Analysis of National Housing Act

TITLE I_HOUSING RENOVATION AND MODERNIZATION

Section l-Creation of Federal

Authorizes the creation of a tration and the appointment of istrator, in order to carry out II and III of this Act.

Housing Administration

Federal Housing Adminisa Federal Housing Adminthe provisions of Titles I,

Section 2-Insurance of Financial Institutions

Authorizes the Administrator to insure banks, trust companies, personal finance companies, mortgage companies, building and loan associations, installment lending companies and other financial institutions which are approved by him as eligible for credit insurance against losses which they may sustain as a result of loans and advances of credit made by them after the date of enactment oi this act and prior to January I,1936, for the purpose of financing alterations, repairs and improvements upon real property. Insurance will be granted these institutions not exceeding 20 per cent of the total amount of loans made for such purposes. The government may incur a liability of $2m,00O,000 for such insurance and the maximum face amount of loans or advances of credit that may be made by the institutions participating is $2000. (Estimated that one billion dollars worth of modernizing and repair loans mav be insured.)

Section 3-Loans to Financial Institutions

Provision is made for the Administrator to authorize loans to institutions qualifying uncler Section 2 upon the security of their modernizing obligations. Such loans may be made for the full face valtte of the obligations offered as security. (In other words, provisions are made for the rediscount of modernizing loans where the financing insti' tutions deem it desirable.)

Section 4-Allocation of Funds

Provides that the Reconstruction Finance Corporation shall make available such funds as are necessary to carry out the provisions of this title and titles II and III.

TITLE II-MUTUAL MORTGAGE INSURANCE

Section 201--Definitions a first mortgage on real a dwelling for not more in rvhole or in part for'

The term mortgage is defined as estate upon which there is located than four families which is used residential purposes.

Section 2}Z-Mutual Mortgage Insurance Fund

A mutual mortgage fund of $10,000,000, to be a revolving {und for carrying out the provisions mortg'ages under this title, is set up.

Section 2O3-Insurance of Mortgages

The Administrator is authorized to insure mortgages offer'ed him or to make commitments for insuring mortgages prior to the date of their exectttion provided:

(1) The insurance of mortgages on dwellings and lorv cost housing projects constrncted after the passage of this act shall be limited to $1,000,000,000; and

(2) The insurance of existing mortgages on drvellings and lorv cost housing projects is likewise limited to $l .000.000,000.

Mortgage Eligibility. To be eligible for insurance a mortgage shall: f 1) Be held (1) held by a mortgagee trator as responsible and able properly_. '

(2) -Involve a principal obligation (including initial service charges. appraisal and other fees) not to exceed $16.000 and not to exceed 8O per cent of the appraised value of the property as of the date of execution of the mortgage.

(3) Have a maturity not to exceed 20 years.

(4) Contain complete amortization provisions requiring periodic payments by the mortgagor not in excess of his reasonable ability to pay.

(5) Bear interest (exclusive of premium charges for insurance) at not to exceed 5 per cent per annum on the amount of the principal obligation outstanding at any time or not to exceed 6 per cent if the Administrator finds in certain areas or under special circumstances the mortgage markei demands it. (On a 2O-year amortization contract yielding 5 per cent to the lender the borrower would be required to pay an annual charge for interest, amortization and insurance equal to 8l to 9 per cent of the original face value of the loan. This charge is much lower than the present equivalent combined cost of first and second mortgage money.)

(6) Provide for the application of the mortgagor's periodic payments exclusive of the amount allocated to interest and insurance premium charges to amortization of the principal of the mortgage.

(7) Contain.such_terms and provisions with resp€ct to insurance, repairs, alterations, payment of taxes, default reserves, delinquency charges, foreclosure proceedings, anticipation of maturity, additional and secondary liens and other matters as the Administrator may prescribe.

Insurance Premium Charges. An insurance premium of not less than one-half of one per cent nor more than one per cent of the original face value of the mortgage payable annually in advance by the mortgagee is fixed. (The insurance principal involved is similar to mutual life insurance. The one per cent premium is considerably in excess of the amount of risk ordinarily involved in mortgages of this type and hence should eventually be returned in part to the mortgagor, depending of course upon the general losses sustained by the insurance reserve. It is estimated that the rrayments mentioned under item 5 of Mortgage Eligibility would be sufficient to retire the principal of the mortgage in about 17 years, but even in case of substantial losses by the insurance reserve the mortgagor rvould be guaranteed complete return within 2O years., Section ZM-Paynent of Insurance.

Provisions are made in case of default of an insured n-rortgage to issue to the mortgagee debentures having a total face value equal to the value of the mortgage on the date of conveyance of the property to the Administrator, which debenture will bear an interest rate of 3 per cent per annum and which shall mature three years after the maturity date of the mortgage in exchange for which the debentures were issued.

The mortgagee is further issued a certificate of claim covering the cost of foreclosure proceedings and all other obligations under the mortgage not covered by the debentures.

If on final disposal of the property the net amount realized by the Administrator is in excess of the face amount of the debentures plus interest charges, the balance is to be used to pay the certificate of claim and anything left is paid to the original mortgagor.

Soition ZO5-Classification of Mortgages and Reinsurance Fund.

Provision is made for the classification of insured mortgages so that mortgages in any group shall involve substantially similar rist characteristics and have similar maturity dates.

Provision is also made for a general reinsurance account. Section 206-Investment of Funds.

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