insurance, which co-insurance shall not be less than 10 per centum, subject to any reasonable limit or limits on the liability of the mortgagee that may be specified in the event of unusual or catastrophic losses that may be incurred by any one mortgagee; and

(2) carry out (under a delegation or otherwise and with or without compensation but subject to audit, exception, or review requirements) such credit approval, appraisal, inspection, commitment, property disposition, or other functions as the Secretary, pursuant to regulations, shall approve as consistent with the purposes of this Act.

Any contract of co-insurance under this section shall contain such provisions relating to the sharing of premiums on a sound actuarial basis, establishment of mortgage reserves, manner of calculating insurance benefits, conditions with respect to foreclosure, handling and disposition of property prior to claim or settlement, rights of assignees (which may elect not to be subject to the loss sharing provisions), and other similar matters as the Secretary may prescribe pursuant to regulations. A mortgagee which enters into a contract of co-insurance under this section shall not by reason of such contract, or its adherence to such contract or applicable regulations of the Secretary, including provisions relating to the retention of risks in the event of sale or assignment of a mortgage, be made subject to any State law regulating the business of insurance.1

(b) No insurance shall be granted pursuant to this section with respect to dwellings or projects approved for insurance prior to the beginning of construction unless the inspection of such construction is conducted in accordance with at least the minimum standards and criteria used with respect to dwellings or projects approved for mortgage insurance pursuant to other provisions of this title.

(c) No insurance shall be granted pursuant to this section unless the Secretary has, after due consultation with the mortgage lending industry, determined that the demonstration program of co-insurance authorized by this section will not disrupt the mortgage market or reduce the availability of mortgage credit borrowers who depend upon mortgage insurance provided under this Act.

(d) No mortgage, advance, or loan shall be insured pursuant to this section after June 30, 1977, except pursuant to a commitment to insure made before that date. The aggregate principal amount of mortgages and loans insured pursuant to this section in any fiscal year beginning on or after July 1, 1974, and ending prior to October 1, 1977, shall not exceed 20 per centum of the aggregate principal amount of all mortgages and loans insured under this title during such fiscal year. The overall percentage limitation specified in the preceding sentence shall also apply separately within each of the following categories— (1) mortgages and loans covering one- to four-family dwellings; and

(2) mortgages and loans covering projects with five or more dwelling units.

(e) The Secretary shall not withdraw, deny, or delay insurance otherwise authorized under any other provision of this Act by reason of the availability of insurance pursuant to this section. The Secretary

1 Sec. 6(b) of the Housing_Authorization Act of 1976, Public Law 94-375, approved August 3, 1976, 90 Stat. 1067, amended section 244 (a) of the National Housing Act by adding a new last sentence.

81-793 77 18

shall exercise his authority under this section only to the extent that he finds that the continued exercise of such authority will not adversely affect the flow of mortgage credit to older and declining neighborhoods and to the purchasers of older and lower cost housing.

(f) The Secretary shall submit to the Congress a report, not later than March 1, 1975, and annually thereafter, describing operations under this section, including the extent of mortgagee participation and any special problems encountered, particularly with respect to the flow of mortgage credit to older and declining neighborhoods and to purchasers of older and lower cost housing, and setting forth any recommendations he may deem appropriate with respect to the continuation or modification of the authority contained in this section. If the Secretary shall fail to submit any such report by the date due, his authority under this section shall terminate.

(g) (1) Where the mortgagee is a public housing agency or an insured depository institution and the mortgage covers a multifamily housing project, the co-insurance contract may provide that the mortgagee assume (i) the full amount of any loss on the insured mortgage up to an amount equal to a fixed percentage of the outstanding principal balance of the mortgage at the time of claim for insurance benefits, or (ii) the full amount of any losses on insured mortgages in a portfolio of mortgages approved by the Secretary up to an amount equal to a fixed percentage of the outstanding principal balance of all mortgages in such portfolio at the time of claim for insurance benefits on a mortgage in the portfolio, plus a share of any loss in excess of the amount under clause (i) or (ii), whichever is applicable.

(2) The second sentence of subsection (d) shall not apply to mortgages made to public housing agencies, but for purposes of such second sentence such mortgages shall not be counted in the aggregate principal amount of all mortgages insured under this title.

(3) The Secretary may make loans, from the applicable insurance fund, to public housing agencies in connection with mortgages which have been insured pursuant to this subsection and which are in default.

(4) The Secretary may insure and make a commitment to insure in connection with a co-insurance contract pursuant to this subsection (A) a mortgage on a project assisted under the second proviso in the first sentence of section 236(b) of this Act, and (B) a mortgage or advance on a mortgage made to a public housing agency on a project under construction which is not approved for insurance prior to construction.

(5) As used in this subsection, the term "public housing agency" has the same meaning as in section 3(6) of the United States Housing Act of 1937, and the term "insured depository institution" means any savings bank, savings and loan association, commercial bank or other such depository institution whose deposits are insured by the Federal

1 Sec. 6(a) of the Housing Authorization Act of 1976, Public Law, 94-375. approved August 3. 1976. 90 Stat. 1067, amended section 244 of the National Housing Act by adding a new subsection "(g)", at the end thereof.

Deposit Insurance Corporation, by the Federal Savings and Loan Insurance Corporation, or by an agency or instrumentality of a State.

(6) Notwithstanding any other provision of this Act, the Secretary may include in the determination of replacement cost of a project to be covered by a mortgage made to a public housing agency and insured pursuant to this subsection, such reserves and development costs, not to exceed 5 per centum of the amount otherwise allowable, as may be established or authorized by the public housing agency consistent with such agency's procedures and underwriting standards.

EXPERIMENTAL FINANCING

SEC. 245.1 The Secretary may insure on an experimental basis under any provision of this title mortgages and loans with provisions of varying rates of amortization corresponding to anticipated variations in family income to the extent he determines such mortgages or loans (1) have promise for expanding housing opportunities or meet special needs, (2) can be developed to include any safeguards for mortgagors or purchasers that may be necessary to offset special risks of such mortgages, and (3) have a potential for acceptance in the private market. The outstanding aggregate principal amount of mortgages which are insured pursuant to this section may not exceed 1 per centum of the outstanding aggregate principal amount of mortgages and loans estimated to be insured during any fiscal year under this title. A mortgage or loan may not be insured pursuant to this section after September 30, 1977,2 except pursuant to a commitment entered into prior to such date.

SALE OF ACQUIRED PROPERTY TO COOPERATIVES

SEC. 246.3 In any case in which the Secretary sells a multifamily housing project acquired as the result of a default on a mortgage which was insured under this Act to a cooperative which will operate it on a nonprofit basis and restrict permanent occupancy of its dwellings to members, the Secretary may accept a purchase money mortgage in a principal amount equal to the sum of (1) the appraised value of the property at the time of purchase, which value shall be based upon a mortgage amount on which the debt service can be met from the income of the property when operated on a nonprofit basis after payment of all operating expenses, taxes, and required reserves, and (2) the amount of prepaid expenses and costs involved in achieving cooperative ownership. Prior to such disposition of a project, funds may be expended by the Secretary for necessary repairs and improvements.

1 Sec. 308, Housing and Community Development Act of 1974, Public Law 93-383, 88 Stat. 633, approved August 22, 1974, further amended the National Housing Act by adding a new section 245.

2 Sec. 7 of the Housing Authorization Act of 1976, Public Law 94-375, approved August 3, 1976. 90 Stat. 1067, amended section 245 of the National Housing Act by deleting June 30, 1976" and inserting in lieu thereof "September 30, 1977".

3 Sec. 315. Housing and Community Development Act of 1974, Public Law 93-383, 88 Stat. 633, approved August 22, 1974, further amended the National Housing Act by adding a new section 246.

TITLE III-NATIONAL MORTGAGE ASSOCIATIONS

See Secondary Market for Mortgage Loans page 551.

TITLE IV-INSURANCE OF SAVINGS AND LOAN
ACCOUNTS

This title created the Federal Savings and Loan Insurance Corporation and authorized the Corporation to insure the accounts of saving and loan associations. It is administered by the Corporation under the general direction and supervision of the Federal Home Loan Bank Board, which is not in the Department of Housing and Urban Development. See section on National Financial Institutions beginning on page 665.

SEC. 501.1

TITLE V-MISCELLANEOUS

SEC. 502.1

SEC. 503.1

SEC. 504.2

SEC. 505.3

SEC. 506.4

SEC. 507.1

SEC. 508.4

SEC. 509.1

SEC. 510.5

SEC. 511.6

PENALTIES

SEC. 512. Notwithstanding any other provision of law, the Secretary is authorized to refuse the benefits of participation (either directly as an insured lender or as a borrower, or indirectly as a builder, contractor, or dealer, or salesman or sales agent for a builder, contractor or dealer) under title I, II, VI, VII, IX, X8 or XI of this Act to any person or firm (including but not limited to any individual, partnership, association, trust, or corporation) if the Secre

1 Amended the Federal Home Loan Bank Act, 12 U.S.C. 1421 et seq.

8

2 Added sec. 86a, to the Farm Credit Act of 1933 to authorize production credit associations to make loans eligible for title I FHA insurance and to avail themselves of the benefit of such FHA insurance.

3 Amended sec. 24 of the Federal Reserve Act to remove certain restrictions by the Act on the amounts of loans made by member banks of the Federal Reserve System, in the case of title II FHA insured loans.

4 Amended the Home Owners' Loan Act of 1933, 12 U.S.C. 1461.

5 Amended the Act entitled "An Act relating to contracts and agreements under the Agricultural Adjustment Act," approved January 25, 1934.

6 Amended sec. 22 of the Interstate Commerce Act. as amended, to add a provision that nothing in that Act should prevent carriers from giving reduced rates for the transportation of commodities with the object of improving housing standards and providing employment if the rates had been authorized by the Interstate Commerce Commission.

Provisions of sec. 512 as set forth in the text enacted by sec. 132 of the Housing Aci of 1954, Public Law 560, 83d Congress, approved August 2, 1954, 68 Stat. 590, 610. Previous penalty provisions of sec. 512 had been repealed by Public Law 772, 80th Congress. approved June 25, 1948, 62 Stat. 683, which revised and codified these provisions. See title 18, United States Code, secs. 1010, 403, 657 and 709 for the criminal provisions formerly set forth in sec. 512. See also secs. 433, 1006, 1008, and 1009 of title 18, United States Code. Sec. 512 appears at 12 U.S.C. 1731 (a).

8 Sec. 1020 (e), Demonstration Cities and Metropolitan Development Act of 1966. Public Law 89-754, approved November 3, 1966, 80 Stat. 1255, 1296, added titles X (Land Development) and XI (Group Practice Facilities).

tary has determined that such person or firm (1) has knowingly or willfully violated any provision of this Act or of title III of the Servicemen's Readjustment Act of 1944, as amended, or of chapter 37 of title 38, United States Code, or of any regulation issued by the Secretary under this Act or by the Administrator of Veterans' Affairs under said title III, or chapter 37, or (2) has, in connection with any construction, alteration, repair or improvement work financed with assistance under this Act or under said title III, or chapter 37, or in connection with contracts or financing relating to such work, violated any Federal or State penal statute, or (3) has failed materially to properly carry out contractual obligations with respect to the completion of construction, alteration, repair, or improvement work financed with assistance under this Act or under title III of the Servicemen's Readjustment Act of 1944, as amended, or of chapter 37 of title 38, United States Code. Before any such determination is made any person or firm with respect to whom such a determination is proposed shall be notified in writing by the Secretary and shall be entitled, upon making a written request to the Secretary to a written notice specifying charges in reasonable detail and an opportunity to be heard and to be represented by counsel. Determinations made by the Secretary under this section shall be based on the preponderance of the evidence. For the purposes of compliance with this section the Secretary's notice of a proposed determination under this section shall be considered to have been received by the interested person or firm if the notice is properly mailed to the last known address of such person or firm.

SEC. 513.2 (a) The Congress hereby declares that it has been its intent since the enactment of the National Housing Act that housing built with the aid of mortgages insured under that Act is to be used principally for residential use; and that this intent excludes the use of such housing for transient or hotel purposes while such insurance on the mortgage remains outstanding.

(b) Notwithstanding any other provisions of this Act, no new, existing, or rehabilitated multifamily housing with respect to which a mortgage is insured under this Act shall be operated for transient or hotel purposes unless (1) on or before May 28, 1954, the Secretary has agreed in writing to the rental of all or a portion of the accommodations in the project for transient or hotel purposes (in which case no accommodations in excess of the number so agreed to by the Secretary shall be rented on such basis), or (2) the project covered by the insured mortgage is located in an area which the Secretary determines to be a resort area, and the Secretary finds that prior to May 28, 1964, a portion of the accommodations in the project had been made available for rent for transient or hotel purposes (in which case no accommodations in excess of the number of which had been made available for such use shall be rented on such basis).

(c) Notwithstanding any other provisions of this Act, no mortgage with respect to multifamily housing shall be insured under this Act (except pursuant to a commitment to insure issued prior to the effec

1 Sec. 119. Housing Act of 1959, Public Law 86-372, approved September 23, 1959, 73 Stat. 654, 665, added this sentence.

2 Sec. 513 added by sec. 132, Housing Act of 1954, Public Law 560, 83d Congress approved August 2, 1954, 68 Stat. 590, 610.