12 U.S.C. § 1748b — Insurance of mortgages

(a) Aggregate amount of insurance; termination date. To help address the severe shortage and urgent need for family housing at or near military^* installations, where the installations’ permanence is uncertain, and to increase needed housing for personnel^* there, the Secretary may, on a mortgagee’s application, insure eligible mortgages, including construction advances. The Secretary may also make a commitment to insure a mortgage^* before it is executed or money is advanced, on terms the Secretary sets.

The total principal obligations of all mortgages insured under this subchapter, except mortgages insured under versions of this subchapter in effect before August 11, 1955, may not exceed $2,300,000,000. The limit in section 1715h of this title does not apply to this subchapter. No mortgage may be insured under this section after October 1, 1962, except under a commitment made before that date. After June 30, 1959, no more than 28,000 family-housing units may be contracted for under a mortgage insured under this section after that date.

(b) Eligibility for insurance. A mortgage qualifies only if all of these conditions are met:

(1) The mortgaged property must be held by a mortgagor^* approved by the Secretary. The Secretary may require the mortgagor to follow restrictions on capital structure and operating methods. The Secretary may make contracts with the mortgagor and may buy up to $100 of its stock or interest when needed to make the restrictions effective. The General Insurance Fund pays for that stock or interest. The mortgagor must redeem it at face value when all of the Secretary’s insurance obligations end.

(2) The property must be designed for residential use by armed-services personnel and be at or near a military installation. The Secretary of Defense or a designee must certify that, so far as reasonably foreseeable, there is no intention to substantially reduce the personnel assigned or expected to be assigned there. The Secretary of Defense or designee must also (i) decide that safety, security, or another essential military need requires the personnel to live in public quarters; and (ii), with the Secretary’s approval, decide that adequate housing at reasonable rents is not available within a reasonable commuting distance and that the project will not, so far as reasonably foreseeable, substantially reduce occupancy in existing housing insured under this chapter. Housing covered by a mortgage insured, or committed for insurance, under this section before August 11, 1955, may be treated as available quarters for this subsection.

The housing must meet the standards and conditions the Secretary sets for acceptable mortgage-insurance property. The Defense Secretary’s certification is conclusive evidence to the Secretary that the housing is needed. If the Secretary does not agree with the certified need, the Secretary may require the Defense Secretary to guarantee the General Insurance Fund against loss on the mortgage. Congress authorizes appropriations needed to pay losses under that guarantee.

(3) The principal obligation must satisfy these limits:

(A) It may not exceed the Secretary’s estimated replacement cost of the property or project after completion. That cost may include land, physical improvements, and utilities within the property or project’s boundaries.

(B) For the part attributable to dwelling use, including ranges, refrigerators, shades, screens, and fixtures, it may not average more than $16,500 per family unit. The Secretary’s replacement-cost calculation, including the estimated value of usable utilities within the boundaries that are owned by the United States and not paid for from mortgage proceeds, also may not average more than $16,500 per family unit. If housing under one invitation for bids is financed with two or more mortgages, one mortgage may exceed that average if all mortgages together do not exceed it. Subject to this paragraph’s limits, no family unit included in mortgaged property may be contracted for after June 8, 1960, if that unit costs more than $19,800.

(C) It may not exceed the bid of the eligible bidder for the property or project under section 1594 of title 42.

The mortgage must be completely paid off through periodic payments within a term set by the Secretary, and that term may not exceed 30 years from the beginning of amortization. Its interest rate, not counting insurance premiums, may not exceed 4.5 percent per year on the outstanding principal. The Secretary may allow parts of the mortgaged property to be released from the lien on terms and conditions the Secretary sets, and the mortgage may provide for such releases. The project may include nonresidential facilities the Secretary considers adequate for its occupants.

(c) Premium charges. The Secretary may set the insurance premium. For each mortgage, it must be at least 0.5 percent per year and no more than 1.5 percent per year of the outstanding principal, without counting late payments or prepayments. The mortgagee^* must pay premiums in cash or in debentures issued under this subchapter, at face value plus accrued interest, in the manner the Secretary sets. The Secretary may require one or more premiums when the mortgage is insured, using a discount rate no higher than the mortgage’s interest rate.

If, when the mortgage is presented and the initial premium and any required charges are offered, the Secretary finds that it complies with this subchapter, the Secretary may accept it for insurance by endorsement or another prescribed method. If the mortgage is paid in full before maturity, the Secretary may refund to the mortgagee, for the mortgagor’s account, all or an equitable part of the current unearned premiums already paid. The Secretary may reduce the required premium payments. The Secretary may also reduce the premium below 0.5 percent per year for a mortgage on property acquired by the Defense Secretary or designee if the mortgage is insured under a version of this subchapter in effect before August 11, 1955.

(d) Default by mortgagor; rights of mortgagee. Failure to make a payment required by an insured mortgage is a default. If it lasts 30 days, the mortgagee may receive insurance benefits by assigning, transferring, and delivering to the Secretary, within the Secretary’s period and under the Secretary’s rules:

(1) all rights and interests under the defaulted mortgage;
(2) all mortgage-transaction claims against the mortgagor or others;
(3) title or other insurance policies, surety bonds, guarantees, and claims under them;
(4) any undisbursed mortgage-loan balance;
(5) cash or property held by, or owed to, the mortgagee as the mortgagor’s deposits that have not reduced the principal; and
(6) all records, documents, books, papers, and accounts relating to the mortgage transaction.

After the assignment, transfer, and delivery, the mortgagee no longer owes insurance premiums. Subject to the cash adjustment in subsection (e), the Secretary must issue debentures with a total face value equal to the mortgage’s value and a claims certificate. The Secretary determines the mortgage’s value by adding the unpaid original principal on the default date to the mortgagee’s payments for (A) taxes, special assessments, and water rates that have priority over the mortgage; (B) property insurance; and (C) reasonable completion and preservation expenses and premiums paid after default. From that total, subtract (i) amounts received on the mortgage after the default date and (ii) net income the mortgagee received from the property after that date.

(e) Debentures; issuance; form and denomination. Debentures under this subchapter must have the form and denominations the Secretary prescribes, in multiples of $50, and must have the terms, conditions, and redemption provisions, if any, the Secretary prescribes with the Treasury Secretary’s approval. They may be coupon or registered debentures. If the mortgage’s determined value differs from the total face value of the debentures, by no more than $50, the Secretary must pay the difference in cash to the mortgagee from the General Insurance Fund.

(f) Debentures; execution; signature; negotiability; interest rate; tax exemption; guarantee. Debentures must name the General Insurance Fund as obligor, be signed by the Secretary with a written or engraved signature, and be negotiable. They are dated on the default date under subsection (d), earn interest from that date at the rate set under section 1715o of this title, and pay interest every six months on January 1 and July 1. They mature 20 years after their date.

The debentures are exempt as to principal and interest from all taxes imposed now or later by a United States territory, dependency, or possession, the District of Columbia, a State^*, county, municipality, or local taxing authority, except surtaxes and estate, inheritance, and gift taxes. The General Insurance Fund pays them and is primarily liable. The United States fully and unconditionally guarantees their principal and interest, and the guarantee must appear on their face. If the Fund fails to pay a guaranteed principal or interest amount when due upon demand, the Treasury Secretary must pay the holders the authorized amount. To the extent of that payment, the Treasury Secretary obtains all holder rights.

(g) Claim certificates. The Secretary’s claims certificate to a mortgagee must be for an amount determined under subsections (e) and (f) of section 1739 of this title. Any amount left after the certificate is paid in full must be kept by the Secretary and credited to the General Insurance Fund.

(h) Laws applicable. Section 1713(k) and (l) of this title applies to mortgages insured under this subchapter and to property the Secretary acquires under it. For these mortgages and property, the reference in section 1713(k) to subsection (g) means subsection (d) of this section.

(i) Secretary’s additional powers to insure certain mortgages. The Secretary may insure under this subchapter or subchapter II any mortgage made in connection with the Secretary’s sale of property acquired under this subchapter. This power applies without regard to eligibility, time, or total-amount limits in either subchapter.

(j) Conclusiveness and validity of insurance contract. An insurance contract the Secretary executes under this subchapter conclusively proves that the mortgage qualifies for insurance. Once executed, the contract is incontestable in the hands of an approved mortgagee from the execution date, except for fraud or misrepresentation by that mortgagee.

(k) Certification as to overtime wages paid to laborers and mechanics. The Secretary may not insure a mortgage under this section unless the principal contractor or contractors for the project file certificates at the times the Secretary requires, during construction or otherwise. The certificates must state that laborers and mechanics working on the project were paid at least one and one-half times their regular pay rate for work beyond eight hours in one day or beyond 40 hours in one week.