The volume of the corporation's purchases and sales, and the establishment of the purchase prices, sale prices, and charges or fees, in its secondary market operations under this section, should be determined by the corporation from time to time, and such determinations should be consistent with the objectives that such purchases and sales should be effected only at such prices and on such terms as will reasonably prevent excessive use of the corporation's facilities, and that the operations of the corporation under this section should be within its income derived from such operations and that such operations should be fully self-supporting.1 Nothing in this title shall prohibit the corporation from purchasing, and making commitments to purchase, any mortgage with respect to which the Secretary of Housing and Urban Development has entered into a contract with the corporation to make interest subsidy payments under section 243 of the National Housing Act.3

5

(2) In the further interest of assuring sound operation, any loan made by the corporation 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, and shall bear interest at a rate consistent with general loan policies established from time to time by the corporation's board of directors. Any such loan shall mature in not more than twelve months and the term of any extension or renewal shall not exceed twelve months. The volume of the corporation'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 corporation 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 corporation's facilities, and that the operations of the corporation under this section should be within its income derived from such operations and that such operations should be fully selfsupporting. Notwithstanding any Federal, State, or other law to the contrary, the corporation 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

1 Sec. 204 (a) of the Housing Act of 1956, Public Law 1020, 84th Congress, approved August 7, 1956, 70 Stat. 1091, 1096, added a sentence to this paragraph, restricting advance commitments under sec. 304 to those of a standby type "to facilitate advance planning of home construction". Sec. 302 of the Housing Act of 1959, Public Law 86-372, approved September 23, 1959, 73 Stat. 654, 669, struck out "advance planning of home construction' and inserted in lieu thereof "home financing". The entire sentence was struck out by sec. 1007 of the Demonstration Cities and Metropolitan Development Act of 1966, Public Law 89-754, approved November 3, 1966, 80 Stat. 1255, 1285. 2 Sec. 504, Emergency Home Finance Act of 1970, Public Law 91-351, approved July 24, 1970, 84 Stat. 450, 461, added this sentence.

3 Sec. 806 (j) of the Housing and Community Development Act of 1974, Public Law 93-383, 88 Stat. 633, approved August 22, 1974, substituted "section 243 of the National Housing Act" for "section 502 of the Emergency Home Finance Act of 1970".

Sec. 603 (d), Housing Act of 1961, Public Law 87-70, approved June 30, 1961, 75 Stat. 149, 176, added paragraph (2).

5 Sec. 603 (d) of Housing Act of 1961, Public Law 87--70, approved June 30, 1961, 75 Stat. 149, 176, added paragraph (2) to sec. 304 (a). Sec. 703 of Housing Act of 1964, Public Law 88-560, approved September 2, 1964. 78 Stat. 769. 802, substituted "90 per centum" for "80 per centum".

81-793 O - 77 - 38

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 corporation.

2

1

(b) For the purposes of this section, the corporation is authorized to issue, upon the approval of the Secretary of the Treasury, and have outstanding at any one time obligations having such maturities and bearing such rate or rates of interest as may be determined by the corporation with the approval of the Secretary of the Treasury, to be redeemable at the option of the corporation before maturity in such manner as may be stipulated in such obligations; but the aggregate amount of obligations of the corporation under this subsection outstanding at any one time shall not exceed fifteen 1 times the sum of its capital, capital surplus, general surplus, reserves, and undistributed earnings unless a greater ratio shall be fixed at any time or from time to time by the Secretary of Housing and Urban Development. In no event shall any such obligations be issued if, at the time of such proposed issuance, and as a consequence thereof, the resulting aggregate amount of its outstanding obligations under this subsection would exceed the amount of the corporation's ownership pursuant to this section, free from any liens or encumbrances, of cash, mortgages or other security holdings, and obligations of the United States or guaranteed thereby, or obligations, participations, or other instruments which are lawful investments for fiduciary, trust, or public funds. The corporation shall insert appropriate language in all of its obligations issued under this subsection clearly indicating that such obligations, together with the interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United States or of any agency or instrumentality thereof other than the corporation. The corporation is authorized to purchase in the open market any of its obligations outstanding under this subsection at any time and at any price.

3

(c) The Secretary of the Treasury is authorized in his discretion to purchase any obligations issued pursuant to subsection (b) of this section, as now or hereafter in force, and for such purpose the Secretary of the Treasury is authorized to use as a public debt transaction the proceeds of the sale of any securities hereafter issued under the Second Liberty Bond Act, as now or hereafter in force, and the purposes for which securities may be issued under the Second Liberty Bond Act, as now or hereafter in force, are extended to include such purchases. The Secretary of the Treasury shall not at any time purchase any obligations under this subsection if such purchase would in

1 Sec. 1 of Public Law 89-566, approved September 10, 1966, 80 Stat. 738, substituted "fifteen" for "ten".

3 Sec. 802 (q), Housing and Urban Development Act of 1968, Public Law 90-448, approved August 1, 1968, 82 Stat. 476 added the Secretary's authority to increase the ratio. The ratio was increased to 20-to-1 effective October 1, 1968, 33 F.R. 14779, 24 C.F.R. 81.4 (a).

3 Sec. 305 (a) of the Housing Act of 1959, Public Law 86-372, approved September 23. 1959, 73 Stat. 654, 670, struck out from sec. 304 (b) "and bonds or other obligations of. or bonds or other obligations guaranteed as the principal and interest by, the United States" and inserted in lieu thereof "and obligations of the United States or guaranteed thereby, or obligations which are lawful investments for fiduciary, trust, or public funds". Sec. 603 (e) of Housing Act of 1961, Public Law 87-70, approved June 30. 1961, 75 Stat. 149, 177, added "or other security holdings" after "mortgages". Sec. 701(b) (2) of Housing Act of 1964, Public Law 88-560, approved September 2, 1964, 78 Stat. 769, 800, struck out "or obligations which are lawful investments" and inserted in lieu thereof "or obligations, participations, or other instruments which are lawful investments" (see sec. 310).

crease the aggregate principal amount of his then outstanding holdings of such obligations under this subsection to an amount greater than $2,250,000,000.1 Each purchase of obligations by the Secretary of the Treasury under this subsection shall be upon such terms and conditions as to yield a return at a rate determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the making of such purchase. The Secretary of the Treasury may, at any time, sell, upon such terms and conditions and at such price or prices as he shall determine, any of the obligations acquired by him under this subsection. All redemptions, purchases, and sales by the Secretary of the Treasury of such obligations under this subsection shall be treated as public debt trans

actions of the United States.

(d)2 To provide a greater degree of liquidity to the mortgage investment market and an additional means of financing its operations under this section, the corporation is authorized to set aside any mortgages held by it under this section, and, upon approval of the Secretary of the Treasury, to issue and sell securities based upon the mortgages so set aside. Securities issued under this subsection may be in the form of debt obligations or trust certificates of beneficial interest, or both. Securities issued under this subsection shall have such maturities and bear such rate or rates of interest as may be determined by the corporation with the approval of the Secretary of the Treasury. Securities issued by the corporation under this subsection shall, to the same extent as securities which are direct obligations of or obligations guaranteed as to principal and interest by the United States, be deemed to be exempt securities within the meaning of laws administered by the Securities and Exchange Commission. Mortgages set aside pursuant to this subsection shall at all times be adequate to enable the corporation to make timely principal and interest payments on the securities issued and sold pursuant to this subsection.

(e) For the purposes of this section, the corporation is authorized to issue, upon the approval of the Secretary of the Treasury, obligations which are subordinated to any or all other obligations of the corporation, including subsequent obligations. The obligations issued under this subsection shall have such maturities and bear such rate or rates of interest as may be determined by the corporation with the approval of the Secretary of the Treasury and may be made redeemable at the option of the corporation before maturity in such manner

1 This limitation was set by the 1954 FNMA Charter Act at $500,000,000 plus the amount of any reductions pursuant to section 306(c) but in no event to exceed $1,000,000,000. Sec. 1(c), Public Law 85-10, approved March 27, 1957, 71 Stat. 7, amended the limitation to be a flat $1.350.000.000. Sec. 203 of the Housing Act of 1957. Public Law 85-104, approved July 12, 1957, 71 Stat. 298, increased the limitation to $2.250.000.000. Sec. 802 (r). Housing and Urban Development Act of 1968, Public Law 90-448, approved August 1, 1968, 82 Stat. 476, 538, deleted a provision in this sentence which prohibited borrowing from the Treasury after retirement of all the preferred stock.

2 Subsection (d), as established by the 1954 FNMA Charter Act, prohibited FNMA, under section 304, from (1) purchasing participations and (2) issuing advance commitments except on a "one for one" basis. Section 204(b). the Housing Act of 1956, Public Law 1020, 84th Congress, approved August 7. 1956, 78 Stat. 1996, repealed the prohibition against advanced commitments. Section 704, Housing Act of 1964, Public Law 88-560, approved September 2, 1964, 78 Stat. 802. repealed the remainder of the subsection. Sec. 804(a). Housing and Urban Dvelopment Act of 1968. Public Law 90-448, approved August 1, 1968, 82 Stat. 476, 542, added the present subsection (d).

Sec. 805, Housing and Urban Development Act of 1968, Public Law 90-448, approved August 1, 1968, 82 Stat. 476, 543, added subsection (e).

as may be stipulated in such obligations. Any of such obligations may be made convertible into shares of common stock in such manner, at such price or prices, and at such time or times as may be stipulated therein. The total principal amount of such subordinated obligations which may be outstanding at any one time shall not exceed two times the sum of (1) the capital of the corporation represented by its outstanding common stock and (2) its surplus and undistributed earnings at such time. The outstanding total principal amount of such obligations, which are entirely subordinated to the obligations of the corporation issued or to be issued under subsection (b), shall be deemed to be capital of the corporation for the purpose of determining the aggregate amount of obligations issued under subsection (b) which may be outstanding at any one time. Obligations issued by the corporation under 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 corporation shall insert appropriate language in all of its obligations issued under this subsection clearly indicating that such obligations, together with the interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United States or of any agency or instrumentality thereof other than the corporation. The corporation is authorized to purchase in the open market any of its obligations outstanding under this subsection at any time and at any price.

SPECIAL ASSISTANCE FUNCTIONS GOVERNMENT NATIONAL

MORTGAGE ASSOCIATION

1

SEC. 305.2 (a) To carry out the purposes set forth in paragraph (b) of section 301, the President, after taking into account (1) the conditions in the building industry and the national economy and (2) conditions affecting the home mortgage investment market, generally, or affecting various types or classifications of home mortgages, or both, and after determining that such action is in the public interest, may under this section authorize the Association, for such period of time and to such extent as he shall prescribe, to exercise its powers to make commitments to purchase and to purchase such types, classes, or categories of home mortgages (including participations therein) as he shall determine.

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(b) The operations of the Association under this section shall be confined, so far as practicable, to mortgages (including participations) which are deemed by the Association to be of such quality as to meet, substantially and generally, the purchase standards imposed by private institutional mortgage investors but which, at the time of submission of

1 Sec. 802(t), Housing and Urban Development Act of 1968, Public Law 90-448, approved August 1. 1968, 82 Stat. 476, 538, added "Government National Mortgage Association" to this heading.

2 Executive Order No. 11732 [F.R. 20429]. approved July 30, 1973, delegated the functions of the President to the Secretary of Housing and Urban Development, under title III. sees. 301 and 305.

3 Subsection (b) now reads as it was enacted in 1954.

Sec. 205 of the Housing Act of 1956, Public Law 1020, 84th Congress, approved August 7, 1956, 70 Stat. 1091, 1096. prescribed a minimum price of 99 for a period of 1 year from August 7, 1956. Sec. 204 (a) of Public Law 85-104, approved July 12, 1957, 71 Stat. 294. 298, prescribed a minimum price of par for the period ending August 7, 1958. Sec. 204 (b) of the Housing Act of 1957, Public Law 85-104. 71 Stat. 299, limited charges and fees to a maximum of 1% per centum and specified that not more than one-half of the charges or fees imposed with respect to any mortgage could be collected at the time of FNMA's commitment to purchase. Sec. 303 (a), Housing Act of 1959, Public Law 86-372, approved September 23, 1959, 73 Stat. 654, 669, restored to sec. 305 (b) to the language originally provided in the 1954 FNMA Charter Act.

the mortgages to the Association for purchase, are not necessarily readily acceptable to such investors. Subject to the provisions of this section, the prices to be paid by the Association for mortgages purchased in its operations under this section shall be established from time to time by the Association. The Association shall impose charges or fees for its services under this section with the objective that all costs and expenses of its operations under this section should be within its income derived from such operations and that such operations should be fully self-supporting.

(c) The total amount of purchases and commitments authorized by the President pursuant to subsection (a) of this section shall not exceed $1,700,000,000 outstanding at any one time, which limit shall be increased by $100,000,000 on the date of the enactment of the Housing and Urban Development Act of 1965, by $550,000,000 on July 1, 1967, by $525,000,000 on July 1, 1968, and by $2,000,000,000 on July 1, 1969.1 (d) The Association may issue to the Secretary of the Treasury its obligations in an amount outstanding at any one time sufficient to enable the Association to carry out its functions under this section, such obligations to mature not more than five years from their respective dates of issue, to be redeemable at the option of the Association before maturity in such manner as may be stipulated in such obligations. Each such obligation shall bear interest at a rate determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the issuance of the obligation of the Association. The Secretary of the Treasury is authorized to purchase any obligations of the Association to be issued under this section, and for such purpose the Secretary of the Treasury is authorized to use as a public debt transaction the proceeds from the sale of any securities issued under the Second Liberty Bond Act, as now or hereafter in force, and the purposes for which securities may be issued under the Second Liberty Bond Act, as now or hereafter in force, are extended to include any purchases of the Association's obligations hereunder.

(e) Notwithstanding any other provision of this Act, the Association is authorized to enter into advance commitment contracts and

1 Sec. 205 of the Housing Act of 1957, Public Law 85-104, approved July 12. 1957, 71 Stat. 294, 299, increased the general authorization from $200,000,000 to $450,000,000, and eliminated a $100,000,000 authorization for immediate participations in mortgages and a rélated unspecific authorization for deferred participations. Sec. 2, Public Law 85-364, approved April 1, 1958, 72 Stat. 73, substituted "$950,000,000" for "$450,000,000". Sec. 601(a) of Housing Act of 1961. Public Law 87-70, approved June 30, 1961, 75 Stat. 149, 175, substituted "$1,700,000,000" for $950,000,000". Sec. 801 (a) of Housing and Urban Development Act of 1965, Public Law 89-117, approved August 10, 1965, 79 Stat. 451, 493, added the provisions for increases in the limit of $100,000,000 on August 10, 1965, $450.000,000 on July 1, 1966, $550,000,000 on July 1, 1967, and $525,000,000 on July 1, 1968. Sec. 3(a) of Public Law 89-429, approved May 24, 1966, 80 Stat. 164, 166, repealed the addition of $450,000,000 on July 1, 1966. Sec. 806, Housing and Urban Development Act of 1968, Public Law 90-448, approved August 1, 1968, 82 Stat. 476, 544, added the increase for July 1, 1969, of $500,000,000. Sec. 401(a), Emergency Home Finance Act of 1970, Public Law 91-351, approved July 24, 1970, 84 Stat. 450, 458, substituted "$2,000,000,000 on July 1, 1969" for "$500,000,000 on July 1, 1969".

Sec. 103 of the Housing Amendments of 1955, Public Law 345, 84th Congress, approved August 11. 1955, 69 Stat. 625, 636, added sec. 305 (e). Sec. 207 of the Housing Act of 1956, of Public Law 1020, 84th Congress, approved August 7, 1956, 70 Stat. 1091. 1097, amended the original language, relating the total authorization in the first sentence not only to commitments but also to purchases, and making the State authorization revolve. Sec. 2 of Public Law 85-10, approved March 27, 1957, 71 Stat. 7. increased the total authorization in the first sentence from $50,000,000 to $100,000,000 and raised the State authorization from $5,000,000 to $10,000,000. Sec. 206 of the Housing Act of 1957, Public Law 85-104, approved July 12, 1957, 71 Stat. 294, 299, amended sec. 305 (e) to read as set forth in the text of the first sentence thereof above. Sec. 304 of Housing Act of 1959, Public Law 86-372, approved September 23, 1959, 73 Stat. 654, 669, added the second sentence. Sec. 109 (b) of Housing Act of 1964, Public Law 88-560, approved September 2. 1964, 78 Stat. 769, 777, added the third sentence of sec. 305(e).