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In order, however, that FNMA's limited commitment authority may be distributed as broadly as possible to meet the vital requirements of all three categories of housing, it seems advisable to parcel out these authorized commitments funds as follows: $50,000,000 for military housing; $25,000,000 for disaster area housing; $20,000,000 for atomic energy installation housing; and $105,000,000 for critical defense area housing. Within these three allocations FNMA plans to issue its prior commitments for the purchase of all mortgages originated by individual lenders in connection with military housing, disaster area housing, and atomic energy installation housing. As to programed defense area housing, FNMÄ plans to issue its prior commitments for the purchase of 50 percent of all mortgages originated by individual lenders in connection with such housing.

Mr. THOMAS. That is under the new act?

Mr. BAUGHMAN. That is correct, sir.

These allocations and plans may be revised as the need requires.

CHANGE IN MORTGAGE MARKET

The current scarcity of mortgage credits needed to finance housing construction of the type described was not foreseen when we appeared before you gentlemen last February in connection with our budget request for the fiscal year 1952. At that time our estimates were based on what then appeared a reasonable assumption that the favorable home mortgage market that prevailed during the first three quarters of 1951 would continue. It appeared desirable to take advantage of that state of affairs by reducing the Government's secondary mortgage market to a stand-by position. Accordingly, it appeared probable that a budget of $3,600,000 would be sufficient for administrative expenses as compared with $4,500,000 made available for the preceding period. This was predicated on an anticipated reduction in mortgage purchases from an estimated $770,000,000 in fiscal 1951 to an estimated $175,000,000 for fiscal 1952, fortified by an anticipated increase in mortgage sales from an estimated $490,000,000 for fiscal 1951 to $630,000,000 for fiscal 1952. The Congress authorized the sum of $3,060,000.

Factors at work in the mortgage market that were then only dimly discernible and subsequently developing needs have completely reversed the picture. Instead of an anticipated decline in the over-all volume of our activities, it now appears probable that FNMA's mortgage purchases during the current period will aggregate upward of $890,000,000, an increase of more than 400 percent over the preceding estimates.

On the other hand it appears probable that mortgage sales will amount only to about $135,000,000 as contrasted with the expected $630,000,000-exactly half. Instead of being able to look forward to a steady curtailment of our mortgage purchasing activities and a reduction of our mortgage portfolio through stepped-up sales in an advantageous market, we are now confronted with a rapid expansion in the volume of purchases and a sharp reduction in sales on a depressed market.

A number of factors have brought this about: Overextension in the amount of commitments made by large institutional investors during the fall of 1950 to finance new construction before credit and other defense restrictions took effect; a simultaneous decrease in the net

inflow of savings; the effect of Treasury and Federal Reserve Board action last March in revising the bond-support program discouraging the liquidation of Federal bonds for mortgage investment and increasing interest rates on conventional mortgage loans. The combined effect of all these factors has resulted in a sharp reduction in our mortgage sales activities, heavy cancellation of sales options, and substantial acceleration in the volume of mortgage purchasing.

After careful and conscientious study we are persuaded that the amount previously authorized for fiscal year 1952 will be insufficient to administer our expanding activities in a manner that is compatible with the best interests of the Government. The prospects ahead are such as will entail substantial increases in the workloads of all FNMA's activities, particularly the need for an intensive and extensive public-relations program designed to educate lenders and investors in the urgent need for mortgage credits to finance programed defensearea housing and to induce them to undertake a 50-percent participation with the Government in underwriting the mortgage financing of such housing. Increased workloads will be encountered in the allocation and control of its "set-aside" funds; the allocation and control of its commitment authorizations; the examination and review of an increasing volume of mortgages submitted for purchase; the supervision, audit, and periodic inspection of approximately 1,400 servicing institutions that handle collections on mortgages and accountable therefor; the disposition of an increased volume of delinquency and foreclosure cases always attendant upon increase in portfolio; an expansion of accounting activities; vigorous efforts to increase sales for the purpose of keeping portfolio to a minimum; and providing the legal services and counsel necessary for the proper conduct of all aspects of our activities.

We have given the matter careful study and thought and it is our considered judgment that a supplemental authorization of at least $450,000 is urgent and imperative. The details are set forth at page 17 of the justification that has been submitted.

FHA INSURANCE AUTHORIZATION FOR TITLE IX

Mr. THOMAS. Mr. Richards, what is your limitation under Public Law 139 with reference to the 225,000 units that you will participate in? What is the outside dollar limitation?

Mr. RICHARDS. The Congress increased our authorization by $1,500 million, but that was to be available for all programs of the act as needed and as authorized by the President. So no certain amount was set for title IX, but we can do some quick figuring and I think give you a reasonably satisfactory answer.

Assuming that we had 160,000 cases and assuming that the average market was running what it is now, it would be roughly about $1,200 million.

Mr. THOMAS. Mr. Baughman, your problem is pretty well stated on page 17 and it is worth repeating. If you will bear with me, let me read it for the record.

F The budget request of FNMA for 1952 fiscal year was based on the assumption that the favorable home mortgage market prevailing during the first three quarters of the 1951 fiscal year would continue. Under such conditions it would be possible to reduce the Government's secondary market to a stand-by position. The estimates accordingly forecast for 1951 mortgage purchases of $770 million

and sales of $490 million, and for fiscal 1952 purchases of $175 million and sales of $630 million. The estimated decrease in purchases and in volume of mortgages requiring servicing permitted an administrative expense estimate of $3.6 million in comparison with $4.5 million made available for the 1951 fiscal year.

In other words, the picture just reversed itself; is that right?
Mr. BAUGHMAN. That is right.

ESTIMATED MORTGAGE SALES AND PURCHASES

Mr. THOMAS. Mr. Reporter, will you insert at this point the table appearing at the top of page 19?

(The table referred to is as follows:)

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Mr. THOMAS. The mortgages on hand at the start of the fiscal year 1952 amounted to 192,800 at a total cost of $1,260 million, is that correct?

Mr. BAUGHMAN. That is correct.

Mr. THOMAS. What is your total authorization?

Mr. BAUGHMAN. $2,750 million.

Mr. THOMAS. And you have tied up now $1,260 million; is that right? Mr. BAUGHMAN. That was the original estimate. We actually have at the present time over $1,600 million in mortgages.

Mr. THOMAS. And your limit is $2,700 million?

Mr. BAUGHMAN. It is 2,750 million.

Mr. THOMAS. Now, under this new act, namely, Public Law 139, you intend to jump up the number of mortgages from 192,800 to 223,561. Is that correct?.

Mr. BAUGHMAN. No, sir; that was the actual figure as of the end of June. It is going to jump up to 303,000 at the end of the year. Mr. THOMAS. 303,000?

Mr. BAUGHMAN. That is right.

Mr. THOMAS. How do you come up with a good positive figure? Mr. BAUGHMAN. Well, that is the best estimate we can make. We are already buying at the rate of $60 million a month. That is at the rate of $720 million a year, and we expect to increase the purchases as the result of these defense requirements.

Mr. THOMAS. What was the significance of the set-aside for this program that was mentioned a while ago?

Mr. BAUGHMAN. That was $600 million.

Mr. THOMAS. Do you think that will do the job?

Mr. BAUGHMAN. We are hoping it will.

Mr. THOMAS. On the basis of the $600 million, how many actual mortgages will you have to service?

Mr. BAUGHMAN. $600 million divided by 8 would be about $75,000 or $80,000. Our average portfolio for the year will be 263,691 mortgages. That is the average, considering the beginning and the end.

PERSONAL SERVICES FNMA

Mr. THOMAS. Mr. Reporter, will you insert at this point the table appearing on page 22 showing the distribution of personnel. (The table referred to is as follows:)

The following table summarizes the present and proposed distribution of personnel according to these groupings

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1 19 of these employees, although located in field establishments are on the departmental payroll. 237 of these employees, although located in field establishments are on the departmental payroll. 8 These 18 employees proposed to be located in field establishments will be on the departmental payroll.

Mr. THOMAS. The table showing the distribution of personnel indicates that you want 148 additional personnel.

Mr. BAUGHMAN. That is in the field. There are 11 for the home office.

Mr. THOMAS. I have here "total of all services, 148." Is that correct?

Mr. BAUGHMAN. I think that is in the field. There are 159 all told, Mr. Thomas.

Mr. THOMAS. It is a total of 159, you are right. There are 11 in Washington and 148 in the field.

How are you doing since you consolidated your offices?

Mr. BAUGHMAN. We think fairly well. We think we are rendering good service with the consolidations.

Mr. THOMAS. How many people do you presently have in the field?

Mr. BAUGHMAN. I think it is 545, or something like that. That is the last figure as of the end of August.

Mr. THOMAS. You have 676 now and you want

Mr. BAUGHMAN. That is the total.

Mr. THOMAS. You want to add to that 148; is that correct?

Mr. BAUGHMAN. 159 positions. It amounts to about 94 man-years.. Mr. THOMAS. That will give you a total of about 835?

Mr. BAUGHMAN. That is correct.

Mr. THOMAS. Let me see the appropriating language, Mr. Clerk. Are these appropriated funds, or are these-Mr. BAUGHMAN. They are authorized funds. money.

We use our own

Mr. THOMAS. Fee funds, we call them.

Mr. BAUGHMAN. Yes.

Mr. THOMAS. What is the average cost for servicing a mortgage now under your consolidation? Have you been able to save any money?

Mr. BAUGHMAN. Our mortgages are serviced by our servicing agencies. We pay one-half of 1 percent. That is on small mortgages. We service all the large ones ourselves.

Mr. THOMAS. Well, I notice that you say:

The principal increase involved is the amount of $48,200 for travel audit aid and inspection staffs.

How many people do you have in travel status?

Mr. BAUGHMAN. We now have 18 auditors in the field who travel almost constantly. The additional travel money is for the increase in the number of auditors and for supervision of the servicing agencies. That is necessary for them to examine the accounts of all these servicing agencies from time to time, and to supervise these mortgages: and agencies and see to it that they are functioning properly.

OTHER OBJECTS-FNMA

Mr. THOMAS. How do you break down, Mr. Baughman, this sum that you have here of $450,000? How much of it is for personal services and how much is for other objects? That is not set out in tabular form. It is in the narrative here.

Mr. FRANTZ. I believe the table on page 24 will give you what you are looking for, Mr. Thomas.

Mr. THOMAS. Do you mean down at the bottom here?

Mr. FRANTZ. Yes, sir.

Mr. THOMAS. It is commingled with the regular 1952 figures?
Mr. FRANTZ. That is true.

Mr. THOMAS. Do you have a separate table showing the breakdown of the $450,000?

Mr. FRANTZ. There is a green sheet that breaks that down.

Mr. THOMAS. I note from the green sheet that you want $371,100 for your personnel costs to take care of 159 employees. For travel you are requesting $48,200. Is that correct?

Mr. BAUGHMAN. That is correct, sir.

Mr. THOMAS. For communications you are requesting $6,800, for utilities services $11,300. For miscellaneous contracts you are requesting $2,000. What is that composed of?

Mr. BAUGHMAN. Well, we still contract with RFC in some places for telephone service. It includes such costs as that.

Mr. FRANTZ. That item of miscellaneous contractual services includes the cost of renovation of space and moving costs, which we pay to GSA.

Mr. THOMAS. You mean you have to reimburse the GSA?
Mr. FRANTZ. That is right, sir, for moving and for renovation.

Mr. THOMAS. You have an item of rents and utilities here of $1,300. Mr. FRANTZ. That doesn't cover those charges. They are carried under "07 Miscellaneous."

Mr. THOMAS. Are you going to have to open up additional offices, and require more space than you presently have?

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