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erty in a salable position. Following that, we determine what price this property should be offered at for sale on the local market. And we then list the property with local real estate brokers who endeavor to sell the property for us in consideration of the standard 5 percent sales commission.

In those areas and Kansas is a good example of this, sir-where the sales market was difficult and very slow, we turned from a sales program to a rental program, and rented these properties out. After the people had proven that they were good pay risks, by paying their rental monthly for, say, a period of a year, we then contacted the individuals and would offer to effect a sale to them at a monthly installment which was approximately the same as the rent, and we turn around and sell it.

Senator MAGNUSON. Let's take Moses Lake.

These properties, these 1,335 units, obviously would not be sold to individuals. They have to be in some kind of a block sale-another agency of Government or the State or the county port district assume the takeover for some particular reason.

What would you do then? Would you work with the agencies?


Mr. DERVAN. First I might point out, Mr. Chairman, that in the State of Washington, throughout the State of Washington, as of March 31, the total number of VA-owned properties was 509.

Now, how many of those were in the Moses Lake area I cannot say just at the moment. But we have had situations and Detroit is a good one-where there have been substantial concentrations.

We endeavor, where we can, if we can obtain at a fair price for the Government-to effect a bulk sale. We have also sold properties to municipalities, where they have been interested in rental housing, for example. And then we have got into the rental of property ourselves. We do everything we can to stabilize that market and develop a sales market.

Senator MAGNUSON. Well, of course at the base, there is a large modern hospital. We are trying to effect some sort of use for this entire unit. In the whole community there would not be enough sales to amount to anything, unless something of a new industrial nature located there.

In other words, you are sympathetic to working with, a State or another unit of Government in working out their plans?

Mr. DERVAN. Yes, sir.

Senator MAGNUSON. Rather than trying to sell them through private sales piece by piece?

Mr. DERVAN. Whenever we can sell through private sales, of course, we do. But we work closely with local municipalities in their efforts to bring industry into the area, and to develop a new market for those properties, and every other way possible.

Senator MAGNUSON. I don't want to belabor this, but it is very important to all of us out there.

There are some of the airplane companies that are going to come in and use the air base. The airlines, for instance, have all expressed a desire to see if they could not work out a use for pilot training. In those cases, if you had some houses, you would probably say, "We will rent them to you," to get something out of them, until you have effected a sale.

Mr. DERVAN. That is right. Where an individual is going to be in an area for a relatively short period of time, rather than this being a permanent locale, so to speak, it is better for him and it is better for us to rent, rather than sell.

Senator MAGNUSON. Because they will keep up the premise?
Mr. DERVAN. Yes, sir.

Senator MAGNUSON. That is a problem. I know you have some units involved in this closure.

In all these you mention one thing that I didn't quite understand. You said that the reason the FHA costs were higher is that they use a private organization for resale.

Mr. DERVAN. A purchaser contracts to buy an FHA-owned property. Now, in that situation, to a large extent the FHA will refer that purchaser to a private lending institution, and see if he can qualify for an FHA insured loan to purchase that property from the Commissioner of the Federal Housing Administration.

Since the rate during virtually-well, since prior to February—was 5 percent, in order to induce the private lender to make an FHA loan at 5 percent, it was necessary for the FHA to pay that lender some discount points. And this is part of their sales cost. Senator MAGNUSON. You don't do this?

Mr. DERVAN. No, sir.



Senator YOUNG. Mr. Chairman, may I ask a question? What part of your loans are direct loans and what part are insured loans?

Mr. DERVAN. Let me put it this way, sir:

Since 1950, when the direct loan program was established-and the direct loan is a loan which we make directly to a veteran residing in a rural area, in a small city or town, to purchase a home-we have made about 257,000 loans under the direct loan program, totaling about $2.3 billion.

Under the guaranteed loan program, where private lenders make the loans to vets to buy homes, through fiscal 1965, approximately 6,391,000 loans have been made by private lenders totaling roughly $61 billion.

Senator YOUNG. What is the prospect for the future? Will we be making many direct loans?

Mr. DERVAN. Direct loans have been declining in the past 2 years. Last year, in fiscal 1965, as I recall, we made about 11,000 direct loans. This year it is expected to be 6,000. And for fiscal year 1967, as I recall, the budget, predicts a total of roughly 4,500.

Senator YOUNG. What is the difference in the interest rate?

Mr. DERVAN. The interest rate is the same, sir-both on a guaranteed loan and on a direct loan.

Senator YOUNG. And you make the direct loan mostly where insured money isn't available?

Mr. DERVAN. Yes, sir-where historically private financing on GI loan terms has not been generally available.

Senator YOUNG. Thank you.

Senator ALLOTT. Now, before we drop this matter, I would like to go back.

You gave me the figure of $1,861 as net loss. The FHA gave us the figure of $3,000. This means actually on the FHA figures the total repossessions are costing roughly $142 million a year.

Now, you have stated that you do not pay or consider in your figures the discount figure that the FHA might pay when the loan is taken up by a private lender, and which can run anywhere from 5 to 6 to 7 percent.

Mr. DERVIN. Well, they have not been paying in that magnitude, sir. I would say it has been around 3 points roughly.

Senator ALLOTT. Well, the discount figures have been running in that magnitude some places. They also take into consideration the interest that is involved upon their money, which you do not. Mr. DERVAN. That is right.

Senator ALLOTT. And if you took these two factors into consideration, would your figure of 1,861 come up close to the 3,000 or not?

Mr. DERVAN. It would be considerably more than $1,861, but I don't think it would be $3,000, sir. And the reason I say that is that in our case the average sales price per property sold was higher in fiscal 1965 than the average sales price in the FHA case.

Senator ALLOTT. How do you account for that?

Mr. DERVAN. Well, I think that the FHA had-first of all, they have had to deal with a considerably larger supply than the VA. As I indicated, we have now on hand 15,500, and although I am not sure of the FHA figure, I am confident that it is around 40,000.

FHA has sold a considerable number of its properties on a bulk basis in order to get things into more manageable shape. And I would presume that in order to effect these bulk sales, they had to make some sacrifice on the average sales price.


Senator ALLOTT. All right.

Now, in their presentation, the FHA gave us an analysis of the causes of foreclosure, or the reasons for foreclosure, by percentages.

Have you prepared such a table?

Mr. DERVAN. We made a survey several years ago, sir, which in effect was an analysis of the claims that we had to pay as a consequence of foreclosure, and what were the reasons for the default which resulted in the foreclosure.

We found roughly that 61 percent of the defaults which resulted in foreclosure were due to factors other than wholly economic factors. And this 61 percent included such matters as illness or death, divorce or separation, overextending oneself in the way of new obligations, or improper regard for his mortage-and that reduced income, which would be an economic factor, was about 39 percent, sir.

Senator ALLOTT. And you have made no breakout further than those two figures?

Mr. DERVAN. No, sir.

Senator ALLOTT. You said this was done several years ago. Have you done this since? I would think this would be helpful, because certainly it is only upon factors like this that Congress can think in terms of writing future meaningful housing legislation.

Mr. DERVAN. Yes. I might add this. It may be of some help, Senator.

We have 49 loan guaranty offices throughout the United States. In 16 of these stations are roughly 81 percent of our properties. Of these 16 stations, we have determined that in 8 the concentrations of the properties there are due solely to the normal exposure attributable to having originated or guaranteed a large number of loans, and in the other 8 stations the properties are the result really of local economic disturbances.

Senator ALLOTT. Now, one final question.

Where does Colorado stand in this picture of foreclosure?

Mr. DERVAN. Colorado has about 482 properties on hand. Its overall rate is very good.

Through fiscal 1965, our Denver office had guaranteed 344,000 and some odd home loans. Foreclosures had totaled about 7,300. That is since 1944. And its foreclosure rate was 2.1 percent on these guaranteed loans, as compared to a national average of about 2.6 percent, sir.

Senator ALLOTT. Thank you.

Senator ELLENDER. A couple of questions.

As I understand it, FHA carries an insurance and the loss of $3,000 per unit is protected by this insurance.

Mr. DERVAN. Yes, sir.

Senator ELLENDER. Now, what kind of insurance do you carry? Mr. DERVAN. Sir, we do not charge in respect to World War II and Korean conflict veterans any charge, premium or fee for the Government's guarantee or insurance of the loan.

Senator ELLENDER. As I understand the disposition of housing by FHA has increased some, and it has reduced the amount of money on hand that is, that accumulated over the years, by way of insurance. I am glad to note, Senator Allott, that in the case of FHA, all the losses sustained have been returned by way of insurance-whereas the VA has experienced a total loss, in that there was no insurance carried.

Senator ALLOTT. Well, may I reply to that, or just make a remark? Senator ELLENDER. I just want to note the difference between the two.

Senator ALLOTT. You are entirely correct. But as I pointed out to Mr. Brownstein the other day, it is the borrower who is paying for this insurance. So it is not an all-clear thing as the remark of the Senator would seem to imply.

Mr. DERVAN. May I add, Senator, that since fiscal year 1962, I believe it is, when the loan guarantee program was established on a revolving fund basis, all costs and expenses of the loan guarantee operation have been met from income and revenues generated from operations, and the Congress has been required to appropriate only those funds for "GOE," salary and administrative expenses.

Senator ELLENDER. Now, at this point, Mr. Chairman, I would like to have FHA put into the record the amount of insurance collected, let's say, over the last few years, and how the sale of FHA units has affected this insurance fund.

Thank you.

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