Evening star., 1936-03-07
MCDONALD TELLS
0FF.H.A.bENEF|TS
Administration Can Insure
Mortgages to $10,000,000
on Large Projects.

Additional light on privately owned.
financed and operated large scale
housing projects was provided here
today through a statement by Stewart
Mcdonald, Federal Housing Admins
TRAITOR, describing what organizations
may engage in construction of such
projects.
The Housing Administration, he
said. can insure mortgages in amounts
up to $10,0o0,000 each executed by
Federal, State or municipal authors
ties, or corporate instrumentalities, il
such agencies wish to organize large
scale housing projects, and mortgages
issued by private limited dividend
corporations.
Private limited dividend corpora
tions may be organized under the
ordinary business incorporation laws
OF the various States, provided they
submit to regulation by the admins
traitor as to rents, charges, capital
structure. rate of return and methods
Of operation.
Form Separate Operation.
The large scale housing activities
of the Federal Housing Administration
form separate operation from the
insurance of modernizat.on credit
loans and the insurance of dewlling
mortgages made by private lending
agencies.
The essential purpose is to provide
housing facilities for individuals in
low income brackets developed entirely
by private enterprise. Organizers Of
projects, however. are required to show
the need for specific developments and
evidence that they are economically
sound.
Private limited dividend corpora
tions, in the opinion of Administrator
Mcdonald, offer ample opportunity
for the plannig and construction of
many large scale housing projects in
all parts of the country.
In discussing the organizat ton of
such corporations, he pointed out that
there are certain elements in the Or
ganization which are fundamental to
the Federal Housing Administrations
plan Of procedure. These are covered
in the certificate of incorporation
itself, which has in it some aspects of
an agreement with the Federal Hous-
ing Administration.
Are Covered in Certificate.
All such matters as rents, charges,
capital structure, rate of return and
methods of operation are covered in
this certificate, he said. In order to
make possible the necessary regula-
tion by the administration, provision
must also be made for representation
of the administration on the board of
directors. In addition there must be
issued to the administration certain
shares Of special stock which acquire
majority voting rights in the event of
default under the mortgage or VIOLA
tion Of any of the terms of the certi-
flcate OF incorporation, although such
voting rights continue only until the
default or violation is remedied.
When the mortgage is retired, how
ever, the contract of insurance is
terminated, the special stock is sur
rendered by the administration and
all regulation and restriction by the
administration cease with full owner
ship and control of the project re-
verting to the corporation.
The amount of equity investment
in the project, the administrator said,
must be at least equivalent to the
value of the land, which must come
into the transaction free and clear
Of all liens. In addition there must
be such cash as may be required for
working capital. pre-opening expenses,
contingencies and the amount neces-
sary to bring up the total equity to a
sound ratio to the amount of the
mortgage. This, he said, must be at
least 20 per cent of the total cost of
the property and should be more.