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Those loans which within the next two or two and one-half years are not paid down to the point of complete safety will have become hopeless loans.

Senator TOWNSEND. Have you made any effort to transfer these loans back to private agencies?

Mr. Fahey. No. There have been several inquiries, but every time we take them up, we find difficulties.

What private lending institutions would like to do would be to take over those which are absolutely prime loans. That would hardly be a desirable way to deal with the problem. If the Corporation disposes of all the good loans on which it has steady income, it would be left the great expense and necessity of servicing all of the poor ones and taking large losses on them.

Senator TOWNSEND. It is your hope that the best loans then will take care of the losses on the other loans?

Mr. Fahey. They do. The money costs us about 2.6 percent, and the interest return is 5 percent, so we have a spread which not only covers expenses, but provide reserves for losses.

The CHAIRMAN. Mr. Fahey, the committee understands that you are not asking for any additional appropriation. Is that right?

Mr. FAHEY. We are not asking for any additional appropriation at this time, Senator. We are content to try to work it out within the limit that has been placed upon us; but we would like the committee to understand that we may encounter difficulties in attempting to do so.

Senator HALE. Mr. Fahey, will you comment on this: It has been brought to my attention that the work done in the legal department of the regional offices is merely a repetition of what is being done in the various State offices. For example, observe the manner in which all foreclosure cases are handled. If the monthly payments are delinquent the analysis and review and statistical departments recommend that foreclosure action be brought subject to the approval of the regional manager. The regional manager then sends such recommendation to the regional counsel who, in turn, must approve

The regional counsel then has all necessary papers forwarded to the State counsel who employs a fee attorney to bring the action at a fee ranging from $75 upward. The fee attorney brings the action, forwards duplicate copies of all pleadings to State counsel, who, in turn, forward copies to regional counsel, who forwards one copy to Washington. Needless to say, that by the time these duplicate copies reach the regional office the case has been heard and closed. The foreclosure attorney in the regional office was supposed to check over all these pleadings, but due to the fact that they are not received until the action has been completed this is not being done and the foreclosure attorney merely ascertains if all necessary papers are in the files. All of the above work is useless, as all pleadings are examined in the State offices before being filed, which is, of course, the proper procedure.

The CHAIRMAN. Who writes that letter?

Senator HALE. Well, this is written by someone who sent me a copy of a letter which he sent to you.

The CHAIRMAN. I have not seen it.
Senator HALE. Will you comment on that?

same.

Mr. Fahey. Mr. Russell is more familiar with all of that procedure, of course. I will ask him to please explain it.

Mr. RUSSELL. I will point out, Senator, that when we approached the problem of foreclosures, naturally, on 160,000 loans, and made investigations that revealed to us that the average cost of foreclosure, for advertising court costs, and attorneys' fees in the United States is very high. We chose to set up a carefully planned procedure to carry out that operation. It does look like, upon examination, that the machinery is too complex, having a Washington office and a regional office, and then a State office.

However, experience has shown in a study of that question, that that machinery cannot safely be simplified. We submit our record of foreclosure as a justification for the process we follow.

We made an analysis that I will be glad to submit to you, that has been very carefully studied.

Our average total cost of foreclosure is $150 a case, and that is in spite of the fact that in the biggest States we have, New York State and Illinois, our average is running above $300 a case in those big States.

Senator RUSSELL. That includes cost of maintaining your legal department in the regional offices and the office here in Washington as well as the State office; also advertising fees and things of that character?

Mr. RUSSELL. The analysis I have excludes the overhead costs.
Senator RUSSELL. Excludes the overhead cost?
Mr. RUSSELL. Excludes the overhead cost.

Senator RUSSELL. So it would not reflect the expenses of the legal department then?

Senator Adams. Why would your costs be more in the larger States than in the others?

Mr. RUSSELL. It is on account of the State laws under which we proceed. In New York, for instance, our average cost in some counties is above $125 a case, just for advertising alone, statutory advertising required, and we have to pay it. And, there are other statutory costs in Illinois. And, in Illinois

Senator Adams. Which is not legal services. You say that they are higher there.

Mr. RUSSELL. Well, the more they put on this, the more cumbersome they make it by law, the more it costs us to hire a lawyer to go through it. The legal costs, I mean the fee, is higher in New York than it is in States having a more simplified procedure. But, I think the answer to the Senator's question is that our experience has been that we cannot afford as a matter of expense or as a matter of time Senator, to permit less supervision. If we merely send these cases, as would a person, a private individual, without this service, direct to an attorney for foreclosure, and left it there, and did not supervise it and follow it up, all of us who know the practice of lawyers and procedure of the courts, know that there would be great delay.

Now, we have a very complete supervision, and it does involve a record of these cases in the Washington office, in the regional and State offices. We know how long it takes to carry a case through. We know, in Washington, if one is being delayed in California or any other State in the Union, and we follow it up from here.

The regional counsel supervises the matter and follows it up for us in the States under his direction. The State counsel immediately

Senator HALE. Does he not go over the same matters that the State counsel goes over?

Mr. RUSSELL. The regional counsel is supposed to have before him a record of what takes place in the States.

Senator HALE. Is there not an unnecessary duplication in that? Mr. RUSSELL. We do not think unnecessary duplication, Senator. We think it is necessary.

Senator HALE. It is duplication.
Mr. RUSSELL. It is duplication; yes, sir.

Senator HALE. Would there not be some way of cutting that out and cutting down the expense?

Mr. RUSSELL. Senator, we have a legal department which has been pretty carefully organized. We would be glad if you would come down to one of our meetings sometime, and see how we carry on. We can show that the cost with us is about 50 percent of the average costs. We can show that it is substantially a less cost than the cost to the Farm Credit Administration. We are willing to compare our record of costs with anybody. We can show what our costs are.

Senator RUSSELL. How do they compare with the costs of some of the private lending agencies, some of the insurance companies, for example, which lend a great deal of money?

Mr. RUSSELL. Our costs, Senator, are approximately 50 percent of the costs of the largest insurance companies.

Senator RUSSELL. Yes; but you do not include your overhead expense. I

I understand that you do not include the maintaining of your regional legal departments, and your legal department here in Washington, nor in the State offices in arriving at your costs, whereas any private corporation would include all expenses paid for lawyers.

Mr. RUSSELL. Let me make this explanation: We have all information in Washington. We have one section in our legal department in Washington which handles this exclusively. We can give you a record of the exact cost, that is, the Washington cost on these foreclosures, and it is less than $2 a case. In the regional office the cost is less than $2 a case. We submit that that nominal cost of supervision is saving us 10 to 20 times that much money.

Senator STEIWER. Why is it saving you money?

Mr. RUSSELL. Because, Senator, if we did not apply that supervision, the advertising costs, for instance, would run away with us. All of us know that all of the local newspapers would like to have more money.

The court costs would not in all cases be properly checked. Then, the time element that is involved in foreclosures would just wreck this corporation.

Senator STEIWER. You have a standard form of instruction you issue to your fee attorneys?

Mr. RUSSELL. Yes, sir.

Senator STEIWER. And those tell them what they may or may not do with respect to expenses of foreclosure.

Mr. RUSSELL. Yes, sir.

Senator STEIWER. Now, is it not just a matter of determining whether the fee attorney has complied faithfully with those instructions? Is not that about all there is involved?

Mr. RUSSELL. I think that is what is involved, but it is not as simple of administration as it is to state it, Senator.

I think it does involve just simply seeing that the fee attorney does comply with our instructions, but let me point out our average time of foreclosure in the United States over is four and a fraction months.

Senator STEIWER. Is what?
Mr. RUSSELL. Four and a fraction months.
Senator STEIWER. Yes.

Mr. RUSSELL. Now, a delay with us is worth about $2 or $3 a day, $2 or $3 worth of expense is accruing. Taxes are accruing, insurance is accruing, and deterioration is taking place. It is worth that much in cash to have the delay,

The large insurance companies have given me their records, several of them, and their records of time of foreclosure run materially longer, a great deal longer than our records.

Senator Adams. You do not save time by having the work go to the regional office?

Mr. RUSSELL. Undoubtedly we save time by having the investigation. That is one of the principal purposes for the supervision, to shorten the time.

If we sent these cases out, as you gentlemen know, as most of you have practiced law, and you know what results we would get if we sent these cases in to the average lawyer's office and did not follow

them up

Senator Adams. The fee attorney does not get his fee until he has completed his work?

Mr. RUSSELL. In some cases we pay part of the fee beforehand. Generally the fee is not paid before the work is concluded.

Senator McCARRAN. What is the average fee?

Mr. RUSSELL. The average fee is probably about $75. I do not have the exact details, but that is probably the average.

Senator McCARRAN. Do you figure your fees in accordance with the amount involved, on the basis of the amount involved?

Mr. RUSSELL. It varies considerably, Senator Generally we have a fixed flat fee for the State. Now, it varies in different States. I believe we pay $10 in Maine where they have a very simple foreclosure. In New York we pay $125 a case for attorney's fee.

Senator RUSSELL. Generally you follow the method set forth for foreclosure in the State?

Mr. RUSSELL. That varies greatly, Senator. In about a third of the States we foreclose under the power contained in the deed itself. Roughly in another third of the States we have a court foreclosure procedure which is very simple and in the others we have a court procedure that is very complex.

Senator RUSSELL. That makes for the difference in the compensation of the attorneys.

Mr. RUSSELL. Yes.

Senator RUSSELL. If you bring suit under the note, he gets a judgment for his fees.

Mr. RUSSELL: For instance, in Georgia, I believe the way we pay, attorneys for foreclosure, where the foreclosure is under the power contained in the deed and he proceeds under the deed, it is $25, $35, and $50, depending upon the size of the loan. That is my recollection of the schedule in Georgia.

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In the schedule in Illinois, where we have a very complex procedure, taking an average of about 19 months, we pay $125 to get a lawyer to handle the case.

Senator MCADOO. What is the average in California ?
Senator TRUMAN. You do not have any foreclosures in California?
Mr. RUSSELL. I believe it is $125 in California, Senator.
Senator McAdoo. $125?
Mr. RUSSELL. I think that is right.
Senator McAdoo. How many regional attorneys have you got?
Mr. RUSSELL. We have 11; one in each regional office.

Senator McAdoo. Take the region in which California is included. What States are embraced in that region?

Mr. RUSSELL. There are nine States in that region. California, Washington, Oregon

Senator McAdoo. The same as the jurisdiction of the circuit court, or the Federal Reserve?

Mr. RUSSELL. I am not sure. I can name the States: California, Washington, Oregon, Idaho, Montana, Utah, Arizona, Wyoming, and Nevada.

Senator McAdoo. Now, with respect to the regional office, where is that located?

Mr. RUSSELL, San Francisco.
Senator McAdoo. Who is he?
Mr. RUSSELL. A. J. Coogan.
Senator McAdoo. What do you pay him?

Mr. RUSSELL. I do not remember the salary, but it is probably about $6,800—something like that.

Senator McAdoo. For the regional attorney?
Mr. RUSSELL. Yes, sir.
Senator McAdoo. And you have State attorneys also?

Mr. RUSSELL, Well, in California we have two divisions. We have a division attorney at Los Angeles and one at San Francisco.

Senator McAdoo. Now, you mean, in each State, you have an attorney for the State acting under the regional attorney?

Mr. RUSSELL. We have a State counsel in every State, except California, and we have two divisions in California. We have three divisions in Texas.

Senator McAdoo. You have two State attorneys in California; one in the southern and one in the northern part of the State?

Mr. RUSSELL. Yes, sir.
Senator McAdoo. What do you pay them?

Mr. RUSSELL. Mr. Moore has been our division counsel from the beginning. We pay him, I think, $5,600, or $6,000; about that.

Senator McAdoo. It is higher than that?
Mr. RUSSELL. I do not think so.
Senator McAdoo. $5,800, I think.

Mr. RUSSELL. I am sure it is not that high, not in Los Angeles, Senator.

Senator MCADOO. Now, what is the necessity for having a regional director or regional attorney dealing with the two counsel in California? You do not need any regional attorney to look after the foreclosures in California. It is superfluous.

Mr. RUSSELL. We think we do.

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