year, taking into consideration the current average interest rate on outstanding marketable obligations of the United States as of the last day of the preceding fiscal year. The Secretary of the Treasury shall permit the retirement of the preferred stock held by him in the manner provided in this section. Funds of the capital surplus and the general surplus accounts of the Association shall be available to retire the preferred stock held by the Secretary of the Treasury as rapidly as the Association shall deem feasible. Concurrently with the retirement of the last of such outstanding shares of preferred stock, the Association shall pay to the Secretary of the Treasury for covering into miscellaneous receipts an amount equal to that part of the general surplus and reserves of the Association (other than reserves established to provide for any depreciation in value of its assets, including mortgages) which shall be deemed to have been earned through the use of the capital represented by the shares held by him from time to time. The amount of such payment shall be determined by applying to such surplus and reserves that percentage which is equivalent to the proportion borne by the employed capital represented by the Secretary's stock to the total employed capital of the Association, computed monthly for the period from the cutoff date 1 determined pursuant to section 303 (d) of this title to the aforesaid retirement of the last of the outstanding shares of preferred stock of the Association.

1

(b) The Association shall accumulate funds for its capital surplus account from private and other sources by requiring each mortgage seller to make payments of nonrefundable capital contributions, equal to not more than 2 per centum nor less than 1 per centum of the unpaid principal amounts of mortgages purchased or to be purchased by the Association from such seller under section 304, as determined from time to time by the Association, taking into consideration conditions in the mortgage market and the general economy; and by requiring each borrower to make such payments, equal to not more than onehalf of 1 per centum of the amount lent by the Association to such borrower under section 304.2 In addition, the Association may impose charges or fees for its services with the objective that all costs and expenses of its operations should be within its income derived from such operations and that such operations should be fully self-supporting. All earnings from the operations of the Association shall annually be transferred to its general surplus account. At any time, funds of the general surplus account may, in the discretion of the board of directors, be transferred to reserves. All dividends shall be charged against the general surplus account. This subsection (b) shall be subject to the exceptions set forth in section 307 of this title. (c) 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

1 The period commenced November 1, 1954. the cutoff date being October 31, 1954. 2 Title II of Public 560, 83d Congress, approved August 2, 1954, 68 Stat.. 590, 612, 614, provided a capital contribution requirement of "not less than 3 per centum". Sec. 202 of Public Law 1020, approved August 7, 1956, 70 Stat. 1091, 1096, provided a minimum requirement of "not less than 1 per centum". Sec. 201 of Public Law 85-104, approved July 12, 1957, 71 Stat. 294, 298, added the ceiling of "not more than 2 per centum". 603(b) of Public Law 87-70, approved June 30, 1961, 75 Stat. 149, 176, amended the first sentence of this subsection by adding the semicolon and all that follows it before the period. Sec. 1004 (b) of Public Law 89-117, approved August 10, 1965, 79 Stat. 451, 501 inserted "and other" after "private" in the first sentence.

Sec.

by reason of any payments into surplus required by the Association) made by such seller or borrower pursuant to subsection (b) of this section. Such dividends as may be declared by the board of directors in its discretion shall be paid by the Association to the holders of its common stock, but in any one fiscal year the general surplus account of the Association shall not be reduced through the payment of dividends applicable to such common stock which exceed in the aggregate 5 per centum of the par value of the outstanding common stock of the Association: Provided, That pending the retirement of all the outstanding preferred stock of the Association such percentage with respect to any one fiscal year shall not exceed the percentage rate of the cumulative dividend applicable to the preferred stock of the Association for that fiscal year.

3

(d) Within ninety days following the effective date of the Housing Act of 1954,2 as of the day following a cutoff date to be determined by the Association, the Association is authorized and directed to issue and deliver to the Secretary of the Treasury, and the Secretary of the Treasury is authorized and directed to accept, preferred stock of the Association having an aggregate par value equal to the sum of (1) the amount of $21,000,000 (being an amount of the original subscription for capital stock of $20,000,000 and paid-in surplus of $1,000,000 of the Association) and (2) an amount equal to the Association's surplus, surplus reserves, and undistributed earnings, computed as of the close of the cutoff date. In addition to the preferred stock provided for in the first sentence of this subsection, the Association is authorized and directed to issue and deliver to the Secretary of the Treasury, and the Secretary of the Treasury is authorized and directed to accept, preferred stock of the Association having an aggregate par value equal to $225,000,000.5

(e) The preferred stock of the Association delivered to the Secretary of the Treasury pursuant to the first sentence of subsection (d) of this section shall be in exchange for (1) the note or notes evidencing the aforesaid original $21,000,000 (upon which the accrued interest shall have been paid through the cutoff date referred to in subsection (d) of this section), and (2) the release to the Association of any and all rights or claims which the United States might otherwise have or claim in and to the Association's capital, surplus, surplus reserves, and undistributed earnings, computed as of the close of the aforesaid cutoff date. The preferred stock of the Association delivered to the Secretary of the Treasury pursuant to the second sentence of subsection (d) of this section shall be in exchange for a note or notes

1 Section 603 (c) of Public Law 87-70, approved June 30, 1961, 75 Stat. 149, 176, amended the first sentence of sec. 303 (c) to read as set forth above.

2 The Housing Act of 1954, Public Law 560, 83d Congress, approved August 2, 1954, 68 Stat. 590, became effective on its date of approval.

3 FNMA established October 31, 1954, as the cutoff date.

4 The aggregate amount of FNMA's capital, surplus, surplus reserves, and undistributed earnings as of the close of the cutoff date (October 31, 1954) was $92,820,305.

5 Subsection (a) of the first section of Public Law 85-10, approved March 27, 1957, 71 Stat. 7, added the last sentence to this subsection; $50,000,000 additional preferred stock was initially authorized. Sec. 202(a) of Public Law 85-104, approved July 12, 1957, 71 Stat. 294, 298, increased the additional authorization to $115,000,000. Sec. 2(a) of Public Law 89-566, approved September 10, 1966, 80 Stat. 738, further increased the additional authorization to $225,000,000.

6 Subsection (b) of the first section of Public Law 85-10, approved March 27, 1957, 71 Stat. 7. substituted "pursuant to the first sentence of subsection (d)" for "pursuant to subsection (d)”.

of the Association, aggregating $225,000,000 in principal amount (and upon which the accrued interest shall have been paid through the date of delivery), held by the Secretary of the Treasury pursuant to the authority contained in section 304 (c).1

(f) Notwithstanding any other provisions of law, any institution, including a national bank or State member bank of the Federal Reserve System or any member of the Federal Deposit Insurance Corporation, trust company, or other banking organization, organized under any law of the United States, including the laws relating to the District of Columbia, shall be authorized to make payments to the Association of the nonrefundable capital contributions referred to in subsection (b) of this section, to receive stock of the Association evidencing such capital contributions, and to hold or dispose of such stock, subject to the provisions of this title.

(g) As promptly as practicable after all of the preferred stock of the Association held by the Secretary of the Treasury has been retired, the Housing and Home Finance Administrator shall transmit to the President for submission to the Congress recommendations for such legislation as may be necessary or desirable to make appropriate provisions to transfer to the owners of the outstanding common stock of the Association the assets and liabilities of the Association in connection with, and the control and management of, the secondary market operations of the Association under section 304 of this title in order that such operations may thereafter be carried out by a privately owned and privately financed corporation.2

SECONDARY MARKET OPERATIONS

SEC. 304. (a) (1) To carry out the purposes set forth in paragraph (a) of section 301, the operations of the Association under this section shall be confined, so far as practicable, to mortgages which are deemed by the Association to be of such quality, type, and class as to meet, generally, the purchase standards imposed by private institutional mortgage investors and the Association shall not purchase any mortgage insured or guaranteed prior to the effective date of the Housing Act of 1954. In the interest of assuring sound operation, the prices to be paid by the Association for mortgages purchased in its secondary market operations under this section, should be established, from time to time, within the range of market prices for the particular class of mortgages involved, as determined by the Association. The volume of the Association'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 Association

1 Subsection (b) of the first section of Public Law 85-10, approved March 27, 1957, 71 Stat. 7, added the last sentence to this subsection which then included an aggregate figure of $50,000,000. Sec. 202(b) of Public Law 85-104, approved July 12, 1957, 71 Stat. 294, 298, substituted "$115,000,000" for "$50,000,000". Sec. 2(b) of Public Law 89-566, approved September 10, 1966, 80 Stat. 738, substituted "$225,000,000" for "$115,000,000". 2 The duty of the Housing and Home Finance Administrator under this subsection was among those transferred to and vested in the Secretary of the Department of Housing and Urban Development by sec. 5(a) of Public Law 89-174, approved September 9, 1965, 79 Stat. 667. 669.

3 The Housing Act of 1954, Public Law 560, 83d Congress, approved August 2, 1954, 68 Stat. 590, became effective on its date of approval. Sec. 603 (d) of Public Law 87-70, approved June 30, 1961. 75 Stat. 149, 176, inserted "(1)" before "To carry out".

Sec. 203 of Public Law 1020, 84th Congress, approved August 7, 1956, 70 Stat. 1091, 1096, substituted "within the range of market prices" for "at the market price".

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 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 selfsupporting.1

(2) In the further 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, and shall bear interest at a rate consistent with general loan policies established from time to time by the Association'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 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 selfsupporting. 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, of 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.2

(b) For the purposes of this section, the Association 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 Association with the approval of the Secretary of the Treasury, to be redeemable at the option of the Association before maturity in such manner as may be stipulated in such obligations; but the aggregate amount of obligations of the Association under this subsection outstanding at any one time shall not exceed fifteen 3 times the sum of its

1 Sec. 204 (a) of 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 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 Public Law 89-754, approved November 3, 1966, 80 Stat. 1255, 1285.

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

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

capital surplus, general surplus, reserves, and undistributed earnings, and 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 Association'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.1 The Association 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 Association. The Association is authorized to purchase in the open market any of its obligations outstanding under this subsection at any time and at any price.

(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 hereinafter 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 (1) all of the preferred stock of the Association held by the Secretary of the Treasury has been retired, or (2) such purchase would increase the aggregate principal amount of his then outstanding holdings of such obligations under this subsection to an amount greater than $2,250,000,000.2 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

1 Sec. 305 (a) of 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 to 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 Public Law 87-70, approved June 30, 1961, 75 Stat. 149, 177, added "or other security holdings" after "mortgages". Sec. 701 (b) (2) of 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).

2 Subsec. (c) of the first section of Public Law 80-10, approved March 27, 1957, 71 Stat. 7, amended that part of the second sentence of sec. 304 (c) following "(2)" to read as set forth above except for a specified limitation of $1,350,000,000. Sec. 203 of Public Law 85-104, approved July 12, 1957, 71 Stat. 294, 298, raised the limitation to $2,250,000,000.

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