12 U.S.C. § 1750b — Insurance in critical areas

This section authorizes mortgage insurance in presidentially designated critical defense housing areas. It sets limits and eligibility rules for insured mortgages, including amount, term, interest, premiums, rental requirements, and tenant selection.

(a) Limitations; termination of certain commitments; requirements; discrimination against children. This subchapter supplements other mortgage-insurance systems to help provide adequate housing in areas that the President has determined under section 1591 of title 42 to be critical defense housing areas. On application by the mortgagee, the Secretary may insure an eligible mortgage under this section or section 1750g on terms the Secretary prescribes. The Secretary may also make a commitment to insure the mortgage before the mortgage is executed or money is disbursed. The property must be in a critical defense housing area. The number of dwelling units in properties covered by mortgages insured under this subchapter in that area may not exceed the number the Secretary of Housing and Urban Development authorizes from time to time as needed for defense purposes and to be insured under this subchapter.

If the Secretary issued a commitment under this section that was in force on June 1, 1953, and defense requirements later changed, the Secretary may act to conserve the General Insurance Fund. This applies if the Secretary reasonably doubts that the housing is needed for defense purposes and determines that, if the units were completed and insured, the mortgage would probably immediately default and an insurance claim would probably be made. The Secretary may pay cash from the General Insurance Fund to the mortgagee for the mortgagor's account. The payment may reimburse the mortgagor for amounts paid or to be paid for labor performed and materials in place. The Secretary must subtract the Secretary's estimate of the materials' reasonable salvage value and may add an allowance for development costs equal to 4 percent of the mortgage principal stated in the commitment. No payment is allowed unless a claim is filed within six months after the Secretary determines that the housing is not needed. The claim must have the form and supporting information, documents, and data the Secretary requires.

The total principal obligations of all mortgages insured under this subchapter may not exceed the amount the President authorizes from time to time under the authority in section 1715h–1 of this title. The Secretary may require covered properties to be kept for rental for periods and at rents or other charges the Secretary prescribes. For properties kept for rental, the Secretary may require the property to be held by a mortgagor approved by the Secretary. The Secretary may also prescribe reasonable operating requirements and prohibit or restrict sales of the properties, interests in them, or agreements relating to those sales.

The Secretary must require every dwelling covered by a mortgage insured under this section, when the commitment to insure was issued after August 2, 1954, to be held for rental for at least three years after the dwelling becomes available for initial occupancy.

A mortgage may not be insured under this subchapter unless the mortgagor certifies under oath that, in choosing tenants for property covered by the mortgage, the mortgagor will not discriminate against a family because the family has children. The mortgagor must also certify that the mortgagor will not sell the property while insurance is in effect unless the purchaser makes the same certification. The certification must be filed with the Secretary. Violating such a certification is a misdemeanor punishable by a fine of no more than $500.

(b) Eligibility requirements. To be eligible for insurance under this section, a mortgage must meet all of these requirements:

(1) It must be made to and held by a mortgagee the Secretary has approved as responsible and able to service the mortgage properly.

(2) Its principal obligation, including initial service charges and appraisal, inspection, and other fees approved by the Secretary, may not exceed 90 percent of the property's appraised value on the date the mortgage is accepted for insurance. The property may be urban, suburban, or rural. It must contain a dwelling designed mainly for residential use by no more than two families in total. The dwelling must be approved for mortgage insurance before construction begins, and construction must begin after September 1, 1951.

The principal obligation may not exceed $8,100 for a single-family dwelling or $15,000 for a two-family dwelling. The Secretary may raise those limits by regulation, but not above $9,000 and $16,000, respectively, in a geographic area where the Secretary finds that cost levels require higher limits. If the Secretary finds that three- or four-bedroom dwellings cannot be built for each family within those dollar limits without sacrificing sound construction, design, and livability standards, the Secretary may increase the limit by no more than $1,080 for each bedroom over two in the family unit. “Bedroom” is defined by the Secretary. The increase is allowed only if the Secretary finds that the unit meets sound livability standards as a three-bedroom or four-bedroom unit, as applicable.

(3) Its maturity must satisfy the Secretary but may not exceed 30 years from the date the mortgage is insured.

(4) It must contain complete provisions for amortizing the mortgage principal that satisfy the Secretary.

(5) Its interest rate, not counting insurance premiums, may not exceed 4.5 percent per year on the principal outstanding at any time.

(6) It must provide, in a way satisfactory to the Secretary, that the mortgagor's periodic payments—excluding the amounts allocated to interest and the insurance premium required under this subchapter—will reduce the mortgage principal.

(7) It must contain terms and provisions the Secretary prescribes, in the Secretary's discretion, about insurance, repairs, alterations, tax payments, reserves for defaults, late charges, foreclosure, early payment or acceleration of maturity, additional and secondary liens, and other matters.

(c) Premium charges; payments; defense need; adjustments and refunds. The Secretary may set the insurance premium for mortgages under this subchapter. For each mortgage, the premium must be at least 0.5 percent per year and no more than 1.5 percent per year of the principal outstanding at any time. Late payments and prepayments are not counted in determining that principal amount.

The mortgagee must pay the premiums in cash or in debentures issued by the Secretary under this subchapter. The debentures are accepted at face value plus accrued interest, in the manner the Secretary prescribes. The Secretary may require one or more premiums to be paid when the mortgage is insured. The Secretary may prescribe a discount rate for those premiums, but it may not exceed the interest rate stated in the mortgage.

If the Secretary finds, when the mortgage is presented for insurance and the required initial premium or premiums are offered, that the mortgage complies with this subchapter, the Secretary may accept it for insurance by endorsement or another method the Secretary prescribes. The Secretary may not accept it unless the Secretary finds that the project for which the mortgage was made is an acceptable risk in light of national-defense needs.

If the principal obligation of an insured mortgage is paid in full before its maturity date, the Secretary may require the mortgagee to pay an adjusted premium. The amount must be fair as the Secretary determines, but may not exceed the total premiums the mortgagee would otherwise have had to pay if the mortgage had continued to be insured under this subchapter until maturity. The Secretary may refund to the mortgagee for the mortgagor's account all or a fair portion of the current unearned premiums that had already been paid.

If a mortgagee applies, with the mortgagor's consent, for a mortgage commitment issued under section 1709 covering property where dwelling construction began before this subchapter was enacted, and prevailing wages in the locality have been determined under section 1715c, the Secretary may convert that commitment to a commitment under section 1750g despite when construction began. Charges or fees paid for insurance under section 1709 must be credited against charges or fees due for insurance under section 1750g. For section 1715c purposes, the Secretary of Labor may determine prevailing local wages at any time before insurance under section 1750g. The mortgage, or a substitute mortgage covering the same property, must otherwise be eligible for insurance under section 1750g.

(d) Preference or priority in buying or renting properties. Despite other provisions of this chapter or any other Act, except a later law that expressly refers to this subsection, the Secretary may prescribe procedures to give people engaged or to be engaged in national-defense activities preference or priority to buy or rent properties, or interests in properties, covered by mortgages insured under this subchapter.

(e) Conclusive insurance contract as to eligibility. Any insurance contract the Secretary has executed or later executes under this subchapter is conclusive evidence that the mortgage is eligible for insurance. Once the contract is executed, its validity cannot be challenged in the hands of an approved mortgagee, except for fraud or misrepresentation by that approved mortgagee.