Administration of Titles Two and Three of The National Housing Act

Federal Housing Administrator Outlines Regulations of Lons Term Program oI Complete Home Financing

The Federal Housing Administration was created by "an Act to encourage improvement in housing standards and conditions, to provide a system of mutual mortgage insurance, and for other purposes," approved llune 27, 1934, which may be cited as the "National Housing Act." All the powers of the Federal Housing Administration are vested in a Federal Housing Administrator, appointed by the President, by and with the advice and consent of the Senate, to hold office for a term of four years.

The first three Titles of the National Housing Act fall within the exclusive jurisdiction of the Federal Housing Administration' While divided into thr'ee Titles, the functions and duties of the Federal Housing Administration logically divide themselves into two separate and distinct programs. Title I sets forth a short term program of housing renovation and modernization. Titles II and III set forth a long term program of complete home financing.

Title I provides a program for short term financing of housing renovation and modernization. It is intended to quickly stimulate activity in the field of repair and modernization of existing properties and thus relieve present unemployment among workers in building trades and associated industries, and bring recovery to the durable goods market. The accumulation of deferred maintenance, of needed repairs and alterations and improvements upon real property, is large; but activity in this 6eld alone can not continuously support the building industry and its workers throughout the years to come. New construction must be revived to keep pace with other forms of economic activity. Titles II and III-the long term program-are designed to bring about this revival in the residential field. There is, however, inherent in this program no artificial stimulation for new construction activity. It is the purpose of the National Housing Act to reach deeper into the problem and to seek a solution in the fundamentals of home financing. There must be a sounder mortgage debt structure than exists today. The security and stability of real estate values and mortgage investments must be re-established. This Titles II and III are designed to do in the 6eld of residential properties, by providing a system of long term financing of residential mortgages to (1) make possible the reconstruction of a large volume of the existing mortgage indebtedness, and (2) arrest the flight of old capital from, and attract new capital to, that field of investment. When these results are attained, new residential construction will start, reach its normal volume, and thereafter sustain its proper relative position in the economic system, by (l) the flow to it of a more constant supply of funds, (2) a more evenly distributed employment of labor and consumption of materials, (3) leveling the peaks and valleys of housing production, and (4) greatly reducirig, if not in fact, preventing, the residential building booms and consequent collapses of past experience.

The Administrator is authorized and directed to make such rules and regulations as may be necessary to carry out the various provisions of Titles II and III, and in making them efiective, he seeks to serve the greatest number of borrowers, truilders and lenders applying for benefits thereunder, in the shortest length of time consistent with careful and efiective administration, and at rates prescribed for interest and for mortgage insurance premium, which will be fair alike to borrower and lender. in the different areas, of the present residential mortgage market. Those considerations necessitate certain initial limitations, restrictions and definitions in the regutations, which experience in operaton, and expansion and perfection of organization will later permit, if not require, to be revised.

The Regulations announced by the Administrator are as follows: REGULATIONS OF THE FEDERAL HOUSING ADMINISTRATION COVERING OPERATIONS UNDER TITLE II (TITLE III WILL FOLLOW PRESENTLY), OF THE NATIONAL HOUSING ACT

ARTICLE I

These Regulations may be cited and referred to as "Regulations of the Federal Housing Administration dated November l, 1934."

ARTICLE II

Definitions

1. As used in these Regulations- a. The term "Administration" means the Federal Housing Administration; b. The term "mortgage" means such a first lien upon real estate as is commonly given to secure advances on, or the unpaid purchase price of, reat estate under the laws of the state where the real estate is situated, together with the credit instruments, if any, secured thereby;

The term "insured mortgage" means a mortgage accepted by the Administrator for insurance (as set forth in Article IX);

The term "mortgagor" means the original borrower under a mortgage and his heirs, executors, administrators and assigns; The term "mortgagee" means the original lender under a mortgage and its successors;

The term "contract oI insurance" means the endorsement of the Administrator upon an insured mortgage, incorporating by reference these regulations.

Article Iii

Approval of Mortgagee

1. An institution desiring to be approved as a mortgagee in accordance with Section 203 (a) of the National Housing Act, may apply for such approval to the office of the Administration, at Washington, D. C.

2. No mortgagee will be approved unless: a. It is a chartered institution having succession. b. It is subject to the supervision of the government agency from which its charter powers are derived. c. It is located in a town or city with a population of not less than six thousand. d. It has a paid-in capital of not less than $100,000, and e. Its principal activity in the mortgage field consists in lending its own funds.

3. A mortgagee must submit such information as the Administrator requires to establish that it is responsible and able to service mortgages properly.

4. Approval of an institution as a mortgagee may be withdrawn at any time by notice from the Administrator. Withdrawal of approval will in no case afiect the insurance on mortgages then held by the institution.

(NOTE: The above classification includes, among others, (a) National and State Banks and Trust Companies, (b) Mutual Savings Banks, (c) Mutual Building and Loan Associations, (d) Life Insurance Companies, and other such institutional investors; and, subject to the qualifications described above, are such institutions as are otherwise eligible as members of the Home Owners' Loan Bank and the Federal Deposit fnsurance Corporation.)

Article Iv

Application for Insurance

l. Any approved mortgagee may submit an application for insurance of a mortgage about to be executed; or of a mortgage already executed, if ofiered for insurance within one year from the date of execution.

2. The application must be made upon a standard form prescribed by the Administration.

3. The apptication must be accompanied by a payment of a sum computed at a rate of .... dollars ($..........) per thousand dollars ($1,000) of the original principat amount of the mortgage loan to be insured, to cover the cost of appraisal by the Administration. If an application is refused without an appraisal being made by the Administration, the fee will be returned to the aPPlicant'

ARTT.LE v

Eligible Mortgages

1 To be eligible for insurance a mortgage must be executed, uoon the standard form orescribed bv the Administration for use in the jurisdiction in whiih the property covered by the mortgage is situated, by a mortgagor with the qualifications hereinafter set forth in Article VI and must be a first lien upon property that conforms with the requirements hereinafter set forth in Article VII.

2. A mortgage may involve a principal .obligation (inctuding such initial service qharges and appraisal and other fees as the Administration shatl approve) in an amount not to exceed sixteen thousand dollars ($16,000) and not to exceed eighty per centum (80%) of the appraised vatue of the property as of the date the mortgage is executed.

3. A mortgage must have maturity satisfactory to the Administration, not to exceed twenty (20) years. Every mortgage shall come due on the 30th day of June in the year of its maturity.

4, The mortgage must bear interest (exclusive of premium charges under the contract of insurance) upon the principal obligation thereof outstanding at any time, at a rate not to exceed the rate set by the Administration from time to time for the area within which the property covered by the mortgage is situated. Depending upon the nature of the mortgage indebtedness, such rate and the rate of the premium charges under the contract of insur- ance and the rate of the service charge payable by the mortgagor' are set forth in Schedule below:

Schedule

LGn to Borrower for Financing

Acquisition by him of Property

Constructed After June 27, 1934-

Refunding of Present Indebtedness (without change of borrower or lender) on Property Existing on June 27,1934.

Refunding of Present Indebtedness (with change of lender) on Property Existing on June 27, 1934.

5. The interest on all mortgages shall be payable in monthly instalments on the amount of piincipal then outstan4ing.

' i. The mortgage must contain provisions for such-equal month.ly payments by th-e **ortg.gor to the .mortgagee as will amortize the iiii*"t"a ainount of aTl Iaxes, special asieisments, if any, and fi,re and other casualty insurance premiums payable with respect to the piop..tv coue.ed- by the mortgage, within a period endin-g one month orior to theii final due datis. The mortgage must further provide-that such payments shall be held in tru.st by the mortgagee io p"r, such taxe;. special assessments and insurance premiums, when due and payable, for the benefit and account of the mor-tgagor' The mortgage'must also make provision- for adjustments in case the estimaled amount of such taies, special assessments and insuranie pr.miu-s shall prove to be more, or less, than the actual amount thereof so paid by the mortgagee.

6. The mortgage must co;tain complete amortization provisions saiisfactory to ltr6 Administration requiring. mon!!rlv pavments. by the mortgigor not in excess of his reasonable ability to. pay as determined"bi the Administration. Such monthly. amortizatio.n pay. ments musi be of such amount that the total principal and interest payments in each month shall be substa-ntially equal.

8. The mortgagi muit contain a provision for monthly qayments by the mortgagor to the mortgagee of an amount equal to one-twelith (l /12\ -of the annual premium payable by the mortgig". t" ttrd Administrator as sea forth in Section 2 of Article Vf"tt. Such payments shall continue only so long as the contract of insurance shall continue in effect.

9. The mortgagor shall pay to- the mortgage!, uPon the execution of the mortgage, a sum equal to the annual premium .payableby the mortgagee" 6 the Ad-inistrator as set forth in Section 2 of Articte VIII.

10. The mortgagor shall pay to the mortgagee'- upon the execution of the mortgage, a sum jufficient to cover that proportionate amount of the taies, special assessments, and fire and other casualty injur"n." premiums, ieferred to in Section 7 of this Article, that the time elipsed from the next prior payments 9f -su-ch taxes,-assessments and 'premiums bears to the entire period from- such prior payments to the next subsequent- P-ayments that come due. ' it. The mortgagor shall be obliged to pay only such recording fees, initial service tharges, costs of,title^ search and attorneys' and other fees as are approved by the Administration.

12. No mortgaie will be- accepted for insurance unless the Administration is satisfied that the project with respect to which the mortgage is executed is economicalty -sound. ARTICLE VI

Eligible Mortgagors

1. A mortgagor must eitablish that, after the mortgage offered for insurance-his been executed, the mortgaged premises will be free and clear of all liens other than that of such mortgage and the mortgasor will not have outstanding any other unpaid obligation contlitied in connection with the mortgaged premises.

2. A mortgagor must establish that the periodic payments required in the mortgage submitted for insurance bear a proper relatjon to his present and anticipated income and ekpenses.

3. A mortgagor must have a general credit standing satisfactory to the Administration.

4. A mortgagor is not restricted as to place of residence, and need not be the occupant of the property securing the mortgage; and such property, if otherwise' acceptable to the Administrator, may be loCated in any urban communitv whoseJrousing standards meet the requirementi for insurance under this Title of mortgages on property located

VII

Eligible Properties dwelling may be connected with other dwellings by a party wall or otherwise.

3. The buildings on the nortgaged premises must conform with the standards prescribed by the Administration.

Article Viii

l. The mortgagee shall pay at the tinre insurance .is granted a premium equa'i i-o that proportion of the- annual premium at.the raie set forth in Section 4 of Article V that the number of days from the execution of the mortgage until the subsequent first day of July bears to the total number of days in the year in which the mortgage is executed.

2. -^the mortgagee shall pay to the Administration in advance each first day of July subsequent to the exec-ution of the mortgage' an annual piemium it the rate set forth in Section 4 of Article V' Such premium shall be payable annually until the insured mortgage is paid in full, or is foreciosed by the mortgagee and- the premise.s transferred to the Administrator; as hereinafter set forth, or until the insurance is otherwise terminated.

3. Insured mortgages will be so'classified into groups that the insured mortgages in-any group shall involve. substantially- similar risk characte-riJtics and - hive similar maturity dates. Premium charges received for the insurance of any mortgage, .the.receipts deriv'ed from the property covered by such mortgage'and,-claims assigned to the Administrator in connection therewith, and all earn- ings" on the assets of the group account, shall be credited to th.e gfo rhic aciount of the group to which- the insured mortgage is- assigned. The principal of, and interest paid, and to be paid, on debentures account of the issued in erchange for any insured mortgage, paymentS made, or rn exchange a to be made, to the mort mortgagee and the mortgagor, as provided in Section 204' of the National Housing {c1' a1d 9T:T,.._il:li::1 in the handling of the property covered by the insured mortgage and in the collection of claims assigned to the Administrator in connection therewith, shall be charged to the account of the group to which such insured mortgage is assigned.

4. The Administration will also provide, in addition to the several group accounts, a General Reinsurance Account' th,e credit in which shall be available to cover charges against such group accounts where the amounts credited to such accounts are insufficient to cover such charges. General expenses of operation. of the Administration under Title II of the National Housing Act may be allocated in the discretion of the Administrator among the seviral group accounts or charged to the General Reinsurance Account, aid tie amount allocated to the Mutual Mortgage Insur-ance Fund' under Section 202 of. the National Housing Act shall be credited to the General Reinsurance Account, AccePtance for fnsurance

Upon accepting a moitgage for insurance the Administration shalf indorse ihe original credit instrument in form as follows.

ACCEPTED FOR-INSURANCE IN ACCORDANCE WITH THE PROVISIONS OF THE NATIONAL HOUSING ACT AND REGULATIONS OF THE FEDERAL HOUSING AD. MINISTRATION. DATED NOVEMBER ' 1934.

FEDERAL HOUSING ADMINISTRATOR

By Authorized Agent ARTICLE X

Rights and Duties of an Approved Mortgageo Under the fnsurance i. Whenever the credit balance in the group in which the insured mortgage has been assigned exceeds the remailing .unpaid principal of"th]e insured mortgage and all other outstanding.insured mortgages assigned to the same group -by an amount equal- to ten per den"tu- 007o\ of the total premium payments. which have iheretofore been'credited to such account, the Administration shall pav to the mortgagee under the insured mortgage -(whether such m6rtgage is in good standing or not) for the benefit and account of th"e inortgago-r a sum equ1l to unpaid principal of the insured mortgage if it were in good standing. Upon-such p-ayment by the Adminiitration the contlact of insurance shalt terminate-

2. The mortgagee shall accept such payment and a-pply it in satisfaction of thJ obligation of the mortgagor under the insured mortgage. If such insured mortgage is in good standing and such payment is sufficient to satisfy the obligation of the mortgagor unh.i it in full. the mortgagee shatl coincidently deliver to the mortgagor any instrument br instruments necessary or proper to discharge the insured mortgage.

3.*If the credit balance-in the group account to which the insuied mortgage is assigned fails to exceed before the fi-rst day.of Tuly prior t6 ihe maturiiv date of the insured mortgage the remaininer unpaid principal of the then outstanding insured mortgages assigned to such group by an amount equat to ten per centum (107o) oi'the total pre;ium pavments which have theretofore been credited to such account. the Administration on the first day of July prior to the maturitv date of the insured mortsage after receipt from the

1. A mortgage to be eligible for -insurance must be on real mortgages of the premium due on that date, estaie held in-iei simple or in leasehotd under a lease for not less than ninetv-nine (99) years which is renewable, or under lease with a period of not less than fifty (50) years to run from the date the mortsage is executed.

2. - Ai the time a mortgage is insured there must be located on the mortsased oremises Jdwetling for not more than four families which is-uied in whole or in part for residentiat purposes. Such a. Shall transfer to the General Reinsurance Account, provided for in Section 205 (b) of the National Housing Act. an amount equal to ten per centum (10%\ of the totat premium charges theretofore credited to such grouD account: and b. Shall transfer to the mortgagee. for the benefit and account

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