ELIGIBILITY PROVISIONS

(c) In order for a mortgage to be eligible under sections 1001-1005d of this title-

(1) the person obligated to pay thereunder shall be a person who would be eligible under section 1001 of this title for a loan under sections 1001-1005d of this title;

(2) the farm mortgaged shall be one with respect to which, under section 1001 (c) of this title, a loan could be made under sections 1001-1005d of this title;

(3) there shall be an appropriate certification by the county committee as required by section 1002 of this title;

(4) the mortgage instruments shall comply with section 1003 (b) of this title, except that the base rate of interest shall be 3 per centum per annum;

(5) the principal obligation (and fees and other charges chargeable under subsection (d) of this section) shall not exceed 90 per centum of the reasonable value of the farm and necessary repairs and improvements thereon, as such values are certified by the county committee pursuant to section 1002 (b) of this title;

(6) the mortgage instruments shall contain a covenant to pay to the Secretary the initial and annual charges provided for in subsections (d) and (e) of this section, and a covenant to pay to the Secretary, as collection agent for the mortgagee, the amounts payable by the mortgagor to the mortgagee under the mortgage; and

(7) the mortage instruments shall contain a stipulation (not binding upon the Secretary) that the holder of the mortgage will accept the benefits provided by section 1005c of this title in lieu of any right of foreclosure which he may have against the property and any right to a deficiency judgment against the mortgagor on account of the mortgage.

PAYMENT OF INITIAL FEES; DISPOSITION

(d) The Secretary shall require the payment by the mortagor or mortgagee of such initial fees for inspection, appraisal, and other charges as it finds necessar and such amounts may be included in the principal obligation of the mortgage, and the payment of such delinquency charges and default reserves as it finds necessary. The proceeds of such fees shall be deposited in the Treasury for use for administrative expense as provided in subsection (e) (2) of this section.

COLLECTION OF INITIAL CHARGE; DISPOSITION

(e) (1) The Secretary shall collect from the mortgagor for mortgage insurance an annual charge at the rate of 1 per centum of the outstanding principal obligation of the mortgage; the initial charge shall be collected simultaneously with the insurance of the mortgage and shall cover the period from the date of loan closing to the date of the first installment payable on the loan; the next and each succeeding charge shall be computed on the outstanding principal obligation remaining unpaid after the due date of each installment payable on the loan, and shall be payable on or before the next succeeding due date of an installment of principal and interest. If the principal obligation of the mortgage is paid in full in less than five years after the time when the mortgage was entered into, the Secretary may require payment by the mortgagor of the entire annual charge computed for the year then current, and an additional charge equal to the annual charge for such year. The Secretary may modify existing contracts so as to require future payments thereunder in accordance with the provisions of this section.

(2) One-half of the amount paid as charges in pursuance of this subsection shall be the premium for insurance and shall be deposited in the fund and may be used only for purposes to which the fund may be devoted, the other half of the amounts so paid shall be deposited in the Treasury to the credit of the Secretary and shall be available only for administrative expenses to carry out the provisions of sections 1001–1005d of this title, relating to mortgage insurance. PAYMENT OF SUMS TO MORTGAGEE; PAYMENT OF FULL AMOUNT; REPAYMENTS TO FUND

(f) (1) The Secretary shall promptly remit to the mortgagee under any mortgage insured under sections 1001-1005d of this title any sums collected by it as agent for the mortgagee. The Secretary shall promptly advise any such mortgagee of any default by the mortgagor.

(2) If the mortgagor has failed to pay to the Secretary the full amount of any installment on or before the due date thereof, the Secretary shall pay promptly the unpaid amount of such installment of principal and interest to the mortgagee, less the amount of any previous prepayments except payments from proceeds from the voluntary or involuntary sale of any part of the mortgaged property or from royalties from leases under which the value of the security is depreciated. (3) If the mortgagor fails to pay any amounts due for taxes, special assessments, water rates, and other amounts which may become liens prior to the mortgage, and any amounts due for property insurance premiums, such amounts may be paid by the Secretary, either before or after assignment of the insured mortgage to the Secretary, for the account of the mortgagor as provided in paragraph (4) of this subsection.

(4) Payments by the Secretary under paragraphs (2) and (3) shall be advanced out of the fund for the account of the mortgagor. Such advances shall be repaid to the fund out of the first available collections received from the mortgagor. Such advances shall bear interest at the rate fixed in the insured mortgage payable out of any subsequent collections, and, until repaid, the advance and interest thereon shall be added to subsequent installments.

INSURANCE CONTACT AS IN CONTESTABLE

(g) Any contract of insurance executed by the Secretary under this section 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 any holder thereof from the date of the execution of such contract, except for fraud or misrepresentation of which such holder has actual knowledge.

RELEASE OF MORTGAGOR

(h) The Secretary may, at any time, for good cause shown and under such terms and conditions as he may prescribe, consent to the release of the mortgagor from his liability under the mortgage or the credit instruments secured thereby, or consent to the release of parts of the mortgaged property from the lien of the mortgage.

ASSIGNMENT OF MORTGAGE

(i) The holder of any mortgage insured under sections 1001-1005d of this title may, upon notice to the Secretary, assign such mortgage together with the accompanying note and contract of insurance and the assignee thereof shall thereupon become entitled to all the benefits of such contract of insurance: Provided, That no such assignment shall be binding upon the Secretary until notice thereof has been given the Secretary and the Secretary has acknowledged receipt of such notice.

REPURCHASE OF INSURED MORTGAGES; AGREEMENTS DETERMINATION OF VALUE

(j) The Secretary is authorized to enter into agreements from time to time with the holder of a mortgage heretofore or hereafter insured under sections 1001-1005d of this title that any holder thereof, at the holder's option, shall be entitled, upon assignment of such mortgage to the Secretary within one year after the expiration of a period fixed by such agreement, to have the mortgage purchased by the Secretary even though the mortgage is not then in default, provided the initial fixed period shall be not less than five years from the date of the. insured mortgage. Such assignment shall be accomplished in the same manner and the value of such mortgage shall be determined on the same basis as provided by section 1005c of this title for mortgages in default. The Secretary may purchase any such mortgage with moneys in the fund and may sell it at its value likewise determined in accordance with section 1005c of this title at the time he sells it, and reinsure it, if necessary, or he may retain it for the account of the fund until the indebtedness is discharged through refinancing by the mortgagor, by foreclosure, or otherwise. The value of all such mortgages retained for the fund as herein provided shall not be included in computing the aggregate amount of mortgage obligations that may be insured in any one fiscal year, as provided in subsection (b) of this section. If there should not be sufficient cash in the fund to enable the Secretary to make payments to purchase mortgages as provided in this subsection, in order to obtain funds to make such payments notes may be issued and purchased in the same manner as provided in section

1005c of this title. July 22, 1937, c. 517, Title I, section 12, as added Aug. 14, 1946, c. 964, section 5, 60 Stat. 1072, and amended June 19, 1948, c. 551, sections 2-5, 62 Stat. 534; Aug. 23, 1951, c. 344, section 1, 65 Stat. 197.

Section 1005c. Payment of insurance upon default; issuance of notes; purchase of notes by Treasury; assignment of mortgage

(a) In any case in which the mortgagor under a mortgage insured under section 1005b of this title is in default for more than twelve months, the mortgagee shall be entitled to receive the benefit of the insurance as provided in this section, upon assignment to the Secretary of (1) all the mortgagee's rights and interests arising under the mortgage so in default; (2) all claims of the mortgagee against the mortgagor or others, arising out of the mortgage transaction; (3) all policies of title or other insurance and all surety bonds and other guaranties and any and all claims thereunder relating to the mortgage or the mortgaged property; (4) any balance of the mortgage loan not advanced to the mortgagor; and (5) any cash or property held by the mortgagee, or to which he is entitled, as deposit made for the account of the mortgagor and which has not been applied in reduction of the principal of the mortgage indebtedness; and upon transfer to the Secretary of such originals or copies of records, documents, books, papers and accounts relating to the mortgage transaction, as the Secretary prescribes. Upon such assignment and transfer, the Secretary shall pay to the mortgagee, in cash, an amount equal to the value of the mortgage and the note and mortgage shall thereupon become a part of the fund. For the purposes of this subsection, the value of the mortgage shall be determined, in accordance with rules and regulations prescribed by the Secretary, by adding to the amount of the original principal obligation of the mortgage which was unpaid on the date of default, the amount of all unpaid interest and the amount of all payments which have been made by the mortgagee for taxes, special assessments, water rates, and other payments in discharge of liens which are prior to the mortgage, and insurance on the property mortgaged, and by deducting from such total amount any amount received on account of the mortgage indebtedness after such default.

(b) If there should not be sufficient cash in the fund to enable the Secretary to make the payments to mortgages as provided in subsection (a) of this section, the Secretary may make and issue notes to the Secretary of the Treasury to obtain funds to make such payments. Such notes shall be signed by the Secretary or by his duly authorized representatives and shall be negotiable. Such notes shall bear interest, payable semiannually, at a rate equal to the average Tate of interest, computed to the end of the calendar month next preceding the date of issue, borne by all interest bearing obligations of the United States then forming a part of the public debt, and shall have such maturities as the Secretary may determine with the approval of the Secretary of the Treasury.

(c) The Secretary of the Treasury is authorized to purchase any notes issued by the Secretary pursuant to this section and any renewals thereof and for such purchases may use as a public debt transaction the proceeds from the sale of any securities issued under sections 745, 747, 752, 754b, 757b, 757c, 758, 760, 764-766, 769, 771, 773, 774 (2) and 801 of Title 31, and the purposes for which such securities may be issued under said sections, are extended to include any such purchases. All redemptions, purchases, and sales by the Secretary of the Treasury of such notes shall be treated as public debt transactions of the United States.

(d) In any case in which the mortgagor violates any covenant or condition of his mortgage, the Secretary may require the mortgagee to assign such mortgage, together with the incidents thereto, upon payment of the value of the mortgage determined in accordance with this section. July 22, 1937, c. 517, Title I, section 13, as added Aug. 14, 1946, c. 964, section 5, 60 Stat. 1072.

Section 1005d. Procedure with respect to mortgages in default; disposition of realized amounts; disbursements for preservation and protection.

(a) Upon accepting the assignment of any insured mortgage, the Secretary shall ascertain whether or not the mortgagor (which term as used in this section shall include the mortgagor or his heirs or assigns) desires to remain in possession of the mortgaged property. If the mortgagor does not desire to remain in possession of the mortgaged property or if the Secretary is unable to make the findings prescribed by the next sentence, the Secretary may proceed to foreclose the mortgage. If the mortgagor desires to remain in possession of the mortgaged property and if the Secretary finds that the mortgagor (1) has

made reasonable efforts to meet all defaulted payments and to comply with the other covenants and conditions of his mortgage and (2) will probably be able to meet such defaulted payments within five years after the maturity date or dates of the defaulted payments, the Secretary may enter into an agreement with the mortgagor providing for the payment of such defaulted payments together with interest thereon, at such times not later than five years after the maturity date or dates as the Secretary may deem to be within the probable future means of the mortgagor. Should any mortgagor with whom the Secretary has entered into such agreement thereafter fail to meet any payments, the Secretary may proceed to foreclose the mortgage. Expenses and fees incident to foreclosure may be advanced out of the fund for the account of the mortgagor.

(b) Amounts realized under section 1025 of this title on account of property which was subject to an insured mortgage shall be deposited in the fund. Amounts payable by the Secretary under section 1024 of this title with respect to such property, and any necessary costs and expenditures for the operation, preservation, and protection of such property, shall be paid out of the fund. July 22, 1937, c. 517, Title I, section 14, as added Aug 14, 1946, c. 964, section 5, 60 Stat. 1072, and amended June 19, 1948, c. 551, sections 6, 7, 62 Stat. 536.

STATEMENT OF CHARLES Q. KELLEY, FARMERS HOME
ADMINISTRATION, VETERANS' REPRESENTATIVE

Mr. KELLEY. Mr. Chairman, the Farmers Home Administration of the United States Department of Agriculture makes loans under the Bankhead-Jones Farm Tenant Act, as amended, to buy enlarged and improved farms. Under the Housing Act of 1949 we make loans to construct, repair, and improve houses. Under the law veterans receive preference. Those loans are supervised, and of course are made only to eligible borrowers.

It is our present policy, Mr. Chairman, by administrative policy, to give preference to Korean veterans over nonveterans. That is our statement, sir.

Mr. FORRESTER. Do you have any further elaboration on your statement?

Mr. KELLEY. None whatsoever, sir. We give veterans preference. We can do it under the law, and it is our administrative policy to give veterans' preference to the Korean veterans, and we are going to continue that.

Mr. FORRESTER. As chairman, I think I can make the observation that I happen to know that Mr. Lasseter is doing that. I have had personal experience with that and know that to be true.

Mr. PICKETT. I would like to ask you this, sir. In order to effectuate the policy that you have announced for the department you represent, is it necessary that we continue in force the section involved known as 2 (b) (9) in this proposed bill?

Mr. KELLEY. Mr. Pickett, I would rather not venture that legal opinion. I imagine they have perused that, but that is our policy to do that. We are going to continue it so far as I know. We told the Congress we would do it.

Mr. PICKETT. You are going to continue it so long as there is a desirability for it and the statutory authority to do it. Is that it? Mr. KELLEY. That is right.

Mr. FORRESTER. Do you have anything further on this matter, Mr. Burrus?

Mr. BURRUS. No, sir.

(The following supplemental information submitted for the record by the Administrator, Farmers Home Administration.)

Lt. Col. F. M. LUNDBERG,

UNITED STATES DEPARTMENT OF AGRICULTURE,

FARMERS HOME ADMINISTRATION, Washington 25, D. C., March 19, 1952.

643 Pentagon Building, Washington, D. C. DEAR COLONEL LUNDBERG: In response to your inquiry, this will advise you that loans made by the Farmers Home Administration under titles I and II of the Bankhead-Jones Farm Tenant Act are limited by statute to citizens of the United States. Section 1b of that act (7 U. S. C. 1001b) provides that "no person shall be eligible who is not a citizen of the United States." Section 21 of the same act authorizes the Secretary to make loans to farmers and stockmen who are citizens of the United States.

This agency also makes loans under title V of the Housing Act of 1949 (42 U. S. C. 1471) to enable the owners of farms to construct, improve, repair, or replace dwellings and other farm buildings. Although this statute does not specifically limit the eligibility of borrowers, it does authorize the Secretary to make rules and regulations deemed necessary to carry out the purposes of the act. Under that authority, regulations governing such loans which have been issued with the approval of the Secretary provide no such loan shall be made unless the applicant is a citizen of the United States.

In connection with loans for agricultural production disasters under the act of April 6, 1949 (12 U. S. C. 1148a), and the act of August 28, 1937, known as the Water Facilities Act (16 U. S. C. 590r), neither statutory nor regulatory limitations prevent the making of loans to noncitizens.

In connection with loans where citizenship is a qualification, we are advised by the Solicitor of this Department that the filing of first citizenship papers is not sufficient to qualify the applicant as a citizen. Consequently, with respect to these types of loans an alien is not eligible regardless of whether or not he has declared his intention to become a citizen.

Sincerely yours,

DILLARD B. LASSETER,
Administrator.

Mr. FORRESTER. At this time we will recess, to resume at 2 o'clock this afternoon.

(Thereupon, at 11:50 a. m., a recess was taken until 2 p. m. of the same day.)

AFTERNOON SESSION

The subcommittee reconvened at 2 p. m., Hon. E. L. Forrester, presiding.

Members present: Representatives Forrester, Pickett, Boggs, and Hillings.

Present also: Miss Velma Smedley, assistant chief clerk, and William R. Foley, committee counsel.

Mr. FORRESTER. The committee will come to order and, Mr. Burrus, we will ask you to proceed. Which particular topic do you want to take up first, Mr. Burrus?

Mr. BURRUS. We would like to straighten out the questions that were raised just as we adjourned on item 1 (c).

Mr. FORRESTER. Was that the one presented by the last gentleman? Mr. BURRUS. Yes, sir. It has to do with continuing appointments. A statement has been prepared which we think does state the Department of Defense's policy with respect to these two pieces of legislation. Colonal Mitchell will make the statement.

Colonel MITCHELL. A pertinent point to remember with respect to the Armed Forces Reserve Act which we were discussing, and has bearing on the section under consideration-1 (c) of the joint resolution-is that it may be as long as 18 months after the enactment of the Reserve Act before the Army and the Air Force will have any