SEC-705 -- SECTION 502 DEFERRED MORTGAGE DEMONSTRATION. 

 
 (a) In General.-Section 502 of the Housing Act of 1949 (42 U.S.C.
1472), as amended by the preceding provisions of this Act, is further
amended by adding at the end the following new subsection:
 
 "(g) Deferred Mortgage Demonstration.-
 
 "(1) Authority.-With respect to families or persons otherwise eligible
for assistance under subsection (d) but having incomes below the amount
determined to qualify for a loan under this section, the Secretary may
defer mortgage payments beyond the amount affordable at 1 percent
interest, taking into consideration income, taxes and insurance.
Deferred mortgage payments shall be converted to payment status when the
ability of the borrower to repay improves. Deferred amounts shall not
exceed 25 percent of the amount of the payment due at 1 percent interest
and shall be subject to recapture.
 
 "(2) Interest.-Interest on principal deferred shall be set at 1
percent and any interest payments deferred under this subsection shall
not be treated as principal in calculating indebtedness.
 
 "(3) Funding.-Subject to approval in appropriations Acts, not more
than 10 percent of the amount approved for each of fiscal years 1991 and
1992 for loans under this section may be used to carry out this
subsection.".
 
 (b) Regulations.-Not later than the expiration of the 120-day period
beginning on the date of enactment of this Act, the Secretary of
Agriculture shall issue any regulations necessary to carry out the
amendment made by subsection (a).