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§ 301

SECONDARY MARKET FOR MORTGAGE LOANS

EXCERPTS FROM THE NATIONAL HOUSING ACT

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TITLE III-NATIONAL MORTGAGE ASSOCIATIONS 1

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PURPOSES

SEC. 301.2 The Congress hereby declares that the purposes of this title are to establish secondary market facilities for home mortgages, to provide that the operations thereof shall be financed by private capital to the maximum extent feasible, and to authorize such facilities to

(a) provide supplementary assistance to the secondary market for home mortgages by providing a degree of liquidity for mort

1 Prior to amendment by sec. 802 (a), Housing and Urban Development Act of 1968, the heading of title III was "Federal National Mortgage Association."

Sec. 201 of the Housing Act of 1954, Public Law 560, 83d Congress, approved August 2, 1954, 68 Stat. 590, 612, 12 U.S.C. 1716 et seq., rewrote title III of the National Housing Act to recharter the Federal National Mortgage Association and prescribe its functions. Sec. 312 of the National Housing Act which provides that title III may be referred to as the "Federal National Mortgage Association Charter Act."

Title III of the National Housing Act as it was originally enacted authorized the creation of national mortgage associations to purchase and sell first mortgages on real estate. At the request of the President of the United States, on February 10, 1938, pursuant to title III, the Federal National Mortgage Association was chartered by the Federal Housing Administration as the "National Mortgage Association of Washington". The name was changed to the Federal National Mortgage Association on April 5, 1938. The entire capital stock and paid-in surplus were subscribed and paid for by the Reconstruction Finance Corporation, and the conduct of the Association's affairs was integrated with and directed by the RFC. On September 7, 1950, the Association was transferred to the Housing and Home Finance Agency pursuant to Reorganization Plan No. 22 of 1950, 64 Stat. 1277.

Sec. 202 of the Housing Act of 1954 provided that the "Federal National Mortgage Association, established pursuant to the provisions of title III of the National Housing Act as in effect prior to July 1. 1948, and named in sec. 101 of the Government Corporation Control Act, as amended, shall be the body corporate referred to in sec. 302 of title III of the National Housing Act, as amended by the Housing Act of 1954".

Sec. 5(b) of the Department of Housing and Urban Development Act, Public Law 89-174, approved September 9, 1965, 79 Stat. 667, 669, transferred the Association to the Department established by that Act.

Title VIII, Housing and Urban Development Act of 1968, Public Law 90-448, approved Aug. 1. 1968. 82 Stat. 476, 536 amended title III extensively. Sec. 801 stated the purposes of title VIII as follows:

"SEC. 801. The purposes of this title include the partition of the Federal National Mortgage Association as heretofore existing into two separate and distinct corporations. each of which shall have continuity and corporate succession as a separated portion of the previously existing corporation. One of such corporations, to be known as Federal National Mortgage Association, will be a Government-sponsored private corporation, will retain the assets and liabilities of the previously existing corporation accounted for under section 304 of the Federal National Mortgage Association Charter Act, and will continue to operate the secondary market operations authorized by such section 304. The other, to be known as Government National Mortgage Association, will remain in the Government, will retain the assets and liabilities of the previously existing corporation accounted for under sections 305 and 306 of such Act, and will continue to operate the special assistance functions and management and liquidating functions authorized by such sections 305 and 306."

Sec. 808 of the 1968 Act provided as follows:

"SEC. 808. The amendments made by this title shall be effective from and after a date, no more than one hundred and twenty days following the date of enactment of this Act, as established by the Secretary of Housing and Urban Development. Notice of the establishment of such effective date shall be published in the Federal Register at least thirty days prior thereto."

This date was established as Sept. 1, 1968.

2 Executive Order No. 11732 [F.R. 20420], approved July 30, 1973, delegated the functions of the President to the Secretary of Housing and Urban Development under title III, secs. 301 and 305.

3 Sec. 802(b)(1). Housing and Urban Development Act of 1968. Public Law 90-448, approved Aug. 1, 1968, 82 Stat. 476, 536, deleted "in the Federal Government a" after "establish".

gage investments, thereby improving the distribution of investment capital available for home mortgage financing;

(b) provide special assistance (when, and 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 the establishment of their marketability) originated under special housing programs designed to provide housing of acceptable standards at full economic costs for segments of the national population which are unable to obtain adequate housing under established home financing programs, 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; and

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(c) manage and liquidate federally owned mortgage portfolios in an orderly manner, with a minimum of adverse effect upon the home mortgage market and minimum loss to the Federal Government.

CREATION OF ASSOCIATION

SEC. 302. (a) (1) There is hereby created a body corporate to be known as the "Federal National Mortgage Association" which shall be in the Department of Housing and Urban Development. The Association shall have succession until dissolved by Act of Congress. It shall maintain its principal office in the District of Columbia and shall be deemed, for purposes of venue in civil actions, to be a resident thereof. Agencies or offices may be established by the Association in such other place or places as it may deem necessary or appropriate in the conduct of its business.

(2) On 2 September 1, 1968,3 the body corporate described in the foregoing paragraph shall cease to exist in that form and is hereby partitioned into two separate and distinct bodies corporate, each of which shall have continuity and corporate succession as a separated portion of the previously existing body corporate, as follows:

(A) One of such separated portions shall be a body corporate without capital stock to be known as Government National Mortgage Association (hereinafter referred to as the "Association"), which shall be in the Department of Housing and Urban Development and which shall retain the assets and liabilities acquired and incurred under sections 305 and 306 prior to such date, including any and all liabilities incurred pursuant to section 302 (c). The Association shall have succession until dissolved by Act of Congress. It shall maintain its principal office in the District of Columbia or the metropolitan area thereof and shall be deemed, for purposes of jurisdiction and venue

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1 Sec. 802 (b) (5), Housing and Urban Development Act of 1968, Public Law 90-448. approved Aug. 1, 1968, 82 Stat. 476, 536, substituted "federally owned mortgage portfolios" for "the existing mortgage portfolio of the Federal National Mortgage Association". 2 Sec. 802 (c) (3). Housing and Urban Development Act of 1968, Public Law 90-448, approved Aug. 1, 1968, 82 Stat. 476, 536, added paragraph (2),

3 Sec. 806 (a)(1) of Housing and Community Development Act of 1974. Public Law 93-383, 88 Stat. 633, approved August 22, 1974, substituted "September 1, 1968" for "the effective date established pursuant to section 808 of the Housing and Urban Development Act of 1968".

Sec. 806 (a) (2) of Housing and Community Development Act of 1974, Public Law 93383, 88 Stat. 633, approved August 22, 1974, deleted the word "effective" in subparagraphs (A) and (B).

5 Sec. 806(b)(1) of Housing and Community Development Act of 1974, Public Law 93-383, 88 Stat. 633, approved August 22, 1974, inserted the words "or the metropolitan area thereof" immediately after "District of Columbia".

Sec. 806 (b) (2) of Housing and Community Development Act of 1974. Public Law 93-383, 88 Stat. 633, approved August 22, 1974, inserted the words "jurisdiction and" immediately before "venue".

in civil actions, to be a District of Columbia corporation.1 Agencies or offices may be established by the Association in such other place or places as it may deem necessary or appropriate in the conduct of its business.

(B) The other such separated portion shall be a body corporate to be known as Federal National Mortgage Association (hereinafter referred to as the "corporation"), which shall retain the assets and liabilities acquired and incurred under sections 303 and 304 prior to such date. The corporation shall have succession until dissolved by Act of Congress. It shall maintain its principal office in the District of Columbia or the metropolitan area thereof and shall be deemed, for purposes of jurisdiction and venue in civil actions to be a District of Columbia corporation.5

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(3) The partition transaction effected pursuant to the foregoing paragraph constitutes a reorganization within the meaning of section 368(a)(1) (E) of the Internal Revenue Code of 1954; and for the purposes of such Code, no gain or loss is recognized by the previously existing body corporate by reason of the partition, and the basis and holding period of the assets of the corporation immediately following such partition are the same as the basis and holding period of such assets immediately prior to such partition.

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(b) (1) For the purposes set forth in section 301 and subject to the limitations and restrictions of this title, each of the bodies corporate named in subsection (a) (2) is authorized, pursuant to commitments or otherwise, to purchase, service, sell, or otherwise deal in any mortgages which are insured under the National Housing Act or title V of the Housing Act of 1949,8 or which are insured or guaranteed under the Servicemen's Readjustment Act of 1944 or chapter 37 of title 38, United States Code; and to purchase, service, sell, or otherwise deal in any loans made or guaranteed under part B of title VI of the Public Health Service Act; and the corporation is authorized to lend 10 on the security of any such mortgages and to purchase, sell, or otherwise deal in any securities guaranteed by the Association under section

1 Sec. 806 (b) (3) of Housing and Community Development Act of 1974, Public Law 93-383, 88 Stat. 633, approved August 22, 1974, substituted the words "District of Columbia corporation" for "resident thereof".

2 Sec. 806 (a) (2) of Housing and Community Development Act of 1974, Public Law 93383, 88 Stat. 633, approved August 22, 1974, deleted the word "effective" in subparagraphs (A) and (B).

3 Sec. 806 (b) (1) of Housing and Community Development Act of 1974, Public Law 93-383, 88 Stat. 633, approved August 22, 1974, inserted the words "or the metropolitan area thereof" immediately after "District of Columbia".

Sec. 806 (b) (2) of Housing and Community Development Act of 1974, Public Law 93-383, 88 Stat. 633, approved August 22, 1974, inserted the words "jurisdiction and" immediately before "venue".

5 Sec. 806 (b)(3) of Housing and Community Development Act of 1974, Public Law 93-383, 88 Stat. 633, approved August 22, 1974, substituted the words "District of Columbia corporation" for "resident thereof".

Sec. 901 (d), Housing and Urban Development Act of 1970, Public Law 91-609, approved December 31, 1970, 84 Stat. 1770, 1807, added paragraph (3).

7 Sec. 802 (d) (1), Housing and Urban Development Act of 1968, Public Law 90-448, approved Aug. 1, 1968, 82 Stat. 476, 537 amended this sentence to make it apply to both FNMA and GNMA.

8 Sec. 1004 (a) (1) of the Housing and Urban Development Act of 1965, Public Law 89-117, approved August 10, 1965, 79 Stat. 451, 501 inserted "or title V of the Housing Act of 1949" (rural housing mortgages).

Sec. 2 of Public Law 93-541, 88 Stat. 1739, approved December 26, 1974, substituted the words "or guaranteed" for "to a public agency" which was added by Public Law 91-296, 84 Stat. 336, approved June 30, 1970.

10 The provision allowing lending activities was added by sec. 603 (a), Housing Act of 1961, Public Law 87-70, approved June 30, 1961, 75 Stat. 176. It was reworded to make it applicable only to FNMA by sec. 802 (d) (3), Housing and Urban Development Act of 1968, Public Law 90-448, approved Aug. 1, 1968, 82 Stat. 476, 537.

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306 (g): Provided, That (1) the Association may not purchase any mortgage at a price exceeding 100 per centum of the unpaid principal amount thereof at the time of purchase, with adjustments for interest and any comparable items; (2) the Association may not purchase any mortgage, except a mortgage insured under title V of the Housing Act of 1949, if it is offered by, or covers property held by a * State, territorial, or municipal instrumentality; and (3) the Association may not purchase any mortgage under section 305, except a mortgage insured under section 220 or title VIII, or under title X with respect to a new community approved under section 1004 thereof, or insured under section 213 and covering property located in an urban renewal area, or a mortgage covering property located in Alaska, Guam, or Hawaii, if the original principal obligation thereof exceeds or exceeded $33,000 (or such higher amount not in excess of $38,000 as the Secretary may by regulation specify in any geographical area where he finds that cost levels so require),5 for each family residence or dwelling unit covered by the mortgage (plus an additional $2,500 for each such family residence or dwelling unit which has four or more bedrooms). Notwithstanding the provisions of clause (3) in the preceding sentence, the Association may purchase a mortgage under section 305 with an original principal obligation that exceeds the '

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1 The authority to purchase these securities was added by sec. 802(d) (3), Housing and Urban Development Act of 1968, Public Law 90-448, approved Aug. 1, 1968, 82 Stat. 476, 537. Clause (1) was amended to be applicable only to GNMA by sec. 802 (d) (4), Housing and Urban Development Act of 1968, Public Law 90-448, approved Aug. 1, 1968, 82 Stat. 476,

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Sec. 1004 (a) (2) of the Housing and Urban Development Act of 1965, Public Law 89-117, approved August 10, 1965, 79 Stat. 451, 501, inserted ", except a mortgage insured under title V of the Housing Act of 1949." (rural housing mortgages).

Sec. 802 (a) (1) of the Housing and Urban Development Act of 1965, Public Law 89-117, approved August 10, 1965, 79 Stat. 451, 493, struck out "Federal.".

The dollar limitation established by the 1954 FNMA Charter Act was $15,000, and it applied to all functions of FNMA without exception. Sec. 201 of the Housing Act of 1956, Public Law 1020, 84th Congress, approved Aug. 7, 1956, 70 Stat. 1096, exempted mortgages insured under sec. 803 and mortgages of property located in Alaska, Guam. or Hawaii from the limitation. Sec. 301 of the Housing Act of 1959, Public Law 86-372, approved Sept. 23, 1959, 73 Stat. 669, exempted mortgages insured under sec. 220 (urban renewal housing), increased the limitation to $17,500, and added a proviso increasing the limitation to $20,000 for purchase under sec. 304 (secondary market operations). Sec. 602, Housing Act of 1961, Public Law 87-70, approved June 30, 1961, 75 Stat. 176, expanded the exemption for "section 803" to "title VIII" and added the exemption for any mortgage insured under sec. 213 (cooperative housing) and covering property located in an urban renewal area. Sec. 702. Housing Act of 1964. Public Law 88-560, approved Sept. 2, 1964, 78 Stat. 802, limited the $17,500 limitation to mortgages purchased under sec. 305 (special assistance functions) and repealed the $20,000 limitation. Sec. 114 (1), Housing and Urban Development Act of 1969, Public Law 91-152, approved December 24, 1969, 83 Stat. 379, 385. increased the $17,500 limitation to $22,000. Sec. 804. Housing and Urban Development Act of 1965. Public Law 89-117, approved Aug. 10, 1965, 79 Stat. 494, inserted the matter within the parentheses. Sec. 405, of Demonstration Cities and Metropolitan Development Act, Public Law 89-754, approved Nov. 3, 1966, 80 Stat. 1273, added the exemption for new community mortgages insured under title X, Sec. 2 of Public Law 92-213, approved Dec. 22, 1971, 85 Stat. 775, authorized the Secretary for "six months" following the approved date of the resolution (December 22, 1971) to increase the limitation by up to 50% when he believed such action necessary to avoid excessive discounts. Section 7 of Public Law 92-335, approved July 1, 1972, 86 Stat. 405, struck out "six months" and inserted "9 months". Section 2 of Public Law 92-503, approved October 18. 1972, 86 Stat. 906, extended the Secretary's authority until June 30, 1973. Sec. 3 of Public Law 93-85, 87 Stat. 220, approved August 10, 1973, further extended the authority of the Secretary by striking out "June 30, 1973" and inserting in lieu thereof "October 1, 1973"; and section 4 of Public Law 93-117, 87 Stat. 421, approved October 2, 1973, further amended the authority of the Secretary by striking out "October 1, 1973" and inserting in lieu thereof "October 1, 1974". Sec. 807 of Housing and Community Development Act of 1974, Public Law 93-383, 88 Stat. 633, approved August 22, 1974, amended Clause (3) of the proviso in section 302(b) (1) by deleting "$22,000" and inserting the words "$33,000 (or such higher amount not in excess of $38,000 as the Secretary may by regulation specify in any geographical area where he finds that cost levels so require)".

Sec. 803. Housing and Urban Development Act of 1965, Public Law 89-117, approved August 10, 1965, 79 Stat. 451. 494. inserted this sentence.

7 Sec. 114, Housing and Urban Development Act of 1969, Public Law 91-152, approved December 24, 1969, 83 Stat. 379, 385, substituted at this point the words "the otherwise applicable maximum amount" for "$17,500".

otherwise applicable maximum amount per dwelling unit if the mortgage (1) is insured under section 236 or is a below-market interest rate mortgage insured under section 221(d) (3), and (2) covers property which has the benefit of local tax abatement in an amount determined by the Secretary of Housing and Urban Development to be sufficient to make possible rentals not in excess of those that would be approved by the Secretary if the mortgage amount did not exceed the otherwise applicable maximum amount per dwelling unit and if local tax abatement were not provided. For 2 the purposes of this title, the term "mortgages" and "home mortgages" shall be inclusive of any mortgages or other loans insured under any of the provisions of the National Housing Act or title V of the Housing Act of 1949.

(2) For the purposes set forth in section 301 (a) and with the approval of the Secretary of Housing and Urban Development, the corporation is authorized, pursuant to commitments or otherwise, to purchase, service, sell, lend on the security of, or otherwise deal in mortgages which are not insured or guaranteed as provided in paragraph (1) (such mortgages referred to hereinafter as "conventional mortgages"). No such purchase of a conventional mortgage shall be made if the outstanding principal balance of the mortgage at the time of purchase exceeds 80 per centum of the value of the property securing the mortgage, unless (A) the seller retains a participation of not less than 10 per centum in the mortgage; (B) for such period and under such circumstances as the corporation may require, the seller agrees to repurchase or replace the mortgage upon demand of the corporation in the event that the mortgage is in default; or (C) that portion of the unpaid principal balance of the mortgage which is in excess of such 80 per centum is guaranteed or insured by a qualified insurer as determined by the corporation. The corporation shall not issue a commitment to purchase a conventional mortgage prior to the date the mortgage is originated, if such mortgage is eligible for purchase under the preceding sentence only by reason of compliance with the requirements of clause (A) of such sentence. The corporation may purchase a conventional mortgage which was originated more than one year prior to the purchase date only if the seller is currently engaged in mortgage lending or investing activities and if, as a result thereof, the cumulative aggregate of the principal balances of all conventional mortgages purchased by the corporation which were originated more than one year prior to the date of purchase does not exceed 20 per centum of the cumulative aggregate of the principal balances of all conventional mortgages purchased by the corporation.

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1 Sec. 402, Emergency Home Finance Act of 1970, Public Law 91-351, approved July 24, 1970, 84 Stat. 450, 458, inserted at this point the words "is insured under section 236 or". 2 As added by sec. 102(c) of the Housing Act of 1961, Public Law 87-70, approved June 30, 1961, 75 Stat. 149, 158, this sentence read: "For the purposes of this title, the term 'mortgages' shall be inclusive of any mortgages or other loans insured under any of the provisions of the National Housing Act." Sec. 201(b)(1) of the Housing and Urban Development Act of 1965, Public Law 89-117, approved August 10, 1965. 79 Stat. 451, 465, struck out "the term 'mortgages'" and inserted in lieu thereof "the terms 'mortgages' ard 'home mortgages'". Sec. 1004 (a)(3) of the Housing and Urban Development Act of 1965, Public Law 89-117, 79 Stat. 501, inserted "or title V of the Housing Act of 1949". 3 Sec. 201(a), Emergency Home Finance Act of 1970, Public Law 91-351, approved July 24, 1970, 84 Stat. 450, 451, added paragraph (2).

Sec. 806 (c) of Housing and Community Development Act of 1974, Public Law 93-383, 88 Stat. 633, approved August 22, 1974, substituted "80 per centum" for "75 per centum" each place it appeared.

5 Sec. 806(d) of Housing and Community Development Act of 1974, Public Law 93-383, 88 Stat. 633, approved August 22, 1974, deleted the word "private" in Clause (C).

Sec. 806 (e) of Housing and Community Development Act of 1974, Public Law 93-383, 88 Stat. 633, approved August 22, 1974, substituted '20 per centum" for "10 per centum".

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