A substantial contributing cause to increased personnel and expense for the fiscal year 1939 is the loss of the services of the Savings and Loan Division field force. This force among its other duties solicited business for the Insurance Corporation throughout the United States. The Corporation avails itself to the utmost of the Federal Home Loan Bank Board facilities at its disposal and must continue to meet its share of the Federal Home Loan Bank Board's expenses. On an average prospective applicants are a poorer type of institution than those handled in the early years. Segregation, reorganizations, and mergers are the order of the day. This considerably increases the cost of new business and causes the insurance program to proceed more slowly. The greater part of the prospective increase in personnel is listed in the general manager's office and the legal division due to the factors cited. It is difficult to make any reliable estimate of expenses necessary in connection with the liquidation of insured institutions in default or other obligations incident thereto. Should there be any considerable number of such defaults or prospective defaults during the fiscal year 1939, administrative expenses in connection with supervision of liquidation or measures to avoid liquidation would increase substantially. It is probable that the amount to be made available is inadequate for such contingencies. Experience to date in avoiding liquidations through efficient supervision cannot continue indefinitely. Allowance must be made for direct and indirect expense of probable defaults during the fiscal year 1939. The board of trustees, after study and consideration, revised its method of handling joint activities for the Insurance Corporation and other agencies under its direction from a basis of assessing a share of the costs to the Insurance Corporation while the employees were carried on the pay roll of other agencies to a basis of carrying the employees whose work is in behalf of the Insurance Corporation on the pay roll of that Corporation and assessing a correspondingly less amount on the Insurance Corporation for other services. It is noted, therefore, from October 1, 1937 that the number of employees of the Insurance Corporation has increased considerably and that the assessment by the Bank Board has decreased to correspond. Estimate, 1939. 02 Supplies and materials $5,000 4, 500 313 This estimate includes the cost of general office supplies and materials, and expendable equipment of such a character as would not be properly classified as furniture and fixtures. Increase in this estimate for 1939 is justified by reason of the anticipated substantial growth of the Corporation. Estimate, 1939_ 05 Communication service $2,000 2, 000 242 Continued expansion of the Corporation and the possibility of increased contacts with field representatives relative to the status of applications for insurance, institutions under liquidation or in process of reorganization, and such other communications as may be directed by the board of trustees and officials of the Corporation, justifies estimate for 1939 in the amount indicated above. Estimate, 1939. 06 Travel expense $15,000 10, 000 3,288 Necessary additional personnel, particularly in relation to field activities and to properly supervise the management and operation of the building and loan associations that may reasonably be expected to be in process of reorganization or liquidation, justifies the substantial increase in estimates for 1939 over the prevailing rate. 08 Lithographing, multigraphing, etc., printing and binding Estimate, 1939_ $9,000 9, 000 3, 342 Estimates for lithographing, multigraphing, etc., are for the preparation of multigraphed and photostated copies of financial statements, statistical abstracts and reports, miscellaneous bulletins, directories and other information and disseminated by the Corporation, as well as such other duplicated matter as may be necessary for the needs of the Corporation. No reduction in this classification of expense can be anticipated for 1939. Estimate, 1939 09 Advertising and publication of notices $7,500 7, 500 4, 468 This estimate represents expense incident to publication of official notices in newspapers in cases of liquidation and receiverships, as well as general publicity expense in connection with securing increased number of member institutions. Anticipated increased activities for 1939 justify the projected increase. Estimate, 1939. Estimate, 1938. 13 Special and miscellaneous $1,500 1,500 213 This estimate represents minor incidental expenses not otherwise classified, and the nominal amount estimated for the fiscal year 1939 is reasonably anticipated. Estimate, 1939. Estimate, 1938. 30 Equipment, furniture, and fixtures $2,000 2,000 109 Inasmuch as the Corporation is still in process of expanding its organization, additional purchases of equipment are necessary and the nominal amount indicated is expected to be sufficient to cover the costs of new furniture, typewriters, mechanical equipment, etc., for the ensuing fiscal year. Transfer to the Federal Home Loan Bank Board Estimate, 1939. Actual, 1937. $39, 560 54, 670 85, 368 This estimate represents the anticipated assessment by the Federal Home Loan Bank Board against the Corporation for its proportionate share of direct expenses of the Board. FUNCTIONS AND PURPOSES Mr. WOODRUM. Now, Mr. Fallon, are you going to tell us something about this Federal Savings and Loan Insurance Corporation? Mr. FALLON. The Federal Savings and Loan Insurance Corporation was created by Congress under title IV of the National Housing Act, approved by the President on June 27, 1934. Its purpose is to restore and maintain public confidence in savings and loan associations by supplementing their inherent soundness, demonstrated over the years, with a safeguard against loss to their investors. With confidence in these institutions restored, it is believed money to finance home ownership will again flow into them in volume. The money involved in our budget is not taxpayers' money but is a small part of our own income. An amount equivalent to the total premium receipts and other income of the Corporation, except earnings on its reserves, is currently being placed in reserve to pay losses. The total expenses of the Corporation represent an amount less than the earnings on its reserves. Our financial policies and our management are, as you would wish, most conservative. Our controllabe items are held down to a positive minimum, regardless of any leeway which may exist in our budget. We are a growing institution and to increase our income and diversify our risk we should grow even more rapidly than is now the case. We might be better business men if we increased our budget and accelerated our growth so as to reach more promptly our maximum expected development, which is approximately twice our present size. I have brought with me one or two charts which I think will be helpful to you in visualizing the progress we have made up to the present time. Attainment of substantial membership is of the greatest importance at this time in our wish to become helpful in the housing program. The Federal Savings and Loan Insurance Corporation is a substantial factor in attracting investment funds into home-financing institutions of the building and loan type. The committee is well posted on the Corporation and the act under which we operate, but we have not had the opportunity until now of explaining to you our efforts to avoid liquidation of insured institutions by watchful supervision and the prompt initiation of preventive measThese efforts have resulted in the avoidance of liquidation in ures. 10 cases. In addition to contributing our share toward defraying the costs of supervision of insured associations, we also bear an equitable portion of the expenses of the Federal Home Loan Bank Board and the departments maintained by the Board largely for our benefit, thus making unnecessary the establishment of duplicate organizations. We have recently lost the services of 20 field men in the Savings and Loan Division who spent a substantial part of their time obtaining insurance applications in our behalf and without expense to us. In view of this change it will now be necessary for us to maintain, at least, a small force to continue this field work. We must, in addition, make some expenditures for printing, travel, and educational work since not all of the association managers nor the public generally are yet thoroughly advised of our facilities. Another cause of expense to us in the development of our business is that ours are selected risks and for this reason we have to analyze financial condition and business prospects as well as quality of management. This, in the end, will save us a considerable sum of money, but the immediate effect is an increase in our expenses. In spite of our precautions, we must anticipate some liquidations, and we have requested funds to pay employees for this part of our work, which has not yet proved a burden. Only as these men are required will we put them on the pay roll, but a small preliminary organization must be established and the ground work laid to handle emergency cases promptly once they arise. We now have 1,866 insured associations spread widely through 47 States, with total assets of approximately $1,700,000,000 and we safeguard the savings of over 1,500,000 people. At the present time we have a gross annual income of about $4,750,000. The amount of our request, which is to be derived solely from our own operating revenue, represents less than 7 percent of our present gross income and less than 7 percent of our prospective net income for the fiscal year 1939. Mr. WOODRUM. Are there any points that you would like to emphasize? Mr. FALLON. The high points of my statement are that the Federal Savings & Loan Insurance Corporation is steadily growing, and that it is fulfilling the purposes for which the Congress created it and encouraging money into the insured building and loan associations; and that we are at this present time living well within our net income. NUMBER OF PERSONNEL Mr. WOODRUM. What about your personnel? Is that increasing to any extent? Mr. FALLON. It is increasing now. On the 30th of June it was 18 people. It has increased recently through a transfer of personnel from other divisions, and that has been compensated for to us by a reduction in the assessments made by the Bank Board on us. We took the pay roll rather than the assessments. Mr. WOODRUM. All right, gentlemen, are there any questions? Mr. FITZPATRICK. What do you do with the other 94 percent of your net profits? Mr. FALLON. We put it in the reserve, as against possible losses. Mr. HOUSTON. Have you had any loss? Mr. FALLON. Yes. We had one. Mr. HOUSTON. How much? 'Mr. FALLON. $2,245. Mr. JOHNSON of Oklahoma. Where was it? Mr. FALLON. Wheeling, W. Va. Mr. WOODRUM. That was a $2,200 loss out of how much business? INCOME AND OPERATING COST Mr. FALLON. We have on our books assets now of insured associations of $1,700,000,000. We have an annual income of about $4,750,000. Mr. HOUSTON. What is your cost of operation? Mr. FALLON. We had a budget last year of $256,180, and we are living within that. Mr. HOUSTON. And the balance goes into the reserve fund? Yes, sir. As a matter of fact, all premium receipts go undisturbed into the reserve fund. INVESTMENT OF RESERVE FUNDS Mr. FITZPATRICK. Where do you invest these reserve funds? Mr. FALLON. In Government bonds. Mr. HOUSTON. Government bonds only? Mr. FALLON. Government bonds only. Government bonds or Government-guaranteed bonds. Mr. WOODRUM. Does the act provide for that? Mr. FALLON. Yes, sir. Mr. WOODRUM. It limits you to that? Mr. FALLON. Yes. VALUE OF CORPORATION OPERATIONS Mr. FAHEY. Mr. Chairman, I would like to add that the operation of this insurance corporation has proven to be of the greatest importAs you know, the development of the mortgage crisis in 1933 ance. and 1934 had a very serious effect in discouraging savings and developing a lack of public confidence on the part of savers. But the response to the insurance of accounts is almost immediate in the case of every institution which insures. There has hardly been an instance where the insurance of one of these institutions has not met with an immediate response in increasing savings being placed in their custody. It has had a remarkable influence in that respect. NUMBER OF INSURED INSTITUTIONS Mr. WIGGLESWORTH. Have you given us the number of insured institutions? Mr. FALLON. At the present time there are 1860. Mr. WIGGLESWORTH. What is the premium that is paid for the insurance? Mr. FALLON. One-eighth of 1 percent on the insurable accounts and creditor liabilities. NONADMINISTRATIVE EXPENSES Mr. WIGGLESWORTH. Will you also insert a statement covering the amount and character of the nonadministrative expenses referred to in the appropriating language? Mr. FALLON. Up to date we have had no such expenses. There is always the possibility of liquidation of an insured association and, under our Budget appropriations up to now, the expenses in connection therewith have been set aside as nonadministrative expense items. We believe this will hold true in our new Budget and such expenses are the only nonadministrative expenses which we anticipate. In the one loss encountered to date, namely, the First Federal Savings & Loan Association of Wheeling, W. Va., there were no such expenses directly applicable to the Insurance Corporation. The items which could be so classified were absorbed by the association in liquidation and resulted in a correspondingly greater deficit and a thus larger contribution from the Insurance Corporation and the United States Treasury which jointly shared the loss. FEDERAL HOUSING ADMINISTRATION INSURANCE Mr. WIGGLESWORTH. Is there any conflict or overlapping between the work in this field of insurance work and the insurance work which the F. H. A. does? Mr. FALLON. No. Mr. WIGGLESWORTH. What is the exact line of demarcation? Mr. FALLON. We are insuring the safety of the savings in the association, the safety of the accounts. The F. H. A., Mr. Wigglesworth, is insuring the mortgage itself, the individual mortgage. One of the associations which we insure might readily, in turn, insure its mortgages, which would tend to safeguard us, if anything. Mr. WOODRUM. Gentlemen, if you have nothing further to present, we thank you. |