I have read Maud Mater's letter of April 5 to Mark Stalnecker confirming the legislative language of the Federal Home Loan Mortgage Corporation (FHLMC) Charter Act, S. 1805, that we agreed upon at our March 24 meeting. Ms. Mater also enclosed a proposed letter for Treasury approvals that are required in S. 1805, as revised. The changes that have been made respond satisfactorily to the debt management concerns of the Treasury that I expressed in my letters of January 25 and March 12 to you. The revised draft of Section 4(f) of the bill deletes the reference to the Federal Reserve Banks in the first sentence and adds a sentence to the end of that section authorizing the Federal Reserve Banks, upon approval of the Secretary of the Treasury, to act as fiscal agents of FHLMC. The revision of Section 12 (a) of the bill would, with the approval of the Secretary of the Treasury, exempt securities issued or guaranteed by FHLMC from regulation under the laws administered by the Securities and Exchange Commission (SEC). Upon enactment of the FHLMC Charter Act, the Treasury intends to approve the use of the Federal Reserve Banks as the FHLMC fiscal agents, as authorized in Section 4(f), and to approve the exemption from SEC regulation, as provided in Section 12(a). Such approvals are in line with those that have been granted to the other federallysponsored agencies whose securities are sold in the private markets. Immediately following enactment, we intend to write to the Chairman of the Board of FHLMC, substantially in the form of the enclosed letter, to grant those approvals. As you know, however, this Administration is committed to a basic policy of transforming the sponsored agencies into completely private organizations by gradually eliminating their explicit and implicit links with the Federal Government. We intend this process to include, at the earliest possible time, discontinuing the exemption from SEC regulation for prospective securities issues of the sponsored agencies and eliminating the Federal Reserve fiscal agency function. Of course, we will remain mindful of the delicate competitive balance among the sponsored agencies, and especially that of FHLMC vis-a-vis the Federal National Mortgage Association in the housing area, during the transition period. We support enactment of S. 1805 and are working with the Cabinet Council on Economic Affairs, the Office of Management and Budget and other concerned Federal agencies to expedite the Administration's legislative review and approval of the bill. Sincerely yours, Rojgar mense Roger W. Mehle Mr. Philip R. Brinkerhoff Federal Home Loan Mortgage 1776 G Street, N.W. Enclosure DRAFT (Letterhead of Assistant Secretary of the Treasury) Dear Chairman Pratt: This letter grants Treasury approvals required under certain sections of the Federal Home Loan Mortgage Corporation (FHLMC) Charter Act authorizing FHLMC to use the fiscal agency functions of Federal Reserve Banks and authorizing securities issued or guaranteed by FHLMC to be exempt from regulation under certain Federal statutes. Section 4(f) of the FHLMC Charter Act specifies that, upon approval by the Secretary of the Treasury, any Federal Reserve Bank is authorized to act as a depositary or custodian, or as a fiscal, paying or other agent of FHLMC. The Federal Reserve Bank of New York currently acts in such a capacity as to several types of outstanding securities issued or guaranteed by FHLMC. To assure continuation of these arrangements, under the authority delegated to me by the Secretary, I hereby give my approval to the Federal Reserve Banks to act in the capacities specified in section 4(f) of the FHLMC Charter Act. However, as you know, this Administration is committed to a basic policy of transforming the government-sponsored agencies, such as FHLMC, into completely private organizations by gradually eliminating their links with the Federal Government. In line with this Policy, the Treasury intends to discontinue its approval of FHLMC use of the Federal Reserve Banks as fiscal agents at the earliest possible time, taking into consideration the diminution of similar ties to the Federal Government of other sponsored agencies, particularly those of the Federal National Mortgage Association (FNMA). Any revocation of Treasury approval would apply only to securities issued or guaranteed by FHLMC subsequent to the date of such revocation. Section 12(a) of the FHLMC Charter Act specifies that, upon approval of the Secretary of the Treasury, securities issued or guaranteed by FHLMC 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. provision allows for continuation of the current exemption of FHLMC securities from the Securities Act of 1933 and the Securities Exchange Act of 1934. Under authority delegated to me, This I hereby give my approval that any stock, obligations, securities, participations or other instruments issued or guaranteed by FHLMC pursuant to the FHLMC Charter Act shall be deemed to be exempt securities as specified in Section 12(a) of the FHLMC Charter Act. Exemption from regulation under the securities laws is also a link to the Federal Government which should be eliminated as quickly as possible for prospective FHLMC issues and guarantees of securities. The Treasury intends to withdraw its approval of the exemption of FHLMC securities, authorized in Section 12(a), at such time as the statutory exemptions applicable to securities of other sponsored agencies such as FNMA are repealed. Any revocation of Treasury approval would apply only to securities issued or guaranteed by FHLMC subsequent to the date of such revocation. The Honorable Richard T. Pratt Chairman, Board of Directors Federal Home Loan Mortgage Corporation 1776 G Street, N.W. Washington, D.C. 20006 Sincerely yours, Roger W. Mehle |