FEE SERVICE AND COMMISSIONS Summary of legal costs incident to foreclosures, evictions, bankruptcies, and sales (comprising both disbursements capitalized and those charged to operations) for the fiscal year ended June 30, 1941: Attorneys' fees and foreclosures, legal costs: Foreclosure legal costs.. Total_ Legal costs for eviction, ejectment, and forcible detainer. Legal costs for bankruptcy.. Conveyancing costs on sales_ Grand total____. $1, 103, 274. 69 1, 213, 418. 49 2, 316, 693. 18 169, 335.87 1, 219. 37 759, 714. 05 327, 719. 15 3, 574, 681. 62 Statement of fee services and commissions for the fiscal year ended June 30, 1941 Mr. WIGGLESWORTH. Have you given us a balance sheet anywhere? Mr. FAHEY. No, sir. Mr. WIGGLESWORTH. If not, will you furnish that for the record? Mr. FAHEY. Yes, sir. (The statement requested is as follows:) Home Owners' Loan Corporation balance sheet at Nov. 30, 1941 ASSETS Mortgage loans, vendee accounts, and advances, at present face value. Interest receivable.. $1,794, 110, 781. 43 5, 424, 966. 12 274, 986, 060, 00 154, 209, 147. 16 Bond retirement fund: Cash (including $7,639,900 deposited with U. S. Treasury for retirement of matured bonds) ____ Home Owners' Loan Corporation balance sheet at Nov. 30, 1941-Continued Cash: Bonded indebtedness (guaranteed as to Bonds outstanding, not matured__ $2, 408, 920, 850. 00 Accounts payable: Interest due Dec. 1, 1941 and prior thereto (see contra). Vouchers payable....... 7, 639, 900.00 2, 416, 560, 750.00 7, 659, 488. 99 69, 115. 23 Insurance premiums. Commissions to sales brokers.. 138, 914. 85 89, 728. 62 Home Owners' Loan Corporation balance sheet at Nov. 30, 1941-Continued LIABILITIES AND CAPITAL-continued 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. WIGGLESWORTH. Yes. 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 You had a $33,000,000 reserve there against $1,900,000,000, year. 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. It says here in 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. 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. CATLETT. Yes. 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 any 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 all 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? Over the Mr. FAHEY. No. On a monthly basis, the average loss per property sold has been dropping steadily for some time now. 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. |