TABLE 37.—Certified agency program cases as percent of total commitments, sec. 203, United States, January-October 1960

D. PROBLEMS AND CONSIDERATIONS FOR THE FUTURE

Although CAP has been authorized for outlying communities in almost all areas of the country, the program continues to be treated somewhat as an experiment. This is probably occasioned by the method of gradual development of the program and its continuation on a test basis in 10 large cities where field offices could render effective direct service. This situation has retarded the all-out support of the program from the organization as well as effective promotion to the industry and public.

Experience to date indicates that the experimental aspects of the certified agency program should be eliminated from the program in all areas which are beyond the effective direct service limits of the FHA field offices.

In order to further reduce the time of processing CAP cases and to generally improve the service of all CAP participants, the following program refinements are presently being considered:

(1) Strengthening of training programs and supervision of certified agents, appraisers, and inspectors. In addition to the regular group or classroom training, it is felt that a comprehensive "in service" type of training is essential for CAP fee appraisers and inspectors. This will involve regular fieldwork with fee personnel by FHA salaried supervisory technicians as well as guidance for certified agents by FHA underwriting supervisors. These salaried personnel could also perform the necessary field supervision activities.

For this special training and supervisory service, field office technical staffs would probably have to be increased in some offices, moving certain present qualified persons to higher grade supervisory positions.

(2) Special processing for new construction cases.-Largely because of the difficulty encountered in securing fee appraisers who are trained to make MPS compliance analysis for new construction, many offices object to the inclusion of new construction under CAP. The training program described above should, in a short time, eliminate this objection. Rather than eliminate new construction entirely from CAP, until CAP appraisers trained in MPS are available, the cases could be sent to the nearest FHA office for construction analysis.

The results of this analysis, together with corrected plans, could then be passed on to the CAP appraiser for his appraisal.

(3) Simplification of procedure for selecting fee personnel on each case. At the present time, FHA offices must designate fee personnel for each case. With the intensified field technical supervision described in item (1) above, selection can be made from FHA approved rosters by local certified agents without undue risk. This will in many instances reduce the time of processing by at least a week.

(4) Standardization of forms. As far as it is possible, the forms used in CAP will be the same as for the regular section 203 processing. The Office of Technical Standards is presently working on this phase of the program.

(5) Promotion. Plans are under consideration for more comprehensive information and guidance programs to the industry and the public through the zone commissioners, who coordinate and supervise field office operations.

From various reports made by field office directors, examiners, and special study groups, it appears that use of CAP in the larger cities was done primarily to expedite the clearance of backlog accumulations during periods of peakload; and, even in these cases, it was the services of fee appraisers and fee inspectors rather than the certified agents which contributed most to the clearance of backlog cases.

All indications point to the use of supplemental fee appraisal and fee inspection service by field offices as one of several temporary means of assistance to avoid backlog accumulations.

As further experience is gained, more specific evaluation will be possible and definitive recommendations as to the future of CAP can be formed.

III. FHA STAFFING AND BUDGET

A. LEGISLATIVE HISTORY

FHA originally had budget flexibility under the powers conferred on the Commissioner (then Administrator) by the National Housing Act. With the tightening of congressional controls over Government corporations and business-type enterprises, this flexibility was removed. In 1949 the Congress, by amendment to the National Housing Act, restored budget flexibility within the limit of 35 percent of fees and premiums collected for processing mortgage insurance applications, insurance claims, and other expenses defined as nonadministrative under section 2 of Public Law 385 approved October 25, 1949. After a brief period of seccessful operation under this provision, during which it was carefully and conservatively administered and not abused, flexibility was nullified when FHA nonadministrative expenses along with those of a number of other agencies were placed under a fixed annual appropriation act limitation. FHA has since operated under fixed appropriation act limitations. There have been recurring critical periods in which FHA was not able to meet its workload and backlogs and processing delays seriously affected the public and the industry. During critical periods in 1954 and in 1958-59 backlogs and delays reached very serious proportions. The President in his budget message of 1961 addressed himself to this problem and proposed a 15-percent standby contingency authority to meet these uncontrollable upturns in business. The proposal was rejected by the Congress.

B. USE OF FEE APPRAISERS

To help meet the 1954 and 1958-59 crises a system of accepting independent fee appraisals was developed, cleared with the General Accounting Office, and put into operation. This system was used on a permissive basis in 1954 and on a mandatory basis in 1958-59. Under the permissive procedure, FHA would accept an appraisal by a qualified independent appraiser, if secured and presented by the mortgagee at his expense, with the fee paid by the mortgagee, and would give priority to the processing of such applications. The costs were passed on to the homeowner, of course, and the permissive system resulted in his paying two fees to get his case processed-FHA's fee and the independent appraiser's fee. In 1958-59 FHA adopted the practice of refunding its fee when it found that it could not handle the case. The homeowner's money, refunded by FHA, was then used by the mortgagee to pay the fee appraisal which would enable FHA to complete its processing of the case. This system helped get cases processed in critical periods but this latitude for fee appraisals, paid for outside the budget limitations, was also lost by congressional action when appraisal fees, regardless of source or method of financing, were placed under appropriation act limitation by the Independent Offices Appropriation Act, 1961.

C. NATURE OF THE PROBLEM

Three basic facts about FHA's workload and the nature of its service are at the heart of the problem. First, the volume of its insurance workload-the demand for mortgage insurance is subject to sharp and uncontrollable increases; this volume cannot be precisely predicted. Second, when insurance applications are filed with FHA, they must be processed promptly; they are not deferrable. Third, when FHA cannot act promptly on insurance applications, the homeowners, builders, mortgage lenders, and real estate brokers who pay FHA the fees and premiums to cover its expenses and losses suffer real hardships and at times financial loss that could be avoided if FHA were in a position to process its cases with reasonable promptness. Since the workload cannot be controlled, FHA has to be ready to adjust immediately to the demand for insurance if these hardships to the public and industry are to be avoided.

Two charts are attached to show the fluctuations in mortgage insurance applications. The first shows the trend of annual volume (in mortgage insurance unit applications) from about the beginning of the program. The dotted and broken lines average out the fluctuations and represent long-term growth. The second chart shows, for a shorter span of years (fiscal years 1951-60), the workload changes by month as compared with the month-by-month level of field employ

ment.

Shifting conditions in the general economy, the money market, and the Government's fiscal policies-factors beyond FHA's controlinfluence the rate of FHA applications so drastically that the volume can rise 40, 50, or even 100 percent within a few months, as shown by the charts. Between February and May of 1958, for example, FHĂ applications nearly doubled. FHA received almost as many unit applications in the 6 months ending in September 1958 as it had in the