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tion established for executive offices or positions by section 106(a) of the Federal Executive Pay Act of 1956.

"(d) The board of directors may provide for the appointment and maintenance of one or more advisory committees; and the members thereof, as such, shall not be deemed officers or employees of the Association. The term of any member may be terminated at any time by action of the board of directors. Any such committee shall serve in an advisory capacity only. The members thereof shall be compensated on a per diem basis and reimbursed for any necessary travel, in connection with their attendance at meetings of the committee, and in connection with any work therefor that is authorized and requested by the board of directors. Compensation paid pursuant to the preceding sentence shall be at such rates as shall be determined by the board of directors.

"(e) There shall be 'The advisory council, Federal National Mortgage Association,' which shall be provided for by the board of directors pursuant to subsection (d) of this section. The advisory council shall consist of twelve members, to be selected by the board of directors and appointed by the President of the Association. Each member shall be appointed to serve for such term not to exceed two years as the board of directors shall determine. In selecting the members of the advisory council, the board of directors shall have due regard to a fair representation of the home building, mortgage banking, real estate, and general financing interests, and the geographic divisions of the Nation. The advisory council shall meet on call of the board of directors, issued by the President of the Association, and shall be called to meet not less often than once in every four months. Insofar as feasible, meetings shall be held in various cities to provide opportunies for the members of the advisory council to keep continuously informed as to mortgage market conditions in all parts of the Nation." SEC. 111. The first sentence of section 309 (d) of such Act is amended by striking out "The Chairman of the Board" and by substituting therefor "The President of the Association".

SEC. 112. (a) Section 302(a) of such Act is amended by inserting "mixedownership" before "body corporate".

(b) Section 101 of the Government Corporation Control Act is amended by striking out "Federal National Mortgage Association;".

(c) Section 201 of the Government Corporation Control Act is amended by striking out "and (5)" and by substituting therefor "(5) Federal National Mortgage Association, and (6)".

TITLE II-FEDERAL MORTGAGE INVESTMENT COMPANIES

SEC. 201. This title II may be cited as the "Federal Mortgage Investment Company Act". SEC. 202. Subject to such rules and regulations as it shall promulgate, the board of directors of the Federal National Mortgage Association (hereinafter referred to as the "incorporating board") is hereby authorized to charter Federal mortgage investment companies in conformity with this title, for the purposes and with the powers and authority set forth herein, and to regulate, examine, and supervise such companies. For purposes of its functions under this title, the incorporating board shall

(a) levy, with respect to its services, such fees and charges as it shall determine, assessed against individual Federal mortgage in vestment companies, which fees and charges shall be with the purpose of providing such board with funds for all costs and expenses incurred in the performance of its functions under this title; and have power to determine the necessity for and the character and amounts of its obligations and expenditures hereunder, and the manner in which they shall be incurred, allowed, paid, and accounted for.

(b) select and effect the appointment of a qualified person, to be known as secretary of incorporations, who shall serve as chief administrative officer with respect to the functions under this title, and whose basic rate of compensation shall be the same as the basic rate of compensation established by section 196 (b) of the Federal Executive Pay Act of 1956; and, subject to civil service and classification laws, provide such Secretary with such employees as such board may determine to be necessary; and, by delegation, may empower and authorize such Secretary to do any act authorized under this title and assign him such other functions or duties as it may determine.

(c) make available to the Secretary of Incorporations, from time to time, such personnel and facilities of the Federal National Mortgage Association as it may determine to be appropriate: Provided, That such Association shall be reimbursed, as the board of directors of Federal National Mortgage Association may determine, for use made of its personnel and facilities and for the services of the board under this title. The Federal National Mortgage Association may make reimbursable advances, as the board of directors of Federal National Mortgage Association may determine, for purposes of the functions under this title, and the purposes for which such Association is authorized to borrow under section 205 of the Federal National Mortgage Association Charter Act are expanded to include such advances.

SEC. 203. Each Federal mortgage investment company chartered under this title shall have succession from the date of issuance of its certificate of incorporation, as hereinafter provided, until it is dissolved in accordance with this title or by Act of Congress. Each such company, in its corporate name, may sue or be sued and complain or defend in any court of competent jurisdiction, State or Federal. Each such company shall be deemed a citizen of the State or other jurisdiction in which its principal office is located, for the purpose of all actions and suits by or against it, in law and in equity, real, personal, or mixed. Each such company may conduct its business in any State of the United States or any territory or posssession thereof, or in the District of Columbia or Commonwealth of Puerto Rico, and may have one or more offices in any such jurisdiction.

SEC. 204. Any number of natural persons, not less than five, may apply to the incorporating board for a charter as a Federal mortgage investment company under this title, and at the time of such application, the applicants shall transmit their articles of incorporation, signed and sealed, and acknowledged before a judge of any court of record or a notary public, by each of the incorporators. The articles of incorporation shall specifically state the following—

(a) the name of the company, which name shall be subject to the approval of the incorporating board.

(b) the place where the company's principal office or place of business is to be located.

(c) the amount at which the company shall be capitalized, which shall be not less than $1,000,000, and the number of shares which shall represent the company's capital.

(d) the names and places of residence of subscribers to capital stock under existing firm contracts, and the number of shares to be held by each such subscriber.

(e) such other information as the incorporating board may require by rule, regulation, or otherwise.

(f) the fact that the articles of incorporation are submitted to enable the Incorporators to avail themselves of the provisions of this title. SEC. 205. In the case of any application under section 204 hereof, after careful examination of all material submitted in connection therewith, and of any related facts, whether by special commission or otherwise, the incorporating board shall issue a certificate of incorporation to the Federal mortgage investment company applying thereof, if it is determined that the company is lawfully entitled to be chartered under this title. No such company shall transact any business, except such as is incidental to its organization, until it has been chartered in accordance with this title and a certificate of incorporation has been received by it. The incorporating board shall not issue a certificate of incorporation to any such company until it has ascertained, by satisfactory proof submitted with the application, or otherwise, that at least 25 per centum of the company's capital stock has been subscribed to and paid for in cash, or in Government securities, or in first mortgages or such other first liens as are authorized investments for the company under this title: Provided, That the valuation of any such Government securities or first mortgages or other first liens for the foregoing purposes shall be subject to approval by the incorporating board.

SEC. 206. Upon being chartered under this title, a Federal mortgage investment company shall be a body corporate, and as such, in the name designated in its certificate of incorporation, it shall have the following powers and authority

(a) to originate, as mortgagee, or to purchase, and to service, sell, borrow on the security of, and otherwise deal in any mortgages which are insured under the National Housing Act, or insured or guaranteed under

the Servicemen's Readjustment Act of 1944, chapter 37 of title 38 United States Code.

(b) to originate, as mortgagee, or to purchase, and to service, sell, borrow on the security of, and otherwise deal in first mortgages, and such other first liens as are commonly given under the laws of the State or other jurisdiction in which the real estate is located to secure advances upon real estate held in fee simple, under a lease for not less than ninetynine years which is renewable, or under a lease having a period of not less than fifty years to run from the date the mortgage was executed, together with the credit instruments, if any, secured thereby: Provided, That the amount of the principal obligation of any such mortgage shall not exceed 75 per centum of the value of the property, appraised in accordance with accepted appraisal principals, subject to any rules and regulations promulgated by the incorporating board.

(c) to make payments of nonrefundable capital contributions to the Federal National Mortgage Association, and to receive stock of such Association evidencing such capital contributions, and to hold or dispose of such stock so acquired.

(d) in accordance with section 207 of this title, to borrow money through the issuance of notes, bonds, debentures, or other obligations.

(e) 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 company, any property acquired by it as a result of foreclosure or other liquidation proceedings.

(f) to adopt and use a corporate seal.

(g) to adopt, amend, and repeal bylaws governing its activities.

(h) to enter into any transactions in the exercise of any of its powers, and execute any instruments necessary or appropriate thereto; and do any and all other things necessary or incidental to the proper management of its business or conduct of its affairs.

SEC. 207. Each Federal mortgage investment company is empowered and authorized to issue and have outstanding at any one time notes, bonds, debentures, or other obligations in an aggregate amount not to exceed twenty times the amount of its paid-up capital and surplus, and in no event to exceed the aggregate current unpaid principal balances of mortgages held by it and insured or guaranteed under the National Housing Act, or the Servicemen's Readjustment Act of 1944, chapter 37 of title 38, United States Code, plus the amount of its cash on hand and on deposit, and the value of its investments in obligations of the United States or guaranteed thereby, and of the Federal National Mortgage Association. Any such company may, if its bylaws so provide, accept any notes, bonds, debentures, or other obligations issued by it in payment of obligations due it at par plus accrued interest: Provided, That any such notes, bonds, debentures, or other obligations so accepted shall be canceled and not reissued. Except with the approval of the incorporating board, no such company shall issue any notes, bonds, debentures, or other obligations until such time as the subscriptions to the full amount of its capital stock are paid for in full.

SEC. 208. All moneys of any Federal mortgage investment company not invested in mortgages or other first liens as provided in section 206 hereof, or in operating facilities approved by the incorporating board, shall be kept in cash on hand or on deposit, or invested in obligations of the United States or guaranteed thereby, or of the Federal National Mortgage Association: Provided, That each such company shall accumulate and maintain such minimum reserves as the incorporating board shall by rules and regulations prescribe.

SEC. 209. Each Federal mortgage investment company, including its franchise, capital, surplus, reserves, and income shall be exempt from taxation now or hereafter imposed by any State, county, municipality, or local taxing authority: Provided, That the foregoing shall not exempt the real and personal property of such company from taxation by any such taxing authority to the same extent according to its value as other such property is taxed.

SEC. 210. Any solvent Federal mortgage investment company able to pay its debts as they mature may go involuntarily into liquidation and wind up its affairs on the vote of its shareholders owning two-thirds of its stock. In any such case, the shareholders shall designate one or more persons to act as a liquidating agent or committee, as the case may be, subject to rules and regulations promulgated by the incorporating board; and such board is authorized to 55869-60- -8

supervise any such liquidation, until the claims of all creditors have been satisfied.

SEC. 211. The incorporating board shall have the power to order the liquidation and the winding up of the affairs of any such company, if it finds that the company is violating any provision of this title or any rule or regulation promulgated thereunder, or if it finds that the company is conducting its business in an unsafe and unbusinesslike manner. In any case in which the incorporating board finds that the capital of the company is substantially impaired, and if, within thirty days after it has notified the company of the existence of such impairment, the capital is not restored to its satisfaction, the incorporating board shall order the liquidation and winding up of the company's affairs. The liquidation under this section of any company shall be supervised by the incorporating board, and shall be subject to any rules and regulations promulgated by it, including but not limited to provisions for receiverships.

SEC. 212. The incorporating board is authorized to prescribe rules and regulations governing the operations of Federal mortgage investment companies, and to carry out the provisions of this title, in accordance with the purposes thereof. Each such company shall be subject to examinations made by direction of the incorporating board, and shall make such reports to the incorporating board at such times and in such form as the board may require; except that the incorporating board may, in its discretion, exempt from making such reports any such company if such company is registered under the Investment Company Act of 1940 to the extent necessary to avoid duplication in reporting requirements.

SEC. 213. No individual, partnership, association, or corporation, except companies chartered under this title, shall hereafter use the words "Federal mortgage investment company", or any combination of such words, as the name or a part thereof under which he or it shall do business. Every individual, partnership, association, or corporation violating this prohibition shall be guilty of a misdemeanor and shall be punished by a fine of not exceeding $100 or imprisonment not exceeding thirty days, or both, for each day during which such violation is committed or repeated. The provisions of section 709, title 18, United States Code, shall not apply to companies chartered under this title.

TITLE III-MISCELLANEOUS PROVISIONS

SEC. 301. Section 3 of the Securities Act of 1933, as amended (15 U.S.C. 77c), is hereby amended by inserting at the end thereof the following new subsection (d):

"(d) The Commission may from time to time by its rules and regulations and subject to such terms and conditions as may be prescribed therein, add to the securities exempted as provided in this section any class of securities issued by a Federal mortgage investment company under the Federal Mortgage Investment Company Act if it finds, having regard to the purposes of that Act, that the enforcement of this Act with respect to such securities is not necessary in the public interest and for the protection of investors."

SEC. 302. Section 304 of the Trust Indenture Act of 1939 (15 U.S.C. 77ddd) is hereby amended by adding the following subsection (f):

"(f) The Commission may from time to time by its rules and regulations, and subject to such terms and conditions as may be prescribed therein, add to the securities exempted as provided in this section any class of securities issued by a Federal mortgage investment company under the Federal Mortgage Investment Company Act if it finds, having regard to the purposes of that Act, that the enforcement of this Act with respect to such securities is not necessary in the public interest and for the protection of investors."

SEC. 303. Section 18 of the Investment Company Act of 1940 (15 U.S.C. 80a-18) is amended by adding at the end thereof the following:

"(1) The provisions of subparagraphs (A) and (B) of paragraph (1) of subsection (a) of this section shal Inot apply to Federal mortgage investment companies chartered under the Federal Mortgage Investment Company Act." SEC. 304. (a) Section 1242 of the Internal Revenue Code of 1954 is hereby amended by adding "or Federal mortgage investment company" in the heading thereof immediately before the word "stock", and by adding in paragraph (1) thereof, immediately before the comma, "or in a Federal mortgage investment company chartered under the Federal Mortgage Investment Company Act".

(b) Section 582 of the Internal Revenue Code of 1954 is hereby amended by inserting at the end thereof the following new subsection:

"(d) MORTGAGE LOSSES OF FEDERAL MORTGAGES INVESTMENT COMPANIES.-In the case of a Federal mortgage investment company charted under the Federal

Mortgage Investment Company Act, if the losses of the taxable year from sales or exchanges of mortgages held by it exceed the gains of the taxable year from such sales or exchanges, no such sales or exchanges shall be considered a sale or exchange of a capital asset."

(c) (1) The heading of part III of subchapter H of chapter 1 of the Internal Revenue Code of 1954 is hereby amended by adding after “BANK AFFILIATES" the words "AND FEDERAL MORTGAGE INVESTMENT COMPANIES," and by adding the following to the subheading thereof:

"Sec. 602. Deduction for additions to loss reserves of Federal mortgage investment

companies.

"Sec. 603. Exclusion for mortgage discounts of Federal mortgage investment

companies.

"Sec. 604. Deduction for amounts paid to holders of shares and obligations of Federal mortgage investment companies."

(2) Part III of subchapter H of chapter 1 of the Internal Revenue Code of 1954 is amended by adding the following new sections:

"SEC. 602. DEDUCTION FOR ADDITIONS TO LOSS RESERVES OF FEDERAL MORTGAGE INVESTMENT COMPANIES.

"In the case of a Federal mortgage investment company chartered pursuant to the Federal Mortgage Investment Company Act, there shall be allowed as a deduction an addition to a reserve for losses, relating to the sale, exchange, or total or partial worthlessness of mortgages held by such companies, in amount not exceeding 10 per centum of the taxable income of such companies, computed without regard to this section or to section 604 of this subchapter.

"SEC. 603. EXCLUSION FOR MORTGAGE DISCOUNTS OF FEDERAL MORTGAGE INVESTMENT COMPANIES.

"In the case of a Federal mortgage investment company chartered pursuant to the Federal Mortgage Investment Company Act, gross income shall not include the amount of any discount on a mortgage purchased or originated by such company until such discount has been realized, through sale or exchange of the mortgage or otherwise.

"SEC. 604. DEDUCTION FOR AMOUNTS PAID TO HOLDERS OF SHARES AND OBLIGATIONS OF FEDERAL MORTGAGE INVESTMENT COMPANIES.

"In the case of a Federal mortgage investment company chartered pursuant to the Federal Mortgage Investment Company Act which for any taxable year distributes at least 90 per centum of its taxable income, computed without regard to this section or to section 602 of this subchapter, there shall be allowed as a deduction amounts paid with respect to stock or obligations issued by such company."

S. 3541

DIGEST OF BILL

Section 101.-Amends section 302(b) of the National Housing Act to provide general authority for FNMA to make loans up to 12 months to be secured by FHA and VA mortgages.

Section 102.-Amends section 303 (a) of such act to permit FNMA to retire common stock at other than par value.

Section 103.-Amends section 303(b) of such act to establish a ceiling of onehalf of 1 percent on the nonrefundable amount to be paid by borrowers toward FNMA capital.

Section 104.-Amends section 303 (c) to provide that those who make nonrefundable payments, including borrowers, shall be entitled to receive shares of FNMA common stock, subject to any appropriate adjustments if the association should determine that portions of any such payments are to be credited to surplus.

Section 105.-Amends section 303(g) of such act to provide that plans for the transfer of the FNMA secondary market operations to the owners of the outstanding common stock (after the retirement of all preferred stock) should be transmitted to the Congress, for legislative action, by the President of the Association rather than by the President of the United States.

Section 106.-Amends section 304(a) of such act to establish a new FNMA lending operation. FNMA would be granted authority in its secondary market operations to make loans secured by FHA or VA mortgages, in amounts not to

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