Senator BUSH. What is your present total position in mortgages now!

Mr. BUGHMAN. In our portfolio, we have approximately $2,400,000,000 in mortgages.

Senator BUSH. Is that the most you have ever had?

Mr. BAUGHMAN. No; it is slightly below our high. We reached close to $2.5 billion. That was the highest we had.

Senator BUSH. How high are you authorized to go?

Mr. BAUGHMAN. We have a gross authorization of $3,650,000,000. Mr. COLE. The bill also provides for capital funds from private sources. This private capital would be obtained in connection with the secondary market operations, but not in connection with its special assistance operations, or its management and liquidation functions.

In its secondary market operations the FNMA would require each mortgage seller to make payments of nonrefundable capital contributions of not less than 3 percent of the amount of mortgages involved in any purchases or contracts for purchases. Convertible certificates would be issued to each mortgage seller evidencing the capital contributions made by the seller.

After all of the outstanding capital stock held by the Secretary of the Treasury is retired these certificates would be convertible into capital stock of equal par value. These convertible certificates would not bear interest, nor would any dividends be payable to the holders thereof.

Senator BENNETT. Have you ever estimated the amount of time it would take for this turnover from public to private ownership?

Mr. BAUGHMAN. The best estimate we have been able to make so far, Senator, has been approximately 6 to 7 years.

Senator BENNETT. That is fine. I wanted that in the record. Mr. COLE. After all the stock held by the Secretary of the Treasury is retired, FNMA would be authorized to issue stock directly to mortgage sellers. The Board of Directors would be given power to declare dividends at a rate not to exceed, in any year, 5 percent of the par value of outstanding stock. Such dividends would not be cumulative. FNMA would also be authorized to impose charges or fees for its services. Earnings would be transferred annually to a general surplus accounts. Provisions would also be made for the establishment of reserves. The capital stock held by the Secretary of the Treasury would be retirable from funds of the capital surplus and the general surplus accounts. Except as to stock held by the Secretary of the Treasury, capital stock would not be retirable if, as a consequence, the amount remaining outstanding would be less than $100 million.

To carry out its secondary market operations, FNMA would be authorized to issue, with the approval of the Secretary of the Treasury, obligations for sale to the investing public. The aggregate amount outstanding at any one time could not exceed 10 times the sum of its capital, capital surplus, general surplus, reserves, and undistributed earnings. At the time of issuance the total of obligations could not exceed the amount of the cash, mortgages, and Government bonds held by FNMA in connection with its secondary market operations. Such obligations would not be guaranteed as to principal or interest by the United States.

The Secretary of the Treasury would be authorized, in his discretion, to purchase the secondary market obligations of the association, but his holdings could not at any time exceed $500 million, plus an amount equal to a total of the reductions in the amount of the existing FNMA portfolio which FNMA would be liquidating, or, in any event, $1 billion.

This authority of the Secretary of the Treasury would terminate when all of the capital stock held by the Secretary of the Treasury had been retired. This provides for Treasury backup, if necessary. It is believed, however, that FNMA could raise funds required for its secondary market operations by the sale of its obligations to private investors without resort to Treasury borrowings.

As soon as possible after all the capital stock of the association held by the Secretary of the Treasury has been retired, the Housing Administrator would be required to transmit to the President, for submission to Congress, recommendations for legislation to transfer the assets and liabilities of the association in connection with, and the control and management of, its secondary market operations, to the private owners of the outstanding capital stock.

Senator BENNETT. May I interrupt at this point, again? Could you supply the committee with a schedule showing how you estimated that it would take 6 to 7 years, with the rate per year, or do you have such a schedule?

Mr. BAUGHMAN. I think we could.

Senator BENNETT. I think it would be interesting in the record, during this part of the discussion.

Senator SPARKMAN. I was just going to say, How does that compare with some of the other similar setups, such as the FDIC? How long does it require?

Mr. COLE. Senator, I am sure some of those considerations-
Mr. MCMURRAY. Approximately 19 years.

Mr. COLE. Entered into it and that would be part of the matter which we would submit to the record, if you would like.

Senator SPARKMAN. You mean comparative state with the other agencies, Home Loan, Farm Bank Board, credit system, et cetera? Mr. COLE. Yes.

(The information supplied follows:)

The following schedules are our best estimates of the financial projection for the proposed secondary market operation under section 304 of S. 2938. Exhibit A is based upon the 3-percent capital contribution provided in the bill, exhibit B upon a 2-percent capital contribution, and exhibit C upon a 4-percent capital contribution.

The figures are projected on the basis of the same volume of business whether 2-, 3-, or 4-percent contribution is assumed. It is possible that the larger the fee the smaller the volume of business the corporation may be called upon to do in any one year and that the length of time required to retire the Government stock would be correspondingly increased.

1 Treasury subscription retired at the close of business on the last day of the 6th year.