The following figures show the percentage distribution of all foreclosures brought during the fiscal year ended June 30, 1939, by accumulated arrearages prior to foreclosure:

In 78.7 percent of all foreclosure cases, the arrearage accumulated prior to foreclosure was 12 monthly intallments or more, and in 50.4 percent of all cases, it was 18 monthly installments or more.

From the beginning of operations through June 30, 1939, the Home Owners' Loan Corporation has authorized 189,908 foreclosures on original loans, of which 18,872 were withdrawn. The net foreclosure authorizations of 171,036 represent only 16.8 percent of the total number of original loans made by the Corporation--a ratio which compares not unfavorably with the experience of private mortgage lending institutions during the period in question, despite the fact that in general the HOLC borrowers were in serious financial distress or default when they obtained their refinancing loans from the Home Owners' Loan Corporation. Exhibit 49 presents, cumulatively, to June 30, 1939, net foreclosure authorizations and the ratio of authorizations to the total number of original loans, by HOLC regions and by States.

The chart on page 134 shows the number of foreclosures authorized by the Corporation on original loans, the number of cases withdrawn, and the net volume of foreclosure authorizations, by months, from January 1936 to June 30, 1939.

The chart reveals a characteristic feature of the Corporation's foreclosure operations. The bulk of foreclosures was concentrated in the period from July 1936 to June 1937, when the average age of the loans was approximately two years. With a mortgage portfolio comprised entirely of refinancing loans to more than one million distressed home owners-loans granted over an emergency period of three years-it was to be expected that the Corporation should have to eliminate a number of hopeless cases in the early period of operations. Where a loan was definitely beyond the borrower's capacity to carry or where the borrower ignored his obligations, the situation generally was revealed within two years or so after the granting of the loan. Since the summer of 1937, net foreclosure authorizations have been on a

much lower level. During the period July 1, 1938, to June 30, 1939, foreclosure authorizations, after deduction of withdrawals, numbered 32,599 as compared to 40,602 in the fiscal year 1938 and 70,864 in the fiscal year 1937.

A detailed summary of foreclosures on original loans, by fiscal-year periods, is presented in Exhibit 50. In addition to properties acquired through foreclosure, the Corporation has acquired 24,690 properties by deed in lieu of foreclosure. Where such deeds were taken, the personal obligations of the borrowers were canceled.

COST OF FORECLOSURE

The Home Owners' Loan Corporation attempts to keep foreclosure costs at a minimum. When foreclosure operations began, a fair fee schedule was developed. Members of the bar were interviewed in the various States and reasonable fees in accordance with the volume

of foreclosures were established. A further reduction of foreclosure costs is dependent on a greater simplification and unification of foreclosure procedures under the various State laws, and on the elimination of excessive cost elements in many States.

For a number of years, the Corporation has made extensive studies of the cost and time of foreclosure. The results of these studies are given in Exhibit 51. Highest foreclosure costs are found to exist in those States where foreclosure by court action is the predominant method. This method is followed in 30 States. Under the power-ofsale method, used principally by the Corporation in 18 States, costs are much lower. The foreclosure costs were highest in Illinois, where the average cost per case was $349.59, and in New York, where the average cost per case was $280.94. On the other extreme, Maine and Missouri had an average foreclosure cost of only $21.29 and $54.08, respectively. These extremes indicate the wide diversity of foreclosure costs in the various parts of the country.

The average time required to complete foreclosure action likewise varies considerably among the different States. The time required from the date foreclosure was dispatched for action until date of acquisition of title ranges from 36 days in Mississippi to 25 months and 23 days in Alabama. Again, the period generally is shorter in those States where the power-of-sale method is primarily used. Redemption of foreclosed properties is permitted in 22 States and the redemption periods range from 6 to 24 months.

Where deeds were obtained in lieu of foreclosure, the total costs per case were generally lower than in the case of foreclosure. For the period from December 1, 1937, to June 30, 1939, the approximate total cost of deeds in lieu of foreclosure was $34 per case.3

After the expiration and elimination of a number of moratorium laws affecting the Home Owners' Loan Corporation, such laws were still in force on June 30, 1939, in South Dakota, Vermont, and Wisconsin. The Supreme Court of Wisconsin decided in May 1939 that the legislature had no right to make the moratorium act retroactive so as to affect loans made by the Corporation prior to its passage.

The moratorium acts expire March 1, 1941, in South Dakota and Vermont, and April 1, 1941, in Wisconsin. Under the Vermont act the moratorium provided is, in effect, a postponement of the foreclosure sale, under the judgment, for a period of three months, which may be extended at the discretion of the court. While the Wisconsin moratorium act expires April 1, 1941, foreclosure may be delayed under its terms until April 1, 1942.

For cost data on deeds in lieu of foreclosure, by States, see Exhibit 52.

PROPERTY MANAGEMENT

Although the Home Owners' Loan Corporation has found it necessary to acquire but 13.9 percent of the homes which it had refinanced, the management, reconditioning, renting, and sale of these properties has become one of the major activities of the Corporation. This is in line with the experience of all mortgage lending institutions during the last decade, but the wide scope of HOLC operations and the particular type of properties acquired by the Corporation present unusual problems.

These properties are widely scattered over the country and are located in every State of the Union. They are, in the main, small one- to four-family dwellings; many of them are in a bad state of repair when acquired; and a large number are obsolete and in deteriorating neighborhoods. Few, if any, public or private institutions ever were confronted with the problem of managing, reconditioning, renting, and selling a large number of properties of this type on a nation-wide scale.

It is the policy of the Corporation to dispose of its properties as speedily as is consistent with the Government's interests and with conditions of the real estate market. To hold its properties indefinitely would be inconsistent with sound business practice, particularly for a liquidating agency of the Federal Government. To sell its properties under pressure and below current market prices would not only entail tremendous losses, but depreciate the mortgage collateral behind all the loans made by the Home Owners' Loan Corporation and depress the mortgage and real estate markets in general. The Corporation, therefore, attempts to avoid either of these extremes, and offers its properties for sale at current market levels even if sales prices are below book values.

5

The Corporation entered the fiscal year 1939 with 82,987 properties owned and 20,145 properties in process of acquiring title, or a total of 103,132 properties. The combined capital value of these properties was $516,206,401. At the end of the fiscal year, the Corporation owned 87,618 properties, and 11,736 properties were in process of acquiring title, or a total of 99,354 with a combined capital value 5

Properties in process of acquiring title are those where the foreclosure action has been advanced to the point of judgment or sale but where because of the existence of a redemption period or for other reasons. some additional time must yet elapse before the Corporation can acquire full title.

The capital value of property is comprised of the following elements: (a) Unpaid principal balance of loans, advances, and interest merged with principal in extension agreements, at the time of foreclosure judgment or foreclosure sale where such sale is not preceded by a judgment; (b) unpaid accrued interest to date of foreclosure judgment or foreclosure sale where such sale is not preceded by a judgment; (c) all foreclosures and acquisition costs; (d) all expenditures, less all receipts, regardless of nature, applicable to the period between foreclosure as described in (a) and the acquisition of absolute title; (e) initial repairs or reconditioning regardless of nature; (f) assessments with benefits of more than one year; and (g) improvements or other expenditures which enhance physical value.

of $549,441,184. In total number, properties owned and properties in process of acquiring title showed a decrease during the year-the first decrease since the beginning of operations. This was the result of a declining number of property acquisitions coupled with a rising volume of property sales.

Property acquisitions and sales, by fiscal-year periods

For the purpose of computing the percentage of properties sold to those cumulatively acquired, properties sold prior to acquisition, and properties remaining "in process of acquiring title" in Alabama have been added to the number of properties acquired.

The Corporation was able to sell 37,771 properties during the fiscal year 1939 as compared with 15,159 in the preceding fiscal year. This increase in property sales is all the more significant in the light of growing competition in the real-estate market. Not only have private financial institutions as pointed out in other sections of this report— disposed of larger numbers of properties which they had repossessed in previous years, but with the growing volume of residential construction there was an increased number of newly built homes offered at attractive terms.

As will be seen from the chart on page 138, the volume of property sales began to exceed the number of net foreclosure authorizations in June 1938 and has remained above the level of foreclosures, with the exception of the first three months of 1939. During the months of April, May, and June 1939, the number of sales also exceeded the number of properties acquired, thereby reducing the number of properties owned from 90,136 on March 31, 1939, to 87,618 on June 30, 1939.

The property holdings of the Corporation, although scattered over the country, are particularly concentrated in a few States. One-fifth of the properties owned and in process of acquiring title as of June 30, 1939, was located in the State of New York and one-eleventh was located in New Jersey. Further points of concentration are Ohio, Massachusetts, Pennsylvania, Wisconsin, Illinois, Indiana, Kansas, Missouri, Michigan, Oklahoma, Texas, and California. All together, 76.5 percent of the properties owned and in process of acquiring title

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