combination of regular loan repayments and extensive excess payments made by borrowers during those high-income years. Additional factors in this shrinkage are the restricted volume of construction during the war years which limited the opportunities for new mortgage investment and a probable greater proportion of all-cash home purchases which wiped out existing mortgages. The estimates of gross reductions in mortgage investments in this table are derived figures. They were obtained by adding mortgages originated during the year to the unpaid balance on mortgages held at the beginning of the year and deducting the unpaid balance on mortgages held at the end of the year. Since these figures on the gross reduction in home mortgage debt represent the difference between two series of estimates, small errors in the estimated figures may result in a sizeable error in the residual. Consequently, the figures should be used with this limitation in mind. It should also be noted that in refinancing a mortgage, the old mortgage appears as a gross reduction item while the new mortgage increases the volume of loans made. The data on new mortgage loans made on oneto four-family properties used in table 91 are estimated by the Federal Home Loan Bank Ad ministration and represent the total of the separate estimates for the various types of lenders. New mortgage lending statistics of savings and loan associations are estimated each month as explained in the narrative accompanying table 96, chapter IV. For other types of lenders, the statistics on home mortgages originated during the year are estimated in the same way and are based upon the same sources as the figures on outstanding home mortgage debt. The background of these figures is explained in the discussion concerned with table 90. It will be noted that the above estimates for new mortgage loans on one- to four-family nonfarm properties differ from the nonfarm mortgage recordings series presented in table 87. The exclusion of mortgages in excess of $20,000 from the mortgage recordings series largely eliminates data on nonresidential properties and on rental housing projects whereas the one- to four-family series excludes data on all nonresidential properties but includes mortgages in excess of $20,000 on residential properties. Another difference between the two series arises from those cases where alterations in the terms of an existing contract may necessitate a new registration. For example, in refinancing an institution's own mortgage, the Table 91.-Home mortgage investment: Gross investment and net change by year, 1925-46 1 Obtained by taking the outstanding balance at the beginning of the year plus mortgages made during the year minus outstanding balance at the end of the year. These figures indicate the reduction resulting from regular and excess payments by borrowers and terminations arising from refinancing, foreclosures, and voluntary surrender of titles to properties. 2 Percent of outstanding balance at the beginning of the year. Source: Basic data from Federal Home Loan Bank Administration. face amount of the instrument would appear in the recording totals, whereas only the portion which represented an increase in funds loaned would appear in the one- to four-family series. Relation of Home Loans of Institutions to Assets Table 92 shows the importance of mortgage investment for various types of financial institutions. In this table, funds invested in mortgages on one- to four-family dwellings by each type of institution are expressed as a percentage of their total assets. One of the primary functions of savings and loan associations is the financing of construction and sale of small homes. During the last 15 years, from 60 to 80 percent of their assets were in the form of mortgage loans on one- to fourfamily homes. This proportion was lowest during 1945, reflecting the small volume of construction, lower sales activity, and the unusually rapid rate of mortgage loan repayments during the war years when incomes were high. At the close of 1946, about 73 percent of savings and loan association assets were invested in home mortgages. Mutual savings banks had about 23 percent of their assets invested in mortgages on one- to four-family homes at the end of 1941. This proportion has declined since, however, and at the end of 1946, only about 14 percent of their total assets were so invested. Only a small proportion of the assets of lifeinsurance companies and commercial banks is invested in mortgages on one- to four-family residences. The highest proportion of total assets so invested by life-insurance companies since 1926 occurred at the close of 1929 when over 9 percent of total assets represented mortgage loans on small dwelling structures. At the close of 1946, this proportion amounted to less than 6 percent. The highest proportion of commercial bank assets invested in mortgages on small residential structures, which was 4.5 percent, occurred at the 1933 year end, reflecting a shrinkage in mortgage holdings from 1929 to 1933 which was less than the shrinkage in total assets. At the close of 1946, this proportion amounted to 2.6 percent. Table 92.-Home mortgages related to assets: Principal amount of nonfarm home mortgages outstanding in dollars and as percent of total assets, for selected types of institutions, as of December 31, 1926-46 Sources: Data for savings and loan associations and all data on home mortgage loans outstanding obtained from reports of the Federal Home Loan Bank Administration; assets of all life insurance companies obtained from the Spectator Company's Life Insurance Yearbook and the Life Insurance Association of America (proceedings of the Fortieth Annual Meeting); assets of all commercial and mutual savings banks obtained from the Comptroller of the Currency Annual Reports. While home financing forms a part of the investment business of mutual savings banks, commercial banks, and life-insurance companies, these institutions also invest in mortgages on commercial and industrial properties and largersized residential real estate to a greater extent than savings and loan associations. Despite the small proportion of their total assets invested in home mortgages, however, lifeinsurance companies and commercial banks contribute substantially to total funds available for home financing. At the end of 1946, these institutions had an estimated $2.6 billion and $3.9 billion, respectively, invested in home mortgages. These totals compare with $2.7 billion invested by mutual savings banks and $7.2 billion by savings and loan associations. The figures on savings and loan association assets presented in table 92 were obtained from reports of the Federal Home Loan Bank Adminis tration. Figures on assets of all commercial and mutual savings banks were obtained from the annual reports of the Comptroller of the Currency. Except for 1946 data, totals of life-insurance assets were taken from Life Insurance Yearbooks of the Spectator Co. Life-insurance assets at the close of 1946 were estimated by the Life Insurance Association of America from actual reports of 49 companies (as of October 31) which, at the end of 1945, held more than 90 percent of the admitted assets of all United States legal reserve companies. Data on home mortgage investments are the same as the figures shown in table 90. Chapter IV Activity of Federal Agencies The major Federal agencies concerned with privately financed nonfarm home mortgage lending are the Federal Home Loan Bank Administration, the Federal Housing Administration, and the Veterans' Administration. In the public housing field, the major Federal agency is the Federal Public Housing Authority. All of the above agencies, except the Veterans' Administration, were temporarily combined in 1942, under Presidential Executive order, to form the National Housing Agency. The Federal Home Loan Bank Administration supervises the Federal Home Loan Bank System which provides credit facilities for its member institutions, the Federal Savings and Loan Insurance Corporation which insures the share accounts and deposits of its member institutions, and Home Owners' Loan Corporation which refinanced the mortgages of distressed home owners during the depression and is in liquidation. The Bank Administration also charters and supervises the operations of Federal savings and loan associations. The Federal Housing Administration insures individual mortgages on one- to four-family structures and on multifamily rental housing projects. The Veterans' Administration guarantees or insures the home mortgages of veterans. Thus, the activities of the various Federal agencies in the field of private mortgage lending are based, essentially, on two different approaches. One approach, such as the loan insurance system of the Federal Housing Administration, aims for a sound mortgage structure by strengthening the individual mortgage loan. The other approach is directed toward maintenance of a sound institutional structure for mortgage lending through supervision and regulation of home financing institutions and creation of a secondary credit reserve for their use. This approach is exemplified by the activities of the Federal Home Loan Bank Administration. The Federal low rent public housing program for families of low income operates under the United States Housing Act which was passed in 1937. This program and the public war housing activities which had been carried on by a number of agencies were combined in 1942 to form the Federal Public Housing Authority.' The operations of the Federal agencies in the field of housing finance are explained in greater detail in the various sections of this chapter which follow. Federal Housing Administration The Federal Housing Administration was established in 1934 to encourage improvement in housing standards and conditions, and to provide a system of mutual mortgage insurance as an aid to home buyers and lenders. The Federal Housing Administration exercises its influence in the mortgage market through the approval of mortgagees and the selection of individual mortgages for insurance, as well as the determination of the terms, within statutory limits, upon which they will insure mortgages. Thus, with each mortgage loan insured, the standards and procedures of the Federal Housing Administration affect the mortgage market. The premium charged for the insurance of loans is the primary source of revenue for the Federal Housing Administration, and funds collected have been sufficient to cover operating expenses and to accumulate substantial reserves. The insurance of loans is authorized by titles I, II, and VI of the National Housing Act. Title I provides for the insurance of loans made. to finance the repair or remodeling of existing structures, with certain provisions pertaining to insurance of loans for new structures, including insurance of mortgages on new small homes. Title II provides for insurance of long-term mortgages secured by projects which are "economically sound." Section 203 of this title relates. 1 For a chronological record of legislation relating to housing, refer to appen. dix B. 748221-48- -9 119 to mortgages on new and existing one-, to fourfamily structures. Section 207 of this title refers to mortgages on multifamily rental projects, which may be composed of newly erected structures, or converted or renovated existing structures. Title VI provides for the insurance of mortgages on either sale or rental housing provided under the war and Veterans' Emergency Housing Programs. This title was established in 1941 to provide for insurance of mortgages on housing for defense and war workers. In May 1946, the title was amended to permit insurance of mortgages on new housing for which veterans of World War II were given preference. Under title VI, the Federal Housing Administration may also insure mortgages on existing structures built with the aid of mortgage financing originally insured under title VI. Section 603 of this title refers to mortgages on oneto four-family structures for both rental and sale. Section 608 of the title refers to multifamily rental projects, which may be composed of newly erected structures, or converted or renovated existing structures. and VI during the 12-year period from 1935 through 1946 totaled nearly $7.3 billion on 1,727,009 units. In addition to the mortgage insurance under titles II and VI, $2.5 billion of property improvement loans had been insured under title I. The cumulative total of loans insured, therefore, as of the end of 1946 was over $9.7 billion. Of the total amount of loans insured under titles II and VI, a substantial portion has been terminated. About 43 percent of the dollar amount of loans insured under section 203 and 63 percent of the amount under section 207 had been terminated by the end of 1946, as compared to 22 percent of the amount insured under section 603, and 4 percent under section 608.2 The dollar amount of insured loans in force was further reduced by the periodic payments on the principal of these loans. Thus, the estimated outstanding balance on title II and title VI loans in force at the end of 1946 was only 53.8 percent of the face amount of all loans which were insured through the end of 1946 under these two titles. The mortgages insured under section 203 include those on new and existing one- to four-family properties. Prior to 1943 the larger part of the For data on the number of insured secs. 203 and 603 loans terminated, by type of termination, refer to table 119 in ch. IX of pt. 3. Table 93 summarizes the mortgage insurance operations of the Federal Housing Administration under titles II and VI of the National Housing Act. The face amount of loans insured under titles II Table 93.-Mortgages insured by FHA: Number of dwelling units and total principal amount of mortgages insured under Titles II and VI of the National Housing Act, by year, 1935-46, and principal amount out. standing as of December 31, 1946 [Dollar amounts in thousands] |