Apparently, under S. 2226, there is no time limit on when a claim may be filed and it appears to be retroactive to the inception of the FHA mortgage insurance program. We feel that a reasonable time limit both as to filing a claim and retroactivity is desirable. We have no further comments to offer concerning S. 1200 and S. 2226. Sincerely, JOSEPH CAMPBELL, Comptroller General of the United States. FEDERAL DEPOSIT INSURANCE CORPORATION, Hon. A. WILLIS ROBERTSON, U.S. Senate, Committee on Banking and Currency, DEAR MR. CHAIRMAN: The views of this Corporation have been requested on S. 1200, a bill to authorize the payment of certain claims for structural or other major defects in homes covered by Federal Housing Administration insured mortgages, and to require indemnification bonds in the case of certain new construction under Federal Housing Administration insured mortgages. As you are aware, since the expiration of the term of former Chairman Erle Cooke, Sr., Mr. James Saxon, Comptroller of the Currency, has been Acting Chairman of the Corporation. Inasmuch as Mr. Saxon, as Comptroller of the Currency, will express his views on the subject in which you are interested, I cannot express the official position of the Corporation on these matters. Accordingly, the views presented herein represent my own personal viewpoint on S. 1200. It is my opinion that S. 1200 concerns matter unrelated to the functions of the Federal Deposit Insurance Corporation. Therefore, I deem it more appropriate for you committee to be guided by the views of the Federal Housing Administration with respect to the advisability of the legislation proposed by S. 1200, since that agency is more cognizant of the need for such legislation and would be responsible for the administration thereof. Of course, these views being personal, they have not been submitted to the Bureau of the Budget for advice as to their relationship to the program of the administration. Sincerely yours, JESSE P. WOLCOTT, Director. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, DEAR MR. CHAIRMAN: This is in response to your request for reports on two bills, S. 1200, which would authorize the payment of certain claims for structural or other major defects in homes covered by Federal Housing Administration insured mortgages, and to require indemnification bonds in the cases of certain new construction under Federal Housing Administration insured mortgages; and S. 2226, which would authorize the Federal Housing Commissioner to make expenditures to correct substantial defects in one to four family dwellings covered by mortgages insured under the National Housing Act, or to compensate homeowners for such defects. While the Board has no special competence to pass judgment on the desirability of this legislation and has no information that would indicate the extent to which the Government would be committed in the event either of these bills were enacted, it seems evident that such action would effect a substantial change in the primary purpose of the FHA program, which has always been to provide improved financing for homeowners. The Board suggests that in your consideration of the two bills you may wish to note that each, as drafted, could be construed so as to permit compensation for defects not necessarily attributable to shortcomings in construction. Such an interpretation, it is understood, would be contrary to the basic purpose of the legislation. Sincerely yours, Hon. A. WILLIS ROBERTSON, WM. MCC. MARTIN, Jr. U.S. DEPARTMENT OF JUSTICE, Chairman, Committee on Banking and Currency, DEAR SENATOR: This is in response to your request for the views of the Department of Justice on the bill (S. 1200) to authorize the payment of certain claims for structural or other major defects in homes covered by Federal Housing Administration insured mortgages, and to require indemnification bonds in the case of certain new construction under Federal Housing Administration insured mortgages. Section 203 of the National Housing Act of 1934, as amended (72 Stat. 73, 12 U.S.C.A., sec. 1709), presently authorizes the Federal Housing Administration (FHA) in certain instances to insure the partial repayment of loans secured by mortgages executed to finance the purchase of private residential properties. The act, however, does not require or permit the Federal Housing Commissioner to reimburse a mortgagor under any FHA insured mortgage for the reasonable cost of correcting structural or other major defects which occur or exist in the residential property of the insured. The purpose of S. 1200 is to add two new sections to title V of the National Housing Act (48 Stat. 1246, 1261, 12 U.S.C.A., sec. 1731 (a) et seq.). The first new section would permit a mortgagor under any mortgage covering a one to four family dwelling insured under the act to file with the Commissioner a claim within 3 years after the insurance of such mortgage, for the reasonable costs of correcting structural or other major defects which exist in such dwelling and which require correction in order to bring the dwelling into substantial conformity with plans and specifications approved by the Commission or in order to render the dwelling safe and habitable. The decision of the Commissioner with respect to the validity and amount of such a claim is made final and conclusive. The second new section would direct the Commissioner to require, in the case of certain dwellings approved for mortgage insurance prior to the beginning of construction, that the builder, seller, or such other person as the Commissioner may require, post an appropriate bond providing indemnification to the Commissioner in the event he is required to pay to the mortgagor of such property the reasonable cost of correcting any structural or other defects. Whether or not this bill should be enacted involves questions of legislative policy concerning which the Department of Justice prefers to make no recommendation. The Bureau of the Budget has advised that there is no objection to the submission of this report from the standpoint of the administration's program. Sincerely yours, NICHOLAS DEB. KATZENBACH, Deputy Attorney General. TREASURY DEPARTMENT, October 17, 1963. Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, DEAR MR. CHAIRMAN: Reference is made to your requests for the views of this Department on S. 1200 and S. 2226, relating to the payment of claims for structural defects in housing. The proposed legislation would authorize the Federal Housing Commissioner to pay claims of mortgagors under mortgages covering one to four family dwellings for the reasonable costs of correcting structural or other major defects in dwelling insured under the National Housing Act. While the Treasury Department has no independent knowledge as to the adequacy of present procedures for protecting homebuyers under the FHAinsured loan program, the Department would like to make the following observations with respect to the proposed legislation. The major purpose of the FHA-insured loan program is to stimulate the flow of private housing credit. The term "FHA insured" applies to the mortgage and not to the quality of construction. If there is widespread misunderstanding of the term "FHA insured," consideration should be given to correcting this misunderstanding rather than changing the objectives of the program. Changing this program from credit insurance to insurance of the quality of construction would, in our opinion, be a novel and fundamental alteration of the nature of this type of Government activity. Moreover, if the FHA were to assume responsibility for the quality of construction in addition to the quality of the loan, the risks to the buyer and lender could be further reduced to such an extent that there would be a serious question as to whether buyers and lenders were exercising normal vigilance to protect their interests. A certain degree of responsibility on the part of buyers and lenders is essential both to the protection of the Government's financial interests and to the ultimate provision of private credit without continued Federal assistance. Furthermore, the Department is fearful that a Federal guarantee of product quality in this area would create an undesirable precedent for translating Government inspection, certification, and loan insurance activities in other areas into similar guarantees of product quality, thus imposing more contingent liabilities upon the Federal Government. Finally, the Department is of the opinion that the provision in S. 1200 requiring builders and others to post indemnification bords, coupled with the provision which would give FHA final and conclusive authority to pass upon the validity and amount of any claim, could lead to serious legal and administrative difficulties and could discourage builders and sellers from participating in the program. It should also be observed that, although S. 1200 provides for the posting of indemnification bonds by builders and sellers prior to future construction, there is no provision for such indemnification to FHA for claims which the Commissioner would be required to pay in connection with mortgages already insured. The Department has been advised by the Bureau of the Budget that there is no objection from the standpoint of the administration's program to the submission of this report to your committee. Sincerely yours, G. D'ANDELOT BELIN, General Counsel. 88TH CONGRESS 1ST SESSION S. 1440 IN THE SENATE OF THE UNITED STATES MAY 2, 1963 Mr. JACKSON (for himself and Mr. MAGNUSON) introduced the following bill; which was read twice and referred to the Committee on Banking and Currency A BILL To amend section 110 (d) of the Housing Act of 1949. 1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 That the last sentence of section 110 (d) of the Housing 4 Act of 1949 is amended by striking out "loan or capital 5 grant" and inserting in lieu thereof "survey and planning 6 advance". May 17, 1963. DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, DEAR MR. CHAIRMAN: This letter is in response to your request of May 3, 1963, for a report on S. 1440, a bill to amend section 110 (d) of the Housing Act of 1949. This bill would amend the law governing the slum clearance and urban renewal program so as to make a local donation or provision of a public improvement or public facility eligible as a local matching grant-in-aid if construction of such improvement or facility was commenced as much as 3 years prior to authorization by the Housing and Home Finance Administrator of a contract for a "survey and planning advance" for a project under the program, whereas under present law the time limit is 3 years prior to authorization of a contract for a "loan or capital grant" for the project. We defer to the views of the Housing and Home Finance Administrator on the merits of this bill. Sincerely, ANTHONY J. CELEBREZZE, Secretary. HOUSING AND HOME FINANCE AGENCY, Washington, D.C. Subject: S. 1440, 88th Congress (Senators Jackson and Magnuson). Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: This is in further reply to your May 3, 1963, request for the views of this Agency on S. 1440, a bill to amend section 110 (d) of the Housing Act of 1949. That section provides that public facilities may be deemed eligible as local grants-in-aid in connection with an urban renewal project if construction was commenced not more than 3 years prior to approval of the project loan or capital grant contract. This bill would extend the eligibility period back to 3 years prior to approval of the survey and planning contract for the project. The Housing Agency recommends against enactment of the bill. A survey and planning contract from an urban renewal project tends to be approved about 2 or 3 years ahead of the loan or capital grant contract for the project. Enactment of the bill would therefore extend the grant-in-aid retroactivity provision to a period of 5 or 6 years prior to actual commencement of the project. In our opinion, such an extension of the 3-year rule would authorize credit for public facilities having only a remote relation to the urban renewal projects, and would also run too high a risk of warping urban renewal plans to take advantage of existing public facilities. There are already several situations in which the 3-year rule is not controlling. Thus, where a public facility is commenced subsequent to Federal recognition |