SECONDARY MARKET FOR HOUSING LOANS

EXCERPTS OF THE NATIONAL HOUSING ACT

TITLE III-FEDERAL NATIONAL MORTGAGE
ASSOCIATION 1

PURPOSES

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SEC. 301. The Congress hereby declares that the purposes of this title are to establish in the Federal Government a secondary market facility for home mortgages, to provide that the operations of such facility shall be financed by private capital to the maximum extent feasible, and to authorize such facility to

(a) provide supplementary assistance to the secondary market for home mortgages by providing a degree of liquidity for mortgage investments, thereby improving the distribution of investment capital available for home mortgage financing;

(b) provide special assistance (when, and to the extent that, the President has determined that it is in the public interest) for the financing of (1) selected types of home mortgages (pending the establishment of their marketability) originated under special housing programs designed to provide housing of acceptable standards at full economic costs for segments of the national population which are unable to obtain adequate housing under established home financing programs, and (2) home mortgages generally as a means of retarding or stopping a decline in mortgage lending and home building activities which threatens materially the stability of a high level national economy; and

(c) manage and liquidate the existing mortgage portfolio of the Federal National Mortgage Association in an orderly manner, with a minimum of adverse effect upon the home mortgage market and minimum loss to the Federal Government.

1 Sec. 201 of the Housing Act of 1954, Public Law 560, 83d Congress, approved August 2, 1954, 68 Stat. 590, 612, 12 U.S.C. 1716 et seq., rewrote title III of the National Housing Act to recharter the Federal National Mortgage Association and prescribe its functions. See sec. 312 of the National Housing Act, infra, which provides that title III may be referred to as the "Federal National Mortgage Association Charter Act."

Title III of the National Housing Act as it was originally enacted authorized the creation of national mortgage associations to purchase and sell first mortgages on real estate. At the request of the President of the United States, on February 10, 1938, pursuant to title III, the Federal National Mortgage Association was chartered by the Federal Housing Administration as the "National Mortgage Association of Washington". The name was changed to the Federal National Mortgage Association on April 5, 1938. The entire capital stock and paid-in surplus were subscribed and paid for by the Reconstruction Finance Corporation, and the conduct of the Association's affairs was integrated with and directed by the RFC. On September 7, 1950, the Association was transferred to the Housing and Home Finance Agency pursuant to Reorganization Plan No. 22 of 1950, 64 Stat. 1277.

Sec. 202 of the Housing Act of 1954 provided that the "Federal National Mortgage Association, established pursuant to the provisions of title III of the National Housing Act as in effect prior to July 1, 1948, and named in sec. 101 of the Government Corporation Control Act, as amended, shall be the body corporate referred to in sec. 302 of title III of the National Housing Act, as amended by the Housing Act of 1954".

Sec. 5(b) of the Department of Housing and Urban Development Act, Public Law 89174, approved September 9. 1965, 79 Stat. 667, 669, transferred the Association to the Department established by that Act.

CREATION OF ASSOCIATION

SEC. 302. (a) There is hereby created a body corporate to be known as the "Federal National Mortgage Association" (hereinafter referred to as the "Association"), which shall be a constituent agency of the Housing and Home Finance Agency. The Association shall have succession until dissolved by Act of Congress. It shall maintain its principal office in the District of Columbia and shall be deemed, for purposes of venue in civil actions, to be a resident thereof. Agencies or offices may be established by the Association in such other place or places as it may deem necessary or appropriate in the conduct of its business.

(b) For the purposes set forth in section 301 and subject to the limitations and restrictions of this title, the Association is authorized, pursuant to commitments or otherwise, to purchase, lend (under section 304) on the security of, service, sell, or otherwise deal in any mortgages which are insured under the National Housing Act or title V of the Housing Act of 1949,1 or which are insured or guaranteed under the Servicemen's Readjustment Act of 1944 or chapter 37 of title 38, United States Code: Provided, That (1) no mortgage may be purchased at a price exceeding 100 per centum of the unpaid principal amount thereof at the time of purchase, with adjustments for interest and any comparable items; (2) the Association may not purchase any mortgage, except a mortgage insured under title V of the Housing Act of 1949,2 if it is offered by, or covers property held by, a 3 State, territorial, or municipal instrumentality; and (3) the Association may not purchase any mortgage under section 305, except a mortgage insured under section 220 or title VIII, or under title X with respect to a new community approved under section 1004 thereof, or insured under section 213 and covering property located in an urban renewal area, or a mortgage covering property located in Alaska, Guam, or Hawaii, if the original principal obligation thereof exceeds or exceeded $17,500 for each family residence or dwelling unit covered by the mortgage (plus an additional $2,500 for each such family residence or dwelling unit which has four or more bedrooms). Notwithstanding the provisions of clause (3) in the preceding sentence, the Association may purchase a mortagage under section 305 with an original principal obligation that exceeds $17,500 per dwelling unit if the mortgage (1) is a

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1 Sec. 1004 (a)(1) of the Housing and Urban Development Act of 1965, Public Law 89-117, approved August 10, 1965, 79 Stat. 451, 501 inserted "or title V of the Housing Act of 1949" (rural housing mortgages).

2 Sec. 1004 (a) (2) of the Housing and Urban Development Act of 1965, Public Law 89-117, approved August 10, 1965, 79 Stat. 451, 501, inserted ", except a mortgage insured under title V of the Housing Act of 1949," (rural housing mortgages).

3 Sec. 802 (a) (1) of the Housing and Urban Development Act of 1965, Public Law 89-117, approved August 10, 1965, 79 Stat. 451, 493, struck out "Federal,".

Sec. 405, Demonstration Cities and Metropolitan Development Act of 1966, Public Law 89-754, approved November 3, 1966, 80 Stat. 1255, 1273, inserted "or under title X with respect to a new community approved under section 1004 thereof,".

5 Sec. 201 of Public Law 1020, 84th Congress, approved August 7, 1956, 70 Stat. 1091, 1096, exempted a mortgage insured under sec. 803 or a mortgage covering property located in Alaska, Guam, or Hawaii from the $15,000 limitation provided by the 1954 FNMA Charter Act. Sec. 301 of Public Law 86-372, approved September 23, 1959, 73 Stat. 654, 669, provided $17,500 and $20,000 limitations in place of the $15.000 limitation, and exempted a mortgage insured under sec. 220. Sec. 602 of Public Law 87-70, approved June 30, 1961, 75 Stat. 149, 176, struck out "or 803" and inserted in lieu thereof "or title VIII", and exempted a mortgage insured under sec. 213 and covering property located in an urban renewal area. Sec. 702 of Public Law 88-560, approved September 2, 1964, 78 Stat. 769, 802, removed the $20,000 limitation. Sec. 804 of Public Law 89-117, approved August 10, 1965, 79 Stat. 451, 494, inserted "(plus an additional $2,500 for each such family residence or dwelling unit which has four or more bedrooms)".

below-market interest rate mortgage insured under section 221 (d) (3), and (2) covers property which has the benefit of local tax abatement in an amount determined by the Federal Housing Commissioner to be sufficient to make possible rentals not in excess of those that would be approved by the Commissioner if the mortgage amount did not exceed $17,500 per dwelling unit and if local tax abatement were not provided. For the purposes of this title, the terms "mortgages" and "home mortgages" shall be inclusive of any mortgages or other loans insured under any of the provisions of the National Housing Act or title V of the Housing Act of 1949.2

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(c) (1) Notwithstanding any other provision of this Act or of any other law, the Association is authorized under section 306 to create, accept, execute, and otherwise administer in all respects such trusts, receiverships, conservatorships, liquidating or other agencies, or other fiduciary and representative undertakings and activities, hereinafter in this subsection called "trusts", as might be appropriate for financing purposes; and in relation thereto the Association may acquire, hold and manage, dispose of, and otherwise deal in any mortgages or other types of obligations in which any department or agency of the United States listed in paragraph (2) of this subsection may have a financial interest. The Association may join in any such undertakings and activities notwithstanding that it is also serving in a fiduciary or representative capacity; and is authorized, consistent with section 307, to guarantee any participations or other instruments, whether evidence of property rights or debt, issued for such financing purposes. Participations or other instruments issued by the Association pursuant to this subsection shall to the same extent as securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States be deemed to be exempt securities within the meaning of laws administered by the Securities and Exchange Commission. The amounts of any mortgages and other obligations acquired by the Association under section 306, pursuant to this subsection, shall not be included in the total amounts set forth in section 306 (c).

(2) Subject to the limitations provided in paragraph (4) of this subsection, one or more trusts may be established as provided in this subsection by each of the following departments or agencies:

(A) The Farmers Home Administration of the Department of Agriculture, but only with respect to operating loans, direct farm ownership loans, direct housing loans, and direct soil and water loans. Such trusts may not be established with respect to loans for housing for the elderly under sections 502 and 515 (a)

1 Sec. 803 of Public Law 89-117, approved August 10, 1965, 79 Stat. 451, 494, inserted the next to the last sentence of this subsection.

As added by sec. 102(c) of Public Law 87-70, approved June 30, 1961, 75 Stat. 149, 158, the last sentence of this subsection read: "For the purposes of this title, the term 'mortgages' shall be inclusive of any mortgages or other loans insured under any of the provisions of the National Housing Act." Sec. 201 (b) (1) of Public Law 89-117, approved August 10, 1965, 79 Stat. 451, 465, struck out "the term 'mortgages'" and inserted in lieu thereof "the terms 'mortgages' and 'home mortgages' ". Sec. 1004 (a) (3) of Public Law 89-117, 79 Stat. 501, inserted "or title V of the Housing Act of 1949".

Sec. 302 (c) was added by sec. 701(a) of Public Law 88-560, approved September 2, 1964, 78 Stat. 769, 800, and amended by Public Law 89-117, approved August 10, 1965, 79 Stat. 451, 494. Sec. 2(a) of Public Law 89-429, approved May 24, 1966, 80 Stat. 164, further amended this section and redesignated subsec. (c) as par. (1). Sec. 2(b) of Public Law 89-429, approved May 24, 1966, 80 Stat. 164, added par. (2), (3), (4), and (5) to sec. 302 (c).

of the Housing Act of 1949, nor with respect to loans for nonfarm recreational development.

(B)1 The Department of Health, Education, and Welfare, but only with respect to loans made by the Commissioner of Education for construction of academic facilities, and loans to help finance student loan programs.

(C) The Department of Housing and Urban Development, except that such authority may not be used with respect to secondary market operations of the Federal National Mortgage Association.

(D) The Veterans' Administration.

(E) The Export-Import Bank.

(F) The Small Business Administration.

The head of each such department or agency, hereinafter in this subsection called the "trustor", is authorized to set aside a part or all of any obligations held by him and subject them to a trust or trusts and, incident thereto, shall guarantee to the trustee timely payment thereof. The trust instrument may provide for the issuance and sale of beneficial interests or participations, by the trustee, in such obligations or in the right to receive interest and principal collections therefrom; and may provide for the substitution or withdrawal of such obligations, or for the substitution of cash for obligations. The trust or trusts shall be exempt from all taxation. The trust instrument may also contain other appropriate provisions in keeping with the purposes of this subsection. The Association shall be named and shall act as trustee of any such trusts and, for the purposes thereof, the title to such obligations shall be deemed to have passed to the Association in trust. The trust instrument shall provide that custody, control, and administration of the obligations shall remain in the trustor subjecting the obligations to the trust, subject to transfer to the trustee in event of default or probable default, as determined by the trustee, in the payment of principal and interest of the beneficial interests or participations. Collections from obligations subject to the trusts shall be dealt with as provided in the instrument creating the trust. The trust instrument shall provide that the trustee will promptly pay to the trustor the full net proceeds of any sale of beneficial interests or participations to the extent they are based upon such obligations or collections. Such proceeds shall be dealt with as otherwise provided by law for sales or repayment of such obligations. The effect of both past and future sales of any issue of beneficial interests or participations shall be the same, to the extent of the principal of such issue, as the direct sale with recourse of the obligations subject to the trust. Any trustor creating a trust or trusts hereunder is authorized to purchase, through the facilities of the trustee, outstanding beneficial interests or participations to the extent of the amount of his responsibility to the trustee on beneficial interests or participations outstanding, and to pay his proper share of the costs and expenses incurred by the Federal National Mortgage Association as trustee pursuant to the trust instrument.

1 Immediately prior to amendment by sec. 7 of Public Law 89-751, approved November 3, 1966. 80 Stat. 1222, 1236, clause B read as follows: "(B) The Office of Education of the Department of Health, Education, and Welfare, but only with respect to loans for construction of academic facilities."

(3) When any trustor guarantees to the trustee the timely payment of obligations he subjects to a trust pursuant to this subsection, and it becomes necessary for such trustor to meet his responsibilities under such guaranty, he is authorized to fulfill such guaranty.

(4) Beneficial interests or participations shall not be issued for the account of any trustor in an aggregate principal amount greater than is authorized with respect to such trustor in an appropriation Act. Any such authorization shall remain available only for the fiscal year for which it is granted and for the succeeding fiscal year.1 (5) The Association, as trustee, is authorized to issue and sell beneficial interests or participations under this subsection, notwithstanding that there may be an insufficiency in aggregate receipts from obligations subject to the related trust to provide for the payment by the trustee (on a timely basis out of current receipts or otherwise) of all interest or principal on such interests or participations (after provision for all costs and expenses incurred by the trustee, fairly prorated among trustors). There are authorized to be appropriated without fiscal year limitation such sums as may be necessary to enable any trustor to pay the trustee such insufficiency as the trustee may require on account of outstanding beneficial interests or participations authorized to be issued pursuant to paragraph (4) of this subsection. Such trustor shall make timely payments to the trustee from such appropriations, subject to and in accord with the trust instrument.

CAPITALIZATION

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SEC. 303. (a) The Association shall have nonvoting common stock; and initially shall also have nonvoting preferred stock to which the Secretary of the Treasury shall subscribe as provided in subsections (d) and (e) of this section. All stock of the Association shall have a par value of $100 per share, and shall not be transferable except on the books of the Association. At the option of the Association all such stock shall be retireable at par value at any time, except that retirements of common stock shall not be made if, as a consequence, the amount thereof remaining outstanding would be less than $100,000,000. With respect to the preferred stock held by him, the Secretary of the Treasury shall be entitled to cumulative dividends for each fiscal year or portion thereof, from the date or dates the capital represented by such preferred stock is initially utilized until such preferred stock is retired, at rates determined by him at the beginning of each such fiscal

1 Sec. 9 of Public Law 89-429, approved May 24, 1966, 80 Stat. 164. 168. reads as follows: "SEC. 9. The Federal National Mortgage Association is authorized during the fiscal year 1966 to sell

"(1) additional participations in the Government Mortgage Liquidation Trust, and "(2) participations in a trust to be established by the Small Business Administration. each without regard to the provisions of paragraph (4) of section 302 (c) of the Federal National Mortgage Association Charter Act."

The Independent Offices Appropriation Act, 1967, Public Law 89-555, approved September 6, 1966, authorized until June 30, 1968, the sale of participations as follows: Farmers Home Administration $600,000,000.

Office of Education $100,000,000.

Department of Housing and Urban Development $1,420,000,000.

Veterans Administration $260,000,000.

Small Business Administration $850,000,000.

2 The Independent Offices Appropriation Act, 1967, Public Law 89-555, approved September 6, 1966, provided an indefinite appropriation to the departments and agencies named in this subsection pursuant to the authorization in this sentence.