Loans made by the Federal Public Housing Authority to local housing authorities under Public Law 412 cannot exceed 90 percent of the capital cost of a project; the local housing authority must finance at least 10 percent from non-Federal sources. Actually, the local housing authorities have been financing much more than 10 percent from non-Federal sources. During construction, the local housing authority borrows construction funds by advance loans from the FPHA or by sale of temporary loan notes to private investors. The great bulk of temporary financing is done at low cost through the latter device. The FPHA assists by merely pledging itself to lend any funds necessary to redeem temporary loan notes, together with interest, when they fall due. Because FPHA commitments are involved, the total amount of such temporary loan notes and any advance loans may not exceed 90 percent of total development cost. Before 90 percent of the construction funds for a project have been spent, the local housing authority arranges permanent financing, issuing its long-term Series A bonds to the general public for as much as the public will take on a long-term basis, and Series B bonds to the Federal Public Housing Authority for the balance. By these

means, non-Federal funds are used to the maximum extent possible. (See tables 98-100.)

On Public Law 671 projects, which represent more than one-fourth of the United States Housing Act program, the Federal Public Housing Authority may loan to local housing authorities up to 100 percent of the development cost of the project. Temporary loan notes may also be sold to private investors up to 100 percent of project development cost. The Federal Public Housing Authority may pledge itself to lend any funds necessary to redeem the entire amount of such

issues of temporary loan notes, together with interest, when they fall due. Some of the Public Law 671 projects were constructed by the Federal Public Housing Authority itself, and are federally owned.

Table 98 shows the total development funds committed on United States Housing Act projects by source of funds, as of the end of 1946. The total development cost represents the amount of money advanced by the Federal Public Housing Authority, money borrowed by local housing authorities from non-Federal sources, and funds still to be advanced. Of the 907.6 million dollars committed, 493.1 million dollars were Federal funds and 414.5 million dollars, non-Federal funds.

The long-term and short-term obligations of local housing authorities may be sold either to the general public or to the Federal Public Housing Authority, within the limits prescribed. The details of these outstanding obligations appear in table 99. This table, showing the amount of outstanding obligations of local housing authorities, differs from table 98 which states the gross amount of local housing authority obligations, that is, before deducting bonds retired, and which, in addition, includes actual expenditures on projects owned by the Federal Public Housing Authority. The table shows that at the end of 1946, the general public held a substantial volume of short-term obligations of local housing authorities. The Federal Public Housing Authority has agreed to lend funds to redeem these shortterm obligations, if necessary, which is one factor in the unusually low interest rates obtained. Another factor is exemption of interest on these

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obligations from Federal income taxes. The data on long-term loans outstanding show the extent to which non-Federal financing was used.

The trend toward the sale of an increasing proportion of long-term bonds of local housing authorities to the general public is best revealed in table 100. This table shows data on the longterm bonds issued to the general public in each year's financing since 1940, including refunding operations. It will be noted that in 1945 and 1946, although only a few bond issues were sold, almost all of the bonds were sold to the general public rather than the minimum 10 percent of project development cost required to be obtained from non-Federal sources. The table also shows the low average interest rates being paid on bond issues sold to private investors. In each year's financing since 1940, these issues have been sold at progressively lower rates with the exception of 1943.

The maximum Federal contributions authorized in order to achieve low rents is compared with the amount actually paid in table 101. The maximum annual amount as fixed by statute is computed by taking a percentage of the capital cost of the project. The percentage used is the going Federal rate of interest plus 1 percent. This Federal contribution is payable until all outstanding local housing authority bonds are retired but not more than 60 years from the date of the contract. The actual amount paid, however, is limited to the amount sufficient to make up the deficit each year between project operating income and the total of operating expenses, reserves, debt service, and payment in lieu of taxes.

In recent years, the Federal contributions paid have been well below the maximum because of (a) the acceptance in Public Law 671 projects of war workers with incomes well above the level of tenants in Public Law 412 projects; (b) low rates of interest on the temporary financing of Public Law 671 projects; (c) the wartime rise in incomes of many families in Public Law 412 projects after admission and increases in the rents charged them to correspond with their improved financial circumstances. The Public Law 671 projects have now been largely converted to full low-rent status and local housing authorities have now instituted a systematic program for removal of ineligible families from all low-rent housing. The consequent rise in the proportion of lower-income tenants paying lower rents will increase the requirements for annual contributions. The Federal contribution paid on FPHA-aided low-rent projects averaged $6.03 per month per dwelling unit in 1945.

Under the law, Federal contributions are limited to a total of 28 million dollars in any one year.

While actual contributions paid were only about one-fourth of this amount during the year ended June 30, 1946, practically all of the authorized annual amount of 28 million dollars is committed to meeting the expected increased contributions as indicated above.

The localities are also required to make a contribution in order to achieve low rents in public housing projects. The local contribution, usually in the form of tax exemption, must be in an amount equal to at least 20 percent of the Federal contribution. Local housing authorities were permitted to make payments in lieu of taxes to local governments in amounts up to 10 percent of the shelter rents received, provided the minimum local contribution was made. In 1945, the local contribution on permanently financed Public Law 412 projects averaged $5.49 per dwelling unit per month. This represented the difference between full taxes of $7.35 per unit per month and payments in lieu of taxes of $1.86 per unit per month made to local governments. The local contribution amounted to 91 percent of the Federal con

tribution of $6.03 per unit per month, or over 4.5 times the minimum required.

Veterans' Administration

Title III of the Servicemen's Readjustment Act of 1944, as amended in 1945, authorizes the Veterans' Administration to guarantee or insure home, business and farm loans of veterans. Under this title, a veteran may borrow as much as 100 percent of the reasonable value of a home, but the purchase price cannot exceed the reasonable value. Section 501 of this title provides for the guaranty of a home loan, the amount of guaranty being not in excess of 50 percent of the loan or $4,000, whichever is less.

Where a principal or first loan is made, guaranteed or insured by a Federal agency, and the veteran is in need of a second loan, the second loan may, under certain conditions, be fully guaranteed by the Veterans' Administration under section 505 of this title. In such cases, the amount of the second loan cannot exceed 20 percent of the approved purchase price or $4,000, whichever is less.

Home loans may, in lieu of a guaranty, be insured by the Veterans' Administration under section 508 of this title. In such cases, a financial institution would be reimbursed for losses incurred on such loans up to 15 percent of the aggregate loans made by it.

Table 102 shows the monthly volume of loans guaranteed or insured by the Veterans' Administration and a comparison with total recordations of mortgages of $20,000 or less. The comparison with total recordations is also presented in chart 26.

The large increase in the number of loans guaranteed or insured occurred in 1946 following the liberalizing amendments to the act in December 1945.3 Cumulative loans closed as of the end of 1946, totaled 455,293 loans for a face amount of almost $2.5 billion. Loans guaranteed or insured represented about one-fourth of the total number and about one-third of the dollar amount of mortgages recorded during the latter part of 1946 and early 1947. The average loan guaranteed or insured increased from approximately $5,000 in May 1946 to slightly over $6,000 during the first quarter of 1947. The average mortgage for "other" loans, that is, for loans other than Veterans' Administration guaranteed or insured loans, was almost $4,000 during the first quarter

The December 1945 amendments raised the maximum guaranty from $2,000 to $4,000, changed the basis of appraisal from reasonable normal value to reasonable value, and provided an accelerated procedure for processing loans made by supervised institutions.

of 1947, or about one-third less than the average guaranteed loan. One reason for the higher amount of the average mortgage guaranteed by the Veterans' Administration is that the guaranteed loan may be made for as much as 100 percent of the approved purchase price. "Other" loans, however, are smaller since down-payments are required. Another reason for this difference in the average loan size may be that the type of property involved in the guaranteed loan may differ from properties which secure "other" loans. Moreover, "other" loans include junior mortgages, mortgages secured by lots, and some loans other than for home purchase, such as for repairs.

The number of "other" home mortgage loans is a residual figure which was obtained by subtracting the number of Veterans' Administration guaranteed home loans closed from the number of nonfarm mortgages of $20,000 or less recorded during each month. While this computation results in figures which are sufficiently reliable as an indication of the general movement of the "other" loans and permit a comparison with Veterans' Administration guaranteed loans, there

are at least three qualifications which should be noted. First, the data represent the difference between two estimates which are based on different source material. Mortgage recordations are estimated by the Federal Home Loan Bank Administration on the basis of reports drawn from county recorders' offices. The monthly estimates for guaranteed loans closed were prepared by the National Housing Agency on the basis of cumulative figures reported by the Veterans' Administration. While each estimate is adequate when employed separately, the subtraction process may result in larger estimating errors in the residual figure than existed in the individual estimates. Secondly, there may be differences in timing resulting from a time-lag between the closing of a guaranteed home loan and the recording of the mortgage instrument Thirdly, "other" loans include some loans on small commercial and rental properties since the $20,000 limitation on mortgages recorded does not eliminate entirely such

loans. For these reasons, the data on "other" loans should be used with caution.

The data in table 103 show total home loans guaranteed or insured by the Veterans' Administration compared with the amount of Veterans' Administration guaranty or insurance. Thus, of the cumulative total loans guaranteed or insured through December 1946 amounting to $2.5 billion, some 46.7 percent represented the amount of guaranty obligation based on the original amount of loans made.

The actual amount of guaranty obligation outstanding as of the end of 1946, however, is less than this figure since the guaranty obligation decreases as borrowers make payments on their loans. The average amount of guaranty or insurance for loans made during the first quarter of 1947 was about $2,900 or 47 percent of the average amount of loan guaranteed. The home loans guaranteed under section 501 of this title. represent by far the greatest proportion of the

1 Data for periods prior to February 1945 are not available.

n. a. Not available.