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The total claims paid of $41,862,806 is only 2.6 percent of a total of over $1,615,000,000 notes insured. The total cash recoveries and repossessions amount to nine-tenths of 1 percent, leaving an unrecovered claims balance of $26,960,000 or 1.7 percent of notes insured.
Mr. WIGGLESWORTH. How much did you say that amounted to in dollars?
Mr. FERGUSON. $26,960,000 are the unrecovered claims. I believe that is the figure you wanted.
The uncollectible note balances charged off amount to four-tenths of 1 percent, while the notes still in process of collection amount to 1.3 percent or twenty-odd million. In other words, of the notes and other evidences of debt, only about $6,000,000 has been charged off as a final loss.
Mr. FITZPATRICK. That would be a net loss?
Mr. FERGUSON. The $26,960,000 is unrecovered claims; $6,000,000 of that has been charged off as a loss, as uncollectible, where people are in bankruptcy, and so forth.
Mr. FITZPATRICK. But you have the money in the funds that you are maintaining?
Mr. FERGUSON. That Congress appropriated. In other words, we are now collecting premiums for insuring notes and that is applied partially to the payment of claims.
Mr. FITZPATRICK. That is what I mean. Mr. FERGUSON. Yes. Mr. FITZPATRICK. You still have money in that fund? Mr. FERGUSON. Yes. In other words, we insured a large number of notes before we were permitted to charge any premiums at all, or to collect any premiums, and up to that time the losses were charged against the title I reserves.
DECLINE IN NUMBER AND AVERAGE AMOUNT OF INSURED NOTES
The consumer credit regulation of the Federal Reserve Board, priorities, and other restrictions which were necessitated by the war brings about a revision in our estimate of the business to be done in the fiscal year 1943. During the fiscal year ending June 30, 1942, insured notes numbered 625,770 for $244,671,463, average insured note $390. In the first 5 months of the fiscal year 1943 we have insured 171,336 title I notes for $56,613,382. Of these, 1,341 for $3,796,494 covered small homes, with an average note insured of $2,830. It is now estimated that for the entire fiscal year 1943 we will insure $ 108,000,000 worth of notes which includes $8,000,000 of small homes under title I.
The average note insured has declined from $390 in the fiscal year 1942 to $330) in the first 5 months of the current fiscal year and the term of the average note has decreased from 35 months in September 1941 to 18 months in February 1942 and is approximately 15 months in the current fiscal year.
During the fiscal year 1942, we paid 22,443 claims amounting to $7,182,234 for an average of $320 and in the current fiscal year to November 30, 1942 we have paid 7,454 claims in the amount of $2,303,799 for an average of $309.
OUTSTANDING LOANS AND RESERVES, 1943 AND 1944
Of the $165,000,000, which is the amount of insurance we are permitted to write under title I, $62,102,694 remained unused at June 30, 1942. At November 30, 1942, the unused reserve amounted to $60,935,102 which will permit the insurance of notes in the amount of approximately $609,000,000.
It is estimated that on July 1, 1943, there will be $372,472,172 of outstanding loans under title I which will involve keeping records on approximately 400,000 cases in 1944. We estimate that there will be 15,943 claims to be paid in 1944, amounting to $5,000,000 which together with the maintenance of insurance in force and collection efforts will represent the work load during the 1944 fiscal year.
It is estimated that renewal premiums on insurance written to July 1, 1943, will amount to $200,000 in the fiscal year 1944. Collections on claims paid will amount to $2,064,000 making a total of $2,264,000 to be deposited to the title I revolving fund. In addition there will be collections on claims alone made on notes insured prior to the amendment of June 3, 1939 which will be deposited to miscellaneous receipts. Collections on claims for the year will therefore total $2,556,000.
We are requesting $725,000 for administrative expenses to be paid out of the title I insurance fund for the fiscal year 1944. In addition, of the $5,000,000 in claims to be paid in 1944, $2,000,000 will be paid from the title I insurance fund and $3,000,000 from funds allocated by the Reconstruction Finance Corporation.
TITLE II, SECTION 203, SMALL HOME MORGTAGE INSURANCE
Under section 203 of title II, dealing with insurance of mortgages on individual houses, from the beginning of operations to June 30, 1942, we had insured mortgages on 921,762 one-to four-family homes for a total of $3,990,240,833.
During that same period, from the beginning of operations to June 30, 1942, we had received and processed 1,464,134 mortgage applications for $6,541,355,412. About 30 percent of these failed to become insured mortgages for various reasons. Some were rejected, some used uninsured financing and some were withdrawn prior to insurance, but out of the above amount of mortgage applications examined, processed, and appraised, we have written insurance on about $3,990,000,000. At June 30, 1942 we had outstanding commitments to insure in the amount of $203,122,240.
Mr. FITZPATRICK. That is title II operations?
Mr. FITZPATRICK. So the taxpayer is not going to lose on the insurance?
Mr. FERGUSON. I do not think so; I think it is going to work out.
While the total liability for insurance written was about $3,990,000,000, of that amount there had been paid off either by monthly amortization or by prepayments in full $744,161,000, so that there was outstanding insurance liability of $3,245,839,000 at June 30,
1942. At November 30, insurance in force amounted to $3,372,785,045 and commitments to insure together with mortgages in process amounted to $217,000,000.
STATUS OF AUTHORIZED INSURANCE LIABILITY UNDER TITLE II
Later in this statement I will give you the figures on our operations under section 207 of title II under the provisions of which we insure large-scale rental projects, but here I believe it might be of interest to indicate the status of our authorized insurance liability under both section 203 and section 207 of title II. Of the total $4,000,000,000 of insurance liability authorized in the act, insurance in force at November 30, 1942, under title II totaled $3,483,470,040. At that date we had outstanding firm commitments to insure and mortgages in process, or on which conditional commitments had been issued, totaling $223,000,000; leaving approximately $294,000,000 of the authorization unused at November 30.
Because of the war priorities and other restrictions on private building it is not contemplated that any new construction will be insured under this section of the act during the fiscal year 1944, but we estimate that we will process approximately 75,000 applications on existing structures. This estimate is based on the belief that the curtailment of the market for new construction will tend to create a market for older properties and an accompanying demand for the financing of mortgages on existing properties.
Mr. FITZPATRICK. You mean there will not be any new construction of Federal houses?
Mr. FERGUSON. Except war houses, and that is all being done under title VI, which I will refer to later.
During the fiscal year 1942 we processed 64,563 applications for insurance on existing construction, amounting to $288,375,681. During the first 5 months of fiscal year 1943 we processed 25,271 applications amounting to $116,587,542 on existing construction and it is anticipated that during the entire fiscal year of 1943 we will process applications of 75,000 for a total of $300,000,000, which is the same as our estimate for the fiscal year 1944.
During the fiscal year 1942 the total gross mortgages accepted for insurance were 168,634 for $763,029,735. Of these, 120,150 for $552,012,885 represented insurance on homes to be constructed and 48,484 for $211,016,850 represented insurance on existing properties. Insurance on existing home properties from the beginning of operations to date represents 28.4 percentage of the total.
Up to June 30, 1942, out of 921,762 small-home mortgages which we had insured under section 203 there were conveyed to us after foreclosure in exchange for debentures 3,644 properties. Of these we have sold 3,356, leaving a balance on hand of 288 homes.
The percentage of properties conveyed to us after default amounted to four-tenths of 1 percent of the properties insured. That is to say, four-tenths of 1 percent of the loans we have insured have gone to foreclosure. The loss which the fund has sustained from the sale of these properties is $1,941,548.
I think I should state how the loss arises.
It is not often that we sell a house for less than the debentures we have issued against it, but the loss arises from the fact that in some cases there are overdue taxes and overdue interest at the time the
properties go into default. Also, a major item of expense results from the fact that we always have to make a certain amount of repairs and have items of operating expense for the period we hold the properties. Added to this, of course, are the selling expenses, debenture interest, and miscellaneous items of expense which make up the total loss.
Mr. FITZPATRICK. It is not a total loss because you have the funds to meet it?
Mr. Ferguson. Yes, we have the funds. It is on the surface a loss of about $580 to the house.
The $1,194,548 which we have paid in losses out of the fund on account of these resales is about five one-hundredths of 1 percent of the total amount of outstanding insurance; and against this loss the mutual mortgage insurance fund has received $3,059,215 from approximately 71,000 mortgagors who have paid off their mortgages in advance and who are required, under the provisions of the law, to pay a 1 percent prepayment premium. Setting these prepayments over against the losses of $1,941,548 sustained from sales of properties shows that the fund is $1,117,667 better off on these two items.
WAIVER OF PREPAYMENT PENALTIES
In connection with the prepayment premiums I want to mention at this point that in carrying out a Presidential directive for counteracting inflation by encouraging debt prepayment, we have agreed to waive the 1 percent adjusted prepayment premiums where the mortgage is paid in full without refinancing or incurring any other collateral indebtedness. This regulation was put into effect on May 26, 1942, and at November 30, 1942, we had waived the prepayment penalty on 7,039 mortgages where the prepayment penalties would have amounted to $303,703.
Up to November 30, 1942, administrative expenses have been paid out of this fund amounting to $46,687,670 and the net worth of the fund has increased to $49,551,720. It is estimated that after paying all expenses for the fiscal year 1943 the net worth of the fund, by the end of that fiscal year, will have increased to $60,000,000.
For the fiscal year 1944, we are requesting, for administrative expenses for this section $4,431,592.
INSURANCE OF MORTGAGES ON LARGE-SCALE RENTAL PROJECTS, SECTION
207, TITLE II
I will not take up your time with section 207 of title II, except to say that is the section under which we insure in large part multifamily projects, apartment houses, and that we have practically no applications now under that section because title Vİ, which was enacted to cover war houses, has a similar section for the insurance of loans up to 90 percent of value as against 80 percent under section 207. So naturally the current activities under section 207 are small. During 1942 commitments were issued for $7,452,100 and 15 loans were actually insured for $7,901,000.
Up to November 30, 1942, under sections 207 and 210—this latter section was repealed in 1939—we insured a total of 355 projects in the amount of $145,686,516. Of these, 63 projects, amounting to
$15,203,425, had been paid in full and 16 projects and one mortgage note, amounting to $15,072,100 had been acquired by the Administration under the terms of insurance, leaving insurance in force at November 30 on 275 projects amounting to $115,410,991. As of November 30, 1942, there were outstanding only 3 live commitments under this section of the act amounting to $1,755,000.
Nine of the projects acquired on which debentures had been issued in the amount of $9,280,693 had been sold. To November 30, 1942, the total loss to the housing insurance fund has amounted to only $3,621, which amount will be wiped out by the net income earned on the mortage notes held on these properties.
During the fiscal year 1943, due to the fact that all large-scale housing is being constructed in defense areas under section 608 of title VI, no applications are being accepted under section 207 of the act, but during the fiscal year 1944 we estimate that we will process applications on 75 projects in the amount of $18,000,000.
We are requesting $425,000 for administrative expenses to be paid out of this fund during the fiscal year 1944.
TITLE VI, WAR HOUSING OPERATIONS
In 1941 Congress enacted what is known as title VI to the National Housing Act. This title was enacted solely for the purpose of encouraging private capital to build houses for war workers. It is considerably more liberal than the provisions of title II. We said then and we say now that the mortgages are not as sound as mortgages insured under title II, but we think they are reasonably sound. But we have taken the position and Congress has taken the position that it would be better for private capital to build as much war housing as possible even if the Government would ultimately have to sustain part of the loss.
While the Federal Housing Administration has basic long-term responsibilities for the maintenance of a sound system of mutual mortgage insurance, it also has an important wartime responsibility in encouraging private enterprise to contribute to the war housing program. To facilitate this, title VI, which liberalizes the terms under which we may insure mortgages on new private construction, was added to the act in March 1941. It is essential that private capital assist in completing the war housing program and the importance of title VI is emphasized by the fact that approximately 80 to 85 percent of all private war housing dwelling units started during recent months have been financed by Federal Housing Administration insured mortgages.
From March 1941, when title VI was enacted, to November 30, 1942, 62,236 mortgages amounting to $248,362,628 have been insured under this title of the act. Included in the above amount are 19 large-scale projects built under section 608 of Title VI with mortgages amounting to $11,130,000. In addition to the insurance actually written at November 30, 1942, we had outstanding commitments to insure under both sections of title VI in the amount of $437,319,922. While the total liability of insurance written is $248,362,628, of that amount there has been paid off either by monthly amortization or by prepayments in full, $5,497,659, so that there is