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of MBA's board of governors. Those present at this meeting were Messrs. Bass. Tharpe, Costa, Dovenmuehle, Shutz, Thompson, and Stallard.

There was general agreement among those present at this meeting that the proposals as they were being developed merited support by the association, and there was general agreement that if the bill as drafted was actually introduced in the Congress and thus had to be discussed by the representative of the association scheduled to testify before the Senate Banking and Currency Committee's Subcommittee on Housing on May 18, that it would be desirable for the associations representative to express support of the measure even though there would not have been an opportunity by that date to advise the entire membership of the board of governors of the details of the proposal and to secure approval from them. It was felt that the executive committee should take this responsibility in view of the fact that the general language in the current MBA policy statement would indicate approval of a proposal along the line of that being discussed, and the feeling that since representatives of MBA had participated and taken such a prominent part in the preparation of the proposed bill, the association should take credit for the work done by its representatives. You will find with this letter the text of the proposed bill in its present form and a brief analysis of what the major provisions of the bill would accomplish. The text of the proposed bill has already been distributed to all members of the board of governors who have been invited by President Bass to express their views to him at their earliest opportunity. President Bass has also indicated to me that he would welcome expressions of opinion from all members of the association concerning this proposed legislation.

A representative of MBA is scheduled to testify on May 18 concerning the various bills now before the Housing Subcommittee of the Senate Banking and Currency Committee, and also on May 25 on the new housing bills which have just been introduced by Representative Rains (H.R. 12152 and H.R. 12153), and which will be summarized in the next Washington newsletter.

Sincerely yours,

SAMUEL E. NEEL, General Counsel.

[Excerpt from the Congressional Record, May 12, 1960]

INCORPORATION OF FEDERAL MORTGAGE INVESTMENT COMPANIES

Mr. SPARKMAN. Mr. President, on behalf of myself, and the Senator from Indiana, Mr. Capehart, I introduce, for appropriate reference, a bill to provide additional financial facilities in the Federal National Mortgage Association, to provide for the incorporation of Federal mortgage investment companies, and for other purposes.

The bill is introduced by request, in order to provoke study and discussion. The idea of a central mortgage bank has been of great interest for a long time. As the present occupant of the chair, the distinguished Senator from Maine, Mr. Muskie, who is a member of the Subcommittee on Housing of the Committee on Banking and Currency, well knows, we have discussed the subject in committee many times. Considerable research has been done over the last few years, and now three of the great organizations interested in the matter-the National Association of Home Builders, the Mortgage Bankers Association, and the National Association of Real Estate Boards-have come forward with a suggested bill.

As I have said, I introduce the bill at their request at this time for the reason that hearings are now in progress in the Subcommittee on Housing concerning housing legislation for this year. The hearings have been running during this week, will resume on Monday, and will continue through next week.

Some persons will want to discuss this very kind of program in the course of the hearings, so I think it is well that a specific bill be before the Senate. I have not had an opportunity to study the bill in all its details. I cannot say that I am familiar with all its features. I do endorse the central idea, and have done so for a long time.

I think it would mean much for the obtaining of needed credit and stabilization of the home mortgage market in this country if there were such an organization as the one which is proposed.

My introduction of the bill does not mean that I endorse every feature of it at all. I endorse the central thought, and hope that the bill may serve as a basis from which a satisfactory central mortgage program may be evolved. Mr. President, I ask unanimous consent that a statement I have prepared concerning the bill may be printed at this point in the Record.

The PRESIDING OFFICER. The bill will be received and appropriately referred; and, without objection, the statement will be printed in the Record.

The bill (S. 3541) to provide additional financial facilities in the Federal National Mortgage Association, to provide for the incorporation of Federal mortgage investment companies, and for other purposes, introduced by Mr. Sparkman (for himself and Mr. Capehart) by request, was received, read twice by its title, and referred to the Committee on Banking and Currency. The statement presented by Mr. Sparkman is as follows:

"STATEMENT BY SENATOR SPARKMAN

"I am introducing today, on request, a bill which should provide the basis upon which the Senate can begin to consider a proposal to which many of us have given long consideration and which has gained support in many quarters during recent years. It is a bill to provide additional financial facilities in the Federal National Mortgage Association, to provide for the incorporation of Federal mortgage investment companies, and thereby to establish by amendment of the Federal National Mortgage Association Charter Act and other statutes the framework for a central mortgage reserve facility, which many in the past have called a central mortgage bank.

"The subject of a central mortgage reserve facility has been widely discussed and considered in general terms by private industry and committees of the Congress over a period of several years. During the hearings before the Subcommittee on Housing in the last session on "A Study of Mortgage Credit Over the Next Decade," a number of witnesses presented papers and testimony pointing emphatically to the need for this legislation. The report of the subcommittee submitted under Senate Resolution 221 had this to say on the subject: "The Federal National Mortgage Association, as presently constituted and administered, cannot be expected to supplement and stabilize the flow of mortgage credit to the extent that may be desirable. If this supplementation and stabilization are to be objectives of Federal policy during the 1960's, it will be necessary to (1) reconstitute the Federal National Mortgage Association, or (2) change its administrative policies, or (3) create new institutions, such as a central mortgage bank, to operate in lieu of or in conjunction with the FNMA, or (4) a combination of these actions.

"Heretofore, however, most discussions on this subject have been on the desirability—in effect, the necessity-of supplementing and stabilizing the flow of mortgage credit. Differences among private groups upon detail in the method of accomplishing this have gradually disappeared.

"I am now informed that during the past several months three representatives each of the National Association of Home Builders, the National Association of Real Estate Boards, and the Mortgage Bankers Association have held frequent meetings to solve differences in detail in their thinking on this subject and to develop a sound bill, aimed at constituting a true central mortgage reserve facility, to which the industry could agree. I am pleased to be able to inform the Senate that such agreement has been accomplished and is expressed in the bill I have introduced. I am informed that it has the support of the National Association of Home Builders and of the National Association of Real Estate Boards and that, although the board of directors of the Mortgage Bankers Association has not yet met to act officially, the president and other representatives of MBA who attended the meetings from which this bill developed have approved it and state that it is in accord with the general policies of that organization.

"Possibly the bill can be further improved as the views of other organizations and individuals are obtained at committee hearings. However, I have introduced the bill at this time in order to bring it to the attention of all of those sincerely interested in improving the residential mortgage credit system and so that it may be discussed at hearings of the Subcommittee on Housing, now underway.

"It is my hope that other Senators on both sides of the aisle will join with me in sponsoring the bill. I shall in the next few days submit a section-by-section analysis and further explanation of the bill."

SUMMARY OF THE MORE IMPORTANT PROVISIONS OF A PROPOSED BILL TO AMEND THE FEDERAL NATIONAL MORTGAGE ASSOCIATION CHARTER ACT AND TO PROVIDE FOR THE INCORPORATION OF FEDERAL MORTGAGE INVESTMENT COMPANIES

TITLE I-FNMA AMENDMENTS

FNMA would be permitted to make loans of up to 12 months, to approved sellers, to be secured by mortgages that are described in the bill.

A ceiling would be established of one-half of 1 percent on the nonrefundable amount to be paid by borrowers toward FNMA capital (this would require those who borrow from FNMA to buy stock in the same fashion as those who sell loans to the organization).

The proposed FNMA loans would be for an original period of 12 months (with the privilege of having them extended for one additional 12-month period upon the payment of additional fees and charges). FNMA would have the discretion to determine how much of its resources it would put into the lending operation and the interest rates and fees and charges on such loans. The amount of the loan could not exceed 90 percent of the unpaid principal balances of the mortgages securing the loan. There is a provision that the lending operations should be conducted on terms that would prevent excessive use of the association's facilities. FNMA is given adequate authority to supervise all aspects of the lending program and its debenture-issuing potential is increased to 20 times its capital (present limit is 10 times).

There is a provision for a full-time, three-man Board of Directors of FNMA, to be appointed by the President of the United States with the advice and consent of the Senate. One of the Board of Directors would be the President of FNMA but other members of the Board would have no other administrative duties in the organization. The Board of Directors would be full-time, salaried Federal employees. The Board is authorized to appoint an Advisory Council of 12 industry representatives from various organizations, to be representative of the homebuilding, mortgage banking, real estate, and general financing interests, and to be distributed geographically throughout the country. There are provisions dealing with meetings of the Advisory Council.

The bill as drafted does not change the present status of FNMA; in other words, it would continue to function within the Housing and Home Finance Agency.

TITLE II-FEDERAL MORTGAGE INVESTMENT COMPANIES

Title II of the bill provides for the incorporation of "Federal mortgage investment companies." These companies would be chartered by FNMA and would be "supervised" institutions since they would be subject to examination and audit by FNMA. Five or more individuals could apply to FNMA for a charter. The capitalization required is not less than $1 million.

No company could transact any business until it has been chartered by FNMA, and it is also required that at least 25 percent of the company's capital stock must have been subscribed and paid for in cash or Government securities or in authorized types of first mortgages.

After being chartered, the company would have authority to "make, purchase, service, and sell" FHA and GI mortgages or partial interests therein and to "make purchase, service, and sell" 75 percent_conventional first mortgages. Each company would be authorized to issue debentures up to 20 times the amount of its paid-up capital but not to exceed the aggregate current unpaid principal balance of FHA or GI mortgages held by it, plus the amount of its cash and the value of its investments in Government and FNMA securities. A company could not issue debentures until the entire $1 million of its authorized capital stock had been subscribed and paid for in full.

A company could own its own operating facilities but could not otherwise invest in real estate. The company would be authorized to set up reserves to be specified by FNMA. The accumulation of such reserves would be free from Federal income tax. A company would be completely exempted from State, county, or local taxation (other than real estate and personal property taxes on property it owned). The company would also have tax privileges as follows: (a) An investor owning the stock of the company could treat as an ordinary loss any loss he sustained on that stock; and (b) A company would not have to pay income taxes if it distributed to its stockholders 90 percent of its net income (after the establishment of the reserves authorized).

A company would also have the advantages given to small business investment companies under section 307 of the Small Business Investments Act of 1958. These relate to certain exemptions from SEC requirements.

A BILL To provide additional financial facilities in the Federal National Mortgage Association, to provide for the incorporation of federal mortgage investment companies, and for other purposes

Be it enacted by the Senate and the House of Representatives of the United States of America in Congress assembled,

TITLE I-FEDERAL NATIONAL MORTGAGE ASSOCIATION

SEC. 101. That part of section 302 (b) of the Federal National Mortgage Association Charter Act which precedes the colon is amended by striking out "to make commitments to purchase and to purchase, service, or sell, any residential or home mortgages (or participations therein) which are insured under this Act, as amended," and by substituting therefor ", 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, as amended,".

SEC. 102. The third sentence of section 303 (a) of such Act is amended by striking out "At the option of the Association all such stock shall be retireable at par value at any time," and by substituting therefor "At the option of the Association, all or any part of the preferred stock shall be retirable at par value at any time. The Association may purchase, and may retire, hold, or sell, its common stock,".

SEC. 103. The first sentence of section 303 (b) of such Act is amended by inserting immediately before the period at the end thereof the following: “; and by requiring each borrower to make such payments, equal to not more than one-half of 1 per centum of the amount lent by the Association to such borrower under section 304".

SEC. 104. Section 303 (c) of such Act is amended by striking out the first sentence and by substituting therefor "The Association shall issue, from time to time, to each mortgage seller or borrower its common stock, only in denominations of $100 or multiples thereof, evidencing any capital contributions (adjusted by reason of any payments into surplus required by the Association) made by such seller or borrower pursuant to subsection (b) of this section."

SEC. 105. Section 303 (g) of such Act is amended by striking out "the Housing and Home Finance Administrator shall transmit to the President for submission" and by substituting therefor "the president of the Association shall transmit".

SEC. 106. Section 304 (a) of such Act is amended by inserting "(1)" before "To carry out", and by adding at the end thereof the following new paragraph: "(2) To carry out further the purposes set forth in paragraph (a) of section 301, the Association is authorized to make loans which are secured by mortgages insured or guaranteed under the National Housing Act, or the Servicemen's Readjustment Act of 1944, chapter 37 of title 38 United States Code. In the interest of assuring sound operation, any loan made by the Association in its secondary market operations under this section, and any extension or renewal thereof, shall not exceed 90 per centum of the unpaid principal balances of the mortgages securing the loan, shall bear interest at a rate consistent with general loan policies established from time to time by the Association's board of directors, and shall mature in not more than twelve months. The volume of the Association's lending activities and the establishment of its loan ratios, interest rates, maturities, and charges or fees, in its secondary market operations under this section, should be determined by the Association from time to time; and such determinations, in conjunction with determinations made under paragraph (1), should be consistent with the objectives that the lending activities should be conducted on such terms as will reasonably prevent excessive use of the Association's facilities, and that the operations of the Association under this section should be within its income derived from such operations and that such operations should be fully self-supporting. Notwithstanding any Federal, State, or other law to the contrary, the Association is hereby empowered, in connection with any loan under this section, whether before or after any default, to provide by contract with the borrower for the settlement or extinguishment, upon default, of any redemption, equitable, legal, or other right, title, or interest of the borrower in any mortgage or mortgages that constitute the security for the loan; and with respect to any such loan, in the event of default and pursuant otherwise to the terms of the contract, the mortgages that constitute such security shall become the absolute property of the Association."

SEC. 107. The first sentence of section 304 (b) of such Act is amended by striking out "ten" and by substituting therefor "fifteen".

SEC. 108. Section 304 (d) of such Act is hereby repealed.

SEC. 109. Section 304 (b), section 309 (c), and section 310 of such Act are each amended by inserting "or other security holdings" after "mortgages".

SEC. 110. Section 308 of such Act is amended by substituting therefor the following:

"PRESIDENT AND BOARD OF DIRECTORS

"SEC. 308. (a) There shall be a president of the Federal National Mortgage Association, who shall be appointed by the President of the United States by and with the advice and consent of the Senate, and who shall serve as chief executive officer of the Association.

"(b) There shall be a board of directors of the Association consisting of the president of the Federal National Mortgage Association who shall be ex officio chairman of the board of directors, and two other members who shall be appointed by the President of the United States by and with the advice and consent of the Senate. The term of the offices aforesaid shall be six years, except that the initial appointments shall be for terms of six, four, and two years, respectively, from a common commencement date. Upon the expiration of any such term, the incumbent of the office shall continue to serve until his successor is appointed and takes office. The members of the board of directors, in addition to their duties as such, shall perform other additional duties as the board of directors may from time to time prescribe. Two members of the board of directors shall constitute a quorum. The board of directors shall select and effect the appointment of qualified persons to fill the office of first vice president and such other executive offices as may be provided for in the bylaws, with such executive functions, powers, and duties as may be prescribed by the bylaws or by the board of directors, and the compensation pertaining to such other executive offices shall be at such rates as shall be determined by the board of directors. "(c) The basic rate of compensation of the president of the Association shall be the same as the basic rate of compensation established for executive offices or positions by section 105 of the Federal Executive Pay Act of 1956; the basic rate of compensation of the members of the board of directors other than the president of the Association, and the basic rate of compensation of the first vice president of the Association, shall be the same as the basic rate of compensation established for executive offices or positions by section 106(a) of the Federal Executive Pay Act of 1956.

“(d) The board of directors may provide for the appointment and maintenance of one or more advisory committees; and the members thereof, as such, shall not be deemed officers or employees of the Association. The term of any member may be terminated at any time by action of the board of directors. Any such committee shall serve in an advisory capacity only. The members thereof shall be compensated on a per diem basis and reimbursed for any necessary travel, in connection with their attendance at meetings of the committee, and in connection with any work therefor that is authorized and requested by the board of directors. Compensation paid pursuant to the preceding sentence shall be at such rates as shall be determined by the board of directors.

"(e) There shall be 'The Advisory Council, Federal National Mortgage Association,' which shall be provided for by the board of directors pursuant to subsection (d) of this section. The Advisory Council shall consist of twelve members, to be selected by the board of directors and appointed by the president of the Association. Each member shall be appointed to serve for such term not to exceed two years as the board of directors shall determine. In selecting the members of The Advisory Council, the board of directors shall have due regard to a fair representation of the home building, mortgage banking, real estate, and general financing interests, and the geographic divisions of the nation. The Advisory Council shall meet on call of the board of directors, issued by the president of the Association, and shall be called to meet not less often than once

in every four months. Insofar as feasible, meetings shall be held in various cities to provide opportunities for the members of The Advisory Council to keep continuously informed as to mortgage market conditions in all parts of the nation."

SEC. 111. The first sentence of section 309 (d) of such Act is amended by striking out "The Chairman of the Board" and by substituting therefor "The president of the Association".

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