fear a recurrence of the critical period of the early Thirties when many people lost their savings through the failure of banks and savings and loan associations. Insurance of accounts has thus strengthened public faith in the basic security of thrift- and home-financing institutions, has materially helped to encourage the inflow of money for investment, and has contributed to the restoration of the homefinancing system of the country.

In addition, a continuing guaranty of safety for savings invested in insured institutions has become a stabilizing factor in the development of the savings and loan industry and home-mortgage finance. Individuals saving money on a long-term basis place safety ahead of return, and insured associations have, therefore, been able to attract private capital in volume at lower rates of return than formerly were possible. This in turn has enabled insured institutions to reduce interest rates on home mortgages, to expand their lending activity, and to meet the present keen competition for sound mortgage loans. The beneficial effects of Federal insurance of accounts are evidenced by the progress of insured savings and loan associations.

CHART V

ASSETS OF AN IDENTICAL GROUP OF 1,882 INSURED SAVINGS AND LOAN ASSOCIATIONS
AS OF JUNE 30,1938 and JUNE 30,1939

The Federal Savings and Loan Insurance Corporation has also assisted in the rehabilitation of savings and loan associations-a process that became necessary as an aftermath of the depression. Through June 30, 1939, the Corporation has been instrumental in effecting reorganization, with subsequent insurance of accounts, of 284 savings and loan associations, with aggregate assets of approximately $213,000,000 immediately after reorganization, and with $270,000,000 in assets on June 30, 1939.

The strength of the protection provided by the Federal Savings and Loan Insurance Corporation lies in a combination of several factors which, in the main, are: wide geographical distribution of risk; reliance of the public upon the resources and integrity of an instrumentality of the United States; strong capital structure and conservative operating policy of the Corporation itself; and the assurance of sound operating practices of insured institutions by virtue of proper

supervision. Among these factors, the diversification of risk over almost all sections of the country may be singled out as of particular importance in view of previous failures and present endeavors to provide insurance protection on a local basis.

The number of settlements which the Corporation has had to make during its five years of operation is comparatively small. Through June 30, 1939, the Corporation has settled seven cases and paid losses of $386,000, or about 5.9 percent of total premiums received (taking into consideration recoveries by the Corporation already realized). In all these cases, the settlements were cash contributions to restore the impaired capital of insured institutions. No individual investor protected by the Corporation has lost any portion of his investment in an insured institution.

CHART VI

RESOURCES OF THE FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION
AS OF JUNE 30,1935 and JUNE 30,1939

The resources of the Federal Savings and Loan Insurance Corporation have steadily grown until on June 30, 1939, they totaled $119,400,262. To the capital stock of $100,000,000-subscribed for by the Home Owners' Loan Corporation $18,283,344 was added in reserves and surplus within five years, thereby strengthening the Insurance Corporation's resources on which its value to the insured institutions and to the investing public ultimately depends. During the whole period, the interest earned on the reserve fund was sufficient to pay administrative expenses which were only 3.9 percent of total income.

4. Home Owners' Loan Corporation

The Home Owners' Loan Corporation in the period from July 12, 1933, to June 12, 1936, completed the immense task of refinancing the mortgage loans of 1,017,827 small-home owners who were in default and threatened with the loss of their properties. This refinancing operation of the Federal Government has protected directly about one-tenth of all owner-occupants of nonfarm homes in the United States against immediate dispossession. The low-cost mortgage loans of the Home Owners' Loan Corporation, repayable in small monthly installments over a fifteen-year period, have afforded

substantial relief to distressed borrowers and have helped a large number of families to rehabilitate themselves-families which, as a result of the economic collapse in the early Thirties, were in imminent danger of losing their homes only a few years ago.

Some borrowers of the Corporation have been unable or unwilling to carry even these low-cost loans made available to them. Up to June 30, 1939, the Corporation was obliged to authorize foreclosures on 171,036 original loans (withdrawals deducted), equivalent to only 16.8 percent of the total number of original loans made. A number of borrowers, on the other hand, were in a position to repay their loans in full prior to the expiration of their loan contracts; as of June 30, 1939, there were 53,676 borrowers, or almost 5.3 percent of the total number of original borrowers, who had thus liquidated their entire indebtedness to the Corporation. Of the some 800,000 original borrowers remaining on the books of the Corporation on June 30, 1939, more than four-fifths were in satisfactory status and have given all indications of being on the road to complete rehabilitation.

The results reflected in these figures have been accomplished, in a large measure, by the careful attention and cooperative assistance which is given to those borrowers who find it difficult to meet their obligations, and by the utmost leniency shown in all deserving cases where the borrower has any prospect of "coming through" in the future. Through formal and informal adjustments for the payment of arrearages, and through advances for reconditioning, taxes, and insurance, efforts have been made to aid such borrowers in their rehabilitation.

Since the closing of its refinancing operations in June 1936, the Home Owners' Loan Corporation has entered the phase of gradual liquidation. The chart on page 13, which shows the disposition of the original loans at June 30, 1939, illustrates the changes that have occurred through the liquidation program.

Of the original refinancing loans made by the Corporation, 77.90 percent were still in active status on the books of the Corporation; 5.70 percent had been removed from the Corporation's records by payment in full, cash sales of properties, and charge-off; 1.55 percent of the total number of original loans were in foreclosure pending judgment or sale; 9.75 percent were on the books as properties owned; and 5.1 percent had returned to the records as accounts of vendees; that is, of purchasers of HOLC properties sold on extended terms of payment.

Through repayments on principal by original borrowers and vendees and through cash proceeds from property sales, the Corporation has liquidated approximately one-fifth of its gross investment in

loans and properties, as of June 30, 1939. As was to be expected, the liquidation of mortgage loans made primarily to defaulted borrowers has been attended by losses. After provision of $147,223,168 for past and future losses, the deficit as of June 30, 1939, stood at $59,562,029. In the process of liquidation, the Corporation's activities have changed in nature, but its total work load has remained substantial. The reduction in the number of original borrower accounts, for CHART VII

DISPOSITION OF ORIGINAL REFINANCING LOANS MADE BY
THE HOME OWNERS' LOAN CORPORATION ON JUNE 30, 1939

instance, has been offset in large part by an increase in vendee accounts originating from property sales; and the management, renting, reconditioning, and sale of the properties which the Corporation has been acquiring has increased rather than diminished in importance and volume. From the beginning of operations through June 30, 1939, the Corporation has acquired 141,752 and has sold 55,303 properties, leaving 87,618 owned on June 30, 1939. In addition, there were 11,736 properties in process of acquisition on that date. The book value of properties owned and in process of acquisition was $549,441,184. On June 30, 1939, there were 76,911 dwelling units rented in properties owned by the Corporation. At the same date, the Corporation's total

cumulative expenditure for reconditioning, necessary for the protection of the Government's interests, reached approximately $140,000,000.

Since the beginning of liquidation, the Home Owners' Loan Corporation has effected drastic reductions in administrative costs as illustrated by the chart below. Total personnel dropped from a peak number of 20,811 in November 1934 to 11,007 on July 1, 1939. These economies were made possible by the elimination and consolidation of field offices, attendant upon the cessation of refinancing operations, and through improvements in organization and efficiency.

CHART VIII

ADMINISTRATIVE EXPENSES OF THE HOME OWNERS' LOAN CORPORATION

Fiscal Year 1936-$35,881,600

Fiscal Year 1939 - $25,025,000

1

During the fiscal year 1939, operating expenses of the Home Owners' Loan Corporation were approximately 1.94 percent of the average dollar load in loans and properties in the period. In considering this figure, account must be taken of the fact that the average loan made by the Corporation was only slightly in excess of $3,000. The servicing of such small loans made to defaulted home owners, and the management of small properties spread over the whole country, presents an administrative task of the first order. In view of these facts, it is evident that operating expenses of less than 2 percent of the total dollar load in loans and properties represents the lowest level consistent with the maintenance of an organization adequate for carrying out the purpose of the Home Owners' Loan Act.

GENERAL EFFECTS

The combined achievements of the agencies under the Federal Home Loan Bank Board have reached into the entire field of thrift- and home-mortgage lending, and as the financial system of a country is no stronger than its weakest link, they have fortified our financial structure as a whole. The work of these agencies has been instrumental in bringing about far-reaching reforms in home finance-reforms providing one of the bases for the recovery of home-construction and home-mortgage lending which has taken place in the last few years (and which will be surveyed in Section II of this report).

1 Including administrative, general, and property expenses; excluding the cost of money and capital losses.