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1 which are insured or guaranteed under the Servicemen's
2 Readjustment Act of 1944 or chapter 37 of title 38, United 3 States Code, or which are insured under a contract of in
4 surance and by an insurer which are generally acceptable 5 to private institutional mortgage investors (as determined by 6 the Association), or which, although neither insured nor
guaranteed, are of a quality generally acceptable to private 8 institutional mortgage investors and otherwise meet generally 9 the standards of the Association in its other operations under
10 section 304: Provided, That the Association shall not pur
chase mortgages as to which the outstanding principal 12 balances exceed 80 per centum of the appraised value of the
properties. covered thereby unless payment of such excess 14 amount is insured or guaranteed.
"The Association is authorized under sections 305 and
306, pursuant to commitments or otherwise, to purchase, 17 service, sell, or otherwise deal in any mortgages which are
insured under the National Housing Act, or which are in
sured or guaranteed under the Servicemen's Readjustment 20 Act of 1944 or chapter 37 of title 38, United States Code: 21 Provided, That (1) no mortgage may be purchased at a 22 price exceeding 100 per centum of the unpaid principal 23 amount thereof at the time of purchase, with adjustments 24 for interest and any comparable items; (2) the Association
may not purchase any mortgage if it is offered by, or covers
1 property held by, a State or municipality or instrumentali
2 ties thereof; and (3) the Association may not purchase any
3 mortgage, except a mortgage insured under section 220 or
4 title VIII, or insured under section 213 and covering prop
5 erty located in an urban renewal area, or a mortgage cover
6 ing property located in Alaska, Guam, or Hawaii, if the
7 original principal obligation thereof exceeds or exceeded
8 $17,500 for each family residence or dwelling unit covered
9 by the mortgage.
10 “For the purposes of this title, the term ‘mortgages' 11 shall be inclusive of any mortgages or other loans insured 12 under any of the provisions of the National Housing Act.”
SEC. 2. Section 304 (d) of the Federal National Mort
14 gage Association Charter Act is hereby repealed.
S. 2130, ANALYSIS The purpose of this bill is to empower the Federal National Mortgage Association to deal in conventional mortgages and to provide otherwise for its further development as a secondary market facility.
The first section of the bill revises section 302(b) of the Federal National Mortgage Association Charter Act so as to enlarge the scope of the Association's operations. Under its regular secondary market operations, which are in the main privately financed, the Association would be authorized to purchase, lend on the security of, and otherwise deal in conventional (uninsured) mortgages which do not exceed 80 percent of the appraised value of the security, and also in smiliar mortgages when the loan-value ratio exceeds 80 percent if the excess is covered by suitable mortgage insurance of an acceptable private insurer. Also as to the secondary market operations, certain existing operating restrictions are dropped as not being appropriately applicable to a privately financed activity intended to serve the broad general secondary market for mortgages :
These consist of the prohibition against purchasing mortagages at a price exceeding par (100); the prohibition against purchasing mortgages offered by, or covering property held by, Federal, State, territorial, or municipal instrumentalities; and a mortgage amount ceiling of $20,000 for each family residence or dwelling unit (as to which existing law now provides several exceptions), All present restrictions are retained, however, with one exception (see next paragraph) as to corporation's special assistance functions, which are wholly Government financed.
As to the Treasury-financed special assistance functions, and also the management and liquidating functions, section 1 would accomplish the eliminiation of the existing prohibition against the corporation's acquisition of mortgages from Federal instrumentalities, in order to provide for possible future centralization of Government mortgage ownership and management. Present law provides an exception to the foregoing, in that mortgages can now be acquired from the Housing and Home Finance Agency and its constituents; the bill would expand this to include other Federal instrumentalities. All other restrictive provisions in existing law, including the general prohibition against acquisitions of mortgages from States and their instrumentalities, are retained.
Section 2 would expand the scope of the corporate activities under the privately financed secondary market operations, also. It would repeal section 304(d) of the FNMA Charter Act, which now states: “The Association may not purchase participations in its operations under this section.” The purpose, of course, is to empower FNMA to buy, sell, etc., participations in mortgages, a type of transaction which has become markedly significant recently in the field of secondary market activity in mortgages.
REPORTS FROM AGENCIES
GENERAL COUNSEL OF THE DEPARTMENT OF COMMERCE,
Washington, D.C., September 20, 1963. Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, U.S. Senate, Washington, D.C.
DEAR MR. CHAIRMAN: This is in further reply to your request for the views of this Department on S. 810, a bill to authorize the chartering of organizations to insure conventional mortgage loans, to authorize the creation of secondary market organizations for conventional and other mortgage loans, to authorize the issuance of debentures upon the security of insured or guaranteed mortgages, and to create a joint supervisory board to charter and examine such organizations, and for other purposes.
S. 810 would create and authorize appropriations for a new Federal agency, a joint board to charter and supervise privately organized and financed corporations. The corporations would insure and market conventional home mortgages. The result would be to set up a private mortgage insurance and mortgage marketing system analogous to the Federal Housing Administration insurance program and the Federal National Mortgage Association. Mortgage insurance corporations would be authorized to insure not less than 100 percent of the unpaid principal and interest on any loan secured by a mortgage on a one- to four-family residential property or on a one-family unit of multifamily cooperative apartments. Loans under the program could range up to 30 years duration and up to 90 percent of the appraised value or the sales price whichever is less, so long as the loan is not more than $30,000. Mortgage marketing corporations would be authorized to buy, sell, service, and participate in mortgages on one- to fourfamily residential properties insured by a mortgage insurance corporation estab lished under this bill, or insured or guaranteed by an agency of the United States.
The purpose of this bill is to strengthen the secondary market for conventionally financed mortgages in order that lenders can more easily sell the mortgages they originate to long-term institutional investors, such as life insurance companies and pension funds. It is intended that the bill will stimulate private housing development and stabilize output and employment in the housing supply industry by assuring an even flow of mortgage funds.
The Department of Commerce opposes enactment of S. 810.
There appears to be no present need for this legislation since there is no lack of mortgage funds. Mortgage originating institutions wishing to dispose of portions of their conventional uninsured mortgage portfolio find no difficulty in selling such mortgages at reasonable and customary discounts.
Enactment of the bill might raise the cost of conventional financing, already higher than when done on FHA or VA terms, and harm the secondary mortgage market. Under the bill, mortgages would be insured to make them more attractive to large instiutions. Nearly all the mortgages insured in this way will bear high financing charges. Because of the relatively high financing costs to the borrower, and other factors, custodians of large institutional investment funds are likely to be wary of these instruments and will probably tend to select only the best of the privately insured conventional mortgage loans offered under this program.
The danger is that the insurance provision is likely to be applied or to be demanded on the weakest types of conventional mortgages now being written and that it will be the least desirable mortgage instruments which will be passed on to investors through the marketing institutions set up by the bill. The large institutional investors at whom this proposal is aimed, having the requisite experience and investment knowledge, can select the sound mortgage instruments. After the large institutions have had their pick, the remaining insured conventional mortgages available for distribution to smaller financial organizations and to private investors are likely to be tagged with an inferior label, as high risk propositions, not up to FHA property standards. If this should happen, it will certainly not help in achieving the goal of securing faster turnover of capital by making a larger supply of funds available to real estate development firms, to builders, and to the ultimate consumer, the individual home buyer. There apnears to be little reason to hope, therefore, that this legislation would have a significant effect on housing starts or employment in the housing construction industry.
We have been advised by the Bureau of the Budget that there would he no objection to the submission of this report from the standpoint of the administration's program. Sincerely,
ROBERT E. GILES.
GENERAL COUNSEL OF THE DEPARTMENT OF COMMERCE,
Washington, D.C., September 18, 1963. Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, U.S. Senate, Washington, D.O.
DEAR MR. CHAIRMAN: This is in further reply to your request for the views of this Department with respect to S. 811, a bill to enable Federal home loan banks to implement their services to their member institutions by establishing a secondary marketing facility for participations in conventional home mortgage loans.
S. 811 would create a Home Mortgage Corporation whose stock would be subscribed to by Federal home loan banks and Federal savings and loan associations. This Corporation would buy and sell participations in conventional mortgages on residential properties containing not more than four family units. S. 811 would supplement the financial structure of the Federal Home Loan System which now provides for advances to savings and loan and other institutions on their loan portfolios. Both loan and secondary market facilities are already available on FHA-insured and VA-guaranteed mortgages through the Federal National Mortgage Association
Since this legislation deals with matters of primary concern to the Federal Home Loan Bank Board, the Department of Commerce would defer to the views of that agency with respect to S. 811.
We have been advised by the Bureau of the Budget that from the standpoint of the administration's program there would be no objection to the submission of this report to the committee. Sincerely,
ROBERT E. GILES.
COMPTROLLER GENERAL OF THE UNITED STATES,
Washington, May 2, 1963. Hon. A. WILLIS ROBERTSON, Chairman, Committee on Banking and Currency, U.S. Senate
DEAR MR. CHAIRMAN: Reference is made to your letter of February 20, 1963, requesting our comments on s. 810, which, if enacted, would be cited as the "Mortgage Market Facilities Act of 1963."
The bill would create a joint supervisory board to charter and examine organizations for the purpose of providing insurance and secondary market facilities for conventional and other mortgage loans. We have no firsthand information concerning the desirability of the proposed legislation and since its enactment would not directly affect the functions of the General Accounting Office we have no comments with respect to the merits of the bill. However, if the bill is to receive favorable consideration, there are several matters concerning the bill which we wish to bring to the attention of your committee.
The privately financed mortgage insurance corporations and mortgage marketing corporations that would be established under sections 301 and 401 of the bill would have functions quite similar to those already being performed by two constituent agencies of the Housing and Home Finance Agency—the Federal Housing Administration and the Federal National Mortgage Association. For example, both the mortgage marketing corporations and the Federal Na
Mortgage Association, a mixed-ownership Government corporation, would have authority to purchase, sell, and service mortgages on one- to four-family residential properties insured or guaranteed by an agency of the United States.
Section 202(a) of the bill provides for the appointment of a Joint Board Chairman who, unlike the four other members of the Board, would not be permitted to engage in any other business, vocation, or employment. However, the bill does not provide for the position of an executive officer to whom the employees of the Board would be responsible for administrative activities such as audits, examinations, and personnel management. We can envision operational difficulties if, in the absence of a principal executive officer, day-to-day administrative problems would have to be resolved by the 5-member Board. Since the Chairman is the only Board member who would be required to devote his full time to the Board's activities and since other Board members may not always be readily available to make administrative decisions, the committee may wish to designate the Board Chairman as the principal executive officer responsible for all administrative activities.
Section 203 (b) of the bill would empower the Chairman of the Joint Board "* * * to select, appoint, or employ and to fix the compensation of such officers, attorneys, and agents and to vest them with such powers and duties as he may determine to be necessary for the performance of the duties of the Joint Board * * *
We have no special information or knowledge as to why employees of the Joint Board should be exempt from the civil service laws and the Classification Act of 1949. However, where employees are not subject to civil service laws and the Classification Act of 1949, as amended, we have generally favored a provision that they should not be paid salaries at rates in excess of rates payable under the act for positions of equivalent difficulty and responsibility. As an example of such provision, see section 161 (d) of the Atomic Energy Act of 1946, chapter 724, as added by the Atomic Energy Act of 1954, approved August 30, 1954, chapter 1073, 68 Stat. 948, 42 U.S.C. 2201 (d).
Section 205 of the bill states that: “The expenses of carrying out the provisions of this act shall be borne out of appropriations to the Joint Board.” Apparently, this sentence is intended to provide authority for the making of appropriations by the Congress. If so, we suggest that the language be made more specific by adding on line 17, page 7, after the word “Board,” the words "which appropriations are hereby authorized."