to $267,600': Provided, That the limitation under said head on the amounts available for certain nonadministrative expenses of said Administration is increased from $26,250,000' to ‘$31,560,000'."

This proposed provision is necessary to permit the Federal Housing Administration to: (1) Review certain multifamily housing projects insured primarily under section 608 of the National Housing Act to prevent the dissipation of assets and to recover any illegal windfall profits, and (2) permit the processing of the increased volume of mortgage-insurance applications which arose largely as a result of passage of the Housing Act of 1954 on August 2, 1954. Prompt action on this proposal is important in order to avoid unnecessary delay in processing applications for mortgage insurance which, in turn, would impede housing construction.

I recommend that the foregoing proposed revision be transmitted to the Congress.

Respectfully yours,

ROWLAND HUGHES, Director of the Bureau of the Budget.

REQUEST FOR SUPPLEMENTAL BUDGET AUTHORIZATION, FISCAL YEAR 1955

The heavy volume of mortgage insurance applications following approval of the Housing Act of 1954 and certain pressing problems in connection with section 608 rental housing, primarily in the field of litigation, have created an urgent need for supplementary budget authorization during the fiscal year 1955.

An additional $5,310,000 is needed under the nonadministrative expense authorization to examine an additional 214,500 unit applications in the current fiscal year. Litigation and other action to effect recoveries under the section 608 program, the financial analysis of section 608 projects and appropriate audits to conserve the assets and income of multifamily housing projects where default has occurred will require an additional $125,000 under the administrative expense authorization. These increased expenses will be met from the operating income of the FHA which is expected to be approximately $136.7 million in the current fiscal year.

VOLUME OF APPLICATIONS

The volume of mortgage insurance applications has almost doubled in the past year. During the 3-month period September through November 181.000 rit applications were received. In the corresponding period a year ago only 94.000 unit applications were received.

The response to the liberalized home mortgage terms provided by the Housing Act of 1954 has been very strong. During the 6 months prior to approval of the Housing Act home mortgage insurance applications were received at an average annual rate (after seasonal adjustment) of 532,000. In the 3 months since approval of the act the average seasonally adjusted annual rate of receipts has been 741,000, an increase of approximately 40 percent. As the new programs for servicemen's mortgage insurance and for urban renewal housing develop, further heavy increases are expected.

The table appearing on page 4 shows the monthly volume and the seasonally adjusted annual rate of applications from July 1953 through November 1954. In the aggregate 706,000 unit applications are estimated for 1955 in comparison with the 489,829 received last year.

PROCESSING OF INSURANCE APPLICATIONS

The result of this heavy influx of work has been a serious backlog and consequent delays in processing and impairment of public service. On June 30, 1954, there were approximately 31,000 applications for home mortgage insurance in process. By the end of September the backlog had reached 66,000. In the face of the strong public response to the liberalized home mortgage terms provided by the Housing Act of 1954, it was evident that there was grave danger of frustrating and delaying the new housing program which had been approved by Congress by reason of FHA's inability to carry the workload with its existing staff. To meet this situation emergency measures were taken to permit FHA to begin recruitment of additional staff and to employ overtime, per diem, and fee work on an extensive scale in an effort to prevent further growth of backlogs and dis

location of field operations pending opportunity for congressional consideration of the problem.

The field processing staff was placed on a 6-day workweek with additional overtime where practicable and necessary. Recruitment of additional full-time and per diem employment was undertaken. As a result of these emergency measures and by virtue of the winter seasonal drop in applications it has been possible to avoid further serious growth in backlogs. Nevertheless service to the public continues to be seriously delayed and in danger of worsening as the seasonal spring rise in business begins and as operations begin to develop under the new programs for urban renewal and servicemen's housing. These emergency measures must be continued and must be supplemented by prompt recruitment of qualified staff in the field.

The supplementary budgetary authorization herein requested will provide for the continuation of these emergency measures and for recruitment of the additional staff needed during the balance of the current fiscal year. Prompt action is imperative to avoid interruption in the special measures which have already been taken and to permit staffing the offices as rapidly as possible in advance of the heavy spring seasonal rise in the volume of applications.

Recent investigations of rental housing operations under section 608 of the National Housing Act have given evidence of a substantial number of cases in which windfall profits were taken out of mortgage proceeds in excess of cost by mortgagors constructing large-scale rental housing developments under the postwar emergency rental housing program. As a basis for remedial action several thousand questionnaires and financial statements must be analyzed and in a number of cases on-site audits will be required. A determination must be made on the law and facts affecting each case, whether and in what amount a windfall has occurred, and to what extent it may be recovered. Cases must be prepared for presentation to the Department of Justice for suit. In appropriate cases settlement may be effected with the mortgagors or other legal action may be taken. To accomplish this work a task force of accounting and legal personnel has been established. This force totaling 32 employees is now being recruited. The funds herein requested are needed to pay their salaries and travel expense during approximately 3 months of the current fiscal year.

In the interests of protecting FHA's contingent liability on insured-project mortgages, while assuring the benefits to the public of the mortgage-insurance program, FHA has certain rights as insurer and preferred stockholder, or as a party to a regulatory agreement, to keep abreast of the affairs of the mortgagors and the condition of the projects and to exercise under certain conditions a degree of regulatory authority over rents, charges and capital structure. More than 5,000 of these projects submit regularly financial statements which, if they could be analyzed, would serve in conjunction with physical inspections of the projects as a basis for FHA's continued administrative review of the rental projects. Comprehensive analyses of these statements should be undertaken immediately on a continuing basis. This request would provide for the accomplishment of this work by the employment of a staff of 28 employees with a salary expense this year of approximately $42,000.

When default has occurred on a mortgage covering a multifamily housing project and acquisition of the project by the Commissioner is impending, it is necessary to determine accurately the assets, liabilities and, financial position of the mortgagor and as a basis for conservation of its assets and income. Prompt action is essential to assure that the assets and income of the project are not dissipated during the period following default and prior to acquisition of the property by the Commissioner. There are at the present time 188 project mortgages in default. Eighty-five projects are now in process of acquisition. A staff of 7 is urgently needed to undertake audits which should be made between now and June 30, 1955. Salary and travel expenses are estimated at $14,600 during the current fiscal year.