On June 30, 1939, arrearages on all original borrower accounts, active and inactive, totaled $96,215,518. Of this total, $90,114,198 was due and unpaid on principal, and $6,101,320 was due and unpaid on interest.

THE COLLECTION RECORD

In the fiscal year 1939, the Home Owners' Loan Corporation collected $101,602,160 in interest and $168,482,399 in principal from original borrowers, or a total of $270,084,559. This included the amount of $46,478,954 received during the year for loans paid in full. Cumulatively to June 30, 1939, the Corporation has collected $568,332,553 in interest, and $601,002,640 in principal from original borrowers, aggregating $1,169,335,193. Of this total $125,638,128 represented amounts received for original loans paid in full.

CHART XXXV

COLLECTIONS OF INTEREST AND PRINCIPAL ON ORIGINAL LOANS
CUMULATIVE FROM JULY 1936 TO JUNE 1939

1,000

DIVISION OF RESEARCH AND STATISTICS
FEDERAL HOME LOAN BANK BOARD

As

Chart XXXV shows cumulative collections of interest and principal on original borrower accounts from July 1936 to June 1939. will be seen from the chart, the curve representing principal repayments crossed the curve of interest payments in February 1939, indicating that from that date the collection of principal exceeded the collection of interest. As HOLC loans are based on the direct-reduction amortization plan, requiring equal monthly payments, the proportion of principal repayments increases steadily because a

growing percentage of the borrowers' monthly payments is being applied to the reduction of the principal, and the proportion of interest payments decreases continuously because interest is calculated on the constantly reducing principal of the loan. Principal repayments are also accelerated by the increasing number of original loans paid in full.

The experience of the Corporation has shown that its record of collections follows closely the fluctuations of business in general.

In some months, the ratio exceeds 100% because of the collection of arrearages not included in
current accruals and because of loan repayments in full.

DIVISION OF RESEARCH AND STATISTICS
FEDERAL HOME LOAN BANK BOARD

Whenever employment slackens and family incomes decrease, collections from borrowers decline. Whenever economic activity improves and family incomes rise, collections increase. Similarly, the Corporation's collection experience varies from one section of the country to another, depending upon the economic conditions that exist in the different areas.

In general, the fiscal year 1939 witnessed an improving performance of borrowers as compared with the preceding year, particularly from January to June 1939. This is evidenced by the above chart showing by months the ratio to current billings of all payments received on "active" borrower accounts. To indicate the close relationship between HOLC collections and general economic conditions, the

chart shows also aggregate income payments to individuals as computed by the United States Department of Commerce.

The improving situation of HOLC borrowers during the fiscal year 1939 is also indicated by the increasing number of loans repaid in full. In that period 18,769 original borrowers were able to retire their entire indebtedness to the Corporation prior to the expiration of the loan contract, either by means of their own or by private refinancing. In the preceding fiscal year such repayments numbered 15,582.

LOAN SERVICE

The collection of interest and principal due the Corporation is a task of extraordinary proportions. The operations of the Home Owners' Loan Corporation are unique in their scope as well as in the fact that it is dealing generally with debtors who were heavily in default. The hundreds of thousands of HOLC borrowers are spread over the whole country, and the servicing of HOLC loans, therefore, extends into the smallest communities as well as into large cities in every State of the Union. Furthermore, the Corporation is dealing not with normal mortgage risks comparable to those of private lending institutions, but with distressed home owners whom it assists in their rehabilitation. To achieve its purpose as determined by the Home Owners' Loan Act, the Corporation gives each delinquent borrower every available opportunity to work out his problem and makes certain that it does not foreclose needlessly or prematurely on people who might still have a chance of salvaging their homes. Also, a close study of the circumstances of the individual case is necessary if the Corporation is to guard against a promiscuous granting of unjustified concessions and if the interests of the Government are to be adequately protected.

Careful consideration is given to borrowers who are behind in their payments. In the case of serious default the circumstances of each individual borrower are studied in detail on the basis of personal interviews and other information, with a view to bringing the account to a paid-up status or at least to preventing further arrearages. Because it is to the best interest of all concerned to keep the borrower in his home, foreclosure is avoided as long as any possibility remains of restoring the account to a satisfactory standing. Informal adjustments are made designed to assist delinquent borrowers in the payment of arrearages and, where warranted, formal agreements have been concluded since February 1937 in order that borrowers may reduce accumulated delinquencies in a manner adapted to their capacity to pay.

The Home Owners' Loan Corporation has also liberalized its requirements from time to time so as to afford borrowers every reasonable means of avoiding default. For example, proceeds from the sale of part of the property securing HOLC loans or from indemnities on insurance losses may be applied to interest arrearages as well as to a reduction of the principal indebtedness. Advances are made to borrowers for the purpose of reconditioning where necessary to make all or part of the property available for rental, if such additional income will prevent default. Even after foreclosure has been authorized, a payment proposal may be accepted and the foreclosure withdrawn. For the most needy borrowers, attempts are made to find employment or to obtain public assistance. All these procedures are designed to assist home owners who, under more perfunctory and impersonal methods, would have drifted eventually into foreclosure.

During the fiscal year 1939, the number of active original loan accounts decreased from 845,284 to 798,385. During the same time, however, the number of vendee accounts trebled. These accounts represent purchase-money mortgages and sales contracts on properties sold by the Corporation. Their steady increase offsets in a large measure the reduction in the work load resulting from the decline in the number of original loan accounts.

At the end of the fiscal year 1939, there were 390,410 original borrowers requiring special servicing attention, equivalent to 49 percent of the total number of original loans serviced. This group comprised 204,298 borrowers who were more than three monthly installments in arrears on loan payments, 74,374 borrowers technically not in default, but representing problem cases, and 111,738 borrowers not in default on loan payments but delinquent in taxes.

As of June 30, 1939, there were 81,668 original loan accounts which had been revised to permit liquidation of arrearages over the remaining life of the loan. Of this total, 43,446 agreements were made during the fiscal year 1939. The results of such agreements have been gratifying. Of the 81,668 home owners with whom extension agreements were in effect, 71,674 or about 88 percent have been able to avoid default under the agreement, and of the 9,994 borrowers in default, only 303 were a year or more in arrears on June 30, 1939.

A serious problem with which the Home Owners' Loan Corporation is confronted is the handling of taxes coming due on properties securing its loans. On June 30, 1939, there were 115,579 borrowers in default on their loan accounts and delinquent in taxes as well. An additional 111,738 borrowers were delinquent in taxes, although not in default on their loan accounts. While these 227,317 home owners were

delinquent in taxes an average of less than two years, approximately 10 percent of this number had a considerably greater tax arrearage. The above figures indicate that in the past many borrowers were unable to pay up their tax arrearages and at the same time to maintain the contractual payments on their loan accounts. This situation naturally tended to jeopardize the security behind the Corporation's loans. Furthermore, to obtain information on tax delinquencies the Corporation had to undertake extensive and costly tax searches. This experience has resulted in the adoption of a new policy which should eliminate virtually all tax delinquency and permit considerable savings both to the home owner and to the Corporation. Under the new

policy the Corporation continues to encourage all borrowers to bring their taxes current from their own resources; if they are unable to do so, however, the Corporation advances funds for the payment of taxes, on behalf of borrowers, to avoid excessive interest and penalties as well as to protect the Corporation itself against the loss of the security behind the loan. A procedure has been established whereby borrowers may avoid future tax delinquencies by depositing monthly with the HOLC one-twelfth of the estimated annual taxes, and whereby they authorize the Corporation to pay such taxes, when due, out of the funds accumulated in this manner. At the close of June 1939 these arrangements were being made at a rate which indicated that before the end of the fiscal year 1940 the majority of borrowers delinquent in taxes will have availed themselves of the plan.

FORECLOSURE EXPERIENCE OF THE CORPORATION

In accordance with the purpose of the Home Owners' Loan Act, the Home Owners' Loan Corporation proceeds to foreclose only as a last resort after all efforts to prevent the borrower's default-described in the chapter on Loan Service-have failed. This is evidenced by the fact that the average interest and principal arrearage on original loans foreclosed during the fiscal year 1939 totaled 18.2 monthly installments at the time foreclosure action was authorized. In other words, in the average foreclosure case the borrower was delinquent to the extent of all interest and principal coming due over more than one year and a half. In many cases, the borrower was also in serious default on taxes.