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Senator ELLENDER. And a new way of doing it.
Mr. DRIVER. Yes-by using insurance companies.


Senator ELLENDER. Now, will you be a little more specific about the cases wherein the Government pays?

Mr. DRIVER. The death that is due to the extra hazard of military service, for example death in Vietnam due to fighting, death because of an airplane crash would under the formula be paid for by the Government.

Senator ELLENDER. You mean while in service?

Mr. DRIVER. Right. Those deaths due to the extra hazard in service are paid for by Government subsidy under the formula. Senator ELLENDER. But if he should be wounded out there and come back to the hospital

Mr. DRIVER. And die because of that, the Government would pay. But if he is on leave from Fort Belvoir for the weekend, and goes home to Indianapolis, and has an automobile accident, then the insurance would be paid out of the premium payments.

Senator ELLENDER. That is the only exception.

Mr. DRIVER. That is right.

This is no different from the policy we followed in regard to World War II insurance, for example. The Government paid the extra hazard cases, and the premium payments and the trust funds have paid for the normal deaths. And the same thing is true in this situation.

Senator MAGNUSON. All right.


If there are no further questions on that item, the housing loan program is next.

We are in and out on this thing all the time. Do you think what the House recommended is all right?

Mr. DRIVER. Yes. Our best estimate now is that the limitation in the amount will do, but this is so unpredictable it depends on a variety of economic factors-that you cannot be too accurate about it. So we hedge and say we may have to come back. But at the moment we could not honestly make a good case, Senator.

Senator MAGNUSON. Senator Allott, you know all about this pro


Senator ALLOTT. Well, I wish I knew all I would like to know about it. But I would like to ask a few questions on the record.

We recently had the FHA before us here, and I will give you some of the figures that they had. I don't remember the totals. But in a survey in the St. Petersburg area, they found that they were having as many foreclosures as they were able to dispose of, and that the average cost of a foreclosure, rehabilitation, painting, et cetera, and resale, was running an average of about $3,000 per unit.

Now, what is your experience?

Mr. DRIVER. Mr. Dervan, the director of the program, is here. Mr. DERVAN. In fiscal year 1965, Senator Allott, the average loss that we took per property sold was about $1,861. Now, I should explain in the connection, sir, that our average sale price actually exceeded the book value of the property. But when you include in determining our cost the real estate taxes that we pay, the repairs that we make to place the property in a salable condition, and the 5 percent sales brokerage fee that we pay, these sums added together have exceeded the difference between the sales price and book value, and altogether we realized a loss of about $1,861.

Senator ALLOTT. Now, when you use the figure $1,861, you are including everything that you had to pay taxes, painting, repairs, cost of sale, and you say that your loss is only $1,861 compared with $3,000 for the FHA.

Mr. DERVAN. Yes, sir. Now, I might explain this, sir.

The FHA takes into account in determining its cost the interest that it will have to pay on the debentures which it issues to the holders of foreclosed mortgages.

In addition

Senator ALLOTT. And you do not.

Mr. DERVAN. We do not, sir.

In addition, our sales price per property sold in fiscal year 1965 was somewhat higher than the FHA average sales price.

A further factor-and this is a significant factor is that their sales cost is considerably higher than ours. And the reason for that is, sir, that they endeavor to effect the sale by having a private institution make an FHA insured loan to the purchaser of the property.

And in connection with that loan by the private institution, the FHA pays the discounts, whatever they are. And these added to the sales broker's commission of 5 percent can be a considerable cost.


Senator ALLOTT. Now, you do not try to arrange private financing for your purchasers?

Mr. DERVAN. We do indirectly, Senator, in this respect.

First of all I should point out, I think, that the FHA has a very large mutual insurance fund out of which it can afford to pay these discounts when private financing is arranged directly.

What we do is take back the mortgage from the purchaser of the property, when the sale is less than all cash; then we gather a group of these mortgages and offer them for sale to private investors, and private investors purchase the mortgages from us.


Senator ALLOTT. How many properties do you now have possession of?

Mr. DERVAN. Throughout the United States at the present time, Senator Allott, we have 15,500 properties. And to give you an idea of what progress has been made, I should point out that on June 30, 1963, we had nearly 24,000 properties, and this reduction of almost 8,000 since June 30, 1963, has been effected in the face of additional acquisition of 80,000 properties.

Senator ALLOTT. In other words, you are gaining on them.

Mr. DERVAN. Yes, sir. Our sales are exceeding our acquisitions. Senator ALLOTT. Now, approximately what amount do you have invested in these 15,500 properties?

Mr. DERVAN. I would say, sir, the average per property is probably $11,000 to $12,000, or thereabouts. So this would be somewhere around $175 to $185 million.

Senator ALLOTT. Will you put that in the record, please.

Mr. DERVAN. Yes, sir.

(The information follows:)

On March 31, 1966, the inventory of VA-owned properties numbered 15,566, and these were carried on the VA books at a value of $167,191,177.


Senator ALLOTT. Then would you put in the record the number of acquisitions in the last 3 years, and the number of sales.

Mr. DERVAN. I have this

Senator ALLOTT. Together with the highest inventory during the year.


Mr. DERVAN. I have this right here.

Senator ALLOTT. Would you read those in?

Mr. DERVAN. Yes, sir.

Shall I start with fiscal year 1961? I have it from there on, sir. Senator ALLOTT. What is the last year you have?

Mr. DERVAN. Right through until three-quarters of this fiscal year,

Senator ALLOTT. Let's start in fiscal year 1962.

Mr. DERVAN. All right.

In fiscal year 1962, we acquired a total of 21,165 properties. The properties sold that fiscal year were 13,974 and we ended the year with 18,045 properties. There is a slight difference there of 113 properties that were redeemed by former owners.

In fiscal year 1963, we acquired 25,243 properties. The properties sold totaled 19,387; 118 properties were redeemed from foreclosure by former owners. And we ended the year with 23,783 properties in our inventory.

In fiscal year 1964, we acquired 27,087 properties. We sold 30,502 properties; 102 were redeemed by former owners. And we ended the year with 20,266.

In fiscal year 1965, we acquired 30,021 properties; we sold 32,712; 115 were redeemed by former owners. And we ended the year with an inventory of 17,460.

For the first three-quarters of the current fiscal year we have acquired 20,921 properties. We have sold 22,700; 115 have been redeemed. And our inventory as of March 31 was 15,566.

Senator ALLOTT. Now, would you also place in the record, if you have it, where your worst repossession records are. Which is your No. 1?

Mr. DERVAN. I can summarize it this way, I think, Senator Allott: As of March 31, 55 percent of the 15,566 properties were located in 6 States. These were Texas

These were located in Texas,

Senator ALLOTT. What percentage? Mr. DERVAN. Fifty-five percent, sir. which had 2,540 properties; Michigan had 1,408 properties; Illinois had 1,395 properties; Florida had 1,270 properties; California, 1,127 properties; and Kansas, 886 properties.

Senator MAGNUSON. Could I ask a question at this point?

Was the problem in Kansas caused by the closure of the military base?

Mr. DERVAN. This has been a small factor, sir. The principal situation in Kansas has been the concentration of properties in Sedgwick County, and this was a result, several years ago, of a very sharp curtailment in airplane manufacturing employment. And as this employment was cut back, sir, we acquired quite a number.

But the situation is improving, as evidenced by the fact that Senator MAGNUSON. The reason I ask is that there was a large base closure at Salina, Kans.

Mr. DERVAN. Yes; this has been a problem.

Senator MAGNUSON. At the same time, out in my State there is closure taking place at Moses Lake-Larson Air Force Base. What is the situation there?

Mr. DERVAN. Well, I don't recall the specific situation in Moses Lake, Mr. Chairman, but I can say generally that as a general rule where there is a closing or a sharp curtailment in the military installation, we acquire a substantial number of properties which become a problem, and which we have to work with.

Senator MAGNUSON. Now, suppose at Moses Lake and I use that as an example, because they are in the process of closing now-there are some 1,335 units involved. The base will be closed out completely. You may have some of those on your hands.


What do you do, if anything, to have people pick up those properties or present owners resell them?

Mr. DERVAN. Well, the first thing that we do is that we have the custody of the property placed in the hands of a local property management broker.

Senator MAGNUSON. A private firm?

Mr. DERVAN. Yes, sir. He is assigned the responsibility of, first of all, securing the property, of making what immediate urgent repairs may be necessary to protect it. Then he makes an analysis of that property, and recommends what repairs or decoration work should be done, repainting, wallpapering, or what-have-you, to place this prop

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