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The Federal National Mortgage Association is authorized to provide special assistance 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 establishment of their marketability 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.

The Association is authorized under the Presidential authority to make commitments to purchase and to purchase FHA-insured and VA-guaranteed mortgages totaling $2,510 million, outstanding at any one time. At the end of 1964, the amount of special assistance authority for these purposes aggregated $2,363 million. The increase resulted from the transfer at the beginning of 1965, pursuant to the provision of Public Law 87-70, of $147 million of authority from the management and liquidating functions, representing the net amount by which that portfolio was decreased during 1964. No such transfer of authority is authorized in 1966.

In addition to the Association's authority to conduct. special assistance programs by direction of the President, the Congress has expressly authorized FNMA, under its special assistance functions, to issue commitments to purchase and to purchase (1) cooperative housing mortgages insured under section 213 of the National Housing Act, as amended, up to a limit of $225 million outstanding at any one time; (2) mortgages insured under title VIII of that act covering housing for military personnel and civilian employees, up to a limit of $500 million outstanding at any one time; and (3) FHA-insured and VA-guaranteed mortgages of $13,500 or less covering low- and moderate-priced housing on which construction had not commenced at the time application was made for Federal National Mortgage Association's commitments. This program, for which commitment and purchasing authority was limited to $1 billion outstanding at any one time, was terminated by Public Law 87-70 on June 30, 1961.

The $1,725 million of special assistance authority provided by the three described congressional programs has been reduced by $568.1 million to $1,156.9 million as of June 30, 1964, pursuant to the provisions of Public Law 87-70. The decrease is represented by the cancellation of the commitment and purchasing authority remaining unused at June 30, 1961, under the program for low- and moderate-priced housing mortgages ($207.2 million), and an amount equal to the principal reduction since June 1961 of the mortgages owned by the Association under the terminated program ($360.9 million).

The prices paid for mortgages under these functions are established by the Association at the time of the announcement of each individual program, but they may be adjusted thereafter from time to time. The prices that FNMA will currently pay for mortgages or home improvement loans offered pursuant to immediate purchase contracts or commitment contracts range from 99%1⁄2 to 100.

Federal National Mortgage Association's special assistance functions are financed principally by Treasury borrowings, and all the benefits and burdens of the program inure solely to the Secretary of the Treasury.

Budget program. During 1966, commitments to purchase mortgages are estimated to increase over the 1965 level by $229 million, to $673 million. Purchases, which lag well behind commitments, will increase by $165 million, to $279 million, primarily for below-market

interest-rate mortgages on rental and cooperative housing for moderate income families.

In addition, in order to assure sponsors that funds will be available for purchase of below-market-interest-rate mortgages upon completion of housing projects for moderate income families, the FHA reserves or makes preliminary allocations of amounts not in excess of FÑMA's authorization for such purchases. The cumulative amount of authority reserved for this program was $950 million at June 30, 1964, and is estimated to increase to $1,450 million by 1965 and to $1,950 million by June 30, 1966. Of these amounts, reservations uncommitted by FNMA amounted to $720.9 million at June 30, 1964, and are estimated at $913.9 million and $933.9 million at June 30, 1965 and 1966, respectively. The anticipated reservations for 1966 will require an increase in the Association's purchase authority, which is shown under Proposed for separate transmittal, below.

Sales from portfolio, which amounted to $86.5 million in 1964, are estimated at $363 million during 1965 and $25 million in 1966.

Participations. Under the program of liquidating the mortgage portfolio through the sale of beneficial interests or participations in mortgages, in 1965 the Association sold $200 million of participations involving the portfolio of its special assistance functions and projects $350 million in 1966. This program is more fully explained under the Government mortgage liquidation fund, below.

Financing. Net repayments to the Treasury are estimated at $153 million in 1966. Net repayments were $149.4 million in 1964 and are estimated at $517 million in 1965.

Operating results.-Previously, earnings were retained and paid into miscellaneous receipts of the Treasury following the year earned. A payment of $189 thousand was made in 1957, and another payment of $2,445 thousand was made in 1958. In order to protect the Association against losses inherent in a portfolio of this size, earnings will be retained and accumulated for so long as may be warranted. The following table shows the cumulative amounts at the end of each year since 1958 (in thousands

of dollars):

RETAINED EARNINGS (CUMULATIVE)

1959 actual 1960 actual 1961 actual. 1962 actual. 1963 actual. 1964 actual.

1965 estimate. 1966 estimate.

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24,034 37,906

51,505

65,439

75,037

86,498

86,898 97,298

1965 estimate 1966 estimate

2,510,269 2,610,269

100,000

2,610,269 2,610,269

564,707 794,707

464,724 805,724

1,029,431 1,600,431 1,580,838 1,009,838

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Government equity--Con.

Retained earnings..........

Undisbursed loan obligations 1

Unobligated balance. Invested capital and earnings...

Financial Condition (in thousands of dollars)—Continued

1963 actual

1964 actual

Total Government
equity...

Identification code 25-15-4205-0-3-551

99.0

Total Government
equity..

10

25.1 Other services.

25.3 Payment to "Management and liquidating functions fund".

33.0 Investments and loans...

43.0 Interest and dividends.

75,037

Total cost..

94.0 Change in selected resources. Adjustment in selected resources (loan obligations)...

Total obligations..

47

Proposed for separate transmittal:

90

Identification code 25-15-4205-1-3-551

192,850 1,837,310

1,619,177 1,481,238 964,638 822,038

The changes in these items are reflected on the program and financing schedule.
Object Classification (in thousands of dollars)

Financing:

21.47 Unobligated balance, start of year: Authorization to spend public debt receipts..

24.47 Unobligated balance, end of year: Authorization to spend public debt receipts...

Program by activities:
Capital outlay, funded:

1. Land development..

Change in selected resources (undis

bursed loan obligations).

Total obligations (object class 33.0).

86,498

1,619, 177 1,481,238 964,638 822,038

Under proposed legislation, 1965.-Legislation will be Analysis of Government Equity and Undrawn Authorization (in thousands of dollars) proposed to increase the authority of the Association to

239,781 1,637,707

purchase mortgages. It is expected that the legislation
will be enacted in 1965. Of the total $150 million of new
authority, $50 million will be used for mortgages under
the proposed new program of Federal Housing Adminis-
tration insurance of loans for land development for
planned subdivisions or new communities. The re-

1,606,807
07_1,494,639

Subtotal..

3,484,296

3,524,798 3,444,420

3,078,820

Undrawn authorizations._._-1,865,119-2,043,560 -2,479,782 -2.256,782 maining $100 million will be needed for expected 1966 reservations for below-market-interest-rate mortgages on housing for moderate-income families, and to assure that sufficient balances of authority are available in case unexpected demands for purchase of urban renewal, elderly, or cooperative housing mortgages should develop.

New obligational authority: Pro-
posed authorization to spend
public debt receipts..

Relation of obligations to expenditures:

71

Total obligations (affecting expenditures). 74.47 Obligated balance, end of year: Authorization to spend public debt receipts.

Expenditures....

1965 estimate

1964 actual

86,898

SPECIAL ASSISTANCE FUNCTION FUND

Program and Financing (in thousands of dollars)

1964 actual

482,850 822,850 2,000,310 1,450,210 961,260 805.760

6,844

5,942

1,820

1,950

79,791 113,700
53,972 41,500

1966 estimate

97,298

1965 1966 estimate estimate

142,427 163,092 316,800
-46,931 290,000 340,000

133,047 40,300 54.700
228,543 493,392 711,500

1965 estimate

150,000

6,350

2,150

278,300
30,000

1966 estimate

5,000

45,000

50,000

-150,000

150,000 100,000

50,000

-45,000

5,000

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The Association, in its management and liquidating functions, is required by law to manage and liquidate its portfolio of mortgages acquired under contracts made before November 1, 1954, and those other mortgages that have been or may be acquired from authorized sources (Public Law 86-372, approved September 23, 1959.) Such liquidation is to be conducted in an orderly manner, with a minimum of adverse effect upon the home mortgage market and minimum loss to the Federal Government. Liquidation of the portfolio is accomplished through regular principal repayments according to their amortization schedules, sales of mortgages as rapidly as they can be absorbed by private investors without serious disruption of normal market conditions, and as the result of other

principal credits arising from prepayments and foreclosures.

The initial mortgage purchasing phase of this activity has been completed and normally only the management and ultimate liquidation of the portfolio would need to be completed. However, additional mortgages will be acquired for this portfolio from Housing and Home Finance Agency or the constituent units or agencies of Housing and Home Finance Agency from time to time pursuant to the provisions of Public Law 86-372. Under this authority the Administrator must determine that such acquisitions are in the interest of efficient management and liquidation of the mortgages.

Under the provisions of Public Law 87-70, approved June 30, 1961, an amount equal to the net decrease for the preceding fiscal year in the aggregate principal amount of all mortgages owned by the Association under its management and liquidating functions was as of July 1 of each of the years 1961 through 1964 transferred to and merged with the Presidential authority provided for the Associ ation's special assistance functions. The amounts transferred on July 1, 1961, 1962, 1963 and 1964 were $140 million; $170 million; $146 million and $147 million, respectively. No such transfers are authorized in 1966.

Budget program.-There will be no mortgages purchased under commitments made prior to November 1, 1954 for this portfolio during the period covered by these estimates. That purchasing program was completed during 1958.

During 1964, purchases from the Office of the Administrator were $50 thousand and are estimated at $100 thousand in 1965. No purchases of such mortgages are contemplated for 1966.

In 1965, Federal National Mortgage Association under these functions will acquire $131 million of Commissionerowned mortgages from the Federal Housing Administration in exchange for Federal National Mortgage Association held Federal Housing Administration debentures and cash.

Mortgages in the amount of $61.4 million were sold during 1964. Sales are estimated at $40 million in the current and budget years.

Participations. In 1966, the Association projects sales of beneficial interests or participations in mortgages in its management and liquidating portfolio of $135 million. This program is more fully explained under the Government mortgage liquidation fund, below.

Financing. During the period covered by these budget estimates there will be only interim Treasury borrowings; net repayments of Treasury borrowings which were $178.1 million in 1964, are estimated at $56.6 million and $297 million in 1965 and 1966, respectively.

Operating results. All the benefits and burdens of the management and liquidating functions inure solely to the Secretary of the Treasury. Net income, which amounted to $3.4 million in 1964, is estimated at $3.8 million in 1965 and $3.4 million in 1966. Retained earnings reserved for losses and contingencies at the end of 1964 amounted to $108.1 million and are estimated at $96.9 million and $92.3 million, respectively, for 1965 and 1966. The reductions in the amount outstanding at the end of 1962, 1963 and 1964 resulted from payments of $40 million, $25 million, and $15 million, respectively, during these years from earnings to the U.S. Treasury, amounts which were considered to be in excess of the Association's needs for losses and contingencies. Similarly, the Association has paid $15 million to the U.S. Treasury in 1965, and estimates it will pay $8 million in 1966.

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POSITION WITH RESPECT TO MORTGAGE PURCHASE AUTHORITY

[In thousands of dollars]

Mortgage purchase authority: Mortgages 1964 actual
outstanding at beginning of year....-. 1,270.618
Charges against authority: Mortgages
outstanding at end of year...

1,123,396

Authority available for transfer to

the special assistance functions 1. 147,222

Authority lapsing2.

Revenue...

Less portion applicable to participation certificates sold..

The Housing Act of 1961, 75 Stat. 176 requires that, as of July 1 of each of the years 1961 through 1964, the amount of the net decrease for the preceding fiscal year in the aggregate principal amount of all mortgages owned by the Association in its Management and Liquidating Functions be transferred to and merged with the mortgage purchase authority provided under the Association's Special Assistance Functions, and that the mortgage purchase authority in those functions be increased by the amounts so transferred.

On and after Nov. 1, 1954, pursuant to Public Law 560, the Federal National Mortgage Association's mortgage purchase authority is the total of its mortgage portfolio and its outstanding commitment contracts in the Management and Liquidating Functions.

Net revenue. Expense....

Revenue, Expense, and Retained Earnings (in thousands of dollars)

1964 actual

1965 1966 estimate estimate

51,623

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1965 estimate 1966 estimate 1,123,396 1,073,496 894,496

1,073,496

Financial Condition (in thousands of dollars)

1964 actual

1963

actual

685

79.233 11,794 9

51,623 48,272

3,351

9 -3

6

49,900 179,000

1,638

23,558

13,466

3

1,132,571 1,018,837

42,080 3,850

46,480 38,230 42,680 34,830 3,800 3,400

46,480

3,358

3,800 3,400

119,734 108,092 96,892 -15,000 15,000 -8,000

108,092 96,892 92,292

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1965 1966 estimate estimate

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988,237 699,787 1,132,571 1,018,837 15,551 13,881 12,281 10,781 50,373 33,373 99.385 69,174 229 301 265 337 1,339,566 1,140,858 1,067,756

760,170

48,281 39,296 33,994 28,008

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