Mr. DIRKSEN. If you should sustain losses through depreciation of property values, it would come out of that fund, would it not?

Mr. McDONALD. Of course, we would first have to foreclose the properties.

Mr. DIRKSEN. That is true. But I am just assuming, of course, that where there is a foreclosure, there is a loss. It would have to be paid out of this $20,000,000, would it not?

Mr. McDONALD. I think I will answer your question

Mr. DIRKSEN. What I want to get at is this: On the basis of onequarter of 1 percent, assuming that that classification of houses should bulk up large in the total amount, are you prepared to say that with a quarter of 1 percent we will not ultimately have losses that will have to be charged off out of this fund?

Mr. McDONALD. I think so. There is no question but what a quarter of 1 percent in the light of the experience that we have had, which is practically nothing-we have only lost $10,000, as you see, so far in this business, but we have been in a very favorable period. Mr. DIRKSEN. Yes. We have had rising values.

Mr. McDONALD. We have had rising values and so forth and so on. Whether a quarter of 1 percent or even a half of 1 percent would be enough if we should have a tremendous decline of values in this country is something that I don't think we could say. We have made some very exhaustive studies on that point.

A quarter of 1 percent, I think, has been looked upon by the father of the bill as a definite subsidy. That is why when Congressman Wigglesworth asked me about what the Federal Housing Administration is supposed to do, he may have thought I replied facetiously when I said I didn't know, because we have several times had different interpretations of this act.

It started out as titles II and III, being a mortgage insurance system to be placed upon a self-supporting basis at the earliest possible date. Accordingly we assumed that $5,000,000 was the obligation of July 1 of this year.

However, prior to that time, title I, which is purely a Recovery Act, with all outgo and no income, was a part of the bill; and in addition to that we still have to maintain and operate a claims division, costing us $375,000 a year, to recover the claims on that.

When the Mississippi flood came along and the Ohio flood came along, Congress asked us to assume a brief position on that. And now that the country has met a business recession, this new Act, as we now see it, is slightly tainted with recovery philosophy all through these liberal measures that go into the act.

So all of that changes the philosophy of the Federal Housing Administration from a cold-blooded, slow-growth mortgage-insurance system to a quasi-governmental agency with a certain amount of relief or business stimulation as a part of its program.

Mr. DIRKSEN. A quarter of 1 percent in the new bill, coupled with an increase of 90 percent on the first $6,000 on a $10,000 loan is tantamount to saying that we are getting ready to make another subsidy, so to speak?

Mr. McDONALD. Well, I would say that it certainly is a generous gesture.

Mr. DIRKSEN. We should not delude ourselves. It doesn't make any difference so long as we see our policy clearly, because nobody can complain about a policy if we go into it with our eyes open, and

say, "This is what we are going to do." In that case it would not be fair to come back at a later time and give you hell and say that you have been derelict of your duty or been remiss in your obligation to the Government or the Federal Treasury because you have a lot of losses. If we are clear at the outset what the policy is going to be, then there can be no recriminations in the future.

Mr. McDONALD. Of course, I might say this, as long as we are on that subject: The philosophy of the Government with respect to the insurance field is something that I have never been able to fully understand. We believe that we have a bureau in the Federal Housing Administration that stands on a fairly substantial basis. Nevertheless, the home-loan-bank system comes along, and they make 80 percent loans with no insurance. So for one-eighth of 1 percent they insure the deposits in the banks. The deposits are in turn invested in the mortgages. If the mortgages are not good, the deposits are no good. So for one-eighth of 1 percent they are insuring the same thing that we are now for three-quarters of 1 percent; and they have $1,500,000,000 worth of obligations that are insured today. So in any case, if we use a quarter of 1 percent as the basis of insurance for a certain class of our business for certain people who are deserving a subsidy, if you put it that way, for a period of the next 18 months, the risk assumed by the Government or the contingent liability would be better paid for than this same thing that they are doing under the home owners bank system.

Mr. DIRKSEN. Are you speaking of the bank system or the Federal deposit insurance?

Mr. McDONALD. No. It is the Deposit Insurance. The Federal Savings & Loan.

Of course, they have only a limited capital. Theoretically, if $1,000,000 of that capital is exhausted, they would not be able to pay any more than a million. But their liability is around a billion and a half now, isn't it, Dr. Fisher?

Dr. FISHER. I think so.

Mr. McDONALD. I don't think there is any argument about what the moral obligation itself of the Federal Government would be. Mr. WIGGLESWORTH. There has been no activity under title III at all?

Mr. McDONALD. None at all.

RECEIPTS AND EXPENDITURES FROM JULY 1, 1934, TO NOVEMBER 30, 1937

Mr. WIGGLESWORTH. In the matter of the expenditure of receipts what result is shown over the years since you have started to function? There has been a deficit each year, has there not?

Mr. McDONALD. There has.

Mr. WIGGLESWORTH. That is met from what source?

Mr. McDONALD. From the R. F. C.

Mr. WIGGLESWORTH. Will you insert the deficit for each year when you revise your remarks?

Mr. McDONALD. Yes.

We have received in the past year, up to November 30, from July 1 to November 30, 1937, $2,860,594.93, made up of premiums and insurance policies and appraisal fees and other income.

Mr. ZANE. Probably I can answer the Congressman there. Up to date our administrative expenses-that is, since the inception of the

act amount to $32,791,280. That is what it has cost us to operate the F. H. A.

Do you want just this year?

Mr. WIGGLESWORTH. I want to know the total receipts as compared to the total expenses. I won't take time now, but just insert it when you revise your remarks. Show the annual deficit year by year and then total it so that we can get the picture.

Mr. McDONALD. All right.

(The statement referred to is as follows:)

Total

Fiscal year 1938 (July 1-Nov. 30, 1937)

Fiscal year 1937 Fiscal year 1936 Fiscal year 1935

Receipts and expenditures July 1, 1934, to Nov. 30, 1937

Month of
November
1937

Interest on investments accrued to date (less premium amortization).

Total mutual mortgage insurance fund.

Miscellaneous receipts (collections, title I):
Cash collections on defaulted notes..
Interest.

Property repossessed..

Title I (claims paid).

Title II (net loss to mutual mortgage insurance fund on property sold).

PUBLIC RELATIONS AND EDUCATION DIVISION

Mr. WIGGLESWORTH. What have you done in your public-relations division this year? You remember last year you were given $1,100,000 and the next year $600,000. You said when you got that you hoped to be able to materially cut that another year. Have you been able to do that?

Mr. McDONALD. Yes; I think it has been very substantially cut. Mr. WIGGLESWORTH. How many people do you have in it now? What is the total?

Mr. McDONALD. Mr. Zane can tell you that.

Mr. WIGGLESWORTH. How many people do you have now in the public-relations division, Mr. Zane?

Mr. ZANE. 17 people. We are now allowed $300,000 by act of Congress for public relations and educational work. One hundred thousand dollars is for public relations and the other $200,000 is for education. That is all that we are allowed.

Mr. WIGGLESWORTH. Two years ago you spent $1,100,000.
Mr. ZANE. It was cut down to this amount.

Mr. WIGGLESWORTH. Is that a permanent cut or just a reduction?
Mr. WOODRUM. That depends upon the act.

Mr. ZANE. It is in the act. One hundred thousand dollars for public relations $200,000 for education, or a total of $300,000. Mr. WIGGLEWORTH. That applies to the present fiscal year? Mr. ZANE. The present fiscal year.

Mr. WIGGLESWORTH. Do you intend to use all of that?

Mr. ZANE. Yes, sir.

Mr. WIGGLESWORTH. You are asking for the full amount for another year?

Mr. ZANE. Yes, sir.

PRESS RELEASES, CLIP SHEET, RADIO BROADCASTS, ETC.

Mr. WIGGLESWORTH. Will you indicate when you revise your remarks, as you did last year, just what has been done since last you talked-that is, how many press releases, magazine articles, orations

Mr. McDONALD. We can furnish that. We didn't bring it along. Mr. WIGGLESWORTH. Radio broadcasts, the number of hours of broadcast, and all that kind of thing that the division has done and plans to do.

Mr. McDONALD. Yes.

(The statement is as follows:)

Press releases.-Weekly real estate or business page releases are sent to more than 800 newspapers throughout the United States. They are sent only to those newspapers which request that they be furnished.

Insured mortgage portfolio. The Insured Mortgage Portfolio is a monthly magazine averaging about 25 pages. This publication has a circulation of about 22,500; 19,500 being sent to financial institutions and about 3,000 copies to Federal Housing Administration personnel, other governmental agencies, libraries, etc., that have requested it. This magazine is also available on a paid basis through the Superintendent of Documents.

Clip sheet. The distribution of the Clip Sheet is made twice a month to about 1,600 daily and weekly newspapers throughout the United States. It is sent only to such newspapers as specifically request it.

Special articles.-Many requests for special articles are received from newspapers and magazines. Since July 1, 1937, we have, at the request of more