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(e) Mortgages on property, where construction is to be started subsequent to the enactment of this Act and prior to January 1, 1937, at percentages to fair worth on above class (b), 75 per centum; on class (c), 70 per centum; and class (d), 60 per centum. The bank may commit that it will purchase or lend upon such mortgages prior to the commencement of construction, under regulations established by it requiring submission of plans, and other special acts.

SEC. 8. The bank shall require that these provisions, as they may apply, shall be met by the mortgage before it is declared eligible for lending or purchase:

(a) Mortgages must not exceed in the amount of unpaid principal thereof the maximum fixed by regulation nor be less than the minimum, and the maker thereof must not be in default for interest or taxes, or in any other of the terms of the mortgage.

(b) Before purchase or lending upon any mortgage, the bank shall require the member to furnish satisfactory evidence of the title to, and the fair worth of, the property given to secure the mortgage through sources approved by the bank.

(c) The mortgage practice of the stockholder must not have been found unsatisfactory.

(d) The bank is able to arrange for the servicing of mortgages transferred to it through approved agencies designated by it at reasonable fees.

SEC. 9. The bank may lend to responsible stockholders upon mortgages declared eligible up to 90 per centum of the unpaid principal due on said mortgages. The borrower shall execute his note, transfer the mortgage notes as collateral thereon, and shall endorse the mortgage and its note, which shall be deemed a waiver of demand, notice, and protest as to such borrowers' own endorsement exclusively. The loan shall be subject to such regulations as to maturity, interest rate, and other conditions as the bank may prescribe.

SEC. 10. The bank may purchase, from stockholders, mortgages declared eligible, paying therefor in cash 98 per centum of the amount due in principal thereon, plus accrued interest. The mortgage shall be purchased without the right of recourse against the seller thereof.

SEC. 11. The bank is authorized to issue notes, bonds, debentures, or other like evidences of indebtedness to obtain funds for the purpose of carrying out the intents of this Act, in the aggregate amount not to exceed twelve times its unimpaired capital and surplus. These notes, bonds, or debentures may be used for the purpose of exchange by the bank for mortgages agreed to be purchased; or may be sold by the bank as required and the proceeds of such sale used for the purchase of mortgages. Such obligations issued shall not exceed 90 per centum of the principal due on the mortgages owned by the bank plus the cash in hand, securities of the United States, notes of borrowers from the bank, and unpaid subscriptions to the captital stock, and shall be in such denominations at such interest rate and under such regulations as the board prescribes and shall mature within a period not to exceed twenty years from the date of issue. The regulations shall require that maturities of obligations of the bank and the principal payments to be made on mortgages shall be synchronized as closely as practical.

SEC. 12. The stock of the bank, and any and all notes, debentures, bonds, or other such obligations issued by the bank shall be exempt both as to principal and interest from all taxation (except surtaxes and estate, inheritance, and gift taxes) now or hereafter imposed by the United States, by any Territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority. The bank, including its franchise, its capital, its reserves and surplus, its advances, and its income shall be exempt from all taxation now or hereafter imposed by the United States, by any Territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority; except that any real property of the bank shall be subject to State, Territorial, county, municipal, or local taxation to the same extent according to its value as other real property is taxed. If and when the United States eliminates tax-free provisions on bonds issued or guaranteed by it, the same provisions as are made to apply to obligations of the United States shall apply to the stock, notes, bonds, debentures, and so forth, issued by the bank. The notes, debentures, and bonds issued by the bank, with unearned coupons attached, shall be accepted at par by the bank in payment of, or as a credit against, obligation of any debtor of the bank, or of any mortgagor whose mortgage it owns,

Neither the stock offering of the bank nor its subsequent offering of notes, debentures, bonds, or other such obligations need be subject to the approval of the Securities and Exchange Commission.

SEC. 13. When designated for that purpose by the Secretary of the Treasury the bank shall be a depositary of public money, except receipts from customs, under such regulations as may be prescribed by said Secretary; and it may also be employed as a financial agent of the Government; and it shall perform all such reasonable duties as a depositary of public money and financial agent of the Government as may be required of it. The bank may act as agent for any other instrumentality of the United States when designated for that purpose by such instrumentality.

SEC. 14. Subject to such rules and regulations as the directors shall prescribe, the bank shall have power to deal with, rent, renovate, modernize, or sell for cash or credit, or otherwise dispose of, with a view to assuring a maximum. financial return to the bank, any property acquired by it as a result of foreclosure proceedings or otherwise.

SEC. 15. The bank shall semiannually carry to reserve account a sum not less than 25 per centum of its net earnings until said reserve account shall show a credit balance equal to 25 per centum of the outstanding capital stock of the bank. After said reserve is equal to 25 per centum of the outstanding capital stock, 10 per centum of the net earnings shall be added thereto semiannually. The funds in said reserve account shall be retained in cash or invested in obligations of the United States, except when the said reserve is equal to the outstanding capital stock any excess over that amount may be used to lend upon or purchase mortgages. Whenever said reserve shall have been impaired due to losses on defaulted mortgages, it shall be fully restored before any dividends are paid, excepting that such restoration need not be made as long as the reserve fund is an amount equal to the outstanding capital stock.

SEC. 16. The bank shall be examined in the conduct of its financial affairs in the same manner, at the same periods, and by the same agencies as are the national banks and shall bear the expense of such examinations. The bank shall give the findings thereof serious consideration through its board of directors and if defects in operating practice exist shall correct such defects as far as it may be able.

SEC. 17. The bank shall have its principal place of business in Washington, District of Columbia, but may establish branches in other cities as conditions indicate may be expedient, and may take such steps and make such deposits as are necessary to qualify it to do business in other States.

SEC. 18. The bank shall pay directors $50 as a fee for each day required in traveling to and attending meetings. The compensation of the chairman of the board and of the members of the Executive Committee shall be at the rate of $10,000 per annum each. If found desirable, it may create an executive committee of three of the directors, one of whom shall be the chairman of the board, who shall devote their entire time to the affairs of the bank. At least two of such executive committee shall be persons with a thorough knowledge of real-estate and mortgage finance.

SEC. 19. (a) Whoever makes any statement, knowing it to be false, or who. ever willfully overvalues any security, for the purpose of influencing in any way the action of the bank or the board upon any application, advance, discount, purchase or repurchase agreement, or loan, under this Act or any extension thereof by renewal deferment, or action or otherwise, or the acceptance, release, or substitution of security therefor, shall be punished by a fine of not more than $5,000 or by imprisonment for not more than two years, or both.

(b) Whoever (1) falsely makes, forges, or counterfeits any note, debenture, bond, or other obligation or coupon, in imitation of or purporting to be a note, debenture, bond, or other obligation, or coupon, issued by the bank, or (2) passes, utters, or publishes, or attempts to pass, utter, or publish, any false, forged, or counterfeited note, debenture, bond, or other obligation, or coupon, purporting to have been issued by the bank, knowing the same to be false, forged, or counterfeited; or (3) falsely alters any note, debenture, bond, or other obligation, or coupon, issued or purporting to have been issued by the bank; or (4) passes, utters, or publishes, or attempts to pass, utter, or publish, as true, any falsely altered or spurious note, debenture, bond, or other obligation, or coupon, issued or purporting to have been issued by the bank, knowing the same to be falsely altered or spurious, shall be punished by a fine of not more than $10,000 or by imprisonment for not more than five years, or both.

(c) Whoever, being connected in any capacity with the bank, (1) embezzles, abstracts, purloins, or willfully misapplies any money, funds, securities, or other things of value, whether belonging to it or pledged or otherwise intrusted

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to it; or (2) with intent to defraud the bank or any other body, politic or corporate, or any individual, or to deceive any officer, auditor, or examiner of the bank, makes any false entry in any book, report, or statement of or to the board or the bank, or, without being duly authorized, draws any order, or issues, puts forth, or assigns any note, debenture, bond, or other obligation, or draft, mortgage, judgment, or decree thereof, shall be punished by a fine of not more than $10,000 or by imprisonment for not more than five years, or both.

(d) The provisions of sections 112, 113, 114, 115, 116, and 117 of the Criminal Code of the United States (U. S. C., title 18, secs. 202 to 207, inclusive), insofar as applicable, are extended to apply to contracts or agreements of the bank under this Act, which, for the purposes hereof, shall be held to include advances, loans, discounts, and purchase and repurchase agreements; extensions and renewals thereof; and acceptances, releases, and substitutions of security therefor.

SEPARABILITY PROVISIONS

SEC. 20. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the remainder of the Act, and the application of such provision to other persons or circumstances, shall not be affected thereby.

The CHAIRMAN. I have made an analysis of this bill, which I will not take the time to read because we want to hurry on with the hearing, but will ask the committee reporter to make it a part of the record at this point.

(The matter referred to follows:)

FEDERAL MORTGAGE BANK BILL S. 2914

Page 1: Section 1, title: "Federal Mortgage Bank Act." Section 2 provides that the President appoint an organization committee of nine persons, consisting of five ex-officio members:

1. Secretary of Treasury.
2. Governor, Federal Reserve Board.
3. Chairman, Reconstruction Finance Corporation.
4. Chairman, Board of Home Loan Bank.
5. Federal Housing Administrator.

Page 2, lines 6–7: Four appointed members consisting of “persons possessing a practical knowledge of real estate and mortgage finance." The above Committee shall serve for a period of 6 months. It shall organize the Corporation. It shall report to the President at the end of 90 days on its activities.

Page 3, lines 1-2: Its expenses limited to not more than $75,000, said expenses to be advanced by the Reconstruction Finance Corporation and repaid "by the bank if and when it commences operations.”

Page 3, line 8: Section 3, Corporation “shall be declared ready for operation” when

Page 3, line 5: 1. $10,000,000 is subscribed and paid up other than “from the Federal Government.”

Page 3, lines 9-10; 2. "Upon the filing of a certificate in due form with the Chairman of the Board of the Reconstruction Finance Corporation."

The remainder of section 3 deals with general corporate powers. Page 5: Section 4, the Board of Directors shall consist of nine members1. Selected as follows:

Page 5, lines 12–17: (a) Three to be appointed by the President and confirmed by the Senate, “two of whom shall be selected from among those who are heads or directors of Federal agencies dealing with the mortgage, and the third, a person possessing an especial knowledge of real estate and mortgage finance who shall devote his entire time to the bank and be chairman of the board."

(b) Six members shall be elected by the stockholders, not more than one of whom shall reside in any one Federal Reserve district.

Page 5, lines 21–23: (c) "No Senator or Representative in Congress shall be a member of the Board, nor an officer or employee of the bank."

2. Each director shall hold office for 3 years. 3. Salary of officers and directors is not fixed.

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Page 6, lines 6–8: 4. Qualifications of officers and directors are confined to "officers and directors of corporations or partners in firms which are stockholders shall be eligible to serve."

Page 7: Section 5, capital stock1. Shall consist of 1,000,000 shares. 2. Par value, $1,000.

3. Nonassessable (a) 500,000 common stock, (b) 500,000 cumulative 4-percent preferred, (c) after 6-percent dividends shall have been paid on the common, the preferred and common shall share equally in extra dividends.

Page 7, lines 21–22: 4. Stock may be sold "only for cash and for not less than par.”

Page 7, lines 23–24: 5. “No stockholder, except the United States, may hold stock in the bank in excess of 1 per centum of the bank's authorized capital."

Page 8, lines 1-3: 6. "Any individual, partership, corporation, the Government of the United States, or any State or subdivision thereof may be a stockholder" in the bank.

Page 8, lines 6–10: Any bank which is a member of the Federal Reserve System is authorized by this act “to buy stock in the Federal Mortgage Bank to the extent of 1 per centum of the amount they have invested in mortgages, and may invest in the obligations of the bank, its notes, debentures, and other evidences of indebtedness;

Page 8, lines 10–14: "The obligations of the bank shall be lawful investments and may be accepted as security for all fiduciary, trust, and public funds, the investment or deposit of which shall be under the authority or control of the United States or any officer or officers thereof."

Page 8, lines 15–17: 7. “The Secretary of the Treasury, on behalf of the United States, shall subscribe to 100,000 shares of the authorized common stock of the bank,

Page 8, lines 21–24; page 9, line 1: "The Reconstruction Finance Corporation is authorized and directed to allocate and make available to the Secretary of the Treasury the amount of such sums, to be paid out of unappropriated balances.”

Page 9, lines 5-6: Section 6, “The bank may lend on mortgages to, or buy mortgages from,

Stockholders are subject to two requirements:

Page 9, lines 8-10 : 1. “That they have been common-stock holders for at least six months prior to the proposed lending or purchase” and

Page 9, lines 10–14: 2. "That they are engaged in the business of using their own funds in the making of real-estate mortgages on urban property. The six months' period shall not apply to sellers or borrowers during the first eighteen months of the bank's existence."

Page 9, lines 15–20: Section 7, “The bank may purchase or lend upon first mortgages, or other similar instruments”, the eligibility of which is established under the Home Loan Bank Act, as amended, and in such amounts as “the bank may by regulation determine", pursuant to the following limitations:

Page 9, lines 21–24: “(a) Any mortgage insured prior to July 1, 1937, under title II of the National Housing Act.

“(b) Home mortgages (on single, and two, three, or four-family homes) not exceeding twenty years of life, amortized at the rate of not less than 2 per centum per annum, not exceeding 65 per centum of the fair worth of the property.

Page 10, lines 1–19: "(c) Home mortgages unamortized not exceeding five years in life, and mortgages amortized at not les than 2 per centum per annum not exceeding fifteen years of life on multiple dwellings not exceeding 60 per centum of the fair worth of the property.

"(d) All other classes of sound mortgages on improved property not exceeding 55 per centum of the fair worth of the property.

“(e) Mortgages on property, where construction is to be started subsequent to the enactment of this act and prior to January 1, 1937, at percentages to fair worth on above class (b), 75 per centum; on class (c), 70 per centum; and class (d), 60 per centum. The bank may commit that it will purchase or lend upon such mortgages prior to the commencement of construction, under regulations established by it requiring submission of plans, and other special acts.”

Page 10, line 20: Section 8, compulsory eligibility provisions with respect to mortgages are:

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(a) The unpaid principle of the mortgage shall be within a maximum amount to be "fixed by regulation” of the board; all taxes and interest must have been fully paid up. Taxes and interest must be paid up and all other terms of the mortgage supplied.

(b) “Satisfactory evidence of the title to, and of the fair worth of, the property” securing said mortgage shall be given “through sources approved by the bank.”

(c) “The mortgage practice of the stockholder must not have been found unsatisfactory.”

(d) “The bank is able to arrange for the servicing of mortgages transferred to it through approved agencies designated by it at reasonable fees.”

Page 11, line 13: Section 9, the bank may lend to responsible stockholders upon eligible mortgages "up to 90 per centum of the unpaid principal due on said mortgages. The borrower shall execute his note, transfer the mortgage notes as collateral thereon, and shall endorse the mortgage and its note, which shall be deemed a waiver of demand, notice, and protest as to such borrowers' own endorsement exclusively. The loan shall be subject to such regulations as to maturity, interest rate, and other conditions as the bank may prescribe.”

Page 13, line 22: Section 10, eligible mortgages may be purchased by the bank, from stockholders, without recourse, at not to exceed “98 per centum of the amount due in principal thereon, plus accrued interest."

Page 12, line 3: Section 11, “the bank is authorized to issue notes, bonds, debentures,

et cetera. "In an aggregate amount not to exceed twelve times its unimpaired capital and surplus." Said obligations may be either sold to the public or exchanged for mortgages, “shall not exceed 90 per centum of the principal due on the mortgages owned by the bank plus the cash in hand, securities of the United States, notes of borrowers from the bank, and unpaid subscriptions to the capital stock.” Denominations of bonds and interest rates on some are to be determined by regulations of the board; however, said bonds "shall mature within a period not to exceed twenty years from the date of issue.'

Page 12, line 23: Section 12, obligations of the bank shall be tax exempt both as to principal and interest as long as the principal of tax exempt is applicable to other obligations. The issuance of securities by the bank is not "subject to the aproval of the Securities and Exchange Commission.".

Page 14, line 3: Section 13, the bank may be designated as a “depositary” for public funds or employed as a financial agent of the Government; or any of its intrumentalities and “designated for that purpose by such instrumentality.”

Page 14, line 15: Section 14, empowers the bank “to deal with, rent, renovate, modernize, or sell for cash or credit, or otherwise dispose of, with a view to assuring a maximum financial return to the bank, any property acquired by it as a result of foreclosure proceedings or otherwise.”

Page 14, line 21: Section 15, the bank shall semiannually set aside as a reserve “25 percent of its net earnings until said reserve account shall show a credit balance equal to 25 percent of the outstanding capital stock of the bank”, and thereafter “10 percent of the net earnings shall be added thereto semiannually.” The reserves shall be kept in cash or invested in Government obligations. In the event the reserve has been impaired, dividends must be suspended until the reserves are restored.

Page 15: Section 16, national bank examiners are to make periodical examinations of the bank at the latter's expense. The board, however, is to determine its own standards.

Page 15, line 21: Section 17, the principal place of the bank shall be located in Washington, D. C., and empowered to establish such branches as it may determine. (Note: This section says that the bank shall establish, not that the board shall establish.)

Page 16: Section 18, the salary of the chairman of the board and of two other members of the executive committee shall be at the rate of $10,000 per annum. All other directors shall receive $50 per day for each day required in traveling to and from and attending meetings.

Page 16: Section 19, penalty clauses carry a maximum fine of not more than $5,000 or by imprisonment for not more than 2 years, or both. And still a second penalty clause carrying “a fine of not more than $10,000.”

Page 17 : Section 19 contains subsections each of which provides for fines of either $5,000 or $10,000 and imprisonment from either 2 to 10 years.

Page 18, line 14: Section 20, separability provisions.

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