This chapter summarizes available statistics on a national basis on mortgage loan delinquencies, terminations, and property acquisitions and sales.

Comprehensive statistics on loan collections, if maintained on a current basis, would serve as a guide or standard with which individual mortgage lenders could compare their own experience. This series would also be valuable as a measure of home financing conditions in general.

Not all loans which become delinquent result in foreclosures. In many cases, the borrower, with the help of the mortgagee, works out a way to overcome his difficulties. An upturn in loan delinquencies, however, if confirmed by a subsequent sustained upturn in foreclosures, indicates rough times ahead in the housing market. Consequently, data on defaults and foreclosures are also necessary to study and understand the operation of the home financing market. These statistics are useful not only to mortgage lenders, but to operative builders in assisting them in gauging the market for new homes, and to governmental bodies concerned with mortgage credit or

with the supervision of financial institutions engaged in mortgage lending operations.

HOLC Experience

Table 116 shows the extent to which borrowers have been in arrears in making payments on mortgage loans of the Home Owners' Loan Corporation during the past few years. The data for Home Owners' Loan Corporation are used since other series showing these data on a national basis are not available. Because of the nature of the operations of the Home Owners' Loan Corporation, the data of that agency may not be representative of recent mortgage loan delinquencies in general. The Home Owners' Loan Corporation data, however, do constitute a broad record of experience in dealing with the class of borrower and type of property in which the lending of the Corporation was concentrated. The Home Owners' Loan Corporation was established during the middle 1930's to refinance those mortgage loans of private lenders which were seriously delinquent. The average mortgage taken over at that time was

Source: Home Owners' Loan Corporation.

more than 2 years in default on principal and the owner between 2 and 3 years in arrears on taxes. The mortgaged properties were primarily older structures.

In servicing its loans, the Home Owners' Loan Corporation adopted a most liberal policy, and borrowers who became delinquent were given every opportunity possible to cure the delinquency. Despite this liberality, many loans were foreclosed. Many others were either paid off or refinanced. (See table 117.) However, of the loans outstanding original loans plus new loans made on the sale of acquired properties-13.5 percent, were in arrears "one installment and less than two" at the close of 1945, and 13.1 percent, at the end of 1946. Only 3.3 percent of outstanding loans were in arrears "two installments and less than three" at the end of 1946 and somewhat over 2 percent were in default (i. e., delinquent three installments or more). These figures are based on actual operating records of the Home Owners' Loan Corporation and include all loans rather than a sample of loans.

Table 117 presents the over-all lending experience of the Home Owners' Loan Corporation as of the end of 1946. This table shows the experience with the original loans refinanced and also with vendee accounts. A vendee account represents a purchase-money mortgage, that is, a mortgage upon a property accepted by the seller of the property in part payment of the purchase price.

Table 117.-HOLC lending experience: Original loans made, properties acquired and vendee accounts, through December 31, 1946

The 1,017,948 original mortgages refinanced by the Home Owners' Loan Corporation, as shown in the upper portion of table 117, demonstrate the result, during the depression, of the mortgage lending practices and the types of mortgages generally written during the 1920's. It is significant that the seriously delinquent loans refinanced by the Home Owners' Loan Corporation, when rewritten to provide for long amortization periods and to reduce monthly payments to a level commensurate with the borrower's ability to pay, have performed so well. At the close of 1946, over 52 percent of the original loans refinanced by the Home Owners' Loan Corporation were either paid in full by borrowers or considered so sound that they were refinanced by private lenders. The generally improved economic conditions and rising real estate prices which prevailed during the major part of the period covered by these operations, no doubt, contributed to this favorable lending experience.

A second significant fact to be noted from this table is that, of the original loans refinanced by the Home Owners' Loan Corporation, 19 percent had to be foreclosed even after every consideration was given to rewriting the loan on the most favorable terms.

FHA and VA Experience

Another source of data on loan collections and defaults is the Federal Housing Administration mortgage loan insurance experience. Table 118 presents data on Federal Housing Administration insured mortgages in serious default. These mortgages, insured under provisions of sections 203 and 603 of the National Housing Act, represent loans for which mortgagees reported foreclosure as imminent or for which foreclosure proceedings had been started.

Defaults in insured mortgages have been generally low since the beginning of insurance operations. However, Federal Housing Administration insurance, so far, has been operating in a rising real estate market when collection experience is usually satisfactory and foreclosure activity low. The figures presented in this table are based on operating records of the Federal Housing Administration. Mortgagees are required to report defaults in accordance with regulations in order to qualify for the benefits of mortgage insurance. An additional source of data concerning mortgage loan delinquency and default is the loan program established under provisions of the

1 Represents loans for which mortgagees report foreclosure as imminent or foreclosure proceedings started.

2 Section 603 enacted on Mar. 28, 1941.

Source: Annual reports of Federal Housing Administration, 1945 and 1946.

Servicemen's Readjustment Act. Lenders may report to the Veterans' Administration any mortgage loan carrying a guaranty or insurance of the Veterans' Administration which is 90 days or more in arrears. However, they are required to report all such loans which are in arrears for 6 months. Therefore loans reported to the Veterans' Administration as being in default vary in the extent of arrearage. Cumulative defaults reported, expressed as a percent of cumulative home loans closed, while a very small proportion of the cumulated total, have been increasing. The proportion of cumulative defaults rose from 0.12 percent as of April 26, 1946, to 0.19 percent as of December 25, 1946, and by March 25, 1947, had risen to 0.35 percent.

Every possible effort is made by the lender and the Veterans' Administration to cure defaults and prevent foreclosure. Approximately a third of the defaults so far have been cured.

Mortgage Terminations

Table 119 presents Federal Housing Administration insured mortgage terminations under sections 203 and 603 of the National Housing Act. The data are segregated into three major categories: Terminated mortgages replaced with new insured mortgages on the same properties; terminated mortgages involving foreclosure actions; and all other terminated mortgages, which include loans refinanced with uninsured mortgages, loans paid in full by borrowers out of their own funds, and loans which were paid off upon the sale of

properties wherein no new mortgage or an uninsured mortgage was involved.

The total number of section 203 insured loans terminated has been increasing rapidly during the recent war years and in the postwar years. The rate of cumulative terminations-cumulative number of terminations as a percentage of total mortgages insured-increased from 8.06 percent at the end of 1940 to 44.04 percent at the end of 1946. Through the close of 1940, increases had occurred in all three categories of terminations. However, since 1940, the number of terminations during each year involving property acquisitions moved steadily downward. During the high-income, high-saving war years, mortgage lending institutions were brought into sharper competition since they were receiving more savings than they were able to invest in new mortgages while individuals were paying off their mortgage commitments at an unusually rapid rate. As a result, the number of terminated section 203 insured mortgages which represented either loans paid in full or refinanced continued to increase.

It should be noted that as the loans made in the earlier years of the program mature, that is, reach the end of the term of years for which they were written, the percentage of terminations for the entire program increases. However, an increase in the percentage terminated prior to this time means that loans are being paid off more rapidly than mortgage contracts call for. Such terminations reflect refinancing, loans paid off from borrowers' own funds and other terminations. Mortgages purchased by one lender from another lender, as well as those cases where the home purchaser assumes the seller's mortgage, are not included in mortgage terminations. The average term of mortgages on new homes insured under section 203 was only slightly below the statutory maximum of 25 years; on existing homes, slightly below 20 years. The high percentage of terminations, however, indicates that many mortgages were held in a lender's portfolio considerably less than the period allotted for amortization in the mortgage

contracts.

During 1946, for the first time, the number of terminated mortgages replaced with new insured loans under section 203 decreased. While 44.04 percent of cumulated insured loans had been terminated by the 1946 year end, 5.62 percent of the aggregate insured loans had been replaced by other insured loans.

n. a. Not available.

Source: Annual reports of Federal Housing Administration, 1938-46.

Cumulative terminations under section 603 insurance operations amounted to 7.50 percent at the end of 1945, but at the close of 1946, the proportion of loans terminated rose to 22.64 percent. Although the number of section 603 insured mortgages which were refinanced with new insured mortgages and the number of terminations resulting from property acquisitions. continued to increase somewhat, "other" terminations which represent loans paid in full or refinanced with uninsured loans showed the greatest rate of increase. "Other" terminations, cumulatively, represented only 3.46 percent of total loans by the end of 1945, but, by the close of 1946, the cumulative total of such terminations had jumped to 16.36 percent of cumulated section 603 loans.

Real Estate Foreclosures

Table 120 shows the number of nonfarm real estate foreclosures in the United States annually since 1926. There was an uninterrupted increase in such foreclosures during the second half of the twenties and it was not until 1932-33, when the depression hit bottom, that the number of foreclosures reached its peak. With the formation of the Home Owners' Loan Corporation in 1933, this trend was reversed. Since then, the number of foreclosures has declined, dropping to a negligible level during recent years. Real estate operators, mortgage lenders, home builders and the interested Government agencies will, of course, want to observe this series closely.

The nonfarm real estate foreclosure series is compiled by the Federal Home Loan Bank Ad

ministration. Monthly information is received each quarter on questionnaire forms sent to county clerks, county recorders or other county officials. National and State figures on the number of foreclosures are estimated from a sample which includes approximately 1,500 counties, cities, townships, or other governmental divisions representing about 65 percent of all nonfarm dwelling units. Total foreclosures are estimated from the sample, on the basis of the number of nonfarm structures. In preparing these estimates reporting areas are grouped according to size, that is, number of nonfarm dwelling units. Foreclosures on nonresidential and multifamily structures are included, but these are estimated to comprise only about 15 percent of the total. The data, generally, represent foreclosure actions completed, as distinguished from actions instituted.

Foreclosed Property Awaiting Sale

Table 121 shows the estimated book value of acquired residential properties held by leading mortgage lending institutions. A large volume of properties were acquired by these institutions during the depression of the early and middle.

1930's. The available data indicate that at the close of 1938, the institutional "real estate overhang" (i. e., the total of foreclosed real estate awaiting sale) amounted to an estimated $2.6 billion for selected types of financial institutions. With sales stimulated by improved business conditions and subsequently by the prosperity of the war period and the severe housing shortage, almost all of these properties have since been absorbed by the market. As of December 31, 1945, this "overhang" amounted to only $143 million. A large "overhang" has a depressing effect upon real-estate prices, particularly if the terms under which such properties are being sold are liberal. On the other hand, the absence of a large "overhang" represents a market factor favorable to the real-estate business.

Data on institutional ownership of foreclosed residential real estate are compiled by the Federal Home Loan Bank Administration from annual reports of savings and loan members of the Federal Home Loan Bank System and statistics of reporting life-insurance companies, which companies hold about 95 percent of the total resources of all life-insurance companies. Data for nonmember savings and loan associations, mutual savings banks and commercial banks were obtained from reports of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and State supervisory authorities.

Table 121.-Institutional ownership of residential reaι estate: Book value, by selected types of institution, as of December 31, 1938-45