TABLE 23. Outstanding balance of insurance in force, insurance reserves, and estimated reserve requirements in the sec. 221 housing insurance fund

1 For mortgage insurance contracts in force. Adjusted for estimated unearned premiums to be retained after refunds of unearned premiums upon prepayment.

Insurance reserves for the section 220 fund which amounted to $2.1 million on December 31, 1959, reached $2.6 million 6 months later as table 22 shows. It should be noted that $1 million of this amount represents a capital contribution by the War Housing Insurance Fund. Insurance reserves for the section 221 fund decreased. As table 24 shows insurance reserves of this fund were approximately $775,919 on June 30, 1960. Six months earlier they were $1,329,799. Since this fund also received a capital contribution of a like amount from the war housing insurance fund, its insurance reserves show that it has been operating from its capital account.

(b) Recommendation. A premium rate reduction for either fund at this stage of their respective histories is hardly feasible. They are, moreover, special purpose programs and considerably more insurance experience will have to be compiled before consideration of this kind can be given. There have already been a number of statutory changes to liberalize their financing terms, and in addition there have been a number of regulatory changes under discretionary authority to liberalize their financing terms. Both have been done to provide more incentives for participation in the programs. These changes meant the assumption of additional risks, yet the premium rates for them are the same as they are for the regular sales and project housing programs under Sections 203 and 207.

7. Insurance premium: National defense housing insurance fund

(a) Analysis.-The national defense housing insurance fund was created by the amendment of September 1, 1951, designed to provide sales and project housing in critical defense areas for workers during the Korean emergency. Authority to insure mortgages under this amendment has terminated. The reserve position of this fund, presented in table 25, shows a reserve deficiency contributed to not only by the reserve requirements but also by negative insurance reserves. These negative reserves reflect the fact that the fund has been operating at a loss. This loss is in part attributable to losses already sustained by the fund on properties acquired and sold and, in addition, estimated future losses on acquired properties on hand. As table 26 shows, cumulative losses at the midyear amounted to $8.4 million. Expected future losses amounted to about $31 million. It is worth noting that the negative insurance reserves of approximately $15 million reflect a capital contribution of $10 million. Otherwise, these insurance reserves would be -$25 million.

TABLE 25. Outstanding balance of insurance in force, insurance reserves, and estimated reserve requirements in the national defense housing insurance fund

1 For mortgage insurance contracts in force. Adjusted for estimated unearned premiums to be retained after refunds of unearned premiums upon prepayment.

(b) Recommendation.-The insurance experience of this fund to date is an important measure of the risks involved in special purpose insurance programs. It does not detract from the consideration of the need of such programs from a public policy point of view. It does urge the recognition that they can be fiscally hazardous. The insurance programs administered under the war housing insurance fund were in part similar to those under the national defense housing insurance fund. The contrast in insurance experience between the two underscores the point that special purpose programs can serve important public purposes, but they can involve special risks.

8. Insurance premium: Armed services housing mortgage insurance fund

(a) Analysis.-The armed services housing mortgage insurance fund is a successor to the military housing insurance fund established August 8, 1949, when the provisions of the Wherry Act were added to the National Housing Act. The fund now includes the fiscal operations of the Capehart housing under section 803, sales housing for defensecertified essential civilian employees at research or development installations of the military departments or their contractors under section 809, and under section 810, rental housing for military personnel and essential civilian personnel serving or employed in connection with an installation of one of the armed services of the United States. The premium rates on mortgages on Wherry housing and for mortgages insured under sections 809 and 810 are one-half of 1 percent of the average balance outstanding during the policy year. The premium rate on Capehart housing mortgages is prescribed by regulation at one-quarter of 1 percent. This rate was prescribed after an agreement was reached between the military and the Federal Housing Administration. This agreement set forth the terms of the mortgage insurance premium charge: a first insurance premium of $1 per project for the construction period and an annual mortgage insurance premium equal to one-quarter of 1 percent of the average outstanding principal obligation of the mortgage. The agreement also provided that the annual premium rate shall be reviewed and shall be subject to revision July 1, 1959, and at the end of each 3-year period thereafter to a rate justified by the loss experience of the armed services housing mortgage insurance fund. Upon completion and construction of each project and upon final endorsement of the mortgage, the military agreed to guarantee the mortgage payments.

Section 701 (d) of the Housing Act of 1959, approved September 23, 1959, authorized the Commissioner of the Federal Housing Administration to reduce the mortgage insurance premium rate on Wherry projects acquired by the Department of Defense. Shortly after this law was enacted, the Office of the Secretary of Defense requested a reduction in this premium rate.

The Federal Housing Administration replied to this request presenting a number of proposals. These proposals are now being studied by the Secretary of Defense.