the President is to submit to the Congress any recommendations as to any action or legislation which may be necessary or desirable.

SECTION 206

This section sets forth the usual corporate and administrative powers necessary for efficient operations, such as the power to sue and be sued, execute contracts, hire personnel, etc. The Corporation could utilize the Federal home-loan banks or any other appropriate agency in carrying out its functions.

SECTION 207

This section provides the usual tax exemption with respect to the activities of a Government agency but provides that any property acquired by the Corporation through foreclosure or otherwise in connection with its mortgage purchases shall be subject to all local taxes in the same manner as other property.

SECTION 208

This section makes general criminal and penal statutes relating to public moneys, property, or employees applicable to the public moneys, property, or employees of the Corporation, and contains other appropriate administrative provisions.

SECTION 209

This section provides for an annual report to the President for transmission to the Congress on the operations and financial status of the Corporation.

TITLE III. HOUSING RESEARCH

The purpose of this title is to assist in progressively reducing housing costs and increasing the production of better housing, and in making available necessary data on housing needs, demand, and supply.

SECTION 301

This section authorizes the Housing and Home Finance Administrator to undertake a program with respect to technical research and related studies which will stimulate and promote progressive reductions in housing costs and the increased and sustained production of housing through new and improved techniques, materials and methods, improvement and standardization of building codes, modular coordination, and the development of other sound methods and standards which will help attain the objectives of this title.

The section further contemplates inventories, as necessary, of housing needs and progress, and authorizes the Administrator to encourage localities to make studies, surveys, and plans with respect to their own housing needs, markets, and development.

SECTION 302

This section stresses the intention of cooperative effort between the Housing and Home Finance Administrator and other Federal and local governmental agencies, educational institutions, and other appropriate agencies in carrying out the research program, and provides that the results of such research and studies may be disseminated in such form as may be most useful to industry and to the general public. Also, because of the contributions that the Department of Commerce, through its National Bureau of Standards and other bureaus, can make to the program of housing research and related studies, the section provides that the Secretary of Commerce shall be added to the membership of the National Housing Council established last year.

SECTION 303

The title provides no specific money authorizations but authorizes the appropriation of such sums as may be necessary to carry out its provisions.

TITLE IV-RENTAL HOUSING AIDS FOR FAMILIES OF MODERATE INCOME AND VETERANS

This title recognizes that, while the encouragement of home ownership is a fundamental objective in our national housing policy, nevertheless there is a large segment of our population which, because of income, mobility, custom, or local conditions, requires or prefers rental housing. The title also recognizes that up until now the provision of such housing, particularly for families of moderate income, has been inadequate and that such inadequacy has in very large part resulted from a reluctance or inability under present aids on the part of institutional investors to make direct investments in such housing. It, therefore, provides aids in connection with equity, as well as mortgage financing. It also provides special aids for cooperative ownership housing, with emphasis on veterans' cooperatives.

MORTGAGE INVESTMENT AIDS; VETERANS' COOPERATIVES

SECTION 401

Subsection (a) sets forth the special supplemental program needed for mortgage financing of rental housing projects for families of lower income. The program involves a combination of a 90-percent loan, 40-year maturity, and a maximum interest rate of 4 percent. Also, in order to encourage and make possible home ownership for those families of lower income who could undertake such ownership only under some plan such as cooperative ownership housing, the section makes this liberalized combination of mortgage terms available for projects undertaken by nonprofit cooperative ownership housing corporations. Because of the special needs of veterans, the section, in this connection, makes available to them FHA insurance on 95percent loans.

The purpose of subsection (b) is to provide increased insurance benefits to mortgagee lending institutions in order to encourage their participation in the rental-housing and cooperative-ownership program

provided in this section, and also in the existing FHA rental-housing program under present provisions of the National Housing Act. It therefore supplements the insurance benefits provided in section 101 (m) (2) of this bill. It provides that if the mortgagee on any rental housing (or cooperative ownership) project elects to assign the mortgage itself to FĤA, instead of foreclosing and transferring the project, there shall be deducted from the insurance benefits, only 1 percent of unpaid principal as compared with the 2 percent required under existing statutory provisions.

Subsection (c) makes clear that the powers of the National Home Mortgage Corporation established under title II of this bill will be available to provide a secondary market, if necessary, for mortgages insured under this section.

EQUITY INVESTMENT AIDS

SECTION 402

This section provides for a special program of yield insurance, to be administered by FHA, designed to encourage equity investment in rental housing at rents within the capacity of families of moderate income by guaranteeing to those making such an investment to the extent of 100 percent of project cost, a minimum return (exclusive of amortization) of not exceeding 24 percent per annum on outstanding investment until such time as only 10 percent of the original capital investment remains unamortized. As in the case of FHA's existing insurance programs, a self-sustaining program, made possible by appropriate premium charges, is contemplated.

This section places the proposed program under the jurisdiction of FHA, and as a title VII to the National Housing Act, which title would consist of 13 sections, numbered 701 through 713, and provide as follows:

The proposed section 701 provides the general authority to FHA to insure (and to make commitments to insure) a minimum annual return to the investor, consisting of (1) 2 percent of the original capital investment (as amortization on such investment), plus (2) a yield not exceeding 2% percent on the portion of the investment still unamortized as of the particular year involved.1 Such insurance may be provided only for the period during which more than 10 percent of the original capital investment in the project remains unamortized (or, in effect, for not more than 45 years).

The proposed section 702 sets forth as the basic requirements for eligibility for yield insurance (1) that there be a need for the project in the locality at the rentals proposed, and (2) that the project be economically sound and the dwellings properly designed.

Subsection (b) of this section provides the usual clause as to incontestability with respect to any insurance contract undertaken by FHA under this title.

1 It is to be noted that the insurance is only of a yield on the capital investment itself. The insurance does not cover against the improbable situation of deficits in expenses of operation (i. e., the amount, if any, by which operating expenses in any year exceed the revenues of that year). Should the gross revenues in anv year actually be less than the aggregate operating expenses, then the actual return to the investor (exclusiey of the 2-percent amortization return) in effect would be an amount equal to the difference between (1) 234 percent of the outstanding investment, and (2) the deficit in operating expenses for the year. However, sec. 703 provides that in any such year the insurance premium shall be waived to the extent of such operating deficit, and sec. 705 provides that in any subsequent year in which there are excess earnings, such excess may be app d to make up such operating deficit (to the extent it has not been previously made up).

The proposed section 703 fixes the premiums and fees that may be charged in connection with the yield-insurance program. It authorizes, first, an annual premium charge of not more than one-half of 1 percent of the investment outstanding for the particular year for which the premium charge is payable. It authorizes also reasonable fees (but not in excess of one-half of 1 percent of the estimated capital investment) for FHA examination and inspection of the project during construction.

The proposed section 704, which relates to the rents that may be charged for the dwellings in the project, requires approval of the rent schedule by FHA. The yield-insurance plan provided under this title does not make the 24-percent minimum yield guaranteed by FHA also the maximum yield the investor is permitted to derive on his investment. This is specifically recognized by the provisions of this section, which provide for FHA approval of rent schedules so set up as to allow the investor a yield of 3%1⁄2 percent on outstanding investment. At the same time, however, FHA must also find that the rentals provided in the schedule are no higher than necessary to meet the needs of families of moderate income.

The proposed section 705 provides that in those years, if any, in which the project yields revenues more than sufficient to provide a 32-percent yield on outstanding investment for that year, one-half of such additional earnings may be retained by the investor as a further return on his investment, but only to the extent that this does not result in a return for that year of more than 5 percent on outstanding investment. For the purposes of the insurance contract, the balance would be regarded as being applied to accelerating the amortization of the capital investment, one effect of which would be to reduce the life of the insurance contract. The section provides, however, that in the event the project has had operating deficits in preceding years (these deficits are not covered by the insurance under this title), the excess earnings are to be applied, first, to the reimbursement of such deficits; and second, to the payment of any premium charges previously waived because of such deficits.

The proposed section 706 provides for the submission of annual financial and operating statements to FHA for its approval. The FHA is authorized to make such submission and approval a condition precedent to the payment of claims for insurance benefits.

The proposed section 707 provides for cash payment of properly proved claims for insurance benefits.

The proposed section 708 is designed for the situation where a project continues to operate at a loss for a substantial period, thus requiring special action. It provides that if the aggregate of the amounts paid as insurance benefits to the investor should ever equal or exceed 15 percent of the original capital investment, FHA is to have the right to take over the project against issuance to the investor of debentures having a value equal to 90 percent of the portion of the capital investment still unamortized. Conveyance to FHA at the option of the investor is authorized if the aggregate of the operating deficits (to the extent they are not made good) should ever equal 5 percent of the original capital investment. In either case the debentures issued would bear interest at not to exceed 24 percent per annum, have a maximum maturity of 40 years, be fully guaranteed by the United States, and have the same tax-exemption privileges as debentures issued by FHA under its mortgage-insurance programs.

The section also sets forth the necessary provisions for the temporary management and disposition of any projects taken over by FHA under this section.

The proposed section 709 vests in the investor the right to terminate the written contract at any time upon written notice to FHA, and it vests in FHA the authority to prescribe the conditions under which it has the option to terminate the insurance contract. The section further authorizes an adjusted premium charge in the event of ter

mination.

The proposed section 710 creates a special insurance fund (housing investment insurance fund) as a revolving fund for meeting the payment of insurance benefits, and also of administrative expenses incurred in connection with the program, and allocates $10,000,000 to set up such fund. All income derived in connection with the program is to be deposited in the fund, and all expenses, whether in payment of insurance claims or of administrative expenses, are to be paid from the fund. The faith of the United States is pledged to the payment of all approved claims for insurance benefits in the event the fund fails to make any such payment when due.

The proposed section 711 provides that no real property acquired by FHA under the yield-insurance program shall be exempt from local taxation simply because of such acquisition.

The proposed section 712 provides for the issuance of such rules and regulations as may be necessary or desirable for carrying out the yield-insurance program, including such rules and regulations as may be necessary with respect to maintenance and inspection of project records, or as may be necessary for effecting appropriate changes in the insurance base in the event of capital improvements or additions to the project, on the one hand, or sale of, or damage to, part of the project, on the other. Also, because of the fact that many of the participating investors will already be subject to supervision and regulation by State banking and insurance departments, the section authorizes FHA to avoid duplicatory activity in this connection and to utilize and take full advantage of such State supervision.

The proposed section 713 sets forth the definitions of the basic terms used in the title. Through these definitions, the section provides that the yield-insurance program is open to any individual, group, or association, or other legal entity qualified to undertake the construction and operation of the type of project that may be assisted under the title. Through these definitions, also, the section makes appropriate provision for cases where the investor has a leasehold rather than a fee interest in the land on which the project is constructed. The definitions also indicate that a project may include such community and commercial facilities as are necessary or desirable.

SECTION 403

This section amends two provisions of the National Housing Act which were intended at the time of their enactment to be applicable to FHA's insurance programs generally, so that such provisions will by explicit reference be applicable to the yield-insurance program.

The provisions affected are section 1 of that act, which sets forth the general administrative powers of FHA, and section 5, which requires annual reports to the Congress on FHA activities under each of its insurance programs.