mortgage amounts included in the National Housing Act. This change
is beneficial because the statutorily-imposed maximums, even with
the allowance of a forty-five percent increase for high cost areas,
create too rigid limitations, given the great variation in costs in
different areas and the rapid increase of costs over time. None-
theless, replacing the rigid statutory limitations with limitations
determined by the Secretary will not achieve its purpose of making
the programs workable if the Secretary is himself too tight-fisted
in his determination of the prototype costs for each area. There
is some evidence that such a tight-fisted approach has already been
taken in relation to the prototype costs established for public
housing. As a result, it is desirable to add to the list of factors
which the Secretary shall consider in determining the prototype costs
a direction to ensure that under-estimation of the prototype costs
does not impair the effectiveness of the programs.

A second problem related somewhat to these maximum mortgage amounts arises from the desirability of including in assisted housing developments certain facilities, besides the apartments themselves, which improve the living environment of the development and its neighborhood. Those facilities, depending upon the nature of the particular situation, might be playgrounds, day care centers, community meeting rooms, etc. Under the current administrative practices, it is rarely feasible to include such additional facilities. There is a danger as well that the maximum mortgage amounts determined on the basis of the Secretary's prototype costs may also make it impossible to include such facilities. There is a need thus for a congressional declaration of policy on this matter. It should indicate that these additional community facilities are essential to the success of the federally-assisted housing programs. It should as well direct the Secretary to consider, both in developing the prototype costs and in generally administering the programs, the need to include these additional facilities.

This section makes permanent the Secretary's current temporary authorization to prescribe maximum interest rates for mortgages or loans eligible for insurance. Because of the experience of the past three years, it is wise to make the Secretary's temporary authority to prescribe maximum interest rates a permanent authority. Nonetheless, Section 4 goes beyond the temporary authority which the Secretary now has. It unambiguously authorizes the Secretary to prescribe different rates for mortgages insured under different sections of the Act and to prescribe different rates for different mortgages insured under the same sections. Although flexibility itself is desirable, it can be abused. Thus there is a need for guidelines to indicate the types of situations in which the Secretary might prescribe differing rates for either mortgages under different sections, or differing mortgages under the same sections.

Section 302

The Terms for Property Improvement Loans

Section 302(a) (1) sets the maximum amounts for property improvement loans. If the property is a single family dwelling, the maximum amount is $6500. If the property is an apartment house or a dwelling for two or more families, the maximum amount per unit is $3500 and the total amount cannot exceed $15,000. The current maximum amounts for property improvement loans under Title I of the National Housing Act are $5,000 for a single family dwelling, and $2,500 per family unit for a multi-family dwelling with a maximum of $15,000. The question thus arises why there should be a difference in the maximum amounts per unit between single family dwellings and dwellings inhabited by two or more families. If there is no good reason, then the per unit amounts should be equalized.

Houses sold under the Sections 221 and 235 programs must meet "the requirements of all state laws, or local ordinances or regulations, relating to the public health or safety, zoning or otherwise, which may be applicable thereto." See Section 221(d) (2) and Section 235(i)(2). There is no comparable requirement for houses sold under Section 401, yet such a requirement is necessary because it makes no sense for the FHA to insure mortgages on houses that are not up to code. There already exists the problem of substandard houses being sold under the Sections 203, 221, and 235 programs, which has been well-publicized in the last year. These problems can only be exacerbated if FHA's statutory obligation to ensure that the houses are in compliance with the local codes is eliminted. Thus to Section 401(b) there should be added a fifth subprovision as follows:

"(5) be secured by property upon which there is located
a dwelling conforming to applicable standards prescribed
by the Secretary and meeting the requirements of all
state laws or local ordinances or regulations, relating
to the public health or safety, zoning or otherwise,
which may be applicable thereto."

Section 401(f) provides that a seller of a dwelling which is approved for mortgage insurance prior to the beginning of construction must warrant to the buyer that the building is constructed in substantial conformity with the plans and specifications on which the Secretary based his valuation of the dwelling. This warranty is similar to the warranty required by Section 801 of the Housing Act of 1954 for home mortgages insured under the National Housing Act. Unlike Section 401(f) of the 1970 bill, however, Section 401(f) of the 1971 bill does not extend the warranty to require a builder to provide a one-year warranty against structural defects in homes not approved prior to construction.

or does it require any warranty from the sellers of homes that are ither substantially rehabilitated or merely existing homes.

The experience of the past few years, especially under the 235 rogram and the 221 program, indicates that some warranties from the ellers are necessary to prevent purchasers of homes financed with HA-insured mortgages from purchasing inferior homes. As a result, arranties should be added to Section 401(f) to cover the three situations ot now included newly constructed homes not approved prior to construction, ubstantially rehabilitated homes, and existing homes. Those warranty rovisions could read as follows:

"401(f) (2) Where the mortgage involves a newly constructed
dwelling which the Secretary determines has been completed
within twelve months of the sale being financed with a
mortgage insured under this section but which has not been
approved for insurance prior to the beginning of construction,
the seller or builder or such other person as may be
required by the Secretary, shall deliver to the mortgagor
a warranty that the dwelling does not have any structural
latent or other defects which will seriously affect its use
and livability. This warranty shall apply only with respect
to such instances of structural latent or other defects [as
to which the mortgagor has given written notice to the warrantor
within one year of the date of conveyance of title to, or
initial occupancy of, the dwelling, whichever occurs first.]
401(f) (3) Where the mortgage involves substantially rehabilitated
dwelling which is approved for mortgage insurance prior to the
beginning of rehabilitation, the seller or such other person
as may be required by the Secretary, shall deliver to the
mortgagor a warranty that the dwelling is constructed in
substantial conformity with the plans and specifications,
including any amendments thereof, or changes or variations
'therein approved in writing by the Secretary, upon which the
Secretary based his estimation of the value of the property
after the completion of the proposed improvements. This warranty
shall apply only to such defects [as to which the mortgagor
has given written notice to the warrantor within one year of
the date of conveyance of title to, or initial occupancy of,
the dwelling, whichever occurs first.]

401(f) (4) Where the mortgage involves an existing dwelling,
the seller or other person as may be required by the Secretary
shall deliver to the mortgagor a warranty that the dwelling is
in compliance with applicable governmental standards relating
to the public health or safety and any applicable standards
prescribed by the Secretary. This warranty shall apply only
to such instances of such defects [add words in brackets above].

ection 402 (h) Insurance for Construction Advances

The authorization in Section 402 (h) to insure home mortgages ncludes an authorization to insure advances with respect to property

Section 302

The Terms for Property Improvement Loans

Section 302 (a) (1) sets the maximum amounts for property improvement loans. If the property is a single family dwelling, the maximum amount is $6500. If the property is an apartment house or a dwelling for two or more families, the maximum amount per unit is $3500 and the total amount cannot exceed $15,000. The current maximum amounts for property improvement loans under Title I of the National Housing Act are $5,000 for a single family dwelling, and $2,500 per family unit for a multi-family dwelling with a maximum of $15,000. The question thus arises why there should be a difference in the maximum amounts per unit between single family dwellings and dwellings inhabited by two or more families. If there is no good reason, then the per unit amounts should be equalized.

Section 401 - Compliance with Code Standards

Houses sold under the Sections 221 and 235 programs must meet "the requirements of all state laws, or local ordinances or regulations, relating to the public health or safety, zoning or otherwise, which may be applicable thereto." See Section 221(d) (2) and Section 235(1)(2). There is no comparable requirement for houses sold under Section 401, yet such a requirement is necessary because it makes no sense for the FHA to insure mortgages on houses that are not up to code. There already exists the problem of substandard houses being sold under the Sections 203, 221, and 235 programs, which has been well-publicized in the last year. These problems can only be exacerbated if FHA's statutory obligation to ensure that the houses are in compliance with the local codes is eliminted. Thus to Section 401(b) there should be added a fifth subprovision as follows:

"(5) be secured by property upon which there is located
a dwelling conforming to applicable standards prescribed
by the Secretary and meeting the requirements of all
state laws or local ordinances or regulations, relating
to the public health or safety, zoning or otherwise,
which may be applicable thereto."

Section 401(f) provides that a seller of a dwelling which is approved for mortgage insurance prior to the beginning of construction must warrant to the buyer that the building is constructed in substantial conformity with the plans and specifications on which the Secretary based his valuation of the dwelling. This warranty is similar to the warranty required by Section 801 of the Housing Act of 1954 for home mortgages insured under the National Housing Act. Unlike Section 401(f) of the 1970 bill, however, Section 401(f) of the 1971 bill does not extend the warranty to require a builder to provide a one-year warranty against structural defects in homes not approved prior to construction.

or does it require any warranty from the sellers of homes that are ither substantially rehabilitated or merely existing homes.

The experience of the past few years, especially under the 235 rogram and the 221 program, indicates that some warranties from the ellers are necessary to prevent purchasers of homes financed with HA-insured mortgages from purchasing inferior homes. As a result, arranties should be added to Section 401 (f) to cover the three situations ot now included newly constructed homes not approved prior to construction, ubstantially rehabilitated homes, and existing homes. Those warranty rovisions could read as follows:

-

"401(f) (2) Where the mortgage involves a newly constructed
dwelling which the Secretary determines has been completed
within twelve months of the sale being financed with a
mortgage insured under this section but which has not been
approved for insurance prior to the beginning of construction,
the seller or builder or such other person as may be
required by the Secretary, shall deliver to the mortgagor
a warranty that the dwelling does not have any structural
latent or other defects which will seriously affect its use
and livability. This warranty shall apply only with respect
to such instances of structural latent or other defects [as
to which the mortgagor has given written notice to the warrantor
within one year of the date of conveyance of title to, or
initial occupancy of, the dwelling, whichever occurs first.]

401(f) (3) Where the mortgage involves substantially rehabilitated
dwelling which is approved for mortgage insurance prior to the
beginning of rehabilitation, the seller or such other person
as may be required by the Secretary, shall deliver to the
mortgagor a warranty that the dwelling is constructed in
substantial conformity with the plans and specifications,
including any amendments thereof, or changes or variations
'therein approved in writing by the Secretary, upon which the
Secretary based his estimation of the value of the property
after the completion of the proposed improvements. This warranty
shall apply only to such defects [as to which the mortgagor
has given written notice to the warrantor within one year of
the date of conveyance of title to, or initial occupancy of,
the dwelling, whichever occurs first.]

401(f) (4) Where the mortgage involves an existing dwelling,
the seller or other person as may be required by the Secretary
shall deliver to the mortgagor a warranty that the dwelling is
in compliance with applicable governmental standards relating
to the public health or safety and any applicable standards
prescribed by the Secretary. This warranty shall apply only
to such instances of such defects [add words in brackets above].

ection 402 (h) Insurance for Construction Advances

The authorization in Section 402 (h) to insure home mortgages ncludes an authorization to insure advances with respect to property