close of September 1941, it was $288,000,000.

Mr. WIGGLESWORTH. So, at the same rate, we might anticipate a total loss of something like $72,000,000 more on that?

Mr. Fahey. Yes; we may lose that much, but, as I have said, there is no reliable way of forecasting what these losses will actually turn out to be.

Mr. FitZPATRICK. Under the present conditions, Mr. Fahey, we may not have


loss at all? Mr. Fahey. You mean on the whole business of the corporation? Mr. FITZPATRICK. Yes. Mr. Fahey. It is very difficult to say:

Mr. FITZPATRICK. But with prices going up, next year there may not be any

loss? Mr. Fahey. Well, that you cannot tell. In addition, of course, it is to be remembered that in any kind of a mortgage operation a certain proportion of foreclosures will come inevitably alĩ the time. They are a part of the business.

Mr. Houston. Has your average loss per unit over the last few years since you started foreclosure been about the same?

Mr. Fahey. No. On a monthly basis, the average loss per property sold has been dropping steadily for some time now. Over the past year or so, it has been declining.

Mr. Houston. It was $1,200, or $1,400, including commissions?
Mr. Fahey. Yes, sir; including everything.
Mr. HOUSTON. And that is a little less than it has been?

Mr. Fahey. Yes; for recent months. The report for the last full month we had in, showed that in about 18 percent of our sales, we were recovering full book value.

Mr. Houston. And if we had been able to maintain the even tenor of our ways in the situation of the country, we would have been able to come out in nice shape; but now we do not know what is going to happen?

Mr. Fahey. Yes; I think we have to face this thing realistically. I do not think there was ever a chance, considering the type of risk the Corporation took over, that it could come out whole. Nobody ever expected it would, and it would be a miracle if it did. On the other hand, I think the fact of the matter is that the ultimate loss will be surprisingly low.

Dr. HUSBAND. It is the general consensus that it will be a remarkable accomplishment if we do not lose all our capital stock.


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.


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.


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. Fahay. Yes; I know.

Mr. WIGGLESWORTH. They appear as if they were new positions. They are not new positions?

Mr. Fahey. In à 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.

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