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H. R. 8837



Printed for the use of the Committee on Appropriations





it is absolutely necessary that it be carried on and as efficiently as possible, because it prevents foreclosure.

If we are unable to get around frequently enough to the borrower who becomes delinquent, the amount of the debt to us becomes more difficult to overcome.

It is very important, therefore, to keep as close to these particular difficulties as we possibly can.

Senator STEIWER. I would like a more explicit answer to the question I asked a little while ago: From the practical standpoint, what is the difference to your agency in carrying on its duties between $28,000,000 allowed by the House and $30,000,000 allowed by the Budget? Are you asking for $30,000,000? Are you content with the $28,000,000? How important is the $2,000,000, not in general terms, but what is it going to do to you if you do not get it?

Mr. Fahay. I will tell you, Senator, as a matter of fact, we cut down too soon in attempting to effect economics. We did that on our own account before we were placed under the Budget at all.

After 1936' when we stopped lending we cut $6,000,000 immediately out of the operating expenses. This resulted in our getting behind on some of these delinquent cases and too much of a back-log piled up against us; too many borrowers got beyond the 12 monthst point and that made it much more difficult.

Especially under present conditions, in our judgment, it is very important in the operation of loan service and the property management, that we do not drop behind again. In other words, we must exert every effort to keep the record up to where it is now and better it if we can.

Now, there has been a steady betterment for 12 months in sections of the country where conditions were very bad. I mean among the worst, with which we had to deal.

The group of nine States on the Pacific coast is an example. In California, the State of Washington, Idaho, Montana, Wyoming, the mortgage situation was very bad. Collections at the beginning were very difficult. But there has been a steady rise as the result of better trained men in the field and more men in the field at work on what we call loan service; that is, collections. Recent months in those States showed among the best records, we have ever had there. In September and October in that entire area our collections were about 11342 percent of the current billings for those months.

In the State of Washington they were 124 percent of current billings, and for long months we had a most difficult time in that State.

Over the country generally our monthly collections have been running right along, 96, 97 percent of current billings. As I have tried to point out, the great difficulties are with the small borrowers whose economic situation is such that it is hard for them to regularly keep up their payments and as soon as any trouble develops in the family they fall back.

Senator STEIWER. What is the average monthly payments on the principal?

Mr. FAHEY. For the whole Nation?
Senator STEIWER. For the whole Nation.
Mr. FaHEY. In cash as it comes in?
Senator STEIWER. Yes.

Mr. Fahey. Oh, we are getting right along close to $1,000,000 a day in cash payments.

Senator STEIWER. That is both principal and interest?
Mr. FAHEY. That is right.

Mr. RUSSELL. The payment on interest and principal over this 15-year period on loans runs about $7.91 a thousand. And the average loan is $3,000.

Mr. Fahey. The average loan is a $3,000 loan.
Senator STEIWER. And the borrower pays $7.90?
Mr. FaHEY. Yes, sir.
Mr. RUSSELL. Per thousand of the loan.
Senator McCARRAN. What does he pay in interest?
Mr. Fahey. Five percent.
Senator McCARRAN. Actually 5 percent, or more?
Mr. Fahey. No; actually 5 percent.

The CHAIRMAN. Mr. Fahey, you have not yet answered Senator Steiwer's question, certainly to my satisfaction, as to what you are going to do with your reduction of this $2,000,000; in what detail are you to apply it?

Mr. Fahey. More particularly, we will have to keep down very closely the field operations both on collections and on property management.

Now, I have tried to explain the danger of going too far on that so far as collections are concerned, and there is just as much difficulty and danger so far as property management is concerned.

It is important that as soon as we can, after foreclosure, we get possession of the property which belongs to the Corporation; that we put it in order if it has to be put in order, and make it available for rental and sale. If we do not have a sufficient staff of men to promptly get in possession of the property and put it on an income return basis, of course, it menas costs and losses to the Corporation.

Senator HALE. What would be the effect of selling that property as soon as you got it?

Mr. FAHEY. Well, of course, if we sold it as we got it

Senator Hale. You spend a certain amount of money in fixing it up before you sell it, do you

not? Mr. Fahey. We have to treat that on a case basis, Senator. It depends on the condition of the property. In many cases it pays well to put it in good shape. You get a very much better market for it, and it sells very much more readily.

Senator Hale. If you sold it immediately on a forced sale, you would not get very much for it?

Mr. Fahey. Generally speaking, if you attempted to sell it immediately at a forced sale you would incur large and unnecessary losses.

Senator HALE. Would it be possible then to turn those properties over to the Housing Corporation and let them work it out?

Mr. Fahey. What do you mean, United States Housing Corporation?

Senator HALE. Yes; and let them work it out.

Mr. Fahey. No; they do not bave any organization comparable with ours to deal with it.

Senator HALE. They could not?
Mr. Fahey. No, sir.

Senator STEIWER. Mr. Fahey, I am still interested in your appropriation. If the Congress provides $28,000,000 as carried in the House bill, will that enable you to keep the field service up to its present standard of efficiency with the present number of field men?

Mr. Fahey. Frankly, Senator, we are in doubt of it.
The CHAIRMAN. What is your precise definition of “field service”?

Mr. FaHEY. The field service, Senator, is represented by these men men who call personally on the borrowers.

The CHAIRMAN. Employees of the regional office?

Mr. Fahey. No; employees of the State office. They are in the State organization.

Senator TOWNSEND. Of which you say there are about 4,000?

The CHAIRMAN. But, I note from the House hearings that there are 6,000.

Mr. FaHEY. A total of 6,000. That may be correct.

Senator HALE. Would it not make a saving, Mr. Fahey, if you did not duplicate in regional offices work done in State offices?

Mr. Fahey. There is practically no duplication, Senator, between the two.

Senator HALE. You do not do exactly the same work in each?
Mr. Fahey. No, sir.
Senator STEIWER. What are the salaries of these field men?
Mr. Fahey. They run, I think, from $1,860 to $2,400.
Senator STEIWER. An average of $2,200?
Mr. Fahey. It is not enough.
Senator STEIWER. I say an average of $2,200?

Mr. Fahey. It is not enough, and we have encountered a lot of difficulty in retaining them and having competent men.

Senator STEIWER. Are you willing to let the record stand the way it is, Mr. Fahey, that an appropriation of $28,000,000 would leave you in doubt as to whether you could keep up the present efficiency and standard of your field service? Is that as definite as you want to make it?

May I say to you that the committee has got to have something to act on. We have got to justify our appropriation. I think everybody here wants to provide as much money as is necessary for the efficient functioning of the organization, but when you say to us that there is a certain apprehension of doubt as to it being sufficient, that leaves us in doubt. We do not know whether to provide more money or less money.

Mr. Fahey. Senator, frankly, I think it is better to leave it as it is and let us try and find out whether we can operate on that amount. If we cannot get by with it, then we will have to come back and ask for a deficiency appropriation.

Senator Hale. You are not asking for the $2,000,000; you simply came up because we asked you to?

Mr. FaHEY. That is right.
Senator Hale. Does that answer the question?
Senator STEIWER. That answers my question.

Mr. Fahey. Let us try. Our people are honestly and earnestly trying to operate this entire enterprise as efficiently and economically as we can and nobody has any greater ambition to get this expense down to where it ought to be than we have. On the other hand, it would be a most short-sighted business policy to cut too close here and incur losses that would not show up for 2 or 3 years.

What I started to say, Senator, was this: We are convinced that the next couple of years will prove to be the critical period.

Senator STEIWER. What effect

Senator TOWNSEND (interposing). What effect will this recession have on collections, if anything?

Mr. Fahey. It is a curious thing, Senator. We have gotten hardly any of it yet. We do not know what the result will be.

Senator TOWNSEND. What in your judgment will it be?

Mr. Fahey. Well, I should expect between now and spring we would have some difficulties, but we have not begun to feel it yet in any substantial degree.

Generally speaking, strikes and shut-downs and all that sort of thing are quickly reflected in the operations of the Corporation. This operation is a very interesting business barometer because with loans in every county in the United States and in practically every town of 2,000 or more, and monthly collections we get the reactions from trouble all over.

Conditions vary in different sections of the country, but we get changes very quickly.

Senator TOWNSEND. What percentage of your loans would you say were in small towns and rural communities, as compared with larger cities?

Mr. Fahey. Well now, that would be a guess, Senator.
Mr. RUSSELL. About 15 percent, I think.
Mr. Fahey. About 15 percent in the very small ones?

Mr. RUSSELL. Yes. Loans outside of the metropolitan areas approximate 15 percent.

Mr. Fahey. It is very hard to say. The great bulk of the urban housing of the country is in the smaller cities, so far as single homes are concerned.

Senator TOWNSEND. Yes.

Mr. Fahey. For many years 70 percent of all of the single homes in the country, of all of the urban dwelling units, have been in communities of 100,000 or less and about half of those are in the towns of 25,000 or less.

A large proportion of our loans are on single houses. The multiplefamily dwelling--that is, the house of four or more apartments is largely in the big cities. We have more of them on the island of Manhattan, for example, than in all the rest of the country.

Senator TOWNSEND. You have?

Mr. FAHEY. Oh, yes, sir; and you encounter more difficulty with them, too.

The CHAIRMAN. Mr. Fahey, I have a letter here which I understand you have requested to go in the record.

Mr. Fahay. If you please.

The CHAIRMAN. It relates to your difficulties with the General Accounting Office.

Mr. FAHEY. Yes, Senator. (The letter referred to appears at the end of Mr. Fahey's statement.)

Mr. Fahey. To complete what I was saying, if I may, Senator, we feel that these next 2 years are the important years, because in that period a large proportion of these loans will be paid down to the point where they are absolutely safe and sound loans. It should be possible then to work out a plan of prompt liquidation for the Corporation and perhaps transfer those loans to private lending institutions.

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