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1 time, the interest rate applicable to mortgages which meet 2 the requirements of section 302 (b) (1) of the National 3 Housing Act with respect to the amount of the original prin4 cipal obligation shall not exceed the higher of 7 per centum 5 per annum or an interest rate which is 1 per centum lower 6 than the interest rate prescribed pursuant to subsection (a) 7 which would otherwise be applicable to such mortgages. 8 The Government National Mortgage Association shall pur9 chase or commit to purchase any such mortgage offered to it 10 at a price not less than 96 per centum of the unpaid principal 11 amount thereof.

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WATER AND SEWER FACILITIES

SEC. 5. No mortgage which covers new construction 14 shall be approved for insurance under this Act if the mort15 gaged property includes housing which is not served by a 16 public or adequate private community water and sewerage 17 system, unless the property is situated in an area where the 18 establishment of such a system is determined by the Secre19 tary not to be economically feasible and where the Secretary 20 determines that the absence of such a system will not create 21 a significant environmental hazard. The economic feasibility 22 of establishing such public or adequate private community 23 water and sewerage systems shall be determined without 24 regard to whether such establishment is authorized by law

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1 or is subject to approval by one or more local governments

2

or public bodies.

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APPROVAL OF TECHNICALLY SUITABLE MATERIALS

4

SEC. 6. The Secretary shall adopt a uniform procedure

5 for the acceptance of materials and products to be used in 6 structures approved for mortgages or loans insured under this 7 Act. Under such procedure any material or product which 8 the Secretary finds is technically suitable for the use proposed 9 shall be accepted. Acceptance of a material or product as 10 technically suitable shall not be deemed to restrict the dis11 cretion of the Secretary to determine that a structure, with 12 respect to which a mortgage is executed is an insurable 13 risk.

15 SEC. 7. (a) The purpose of this section is to help pro16 tect the interests of homeowners, cooperative members, and 17 tenants in residential properties covered by mortgages in18 sured under this Act by requiring that specified minimum 19 standards be met and specified actions taken in connection 20 with such mortgage insurance.

21 (b) (1) Where the mortgage involves a property which 22 is approved for mortgage insurance prior to the beginning of 23 construction or rehabilitation, the seller or such other person 24 as may be required by the Secretary shall deliver to the 25 mortgagor a warranty that the property is constructed or

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1 rehabilitated in substantial conformity with the plans and

2 specifications (including any amendments thereof, or changes

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4

5

or variations therein, approved in writing by the Secretary)

on which the Secretary based his valuation of the property

or estimate of the cost of rehabilitation. This warranty shall 6 apply with respect to such instances of substantial noncon7 formity to the plans and specifications approved by the Sec8 retary as to which the mortgagor has given written notice 9 to the warrantor within three years (one year in the case of 10 rehabilitation) from the date of conveyance of title to, or 11 initial occupancy of, the property, whichever first occurs. The 12 warranty required by this paragraph shall be in addition to, 13 and not in derogation of, all other rights and privileges which 14 the mortgagor may have under any other law or instrument. 15 The Secretary is directed to permit copies of the plans and 16 specifications (including any amendments thereof, or changes 17 or variations therein, approved in writing by the Secretary) 18 for the properties covered by warranties under this para19 graph to be made available in the appropriate local offices 20 for inspection or for copying by any mortgagor or war

21

rantor during such periods of time as the Secretary deems 22 reasonable.

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(2) A mortgage or loan secured by residential property

may be insured under this Act only where the Secretary

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1 determines that such property meets the requirements of all 2 State laws, or local ordinances or regulations, relating to the 3 public health or safety, which may be applicable thereto, 4 and that there exist no structural or other defects which 5 seriously affect the use and livability of the property. 6 (3) Where the mortgage involves multifamily housing 7 or two- to three-family dwellings assisted under section 402 8 of this Act or part B of title I of the Housing and Urban 9 Development Act of 1973, the Secretary shall require the 10 mortgagor to be regulated or restricted as to rents or sales, 11 charges, capital structure, rate of return, and methods of 12 operation to such extent and in such manner as to provide 13 reasonable rentals to tenants and a reasonable return on the 14 investment. Any increase in rentals by the mortgagor shall 15 be made only after reasonable notice has been given the 16 tenants setting forth the basis for such increase, and such in17 crease shall be reviewable by the Secretary for compliance 18 with this paragraph.

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(4) A mortgage or loan secured by residential prop20 erty may be insured under this Act only where the Secre21 tary finds that the proposed sales price of or rentals for units 22 in such property are reasonable and affordable by the pro23 spective homeowners, cooperative members, or tenants (after 24 taking into account any assistance to be paid on their behalf). (c) (1) The Secretary is authorized to refuse the bene

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24-038 74 - pt. 1 - 7

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1 fits of participation (either directly as an insured lender or

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3

as a borrower, or indirectly as a builder, contractor, or dealer,

or salesman or sales agent for a builder, contractor, or dealer) 4 under any of the provisions of this Act to any person or firm 5 (including but not limited to any individual, partnership, 6 association, trust, or corporation) if the Secretary has deter7 mined that such person or firm—

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(A) has knowingly or willfully violated any provision of, or regulation issued under, this Act, the National Housing Act, title III of the Servicemen's Readjustment Act of 1944, or chapter 37 of title 38, United States Code; or

(B) has, in connection with any construction, alteration, repair, or improvement work financed with assistance under this Act or the National Housing Act,

or under such title III or chapter 37, or in connection with contracts or financing relating to such work, violated any Federal or State penal statute; or

(C) has failed materially to properly carry out contractual obligations with respect to the completion of construction, alteration, repair, or improvement work financed with assistance under this Act or the National

Housing Act, or under such title III or chapter 37.

(2) Before any determination prescribed in this subsec

25 tion is made, any person or firm with respect to which such