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that he would shortly become a part of the Alabama agency and
just put one more lawyer in that office.

Senator BANKHEAD. Although he reported direct to headquarters?
Mr. RUSSELL. Yes.

Senator BANKHEAD. Why do you say that? He would not be under the direction of the State counsel, but would be your representative there as he is now at Atlanta.

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Mr. RUSSELL. The State counsel reported directly to headquarters all the while, you see, and yet it was utterly impossible for me, as the general counsel here to get an even fairly efficient operation for many months. In order to protect the Government in this operation we set up a triple check of these loans as compared to a double check that we ordinarily have. Life-insurance companies get a local lawyer or they get a title company to check on their loans and then they check them in the home office. They check the loans in the home office before the disbursements are made. In order to decentralize this operation more and more and get a quicker operation we organized this institution to make a distribution in the State office with checks we have there, you see. The local lawyer passed on it, and the State counsel and his staff passed on it, and then there was a disbursement right there. After it was disbursed it came right up here. When it came up here every one of those was surveyed, and then every kind of a thing was found. For instance, they would open accounts all over the country with people who owed money. They were refunding debts that were not on the particular property, but were debts against other properties, and they were refunding debts against more than four-family houses, and commercial properties, and just every kind of violation of this statute that you can imagine. This supervision from here resulted, of course, in making changes in the local organization. It resulted in making improvements where changes were not made. But I do not see how you can conceive of successfully operating an institution of this kind with a local agency without some supervision of some kind.

Senator BANKHEAD. I have no objection to some supervision, and I have no objection to your establishing all the safeguards you want, but I cannot understand why, if you get the right man to supervise, you cannot do it on the ground better than at a distance. That is all I wanted to ask him, Senator Bulkley.

Mr. FAHEY. I should like to say this further in connection with it. One thing that I attempted to explain the other day was that the use of machines for accounting and billing and all that sort of thing could not as a physical matter be transferred to the State offices and used economically. The machine arrangement is based upon a unit of 50,000 loans.

Senator BANKHEAD. How many machines have you?

Mr. FAHEY. I could not tell you off-hand, Senator. There are hundreds of them; as a matter of fact, the number in each place depends upon the amount of work. There are more in one regional

office than another.

ye to use a capacity for 50 thousand in order to get the I of an operation.

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er side of it is this: There is not a single one of these Government agencies that we have any knowledge of s not have to decentralize and operate on just about this The Federal Reserve System, for example, really repregional offices. The Reconstruction Finance Corporation s of regional offices for supervision, and under the direction iginally trained here, and familiar with the policies of the d the regulations of the Board. The Farm Credit in the operates through 12 regional banks. P. W. A. also has to onal supervision of the same character and with the same <pert men familiar with their needs. In all of these cases o be remembered that the loans are passed upon by Washd approved in Washington before they are made or closed. tion is entirely different, in that the Board knows nothing se loans until after they have been made.

authorization provided for in this bill is approved finally e disbursing another $1,500,000,000 to $1,750,000,000 addins. It is just as important as it has been at any time, and e so, that proper control be maintained over the making of 1s, and that the mistakes of the past be avoided, and that be done as the result of expert supervision.

we put a lot of time and thought into this thing, and studied reat many months, until it was just impossible to see how 1 maintain adequate supervision from Washington by the ld men traveling out from here, which involved a great exd also delay. The only method we have been able to debeen that of handling it just as other Government agencies gh properly set up regional offices, in order to do it pracd efficiently and economically.

STEIWER. Does your experience to date with the regional stify your belief that you obtain more economical administhe regional offices than you would by administration from ton?

HEY. Yes. The establishment of the regional offices, and , enabled us to promptly get these accounts into shape and loan files into shape.

T STEIWER. What experience did you have to go by? I mean e institutions. Did you have any pattern by which you out your work?

HEY. No; only so far as the experience of private industry ; private industry operating on a very large scale. As you ere is hardly a large corporation in the United States doing on a Nation-wide scale which is not obliged to organize along

nes.

- Russell has explained, the operation of the great insurance es, which are engaged in Nation-wide loaning, is quite dif

Senator STEIWER. Wпy cannoɩ your institution come to that pretty soon? I appreciate that at one time you were confronting a great emergency. Now that the pressure is off to some extent-or we will say that it will be off before a great while-why can you not administer from Washington rather than from regional offices?

Mr. FAHEY. We will have, when this operation is closed, about 1,500,000 to 1,600,000 loan files and accounts. To attempt to carry on the detail of supervision with respect to such a volume of loans and to service them from one central point in Washington would be a tremendous task.

Senator STEIWER. You will soon be past your big responsibility with respect to lending. Then your problem will be that of supervision and collection, will it not?

Mr. FAHEY. Yes; and servicing.

Senator STEIWER. And you think that could not be done from the central office at Washington?

Mr. FAHEY. It could not. There is one very important factor in this supervision, and that is the question of granting extensions where the home owner claims inability to pay. We have the right to grant extensions under the law up to 6 months. To permit that to be done without supervision would invite a good deal of difficulty; I mean if you just left to local authority without any checking what

ever.

Senator STEIWER. That is, if you permitted the State agency to do it without supervision?

Mr. FAHEY. Yes. There is only one way to do it. That is to have the facts reported and the recommendation made, and the recommendation Ó. K.'d. To have that done from Washington would be impossible.

Senator STEIWER. How do you propose to do it?
Mr. FAHEY. Through the regional office.

Senator STEIWER. Let us assume that the borrower should apply to the State office for an extension. The State office refers it to the regional office for approval?

Mr. FAHEY. The State office investigates it, reports what are supposed to be the facts, and makes a recommendation. Then that recommendation is approved, or further facts are demanded by the regional office.

Senator STEIWER. And if I understand you correctly, you think the State office could not do that and do a good job?

Mr. FAHEY. It can do the detail work, but it can hardly be relied upon to do it as well as it ought to be done without any supervision. Senator STEIWER. Why is that true, Mr. Fahey? What is the matter with the State offices that they cannot do a simple thing like that?

Mr. FAHEY. Well, because frequently local influences come into the matter, and you have got to provide some machinery so as to prevent favoritism and carelessness, and that sort of thing.

Senator BANKHEAD. How do you obviate that at the regional office several hundred miles away?

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the simple question whether a collection system could be at effectively at long distance and long range as well as he State office. I just wonder what results you obtain in the llections supervised through regional offices?

HEY. The answer to that, Senator, is just this: That more of these bills are paid practically on the dot just as a result lling. The other thing about it is this: You cannot get into collections in a case like this. If you developed a system ich a collector had to go the rounds and make these collecn the home owners you would increase your expenses and lications enormously.

STEIWER. Would you not increase your collections also? HEY. No. The best method, out of all experience, is to when they get behind, and then the personal factor comes But if you once get into a system of personal collections onth on this great volume, you would pile up an enormous expense.

BULKLEY. Will you tell us in more detail how you do o delinquencies?

HEY. First of all we have a series of letters, just as any lection agency does, and those are sent at intervals. BULKLEY. From the regional office?

HEY. From the regional office. And if they do not bring , then the case is reported to the State or district office. r BULKLEY. At about what period of deliquency do you the State office?

HEY. Do you mean, do we send to the offices?

r BULKLEY. Well, you say you send out a series of letters regional office, and then if they do not get results you turn > the State office. If you do not get results then, at what you take other action?

HEY. If we do not get a result within 90 days we put it up ate office.

r BULKLEY. So that 90-day delinquencies are referred back ate office?

HEY. Yes.

r BULKLEY. And then what?

AHEY. And the State office follows up on it and reports or not it can prevail on the home owner to pay.

r BULKLEY. The State office then sends a representative to personally; is that right?

AHEY. Yes; the State office then sends for him or sends a ative to see him personally.

r BULKLEY. And then each such case becomes an individual

AHEY. That is right.

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That is right.

Senator BULKLEY. And that is done without any further direction from the regional office?

Mr. FAHEY. Well, they recommend foreclosure to the regional office, and if the regional office approves they go ahead.

Senator BULKLEY. So the State office follows it as long as it is their good judgment to follow it; and then, when they think it ought to be foreclosed, they make a recommendation to the regional office and must have authority from the regional office to institute a foreclosure.

Mr. FAHEY. That is right.

Senator STEIWER. How do you define delinquency? What do you call a delinquent loan?

Mr. FAHEY. Well, we call anything after 30 days or so delinquent. Senator STEIWER. Do you not have a regular formula which determines whether a loan should be passed as delinquent!

Mr. FAHEY. Oh, yes; we do.

Senator STEIWER. What is that?

Mr. FAHEY. Well, usually if it is not paid within 15 days or so we classify it as a "delinquent."

Senator STEIWER. You say "usually ", Mr. Fahey. That rather indicates that you do not have a regular formula.

regard

Mr. PRESTON DELANO (General Manager, Home Owners' Loan Corporation). We have certain definite instructions that go out to every State and every regional office defining what a delinquency is, Senator. Technically a loan becomes delinquent 1 day after it is due, but we have a 90-day clause in all our mortgages which corresponds to the insurance clause of grace, so that our practice is in accordance with the usual insurance practice of 90 days after the date due as the time of delinquency. A delinquency technically occurs the minute a bill is out; the date on which that bill is sent. We bill 10 days before the payment becomes due and the account becomes delinquent, but it is not delinquent to the point of personal service until after the period of 90 days of grace. We find as a matter of fact that a great many people take the 90 days.

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The difference between the 1-day delinquency and the 90-day delinquency is very marked. We find that it is around 20 percent when we get down to the end of the 90 days. When we get up on the barrel-head delinquency depends a little bit upon our cycle of billing. It is a complicated thing to know just every day, because we bill every day. We have this enormous number of bills pouring out of the regional office every day, so that without stopping the machinery completely or stopping the operation we could not discover what the delinquency is as of every day, but we take it on an average and we do get what we might define a barrel-head delinquency on the basis of the average of these cycle billings. As I said before when we get to the 90 days we find, about 20 percent, delinquency. We do not consider, and neither does any old-line institution consider a delinquency as existing 1 day after the payment is due, because so much stuff is in the mail, and there is so much disposition to take advantage of the grace period.