excess of $5,400 may be insured up to 90 percent of the appraised value of the property, if the mortgage is approved for insurance prior to construction, covers a single family residence, is made by the owner who occupies the property as a home and the mortgagor has invested in the property at least 10 percent of its appraised value in cash or its equivalent.

3. The mortgage must have a maturity satisfactory to the Administrator, but not in excess of 20 years for the 80 percent mortgages and 25 years for the 90 percent mortgages.

4. The mortgage must contain complete amortization provisions requiring periodic payments by the mortgagor not in excess of his reasonable ability to pay. 5. Under the National Housing Act the mortgage must bear interest at not to exceed 5 percent except that the Administrator is given the right to raise this interest to 6 percent if he finds in certain areas the market demands it. (It should be pointed out that while the act provides a maximum of 5 percent interest on loans insurable under this section that effective August 1, 1939, the Administrator provided by regulation that the maximum interest to be charged was 41⁄2 percent.)

6. The mortgage shall provide in a manner satisfactory to the Administrator for the application of the mortgagor's periodic payments. Under the regulations the mortgagor makes his payments on account of interest, amortization, taxes and mortgage and hazard insurance premiums, monthly and in one payment and for 20 or 25 years he has no other payments to make.

The amendment of June 28, 1941, to the National Housing Act extended the provisions of Section 203 relating to the insurance of mortgages on existing construction, from July 1, 1941, to June 30, 1944.

All individual home mortgages accepted for insurance are classified into groups in accordance with sound actuarial practice and risk characteristics. These group accounts are carried as charges or credits in the mutual mortgage insurance fund and as a result of the grouping mortgagors with low-risk mortgages retain the advantage arising from such fact when the respective groups are terminated. All premium charges and other income from mortgages in a particular group and all properties conveyed to the Administrator in connection with a mortgage in a particular group are credited to that group. The principal and interest on all debentures and all expenses incurred in the handling of properties are charged to the group to which the mortgage is assigned.

The Administrator is directed to terminate the insurance as to any of these groups when he shall determine that all the outstanding mortgages in the group have been paid or that the credit in the group is sufficient to pay off the unpaid principal of all the mortgages in such group. When a group is terminated an amount equal to 10 percent of the premiums is transferred to a general reinsurance account which is set up as a part of the mutual mortgage insurance fund and the balance is equitably distributed to the mortgagors in the group.

This general reinsurance account operates as a reserve behind the assets in the group accounts and is available to cover charges against those accounts where the amounts credited to them are insufficient to cover such charges. In other words, losses in connection with any mortgage shall first be charged to the group to which the mortgage is assigned and if the assets in that group become insufficient, then the general reinsurance account is used. If the reinsurance account is insufficient then, and only then, the guaranty of the Government becomes effective. The $10,000,000 originally allocated by Congress to the fund has been credited to the general reinsurance account.

The general expenses of the Administration, under section 205 (b), title II, with respect to individual home mortgages may be allocated in the discretion of the Administrator among the sever 1 group accounts or charged to the general reinsurance account as he shall determine.

As of June 30, 1941, the net worth of the mutual mortgage insurance fund was $34,350,549, an increase of $6,618,949 over the net worth as of June 30, 1940. This amount remains in the fund after transfer of $33,393,320 for administrative expenses authorized under appropriation acts, and of $1,000,000 to the housing insurance fund authorized in the June 1939 amendment to the National Housing Act. The income from fees, premiums, and interest on investments under section 203 for 1942 is estimated at $22,253,347 and at $24,311,000 for 1943.

As of June 30, 1941, there had been insured 726,329 loans amounting to $3,108,493,539 under section 203. There had been acquired, 2,895 properties of which 2,283 had been sold leaving 612 on hand. The total loss to the fund from these operations amounts to $1,418,104 or about 0.000456 percent of the total insured. The following statements give a summary of operations under the mutual mortgage insurance program and the status of the fund.

Mutual mortgage insurance fund, balance sheet, June 30, 1941

Contingent liability for certificates of claim-properties on hand_

Volume of business under sec. 203, through June 30, 1941

245, 275. 58

NOTE.

Of the mortgages accepted for insurance during the fiscal year 1941-77.73 percent in number and 78.96 percent in amount involved the construction of new homes.

Income from fees and premiums mutual mortgage insurance fund-through June 30, 1941

1 Includes $286,089.26 income from fees and premiums insured under sec. 207 prior to amendments of February 1938, which created a separate housing fund.

Section 207, rental housing insurance.-Section 207 of the National Housing Act, as amended, authorizes the insurance of mortgages on privately constructed and financed rental housing property. The primary objective is to encourage, through a system of mortgage insurance, the construction of privately financed rental housing developments for a large group of people in rented living quarters and who are both willing and able to pay rent commensurate with their income for adequate living accommodations.

Section 210 which provided alternative conditions for insured mortgages on rental projects up to $200,000 was repealed by the act of June 3, 1939.

To be eligible for insurance under section 207 a mortgage must meet the following qualifications:

1. It must not exceed $5,000,000.

2. It must not exceed 80 percent of the amount which the Administrator estimates will be the value of the property or project when the proposed improvements are completed.

3. It must not exceed the amount which the Administrator estimates will be the cost of the completed physical improvements on the property.

4. It must not exceed $1,350 per room for such part of the property as may be attributable to dwelling use.

A mortgagee under a mortgage covering a rental housing project does not have to foreclose and convey the property to the Administrator, but can, at its election, assign the mortgage to the Administrator without foreclosure and receive debentures in an amount equal to 98 percent of the unpaid principal of the mortgage. There has been created in connection with this program a separate fund known as the housing fund which was started by a transfer of $1,000,000 from the mutual mortgage insurance fund, and which is built up by premiums and other charges in connection with this insurance less expenses applicable thereto. net worth of the fund on June 30, 1941 was $1,487,916 after transfer of $1,200,000 for administrative expenses authorized in the 1941 Appropriation Act.

The

The Administrator charges a premium for this insurance in the same amount as that charged for the individual house loans.

The maximum interest rate permitted by law on these large mortgages is 41⁄2 percent but the Administrator, by regulation, has reduced the interest rate to be charged to 4 percent.

The owner corporation is regulated by the Administrator as to capital structure, charges, rents, rate of return, and methods of operation.

These mortgages must be periodically amortized in such a way that they will be completely paid off over a period of approximately 27 years. All income over and above the debt service, maintenance and operations costs, reserves, and dividends not in excess of 6 percent of the equity investment, are required to be paid in reduction of the mortgage so that there is little or no chance of bleeding the property. The debt is always reduced in direct proportion to depreciation.

The Federal Housing Administrator holds special stock in these companies which gives him a right granted by the charter to take possession and management of the property upon any default under the mortgage.

There is on the Board a director representing the Administrator and he requires periodic reports and makes periodic examinations of the affairs of the owner and the owner cannot, without the approval of the Administrator, charge rents in excess of those approved by the Administrator at the time the loan was insured. Under this program as of June 30, 1941, mortgages amounting to $135,393,516, involving 335 projects (35,548 dwelling units) had been insured. In addition, there were outstanding commitments to insure on 17 projects (2,891 dwelling units) amounting to $9,428,000.

It is estimated that during the fiscal year 1942 the volume of business will amount to about $16,000,000 and a similar amount during the fiscal year 1943. Total income from fees, premiums, and interest on investments is estimated at $644,300 during 1942 and $666,000 during 1943.

The following statements show volume of business transacted, income from fees and premiums through June 30, 1941, and the status of the housing insurance fund, as of June 30, 1941.

Housing insurance fund—Balance sheet, June 30, 1941

Summary of all operations, under secs. 207 and 210, cumulative through June 30, 1941

Income from fees and premiums—housing insurance fund-through June 30, 1941

Income from fees and premiums under sec. 207 prior to February 1938 amendments amounting to $286,089.26 has been credited to the mutual mortgage-insurance fund.

Title VI, defense-housing insurance.-The act of March 28, 1941, Public, No. 24, as amended by the act of September 2, 1941, Public, No. 248, added a new title to the National Housing Act which for a limited time and to a limited aggregate amount provides for defense housing insurance on mortgages on residential properties in defense areas designated by the President.

The purpose of the act is to speed the production of dwelling accommodations at low cost in certain strategic areas by the maximum use of numerous builders of low-cost homes and by the use of private capital. The act is not intended to apply to housing of a temporary nature or to those areas in which the need for housing will cease to exist after the emergency, but only to projects which are "economically sound."

It was recognized that operations under this act may result in a higher ratio of loss than has been the experience of the Administration in its normal business. Accordingly, the plan was incorporated into a separate title, involving a separate insurance fund (known as the defense housing insurance fund) so as not to affect in any way the interest of mortgagors in the mutual mortgage fund under title II. The authorized amount of this fund was set up at $10,000,000 of which $5,000,000 has been obtained from the Reconstruction Finance Corporation.

Section 603, as amended, places a definite limitation of $300,000,000 upon the aggregate amount of obligations which the Administrator may insure under this title and also prevents the insuring of any mortgage thereunder, upon which a commitment to insure is issued after July 1, 1942.

This section limits the period of operations under this title to June 30, 1942. The eligibility requirements are similar to those contained in section 203 (b) (2)