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Housing loans to educational institutions, status of loans, 1951 through Oct. 31, 1954-Continued

Bond interest repayments

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400,000

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ITEM 4. STATEMENT OF HHFA PREQUISITES FOR GRANTING LOANS, SUCH AS LEGAL AUTHORIZATION AND APPROVAL BY STATE AND CITY AUTHORITIES FOR STATE AND

CITY INSTITUTIONS, ETC.

An educational institution making application for a college housing loan is required to evidence that (1) it is either a public corporate body or a nonprofit private corporation legally capable of constructing, financing, and maintaining and operating the desired student or faculty housing for which the need is certified by the Office of Education in the Department of Health, Welfare, and Education; (2) the approvals as to local zoning, building codes, and land uses, or specific covenants regarding such housing project sites, are secured and complied with; (3) the education institution owns fee-simple title in the land comprising such sites; and (4) recognized bond counsel render and furnish to the HHFA an approving opinion as to the validity and legally binding character of the bonds to be delivered under the terms of the loan.

Municipal and State institutions must secure the approval of municipal and State authorities if these are required under their charter.

ITEM 5 STATEMENT AS TO WHETHER PROJECTS CONSTRUCTED WITH LOANS UNDER THIS PROGRAM MAY BE IN CONJUNCTION WITH ASSISTANCE UNDER ONE OR MORE OTHER PROGRAMS UNDER GENERAL JURISDICTION OF THE HHFA-FOR EXAMPLE, CAN COLLEGE HOUSING PROJECTS BE ERECTED IN A SLUM-CLEARANCE AREA, IN COMBINATION WITH ANY OTHER HOUISNG PROGRAM?—IF SO, INDICATE POSSIBLE COMBINATIONS AND LIST ALL ACTUAL COMBINATION PROJECTS APPROVED TO DATE AND ALL OTHER APPLICATIONS INVOLVING COMBINATION OF PROGRAMS

Loans for college housing are not made in conjunction with assistance from other programs under the general jurisdiction of the Housing and Home Finance Agency.

An educational institution requesting a loan is usually one of long standing and is located on a well-established campus with its improvements developed over a long period of time. Consequently, the projects constructed with loans under this program are within a highly specialized field of planning and are not combined with community-wide or overall regional planning. It is conceivable that where a college or university is located in a congested area or section of a large city its housing construction program could be coordinated with the local community planning. So far there have been no situations presented which might feasibly be combined with any other housing program, including the overall slum-clearance program.

In reply to your specific question, "Can college housing projects be erected in a slum-clearance area?" a university can purchase land in such an area and undertake to erect a dormitory there with a Federal or private loan. Illinois Institute of Technology in Chicago, Ill., has been purchasing and clearing land in the neighborhood of its campus and has erected three buildings with the assistance of college housing loans. Johns Hopkins University Medical School has a pending application in which it proposes to erect a building on a site adjacent to the University Hospital, which would be purchased from the city of Baltimore at a cost of $100,000. Title to such land has been or is being acquired by the city by purchase or condemnation proceedings in connection with its redevelopment of this area and adjacent blocks by the Baltimore Redevelopment Commission. The use of this site for university purposes has been contemplated since the area was declared a redevelopment area in 1949.

These two projects, which are in no sense combination projects, are the only projects approved or pending which involve the construction of college housing in slum-clearance areas.

ITEM 6. A STATEMENT AS TO WHETHER IT IS POSSIBLE TO MORTGAGE OUT OR BORROW IN EXCESS OF COST UNDER THIS PROGRAM; AND IF SO WHAT PRECAUTIONS HHFA HAS TAKEN AGAINST THESE PRACTICES

There is no possibility of mortgaging out or borrowing in excess of cost under this program because (1) the loans are direct; (2) the proceeds of the loan are required to be deposited as trust funds in construction accounts; (3) the contract is awarded on the basis of competitive advertised bid; (4) the loan agreement specifically limits the amount of the loan to the costs of construction; and (5) a Government inspection and audit are made on each project with expense thereof paid by the borrower. Such protective provisions are included in all loan agreements under the program.

In the event of an overrun following competitive bidding, the applicant is obligated to furnish the additional funds. In some instances it has been possible to bring the project costs within the loan amount by the use of deductive alternates. In another instance it was necessary to redesign the facility to keep within the loan amount. In a few instances it has been necessary to increase the loan amount because of overrun in cost after competitive bids had been taken.

ITEM 7. A STATEMENT AS TO WHETHER HHFA CONTROLS TO ANY DEGREE THE RENTALS OR FEES CHARGED FOR OCCUPANCY OR OTHERWISE OF THESE PROJECTS

It is clear that the intent of the legislation was to make it possible for colleges and universities to construct housing for their students without excessive increases in their dormitory rates. Therefore, the Agency has not undertaken to dictate the rentals to be charged in the facilities constructed under these loans. In making its application, the applicant submits its plan for the operation of the facility, including proposed rentals to be charged the students. It is generally the rate which already obtains in other dormitories operated on its campus. A financial analysis is made of the application in which the net income to be derived from the operation of the facility is one of the most important considerations. It is frequently necessary for the applicant to make some adjustments in rentals before an economically sound project can be worked out.

A condition which is a part of the loan agreement between the Government and the applicant states:

"The borrower shall establish and maintain, throughout the life of the loan hereunder, such parietal rules, rental rates, and charges for the occupancy and use of the project as are necessary (1) to assure maximum occupancy and use of the project, (2) to provide debt service on the bonds, and (3) to provide a debt service reserve required under condition (a) above."

As holder of the bonds delivered under the program, the Government has the legal right to enforce such provision by court action if necessary.

Many loans have been rejected because they were not economically feasible, i. e., the projects could not be amortized from the rentals proposed, an increase in rentals was not believed possible, and other sources of funds to supplement the net income from rentals were not available.

ITEM 8. A LIST (IDENTIFIED) OF ANY PROJECTS IN THIS PROGRAM WHICH WE HAVE DEFAULTED

Of the 144 loans approved under this program from its inception to date there have been no defaults in either principal or interest.

The historical record of dormitory bond financing is excellent. During the depression of the 1930's there were some 440 dormitory issues extant of which 10 went into temporary default, all of which were later refunded without loss of principal. The cause of default in nearly every case was the cumulative effect of the depression, resulting in small enrollments and competition from residents of the community who, under extremely depressed economic conditions, offered rooms at substantially below the moderate dormitory rates.

A number of safeguards against default are implicit in or have been incorporated into the program and are listed below:

1. Estimated net income from the dormitory is generally depreciated by a 10percent vacancy factor.

2. Revenue type issues have a coverage over debt service of at least 1.35 times debt service.

3. Reserves are established to cover 2 years' debt service.

4. Loans to private institutions are secured by the full faith and credit of the institution, a mortgage on the project and its site, and pledge of specific income from the project or otherwise sufficient to assure payment of debt service and to create the 2 years' reserve.

5. Use and occupancy insurance is maintained to provide continued revenue in the event of fire or other disaster.

6. Parietal rules are established under which the project dormitories must be occupied before other dormitories are occupied.

7. Housing constructed under the program provides only a small fraction of total enrollment.

8. Enrollments have increased for the third successive year to an all-time high this fall of 2,472,000 students and are expected to increase to more than 3 million students by 1960.

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