Evening star., 1938-02-06

and going back to work within the
next few months, if supporters of the
admlnstration's new housing plan are cor
rect in their predictions of what the law
will accomplish
But this cheerful forecast, in the midst
OF business recession, depends on how
the ne" law lmpresses the private money
lending agencies of the Nation For unlike
many other New Deal ventures, the Fed
eral Housing Administration relies on the
stimulus Of private capital. 1t is not
Faucet through which Federal funds flow
directly into the channels of commerce
F. H. A. does not make loans for building
projects
The function of this agency is to attract
private capital into the home construction
field by insuring private mortgages, and
the bill which has just emerged from two
months of legislative study, seeks to make
this field of investment more attractive
by liberalizing the original act Of 1884.
Boiled down, here is what the new law does:
II you are prospective home buyer
without much cash for down payment,
you may obtain F. H A. mortgage insurance
covering 80 per cent of the appraised value
of $4,000 home, which means a $500
down payment and an insured mortgage
OF s5,400 at 5i4 per cent, and if purchased
before July l, 1889, you may have IS years
IN which to pay the mortgage.
If you are purchasing a home costing
up to $4,000 you can obtain F. H. A.
mortgage insurance covering 90 per cent of
the first $4,000 of value and 80 per cent
insurance on the remaining value on the
same interest terms
so Per Cent Was Old Maximum.
Under the original law so per cent was
the maximum of insurance coverage, which
meant 20 per cent down payment. The
Old law also required a per cent basic
interest rate, plus l. service charge and
= per cent premium for insurance. COM
puted on the original face value of the
mortgage. This ran the total up to 6l,
per cent.
Under the new law the service charge is
10 be eliminated and for the small home
buyer the insurance premium is cut to
4 per cent, computed on unpaid balances
instead OF the original face value The
hope of sponsors of the legislation is that
these easier terms will bring home pur-
chase within the means of many families
IN every community. and thereby encour-
age banks, building associations and other
lending agencies to put more capital into
{ construction that will start building trades
men back to work. So much for the small
individual home buyer.
The new law also seeks to set hammers
r,oNt
OF residential development, as follows.
First construction of one or more multi
family dwellings, or the building of 10 or
more separate homes, costing more than
$4,000 but not more than 100000, at
unit cost of not more than s1,15O per room.
y Second. construction of large rental
housing projects, costing not more than
$5,000000, and built at a unit cost of
$3.50 per room
Old Limit is Maintained.
AS in the case of the small individual
homes however, the success of these phases
OF the program depend on the extent to
Which private capital is attracted by the
new terms. OF these large projects the
r. H. A. mortgage insurance is held to the
and the administrator may fix the rate for
insurance premium anywhere between y
per cent and l per cent, but the computa-
ton would be based on unpaid balances
Instead of original face value.
When these large developments are COM
peted buyers of individual homes NAV
obtain mortgage insurance on the 80 per
cent basis.
The new bill also seeks to bring about
the creation of national mortgage associa-
tlons, which hackers of the legislation
hope will cause private capital to flow into
these larger housing projects. But while
. the aim is to have these associations pri-
Vately financed, it has been indicated that
the Reconstruction Finance Corp will
establish one such association capitalized
With S50,000,000 of that agency's funds, to
get the proposed building boom off to
prompt start
Seek to Avoid Competition,
In order to avoid Government compete
ton with building and loan associations
the new law provides that any such asso-
'clatlon operated or controlled by Federal
FUNDS could not originate insured loans in
the small-home field, although it could
purchase or sell such mortgages if oriei-
mated by some other lending agency.
= These national mortgage associations
could issue tax-exempt debentures up to
20 times its paidup capital and surplus,
Formation of these mortgage associations
was permissible under the original law.
but the terms of that law did not result in
their establishment
E The new law does one other thing that
snay help to increase employment and
check the trend toward another depression.
1T revives the authority of the Federal
Housing Administration, which expired last
April, to insure private loans for repair
and modernization of existing homes. This
insurance is not applied directly to ind-
fvidual repair jobs, but covers 10 per cent
of the aggregate loans of lending agency,
up to total Of $4,000
An interesting feature of the revival of
Sthis Authority is that it will permit the in
s.suring. not only of repair work, but of
.new construction up to a value of $4,000.
This will pave the way for insuring small
sdwellings in farming areas or summer
cottage type of construction.
Consideration of the bill gave rise to
lively controversy in Congress and in labor
TuniOn circles over the advise hi1itv of mo in