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VOLUME 15

O m

n o

NUMBE" 2 ,4

Washington, Friday, November 3, 1950

TITLE 12 BANKS AND
BANKING
_ Chapter II Federal Reserve System Subchapter A Board of Governors of the Federal Reserve System
Beg. X
P art 225R esidential R eal E state C redit
INTERPRETATIONS

Sec.
225.106 Painting, reroofing and repairs as major improvement.
225.107 Sale of new residence subject to pre-effective date indebtedness.
225.108 Allowance for labor.
225.109 Mixed purpose loans.
Authority : 225.106 to 225.109, issued under Pub. Law 774, 81st Cong., E. O. 10161, Sept. 9, 1950, 15 F. R. 6105.

225.106 Painting, reroofing and re pairs as major improvement, It is the Boards view that painting, reroofing, and repairs constitute a major improve ment, within the meaning of 225.2
g, if their cost exceeds $2,500.
225.107 Sale of new residence sub ject to pre-effective date indebtedness.
Inquiries have been received regarding the application of this part to a sale of residential property on which there is new construction, where the vendee as sumes, or takes the property subject to, indebtedness secured by a mortgage on the property and such indebtedness ex ceeds the maximum loan value of the property but evidences credit extended prior to October 12, 1950, the effective date of this part.
This part does not prohibit such a sale or require that the indebtedness be re duced to the maximum loan value of the property. Under the definition con tained in 225.2 d, such a sale con stitutes an extension of credit by the vendor of the property; but, even though the vendor may be a Registrant, the sale is not prohibited by this part because the provisions of 225.4 a 6, which deal specifically with such transactions, pro hibit a sale only if the amount of out standing credit including any credit exempt from, or not subject to the pro hibitions of, this part which was ex tended after the effective date of this part with respect to the property ex ceeds, or as a result of such sale or
transfer would exceed, the applicable maximum loan value of such property, or if any outstanding real estate con struction credit subject to and not ex empt from this part with respect to such property does not conform with the provisions of this part. However, any additional extension of credit by a Reg istrant including the vendor ,if he is a Registrant in connection with such a sale would be prohibited by 225.4 a 1 .

For example, in a sale of residential property on which there is new con struction where the bona fide sale price is $12,000, and the vendee pays $2,000
for the equity of Redemption and as sumes, or takes such property subject to, a $10,000 mortgage which evidences credit extended prior to October 12, it is not necessary that the $10,000 mortgage be rewritten to conform with this part.
However, no part of the $2,000 paid by the vendee for the equity of redemption may be borrowed from a Registrant be cause the amount of credit outstanding with respect to the property already ex ceeds the maximum loan value of the property.
225.108Allowance for labor. In quiries have been received under 225.2 i 2 ii where the facts are these: A prospective borrower owns a vacant lot on which he, with the help of his family and friends, will perform the necessary labor to build a residence. He applies to a Registrant for credit to be secured by a mortgage upon the resi dential property, the proceeds of the loan to be used to pay for materials used in the new construction. The question is:
How does a Registrant determine the value of the residential property?
If the entire cost of the property has been incurred by the prospective bor rower not more than 12 months prior to the extension of credit or is to be in curred by him after such extension of credit, the value is the bona fide cost of the property to the borrower, including a bona fide estimate of the cost of com pleting the new construction. It is the view of the Board that a reasonable bona fide estimate of the value of the labor to be performed by the prospective bor rower, his family, and friends may be included in the bona fide estimate of Continued on next page
CONTENTS
Alien Property, Office of
Pase
Notices:
Vesting Orders, etc.:
Finkler, Matthew_________ 7411
Knauer, Frieda___________ 7412
Leha, Lotte______________ 7412
Matsuda, Karne and Kama_ 7405
Menzel, Anna____________ 7405
Minabe, Hana_____________ 7405
Mller, Anna M________
7406
Mller, Bertha___________ 7406
Obermeier, Betty_________ 7411
Oetker, Rolf and Elizabeth_7412
Piatek, Elizabeth_________ 7412
Ringelsbacher, Willy_______ 7406
Schaaf, John____________
7404
Schmidt-Weferlingen, Max__ 7407
Schroeder, Ludwig________ 7407
Schweidler, Max and Toni__ 7407
Seeler, Ernest____________ 7497
Shinohara, Toshio________ 7408
Siegel, Mary______________ 7408
Solbrig, Marcelle__________ 7408
Stover, Anna Sengstaken___ 7409
Suzuki, Kumazo______ s___ 7409
Tegtmeyer, Hedwig____ ___ 7409
Thode, Arnold____________ 7409
Thomas, Herman_________ 7410
Von Liebert, Charlotte, et al_ 7405
Wagner, Robert Herman___ 7410
Wendler, Carrie, et al______ 7410
Wenzler, Maria__ .________ 7411
Civil Aeronautics Board
Notices :
Convention on International Civil Aviation, Airworthi ness of Aircraft, proposed amendments to Annex 8____ 7389
Hearings, etc.:
Accident investigation, Wash ington National Airport__ 7401
Pan American Airways, Inc., and Trans World Airlines Inc., Philadelphia-TransAtlantic service case_____ 7401
Commerce Department
See International Trade, Office of ;
National Production Authority;
Reciprocity Information Com mittee.
Defense Department
Delegation of authority to Secre tary to apply ratings to direct Government contracts and pur chase orders see National Pro duction Authority.
7383