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(5) Often the small amount of equity in the houses means the buyer can abandon the property without suffering a substantial loss. This, of course, is mainly the result of higher loan-to-value ratio and extended years of maturity; the latter making the monthly payments lower, resulting in slower accumulation of equity.
(6) Depersonalization of relationship between lenders and borrowers. Lending institutions getting into national markets cannot conceivably know, service and participate directly in problems of individuals. It takes personal effort, visits, persuasion, and education to help people in financial difficulties.
(7) Increasing real estate taxes and housing expenditures which, in turn, result in an increase in monthly payments, makes some investments rather unattractive to keep.
(8) Mobility of population and resulting inability to dispose of property at cost of investment, mainly when little or no equity is accumulated. In addition, in most cases, to sell the property will mean a payment of real estate commission (usually 6%) and some other expenditure.
(9) Increase of consumer credit. Before World War II only one dollar out of every 14 in take-home pay was pledged against installment payments. In 1962 one dollar out of eight was so obligated.
(10) Increase in the secondary mortgages makes it relatively "painless" for the home owner to get under the obligation with little or no equity at all invested in property
(11) Lack of proper servicing of loans. With millions invested in real estate mortgages of depositors' money the servicing of loans should be a matter of utmost importance to the lending institutions. What happens to property should be their concern, before the foreclosure sale.
SETTLEMENT OF CLAIMS*... When a loan has been in default for sixty days, the mortgagee is required to make a report to the FHA. When the arrearages cumulate to as much as twelve months, the mortgagee must start foreclosure proceedings, unless an extension of time is approved by the FHA. Should the property sell at foreclosure sale for an amount less than the unpaid balance of the debt against it, the mortgagee is expected to bid it in. Upon taking title to the property, the mortgagee presents his claim to the FHA. If it is found to be in order, he transfers title to the FHA in return for its debentures equal in value to the mortgage. These debentures are guaranteed by the United States. In return for any costs incurred by the mortgagee in foreclosing the mortgage, it receives a certificate of claim. In case the property liquidates for enough to cover any part of this certificate, in addition to the expenses of the FHA and the face value of the debentures, the mortgagee is entitled to the recovery of that part of its expenses. The debentures have a maturity of 20 years. They pay in the meantime 3-7/8% interest -- set by the Commissioner based on government bond yield.
* FHA only.
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NATIONAL ASSOCIATION OF HOME BUILDERS N H. ROGG DIRECTOR OF ECONOMICS AND POLICY PLANNING MICHAEL SUMICHRAST ASSISTANT ECONOMICS DIRECTOR
NORMAN FARQUHAR-ECONOMIC ANALYST
July 12, 1963
ON THE AVERAGE WE WILL LOSE A MINIMUM OF ABOUT 470, 000 EXISTING
in the 1957-59 period we demolished 260,000 units annually..
REASONS FOR THE INCREASED DEMOLITIONS ARE MANY Some of the
4.7 MILLION HOUSING
AND OTHER CAUSES.
REVISED ESTIMATES REFLECT HIGHER HOUSING
REPLACEMENT DEMAND IN THIS DECADE
This report discusses the losses in the overall housing supply and the probable impact of such losses on the markets for the home building industry. The impact can best be illustrated by the fact that, on the average, in this decade we will lose an estimated 470,000 units every year ... other housing will have to be provided for people formerly housed in demolished units, thus adding to the potential housing demand. In addition to the new households coming into the market - and we expect to have about 10 million more in this decade - these lost units will account for about one-third of the new needed housing units.
This estimate of losses, based on recently available data published by the Bureau of the Census, is somewhat higher than our previous estimates. The new Census data cover the period of 1957-1959 and are published in HC(4) Series, Part 2-1.
We are talking about net losses Each year the housing stock increases as a result of the new construction. Offsetting this growth, to some extent, is a loss of units, attributable to factors this report will examine. This loss may be labeled the "net removal rate". This is the term we are using to describe the housing replacement demand.
Briefly, the report discusses four sub-categories comprising the removal rate. Then there is presented estimates of net loss broken down by the type of structure for the decade, and finally, some of the reasons for the losses of housing units are discussed.
Let us, however, first present an abbreviated summary of projected housing needs for this decade. We estimate the ten years' net removal rate to be at 4.7 million units and an increase in total vacant units of 1.3 million. This adds to a total housing requirement for the decade of 16 million. Allowing for houses already built in 1960-62, and for public housing, farm housing and trailers, we will have to build from
now on about 1,500,000 units annually to get to the 16 million housing units by 1970. (This is the same estimate for the decade which NAHB's Economics Department has suggested for some years. However, some of the components of this unchanged total have been revised.)
This is the most important part of the loss, amounting in the 1950-1959 period to over 260,000 units annually. This loss is easily definable in enumerating and cannot be, under normal circumstances, double counted or miscounted. The unit can be demolished only once! (This is not true of other changes in inventory, such as conversions or mergers, which could possibly include more errors in enumerating.)
During the 1940s the demolition rate was low. During the decade of 1950-1960 the demolition rate doubled to about 260,000 units annually. In the last three years in the 1950s the demolition rate increased to an annual rate of 260,000 units. It should be assumed that the demolitions will continue to increase over the rate of the 1960s.