My interpretation of that language is that you are discouraging people from transferring their H. O. L. C. accounts to private institutions, if they so desire, and to that extent thwarting what I think was the intent of the Congress when they wrote into the original act that the enterprise ought to be liquidated.

Mr. FAHEY. But Congress certainly did not write into the original act, and there is nothing anywhere in the statute that says that the Federal Home Loan Bank Board should sell these loans to private institutions just as soon as they become current. If Congress wants that done, that is one thing.

Mr. HENDRICKS. Mr. Chairman, I think Congress should scold Mr. Fahey if he does not discourage that sort of thing, because the moment that an account becomes collectible, somebody wants to buy it. He should discourage that, because the more of those that are sold, the greater will be the loss that we will have to take.

Mr. WOODRUM. That very same loan that they would like to buy now, they would not make when you were making loans; is that right? Mr. FAHEY. Why, they were foreclosing. Not only that, but I think and I am speaking now as a citizen, not as the person responsible for the operation of the Home Owners' Loan Corporation for the moment, but as a businessman and a taxpayer-I think these lending institutions, a large proportion of which would be out of business today if it had not been for the H. O. L. C., owe an obligation to their Government and the public which supports them not to force a greater and unnecessary loss on the Government.

Mr. DIRKSEN. Let us keep the record straight-and I would like to have your answer to this question. Is it not true that in the law of almost every State there is a provision as to when a loan must be foreclosed?

Mr. FAHEY. I think there is.

Mr. DIRKSEN. Definitely.

Mr. FAHEY. In many cases.

Mr. DIRKSEN. In the Illinois law it was provided that we could not carry the loan beyond 6 months. In other words, it would be a violation of the law if it were, and yet we carried them often for as much as 18 months, violating the law. So let us be fair about this. I know this business, and some of you are shooting in the dark on it. Let us see that the record is straight before you charge these thrift institutions with anything; remember that the solemn law of the State made them do it.

Mr. WOODRUM. The fact remains that the H. O. L. C. and the Home Loan Bank Board bailed them out.

Mr. DIRKSEN. They could not help it.

Mr. WOODRUM. I do not think any one would seriously contradict what Mr. Fahey has said, that many of them would have been liquidated themselves if it had not been for the relief which Congress gave.

Mr. DIRKSEN. I do not deny that.

Mr. WOODRUM. And Congress intended not only to relieve the home owner, but the business institution.

Mr. DIRKSEN. That is correct, but these institutions were operating, a great many of them, under the State laws.

Mr. WOODRUM. One might not agree with all that Mr. Fahey has said on this, but now that they have pulled them out of the fire, they want to come in and take them back. When they thought it was a hot potato, they wanted to get rid of it, but now that it has turned out. to be a paying proposition, they want to come in on them again.

I think the Home Owners' Loan Corporation ought to keep those good loans and from the profits that they make on the good loans, reduce the loss that we have to take on the bad ones. That is the whole story, is it not?

Mr. STARNES. That is right.

Mr. FITZPATRICK. And that would not only benefit the property owner, but the taxpayers, while to liquidate them now would benefit the building and loan associations.

Mr. DIRKSEN. The question is whether our loss will be greater or less, and my guess is it will be infinitely greater, the longer we keep them.

Mr. WOODRUM. Thank you, Mr. Fahey, and gentlemen.

MONDAY, JANUARY 18, 1943.

FEDERAL HOUSING ADMINISTRATION

STATEMENTS OF ABNER H. FERGUSON, COMMISSIONER; RAYMOND T. CAHILL, FIRST ASSISTANT COMMISSIONER; LESTER H. THOMPSON, COMPTROLLER; W. ZANE, EXECUTIVE ASSISTANT AND BUDGET OFFICER; MRS. SHIRLEY K. HART, DIRECTOR, RESEARCH AND STATISTICS; AND G. G. KELLER, ADMINISTRATIVE OFFICER

SALARIES AND EXPENSES

Mr. FITZPATRICK. We will take up the Federal Housing Administration. The item for salaries and expenses, on page 275 of the bill, is as follows:

Salaries and expenses: Not to exceed $10,285,560 of the various funds of the Federal Housing Administration, as follows, (1) the mutual mortgage insurance fund, (2) the housing insurance fund, (3) the account in the Treasury comprised of funds derived from premiums collected under authority of section 2 (f) title I of the National Housing Act as amended (12 U. S. C. 1701), and (4) the war housing insurance fund shall be available for expenditure, in accordance with the provisions of said Act for the administrative expenses of the Federal Housing Administration, including: Personal services in the District of Columbia and elsewhere; not to exceed $641,320 for travel expenses, in accordance with the Standardized Government Travel Regulations and the Act of June 3, 1926, as amended (5 U. S. C. 821-833), but there may be allowed, in addition to mileage at a rate not to exceed 4 cents per mile for travel by motor vehicle, reimbursement for the actual cost of ferry fares and bridge, road, and tunnel tolls, and employees engaged in the inspection of property may be paid an allowance not to exceed 4 cents per mile for all travel performed in privately owned automobiles within the limits of their official posts of duty when such travel is performed in connection with such inspection; printing and binding; lawbooks, books of reference, and not to exceed $1,500 for periodicals and newspapers; not to exceed $1,500 for contract actuarial services; procurement of supplies, equipment, and services; maintenance, repair, and operation of two motor-propelled passenger-carrying vehicles, to be used only for official purposes; payment, when specifically authorized by the

Commissioner, of actual transportation and other necessary expenses and not to exceed $10 per diem in lieu of subsistence to persons serving, while away from their homes, without other compensation from the United States, in an advisory capacity to the Administration; not to exceed $2,000 for expenses of attendance, when specifically authorized by the Commissioner, at meetings concerned with the work of the Administration; and rent in the District of Columbia: Provided, That all necessary expenses of the Administration (including services performed on a contract or fee basis, but not including other personal services) in connection with the acquisition, protection, completion, operation, maintenance, improvement, or disposition of real or personal property of the Administration acquired under authority of titles I, II, and VI of said National Housing Act, shall be considered as nonadministrative expenses for the purposes hereof: Provided further, That, except as herein otherwise provided, the administrative expenses and other obligations, including nonadministrative expenses, of the Administration shall be incurred, allowed, and paid in accordance with the provisions of said Act of June 27, 1934, as amended (12 U. S. C. 1701): Provided further, That not exceeding $84,580 of the sum herein authorized shall be expended in the District of Columbia for purposes of the Public Relations and Education Division.

JUSTIFICATION OF ESTIMATE

Mr. FERGUSON. The following is our justification statement covering our activities:

FEDERAL HOUSING ADMINISTRATION

Organization. The Federal Housing Administration was established on June 30, 1934, pursuant to the National Housing Act of June 27, 1934 (12 U. S. C. 1701), "to encourage improvement in housing standards and conditions, to provide a system of mutual mortgage insurance, and for other purposes.' As will be indicated later, marked progress has been made in achieving the objectives of the National Housing Act.

""

During the first 5 years of its existence, the Federal Housing Administration operated as an independent agency. From July 1, 1939, until the early part of 1942 it was one of the agencies grouped in the Federal Loan Agency. On February 24, 1942, by virtue of Executive Order 9070, the Federal Housing Administration became one of the three constituent units of the National Housing Agency. A chart of the present organization of the Federal Housing Administration is shown on the preceding page.

War housing.-The Federal Housing Administration has basic long-term responsibilities for the maintenance of a sound system of mutual mortgage insurance. It also has wartime responsibility for encouraging private enterprise to contribute to the war housing program. To facilitate this, title VI was added to the National Housing Act in March 1941. This title liberalizes the terms under which the Federal Housing Administration may insure mortgages on new private construction.

It is essential that private capital assist in completing the war housing program. The programmed needs of war workers migrating during the fiscal year 1943 calls for the construction of 670,000 units, of which 270,000 are to be provided by private enterprise.

The importance of title VI is shown by the fact that approximately 84 percent of the private war-housing dwelling units started during recent months have been financed by Federal Housing Administration insured mortgages.

Since the establishment of the priorities system, almost all private housing construction has been developed under preference ratings assigned by the War Production Board. After the establishment of the National Housing Agency in February 1942, such new private housing construction has been undertaken only in war production areas in which a housing shortage exists and only in accordance with a determination of housing need by the National Housing Administrator. Recently the National Housing Agency and the War Production Board agreed that all private construction in the future would be reserved for in-migrant war workers and that it would all be rental property unless after 4 months of occupancy the war worker chose to purchase.

The Federal Housing Administration has found it necessary to alter its entire program in order to cope with the shortage of materials and the new wartime demands upon private capital and the construction industry. This has involved radical shifts in construction standards, design and layout, site plans, and in the use of critical materials and utilities.

Between July 1, 1940, when the need for housing in war-production areas first became urgent, and September 30, 1941, private builders operating under the Federal Housing Administration program started construction of 299,000 new dwelling units in designated critical war-housing areas. Between October 1, 1941, when the war-housing priorities system became effective, and November 30, 1942, construction of 188,000 additional dwelling units was started in the same areas with Federal Housing Administration insured financing.

Normal operations of the Federal Housing Administration.-The principal objectives of the National Housing Act were to revive the capital market for home financing, to establish a sound system of residential mortgage financing by correcting the abuses and weaknesses apparent during the twenties, and to stimulate recovery in new home construction and residential repairs. At the time the Federal Housing Administration was established, mortgage financing and new home building were at an extremely low level, as a result of the real estate collapse of 1929-33 and the general economic depression.

The method provided by the National Housing Act for realizing these aims was the insurance of private lending institutions against loss on loans which finance projects of the type authorized by the act and meet the terms and conditions prescribed by the Federal Housing Administration. Loan insurance has remained the basic operation of the Federal Housing Administration.

The act as amended authorized the Federal Housing Administration to insure private lending institutions against loss on the following types of loans:

1. Under title I, loans financing the repair, improvement, or remodeling of existing structures or the building of new structures. Authority to insure new transactions under title I expires on July 1, 1943.

2. Under section 203, title II, loans secured by mortgages on one- to fourfamily dwellings.

3. Under section 207, title II, loans secured by mortgages on large-scale rental properties.

4. Under section 603, title VI, loans secured by mortgages on one- to fourfamily dwellings for war workers in designated war-housing areas.

5. Under section 608, title VI, loans secured by mortgages on large-scale rental projects for war workers in designated war-housing areas.

During the early years of the Federal Housing Administration program, the unsecured character loans authorized under title I were instrumental in encouraging a large volume of needed repairs to home properties which had been deferred during the depression years. At the same time, the mortgage insurance procedures established under title II were largely responsible for reopening the private capital market for home financing and in stimulating a sharp revival in home construction. The single long-term, amortizing mortgage established by the Federal Housing Administration became popular throughout the country and largely replaced the old method of multiple-mortgage financing (first, second, and third mortgages), particularly in financing new homes. The minimum technical standards and requirements developed by the Federal Housing Administration for residential properties are widely recognized as largely responsible for improving the quality of design, construction, and subdivision planning in the private-home building field. Federal Housing Administration financing terms-with moderate interest rates, small down payments, and provision for equal monthly payments greatly reduced the monthly cost of home purchase and encouraged the building industry to concentrate on production of moderatepriced small homes. These homes were then within the buying range of a much broader proportion of American families than had previously been considered eligible for new-home buying.

The growth of the Federal Housing Administration during the prewar period is illustrated by the increase in annual volume of loan insurance written from $104,376,386 in the fiscal year 1935 to $1,131,890,734 in 1941. During the fiscal year 1942, the Federal Housing Administration insured loans totaling $1,215,687,507, mostly for war housing.

As of November 30, 1942, the Federal Housing Administration had insured loans totaling $6.301,664,171 since the start of its operations. These included 4,100,297 loans aggregating $1,671,660,727 insured under title I, and mortgages of $4,630,003,444 which financed approximately 1,082,341 family-dwelling units, insured under titles II and VI. Through regular amortization, prepayments and terminations, approximately 35 percent of the total principal amount insured had been retired, leaving an outstanding insured balance of about $3,800,000,000. Of this amount more than 90 per cent represents mortgages insured under titles II and VI.

The broad scale on which private lending institutions have participated in this Federal Housing Administration insured financing is illustrated by the fact that 8,137 institutions have originated mortgages insured by the Federal Housing Administration, and that 3,255 institutions have made loans insured under title I during the past 3 years. On June 30, 1942, approximately 9,000 private lending institutions were holding Federal Housing Administration insured mortgages in their investment portfolios.

Work load and budget estimates for 1944.-The appropriation for administrative expenses for the fiscal year 1943 amounted to $14,621,499. This was based on an estimated work load of 320,000 applications for mortgage insurance. Since the preparation of the 1943 budget, the entrance of this country into the war and the imposition of controls to conserve critical materials required changes in these estimates. It is now estimated that applications for mortgage insurance will amount to 255,000 in fiscal year 1943. The estimated expenditures during this period have been reduced accordingly to $12,571,690, or a decrease of $2,049,809 from the amount authorized by the Congress.

The amount requested for administrative expenses in fiscal year 1944 is $10,285,560. This amount is $2,286,130 or 18 percent less than the revised estimate for 1943, and $4,335,939 or 30 percent less than the amount authorized for 1943. The appropriation requested for fiscal year 1944 is a conservative estimate of financial requirements based on the expected work load as discussed below.

Title VI of the National Housing Act expires on July 1, 1943. It is assumed in these estimates that applications for insurance under title VI will be processed under the provisions of title II if title VI is not extended. For all practical purposes, the work load under titles II and VI may be considered as a combined work load.

The authorization requested for fiscal year 1944 will be financed by charges against the four insurance funds based on the following work loads, each of which is discussed separately in subsequent sections:

(1) Maintaining existing business on the books, payment of claims for losses, and making collections on defaulted loans under title I...

(2) Processing applications for insurance on small dwellings under titles II and VI, insuring loans on those applications which are accepted, and maintaining records and accounts on insurance in force. For 1944 this work load is broken down into (a) insurance on new construction, the administrative expense for which is charged to title VI (or to title II if title VI is not extended), and () insurance on existing dwellings, the administrative expense for which is charged to title II.

(3) Processing applications for insurance on large-scale rental apartment projects under secs. 207 and 608 of the act. This differs from the processing of applications under secs. 203 and 603 because it is handled in large part in the central office rather than in the field offices.

$725,000

8, 975, 560

585, 000

Total estimate for administrative expenses_

10, 285, 560

Title I work load. The estimated administrative expenses under title I for the fiscal year 1944 are computed as follows:

Revised 1943 estimate..

Less the cost of initiating new business in fiscal 1943 which will not recur in 1944..

Less a 25 percent reduction to allow for reduced claim load_..

Total....

$1,095, 279

118, 708

976, 571

244, 143

732, 428

The above estimate of $732,428 has been rounded off to $725,000. A large part of the work load under this title results from handling claims for losses. It is estimated that in 1944 there will be claims on 15,943 cases as compared with 21,257 in 1943 or a reduction of 25 percent, that accumulated cases for collection will total 80,000, and that the amount of collections will total $2,556,000.

The major work load on claims for losses results from efforts to effect collections from the borrowers. Accumulated cases for collection will increase 10,000, or 14 percent over 1943. This adds substantially to the work load. In every instance when an account receives a payment it is necessary for the file to be pulled, the account card to be drawn from the tray, and an official receipt prepared and mailed