"BASIC CONDITIONS FOR INSURANCE

"SEC. 1003. (a) The Commissioner is authorized to insure, upon such terms and conditions as he may prescribe, any first mortgage (including advances on such mortgage during land development) in accordance with the provisions of this title and to make commitments for the insurance of such mortgage prior to the date of its execution or disbursement thereon; but no mortgage shall be insured under this title after October 1, 1968, except pursuant to a commitment to insure issued before such date.

"(b) To be eligible for mortgage insurance under this title a mortgage shall— "(1) be executed by, and cover property held by, a mortgagor approved by the Commissioner;

"(2) be made to and be held by a mortgagee approved by the Commissioner;

"(3) cover the land developed and the improvements made with the assistance of the mortgage insurance unless they are in public ownership; "(4) have a maturity and contain repayment provisions satisfactory to the Commissioner;

"(5) bear interest (exclusive of premium charges for mortgage insurance and such service charges and fees as may be approved by the Commissioner) at a rate satisfactory to the Commissioner, but not to exceed 6 per centum per annum on the amount of the principal obligation outstanding at any time; and

"(6) contain such terms and provisions with respect to protection of the security, payment of taxes, delinquency charges, prepayment, additional and secondary liens, and other matters as the Commissioner may in his discretion prescribe.

"(c) The Commissioner may consent to the release of a part or parts of the mortgaged property from the lien of the mortgage on such terms and conditions as he may prescribe.

"(d) The Commissioner may, under such terms and conditions as he may prescribe, consent to the subordination of the lien of the mortgage insured under this title to the lien of a mortgage upon a part or parts of the mortgaged property where the subordination is necessary to obtain financing for construction of a dwelling or dwellings for which application for insurance of permanent financing under any other title of this Act has been made.

"(e) In order for any mortgage to be accepted for insurance under this title

"(1) the property or project shall represent an acceptable risk to the Land Development Insurance Fund, as established by section 1008 of this title, giving consideration to the expected contribution of the land development to sound and economic community growth and urban development;

“(2) the improvements shall comply with all applicable State and local governmental requirements and with minimum standards approved by the Commissioner;

"(3) the land development shall be in accordance with a plan or plans consistent with a comprehensive plan which covers, or with comprehensive planning being carried on for, the area in which the land is situated and which meets criteria established by the Housing and Home Finance Administrator for such comprehensive plans or planning;

"(4) the land development shall be undertaken and carried on with a view to assuring, under such requirements and procedures as the Commissioners shall prescribe, the use of such land for the purposes for which it is to be developed within the shortest reasonable period consistent with the objectives of sound and economic community growth or urban development; and

"(5) the land developed or new community shall be served by public systems for water supply and sewerage consistent with other existing or prospective systems in the area: Provided, That if the Commissioner finds that a public system for water or sewerage is not feasible, he may, under such assurances and conditions as he may require with respect to eventual public ownership and operation, approve an adequate privately or cooperatively owned system regulated in a manner acceptable to the Commissioner with respect to user rates and charges, capital structure, methods of operation, and rate of return.

"SPECIAL CONDITIONS-NEW COMMUNITIES

"SEC. 1004. In the case of land development in connection with the establishment of a new community, a mortgage may be insured only if it is otherwise eligible and acceptable for insurance under section 1003 of this title and only subject to the following conditions:

"(1) the mortgage shall involve a principal obligation in an amount (A) in the case of basic community systems improvements, not to exceed the sum of 75 per centum of the estimated value of the land before land development, and 90 per centum of the estimated cost of land development, as such land and land development are required by or attributable to such improvements, or (B) in the case of other land development, not to exceed 75 per centum of the estimated value of the security as of the completion of the development to be financed with assistance under this title, and not to exceed the sum of 75 per centum of the estimated value of the land before land development and 75 per centum of the estimated cost of such land development: Provided, That the aggregate of principal obligations of mortgages insured under this title with respect to any one new community shall not exceed $50,000,000;

"(2) the new community site shall have been approved by the appropriate local public body or bodies, in accordance with procedures acceptable to the Housing and Home Finance Administrator;

"(3) the land development shall be in accordance with a detailed plan which has been approved by the Housing and Home Finance Administrator as providing reasonable assurance that the new community will be planned (i) to meet the housing and related needs of families with varying incomes and personal requirements, including lower income and elderly families, (ii) to establish sound land use patterns, (iii) to encourage the most efficient use of transportation and other areawide facilities and the provision of a level of municipal or public services adequate to meet immediate and reasonably foreseeable community needs, and (iv) to promote employment opportunities and future economic growth in the community and urban area in which it is situated; and

"(4) the land development shall be consistent with such assurances as the Commissioner may require as to actions to be taken by local public bodies in order to permit the implementation of the new community plan.

"SPECIAL CONDITIONS-SUBDIVISIONS

"SEC. 1005. In the case of land development that is not in connection with a new community, a mortgage may be insured only if it is otherwise eligible and acceptable for insurance under section 1003 of this title and only subject to the following conditions:

"(1) the mortgage shall involve a principal obligation in an amount (A) not to exceed $2,500,000, (B) not to exceed 75 per centum of the estimated value of the security as of the completion of the development to be financed with assistance under this title, and (C) not to exceed the sum of 50 per centum of the estimated value of the land before development and 90 per centum of the estimated cost of such development; and

"(2) the land development shall be in accordance with a plan providing reasonable assurance that the land will be part of a well-planned residential neighborhood which will (A) have a long economie life, (B) be protected against undesirable traffic patterns and other adverse physical conditions, and (C) be served by such school, playground, shopping, recreational, and other facilities as the Commissioner deems adequate.

"PREMIUMS AND FEES

"SEC. 1006. The Commissioner shall collect reasonable premiums for the insurance of any mortgage under this title and shall make such additional charges as he may deem reasonable for the analysis of the new community or land development plan and the appraisal and inspection of the property and improvements. On or before January 1, 1968, the Commissioner shall make a report to the Congress concerning the premium rates and additional charges under this title which he estimates would be adequate to protect the solvency of the Land Development Insurance Fund and to provide income sufficient for the program established by this title to be self-supporting on a continuing basis.

"INSURANCE BENEFITS

"SEC. 1007. The provisions of subsections (e), (g), (h), (i), (j), (k), (1), (m), (n), and (p) of section 207 of this Act shall be applicable to mortgages insured under this title, except that as applied to such mortgages (1) all references therein to the Housing Insurance Fund or the Housing Fund shall be deemed to refer to the Land Development Insurance Fund, (2) all references therein to section 207 or section 210 shall be deemed to refer to this title, and (3) any reference to an annual premium shall be deemed to refer to such premiums as the Commissioner may designate.

"INSURANCE FUND

"SEC. 1008. There is hereby created the Land Development Insurance Fund which shall be used by the Commissioner as a revolving fund for carrying out the provisions of this title. The Commissioner is authorized to transfer to the Fund a sum not to exceed $10,000,000 from the War Housing Fund created by section 602 of this Act. General expenses of operation of the Federal Housing Administration under this title may be charged to the Land Development Insurance Fund.

"INCONTESTABILITY PROVISIONS

"SEC. 1009. 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 mortgage from the date of the execution of such contract, except for fraud or misrepresentation on the part of such approved mortgagee.

"RULES AND REGULATIONS

"SEC. 1010. The Commissioner is authorized to make such rules and regulations and to require such agreements as he may deem necessary or desirable to carry out the provisions of this title.

"TAXATION PROVISIONS

"SEC. 1011. Nothing in this title shall be construed to exempt any real property acquired and held by the Commissioner under this title from taxation by any State or political subdivision thereof to the same extent, according to its value, as other real property is taxed.

"COST CERTIFICATIONS

"SEC. 1012. (a) The Commissioner shall adopt such regulations and procedures, and require such certifications, as he deems reasonably necessary to

assure

"(1) that the outstanding balance of any mortgage insured in accordance with the provisions of section 1004 of this title shall not at any time exceed

"(A) in the case of basic community systems improvements, the aggregate amount of (i) 75 per centum of the value, as estimated by the Commissioner, of the mortgagor's interest in the land before development and (ii) 90 per centum of the actual cost of land development attributable to such improvements, as such aggregate amount is allocated by the Commissioner at the time to the property remaining under the lien of the mortgage; and

"(B) in the case of other land development, the aggregate amount of (i) 75 per centum of the value, as estimated by the Commissioner, of the mortgagor's interest in the land before land development and (ii) 75 per centum of the actual costs of the land development, as such aggregate amount is allocated by the Commissioner at the time to the property remaining under the lien of the insured mortgage; and "(2) that the outstanding balance of any mortgage insured in accordance with the provisions of section 1005 of this title shall not at any time exceed the aggregate amount of (A) 50 per centum of the value, as estimated by the Commissioner, of the mortgagor's interest in the land before development and (B) 90 per centum of the actual costs of development, as such

aggregate amount is allocated by the Commissioner at the time to the property remaining under the lien of the insured mortgage.

"(b) Notwithstanding any other provision of this title, the Commissioner may permit the outstanding balance of any mortgage to exceed the limits set forth in subsection (a) when, and to the extent that, he determines that such action is necessary in order to enable the mortgagor to give priority to land development in connection with the provision of housing for low- and moderate-income families: Provided, That the Commissioner shall not under this subsection permit said outstanding balance at any time to exceed 85 per centum of the sum of the value, as estimated by the Commissioner, of the mortgagor's interest in the land before development and the actual cost of land development as such sum is allocated by the Commissioner at the time to the property remaining under the lien of the mortgage.

"(c) For purposes of this section, the Commissioner shall require the mortgagor to certify, from time to time during the development of the land, and upon completion of such development but prior to final endorsement of the mortgage, as to the actual costs of development. Certifications required pursuant to this section shall be accompanied by such data and records as the Commissioner shall prescribe. Upon the Commissioner's approval of a mortgagor's certification, such certification shall be final and incontestable, except for fraud or material misrepresentation on the part of the mortgagor. As used in this section, the term 'actual costs' means the costs exclusive of kickbacks, rebates or trade discounts, to the mortgagor of the improvements, including amounts paid for labor, materials, construction contracts, land planning, engineers' and architects' fees, surveys, taxes and interest during development, organizational and legal expenses, such allocation of general overhead expenses as are acceptable to the Commissioner, and allowance for contractors' profit deemed reasonable by the Commissioner if the mortgagor is also the contractor as defined by the Commissioner, and other items of expense incidental to development which may be approved by the Commissioner."

CONFORMING AMENDMENTS

SEC. 202. (a) Section 219 of the National Housing Act is amended by inserting "the Land Development Insurance Fund," after "the Apartment Unit Insurance Fund,".

(b) Section 212 of the National Housing Act is amended by inserting after the third sentence of subsection (a) of such section the following new sentence: "The provisions of this section shall also apply to insurance under title X with respect to laborers or mechanics employed in land development financed with the proceeds of any mortgage insured under that title."

(c) Section 302(b) of the Federal National Mortgage Association Charter Act is amended by

(1) inserting", section 1004," after "section 220" in the first proviso; and (2) striking out "the term 'mortgages'" in the last sentence and substituting "the terms 'mortgaes' and 'home mortgages' ".

(d) The first paragraph of section 24 of the Federal Reserve Act is amended by inserting before the last sentence the following new sentence: "Notwithstanding the limitations and restrictions in this section, any national banking association may make loans for land development which are secured by mortgages insured under title X of the National Housing Act."

(e) Section 5(c) of the Home Owners Loan Act of 1933 is amended by adding at the end thereof the following new paragraph:

"Without regard to any other provision of this subsection, any such association may, to such extent as the Federal Home Loan Bank Board may by regulation permit, invest in loans, and interests in loans, secured by mortgages as to which the association has the benefit of insurance under title X of the National Housing Act or of a commitment or agreement for such insurance, and investments under this sentence shall not be included in any percentage of assets referred to in this subsection."

ADDITIONAL RELIEF FOR HOME MORTGAGORS IN DEFAULT DUE TO CIRCUMSTANCES BEYOND THEIR CONTROL

SEC. 203. (a) Section 204 of the National Housing Act is amended by striking out the fourth proviso in subsection (a) and inserting in lieu thereof the following: "And provided further. That with respect to any mortgage covering a

one-, two-, three-, or four-family residence insured under this Act, if the Commissioner finds, after notice of default, that the default was due to circumstances beyond the control of the mortgagor, he may, upon such terms and conditions as he may prescribe, (1) approve the request of the mortgage for an extension of the time for the curing of the default and of the time for commencing foreclosure proceedings or for otherwise acquiring title to the mortgaged property to such time as the Commissioner may determine is necessary and desirable to enable the mortgagor to complete the mortgage payments, including an extension of time beyond the stated maturity of the mortgage, and in the event of a subsequent foreclosure or acquisition of the property by other means, the Commissioner is authorized to include in debentures an amount equal to any unpaid mortgage interest, or (2) approve a modification of the terms of the mortgage for the purpose of changing the amortization provisions by recasting, over the remaining term of the mortgage or over such longer period as may be approved by the Commissioner, the total unpaid amount then due, as determined by the Commissioner, with the modification to become effective currently or to become effective upon the termination of an agreed upon extension of the period for curing the default; and the principal amount of the mortgage, as modified, shall be considered to be the original principal obligation of the mortgage, as that term is used in this Act for the purpose of computing the total face value of the debentures to be issued or the cash payment to be made by the Commissioner to a mortgagee".

(b) Section 230 of said Act is amended by striking out the first sentence and inserting in lieu thereof the following: "Upon receiving notice of the default of any mortgage covering a one-, two-, three-, or four-family residence heretofore or hereafter insured under this Act, the Commissioner, in his discretion and for the purpose of avoiding foreclosure of the mortgage, and notwithstanding the fact that he has previously approved a request of the mortgagee for an extension of the time for curing the defaulted mortgage and of the time for commencing foreclosure proceedings or for otherwise acquiring title to the mortgaged property, or has approved a modification of the mortgage for the purpose of changing the amortization provisions by recasting the unpaid balance, may acquire the loan and security therefore upon payment of the insurance benefits (by issuance to the mortgagee of debentures, or by payment of cash or issuance of debentures if the loan is insured under section 220, 221, or 233) in an amount equal to the unpaid principal balance of the loan plus any unpaid mortgage interest plus reimbursement for such costs and attorney's fees as the Commissioner finds were properly incurred in connection with the defaulted mortgage and its assignment to the Commissioner, and for any proper advances theretofore made by the mortgagee under the provisions of the mortgage. After the acquisition of such mortgage by the Commissioner, the mortgagee shall have no further rights, liabilities, or obligations with respect thereto."

CORRECTION OF SUBSTANTIAL DEFECTS IN MORTGAGED HOMES

SEC. 204. Title V of the National Housing Act is amended by adding at the end thereof the following new section:

"EXPENDITURES TO CORRECT OR COMPENSATE FOR SUBSTANTIAL DEFECTS IN MORTGAGED

HOMES

"SEC. 517. (a) The Commissioner is authorized, with respect to any property improved by a one- to four-family dwelling approved for mortgage insurance prior to the beginning of construction which he finds to have structural or other major defects affecting the livability of the property, to make expenditures for (1) correcting such defects; (2) paying the claims of the owner of the property arising from such defects; or (3) acquiring title to the property: Provided, That such authority of the Commissioner shall exist only (A) if the owner has requested assistance from the Commissioner not later than four years (or such shorter time as the Commissioner may prescribe) after insurance of the mortgage, and (B) with respect to property encumbered by a mortgage insured under this Act after or not more than three years prior to enactment of the Housing and Community Development Act of 1964.

"(b) The Commissioner shall be regulations prescribe the terms and conditions under which expenditures and payments may be made under the provisions of this section, and his decisions regarding such expenditures or payments, and the terms and conditions under which the same are appoved or disapproved, shall be final and conclusive and shall not be subject to judicial review."

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