The 1965 Housing Act authorizes appropriations to provide initial capital for the new fund. Our request of $500,000 for this purpose assumes that approximately 600 homeowners will be eligible in the current fiscal year for the mortgage moratorium benefits provided by the act. This estimate is necessarily speculative in the absence of any actual experience under the new program and the lack of firm data on future closings of Federal installations. Details of our estimates are provided in the budget schedules and statements previously furnished you.

Thank you. We will be pleased to try to answer any questions you may have.

APPROPRIATION LANGUAGE

"MORTGAGE RELIEF FUND

"For the fund established pursuant to section 107(e) (2) of the Housing and Urban Development Act of 1965, $500,000, to remain available until expended."

PROGRAM AND PERFORMANCE

The mortgage relief fund was established pursuant to section 107(e) (2) of the Housing and Urban Development Act of 1965 (Public Law 89-117). The act authorizes the Administrator of Veterans' Affairs to extend financial assistance, not to exceed 1 year, to distressed veteran homeowners who

(1) Are unemployed, although willing to work, as a result of the closing (in whole or in part) of a Federal installation; and

(2) Whose home loans, guaranteed or insured under chapter 37 of title 38, United States Code, are in default because of inability of the homeowner to make payments of principal and/or interest under such mortgage. The capital of the fund shall consist of such sums as may, from time to time, be appropriated thereto, and shall remain available until expended. The appropriation request of $500,000 is required for initial capitalization of the fund. It is estimated from limited data available on the closings of Federal installations that about 11,500 homeowners (mortgagors) would be affected in 1966. However, only 580 are expected to be eligible for benefits under this act. The average annual principal and interest payment on each such loan is estimated at $863. The following table summarizes anticipated activity in 1966:

Number of moratorium certificates issued__.
Average annual cost per certificate issued__.
Total obligation (in thousands).

REASON FOR ESTABLISHING FUND

Fiscal year 1966 estimate

580 $863

$500

Mr. EVINS. This is the result of new legislation under the Housing Act. You feel you cannot wait until January. Here it is right after Labor Day, and you say you must have this money immediately. You could not wait for the regular budget. You have to come up for a supplemental for this small amount.

Mr. MONK. That is right, Mr. Chairman. This is a new fund authorized by the Housing and Urban Development Act of 1965. This is a request for half a million dollars for initial capital to establish this fund. We do not know how much money will be needed here. We have absolutely no experience. The half million dollars is just to get the fund established. We will just have to see how it works

out.

Mr. EVINS. The mortgage relief fund was established under the Housing Urban Development Act of 1965. The act authorized the Administrator of Veterans' Affairs to extend financial assistance not to exceed 1 year to distressed veteran homeowners who are unem

ployed as a result of closing of Federal installations and whose home loans are guaranteed or insured under chapter 37, title VIII, and are in default.

PAYMENT MORATORIUM

Aren't you already taking over these defaulted mortgages?

Mr. MONK. We are taking them over, of course, in the case of foreclosure. But this would be an action to prevent foreclosure. It would give the obligor of the loan a year's moratorium on his interest and principal payments, to enable him to get in a position to pick up his regular payment and not lose his home.

Mr. EVINS. If some Federal activity closes down and a person is unemployed and unable to make his mortgage payments because of the loss of his job, then you move in and give him a year moratorium to try to work it out.

Mr. MONK. That is right. We pick up the principal and interest payments for that year.

NUMBER OF CASES

Mr. EVINS. How many of these hardship cases do you envision? Why do you need this $500,000?

Mr. MONK. The $500,000 would provide for about 600 cases. As I said before, whether there will be 600 cases or 100 or 1,000 we do not know.

Mr. EVINS. We have a booming economy, business is prosperous, everything is looking up, and your picture makes it appear that we are in a depressing condition.

Mr. MONK. We do know, Mr. Chairman, that there are areas in the country where these Federal installations close, where it does at least temporarily create an unstable economic condition.

Mr. EVINS. Mr. Monk, several agencies under this new act are pooling their funds and capital into a certain fund so that they can finance these mortgages or make them available for sale.

Mr. MONK. This act would cover loans that were guaranteed by the VA or FHA. FHA has a similar provision and will set up a similar fund to cover those homeowners whose loans are insured by FHA. So there would be two separate funds.

ELIGIBILITY FOR RELIEF

Mr. JONAS. Before you get away from that, if you will yield, do you mean this applies only in case there is a guaranteed mortgage? Mr. MONK. Only in case there is a guaranteed mortgage by VA. Mr. JONAS. I thought it applied to any veteran whether it is a guaranteed mortgage or not.

Mr. MONK. No, sir.

Mr. JONAS. It applies only to mortgages that are guaranteed. You do not need any money then.

Mr. MONK. Whose VA home loan is in default because of the homeowner's inability to make payments.

Mr. JONAS. You really do not need money because you have all the authority you need to carry him in default. You do not have to foreclose.

Mr. GIAIMO. Would you yield?

Mr. JONAS. Yes.

Mr. GIAIMO. These are guaranteed mortgages. Who wants to get paid?

Mr. MONK. The holder of the mortgage wants to get paid. They would otherwise foreclose if the payments on the principal and interest were not made.

Mr. GIAIMO. So they do need the money.

Mr. MONK. We do up a revolving fund. pay the money back. fund for future use.

REPAYMENT TO RELIEF FUND

need the money. The law provides for setting The veteran who gets this 1-year relief has to Any returns we get would go back into the

Mr. JONAS. You mean he has to pay it back or it becomes a lien on the property?

Mr. MONK. No, it does not automatically become a lien on the property. It becomes a debt to the U.S. Government.

Mr. JONAS. Does the mortgagee credit the mortgage with your payment?

Mr. MONK. With our payment, yes; because we make the payment in lieu of the mortgagor. We make it for him under the provisions of this act.

Mr. JONAS. But what you pay is not secured by the mortgage?

Mr. MONK. No, sir. Not unless there is an agreement with the borrower and the lender.

Mr. EVINS. You make the payment to the bank so that the bank does not foreclose on the homeowner?

Mr. MONK. That is right.

Mr. EVINS. The homeowner is unemployed and you continue to make payment?

Mr. MONK. That is correct.

Mr. EVINS. How long will you continue this?

Mr. MONK. One year as a maximum.

Mr. EvINS. If he gets a job within a year then he picks up his mortgage?

Mr. MONK. That is right.

SUBROGATION- -SECURITY

Mr. GLAIMO. If you will yield, Mr. Chairman. In answer to Mr. Jonas' question I think they are protected legally because they would be subrogated to the banks?

Mr. JONAS. I was going to ask you, is it a subrogation? You should not just pay an amount of money and have the note reduced by that amount without stepping into the shoes of the mortgagee and retaining Some security.

Mr. RHODES. At least a second mortgage. Don't you have any kind. of security?

Mr. ECHOLS. Mr. Chairman, the statute provides as one of the conditions to the issuance of a moratorium certificate that the veteran must enter into an agreement covering the repayment of the sums that will be paid out.

Mr. GIAIMO. Is that a secured agreement?

Mr. ECHOLS. No, sir.

Mr. JONAS. Just an open obligation.

Mr. ECHOLS. We contemplate in the regulations to be issued to implement this provision that we will provide that the VA will be subrogated to the contract and the rights of the holder. The veteran will be requested to agree to this. We are also providing in the regulations, or this is at least our thinking at this time, that in connection with any statement of account that might be called for by the veteran from the holder of the mortgage, that the statement of account must include the amount owing to the Administrator of Veterans' Affairs by reason of payments made on moratorium certificates.

Mr. RHODES. If you will yield at that point, I do not think that is right.

If Congress did not provide for you to be subrogated to anything, I do not think by regulation you ought to be putting it in. I think the law was wrong. I think we made a mistake in not providing something like that. If we did not do it, in my opinion as one member of the committee, you should not do it either. In the first place, I do not see how you will do it unless you get permission-of course, you can get permission from the veteran-but you also have to get consent from the mortgagee.

Mr. ECHOLS. We recognize this.

Mr. RHODES. Also I imagine the creditors of the veteran would have something to say about this. I think you are in an impossible legal position. We put you there, so don't try to get out of there. It is our fault.

Mr. JONAS. Have you considered this? Why couldn't you advance the money? It would not necessarily have to be a credit on the note if you advanced it.

Mr. MONK. Under the law we actually pick up the payments.
Mr. EVINS. Both the principal and interest.

Mr. MONK. Both the principal and interest for the veteran for a period not to exceed a year.

Mr. RHODES. Does the veteran pay interest to you?

Mr. MONк. No, there is nothing in here about interest. We have discussed this. It is our present thinking that this would not be an interest-bearing obligation in the absence of a specific provision for interest.

NO PENDING CASES

Mr. EVINS. Do you have any pending cases?

Mr. ECHOLS. No, sir.

Mr. BOLAND. You have no requests?

Mr. ECHOLS. No, sir.

Mr. BOLAND. It may very well be that you won't get one for a year or so. This applies only to veterans whose job is being lost or who finds himself in a difficult money position because of the closure of a military installation.

Mr. MONK. No, sir; not necessarily military.

Mr. BOLAND. Of a Federal installation.

Mr. MONK. Yes, sir.

Mr. BOLAND. All of these installations have a phaseout period which in some cases run, for example, Portsmouth Navy Yard 10 years. Some run for 3 or 4. I know of none where the edict of the agency which has determined that a particular Federal installation is to be closed is going to be done tomorrow or within a few months. I would not think you would have any request for any relief under this for some time. This provision is in the Housing Act of 1965.

Mr. MONK. Yes, sir.

Mr. BOLAND. How did it get in there?

Mr. EVINS. You are to be commended for your alertness and the Veterans Administration for its alertness in protecting the veteran.

PURCHASE OF HOMES BY DOD

Mr. MONK. There is another provision in this act that would authorize the Defense Department to buy a home of an employee of the Defense Department who is relocated because of the closing of a military installation.

Mr. JONAS. That is not in this bill.

Mr. MONK. That is in this bill but not in this provision that we are discussing here right now.

Mr. EVINS. You have similar provisions for protecting small business when they are displaced.

ENCUMBRANCE ON PROPERTY

Mr. BOLAND. You are picking up the tab. You are going to make the payments. You might have to make them for a solid year on the principal and interest on the mortgage.

Mr. MONK. That is right.

Mr. BOLAND. Why can't the obligation run between the veteran and the Veterans' Administration without any recourse to the property itself. Wouldn't this be easier? This is a mortage relief fund. I do not know why the obligation to repay would not be just a matter between the VA and the veteran. Why concern yourself with the property itself? As I understand it, there is going to be a burden upon the property itself if you start paying the charges which are in default. Is this true?

Mr. ECHOLS. Yes.

Mr. BOLAND. There is some question how you will do it.

Mr. ECHOLS. This is the way we had been proceeding.

Mr. EVINS. The financial institutions will be made aware of the new legislation and the distressed condition of the veteran and be tolerant and lenient in not wishing to forclose too rapidly and get their money, and I think in time they will and they will undoubtedly work it out and save some headaches and difficulties for the veteran.

POTENTIAL WORKLOAD

Mr. GLAIMO. Do you know of any foreclosures that are pending? Mr. MONK. Foreclosures that are pending; yes, sir.

Mr. GIAIMO. I mean as a result of this.

Mr. MONK. No, sir.