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FEDERAL RESERVE BANK OF NEW YORK r Circular N o. 3 6 0 0 ~1 L O ctober 10, 1950 J REGULATION X Effective O ctober 12, 1950 R E SID E N T IA L R E A L E STA TE C R E D IT To all Persons Engaged in the Business o f Extending Real E sta te Credit in the Second Federal Reserve District : Following is the text of a statement issued by the Board o f Governors o f the Federal Reserve System and the Housing and Home Finance Agency, Office of the Administrator: F or release in m orning newspapers o f W ednesday, October 11, 1950 October 10, 1950 Restrictions on residential real estate construction under authority o f the Defense Production A ct o f 1950 and the President’s Executive Order No. 10161 o f September 9,1950, were announced today on non-Government-aided private credit, Government-aided loans, and direct Government veteran and farm loans on one and two-fam ily houses. Credit restrictions on housing loans not insured, guaranteed, o r extended by Government agencies are covered under Regulation X issued by the B oard o f Governors o f the Federal Reserve System, with the concurrence o f the A dm inistrator o f the H ousing and Home Finance A gency. Companion restric tions on Government-aided housing finance, on a basis conform ing to those applied to other types o f private credit, were announced by the H H F A Adm inistrator. The new regulations will call fo r down paym ents ranging from 10% in the $5,000 and under price range to 5 0% at $25,000 and over, with preference fo r veterans amounting in most cases to 10 percent age points. The regulations are geared to the marketing o f housing production o f not more than 800,000 to 850,000 new housing units next year. The regulations on both types become effective Thursdaj*, October 12, 1950. They are designed to help reduce the currently high inflationary pressures by restricting the flow o f fun ds into the mortgage market and through the reduction o f new home construction activity next year, to assure that materials and labor required fo r the defense program w ill be available when needed. The regulations apply to virtually all future loans on new construction o f one and two-fam ily houses. The restrictions agreed upon, according to Thomas B. McCabe, Chairman o f the Board, and Raym ond M. Foley, H H F A Adm inistrator, are based on an estimate that, to curb serious inflation in the housing market and to meet presently estimated defense requirements, housing production in 1951 should be reduced about one-third below the current record level o f home building, or not more than 800,000 units. They are intended, however, to continue, as fa r as possible through control o f credit, the relative preferences fo r veterans and the price distribution o f housing sought by Congress in its legisla tive enactments. The situation will be kept under close review to determine whether defense or inflation ary developments require later modifications. The regulations specify maximum amounts which can be borrowed, maximum maturities, and mini mum amortization requirements fo r extensions o f credit on residential construction, including the financ ing o f m ajor additions and improvements where the loan amount is more than $2,500. They do not apply to non-Government-aided loans on construction begun before noon on A ugust 3, 1950, nor to loan com- mitments made p rior to the effective date. Credits secured by new construction as well as credits extended to finance the purchase o f homes are subject to the regulations. F o r those purchasing homes in the lower price brackets, the percentage down payments required are lower than fo r higher priced structures, and fo r veterans using GI loans the down paym ent require ments are low er at each price level than on other loans. A lso, a longer period fo r repayment is per mitted fo r those buying homes costing $7,000 or less. In determ ining the amount that can be loaned, the lender must take into account all credit previ ously extended in connection with the property and still outstanding, as well as the amount o f addi tional credit being extended. This provision brings supplementary borrowing, as well as first mortgage loans, within the scope o f the regulation. In other words, minimum down payments must be made from the borrow er’s own fun ds in connection with extensions o f credit on new residential construction and not from the proceeds o f supplemental mortgages or personal loans in excess o f the permissible loan value. D own payments and maximum permissible loans fo r non-Government loans and FH A -insured financing are identical and are calculated on the transaction price which is defined by the regulation as the amount paid or to be paid by the purchaser, exclusive o f prepaid items o f expense, such as taxes or insurance. U nder the regulation, maximum permissible loan amounts, maximum maturities and mini mum amortization provisions are specified. Properties having a value o f : M ay have outstanding credit o f : More than $2,500 but not more than $5,000 More than $5,000 but not more than $9,000 More than $9,000 but not more than $15,000 More than $15,000 but not more than $20,000 Over $20,000 9 0% o f the value $4,500 plus 6 5% o f excess o f value over $5,000 $7,100 plus 6 0% o f excess o f value over $9,000 $10,700 plus 2 0 % o f excess o f value over $15,000 $11,700 plus 1 0% o f excess o f value over $20,000 but not less than 5 0% o f value To carry out the requirement that the relative credit preferences for veterans be maintained, down paym ent requirements on loans guaranteed or made b y the Veterans A dm inistration are 10% lower than on F H A and non-Government-aided loans in the price range between $6,000 and $12,000, with the preference narrow ing to 5 % in both the higher and lower price levels. The dow n payments on V A -guaranteed loans, also based on transaction price, are computed as follow s: Value (transaction price) $5,000 or less More than $5,000 but not more than $6,000 More than $6,000 but not more than $9,000 More than $9,000 but not more than $12,000 More than $12,000 but not more than $15,000 More than $15,000 but not more than $20,000 More than $20,000 but not more than $24,250 Over $24,250 Minimum down payment 5 % o f value $250 $250 plus 2 5% o f excess o f $1,000 plus 3 0% o f excess $1,900 plus 5 5% o f excess $3,550 plus 7 5% o f excess $7,300 plus 8 5% o f excess 4 5 % o f value value over $6,000 o f value over $9,000 o f value over $12,000 o f value over $15,000 o f value over $20,000 A ll real estate construction loans are limited to a maximum term o f 20 years, except those made on properties valued at $7,000 or less under a contract which calls fo r complete amortization o f the loan in 25 years by equal monthly, quarterly, semi-annual or annual payments to principal or to principal and interest. However, a loan may be amortized on a basis that provides fo r annual reduction o f principal at a minimum rate o f 5 % p er year o f the original amount o f the balance, and such loans are exempt from further amortization when the outstanding balance has been reduced to not more than 50% o f the value o f the p roperty as o f the time the credit was extended. A lthough the regulation provides that a person must be registered to engage in the business of extending real estate construction credit, all persons engaged in the business w ill automatically be deemed to be registered fo r present purposes and no action on their part to secure registration is now required. However, the regulation provides that the B oard may later, b y public announcement, require registration statements to be filed by persons affected. D u rin g the form ulation o f Regulation X , and the regulations on Government-aided housing credit, consultations and meetings were held with representatives o f various groups affected. This includes manufacturers o f and dealers in building supplies and materials, labor and veterans’ and other con- sumer organizations, banks and trust companies, savings banks, savings and loan associations, and building associations, mortgage bankers, insurance companies, builders, real estate dealers, and others interested in construction and mortgage finance. The new regulations apply only to residential real estate credit on one and two-fam ily houses. H ow ever, consideration is being given to the early issuance o f regulations applying to construction credit relating to rental-type projects, non-residential properties, and other real estate credit. Inquiries in regard to Regulation X should be directed to one o f the 12 Federal Reserve Banks and their 24 branches, through which the regulation will be administered. Instructions to field offices fo r processing Government-aided housing loans under the new regula tions will be issued shortly b y the Federal H ousing Adm inistration, the Veterans Adm inistration, and the Department o f A griculture in their respective fields. A copy of Regulation X is enclosed so that you may acquaint yourself with its provisions and determine whether you or a particular transaction involving the extension o f real estate credit is subject to the regulation. Section 4 (c) o f the regulation provides that no registrant shall extend any credit unless he is satisfied and maintains records which reasonably demonstrate on their face whether such credit is or is not real estate construction credit. One method of showing compliance with this provision where no real estate construction credit is involved is a statement made by the borrower to the effect that the credit in question is not wholly or partly secured by, or fo r the purpose of purchasing or carrying, or fo r the purpose o f financing, or one which involves the right to acquire or use new construction on real property or real property on which there is new construction (or that such new construction, if any, is not a residence or a m ajor addition or major improvement to a residence). Such a statement, if accepted in good faith by the registrant, will be acceptable if stamped on the face of the borrow er’s note and the note is thereafter signed by him or, if made by the borrower in a letter, application form , or in any other written form whatever. Forms of Statement of the Borrower are now in process of preparation and copies will be furnished, when available, to interested persons. A ny inquiries you may have concerning Regulation X should be addressed to this Bank at the Federal Reserve P. O. Station, New Y ork 45, N. Y. Additional copies of this circular and of the regulation will be furnished upon request. A llan S proul, President. B O A R D OF G O V E R N O R S o f th e F E D E R A L R E S E R V E SY STE M RESIDENTIAL REAL ESTATE CREDIT R E G U L A T IO N X E ffective O c to b e r 1 2 , 1 9 5 0 41/L BBS?; <r.^ J INQUIRIES REGARDING THIS REGULATION A ny inquiry relating to this regulation should be addressed to the Federal Reserve Bank o r Federal Reserve branch bank o f the district in which the inquiry arises. FOREW ORD Tliis regulation applies to real estate construction credit with rcspect to property on which a new residence, or a m ajor addition or m ajor improvement to an existing residence, is begun after 12 o ’clock meridian, August 3, 1950. The regulation applies, in general, to banks, savings and loan associations, insurance companies, mortgage companies, loan companies, finance companies, real estate companies, or other institutions or individuals who are engaged in the business o f extending real estate credit. In order to determine whether a particular institution or individual or a particular transaction is subject to this regulation, reference should be made to the provisions o f the regulation itself. CONTENTS Page S e c . 1. S c o p e S e c . 2. D R e g u l a t i o n .................................................................... 1 e f i n i t i o n s ................................................................................................................................. 1 and A p p l ic a t io n of (а) (б ) (c) (d) “ Person” “ Registrant” “ Credit” “ Extending credit” , “ extension of credit” credit” (e) “ Real estate construction credit” ( /) “ New construction” (<7) “ M ajor addition” or “ major improvement” (h) “ Real property” (i) “ M axim um loan value” O') “ Bona fide sale price” ( k) “ Residence” (I) “ Residential property” (m) “ Farm property” S e c . 3. G eneral (а) ( б) (c) R S ec. 6. M of e g i s t r a t i o n .......................................... . ... 4 C r e d i t ......................................................................................................... 5 and E x c e p t i o n s ........................................................................................ 8 M inim um Am ount Short-Term Construction Credits Disaster Credits Medical Expenses, etc. Casualties Contracts to Sell Contemplated Construction Labor and Material Credits Secured by Life Insurance Policies Farm Property is c e l l a n e o u s (0) (b) (c) (d) (e) (J) (g) (h) (1) (j) R A m oun t; M aturity; Amortization Secondary Borrowing Statement of the Borrower S e c . 5 . E x e m p t io n s (a) ( 6) (c) (d) (e) ( /) (g) (h) (i) (j ) and “ extends General Requirements Registration Suspension of Registration S e c . 4. E x t e n s io n (a) (b) (c) e q u ir e m e n t s and P r o v i s i o n s ............................................................................................ 10 Evasions Outstanding Contracts and Obligations Real Property Outside the United States Preservation of Records; Inspections; Administrative Reports D efault and Foreclosure; Serviceman’s Preinduction Debt Right of Registrant to Impose Stricter Requirements Reliance upon Statem ent of the Borrower False Statements Statutory Penalties Enforceability of Contracts Supplem ent 14 REGULATION X Effective October 12, 1950 RESIDENTIAL REAL ESTATE CREDIT S E C T IO N 1. S C O PE A N D A P P L IC A T IO N OF R E G U L A T IO N This regulation is issued by the Board o f Governors o f the Federal Reserve System (hereinafter called the “ B oard” ), with the concurrence o f the Housing and Home Finance Administrator, under authority o f the “ Defense Production Act o f 1950” , approved September 8, 1950 (hereinafter called the “ A ct” ), and Executive Order No. 10161, dated September 9, 1950. This regulation applies to any person who is engaged in the business o f extending real estate credit, including any person who acts as agent in arranging for such credit. For the purposes of this regulation, a person shall be deemed to be engaged in the business o f extending real estate credit if, during the current calendar year or during the preced ing calendar year, he extends or has extended real estate credit more than three different times and such extensions of credit, during the current calendar year or during the preceding calendar year, aggregate more than $25,000. F or the purpose o f determining whether a person is engaged in extending real estate credit, real estate credit shall be deemed to include not only “ real estate construction credit” , as here inafter defined, but also credit with respect to any real property whether or not. there is any new construction thereon, and whether or not such credit is extended, insured, or guaranteed by the United States or any agency thereof, and whether or not such credit is exempt from this regulation. S E C T IO N 2 . D E F IN IT IO N S F or the purposes of this regulation, unless the context otherwise requires: (a) A ct.1 “ Person” has the meaning given it in section 702(a) o f the 'S e ctio n 702(a) of the Act provides: “ T h e word ‘ person’ includes an individual, corporation, partnership, association, or any other organized group of persons, or legal successor or representative of the foregoing, and includes the United States or any agency thereof, or any other government, or any of its political sub divisions. or any agency of any of the foregoing: Provided, T hat no punishment provided by this Act shall apply to the United States, or to any such govern ment. political subdivision, or government agency.” 1 2 R E G U L A T IO N X S kc. 2 (6 ) “ R eg istra n t" means a person who is registered pursuant to section 3 of this regulation. (c) “ C red it” has the meaning given it in section 6 0 2 (d )(2 ) o f the A ct.2 (d ) “ E xten d in g cre d it” , “ exten sion o f cr ed it ” and “ exten d s cred it” shall include extending or maintaining any credit, or renewing, revis ing, consolidating, refinancing, purchasing, selling, discounting, or lend ing or borrowing on, any obligation arising out of any credit, or ar ranging as agent for any o f the foregoing, and also shall include a sale of, or other transfer o f title to, real property if the vendee or transferee assumes, or takes such property subject to, indebtedness secured by a mortgage or other lien upon such property. (e) “ R ea l esta te con stru ction c red it” means any credit, hereafter extended, which (1) (2) (3) (4) is wholly or partly secured by, or is for the purpose of purchasing or carrying, or is for the purpose of financing, or involves a right to acquire or use, new construction on real property or real property on which there is new construction, if such new construction is a residence or a m ajor addition or m ajor improvement to a residence, whether such credit is extended before or after such new construction is begun; but the term “ real estate construction credit” shall not include any loan or loans made, insured, or guaranteed, in whole or in part, by any depart ment, independent establishment or agency in the executive branch of the United States, or by any wholly owned Government corporation, or by any mixed-ownership Government corporation as defined in the Government Corporation Control A ct. as amended (including any loan evidenced by obligations of any local public agency or public “ Section 6 0 2 (d )(2 ) of tho Act provides: “ ‘Credit’ means any loan. mortgage, deed of trust, advance, or discount; any conditional sale contract; any contract to sell or sale or contract of sale, of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract; any rental-purchase contract, or any contract for the bailment, leasing, or other use o f property under which the bailee, lessee, or user has the option of becoming the owner thereof, obligates himself to pay as compensation a sum substantially equivalent to or in excess of the value thereof, or has the right to have all or part of the payments required by such contract applied to the purchase price of such property or similar property; any option, demand, lien, pledge, or similar claim against, or for the delivery of property or m o n ey ; any purchase, discount, or other acquisition of. or any credit under the security of, any obligation or claim arising out of any of the foregoing: and any transaction or series of transactions having a similar purpose or effect.” S kc . 2 R E G U L A T IO N X 3 housing agency which national banks may purchase pursuant to the provisions o f section 602(a) o f the Housing Act o f 1949). (/I “ New construction" means any structure, or any m ajor addition or m ajor improvement to a structure, which is or has been begun after 12 o ’clock meridian, August 3, 1950. Construction will be deemed to have been “ begun" when essential materials which are to be an in tegral part of the structure have been affixed to or incorporated on the site in a permanent form. (g I “ Major addition” or “ major improvement" means an enlarge ment, reconstruction, or other alteration to an existing structure, or any other addition or improvement which becomes or is to become physically attached to and a part of the structure, if the cost or esti mated cost of such addition or improvement exceeds $2,500. ih) “ Iieal property" includes leaseholds and other interests in such property. (?) The “ maximum loan value" o f any property shall be the amount which is computed in the manner prescribed in the Supplement to this regulation. In making such computations: (1) F or a m ajor addition or m ajor improvement to a residence, ‘‘value" shall be the cost or estimated cost o f such m ajor addition or m ajor improvement; (2) For residential property, other than m ajor additions or major improvements: (A ) In the case o f an extension o f credit in connection with a bona fide sale o f residential property, “ value” shall be the bona fide sale price; (B ) In the case o f any other extension o f credit with respect to residential property: (i) I f the entire cost o f the property to the borrower has been incurred by him not more than 12 months prior to the extension of credit or is to be incurred by him after such exten sion o f credit, “ value” shall be the bona fide cost o f the property to the borrower, including a bona fide estimate o f the cost of completing new construction on such property when the exten sion o f credit is for the purpose of financing such new con struction ; (ii) I f any part o f the cost of the property to the borrower has been incurred prior to such 12-month period, or if any part o f such property has been acquired by gift, exchange, or inheri 4 R E G U L A T IO N X S u es. 2. 3 tance, “ value” shall be the appraised value as determined in good faith by the Registrant; (3) For an extension of credit which is for the purpose of financ ing the construction of a residence on farm property, “ value” shall be the total of (A ) the cost or estimated cost of such new construc tion, and (B ) 5 per cent o f such cost or estimated cost.'* (;’) “ Bona fide sole price” means the amount paid or to be paid by the vendee in money or its equivalent. It includes, in addition to cash, (1) the value of any property accepted in part payment, (2) the unpaid principal amount of any indebtedness incurred or assumed by the vendee or to which the property remains subject, (3) the amount o f any liens for taxes or special assessments which are in default or currently due and payable, (4) the amount o f any me chanics’ liens or other liens which the vendee is required to discharge, (5) the amount which the vendee agrees to pay for any alteration or other modification made or to be made to the property as an inci dent to the sale thereof, and (6) any amounts paid by the vendee for closing costs which are customary under local practices. It docs not include any prepaid charges, or any accrued rents which will be paid to the vendee. (A-) “ R esidence” means any structure at least one-half o f the floor space o f which is used, serving or designed for dwelling purposes, if such structure does not include more than two fam ily units. Houses connected by common walls and com m only known as “ row houses” or “ semidetached houses” shall be considered separate structures. (I) “ Residential prop erty” means any real property, other than farm property, on which there is or is to be a residence or residences. (m ) “ Farm prop erty” means any real property, located outside o f urban areas, which is principally used for the production of crops, livestock or other agricultural commodities. S E C T IO N 3. G E N E R A L R E Q U IR E M E N T S A N D R E G IS T R A T IO N ( a ) General R equirem ents. — N o person engaged in the business o f extending real estate crcdit shall extend real estate construction credit unless (1) he is registered pursuant to this section, and (2) lie has no knowledge of, and has no reason to know, any fact by reason o f which such credit fails to com ply with any applicable provision of this regulation. :1The 5 per cent is added when the extension of credit is for the purpose of financing (lie construction of a residence on farm property in order to take ac count of the value o f the land upon which the residence is to he constructed. Shxs.3,4 5 REG U LA TIO N ' X (b I Registration.— Every person engaged in tlie business o f ex tending real estate credit shall be deemed to be registered pursuant to this regulation from the effective date hereof until such time as the Hoard, by public announcement, may require registration statements to be filed by all, or any specified classes of, such persons. Should the Board require such registration statements, a person shall continue to be registered after the time such statements are required only if he shall have complied with the requirements o f the B oard’s announce ment. Every person who is registered in accordance with the pro visions o f this subsection is referred to in this regulation as a ' ‘ Regis trant." (r) Suspension o f Registration.— A ny Registrant may. after rea sonable notice and opportunity for a hearing, be suspended by the Board, as to all or as to particular activities or particular offices and for specified or indefinite periods, because o f any willful or negligent failure to com ply with any provision o f this regulation. A suspension for a specified period will terminate upon the expira tion o f such period. A suspension for an indefinite period may be terminated by the Board, in its discretion, if the Board is satisfied that its action would not lead to further violations o f this regulation by the suspended Registrant and would not be otherwise incompatible with the public interest. S E C T IO N 4. E X T E N S IO N OF CRE D IT (a) A m o u n t; M aturity; Amortization.^— Except as otherwise per mitted by this regulation, no Registrant shall, either in connection with a sale or otherwise: (1) Extend real estate construction credit with respect to resi dential property (other than major additions or m ajor improve ments) if the amount of credit outstanding with respect to the property (including any credit exempt from, or not subject to the prohibitions of, this regulation) exceeds, or as a result o f such extension o f credit would exceed, the applicable maximum loan value of such property; (2) Extend real estate construction credit for the purpose o f financ ing a m ajor addition or m ajor improvement to a residence if the amount o f credit outstanding for the purpose o f financing the major addition or m ajor improvement (including any credit exempt from, or not subject to the prohibitions of, this regulation) exceeds, or as 6 R E G U L A T IO N X S ec. 4 a result o f such extension o f credit would exceed, the applicable maximum loan value o f such m ajor addition or m ajor improvement; (3) Extend real estate construction credit for the purpose of financing the construction o f a residence on farm property if the amount o f credit outstanding for the purpose o f financing the con struction of the residence (including any credit exempt from, or not subject to the prohibitions of, this regulation) exceeds, or as a result o f such extension o f credit would exceed, the applicable maxi mum loan value o f such residence; (41 Extend real estate construction credit if such credit would have a maturity which exceeds the applicable maximum maturity provisions, or would be repaid in any manner which does not conform with the applicable amortization provisions set forth in the Supple ment to this regulation; (5) Purchase, discount or lend on any credit instrument evidenc ing real estate construction credit which is subject to and not exempt from this regulation, unless the terms o f such credit conformed with the provisions o f the Supplement to this regulation when such credit was originally extended or conform with the provisions o f the Supple ment at the time o f such purchase, discount or loan; but for the purposes o f this paragraph credit shall be considered to be subject to the regulation even though extended by a person other than a Registrant; (6) I f the Registrant is acting as principal— sell, or transfer title to, residential property on which there is new construction (which is a residence or a m ajor addition or m ajor improvement to a resi dence) and with respect to which the vendee or transferee assumes, or takes such property subject to, indebtedness secured by a mort gage or other lien upon such property, if the amount o f outstanding credit (including any credit exempt from, or not subject to the pro hibitions of, this regulation) which was extended after the effective date o f the regulation with respect to the property exceeds, or as a result o f such sale or transfer would exceed, the applicable maximum loan value o f such property, or if any outstanding real estate con struction credit (subject to and not exempt from this regulation) with respect to such property does not conform with the provisions of this regulation and the Supplement thereto. (b ) Secondary B orrow ing. — Except as otherwise permitted by this regulation, no Registrant shall extend real estate construction credit if he knows or has reason to know that there is, or that there is to be. S ec. 4 R E G U L A T IO N X 7 any other credit extended with respect to the property 111 which, when added to the credit proposed to be extended by the Registrant, would cause the total amount o f credit outstanding with respect to the property (including any credit exempt from, or not subject to the pro hibitions of, this regulation t to exceed the applicable maximum loan value o f such property, or (2) which, if it is real estate construction credit subject to and not exempt from this regulation, does not or would not com ply with the applicable maximum maturity and amorti zation provisions set forth in the Supplement to this regulation. (c) Statement o f the Borrow er.— N o Registrant shall extend any credit unless he is satisfied, and maintains records which reasonably demonstrate on their face, whether such credit is or is not real estate construction credit. If the Registrant accepts in good faith a signed Statement o f the Borrower stating that the credit is not wholly or partly secured by, or for the purpose o f purchasing or carrying, or for the purpose o f financing, or one which involves the right to acquire or use, new construction on real property or real property on which there is new construction (or that such new construction, if any, is not a residence or a m ajor addition or m ajor improvement to a resi dence), such Statement shall be deemed to be com pliance with the requirements o f this paragraph. N o Registrant shall extend real estate construction credit unless lie has accepted in g(*od faith a signed Statement o f the Borrower (1 i stat ing whether the credit is with respect to (A> residential property, (B l a residence on farm property, or (C ) a m ajor addition or a major improvement to a residence; and (2) stating, if the Registrant claims that such credit is exempt from this regulation, the reason for such exemption; and, if the credit is not exempt, (3i stating the amount of credit previously extended and outstanding, and the amount of any other credit to be extended, with respect to the residential prop erty, the residence on farm property, or the m ajor addition or major improvement to a residence, (4) stating, if the Registrant in com put ing “ value” relies upon cost or estimated cost to the borrower (where such cost or estimated cost m ay be used for this purpose), the bona fide amount o f such cost or estimated cost to the borrower, and (5) stating, if the extension o f credit is in connection with a sale, the sale price, that the sale price was bona fide, and the value and a brief description o f any property accepted in part payment. If the extension of credit is in connection with a sale, such Statement shall state that the vendor o f the property has or will have no financial 8 R E G U L A T IO N X S k cs. 4 .5 interest in such property or in the proceeds o f any subsequent dispo sition thereof, except such interest as may be fully disclosed to the Registrant. The amount o f any such financial interest o f the vendor retained in the property or any proceeds o f the disposition thereof shall be deemed to be real estate construction credit extended with respect to such property. The Statement o f the Borrower may be made, if desired, on a form obtainable at any Federal Reserve Bank or branch. S E C T IO N 5 . E X E M P T I O N S A N D E X C E P T IO N S (a) M inim um A m ou n t. — The prohibitions o f this regulation shall not apply to any extension of credit if the total amount thereof, in cluding all outstanding credit which was granted after the effective date o f this regulation with respect to the same property, is not in excess of $2,.500. (b l Short-Term Construction Credits.— The prohibitions o f this regulation shall not apply to any credit which is for the purpose of financing the construction of a residence or residences or a major addition or m ajor improvement, if the maturity of such credit is not more than 18 m onths; provided that this exemption shall not be con strued to permit any renewal, revision, consolidation, or refinancing o f such credit except on terms which conform with the provisions o f this regulation and the Supplement thereto. I f (1) the initial purpose o f an extension of credit having a maturity exceeding 18 months is the financing o f the construction of a residence or residences or a m ajor addition or m ajor improvement and (21 an agreement with respect to the credit requires that upon (A ) the com pletion o f such construction or (B ) the expiration o f a period o f not more than 18 months after the extension o f the credit, whichever shall first occur, such action must be taken by the parties as may be necessary to make the terms of the credit conform thereafter with the applicable maxi mum loan value and the applicable maturity and amortization pro visions set forth in the Supplement to this regulation, then in such event the prohibitions of this regulation shall not apply to such credit until the occurrence of one of the events specified in (A ) or (B ) above; but if at any time after the date of the extension o f such credit, a Registrant sells or transfers title to the property with respect to which the credit is extended, such sale or transfer of title must con form to the provisions o f this regulation and the Supplement thereto. (ci Disaster Credits.— The prohibitions o f this regulation shall not apply to any extension o f real estate construction credit with respect S kc. 5 R E G U L A T IO N X 9 to real property in any area in which the Federal Reserve Bank o f the district may declare that an emergency exists because o f a flood, fire or other disaster affecting a substantial number o f the inhabitants o f the stricken ar^a. This exemption with respect to any area so designated shall apply only to extensions o f credit of such character and during such period as the Federal Reserve Bank may prescribe. (d ) Medical Expenses, Etc.— The prohibitions o f this regulation shall not apply to any extension of real estate construction credit as to which the Registrant accepts in good faith a signed Statement o f the Borrower certifying that the proceeds thereof are to be used for bona fide medical, hospital, dental, or funeral expenses, or to pay debts incurred for such expenses, and that the proceeds of the exten sion are to be paid over in amounts specified in such Statement to persons whose names, addresses and occupations are stated therein. (el Casualties.— The prohibitions o f this regulation shall not apply to any extension o f real estate construction credit as to which the Registrant accepts in good faith a signed Statement of the Borrower certifying that the proceeds thereof are to be used solely for the re placement, reconstruction or repair of a residence destroyed or sub stantially damaged by flood, fire or other similar casualty. ( /) Contracts to Sell. — The prohibitions o f this regulation shall not apply to any contract to sell real property (\ I which does not pro vide for the payment of any part of the purchase price, or of any amount to be subsequently applied to such price, except a deposit o f earnest money, before the transfer of title to such property, (2) which is to be performed b y a transfer o f title to such property within six months after the date on which the contract was entered into, and (31 which provides for the subsequent transfer o f title to such property on terms which conform to the provisions o f this regulation and the Supplement thereto in effect on the date the contract was entered into. (</ > Contemplated Construction.— Any builder or other person who had made substantial commitments or undertakings before August 3, 1950. with a view to the building o f new construction and who asserts that his inability to obtain credit to finance such new construction on the basis contemplated by him and by the Registrant prior to August 3. 1950, would cause him substantial hardship, m ay apply to the Federal Reserve Rank o f the district in which the new construc tion is contemplated for an exemption from this regulation for such new construction, showing all the facts and submitting all necessary R E G U L A T IO N 1 0 X S ec s. 5 .6 supporting documents with respect to his commitments or under takings and why com pliance with the regulation would cause him substantial hardship. I f such Federal Reserve Bank after consider ation of the application and supporting documents determines that substantial commitments were made prior to August 3, 1950, and that substantial hardship would result from the application o f this regulation in such case, it m ay issue to such builder or other person a certificate approving such application and thereupon any extension o f credit to such builder or other person by any Registrant with respect to the new construction that may be specified in such certifi cate shall be exempt from the prohibitions of this regulation. {h I Labor and M aterial.— N o person shall be required to register pursuant to section 3 of this regulation because of the fact that he performs labor or furnishes material for new construction on an open account, unless he shall be otherwise engaged in the business of extending real estate credit. O’ I Credits Secured by Life Insurance Policies. — The prohibitions o f this regulation shall not apply to any extension of real estate con struction credit which is fully secured by the loan value or cash sur render value o f a life insurance p olicy; and, notwithstanding any other provisions o f this regulation, a Registrant in determining the amount o f credit which he may extend under the provisions of section 4 of the regulation need not take into account any credit which is secured in the manner specified in this paragraph. ( j i Farm Property. — The prohibitions o f this regulation shall not apply to any extension o f real estate construction credit with respect to farm property unless the extension o f credit is for the purpose o f financing the construction o f a residence on farm property or a m ajor addition or m ajor improvement to a residence on farm property. .SECTION 6. M IS C E L L A N E O U S P R O V IS IO N S (a ) Evasions.— N o extension o f real estate construction credit com plies with the requirements of this regulation if at the time it is made there is any agreement, arrangement, or understanding, of which the Registrant knows or has reason to know, by which credit is or is to be extended in violation o f this regulation, even though such extension o f credit is or is to be made indirectly, or which would otherwise evade or circumvent, or conceal any evasion or circumvention of, any provision o f this regulation or the Supplement thereto. N o Regis trant extending credit subject to this regulation shall divide such credit into two or more parts, or enter into any agreement or under standing with any other person as a result o f which two or more credits are extended, when the purpose or effect o f such action is to circumvent or avoid the amortization or maturity provisions o f this regulation or the Supplement thereto. (b ) Outstanding Contracts and O bligations.— The provisions of this regulation shall not apply to or affect any credit extended prior to the effective date of this regulation, or pursuant to any firm com mitment to extend credit made prior to such date. F or this purpose, a firm commitment means either (1) a written agreement under which the Registrant is required without option or discretion on his part to extend credit upon demand by the borrower or upon com pliance by the borrower with one or more conditions referred to in such agree ment; or (2) any other agreement to extend credit which has been entered into in good faith by the parties and in reliance upon which the prospective borrower has taken specific action prior to the effective date of the regulation, if the Registrant within 30 days after the effective date of this regulation shall have sent to the Federal Reserve Bank of the district in which he does business a letter or other state ment reciting the facts with respect to such agreement and the specific action taken by the prospective borrower prior to the effective date of the regulation. (c) Real Property Outside the United States.— The prohibitions of this regulation shall not apply to any extension o f real estate con struction credit with respect to real property in Alaska, the Panama Canal Zone, or any territory or possession outside the continental United States. Preservation o f R ecord s; Inspections; Administrative Re ports.— For the purpose o f determining whether or not there has been com pliance with the provisions o f this regulation, even- person extend ing real estate credit shall preserve for a period o f three years after each extension o f credit such accounts, correspondence, memoranda, papers, books, and other records, or photostats thereof, as are relevant to establishing whether such person is engaged in the business of extending real estate credit; whether each credit extended is or is not real estate construction credit with respect to residential property, a farm residence, or a m ajor addition or m ajor improvement to a resi dence; and whether each extension o f real estate construction credit 12 R E G U L A T IO N X Sue. 6 conform ed with the provisions of this regulation and the Supplement thereto. Every such person shall permit the Board or a Federal Reserve Bank, by its duly authorized representatives, to inspect such records and business operations as the Board or a Federal Reserve Bank m ay deem necessary or appropriate; and when ordered to do so, shall furnish, under oath or otherwise, such reports, information, or records relevant to extensions o f credit as the Board or a Federal Reserve Bank m ay deem necessary or appropriate for the enforcement and administration of this regulation.4 (e) Default and F oreclosure; Servicem an's Preinduction Del>t. — Nothing in this regulation shall be construed to prevent any Regis trant from taking such action as he shall deem necessary in good faith (1) with respect to any extension o f credit to any member or former member o f the armed forces of the United States which was made to him prior to his induction into such service and assignment to active duty, or (2) for the Registrant’s own protection in connec tion with any credit which is in default and is the subject of a bona fide collection effort by the Registrant. The prohibitions o f this regu lation shall not apply to an extension o f credit by a Registrant in con nection with a sale o f property acquired by him through foreclosure proceedings if such credit does not exceed the unpaid principal amount o f the foreclosed credit and the costs o f acquisition through foreclosure. (7 1 Right o f Registrant to Im pose Stricter R equirem ents.— Any Registrant, if he desires, may refuse to extend credit, extend less credit than the amount permitted by this regulation, or require that repayment be made within a shorter period or in larger instalments than prescribed in the Supplement to this regulation. ((/I Reliance upon Statement o f the Borrow er.— The facts sot forth in any signed Statement of the Borrower which a Registrant accepts and relics upon in good faith shall be deemed to be correct for the purposes of the Registrant. ih) False Statements.— The making or submission by any person o f any false, fictitious or fraudulent statement or representation pur suant to, or which is intended to conform to, or show com pliance with, any requirement or provision of this regulation, shall be a violation o f this regulation. ‘ The reporting and record-keeping requirements o f this regulation have been approved b y the Bureau o f the Budget in accordance with the Federal Reports Act o f 1942. Sec. 6 R E G U L A T IO N X 13 (i) Statutory Penalties. — The A ct provides that “ Any person who willfully violates any provision o f section * * * 602 (relating to real estate construction credit) or any regulation or order issued there under, upon conviction thereof, shall be fined not more than $5,000 or imprisoned not more than one year, or both.” 0 ) Enforceability o f Contracts.— N othing in this regulation shall affect the enforceability o f any contract. SUPPLEMENT TO REGULATION X M axim um Loan V alu e. — F or the purposes o f Regulation X , maxi mum loan values for all residential property, farm residences, and m ajor additions and m ajor improvements are prescribed as set forth in the following table. In the case o f credit extended with respect to residential property or farm residences involving more than one struc ture. the maximum loan value may be applied separately with respect to each such structure or with respect to the entire property or all such residences, at the election o f the Registrant. If the value (determined as provided in section 2(i) ______ o f the regulation) is______ T h e maximum loan value is M ore than $2,500 but not more than $5,000 90% o f the value M ore than $5,000 but not more than $9,000 $4,500 plus 65% o f excess of value over $5,000 M ore than $9,000 but not more than $15,000 S7.100 plus 60% o f excess of value over $9,000 M ore than $15,000 but not more than $20,000 ),700 plus 20% o f excess of value over $15,000 Over $20,000 11,700 plus 10% o f excess o f value over $20,000 but not less than 50% o f value Maturity.— F or the purposes o f Regulation X the following maturity requirements are prescribed: N o credit subject to the regulation shall have a maturity o f more than 20 years from the date such credit is extended except that a credit extended with respect to property having a value (determined as provided in section 2 (?) o f the regulation I o f $7,000 or less may have a maturity o f not more than 25 years if it is to be fully repaid at or before the date o f maturity through amortization on the basis prescribed in clause (2) o f the following paragraph relating to amortization: Am ortization.— For the purposes o f Regulation X , the following amortization requirements are prescribed: With respect to every credit subject to the regulation, amortization payments shall be required which either (1) will annually reduce the original principal amount of such credit by not less than 5 per cent until the outstanding balance 14 SUPPLEM ENT TO R E G U L A T IO N X 15 of such credit has been reduced to an amount equal to or less than 50 per cent o f the value o f the property with respect to which such credit was extended or (2) will fully liquidate the original principal amount o f such credit not later than the date o f the maturity o f the credit through substantially equal monthly, quarterly, semiannual, or annual payments covering principal and interest or through substan tially equal m onthly, quarterly, semiannual, or annual payments o f principal. The value referred to in the preceding sentence shall be determined as o f the date the credit was extended in the manner provided in section 2 (i) o f the regulation. I f the amount o f the credit when extended is not more than 50 per cent o f such value, such credit shall not be subject to the amortization provisions o f this paragraph.