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bonds issued to obtain the funds from which the mortgage loans are made. However, the housing companies must pay the aforementioned additional 0.5percent fee. The law provides for a maximum term of 50 years for the repayment of loan, and the agency schedules mortgage repayments in such a manner as to provide sufficient funds to pay the principal and interest on the serial bonds issued by the agency to obtain the funds from which the mortgage loan was made.

Exemption from local and municipal real estate taxes up to 50 percent of the value of the property is provided for, with the consent of the local legislative body of a municipality. Such tax exemption shall continue so long as capital loans or invesments of the company are outstanding, but in no event for a period of more than 30 years. For nonprofit membership corporations, the real property would be totally tax exempt.

Rents charged are subject to approval by the commissioner of Housing and Community Renewal of the State of New York. Annual incomes of families of three or less persons cannot exceed six times the rental at time of admission and during the period of occupancy. For families of four or more persons, such ratio cannot exceed seven times rent. Rental includes heat, light, water, and cooking fuel. Under certain conditions families with income-to-rent ratios in excess of those prescribed by law may be permitted to remain in occupancy upon payment of a surcharge which is to be paid over to the municipality providing the tax exemption.

New York State program of direct loans to regulated housing companies

In addition to the program of the New York State Housing Finance Agency, the State is authorized to make mortgage loans to regulated housing companies under the limited-profit housing companies law (Mitchell-Lama law, 1955). Such mortgage loans are limited to 90 percent of project cost for limited-profit housing companies, and to 95 percent for mutual companies or membership corporations offering housing for hospital staffs, college students, and the aged. To obtain funds for making mortgage loans, the State is authorized to issue bonds in an amount not to exceed $150 million. The interest rate charged on the mortgages made would be the same as the interest rate the State pays on the bonds. In addition, the participating housing companies are assessed charges computed at $1.20 per year per rental room. The maximum maturity of the mortgages is 50 years. Tax abatement provisions and rent-to-income limitations are similar to those described above.

FHA SECTION 221 (d) (3)

The FHA program of mortgage insurance for rental and cooperative housing for families of low and moderate income, section 221(d)(3) of the National Housing Act as authorized by the Housing Act of 1961, was designed to provide good housing for such families as are in an income bracket too high for public housing, but too low to compete successfully in the normal rental or cooperative market.

Proposed new projects and existing projects involving rehabilitation having five or more units may be eligible for mortgage insurance, providing such projects are located in a community having a current workable program certification. Insured mortgages on acceptable existing properties located in an urban renewal area, and not involving rehabilitation, may be refinanced providing the Federal Housing Commissioner finds that insurance under the below market interest rate program will facilitate the occupancy of dwelling units in the projects by families of low or moderate income or displaced families.

Projects may be developed by public agencies (except local housing authorities obtaining funds exclusively from the Federal Government) or by cooperatives (including investor sponsored), private nonprofit corporations or associations, or limited-dividend corporations. For all of these eligible mortgagors, except limited-dividend sponsors, the amount of the mortgage on new construction may not exceed the replacement cost of the project; on rehabilitation projects, the amount of the mortgage may not exceed the estimated cost of rehabilitation plus the value of the project before rehabilitation; or if refinancing is involved, the amount of the mortgage may not exceed the estimated cost of rehabilitation plus the lesser of the amount required to refinance the outstanding indebtedness or FHA estimate of market value before rehabilitation. For limited-dividend sponsors, the mortgage may not exceed 90 percent of these amounts.

The maximum mortgage term is 39 years and 11 months or three-fourths of the FHA Commissioner's estimate of the remaining economic life of the prop

erty, whichever is less. If advances are to be insured during construction, 2 percent of the original principal amount of the mortgage will be required as working capital. This fund must be deposited with the mortgagee.

The interest rate during construction currently may be as high as the established FHA maximum interest rate at the time of construction (54 percent). Upon final endorsement of the loan, the interest rate will be as low as the average current yield on all marketable obligations of the U.S. Treasury (presently 3% percent per annum). FHA has waived payment of the mortgage insurance premium of one-half percent for projects financed with this below market interest rate mortgage.

To provide financing at this below-market interest rate for section 221(d) (3) projects, the Federal National Mortgage Association is authorized to purchase the insured mortgages under the FNMA special assistance program.

FHA supervision over rent, carrying charges and occupancy requirements will be maintained until the insured mortgage is paid in full. To prevent early refinancing and release from FHA supervision, full or partial prepayment of the insured mortgage is prohibited without the approval of the FHA Commissioner, except that limited dividend corporations may pay off the mortgage in full after 20 years from the date of final endorsement for insurance without such approval. Occupancy is limited to families of low and moderate income and maximum income limits for admission are established for various size families in each locality. Occupancy preference is given to displaced families.

SIZE OF PROGRAM

Table 1 below shows that the New York State limited-profit program had reserved or committed through August 1963 almost $497 million in mortgage funds for 64 projects. One-half of these projects involving almost $108 million are being financed by State loan funds (SLF), while the other half of the projects involving almost $389 million are being financed by the State housing finance agency (HFA).

Table 1 also shows that through August 1963, commitments to insure mortgages under the section 221(d) (3) below market interest rate program had been issued by the Federal Housing Administration (FHA) amounting to $166 million on 104 projects. Some $20 million in commitments have been issued for 19 projects in FHA's zone I of operations, which includes New York State. In addition, the FHA had in process, as of August 31, 1963, applications for section 221 (d) (3) insurance for 65 projects containing 11,474 units involving a total mortgage amount of $142 million.

TABLE 1.-New York State limited-profit program and sec. 221(d) (3) below market interest rate program, cumulative volume through Aug. 31, 1963

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1 10 of the 32 State loan funds projects are elevator projects, and all of the 32 of the Housing Finance Agency are elevator projects.

19

2, 459

12

216

1, 549

366
544

2 Includes New York State.

Data for New York City projects not readily available.

The figures presented in table 1 are cumulative figures for the various programs since their inception. It will be noted that the data for the section 221(d) (3) program reflect a shorter time period of operations. This program

was authorized by the Housing Act of 1961 (effective date, June 30, 1961), whereas the State loan fund program (Mitchell-Lama) dates back to 1955 and the housing finance agency program back to 1960.

The 64 limited-profit projects contain 30,893 units-SLF projects with 5,758 and HFA projects with 25,135. The 64 projects are composed of 54 elevator, 8 walkups (2 and 3 story), and two 1-story structures. All of the HFA projects are located in New York City and are composed of elevator structures.

The 104 section 221(d) (3) projects contain about 15,000 units. The majority of units are in walkups and one-family structures, in contrast to the predominately elevator-type projects under the limited-profit program.

The limited-profit program projects average slightly less than 500 rental units per project, while the section 221(d) (3) projects average slightly less than 150 units per project.

PER ROOM AND PER UNIT COSTS

The average cost per rental room of the 64 projects in the limited-profit program is $3,911; SLF projects, $3,782; and HFA projects, $3,938. Based on cases for which data were available, the average replacement cost per room of the projects in the section 221(d) (3) program is $2,101 for walkups and $3,074 for elevator structures. Walkups in the FHA zone I average $2,283 per room. It should be noted that these are comparisons of predominately different types of construtcion in different locations, consequently the comparisons should be qualified accordingly. As indicated previously, most of the State limited profit projects are elevator-type projects, which are a high cost type of construction, and many of them are located in New York City, which is a high cost area. On the other hand, the FHA section 221(d) (3) projects are mostly nonelevator projects and located throughout the country.

The average project cost per unit was $18,189 for the 64 limited-profit projects (table 2); SLF projects, $16,400; and HFA projects, $18,598. The section 221(d) (3) projects had an average replacement cost per unit of $10,915 for the walkups, aand $15,807 for the elevator structures. The walkups in zone I had an average cost of $11,965 per unit.

TABLE 2.-Average costs and average monthly rental per room and per unit for limited-profit and sec. 221(d)(3) program projects

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2 Rentals shown generally cover ranges, refrigerators, heating, water, laundry facilities, janitor services, grounds maintenance, and, to a lesser degree, air conditioning, gas, electricity, and parking. 3 Not available.

In addition to having higher average per room and per unit costs, the limitedprofit projects also cost more to live in than the section 221(d)(3) projects. The average monthly rental per room (excluding utilities) for the limited-profit rental projects was $28.03; SLF projects, $25.52; and HFA projects, $28.81. The average monthly rental for the section 221(d) (3) rental projects was $16.08

for walkups and $20.27 for elevator structures, including utilities in part. (See note at bottom of table 2 for utilities included in the sec. 221(d)(3) rentals.) In FHA zone I the average monthly rental was $19.24 per room for walkups. The average monthly rental per unit (excluding utilities) for the rental projects in the limited-profit program was $129.85; SLF projects, $98.98; and HFA projects (all elevator structures), $141.48. The average monthly rental per unit for the section 221(d)(3) rental walkup projects was $82.39, and for the elevator projects $116.05, including utilities in part. In FHA zone I, the average monthly per unit rental for walkup rental projects was $100.84.

INCOME LIMITS

Family income for initial occupancy of the limited-profit program projects in New York State by statute cannot exceed six times the annual rent or carrying charge for a family of three or less, and seven times for a family of four or more. Deductions from total family income are allowable up to $1,200 for a secondary adult family wage earner, and the full-time college student. An administrative income limit of $10,000 has been placed on maximum net annual incomes for occupancy in New York City and Westchester County limited-profit projects, and a lesser amount upstate, depending upon the project. However, persons over the administratively established $10,000 income limit, but within the statutory rentincome ratios, can be considered for project occupancy under extenuating circumstances.

The maximum income limits for ocupany of section 221 (d) (3) projects are set by FHA for each locality according to family size ranging from two to seven or more persons. In the New York standard metropolitan statistical area the maximum income limits established are $6,450 for a family of two, $7,600 for three and four, $8,750 for five and six, and $9,900 for a family of seven or more persons.

FINANCING

The Federal National Mortgage Association is authorized to purchase mortgages insured under the section 221 (d) (3) program under its special assistance program. The current interest rate of the mortgages is 3.375 percent. The FHA has waived payment of the mortgage insurance premium for projects with this below market interest rate. The funds for FNMA special assistance functions are borrowed by FNMA from the Treasury at the cost of the money to the Treasury. The income from the Treasury obligations is taxable.

The part of the limited-profit program under State loan funds is financed by the State through the issuance of its general obligation bonds. Funds for financing the limited-profit program of the housing finance agency are obtained by the issuance of agency bonds. These bonds are not guaranteed by the State, and are tax exempt. The statutory maximum term of the bonds is 50 years. The details for the three issues of these bonds which have been marketed to date are indicated below.

TABLE 3.-Bond issues of New York State Housing Finance Agency

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The interest rate charged on the mortgages made to the participating housing companies would not be less than the interest rate on the bonds. In addition to the interest rate on the mortgages, the companies are assessed a fee which at present is one-half of 1 percent of the mortgage amount under the housing finance agency program and $1.20 per room per year under the State loan fund program.

(The prepared statement of Mr. Semer follows:)

STATEMENT OF MILTON P. SEMER, GENERAL COUNSEL, HOUSING AND HOME FINANCE AGENCY

Mr. Chairman and members of the committee, I appreciate the opportunity of appearing before you today to present the views of the Housing Agency on S. 810, which would authorize the organization, under Federal law, of corporations to insure and to trade in conventional mortgages; S. 811, which would authorize a secondary mortgage facility within the Home Loan Bank System to deal in participations in conventional mortgages; and S. 2130, which would empower the Federal National Mortgage Association to deal in conventional mortgages.

While there are substantial differences in the details of these three bills, they are all similar in two respects

(1) Each of these bills seeks to provide a secondary market facility for conventional mortgage loans, and

(2) Each of these bills proposes a larger role for the Federal Government in the conventional mortgage market.

Your subcommittee, Mr. Chairman, has given special attention to the need for additional means of stimulating a larger and more stable flow of savings into the residential mortgage market. In 1960 you found that for the years 1961-70, approximately $160 billion of new funds would be required to finance the construction of an estimated 16 million nonfarm units.

These hearings are especially timely. New housing starts this year have far exceeded the most optimistic forecasts made at the beginning of the year. Possibly the increased demands of the 1960's may be upon us sooner than we had expected.

According to some current forecasts, there is a chance that the 1963 total will exceed 12 million units.

We in the Housing Agency are pleased that the major financial institutions are giving serious consideration to proposals to increase the amount of mortgage funds available for housing.

We are sympathetic to proposals to make the conventional mortgage a more uniform and marketable instrument of credit, to alleviate the uneven flow of mortgage funds as between geographic sections of the country, and to provide new sources of capital for mortgage funds for the housing industry.

All of these objectives must be met if we are to meet the demand of the 1960's in the housing field.

I would like now to deal more fully with each of these three proposals.

S. 810

S. 810 would provide for (1) the organization, under Federal law, of corporations to insure and trade in conventional mortgages; and (2) the establishment in the Federal Government of a "Joint Supervisory Board for Mortgage Insurance and Marketing Corporations" to charter and regulate such corporations. Mortgage insurance corporations chartered by the Joint Board would be authorized to (1) insure not less than 100 percent of unpaid principal and interest of eligible loans secured by mortgages on one- to four-family residential properties; and (2) establish an adequate insurance premium which, with allocated initial capital, would at all times provide for unimpaired capital and surplus aggregating, upon the basis of market value, not less than 5 percent of the unpaid principal amounts of outstanding insurance contracts. The loans to be insured by the chartered insurance corporations could have a maximum maturity of 30 years; would have to be completely amortized over the loan term ; have a loan-to-value ratio not exceeding 90 percent of the appraised value or of the sales price, whichever is lower; a loan amount not in excess of $30,000; and be secured by an owner-occupied one- to four-family property. The payment of insurance claims would be in cash.

Mortgage marketing corporations chartered by the Joint Board would be authorized to purchase, sell, and service mortgages on one- to four-family residential properties that are insured by a mortgage insurance corporation chartered by the Joint Board or insured or guaranteed by an agency of the United States; and to issue with the approval of the Joint Board and have outstanding obligations aggregating up to a maximum of 20 times the sum of their capital and surplus.

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