Title VIII-Secondary mortgage market: Section 801-Purposes. Section 802-Amendments to the FNMA Charter Act.. Section 804-Mortgage-backed securities. Section 805-Subordinated and convertible obligations. Section 806-Amendments to other laws.. Section 807-Effective date.. Section 808-Savings provisions. Title IX-National Housing Partnerships: The need for national partnerships.. Structure of a national housing partnership. Role of national housing partnerships.. Need for legislation.. Title X-Rural Housing: Section 1001-Housing for low- and moderate-income persons and families. Section 1003-Appropriations. Section 1004-Purchase of land for building sites.. Title XI-Miscellaneous: Section 1101-Model cities. Section 1102-Urban renewal demonstration grant program. Section 1105-Interest rate on college housing loans.. Section 1106-Federal-State training programs. Section 1103-Authorization for uban information and technical assistance. Section 1104-Advances in technology in housing and urban development.. Section 1107-Additional Assistant Secretary of Housing and Urban Development. Section 1109-Low-rent public housing-Corporate status.. Section 1110-Eligibility for rent supplement payments.. Section 1111-Consolidation of low-rent public housing projects in the District of Columbia. Section 1113-Technical amendments. SEC. I. SHORT TITLE Page 100 100 102 102 102 102 103 103 103 103 104 104 104 105 105 105 105 105 106 107 108 108 108 109 109 109 110 110 111 111 The bill would be cited as the "Housing and Urban Development Act of 1968”. Title I-Low and Moderate Income Housing SEC. 101. HOMEOWNERSHIP FOR LOW AND MODERATE INCOME FAMILIES This section would add a new section 235 to the National Housing Act to establish a homeownership assistance program for low and moderate income families. The assistance would be provided in the form of periodic payments to the mortgage which would serve to reduce interest costs on a market rate home mortgage or a cooperator's share of a cooperative association's mortgage. In addition, the provisions of the present section 221(h) of the National Housing Act would be incorporated into the new section, and the nonprofit organization sponsoring the project, as well as the individual lower income purchasers, would be eligible to receive the benefits of assistance payments. Today there are almost 6 million families living in substandard housing. One of the key purposes of this bill is to establish the means whereby a start can be made on eliminating this shameful situation. This bill would do that by providing authority over the next five years to assist the start of construction and rehabilitation of 2.35 million units of low and moderate income housing. An important element of this five-year program is assistance for low and moderate income families to become homeowners. Homeownership is not a luxury in our society. It is a goal toward which many families at all economic levels strive, but increasingly it is becoming beyond the reach of low and moderate income families. Until now, however, Federal housing assistance for low and moderate income families has been directed almost entirely to rental housing. The only singlefamily assistance program at present is the FHA section 221 (h) program enacted by the Congress in 1966. This is a limited, experimental program which authorizes insured mortgages at 3 percent interest to nonprofit organizations for the acquisition and rehabilitation of substandard homes for subsequent resale. with 3 percent mortgages, to low-income families. In the short time this program has been in operation it has demonstrated that there is considerable interest and potential in improving living conditions for lower income families through homeownership. The new section 235 would incorporate this program for low and moderate income families, along with the assistance provided for new or rehabilitated single-family homes and condominium and cooperative units. No additional mort gage insurance for nonprofit organizations would be authorized under section 221 (h), but the sale of any individual units held by an nonprofit mortgagor under section 221 (h) could be financed under the new program. Unlike the 221(h) program, which depends on direct Federal lending from the special assistance funds of FNMA to support its 3 percent mortgages, this program will rely on the private mortgage market to finance it. Because of the limited availability of special assistance funds, this is necessary if any volume of new homes is to be achieved under this new program. To attract private mortgage money these mortgages must bear an interest rate commensurate with the cost of mortgage money in the market. It is, therefore, essential that the Secretary of HUD be given the authority, as requested for the other FHA programs, to set the interest rate on these mortgages at such level as he finds necessary to meet the mortgage market. To bring the monthly payments under the market rate mortgage down to a level which a low or moderate income family could afford, the Federal Government would make periodic assistance payments on behalf of the homeowner to the mortgagee in an amount necessary to make up the difference between 20 percent of the family's monthly income and the required monthly payment under the mortgage for principal, interest, taxes, insurance, and mortgage insurance premium. In no case, however, could the payment exceed the difference between the required payment under the mortgage for principal interest, and mortgage insurance premium, and the payment that would be required for principal and interest if the mortgage bore an interest rate of one percent. In other words, the amount of the subsidy would vary according to the income of the homeowner. This enables the assistance to the homeowner to be based on his need for assistance and enables the program to help a broad range of low and moderate income families. It is estimated that families with incomes of $3.000 to $7,000 will be able to buy homes under this program. It is expected that the income of most of these families will rise above the level it was at when they purchased their home. Therefore, the bill provides for the family's income to be recertified at least every two years and appropriate adjustments to be made in the assistance payment to reflect any changes. Many assisted homeowners will thus be able to ultimately afford the full monthly payment under their mortgages. At all times, in calculating the income of the homeowner on which the 20 percent computation will be made, there will be deducted $200 for each minor child who is a member of the homeowner's immediate family and living with him. Also income of minors will not be included in the homeowner's income for this computation. The amount of income which the homeowner is required to pay toward his mortgage payments has been set at 20 percent, rather than the 25 percent required of tenants under the rent supplement program and the rental assistance program authorized by section 201 of this bill, because the homeowner will still have to pay for such expenses as heat, utilities, and maintenance. These are generally included in the renter's monthly rent. With these additional items of expense, experience has demonstrated that the average homeowner, paying 20 percent of his income toward the payments required under the mortgage, will expend in the neighborhood of 27 percent of his income for housing expense when these other items are considered. The families who will qualify for assistance under this new program could not have incomes in excess of those prescribed by the Secretary of HUD for the area in which they seek to purchase a home. These limits, dependent on family size, would be determined on the general basis of the cost, in the area, of standard. new single-family homes of modest but adequate construction. In keeping with this principle, the amount of the mortgage could not exceed $15,000 ($17,500 in high cost areas). Recognizing, however, that larger families need more room, these limits would be increased to $17.500 and $20,000, respectively, for families with five or more members. No assistance under this program would be given to assist a family purchasing a home which is extravagantly designed or is clearly too large for the present or future needs of the family. Also the Secretary would be required to prescribe regulations to assure that the consideration paid for homes under this program is not increased above the home's appraised value. This would prevent the price of the unit from being unnecessarily increased because of the availability of the assistance. In order to achieve the substantial increase in the number of homes available to low and moderate income families that is sorely needed, assistance under this new program will generally be limited to new or substantially rehabilitated units. The existing supply of good, low-cost housing is entirely inadequate and shows little tendency to improve without the impetus a program such as this can give it. As under FHA's regular home mortgage program (section 203), home builders could plan the housing and have it approved by FHA prior to the beginning of construction, thereby enabling the builder to obtain construction financing on the basis of FHA conditional mortgage insurance commitments. In recognition of the need for immediate housing that confronts a displaced family (one displaced from an urban renewal area, as the result of governmental action, or as the result of a major disaster), such as family would qualify for assistance in the purchase of an existing home. Families with five or more children could also receive assistance to purchase an existing home, as would those moving from public housing. Also authorized for assistance under this new section are those families acquiring their dwelling unit in a rental project receiving rent supplement assistance or one covered by a mortgage under the new section 236 of the National Housing Act (proposed by section 201 of the bill). The prohibition against existing housing naturally would not apply in these cases, but the other requirements on maximum income for eligibility and maximum mortgage amount would apply. For families acquiring units in condominium and cooperative projects, the construction or substantial rehabilitation of the project would have to have been completed no more than 2 years prior to the filing of the application for assistance payments with respect to the family, and the unit could have had no previous occupant other than the family for whom the application is made. However, the same exception for existing housing would apply in these cases as for single family homes. Since many of the families who would be assisted have had little experience in the proper care of a home and the budgeting of income to meet regular monthly payments on a mortgage, this section would authorize appropriate counseling, either directly by HUD or by contract with public or private agencies, to assist these families in meeting their new responsibilities. Appropriations would be authorized for this purpose. Mortgages with respect to which assistance would be made under this section would generally meet the requirements of either section 221(d) (2) sales housing for low and moderate income housing; section 234 condominium housing; section 213 cooperative housing; or the provisions of section 221(h) incorporated into this section. In addition, families eligible for insurance under the above sections (except section 213), but who must obtain insurance under section 237 (proposed by section 102 of the bill) because of their credit or income ratings, would also be eligible for assistance payments under this section. For cooperative members receiving assistance, the payment would be based on their proportionate share of the obligations under the project mortgage and using the same formula as for individual mortgages. The assistance payment in all cases, whether an individual mortgage or a project mortgage, would cease when the family for whom the assistance payment is being made ceases to occupy the home, condominium unit, or cooperative unit. The provisions of section 221 (h), as incorporated into section 235, would be modified to reduce the minimum required number of single-family dwellings covered by the blanket mortgage of the nonprofit sponsor from five to four, and to authorize the blanket mortgage to cover four or more units in a multifamily structure under a condominium ownership plan. Also the income levels would be the same as those authorized for other purchasers under section 235, instead of the present limit to low-income purchasers. The variable subsidy permits this to be done. The nonprofit organization during rehabilitation would pay interest, on the advances made, at the market interest rate, as is done at present under 221 (h). If there are any units still under the nonprofit organization's blanket mortgage when it is time to finally endorse the mortgage for FHA insurance, the mortgagor will make monthly payments of principal and interest as if the mortgage bore a one percent interest rate, with the difference between this payment and the required payment for principal, interest and mortgage insurance premium under its market rate mortgage being paid to the mortgagee by the Government. Mortgages insured under section 235 would be the obligation of the new Special Risk Insurance Fund (proposed by section 104 of the bill). To provide authorization sufficient to enable about one million families of low and moderate income to become homeowners over the next five years, this section would provide authority to enter into assistance payment contracts, as approved in appropriation acts, in the amount of $75 million annually in fiscal year 1969. This amount would be increased by $100 million in fiscal year 1970, by $125 million in fiscal year 1971, and by $150 million in each of the fiscal years 1972 and 1973. Assistance under this new section 235 would be available in both urban and rural areas. However, insofar as the administration of this section in rural areas is concerned, the Secretary will assign to the Secretary of Agriculture necessary authority, along with appropriate transfer of funds, for the implementation thereof as agreed upon by the two Secretaries. Section 513 of the Housing Act of 1949 would be amended by section 1003 of the bill to authorize appropriations to pay for Agriculture's administrative expenses in connection with any such assignment. Other provisions of section 101 of the bill would (1) increase the mortgage limits on single-family dwellings under section 221(d) (2) of the National Housing Act to correspond to the limits provided in the new section 235; (2) permit a mortgagor under section 221(d)(2) (and, therefore, also one eligible under section 235) to contribute the value of his labor to the acquisition cost of his dwelling; (3) authorize the Secretary to reimburse the mortgagee for his expenses in handling a 235 mortgage; and (4) make the labor standards of section 212 of the National Housing Act applicable to blanket mortgages held by nonprofit organizations insured under section 235 to the same extent as now applicable to such mortgages insured under section 221 (h) of such Act. SEC. 1002. CREDIT ASSISTANCE This section would authorize, through a new section 237 of the National Housing Act, FHA mortgage insurance for those families of low and moderate income who cannot qualify for mortgage insurance under existing FHA housing programs because of their credit histories or irregular income patterns, but who the Secretary of HUD finds are "reasonably satisfactory" credit risks and capable of homeownership with the assistance of budget, debt management, and related counseling. Mortgages insured under this program would have to meet the basic requirements under one of the various FHA home mortgage programs (including the new programs authorized by section 235, proposed by section 101 of this bill, and by section 221(i), proposed by section 105 of this bill). The credit and income requirements of the particular section would not apply, however, and the principal obligation of the mortgage could not exceed $15,000 ($17,500 in high-cost areas). However, the lower mortgage limits prescribed under subsections (h) and (i) of section 203 would govern, when mortgage insurance is sought pursuant to them. Insurance would not be authorized under section 237 unless the monthly mortgage payments, including payments for local real estate taxes, could be paid with 25 percent or less of the mortgagor's average monthly income, computed over the previous year or the previous three years, whichever is higher. The interest rates and mortgage insurance premiums would be the same as those under the existing programs. The purpose of this section is to provide assistance to families of modest means who aspire to purchase homes but cannot obtain mortgage financing because of flaws in their credit histories or instability in their earning records. The Secretary would be required to search behind these flaws to determine whether delinquent accounts were ultimately paid or involved extenuating circumstances, or whether irregular employment and income patterns were due to such factors as seasonal employment, with income otherwise at levels of eligibility over the previous two years. Consideration would be given to any other factors which would indicate that the families could maintain homeownership. An important element in this program is the counseling the Secretary would provide mortgagors, either directly or by contract with public or private organizations, and to prospective homeowners who lack sufficient funds to supply a downpayment. While many families who would be eligible for mortgage insurance under this section have strong aspirations to become homeowners, their experience in handling large financial responsibilities may be meager. Through counseling, these families can be helped to use their resources efficiently in meeting homeownership responsibilities. Preference under the new program would be given to families living in public housing and especially those required to leave because their incomes have risen beyond the maximum prescribed by the local housing authority, as well as those eligible for public housing residence who have been displaced from federally assisted urban renewal areas. The proposed program would be essentially experimental, and there would be no change in FHA insurance of home mortgages at or below the maximum mortgage limits prescribed by this section. Those who now qualify would continue to qualify, and only those who have been rejected in the past as poor credit risks would have their mortgages insured under the new section 237. The principal balance of all mortgages insured under section 237 and outstanding at any one time would be limited to $200 million, enough initially to finance about 15,000 homes. There is a large number of families in the lower income brackets whose living conditions would be substantially improved through homeownership which many can afford if only helped to allocate their resources properly. This program would generate the experience necessary to help these families help themselves. As with the new homeownership program proposed in section 101 of the bill, mortgages insured under this section would be the obligation of the new Special Risk Insurance Fund (proposed by section 104 of the bill). SEC. 103. RELAXATION OF MORTGAGE INSURANCE REQUIREMENTS IN CERTAIN URBAN NEIGHBORHOODS This section would amend section 223 of the National Housing Act, by adding a new subsection (e), to give FHA more flexible authority in providing financing for the repair, rehabilitation, construction, or purchase of property located in older, declining urban areas. Under the amendment, FHA would be able to accept for insurance mortgages on properties which may not, because of the area in which they are located, be able to meet all of the normal eligibility requirements. Acceptance of these mortgages would be permitted where FHA is able to establish that the area is reasonably viable, giving consideration to the need for providing adequate housing for families of low and moderate income in the area, and that the property is an acceptable risk in view of such consideration. Under a 1966 amendment to section 203 of the National Housing Act, the Secretary of HUD is authorized to insure mortgages for one to four family properties located in an area, where rioting or other disorders have occurred or are threatened without regard to economic soundness, provided the properties are an acceptable risk, giving consideration to the need for providing adequate housing for families of low and moderate income in that area. This provision, waiving the economic soundness requirement, enabled the FHA to insure mortgages on housing in some of the older, declining urban areas, but it has not provided the flexibility required to finance all of the types of housing needed in all such areas. The provision of adequate housing in these areas involves the repair, rehabili tation, and construction of a variety of housing types. The FHA section 203 home mortgage program, as amended in 1966, only provides financing for one to four family housing and is limited to areas identified with riots or other disorders. This proposed amendment would permit the FHA to expand the use of its various other housing programs in these areas. It would also expand the areas. in which exception would be made, to all older, declining areas without regard to riots or disorders. This section would permit FHA to waive any other stautory limitation on such items as loan to value, size of dwelling unit, or maximum mortgage amount, if such limitation would prevent the insurance of an otherwise acceptable risk to carry out the purpose of this section. In addition to one to four family sales units, financing could be provided for rental or cooperative projects and for individual ownership of apartments in a condominium project. Because of high risks involved in insuring mortgages in such areas, mort. gages insured pursuant to this new authority would be the obligation of the Special Risk Insurance Fund (proposed under section 104 of this bill). This amendment is being proposed as a substitute for section 203 (1), the provision added in 1966, and, therefore, includes repeal of the 1966 provision since it would no longer be needed. |