nonprofit organizations ** engaged in health, education, and welfare activities," the large role of health and welfare should be recognized. It is highly important to sound and effective planning, that the agencies principally responsible for health and welfare services to older persons participate in the planning at Federal, State, and local levels, and we urge that the legislative history make clear the congressional intent that there be consultation with, and participation by, these agencies.

Section 7 would make public housing agencies eligible for direct loans, if the housing to be provided was urgently required and there was no reasonable prospect that it would be provided through other channels. This section removes the specific exclusion of local housing authorities under the present section 202. Since in many smaller communities there is no nonprofit group which is in a position to undertake such projects, this section would extend the benefits of the direct loan program to many communities.

Section 9 of the instant bill would provide for capital grants (under sec. 107 of the Housing Act of 1949) to finance redevelopment of land held as part of an urban renewal project for housing and other facilities for the elderly. It seems likely that the obiectives of this section would be substantially accomplished under such provisions of the administration bill as those for disposal of land for lowand moderate-income housing, and for housing of elderly persons with low or moderate incomes. Moreover, the administration bill would provide various alternative means of meeting the needs of the low-income elderly, such as rent supplementation, home improvement loans outside of urban areas, and additional subsidies for urban renewal areas and low-rent housing displacees, which would not be available under S. 1170.

Section 10, relative to budget treatment and financing methods, raises problems appropriate to the Bureau of the Budget and the Housing and Home Finance Agency, to which agencies we defer.

We are advised by the Bureau of the Budget that there is no objection to the presentation of this report from the standpoint of the administration's program. Sincerely,

ANTHONY J. CELEBREZZE, Secretary.

Hon. A. WILLIS ROBERTSON,

TREASURY DEPARTMENT, Washington, D.C., October 2, 1963.

Chairman, Committee on Banking and Currency,
U.S. Senate, Washington, D.C.

DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 1170, to assist in the provision of housing for elderly persons, and for other purposes.

In his message of February 21, 1963, to the Congress, relating to the elderly citizens of our Nation, President Kennedy recognized that the housing needs of the elderly have become a serious national problem and stated that he was directing the President's Council on Aging to develop a program to assist older citizens with the modernization, rehabilitation, or sale of their individually owned homes, such program to be submitted to him by October 31 of this year. The President's Council on Aging has established a special interagency committee to review all aspects of this problem. The Treasury Department, therefore, recommends that congressional action on S. 1170 be postponed pending the completion of the Council's report to the President.

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. 1200

IN THE SENATE OF THE UNITED STATES

MARCH 28, 1963

Mr. GRUENING (for himself, Mr. MOCARTHY, Mr. BIBLE, Mr. CLARK, Mr. DODD, Mr. DOUGLAS, Mr. KEFAUVER, Mr. METCALF, Mr. MORSE, Mr. Moss, Mr. WILLIAMS of New Jersey, and Mr. YOUNG of Ohio) introduced the following bill; which was read twice and referred to the Committee on Banking and Currency

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.

1

Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 That title V of the National Housing Act is amended by

4 adding at the end thereof the following new sections:

30-944 - 64 8

2

1 "PAYMENT OF CLAIMS FOR STRUCTURAL OR OTHER MAJOR

2

3

4

DEFECTS IN MORTGAGED PROPERTIES

"SEC. 517. The mortgagor under any mortgage covering

a one-to-four family dwelling heretofore or hereafter insured 5 under this Act may file with the Commissioner a claim, 6 within three years after the insurance of such mortgage, for

the reasonable costs of correcting structural or other major 8 defects which exist in such dwelling and which require cor9 rection in order to bring the dwelling into substantial con10 formity with plans and specifications approved by the Com11 missioner or in order to render the dwellings safe and 12 habitable. The Commissioner shall have final and conclusive 13 authority to pass upon the validity and amount of any claim 14 filed in accordance with the provisions of this section, and 15 such claims shall be paid by him on the basis of such terms 16 and conditions as he may prescribe.

17

18

"INDEMNIFICATION BONDS

"SEC. 518. (a) The Commissioner is authorized and di19 rected to require, in connection with any property upon 20 which there is located a dwelling designed principally for 21 not more than a four-family residence and which is approved 22 for mortgage insurance prior to the beginning of construction, 23 that the builder, seller, or such other person as the Commis24 sioner may require, post a bond in such amount as the Com25 missioner shall require providing indemnification to the

3

1 Commissioner in the event the Commissioner is required, 2 under section 517 of this title, to pay to the mortgagor of 3 such property the reasonable costs of correcting structural or

4

other defects in the dwelling in order to bring it into sub5 stantial conformity with plans and specifications approved by 6 the Commissioner and upon which the Commissioner based 7 his valuation of the property.

8 "(b) The provisions of this section shall apply to any 9 such property covered by a mortgage insured by the Com10 missioner after the effective date of this section, unless such

11

mortgage is insured pursuant to a commitment therefor made 12 prior to such date."

COMPTROLLER GENERAL OF THE UNITED STATES,
Washington, October 17, 1963.

Hon. A. WILLIS ROBERTSON,

Chairman, Committee on Banking and Currency,
U.S. Senate.

DEAR MR. CHAIRMAN: By letters dated October 1 and 10, 1963, you requested our comments on S. 1200 and S. 2226, respectively.

Both measures are designed to give claim recourse in certain instances to purchasers of homes covered by Federal Housing Administration insured mortgages where such homes have substantial structural defects which need correction. This would be accomplished by the addition of new language to the National Housing Act, as amended, approved June 27, 1934, chapter 847, 48 Stat. 1246, 12 U.S.C. 1701 et seq. The extension of the administration's operations to cover the guaranty of the construction, structural intgerity, and design of housing financed with FHA-insured loans would represent a major policy change and constitute a departure from the basic role of FHA as an insurer of mortgage loans for lending institutions. While the program proposed by these measures would not materially affect the functions of our Office and are viewed as policy considerations for the sole determination of the Congress, we have certain comments to offer regarding these bills for the consideration of your committee.

With respect to both these measures, we would like to point out that 'section 801 of the Housing Act of 1954, as amended, approved August 2, 1954, chapter 649, 68 Stat. 642, 12 U.S.C. 1701j-1, requires specific warranty protection to owners of newly constructed FHA-insured homes. Accordingly, we think that the committee may want to spell out whether the remedies available under the warranties already required shall be exhausted before resort can be made to the new benefits contemplated by these measures.

The following comments are directed toward specific language in S. 1200 and S. 2226.

Apparently S. 1200 would provide that the mortgagor may file claim with the Federal Housing Commissioner for defects in one-to-four-family residences under any mortgage insured by FHA. No distinction is made as to whether it be existing housing or new construction not approved for mortgage insurance prior to the beginning of construction, or housing approved for insurance prior to the construction with attendant FHA inspection during construction. While FHA apparently would be equally liable under all such insured mortgages, it would have recourse against against the sellers' indemnity bond provided for in S. 1200 only in those cases where the structure has had insurance approved prior to construction and has been constructed under FHA supervision. Where such supervision is exercised, it would seem that the possibility of hidden or undetected defects should be at a minimum.

With regard to S. 2226, this measure would provide that all one- to four-family dwellings heretofore or hereafter covered by mortgages insured under the provisions of the Housing Act would have the additional provision of insurance even in those cases where FHA would not normally be able to ascertain or have any responsibility to extend its work so as to discover basic defects. Moreover, S. 2226 would hinder the incentive of a prospective purchaser to insist that the home to be purchased have FHA inspection during construction. Conceivably, S. 2226 would hold FHA responsible for defects existing in housing and known to the seller but not uncovered by FHA in its appraisal. Accordingly, should Congress determine to extend the responsibility of FHA to the mortgagor, we recomment that such protection be extended only for those one to four-family dwellings which have been approved for mortgage insurance or guaranty by a Federal agency prior to the beginning of construction with the attendant inspection by such Federal agency during construction.