TABLE 27.-Outstanding balance of insurance in force, insurance reserves, and estimated reserve requirements in the armed services housing mortgage insurance fund

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

2 Excludes reserve requirements for the mortgages endorsed for insurance under sec. 809 with respect to which the military will guarantee the fund from loss. Includes reserve requirements for armed services housing mortgages initially endorsed for insurance under sec. 803 of the act, as amended, and securing housing projects not yet completed with respect to which the military will, upon completion and final endorsement, guarantee the mortgage payments.

The comparative reserve position of the armed services housing Mortgage insurance fund is presented in table 27. It should be noted in this table that the reserve requirements are not included for the mortgages endorsed for insurance under section 809 with respect to which the military will guarantee the fund from loss. At the December 31, 1959, valuation, all insurance in force under section 809 had such guarantees although the understanding between the Secretary of Defense and the Federal Housing Administration is not to require all insurance written under section 809 to carry such guarantee. Reserve requirements are included for mortgages initially endorsed for insurance under section 803 (Capehart) and secured by projects not yet completed with respect to which the military will, upon completion and final endorsement, guarantee the mortgage payments.

Thus, the reserve requirements shown are for Wherry projects and Capehart projects in construction status. No insurance was written as yet under section 810 at the time of valuation of reserve liabilities. The comparative income and expense statement for this fund is presented in table 28.

(b) Recommendation. The premium rates for Wherry and Capehart housing mortgages are being negotiated by the Secretary of Defense and the Federal Housing Administration. Under the circumstances, recommendations on these rates might await the outcome of these negotiations. On the other hand, a reduction in premium rates for sections 809 and 810 cannot be recommended because of the present reserve position of the fund and the limited experience thus far with both programs.

9. Insurance premium: Housing investment insurance fund

(a) Analysis.-The housing investment insurance fund was established by the amendment of August 10, 1948. The purpose of this amendment was to encourage equity investment in rental housing at rents within the capacity of families of moderate income. The premium rate is fixed by regulation at one-half of 1 percent of the outstanding investment for the operating year. No insurance has been written under this program for equity housing as yet.

(b) Recommendation.-A reduction in premium is not recommended for the housing investment insurance fund.

10. Insurance premium: Title I insurance fund

(a) Analysis.-The title I insurance fund was established June 3, 1939, to administer the fiscal provisions of the program under which loans to finance property modernization and improvement are insured. The fund was created pursuant to the amendment of June 3, 1939, which first authorized an insurance charge. A similar program of insurance but without an insurance charge had been authorized by the original statute and operated until the 1939 amendment. The statute authorizes a maximum insurance charge of 1 percent per annum of the net proceeds of the loan or the amount advanced. By regulation, the premium rates were first fixed at three-quarters of 1 percent per annum for loans in the amount of $2,500 or less or for a term of 7 years or less. For loans in excess of this amount or term, the premium charge was one-half of 1 percent per annum. The premium reductions since those prescribed in the original regulations are presented in table 29. The current premium charges in effect are

one-half of 1 percent per annum for loans in the amount of $3,500 or less or for a term of 7 years or less. For loans in excess of this amount or term, the premium charge is forty-five hundredths of 1 percent per

annum.

TABLE 29.

Schedule of annual insurance premium charges based on net proceeds of loan insured under sec. 2 provided for in the regulations in effect from July 1, 1939, to Nov. 1, 1960

[In percent]

It is important to note from the table that when the first reductions in the premium charge became effective October 1, 1954, the statute had been just previously amended on August 2, 1954, to authorize coinsurance for this program. Where formerly, in the event of a claim on a defaulted note, the Federal Housing Administration paid this claim in its entirety, the Federal Housing Administration was now authorized to pay only 90 percent of the claim.

It is also important to note that the premiums paid to the Federal Housing Administration are paid by the lenders. The Federal Housing Administration prescribes the maximum financing charges which the lenders may collect. It is out of this financing charge that the lenders pay the premium charges to the Federal Housing Administration.

Reserve requirements have not as yet been estimated for the title I insurance fund, but its financial position can be appraised on the basis of the insurance reserves and insurance in force. The insurance reserves together with the unearned premiums on June 30, 1960, amounted to $114,406,664. With outstanding balances of loan insurance in force of $1,622,450,559, the insurance reserves and unearned premiums amounted to 7.05 percent of the outstanding balance of insurance in force. This percentage is within close range of the comparable figures for previous periods. These are shown in table 30. A comparative income and expense statement for this fund is shown in table 31.

TABLE 30.-Outstanding balance of insurance in force and insurance reserves in the title I insurance fund