STANDBY MORTGAGE LEGISLATION TUESDAY, MARCH 24, 1959 U.S. SENATE, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, SUBCOMMITTEE ON MERCHANT MARINE AND FISHERIES, Washington, D.C. The subcommittee met, pursuant to call, at 10 a.m., Hon. Clair Engle (member of the subcommittee) presiding. Senator ENGLE. The Subcommittee on Merchant Marine and Fisheries of the Senate Committee on Interstate and Foreign Commerce will be in session for consideration of S. 1434 by Senator Magnuson, to amend title XI of the Merchant Marine Act of 1936, and the bill S. 1457 by Senator Magnuson for himself and Mr. Engle, to amend title XI of the Merchant Marine Act of 1936 as amended. Without objection, the bills will be printed in the record at this point and, without objection, whenever a departmental report is received, if received, it shall be made a part of the record at this point. (S. 1457 and S. 1434 are as follows:) [S. 1457, 86th Cong., 1st sess.] A BILL To amend title XI of the Merchant Marine Act, 1936, as amended Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That subsection (f) of section 1101 of title XI of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1271-1279), is amended to read as follows: "(f) The term 'actual cost' of a vessel as of any specified date means: "(1) In the case of a vessel whose construction, reconstruction, or reconditioning is financed by a loan or mortgage insured under this title, the aggregate as determined by the Secretary of Commerce of (i) all amounts paid by or for the account of the mortgagor or borrower on or before that date, and (ii) all amounts which the mortgagor or borrower is then obligated to pay from time to time thereafter for the construction, reconstruction, or reconditioning (including designing, inspecting, outfitting, and equipping) of such vessel; and "(2) In the case of a vessel mortgaged by a mortgage insured under this title to finance the construction, reconstruction, or reconditioning of another vessel or vessels, the aggregate as determined by the Secretary of Commerce of (i) all amounts paid by or for the account of the mortgagor in respect of the mortgaged vessel on or before that date, and (ii) all amounts which the mortgagor is then obligated to pay in respect of the mortgaged vessel from time to time thereafter, for the purchase, construction, or other acquisition and for any reconstruction or reconditioning (including designing, inspecting, outfitting, and équipping) of said vessel, less depreciation to the estimated date of execution of the mortgage on the basis of the economic life of said mortgaged vessel as determined by the Secretary of Commerce: Provided, That in no event shall the Secretary of Commerce pay as insurance under this title an amount in excess of 75 per centum or 872 per centum, as the case may be, of: (1) As insurance on a loan, or on a mortgage to finance the construction, reconstruction, NOTE.-Professional staff members assigned to this hearing: Gerald B. Grinstein and August J. Bourbon. 1 or reconditioning of the vessel mortgaged, the amount paid by or for the account of the mortgaged, the amount paid by or for the account of the mortgagor or borrower for the construction, reconstruction, or reconditioning (including designing, inspecting, outfitting, and equipping) of the vessel; and (2) as insurance on a mortgage on a vessel to finance the construction, reconstruction, or reconditioning of another vessel or vessels, the amout paid by or for the account of the mortgagor for the purchase, construction, or other acquisition and for any reconstruction or reconditioning (including designing, inspecting, outfitting, and equipping) of the vessel mortgaged, less depreciation to the date of execution of the mortgage on the basis of the economic life of said vessel as determined by the Secretary of Commerce." SEC. 2. That section 1104 (a) of title XI of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1271-1279), is amended by inserting a new subsection (2) to read as follows: "(2) shall (i) cover a vessel or vessels whose construction, reconstruction, or reconditioning is financed under this title or shall (ii) cover any vessel or vessels owned by the mortgagor to aid in financing the construction, reconstruction, or reconditioning of another vessel or vessels by the mortgagor." SEC. 3. Subsection (2) of section 1104(a) is redesignated subsection (3) and is amended as follows: “(3) shall involve an obligation in a principal amount which, in combination with other mortgages to finance the construction, reconstruction, or reconditioning, does not exceed the lesser of 75 per centum of the actual cost of the vessel or vessels mortgaged or 100 per centum of the actual cost of the vessel or vessels whose construction, reconstruction, or reconditioning is financed under this title, such actual cost to be determined by the Secretary of Commerce at or prior to the execution of the mortgage and such determination to be conclusive for the purposes of determining the principal amount of the mortgage: Provided, however, That in the case of a mortgage covering the vessel or vessels to be constructed, reconstructed, or reconditioned, (i) if the vessel is of a size and speed which are approved by the Secretary of Commerce and is, or in the case of a vessel to be reconstructed or reconditioned would have been, eligible for mortgage aid for construction under section 509 of this Act and in respect of which the minimum downpayment by the mortgagor required by that section would be 121⁄2 per centum of the cost of such vessel, the obligation may be in an amount which does not exceed 871⁄2 per centum of such actual cost; or (ii) if the vessel was purchased pursuant to the Merchant Ship Sales Act of 1946, as amended, for exclusive use on the Great Lakes, the obligation may be in a principal amount which does not exceed 75 per centum of the net purchase price of such vessel, plus 75 per centum of the amounts expended for altering, modifying, converting, and equipping such vessel in excess of that purchase price, or 75 per centum of the amount which the Secretary of Commerce estimates will be the value of such vessel so purchased for exclusive use on the Great Lakes when reconstruction or reconditioning is completed, whichever is the lesser." SEC. 4. Subsections (3), (4), (5), (6), (7), (8), (9), (10), and (11) of section 1104(a) are redesignated subsections (4), (5), (6), (7), (8), (9), (10), (11), and (12). SEC. 5. Subsection (c) of section 1104 is amended to read as follows: "(c) No commitment to insure a mortgage or loan shall be made by the Secretary of Commerce unless he finds, at or prior to the time such commitment is made, that the construction, reconstruction, or reconditioning project being financed by the mortgage or the loan will be, in his opinion, economically sound, and no mortgage or loan, unless made pursuant to a prior commitment, shall be insured unless the Secretary of Commerce finds, at or prior to the time the insurance becomes effective, that the construction, reconstruction, or reconditioning project being financed by the mortgage or the loan will be, in his opinion, economically sound." SEC. 6. Section 1106(2) is amended by striking out the words "paragraph (2)”. and inserting "paragraph (3)." [S. 1434, 86th Cong., 1st sess.] A BILL To amend title XI of the Merchant Marine Act, 1936, as amended, with respect to insurance of ship mortgages, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That title XI of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1271–1279), is amended— (1) by redesignating sections 1107, 1108, and 1109 as sections 1108, 1109, and 1110; (2) by striking out of section 1102 the reference "section 1109" and inserting in lieu thereof the reference "section 1110"; (3) by striking out of section 1104 (f) the reference "sections 1101-1109” and inserting in lieu thereof the reference "sections 1101-1110"; (4) by striking out of section 1106, before the dash, the word "except" and inserting in lieu thereof the words "except as provided in section 1107 or"; and (5) by inserting after section 1106 a new section 1107 to read as follows: "SEC. 1107. The Secretary of Commerce is authorized, upon such terms as he may prescribe, to make a commitment to the prospective owner of a vessel who is a citizen of the United States, prior to the time when the keel of such vessel is laid under a contract which such prospective owner has made with the shipbuilder for the construction of the vessel, to insure the interest on and the unpaid balance of the principal of a mortgage or mortgages which such prospective owner, as mortgagor, may at any time place on the vessel in order to finance the construction of other vessels or both to refinance a mortgage insured by the Secretary of Commerce on the vessel and to finance the construction of other vessels, subject to the following conditions— "(1) the commitment shall not be assignable either separately or in conjunction with a transfer of the vessel; "(2) the vessel is not subject to a mortgage which has not been insured by the Secretary of Commerce; "(3) within a reasonable period prior to, or at the time of, insuring the mortgage pursuant to the commitment, the Secretary of Commerce makes the finding required by section 1104 (c) of this Act (which requires a finding that the mortgaged vessel or the project with respect to which the mortgaged vessel is to be operated will be in the opinion of the Secretary of Commerce economically sound); "(4) the mortgage involves a principal obligation which when added to the unpaid balance of the principal obligations of prior mortgages on the vessel will result in a sum which will not, (a) if the vessel was not built with aid of construction-differential subsidy and complies with the require ments of section 509 of this Act, exceed 872 per centum of actual cost of such vessel depreciated at the rate of 5 per centum per annum from the date such vessel is delivered by the shipbuilder to the date such mortgage is executed, and, (b) if the mortgaged vessel was built with the aid of construction-differential subsidy or does not comply with the require ments of section 509 of this Act, exceed 75 per centum of such amount; "(5) the mortgage has maturity dates which do not exceed the remaining years of a useful life of the mortgaged vessel of twenty years computed from the date the vessel was delivered by the shipbuilder; "(6) the loan agreement for the making of the loan secured by the mortgage, or the mortgage, provides that the loan, except such portion thereof as it has been agreed will be used to refinance an existing mortgage on the vessel which has been insured by the Secretary of Commerce, will be disbursed by the mortgagee to a shipbuilder in payment, on behalf of the mortgagor, of part of the contract price for the construction of a vessel contracted for by the mortgagor which has not yet been delivered; "(7) the mortgage complies with all of the requirements of section 1104(a) of this Act (which defines an eligible mortgage) except subdivision 2 thereof (which specifies the maximum principal amount of the mortgage), subdivision 3 thereof (which specifies the maximum duration of the mortgage), and subdivision 8 thereof (which specifies the purpose of the loan secured by the mortgage); or reconditioning of the vessel mortgaged, the amount paid by or for the account of the mortgaged, the amount paid by or for the account of the mortgagor or borrower for the construction, reconstruction, or reconditioning (including designing, inspecting, outfitting, and equipping) of the vessel; and (2) as insurance on a mortgage on a vessel to finance the construction, reconstruction, or reconditioning of another vessel or vessels, the amout paid by or for the account of the mortgagor for the purchase, construction, or other acquisition and for any reconstruction or reconditioning (including designing, inspecting, outfitting, and equipping) of the vessel mortgaged, less depreciation to the date of execution of the mortgage on the basis of the economic life of said vessel as determined by the Secretary of Commerce." SEC. 2. That section 1104 (a) of title XI of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1271-1279), is amended by inserting a new subsection (2) to read as follows: "(2) shall (i) cover a vessel or vessels whose construction, reconstruction, or reconditioning is financed under this title or shall (ii) cover any vessel or vessels owned by the mortgagor to aid in financing the construction, reconstruction, or reconditioning of another vessel or vessels by the mortgagor." SEC. 3. Subsection (2) of section 1104(a) is redesignated subsection (3) and is amended as follows: "(3) shall involve an obligation in a principal amount which, in combination with other mortgages to finance the construction, reconstruction, or reconditioning, does not exceed the lesser of 75 per centum of the actual cost of the vessel or vessels mortgaged or 100 per centum of the actual cost of the vessel or vessels whose construction, reconstruction, or reconditioning is financed under this title, such actual cost to be determined by the Secretary of Commerce at or prior to the execution of the mortgage and such determination to be conclusive for the purposes of determining the principal amount of the mortgage: Provided, however, That in the case of a mortgage covering the vessel or vessels to be constructed, reconstructed, or reconditioned, (i) if the vessel is of a size and speed which are approved by the Secretary of Commerce and is, or in the case of a vessel to be reconstructed or reconditioned would have been, eligible for mortgage aid for construction under section 509 of this Act and in respect of which the minimum downpayment by the mortgagor required by that section would be 122 per centum of the cost of such vessel, the obligation may be in an amount which does not exceed 871⁄2 per centum of such actual cost; or (ii) if the vessel was purchased pursuant to the Merchant Ship Sales Act of 1946, as amended, for exclusive use on the Great Lakes, the obligation may be in a principal amount which does not exceed 75 per centum of the net purchase price of such vessel, plus 75 per centum of the amounts expended for altering, modifying, converting, and equipping such vessel in excess of that purchase price, or 75 per centum of the amount which the Secretary of Commerce estimates will be the value of such vessel so purchased for exclusive use on the Great Lakes when reconstruction or reconditioning is completed, whichever is the lesser." SEC. 4. Subsections (3), (4), (5), (6), (7), (8), (9), (10), and (11) of section 1104(a) are redesignated subsections (4), (5), (6), (7), (8), (9), (10), (11), and (12). SEC. 5. Subsection (c) of section 1104 is amended to read as follows: "(c) No commitment to insure a mortgage or loan shall be made by the Secretary of Commerce unless he finds, at or prior to the time such commitment is made, that the construction, reconstruction, or reconditioning project being financed by the mortgage or the loan will be, in his opinion, economically sound, and no mortgage or loan, unless made pursuant to a prior commitment, shall be insured unless the Secretary of Commerce finds, at or prior to the time the insurance becomes effective, that the construction, reconstruction, or reconditioning project being financed by the mortgage or the loan will be, in his. opinion, economically sound." SEC. 6. Section 1106(2) is amended by striking out the words "paragraph (2)", and inserting “paragraph (3).” [S. 1434, 86th Cong., 1st sess.] A BILL To amend title XI of the Merchant Marine Act, 1936, as amended, with respect to insurance of ship mortgages, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That title XI of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1271–1279), is amended (1) by redesignating sections 1107, 1108, and 1109 as sections 1108, 1109, and 1110; (2) by striking out of section 1102 the reference "section 1109" and inserting in lieu thereof the reference "section 1110"; (3) by striking out of section 1104 (f) the reference "sections 1101-1109" and inserting in lieu thereof the reference "sections 1101-1110"; (4) by striking out of section 1106, before the dash, the word "except" and inserting in lieu thereof the words "except as provided in section 1107 or"; and (5) by inserting after section 1106 a new section 1107 to read as follows: "SEC. 1107. The Secretary of Commerce is authorized, upon such terms as he may prescribe, to make a commitment to the prospective owner of a vessel who is a citizen of the United States, prior to the time when the keel of such vessel is laid under a contract which such prospective owner has made with the shipbuilder for the construction of the vessel, to insure the interest on and the unpaid balance of the principal of a mortgage or mortgages which such prospective owner, as mortgagor, may at any time place on the vessel in order to finance the construction of other vessels or both to refinance a mortgage insured by the Secretary of Commerce on the vessel and to finance the construction of other vessels, subject to the following conditions 66 "(1) the commitment shall not be assignable either separately or in conjunction with a transfer of the vessel; "(2) the vessel is not subject to a mortgage which has not been insured by the Secretary of Commerce; "(3) within a reasonable period prior to, or at the time of, insuring the mortgage pursuant to the commitment, the Secretary of Commerce makes the finding required by section 1104 (c) of this Act (which requires a finding that the mortgaged vessel or the project with respect to which the mortgaged vessel is to be operated will be in the opinion of the Secretary of Commerce economically sound); "(4) the mortgage involves a principal obligation which when added to the unpaid balance of the principal obligations of prior mortgages on the vessel will result in a sum which will not, (a) if the vessel was not built with aid of construction-differential subsidy and complies with the require ments of section 509 of this Act, exceed 872 per centum of actual cost of such vessel depreciated at the rate of 5 per centum per annum from the date such vessel is delivered by the shipbuilder to the date such mortgage is executed, and, (b) if the mortgaged vessel was built with the aid of construction-differential subsidy or does not comply with the require ments of section 509 of this Act, exceed 75 per centum of such amount; "(5) the mortgage has maturity dates which do not exceed the remaining years of a useful life of the mortgaged vessel of twenty years computed from the date the vessel was delivered by the shipbuilder; "(6) the loan agreement for the making of the loan secured by the mortgage, or the mortgage, provides that the loan, except such portion thereof as it has been agreed will be used to refinance an existing mortgage on the vessel which has been insured by the Secretary of Commerce, will be disbursed by the mortgagee to a shipbuilder in payment, on behalf of the mortgagor, of part of the contract price for the construction of a vessel contracted for by the mortgagor which has not yet been delivered; "(7) the mortgage complies with all of the requirements of section 1104 (a) of this Act (which defines an eligible mortgage) except subdivision 2 thereof (which specifies the maximum principal amount of the mortgage), subdivision 3 thereof (which specifies the maximum duration of the mortgage), and subdivision 8 thereof (which specifies the purpose of the loan secured by the mortgage); |