Mr. FITZPATRICK. If I figure this thing out correctly, there were 164,000 or 165,000 sold and now owned by the Corporation. That is not 20 percent of the total amount.

Mr. DIRKSEN. Those figures are in the justifications.

Mr. FITZPATRICK. I have the figures here. It would be less than 19 percent, according to the figures that I have here. Mr. DIRKSEN. Well, I said 18 percent.

Mr. FAHEY. As of June 30, the total properties acquired to total loans was 18.7 percent.

Mr. FITZPATRICK. That is right, less than 19 percent.

CUMULATIVE TOTAL FOR ADMINISTRATIVE EXPENSES, HOME OWNERS LOAN CORPORATION

Mr. DIRKSEN. How much administrative money has the Corporation had since its creation, roughly?

Mr. FAHEY. It's cumulative

Mr. DIRKSEN. I am just asking now for a figure which represents the amount that the committee has set aside for your administrative expenses out of your own funds, of course, since the creation of the Corporation?

Mr. FAHEY. We have the figures by years, which I can put in the record. I have them here but only from 1935 to date.

Mr. DIRKSEN. Just giving a rough total, would you total up those figures and then we can interpolate for 1933 and 1934.

I can tell you roughly what I think the figure is; I will not miss it very far. I think it is $200,000,000 total. But we can use whatever figure you like for the purpose of this discussion. Let us say it is $175,000,000.

Mr. PENNIMAN. You mean through June 30, beginning?

Mr. DIRKSEN. Yes.

Mr. PENNIMAN. We can very easily give it to you.

1942, from the

Mr. FITZPATRICK. While he is adding those figures up, assuming that the Home Owners' Loan Corporation law were not enacted, in all probability more than 90 percent of those 1,017,821 properties would have been foreclosed. Is that right?

Mr. FAHEY. On the average, the loans we took over were nearly 2 years in default on principal and interest, and 3 years on taxes. Mr. FITZPATRICK. So that in all probability the figure would be more like 98 percent that would have been foreclosed.

Mr. DIRKSEN. Let us take a figure for the purpose of the discussion. I will put it a little on the low side. Since you have been doing business your administrative expense has been at least $175,000,000. Mr. FAHEY. Probably.

Mr. DIRKSEN. From what source does that money come?

Mr. FAHEY. The income of the Corporation.

Mr. DIRKSEN. It comes from the people to whom these loans were made.

Mr. FAHEY. The interest; that is right.

Mr. DIRKSEN. Let us anchor that fact once and for all, that that $175,000,000, which allegedly did not come out of the taxpayers came out of the 1,017,000 families in the United States who carry that as a loading expense charge on the loans that were made to them.

Mr. FAHEY. Not as a loading expense but interest on the loan at 5 and later 41⁄2 percent.

Mr. DIRKSEN. I just want that figure definitely.

Mr. FAHEY. It should be remembered that these loans are carried at a rate far below what the home owners were being charged. There was not a loan in the lot we took over at less than 6 and 7 percent, many at 8 percent and a large number were loaded with second mortgages at rates of 9 to as much as 14 percent.

Mr. WOODRUM. The first eligibility to get one of these loans from you was that they could not get it from any one else, and had no likelihood of ever being able to get it from anybody else.

Mr. FAHEY. That is right. Those loans were either in foreclosure or they were being threatened with foreclosure.

Mr. FITZPATRICK. And if they had made private loans, loans from a private lending institution, there would have been a greater amount paid for administrative expenses, just as you have stated, would there not?

Mr. FAHEY. That is right.

Mr. DIRKSEN. May I continue my examination for a monent?

Mr. FITZPATRICK. Yes; but we want to get the record straight. We do not want to get the record one-sided.

Mr. DIRKSEN. I will keep the record straight; the gentleman need not worry about that, and it can be defended in public, too.

Now, here is about $175,000,000 in administrative money that has been derived from people to whom these loans were made, these 1,017,000 families?

Mr. FAHEY. Yes.

Mr. DIRKSEN. That makes $175,000,000 in administration. I figure that your commissions and selling expenses on the properties that you sold were around $37,000,000.

Mr. FAHEY. That might be.

Mr. DIRKSEN. That is the difference between $227,000,000 and $190,000,000-these figures taken from your own justifications; that is an item of $37,000,000, which is a nonadministrative item, and therefore is not included in your administrative cost.

Mr. FAHEY. That is right; lawyers' fees and appraisers', and so forth.

OPERATING DEFICIT, HOME OWNERS' LOAN CORPORATION

Mr. DIRKSEN. Is your operating deficit of $109,000,000 less $40,000,000 carried in any other account? Is it reflected in your reserve? You gave Mr. Wigglesworth a figure of $109,000,000 of operating deficit, less $40,000,000.

Mr. FAHEY. I do not know from the accounting standpoint exactly how to answer that.

Mr. PENNIMAN. That is shown on the balance sheet, on the statement of assets and liabilities.

Mr. DIRKSEN. I want to know where that operating deficit is carried.

Mr. FAHEY. It is carried in the balance sheet, in the regular statements of the Corporation.

Mr. DIRKSEN. I want to get at that reserve a little, because frankly I think the Congress is under a misapprehension about the reserve.

If we put it altogether we get a pretty fair idea of this whole operation, because if this were a private corporation, you would have to include administrative costs in the overhead, and the commissions, the nonadministrative costs would have to be added, and the operating deficit would have to be added. And against that you carry $266,000,000 of properties which have not been depreciated as yet. What is the nature of those properties? Are they old houses or new houses, or are they a mixture of houses?

Mr. FAHEY. They are a mixture.

Mr. DIRKSEN. They are a mixture of houses?

Mr. FAHEY. Yes.

Mr. DIRKSEN. Are they preponderantly old houses?

Mr. FAHEY. They were preponderantly old when we took them over. Mr. DIRKSEN. And they are getting older every year?

Mr. FAHEY. Surely.

DISCUSSION OF ADVISABILITY OF LIQUIDATING LOANS OF HOME OWNERS' LOAN CORPORATION

Mr. DIRKSEN. What I am trying to get at is the question of the loss; because as we continue with these houses getting older, the conditioning expenses are going to be greater, and the depreciation that will have to be charged will be greater, and the net value of this house not its price but its value in the market-will diminish with every passing year that the H. O. L. C. is kept alive.

Mr. FAHEY. That depends wholly, Mr. Congressman, upon the trend of real-estate values and prices in the years ahead of us, and it is impossible to forecast that now. You are now confronted with a practical cessation of any private building in the country and the H. O. L. C. is in the same situation in that respect with reference to property on hand as the private institutions of the country which have hundreds of millions of property on hand at the present time.

You take New York State alone. Let us remember that every mortgage certificate company operating with its headquarters in the State of New York went into receivership as a result of the depression, and they held over $3,000,000,000 of real estate. A lot of it is not liquidated yet. In many States all types of private institutions have large amounts of property still on hand. They carry them just as we do; no differently.

Mr. DIRKSEN. All right. You testified a moment ago that a loss on this function was inevitable. Of course, everybody agrees to that. Mr. FAHEY. That is right.

Mr. DIRKSEN. We started out with that premise, that there was going to be a loss.

Mr. FAHEY. That is right.

Mr. DIRKSEN. My point is that we ought to take the loss now and be done with this business. And the question of liquidation depends, in my judgment, irrespective now for a moment of this question of loss, on whether or not there is available money in the market.

You stated yourself last year that in case of liquidation of the H. O. L. C., it ought to be liquidated all at once. You said in response to Mr. Wigglesworth:

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 of our hands at all once.

Mr. FAHEY. That is right.

Mr. DIRKSEN. I contend that never again in the history of this country will you be able better to consummate that kind of an operation. It cannot be done through some institution, perhaps a specially chartered mortgage company, that can take these over all at once. The way to liquidate the H. O. L. C. is to compel its liquidation forthwith, and do it on a piecemeal basis and take our loss, and be done with it.

Mr. FAHEY. In other words, to give to the private institutions all the good loans and leave the Corporation with all the bad ones? Mr. DIRKSEN. Yes, sir.

Mr. FAHEY. Fine.

Mr. FITZPATRICK. And have two or three hundred thousand property owners lose their property, for the advancement of the building and loan associations which he said he was a member of, or interested in.

Mr. DIRKSEN. Now, we are going to take a loss and we might just as well take it first as last.

Mr. FITZPATRICK. We will have a lesser loss later on, will we not? Mr. FAHEY. By all means.

Mr. DIRKSEN. We are going to have the pay rolls, we are going to have the administrative expense and the nonadministrative expense, and it is going to be continuing, and 25 years from now, unless we force your hand on this thing, you can tell us the same story that you told us this afternoon about the United States Housing Corporation, that you are winding up now.

Mr. FAHEY. I will not be telling you that story 25 years from now. Mr. DIRKSEN. This morning I indicated that there was enough money in the market today to pay off the $124,000,000 of capital stock that is pledged with the R. F. C. at the present time, and you indicated you did not believe so. Now let us look at this. You released a statement which appeared in the New York Times yesterday, did you not?

Mr. FAHEY. That is right.

Mr. DIRKSEN. This account says:

That this favorable trend was being menaced by the attempts of some banks to "wean" accounts away from the Federal agency.

Mr. FAHEY. Yes.

Mr. DIRKSEN. Another quotation:

In several sections of the country lists of borrowers have been secured and campaigns have been started to induce home owners, who regularly make their payments on time, to transfer their loans to private holders.

Another quotation:

The Home Owners' Loan Corporation has, until now, been able to meet all its expenses and a major portion of its capital losses from its regular income and has not been obliged to ask the Treasury for assistance.

Another quotation:

In making the change from the Home Owners' Loan Corporation to private banks, borrowers in many cases were paying higher rates of interest than the 4% percent charged by the Federal agency according to Mr. Fahey, who said the refinancing of the Home Owners' Loan Corporation's best loans, without consideration of the contingencies involved, offered no solution of the problem of accelerating the liquidation of the Home Owners' Loan Corporation.

Mr. FAHEY. I did not say contingencies. That is a misprint. I said the complications involved.

Mr. DIRKSEN. Well, it is here. Now, what is the reason for weaning these accounts away from the Home Owners' Loan Corporation, if it is not that there is a plethora of mortgage money in the market today that is looking for a place to go?

Mr. FAHEY. There is not a plethora except in some cases.

Various

schemes have been put up since 1936 for taking over H. O. L. C. loans. One of the first that was advanced seriously was that we should hand these loans over to savings and loan associations and take their shares in return.

Another was that the bank system could take them over and issue its debentures which would be guaranteed by the United States Government.

The latest solution that has been offered, of which I have knowledge, has been that banks and savings and loan associations would take over the good loans, but they did not want anything to do with any of the loans that were delinquent or any of the properties that we had on hand.

Of course, it is the interest income here which helps to take care of H. O. L. C. losses. That interest income has been rising steadily. Since 1940, H. O. L. C. has been in the best position that it has been at any time in its history. As a result of rising wages and better income people have been better able to meet these obligations.

I illustrated that by the fact that last year alone they paid back forty million more than was due on principal payments, and thousands of them, month after month, are now paying us in advance more than is due.

The fact is that these H. O. L. C. borrowers are people of small means, workers, and if you give them a decent chance to meet their obligations they will do it. If you drive them and proceed to foreclose on them the moment they get a few months behind, why then you have a different problem to meet.

Nobody ever anticipated that H. O. L. C. would be in a position today where less than 6 percent of its borrowers would be only 90 days behind. But this situation would not be possible if the Corporation did not have interest income to maintain an effective organization. Mr. FITZPATRICK. And if it were liquidated now two or three hundred thousand would lose their homes.

Mr. FAHEY. I do not know how many; I do know that one group of bankers who came to me a while ago were very emphatic on the point that they would give no assurance against foreclosures on loans. they wished to buy from us.

Mr. HENDRICKS. In other words, they would like to be permitted to use their discretion and foreclose when they wanted to.

Mr. FAHEY. Certainly. You cannot build up protection against that.

Mr. DIRKSEN. One more quotation from this release:

The financial institutions which were the beneficiaries of such extraordinary help from their government in 1933, 1934, and 1935, and which are now engaged in many kinds of constructive war service, may, I think, well consider if it is not their responsibility to refrain from encouraging the Home Owners' Loan Corporation borrowers to transfer and refinance their loans.