Purchase of insured mortgages by FNMA

Section 4 of the bill would amend the National Housing Act to permit the Federal National Mortgage Association to purchase mortgages insured under the new title VIII on the same terms as it purchases other insured mortgages under that act. However, with respect to title VIII mortgages, the FNMA would not be subject to an existing provision that prohibits it from purchasing more than 50 percent of the amount of mortgages held by one mortgagee which are otherwise eligible for purchase by FNMA. General legislation is now being considered by your committee to remove this limitation with respect to insured mortgages on certain other types of urgently needed housing.

Sale of utilities by military installations for housing use

A major deterrent to the construction of housing to serve military installations in some localities is the absence of available utility services. This may be an important factor also in the ultimate costs of such housing. Section 5 of the bill would amend existing provisions of law to give the Secretaries of the armed services the right to sell and contract to sell utilities and related services, without time limit, to purchasers within the vicinity of military activities, if such services are not otherwise available. At the present time contracts to sell such services are not authorized, nor are any sales authorized after 1952. Section 5 would therefore facilitate construction of housing under the bill by permitting assurances of continued utilities and related services. In making contracts to sell such services the military departments will give consideration both to the requirements of the mortgagee and to the interests of the Government in the event of any possible deactivation or curtailment of the installation.

Miscellaneous and administrative provisions

The terms used in this new title VIII would be defined in section 801. The definitions are similar to those in other titles of the National Housing Act except that a definition of the term "military" is added to make it clear that the term includes the Army, Navy, Marine Corps, and Air Force.

Section 803 (c), relating to premium charges for insurance under the new title, is identical with the provision for such charges in title VI of the National Housing Act, except for the deletion of the proviso, discussed above, which would require a determination of acceptable risk by the Federal Housing Commissioner. Premium charges would be not less than an amount equivalent to one-half of 1 percent per annum, nor more than 11⁄2 percent per annum, of the principal amount of the mortgage outstanding at any time.

Section 803 (h) contains general administrative provisions to permit the Commissioner to deal with mortgages and property acquired by him under title VIII in the same manner as permitted with respect to mortgages insured under other titles of the act.

Under section 803 (i) the Commissioner would be authorized to insure, under title VIII, title II, or title VI, mortgages executed in connection with the sale by him of any property he may acquire under title VIII, without regard to restrictions otherwise applicable. This is similar to the power granted in other titles of the act.

Section 803 (j) contains the usual clauses making the contract of insurance conclusive evidence of the eligibility of the mortgage for insurance and providing for incontestability of contracts of insurance in the hands of an approved mortgagee except for fraud or misrepresentation on the part of such mortgagee.

Section 803 (k) provides that the powers of the Federal National Mortgage Association with respect to any mortgages may be used in connection with mortgages insured under title VIII.

Section 806 is a technical amendment necessary to assure that the determination of "acceptable risk" is not required for housing in Alaska, which is insured under title VIII.

Section 807 would provide that the acquisition of real property by the Commissioner under title VIII would not exempt it from taxation.

Section 808 would authorize and direct the Commissioner to make rules and regulations to carry out the provisions of title VIII.

Sections 2 and 3 of the bill would amend other provisions of the National Housing Act to make appropriate reference to this title VIII.

Section 3 of the bill as introduced contained a plan for accelerated amortization of the cost of the housing for Federal income tax purposes on a 10-year basis. The substitute measure also contained such a plan in section 3 but changed the period of amortization to 25 years. Your committee considered this provision

undesirable in either form and did not include it in the bill as reported. Such a provision would not of itself hasten amortization of the mortgage or reduce the Government's liability as insurer, nor would it assist in reducing rents. It would permit larger profits to the owner in the earlier years of the life of the housing without any direct benefit to the housing itself.

[PUBLIC LAW 211-81ST CONGRESS]

[CHAPTER 403-1ST SESSION]

[S. 1184]

AN ACT To encourage construction of rental housing on or in areas adjacent to Army, Navy, Marine Corps, and Air Force installations, and for other purposes

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the National Housing Act, as amended, is amended by adding at the end thereof a new title as follows:

"TITLE VIII-MILITARY HOUSING INSURANCE

"SEC. 801. As used in this title

"(a) The term 'mortgage' means a first mortgage on real estate, in fee simple or on a leasehold (1) under a lease for not less than ninety-nine years, which is renewable; or (2) under a lease for a period of not less than fifty years to run from the date the mortgage was executed; and the term 'first mortgage' means such classes of first liens as are commonly given to secure advances on, or the unpaid purchase price of, real estate, under the laws of the State in which the real estate is located, together with the credit instruments, if any,, secured thereby.

"(b) The term 'mortgage' includes the original lender under a mortgage, and his successors and assigns approved by the Commissioner; and the term 'mortgagor' includes the original borrower under a mortgage, his successors and assigns. "(c) The term 'maturity date' means the date on which the mortgage indebtedness would be extinguished if paid in accordance with periodic payments provided for in the mortgage.

"(d) The term 'rental housing' means housing, the occupancy of which is permitted by the owner thereof in consideration of the payment of agreed charges, whether or not by the termination of the agreement, such payment over a period of time will entitle the occupant to the ownership of the premises.

"(e) The term 'military' includes Army, Navy, Marine Corps, and Air Force. "(f) The term 'State' includes the several States and Alaska, Hawaii, Puerto Rico, the District of Columbia, and the Virgin Islands.

For

"SEC. 802. There is hereby created a Military Housing Insurance Fund which shall be used by the Commissioner as a revolving fund for carrying out the provisions of this title, and mortgages insured under this title shall be known and referred to as 'military housing insured mortgages'. For the purposes of this fund there is hereby authorized to be appropriated the sum of $10,000,000. immediate needs pending such appropriation, the Commissioner is directed to transfer the sum of $1,000,000 to such fund from the War Housing Insurance Fund created by section 602 of this Act, such amount to be reimbursed to the War Housing Insurance Fund upon the availability of the appropriations authorized by this section. General expenses of operation of the Federal Housing Administration under this title may be charged to the Military Housing Insurance Fund.

"SEC. 803. (a) In order to assist in relieving the acute shortage of housing which now exists at or in areas adjacent to military installations because of uncertainty as to the permanency of such installations and to increase the supply of rental housing accommodations available to military and civilian personnel at such installations, the Commissioner is authorized, upon application of the mortgagee, to insure mortgages (including advances on such mortgages during construction) which are eligible for insurance as hereinafter provided, and, upon such terms as the Commissioner may prescribe, to make commitments for so insuring such mortgages prior to the date of their execution or disbursement thereon: Provided, That the aggregate amount of principal obligations of all mortgages insured under this title shall not exceed $500,000,000 except that with the approval of the President such aggregate amount may be increased to not to exceed

$1,000,000,000: And provided further, That no mortgage shall be insured under this title after July 1, 1951, except (A) pursuant to a commitment to insure issued on or before such date, or (B) a mortgage given to refinance an existing mortgage insured under this title and which does not exceed the original principal amount and unexpired term of such existing mortgage.

"(b) To be eligible for insurance under this title a mortgage shall meet the following conditions:

"(1) The mortgaged property shall be held by a mortgagor approved by the Commissioner. The Commissioner may, in his discretion, require such mortgagor to be regulated or restricted as to rents or sales, charges, capital structure, rate of return, and methods of operation. The Commissioner may make such contracts with, and acquire for not to exceed $100 stock or interest in, any such mortgagor, as the Commissioner may deem necessary to render effective such restriction or regulation. Such stock or interest shall be paid for out of the Military Housing Insurance Fund, and shall be redeemed by the mortgagor at par upon the termination of all obligations of the Commissioner under the insurance.

"(2) The mortgaged property shall be designed for rent for residential use by civilian or military personnel of the Army, Navy, Marine Corps, or Air Force (including Government contractors' employees) assigned to duty at the military installation at or in the area of which such property is constructed. Notwithstanding the provisions of any other law, preference or priority of opportunity in the occupancy of the mortgaged property for such personnel and their immediate families shall be provided under such regulations and procedures as may be prescribed by the Commissioner. No mortgage shall be insured under this title unless the Secretary of Defense or his designee shall have certified to the Commissioner that the housing with respect to which the mortgage is made is necessary to provide adequate housing for such personnel, that such installation is deemed to be a permanent part of the Military Establishment, and that there is no present intention to substantially curtail activities at such installation. "(3) The mortgage shall involve a principal obligation in an amount— "(A) not to exceed $5,000,000; and

"(B) not to exceed 90 per centum of the amount which the Commissioner estimates will be the replacement cost of the property or project when the proposed improvements are completed; and

"(C) not to exceed an average of $8,100 per family unit for such part of such property or project as may be attributable to dwelling use, except that where the Secretary of Defense or his designee in exceptional cases certifies and the Commissioner concurs in such certification that the needs would be better served by single-family detached dwelling units the mortgage may involve a principal obligation not to exceed $9,000 per family unit for such part of such property as may be attributable to such dwelling units.

The mortgage shall provide for complete amortization by periodic payment within such terms as the Commissioner shall prescribe, and shall bear interest (exclusive of premium charges for insurance) at not to exceed 4 per centum per annum of the amount of the principal obligation outstanding at any time. The Commissioner may consent to the release of a part or parts of the mortgaged property from the lien of the mortgage upon such terms and conditions as he may prescribe and the mortgage may provide for such release.

(c) The Commissioner is authorized to fix a premium charge for the insurance of mortgages under this title but in the case of any mortgage such charge shall not be less than an amount equivalent to one-half of 1 per centum per annum nor more than an amount equivalent to 11⁄2 per centum per annum of the amount of the principal obligation of the mortgage outstanding at any time, without taking into account delinquent payments or prepayments. Such premium charges shall be payable by the mortgagee, either in cash, or in debentures issued by the Commissioner under this title at par plus accrued interest, in such manner as may be prescribed by the Commissioner: Provided, That the Commissioner may require the payment of one or more such premium charges at the time the mortgage is insured, at such discount rate as he may prescribe not in excess of the interest rate specified in the mortgage. If the Commissioner finds, upon the presentation of a mortgage for insurance and the tender of the initial premium charge and such other charges as the Commissioner may require that the mortgage complies with the provisions of this title, such mortgage may be accepted for insurance by indorsement or otherwise as the Commissioner may prescribe. In the event that the principal obligation of any mortgage accepted for insurance under this title is paid

in full prior to the maturity date, the Commissioner is further authorized in his discretion to require the payment by the mortgagee of an adjusted premium charge in such amount as the Commissioner determines to be equitable but not in excess of the aggregate amount of the premium charges that the mortgagee would otherwise have been required to pay if the mortgage had continued to be insured under this title until such maturity date; and in the event that the principal obligation is paid in full as herein set forth, the Commissioner is authorized to refund to the mortgagee for the account of the mortgagor all, or such portion as he shall determine to be equitable, of the current unearned premium charges theretofore paid.

"(d) The failure of the mortgagor to make any payment due under or provided to be paid by the terms of a mortgage insured under this title shall be considered a default under such mortgage, and, if such default continues for a period of thirty days, the mortgagee shall be entitled to receive the benefits of the insurance as hereinafter provided, upon assignment, transfer, and delivery to the Commissioner, within a period and in accordance with rules and regulations to be prescribed by the Commissioner of (1) all rights and interest arising under the mortgage so in default; (2) all claims of the mortgagee against the mortgagors or others, arising out of the mortgage transactions; (3) all policies of title or other insurance or surety bonds or other guaranties and any and all claims thereunder; (4) any balance of the mortgage loan not advanced to the mortgagor; (5) any cash or property held by the mortgagee, or to which it is entitled, as deposits made for the account of the mortgagor and which have not been applied in reduction of the princpal of the mortgage indebtedness; and (6) all records, documents, books, papers, and accounts relating to the mortgage transaction. Upon such assignment, transfer, and delivery, the obligation of the mortgagee to pay the premium charges for mortgage insurance shall cease, and the Commissioner shall, subject to the cash adjustment provided for in subsection (e) of this section, issue to the mortgagee debentures having a total face value equal to the value of the mortgage, and a certificate of claim as hereinafetr provided. For the purposes of this subsection, the value of the mortgage shall be determined in accordance with rules and regulations prescribed by the Commissioner, by adding to the amount of the original principal obligation of the mortgage which was unpaid on the date of default, the amount the mortgagee may have paid for (A) taxes, special assessments, and water rates, which are liens prior to the mortgage; (B) insurance on the property; and (C) reasonable expenses for the completion and preservation of the property and any mortgage insurance premiums paid after default; less the sum of (i) an amount equivalent to 1 per centum of the unpaid amount of such principal obligation on the date of default; (ii) any amount received on account of the mortgage after such date; and (iii) any net income received by the mortgagee from the property after such date: Provided, That the mortgagee in the event of a default under the mortgage may, at its option and in accordance with regulations of, and in a period to be determined by the Commissioner, proceed to foreclose on and obtain possession of or otherwise acquire such property from the mortgagor after default, and receive the benefits of the insurance as hereinafter provided, upon (1) the prompt conveyance to the Commissioner of title to the property which meets the requirements of the rules and regulations of the Commissioner in force at the time the mortgage was insured, and which is evidenced in the manner prescribed by such rules and regulations; and (2) the assignment to him of all claims of the mortgagee against the mortgagor or others, arising out of the mortgage transaction or foreclosure proceedings, except such claims that may have been released with the consent of the Commissioner. Upon such conveyance and assignment, the obligation of the mortgagee to pay the premium charges for insurance shall cease and the mortgagee shall be entitled to receive the benefits of the insurance as provided in this subsection, except that in such event the 1 per centum deduction, set out in (i) hereof, shall not apply. If, during the time the mortgage is insured and before the mortgagee has received the benefits of the insurance, the United States acquires, or commences eminent domain proceedings to acquire, all or a substantial part (as defined by the Commssioner) of the mortgaged property for the use of the National Military Establishment, the mortgagee may, at its election, within such time and in accordance with such regulations as the Commssioner may prescribe, receive the benefits of the insurance as provided in this subsection, notwithstaning the fact that the mortgage may not be in default.

(e) Debentures issued under this title shall be in such form and denominations in multiples of $50, shall be subject to such terms and conditions, and shall include such provisions for redemption, if any, as may be prescribed by the Commissioner

with the approval of the Secretary of the Treasury, and may be n coupon or registered form. Any difference between the value of the mortgage determined as herein provided and the aggregate face value of the debentures issued, not to exceed $50, shall be adjusted by the payment of cash by the Commissioner to the mortgagee from the Military Housing Insurance Fund.

66

(f) Debentures issued under this title shall be executed in the name of the Military Housing Insurance Fund as obligor, shall be signed by the Commissioner, by either his written or engraved signature, and shall be negotiable. All such debentures shall be dated as of the date of default as determined in accordance with subsection (d) of this section, and shall bear interest from such date at a rate determined by the Commissioner with the approval of the Secretary of the Treasury, at the time the mortgage was accepted for insurance, but not to exceed 3 per centum per annum, payable semiannually on the 1st day of January and the 1st day of July of each year, and shall mature ten years after the date thereof. Such debentures shall be exempt, both as to principal and interest, from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by any Territory, dependency, or possession of the United States or by the District of Columbia, or by any State, county, municipality, or local taxing authority. They shall be paid out of the Military Housing Insurance Fund, which shall be primarily liable therefor, and they shall be fully and unconditionally guaranteed as to principal and interest by the United States, and such guaranty shall be expressed on the face of the debentures. In the event the Military Housing Insurance Fund fails to pay upon demand, when due, the principal of or interest on any debentures so guaranteed, the Secretary of the Treasury shall pay to the holders the amount thereof which is hereby authorized to be appropriated, and thereupon to the extent of the amount so paid the Secretary of the Treasury shall succeed to all the rights of the holders of such debentures.

"(g) The certificate of claim issued by the Commissioner to any mortgagee in connection with the insurance of mortgages under this title shall be for an amount determined in accordance with subsections (e) and (f) of section 604 of this Act, except that any amount remaining after the payment of the full amount under the certificate of claim shall be retained by the Commissioner and credited to the Military Housing Insurance Fund.

"(h) The provisions of section 207 (k) and section 207 (1) of this Act shall be applicable to mortgages insured under this title and to property acquired by the Commissioner hereunder, except that as applied to such mortgages and property (1) all references in such sections to the 'Housing Fund' shall be construed to refer to the 'Military Housing Insurance Fund', and (2) the reference in section 207 (k) to 'subsection (g)' shall be construed to refer to 'subsection (d)' of this section 803. "(i) The Commissioner shall also have power to insure under this title or titles II or VI any mortgage executed in connection with the sale by him of any property acquired under this title without regard to any limit as to eligibility, time or aggregate amount contained in this title or titles II or VI.

(j) Any contract of insurance executed by the Commissioner under this title shall be conclusive evidence of the eligibility of the mortgage for insurance, and the validity of any contract of insurance so executed shall be incontestable in the hands of an approved mortgagee from the date of the execution of such contrac., except for fraud or misrepresentation on the part of such approved mortgagee.

"(k) In order to assure an adequate market for mortgages insured under this title, the powers of the Federal National Mortgage Association and of any other Federal corporation or other Federal agency hereafter established, to purchase, service, or sell any mortgages, or partial interests therein, may be utilized in connection with mortgages insured under this title.

"SEC. 804. (a) Moneys in the Military Housing Insurance Fund not needed for current operations under this title shall be deposited with the Treasurer of the United States to the credit of the Military Housing Insurance Fund, or invested in bonds or other obligations of, or in bonds or other obligations guaranteed as to principal and interest by, the United States. The Commissioner may, with the approval of the Secretary of the Treasury, purchase in the open market debentures issued under the provisions of this title. Such purchases shall be made at a price which will provide an investment yield of not less than the yield obtainable from other investments authorized by this section. Debentures so purchased shall be cancelled and not reissued.

"(b) Premium charges, adjusted premium charges, and appraisal and other fees, received on account of the insurance of any mortgage insured under this title, the receipts derived from any such mortgage or claim assigned to the Commissioner and from any property acquired by the Commissioner, and all earnings on the