agent, 16 projects, 1,779 units. Insufficient tax escrow, five projects, 666 units. The largest category covers multiple reasons, 116 projects with 10,656 units. I will be glad to supply this for the record.

Mr. MONAGAN. It may be placed in the record at this point. (The information referred to, follows:)

REASONS FOR INSURED PROJECTS DEFAULTS ON FEB. 29, 1972

Projects

Units

1. Fiscal factors, primarily limited financial resources and delays in final endorsement..
2. Mortgagee gave no reason or was in disagreement with mortgagor concerning escrows
3. Physical factors such as construction delays and construction defects.

4. Owner disinterested or failed to respond to collection efforts.

31

2,680

5. Poor marketability due to depressed economy or not competitive in the market.

Mr. WATSON. In most cases, when you get a multifamily project, it is due to "multireasons"; by and large, you will find poor management. Usually this is central in most of them. Very seldom do you find highly trained, effective management in a default situation unless it is a clearcut case, like the tax cases. We had absolutely no control.

Mr. ST GERMAIN. Thank you.

Mr. MONAGAN. Mr. Buckley?

Mr. BUCKLEY. Mr. Watson, for fiscal year 1973 you are projecting acquisitions of some 60,000 single-family units and some 8,000 multifamily units. If losses on these properties were held to the 1971 levels of $3.800 for single-family units and $1,945 for multifamily units, then you could expect to lose approximately $240 million disposing of these properties, if my arithmetic is correct.

Mr. WATSON. Assuming your arithmetic is proper, that could be

correct.

Mr. BUCKLEY. Since it is probable that losses per unit will not be held to 1971 levels, however, it is likely that total losses in disposing of units acquired in 1973 will be higher than that: is it not?

Mr. WATSON. Based on our experience in 1972, it could very well be higher. I was projecting our losses in 1972 to 1973.

Mr. BUCKLEY. What do you think would be a reasonable projection of the total loss on the 68,000 units expected to be acquired in fiscal 1973?

Mr. WATSON. If the increases continue in the inner city houses, you could probably put another $1,000 on a unit. That is on the inner city housing. So if you just added it to make it work out, added another $1.000 to each unit, I would say.

Mr. MONAGAN. You have to put $2.000 to get it up to $6,800.

Mr. WATSON. But if I had added to the 68,000 units, and doing a shortcut on the arithmetic

Mr. BUCKLEY. What do you come up with for your total?
Mr. WATSON. That is another $60 million.

Mr. BUCKLEY. So you figure about $300 million in losses chargeable against all insurance funds to dispose of properties acquired in fiscal 1973, based on the figures you gave me?

Mr. WATSON. Based on the figures I gave you.

Mr. BUCKLEY. What was the charge against the insurance fund in 1969 for the disposition of all acquired and assigned properties? Mr. WATSON. I don't know. We can provide that.

Mr. BUCKLEY. If you would, please supply for the record the charges against all FHA insurance funds for the years 1969, 1970, 1971, and

Estimated loss on disposition of acquired securities-fiscal year 1972

The above is based on actual losses through May 31, 1972, and a projected loss for the month of June 1972.

Mr. BUCKLEY. HUD does a 5-year budget projection. Could you supply for the record your projected loss for the 5 upcoming years? Mr. WATSON. Let me say, if we do have that projection, we will be glad to provide it.

(The material referred to follows:)

Estimated losses for all FHA insurance funds in fiscal year 1973 approximate $237.5 million. Projections have not been made for fiscal year 1974 or subsequent years.

(Note: Projections have not been made by source of funds for fiscal year 1973.)

Mr. WATSON. There are a lot of factors that are involved in 1973-74, but we hope that some of the steps we are taking in the multifamily units and single-family mortgages will begin to cut into that inventory.

On the other hand, the number of units with insurance is actually expanding. I will give you a figure as of December 31, 1971 for the 235 program to give you some idea of what is happening. As of that date, we had 246,985 mortgages for a $4.5 billion exposure. Of that, 18,641 mortgages had been acquired or assigned with mortgage amounts of $106,558,000.

Mr. BUCKLEY. Isn't it true that most of the 235 units were produced within the last year? The highest level of defaults occurs between the third year and the fifth year of ownership, so that it is premature to start comparing defaults to production. The figures you have given reflect high production recently, but you are not showing what defaults will be at the time for maximum defaults. Many of the 235 units produced have been occupied for a year or less.

Mr. WATSON. You are-well, your 3-to-5-year figure is based on a traditional experience in housing and the 235 program is somewhat different.

Mr. BUCKLEY. What do you expect the ultimate rate of defaults and foreclosures on 235 houses will be? What percentage of the properties which are insured under the 235 program do you expect to get back? Mr. WATSON. The percentage?

Mr. BUCKLEY. Yes.

Mr. WATSON. Well, of those properties that we produce-and if you take them, 3 to 5 years out, or are you talking about the 3 to 5 yearsMr. BUCKLEY. No. I am talking about the projected defaults and acquisitions over the total life of the mortgage of the 235 housing now produced.

Mr. WATSON. Now produced?

Mr. BUCKLEY. I think at one time you were projecting a 25 percent rate of acquisition. I was wondering if that is still considered to be accurate.

Mr. WATSON. That figure would probably include both defaults and assignments and acquisitions. On the acquisitions and assignments themselves, that figure was 7.5 percent of the nearly 247,000 mortgages. Mr. BUCKLEY. As of now?

Mr. WATSON. As of December 31, 1971.

Mr. BUCKLEY. What is the projected figure, or do you have it? Mr. WATSON. I don't have that information with me. However, I will be glad to supply it for the record.

(The information referred to follows:)

ACQUISITIONS OF SECTION 235 HOMEOWNERSHIP ASSISTANCE PROPERTIES
AND MORTGAGES

The following summary shows property acquisitions and mortgage assignments against year of endorsement for calendar years 1969 through 1971.

Data available for the first 10 months of fiscal year 1972 (July 1971-April 1972) and estimates for fiscal year 1973 are presented below. These data, it should be noted, refer to activities taking place within the periods described and are not identified as to year of endorsement of mortgages involved.

Projections for fiscal year 1974 and subsequent years have not been made. Mr. BUCKLEY. Mr. Gulledge, the Department requested a $195 million appropriation for the special risk fund in this fiscal year. I presume that you were going to have to request additional appropriations

in 1974 and

Mr. GULLEDGE. No, sir. That was merely the actual and estimated losses on properties acquired. That is the loss on what we either have on hand or expect to acquire by the end of fiscal year 1973. That was for fiscal year 1973 and did not include fiscal 1974.

Mr. BUCKLEY. You have no projection of what you are going to have to ask for in the fiscal year 1974 or 1975 budget requests?

Mr. GULLEDGE. No; I have no idea.

I would like to comment about the difficulty of trying to project the losses on new programs such as 235. I think Mr. Watson's statements concerning 3-5 years is based on the traditional programthat is the only program we have had for that long. We have not had section 235 that long, and there is every reason to think if 235 remains, and whether or not it is the first homeownership situation for the purchaser-if he can survive the first 2 years, he is much more apt to be a person who wants to continue to be in the homeownership role. Therefore, losses in the 3-5-year period will be considerably smaller as compared to the losses you have in the first 2 years.

That situation is created also by the fact that initially the Department had some major credit policies and property approval policies that were very liberal. There were some people approved who shouldn't have been put in a homeownership situation. We began to correct that about a year ago. We have implemented a way of tightening up mortgage credit requirements and approvals-and now we should be giving better properties and the owners will be better able to handle the

situation.

The present figures don't reflect what we feel will be an improved situation under the homeownership program in the future. We think of people we insure and we believe there will be fewer losses in the future than the percentage of loans insured in the first 2 years of the program.

Mr. BUCKLEY. Mr. Watson, what percentage of the units produced under the original multifamily subsidy program, the 221 (d) (3) BMIR program, are or have been assigned to or acquired by the Department, or are or have been operated under modification agreements? Mr. WATSON. I will provide that information for the record. (The information referred to follows:)

Preliminary data on the BMIR program for the period ending June 30, 1972 indicates that about 7.5 percent of the units have been assigned to the Department. After assignment about 1.5 percent of the total units insured have been acquired and about 1.8 percent are in the process of acquisition. Nearly 21 percent of the total units insured are or have been operated under modification agreements.

71-962-72-pt. 3-5

• Approximately 40 percent were granted prior to final endorsement to delay commencement of amortization.

Mr. BUCKLEY. What has been the average loss on the disposition of the 221 (d) (3) BMIR units acquired by the Department since the inception of that program?

Mr. WATSON. I am not sure that we have it. We will not know until the projects are acquired by HUD and sold.

Mr. BUCKLEY. Isn't it possible that many of the projects currently being operated under modification agreements, and here I am not only talking about 221 (d) (3), but also the 236, will some day be foreclosed. One $10 million 236 project I inspected in Boston is currently being operated under its third modification agreement; that is, repayment of principal and interest on the mortgage has been deferred for 3 years. It would seem that we were just postponing the date of acquisition by HUD.

Mr. WATSON. No, that is not our experience at all. You will find certain projects that probably may not make it. If we see any daylight we would prefer modifications rather than going into foreclosure. But out of the 398 projects that we had in modifications in calendar years 1970 and 1971, the number of defaults as of April 30, 1972 was 58. Those are the ones that were in default or pending default and had their mortgages modified and have defaulted again. After the period of modification expired, 79 were acquired or assigned out of the 398 and 261 are current in their payments.

The number assigned is nearly 20 percent of those which had been modified. The mortgages current in their payments are approximately 66 percent of those modified.

Mr. BUCKLEY. Do you have any projection of what percentage of projects produced under the 236 program will ultimately be acquired by or assigned to the Department?

Mr. WATSON. Under the 236?

Mr. BUCKLEY. Under the 236 program.