"(d) The Administrator is authorized to establish such rules and regulations as he may deem appropriate in carrying out the provisions of this section and may provide in any contract between the Administrator and a local public agency, or in regulations promulgated by the Administrator, that determinations of any duly designated officer or agency as to eligibility for and the amount of relocation assistance authorized by this section shall be final and conclusive for any purposes and not subject to redetermination by any court or any other officer."

Section 402 of the bill amends section 10(a) of the U.S. Housing Act of 1937 to provide an additional subsidy for urban renewal and low-rent housing displacees similar to the additional subsidy presently provided for elderly tenants. As a usual procedure the local housing authority establishes rents on the basis of size of units and a family's ability to pay with certain minimum and maximum rents being established. A few local housing authorities also establish rentals on the basis of fixed rentals per unit on the basis of the size of units without regard to the individual family's ability to pay. We believe that etsablishing the additional subsidy on the base of overall averages will result in greater additional subsidies than are necessary to achieve the objectives of the proposed amendments. A housing authority is supposed to admit a cross section of low-income families so that some will pay less than the break-even rental and some will pay more than a break-even rental in order that the project may operate on a solvent basis. Under the language in the bill, eligible elderly or displaced families would, through a combination of rentals and subsidies, be brought up to a point where none of the units occupied by elderly or displaced families would be below the average rentals paid by all other families, subject, however, to the $120 per annum per family limitation.

We believe that displaced families and elderly families also can represent a cross section of persons eligible for occupancy. For example, under our language suggested below, a local housing authority would determine the average rental paid for a one-bedroom unit occupied by all families in the project other than eligible elderly or displaced families and would compare that average rental with the average rental paid for a one-bedroom unit occupied by displaced families eligible for the additional subsidy; the difference not to exceed $120 per annum per family would be the amount of subsidy for the eligible group. A similar computation would be made for each size unit occupied by eligible families. Also, the proposed section 402 conceivably could be construed to permit a maximum of $240 per annum to be paid for each family that is both elderly and displaced. We, therefore, suggest that section 402 be combined into a revised first proviso of section 10(a), Housing Act of 1937, as follows:

"Provided, That the authority may, in addition to the payments guaranteed under the contract, pay not to exceed $120 per annum per dwelling unit occupied by an elderly family, or a displaced family if such family was displaced by an urban renewal or low-rent housing project on or after January 27, 1964, on the last day of the project fiscal year where such amount, in the determination of the authority, was necessary to enable the public housing agency to lease the dwelling unit to an elderly or displaced family at a rental it could afford and to operate the project on a solvent basis, and, as to displaced families, if and to the extent that the average or estimated average rental, computed by unit size, for such unit was less than the average rental for all equivalent units occupied by families that are neither elderly nor similarly displaced families."

With reference to section 403 of the bill, we issued a report dated January 23, 1963, to the Administrator, Housing and Home Finance Agency, that indicated some local housing authorities had no evidence to support reported equivalent eliminations of unsafe and unsanitary dwelling units. Accordingly, we believe that consideration should be given to deleting section 403 of the bill since a need exists for verification of the equivalent eliminations on a test basis. We believe that if the requirement for test verification is administered with judgment the additional cost will be relatively nominal.

The proposed new section 517(e) of the Housing Act of 1949 (p. 49 of the bill) provides that the annual charges retained by the Secretary out of payments by borrowers, shall be available for administrative services in carrying out all of the provisions of title 5. We believe that the amounts available for administrative expenses should be determined by the Congress on the basis of estimated needs for each fiscal year and recommend that there be inserted after the word "available" (line 23, p. 49), the phrase "within such amounts as may be provided in appropriation acts."

Section 604 of the bill amends section 702 of the Housing Act of 1954 by authorizing the Administrator to terminate all or a portion of the liability for

repayment of advances when the community constructs neither the public work planned with the advance nor any specific portion of the public work planned, but instead constructs some substantially different public work containing identifiable elements of the planned public work. This paragraph would also permit the Administrator to terminate planning advance agreements whenever he determined that there was no reasonable likelihood that the public work, or a portion of the public work, planned with the advance will be constructed.

Our report to the Congress on inadequate collection procedures and other weaknesses in the administration of the programs for making advances for public works planning, dated December 31, 1963 (B-118754), pointed out that the Community Facilities Administration was not adequately considering the criteria established by the courts in determining whether a public work actually constructed was, in fact, related to the planning for which the advance was obtained, and accordingly subject to repayment. As stated in the report, advances totaling about $13 million had been classified as obsolete by CFA, many because substitute facilities had been constructed.

The proposed bill would appear to permit CFA to disregard substitute facilities in determining whether an advance should be repaid. As this would be contrary to what the courts have held was the intent of the law under which the first two public works planning programs, and to a limited degree under the current program, were conducted, adoption of the proposed language would have the effect of permitting the Administrator to determine the repayment liability conclusively without regard to the prior court interpretations of these laws. If section 604 of the bill, however, is considered favorably and it is desired that the determinations of the Administrator be conclusive, we suggest that lines 12 through 14, page 64, be changed to read:

"Such determination shall be conclusive when based on standards prescribed by regulations to be issued by the Administrator."

Section 802 of the bill amends title V of the National Housing Act by adding section 518 and authorizes the Commissioner in his discretion to pay insurance claims in debentures or in cash and to borrow from the Treasury such amounts necessary to make such cash payments. Presently, nominal portions of insurance claims ($50 or less) are authorized to be paid in cash under section 204 and certain other sections of the National Housing Act. In amending section 204 (f), the section 803 of the bill fails to recognize that many claims will in the future be paid wholly in cash which may have to be borrowed from the Treasury as will be authorized by the new section 518. The proposed revision of section 204(f) limits the amount of interest to be added to the cost to only that paid on debentures issued in connection with the claims, and fails to recognize the cost of the money that may be acquired from other sources to make the payment in cash. Further, the revision of section 204(f) does not indicate a date at which the cost and the amounts realized are to be determined. We suggest the following language for sections 204 (f) (1) on page 75, lines 12 through 20, and 604(f) (1) on page 79, lines 8 through 16:

"(f) (1) If, after deducting (in such manner and amount as the Commissioner shall determine to be equitable and in accordance with sound accounting practice) the expenses incurred by the Commissioner, the net amount realized, determined as of the date of the sale or transfer of title to the property conveyed to the Commissioner under this section, from any property conveyed to the Commissioner under this section and the claims assigned therewith exceeds the face value of the debentures issued and the cash paid in exchange for such property plus interest on such amounts, such excess shall be divided as follows:" Somewhat similar changes should be made for other programs where present payment of the insurance claim is to be made in debentures. See section 207 (h) of the National Housing Act.

Also, while subsection (b) of section 518 would authorize the Commissioner to borrow funds from the Treasury, it contains no authority for the Secretary of the Treasury to purchase the notes or other obligations of the Commissioner. Language similar to that contained on pages 48 and 49 of the bill should be incorporated in this proposed section 518.

Section 808 (a) (7) of the bill amends section 234 of the National Housing Act to provide that mortgages insured under section 234 (d) shall bear interest at not

to exceed 5 percent per annum on the amount of the principal obligation outstanding at any time. Limiting the rate of interest that a mortgage will bear at a rate lower than the current market rate can result in the payment of points or discounts. These points theoretically are to compensate the mortgagees for the lower stated interest that the mortgage will yield over the life of the mortgage. When testifying before the Subcommittee on Housing of the Senate Committee on Banking and Currency, on January 27, 1964, the Commissioner of the Federal Housing Administration advised that points or discounts paid to obtain mortgage money varied substantially from time to time in the last decade and, in addition, varies by locality and sometimes by specific project. For example, he indicated that in July 1960 on the average about 6 points were paid nationally for mortgages insured under section 207 of the National Housing Act, and that in July 1963, the national average for similar mortgages was about 2 points. Expressed in terms of dollars, the payment of 6 points on a $5 million mortgage in July 1960 would have required the mortgagor to pay the mortgagee $300,000 at the time the mortgage loan was made.

In a report to the chairman of the Subcommittee on Housing, Committee on Banking and Currency, U.S. Senate, dated December 6, 1963 (B-114860), we summarized information disclosed by our review of selected multifamily housing projects. Our review showed that, to a large extent, discounts or points have been paid with mortgage proceeds insured by FHA. Should the mortgagor default within a relatively short period of time and the mortgage be assigned to FHA under the terms of the insurance agreement, the mortgagee would retain this advance payment of interest resulting in a higher effective interest rate during the shorter period that the mortgagee held the mortgage note.

The proposed bill will not prevent the mortgagor from having to pay a higher effective interest rate should the market demand it and the inclusion of points in the amount of mortgage insured by FHA could work to the detriment of the Federal Housing Administration. Therefore, the committee may wish to consider revising the proposed legislation to provide the Commisisoner with authority to establish the interest at a rate not to exceed the market rate rather than a prescribed maximum interest rate and thereby reduce the points or discounts paid by the mortgagor at the time the mortgage loan is made.

Sincerely yours,

JOSEPH CAMPBELL, Comptroller General of the United States.

88TH CONGRESS 2D SESSION

S. 2469

IN THE SENATE OF THE UNITED STATES

JANUARY 27, 1964

Mr. SPARKMAN introduced the following bill; which was read twice and referred to the Committee on Banking and Currency

A BILL

To vest the Federal National Mortgage Association with fiduciary powers to facilitate the financing of its own and other mortgages, to provide for sales of and investments in beneficial interests or participations in such mortgages, and for other purposes.

1

Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 That section 302 of the Federal National Mortgage Asso4 ciation Charter Act is amended by adding thereto subsection 5 (c) to read as follows:

"(c) Notwithstanding the provisions of this Act or

of any other law, the Association is authorized (under section 306) to create, accept execute, and otherwise ad

2

minister in all respects such trusts, receiverships, conservatorships, liquidating or other agencies, or other fiduciary and representative undertakings and activities as might be appropriate for financing purposes; and in relation thereto the Association may acquire, hold and

manage, dispose of, and otherwise deal in any mortgages in which the United States or any agency or instrumentality thereof may have a financial interest. The As

sociation may join in any such undertakings and activities notwithstanding that it is also serving in a fiduciary or representative capacity; and is authorized, consistent with section 307, to guarantee any participations or other in

struments, whether evidence of property rights or debt, issued for such financing purposes. Any participations or other instruments so guaranteed shall to the same extent as securities issued or guaranteed by the United States or its instrumentalities be deemed to be exempt securities within the meaning of laws administered by the Securities and Exchange Commission. The amounts of any mortgages acquired by the Association under sec

tion 306, pursuant to this subsection, shall not be in

cluded in the total amounts set forth in section 306 (c) .”

SEC. 2. (a) Section 311 of the Federal National

24 Mortgage Association Charter Act is amended by inserting