debentures issued under this option would have one feature different from debentures under other insurance programs, namely, the interest rate would be fixed at the "going Federal rate" at date of issuance. This would be the annual rate of interest specified by the Secretary of the Treasury as applicable to the 6-month period which includes the issuance date of the debentures. The Secretary of the Treasury would determine this applicable rate by estimating the average yield to maturity, on the basis of daily closing market bid quotations or prices during the month of May or the month of November, as the case may be, next preceding such 6-month period, on all outstanding marketable obligations of the United States having a maturity date of 8 to 12 years from the 1st day of May or November, as the case may be. If there should be no outstanding marketable obligations of the United States having the 8- to 12-year maturity at the time the Secretary of the Treasury is required to determine the debenture rate involved, the obligation next shorter than 8 years and the obligation next longer than 12 years, respectively, would be used.

A section 221 housing insurance fund would be created for the purposes of the mortgage insurance program under section 221. It would be a revolving fund and would consist originally of $1 million transferred from the war housing insurance fund. No provision would be made for transfer of assets between the section 221 fund and other FHA insurance funds as is presently authorized for FHA insurance funds.

Section 124. Mortgage insurance for servicemen

This section would add section 222 to the National Housing Act to authorize a new FHA mortgage insurance program for housing for servicemen in the Armed Forces of the United States and their families. This program would assist in the provision of housing for members of the active Military Establishment who are not usually eligible for the home-loan benefits of the Servicemen's Readjustment Act of 1944, as amended, because they have not become veterans. That act deals, of course, with the readjustment of veterans to civilian life, as distinguished from the provision of housing for servicemen while they remain in service. The provision of adequate housing for them at posts and installations is important to the morale of our Armed Forces, especially because it removes a major incentive for the trained officers and men with families to leave the service. It has been represented to your committee that many military personnel leave the Armed Forces because of inadequate housing conditions, and seek the home-loan benefits made available to them as veterans. Many members of the service desire to establish their permanent homes while on active duty and in advance of retirement since an individual who has retired (after serving the required number of years) has more difficulty in obtaining long-term mortgage financing. Also, in many military areas it is advantageous and often necessary for a serviceman to buy a home for a tour of duty and to sell upon departure, using the proceeds to finance a future purchase.

Before a serviceman would be entitled to the benefits of this program the Secretary of Defense (or his designee) would have to issue to him a certificate indicating that he requires housing, that he is serving on active duty in the Armed Forces of the United States, and that he has served on active duty for more than 2 years. A certificate

would not be issued to any person ordered to active duty for training purposes only. The Secretary of Defense could issue more than one certificate to a serviceman only if in his judgment the additional certificate is justified due to circumstances resulting from military assignment. A serviceman who has had the benefits of mortgage insurance assistance under this section would not be eligible for home-loan benefits under the Servicemen's Readjustment Act of 1944. Similarly, no person who has used his entitlement for homeloan benefits under that act would be eligible for the benefits of this section.

The mortgages insured under this new section 222 would be subject to the same limits on amounts as mortgages insured under the regular section 203 sales housing program except that the maximum ratio of loan to value under this new section 222 could, in the discretion of the Federal Housing Commissioner, exceed the maximum prescribed in section 203, up to 95 percent of the appraised value of the property. The maximum dollar mortgage amount under this section would be $14,250 (that is, 95 percent of $15,000). The serviceman would be required to either occupy the property or certify that his failure to do so is the result of his military assignment.

Premiums on the insurance would not be payable by the mortgagee while the serviceman owns the home but would be paid yearly by the Secretary of Defense from the appropriations for pay and allowances of persons eligible for mortgage insurance under this section. The Secretary of Defense (or such person as designated by him) would certify to the Federal Housing Commissioner the termination of ownership of such home by a serviceman, and future premiums would be payable in the same manner as in the case of other mortgage insurance.

Payment of insurance to the mortgagee in event of default on these mortgages would be made in accordance with the same provisions as govern the payment of insurance on section 203 mortgages, except that such payments would be from a separate servicemen's mortgage insurance fund established for the purposes of section 222. An appropriation of $1 million would be authorized for such fund.

The benefits of this section would apply to servicemen in the United States Coast Guard and their families, except that the Secretary of the Treasury would perform the functions otherwise given to the Secretary of Defense.

Section 125. Transfer of certain mortgage insurance programs to title II program

This section would add a new section 223 to title II of the National Housing Act to transfer to title II authority to insure: (1) Mortgages executed in connection with the sale of certain publicly owned housing now insured under section 610; (2) mortgages to refinance existing loans insured under section 608 prior to the enactment of this bill; (3) mortgages to refinance loans insured under sections 903 and 908; and (4) mortgages assigned to the Commissioner in payment of insurance benefits, or mortgages executed in connection with sale of property acquired by the Commissioner under insurance contracts, regardless of requirements in the section or title of the act under which the insurance contracts were executed. Mortgages insured under this new section would be insured under section 203 or section

207 and consequently the insurance benefits would be in accordance with such sections.

The provisions of section 223 covering authority to insure mortgages assigned to the Commissioner is a new authority not now included within the provisions of section 608 (g). This additional authority would assist the Commissioner in the sale of such mortgages and facilitate liquidation of insurance liability.

Section 126. Additional FHA provisions

This section would add five new sections (224, 225, 226, 227, and 228) to the National Housing Act.

Debenture interest rate, new section 224

The new section 224 of the National Housing Act would provide for the interest rate on FHA debentures issued in payment of insurance in the event of default on an insured mortgage which was accepted for insurance on or after 30 days following the effective date of the Housing Act of 1954. Under the amendment such debentures would bear interest at the rate in effect at the time the mortgage is insured, as established by the Federal Housing Commissioner from time to time, with the approval of the Secretary of the Treasury. The rate could not exceed the "annual rate of interest" determined by the Secretary of the Treasury, at the request of the Commissioner, by estimating the average yield to maturity of comparable marketable obligations of the United States during a prescribed period. (This amendment would not apply to the special debentures issued under sec. 221 (g) (3), which would be exchanged for mortgages not in default.) Open-end mortgages-New section 225

As a further aid in financing needed home additions or improvements, the new section 225 would authorize FHA insurance of advances to a mortgagor made pursuant to provisions in an open-end FHA-insured home mortgage. Open-end mortgages are mortgages which provide that the outstanding balance can be increased in order to advance additional loan funds to a mortgagor for improvement, alteration, or repair of the home covered by the mortgage without the necessity of executing a new mortgage. Your committee has been advised that in States where these mortgages can be used effectively, they eliminate the expenses of title search and recordings otherwise required in connection with placing a new mortgage for the additional loan funds. Also, it permits the homeowner to borrow for the improvements at the low rate of interest prescribed in the mortgage and generally for a longer term than otherwise available. This section would authorize the Federal Housing Administration to insure open-end mortgages only with respect to dwellings for four families or less. In addition, only advances for such improvements or repairs as substantially protect or improve the basic livability or utility of the property involved and are affixed to, or become part of, the realty would be eligible for insurance. Neither could an advance be insured if the amount of the advance added to the unpaid balance of the mortgage loan would total more than the original principal obligation of the mortgage.

Under section 225 the Federal Housing Commissioner would be authorized to require the payment of charges in lieu of insurance premiums for the insurance of the open-end advances. The Federal

Housing Administration has advised that in administering this authority, it would perform whatever appraisal, credit analysis, and property inspections as may be necessary to assure the adequacy of the security to sustain the increased insurance liability, and that charges for use of the open-end provision will be computed to cover both processing cost and insurance risk.

The amount of insurance under this section would not be included in computing the aggregate amount of outstanding principal obligations of mortgages which may be insured under the National Housing Act under the limitations in that act on the amount of such obligations outstanding at any one time.

FHA appraisal available to home buyers-New section 226

This new section 226 of the National Housing Act would require that the amount of the FHA-appraised value of a property be made known to the purchaser of a new home for his own occupancy prior to the sale. The Federal Housing Commissioner would be directed to require the seller or builder to agree to give the purchaser this information. This requirement would apply to a single-family or two-family residence covered by a mortgage insured under sections 203, 220, or 221.

Builder's cost certification-New section 227

This section is designed to avoid future occurrence of such mortgaging out abuses by builders as discussed in the introductory and general statement of this report, and would apply to all FHA mortgage insurance for new or rehabilitated multifamily and rental housing and to section 903 or 221 1- or 2-family housing which can temporarily be held for rental. To prevent any proceeds of an insured mortgage loan from being used to provide excessive profits to the builder, the section would, in effect, require that the amount of the mortgage be reduced, after actual costs of the project are known, to an amount conforming to the percentage of estimated value or replacement cost which had been used in establishing the FHA commitment for the mortgage. For example, where the FHA makes a commitment before construction to insure a mortgage on a rental housing project for 80 percent of its estimated value of $1 million, and the subsequent construction. and other costs of the project actually are $900,000, the amount of the mortgage would be reduced to 80 percent of $900,000. This would assure that the builder could not obtain an FHA insured loan greater than the percentage of the actual project costs specified by the Congress.

Section 227 would provide that, upon completion of the project and prior to final endorsement of the mortgage for insurance, the mortgagor must certify the amount, if any, that the proceeds of the mortgage exceed the approved percentage of the actual cost of the project. This approved percentage means the same percentage which the FHA applies under the law to the estimated value or replacement cost of the project to determine the maximum amount of the mortgage for which an insurance commitment is originally given. This section requires that any such excessive amount of the proceeds of the mortgage so certified shall be paid forthwith to the mortgagee for application to the reduction of the principal amount of the mortgage. If there are no such excessive proceeds under the mortgage, the mortgagor would merely be required to certify to that effect.

All appropriate expenditures could be included in the actual costs which are certified by the mortgagor under this section. These would include the actual cost to the mortgagor of construction, including amounts paid for labor, materials, construction contracts, off-site public utilities, streets, organizational and legal expenses, and other items of expense approved by the Federal Housing Commissioner, including a reasonable allowance for builder's profit if the mortgagor is also the builder as defined by the Commissioner. As a guide to the Commissioner in establishing this allowance, your committee wishes to express the view that it should not exceed 10 percent of the other costs of the job. The certified actual cost could also include the Federal Housing Commissioner's estimate of the fair market value of the land (prior to the construction of the improvement built as a part of the project) in the project owned by the mortgagor in fee. This means that any streets and utilities in the land prior to the construction of the project may enter into the value of the land, but if the project is built on raw and unimproved land, the land value must be on that basis and not on the basis of value when proposed improvements are completed. In case the mortgagor builds on leased land, the certified actual costs could include any amount actually paid prior to the certification for the acquisition of the leasehold, but not in excess of its fair market value.

As this section applies to mortgage insurance for the rehabilitation, as well as the new construction of multifamily housing, there are special provisions with respect to the costs which the mortgagor may include in the certification with respect to rehabilitation. In addition to the items of expense other than land referred to above, the actual cost in these cases could include certain other amounts. Thus, if the mortgagor is purchasing the property to be rehabilitated and such purchase is being financed with the proceeds of the insured mortgage, the certified actual cost could include the purchase price of such property (but not beyond its estimated fair market value). On the other hand, if the mortgagor is rehabilitating his own property on which he has an outstanding indebtedness that he must refinance from the proceeds of the mortgage, his certified cost could include the amount of that indebtedness. As it would be necessary for the mortgagor in such case to refinance 100 percent of the amount of the outstanding indebtedness, the amount of this item of cost (unlike all others included in actual cost of the project) would not be reduced to the "approved percentage" referred to above. Of course, the amount of the indebtedness so included could in no event exceed the approved percentage of the estimated fair market value of the property prior to the proposed rehabilitation.

As previously indicated, the requirements of this section would apply to all FHA mortgage insurance for new or rehabilitated multifamily housing. This would include mortgage insurance under the following provisions of the National Housing Act:

(1) Section 207, covering the regular FHA rental housing program.

(2) The provisions of section 213 relating to management-type cooperatives building housing for the occupancy of their members. (3) The provisions of section 220 relating to multifamily housing in urban renewal areas, as defined in title I of the Housing Act of 1949, as amended by this bill.