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(2) periods of monetary stringency and high interest rates are directly related to the Government's monetary and fiscal policies;

(3) a disproportionate share of the burden of sustaining these anti-inflationary policies of the Government

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falls on families of middle income who are buyers or pro

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(4) the Government has a responsibility to lessen 9

the disproportionate burden which such families bear as

a result of such policies. 11 It is the purpose of this Act to provide, during such periods,

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a source of mortgage credit for such families which is within

13 their financial means.

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MORTGAGE CREDIT FOR MIDDLE INCOME FAMILIES

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SEC. 3. (a) The Federal Home Loan Bank Act is

16 amended by inserting after section 11 a new section as fol

17 lows:

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“FUNDS FOR FINANCING THE PURCHASE OF

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MIDDLE INCOME HOUSING

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"SEC. 11a. (a) Whenever it determines such action to

21 be necessary in furtherance of the purpose set forth in section

22 2 of the Middle Income Mortgage Credit Act, the board may

23 issue housing certificates which shall be the joint and several

24 obligations of all the Federal Home Loan Banks. Certificates

25 issued under this section shall have such maturities, bear

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1 such rates of interest, and be subject to such other terms and 2 conditions as the board inay prescribe. Notwithstanding any 3 other limitation contained in this Act, the aggregate principal 4 amount of certificates issued in any calendar year shall not 5 exceed $3,000,000,000; except that (1) in the year in which 6 this section takes effect such aggregate amount shall not 7 exceed an amount which bears the same ratio to $3,000,000,

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8 000 as the number of months remaining in that year bears

to twelve, and (2) certificates issued solely for the purpose of 10

retiring certificates previously issued and outstanding under 11 this section shall not be subject to the annual limitations 12 herein prescribed.

" (b) Proceeds from the sale of certificates under this 14

section shall be deposited in a Middle Income Housing Fund

(hereinafter referred to as the “fund') to be established by 16

the Federal Home Loan Banks under rules and regulations

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prescribed by the board. Each Federal Home Loan Bank is

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authorized, in accordance with this section and rules and

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regulations prescribed by the board, to make advances from

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the fund to member institutions and to nonmember mort

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gagees eligible for advances under section 10b. Except as otherwise specifically provided in this section, such advances

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shall not be subject to the other provisions of this Act but shall be subject to the following restrictions and limitations:

“(1) Any such advance shall bear interest at such rate,

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1. not less than 6 nor more than 61 per centum per annum, as

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2 shall be determined by the board. 3

".(2) The provisions of sections 10 (a) and 10 (d) shall 4 be applicable to any such advance. 5

“ (3) Any institution receiving such advance shall be 6 required to use the proceeds thereof solely for the purpose

of 7

assisting families whose gross annual incomes do not exceed 8

$10,000 to finance the purchase of a dwelling, or to acquire 9

membership in a cooperative association operating a housing 10

project. The appraised value of any such dwelling or member11

ship shall not exceed $25,000 at the time a loan to assist such 12

purchase or acquisition is made, and no such loan shall have 13

an effective rate of interest (exclusive of premium charges,

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if

any, for mortgage insurance under the National Housing Act) in excess of 65 per centum per annum. The effective

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rate of interest on any such loan shall be determined under

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rules and regulations prescribed by the board, and shall in

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clude any discounts or charges in the nature of points or

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otherwise which are borne by the borrower or seller.

“ (c) Any part of the assets of the fund which is not required for advances under subsection (b) may be invested, subject to regulations of the board, in obligations of the

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United States."

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(b) The first sentence of section 13 of such Act is

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amended

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(1) by striking out "and" before "consolidated";

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(2) by inserting after “debentures,” the follow

4 ing: “and certificates issued under section 11a,”.

(c) The first sentence of section 23 of such Act is 6 amended by inserting “or other obligations” after “bonds”.

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AMENDMENT TO FEDERAL RESERVE ACT

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SEC. 4. The Federal Reserve Act is amended by insert

9 ing after section 13a a new section as follows:

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“DISCOUNT OF HOUSING CERTIFICATES

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"SEC. 13b. Any Federal reserve bank shall, under regu12 lations prescribed by the Board of Governors of the Federal 13 Reserve System, discount certificates issued by the Federal

14 Home Loan Bank Board under section 11a of the Federal

15 Home Loan Bank Act, upon presentation by and bearing 16 the endorsement of any Federal Home Loan Bank, at a rate 17 which shall not exceed 6 per centum per annum.”

EXPLANATION OF S. 3503, MIDDLE INCOME MORTGAGE CREDIT ACT The purpose of the bill is to channel low cost mortgage credit to middle income families during periods of tight money. Middle income homebuyers have borne the brunt of anti-inflationary policy. The Act declares the Federal government has a responsibility to distribute the impact of tight money more equitably and to provide middle income homebuyers with access to lower cost mortgage credit whenever interest rates are abnormally high because of monetary policy.

The bill permits the Federal Home Loan Bank System to issue up to three billion dollars a year in special Housing Certificates at a maximum interest rate of 6%. The bill also directs the Federal Reserve to purchase these certificates at the discount windows of the Federal Reserve Banks. The Federal Reserve is already extending credit at 6% to commercial banks through the discount window, hence the purchase of Housing Certificates at 6% would not be a substantial departure from existing practice.

The Federal Home Loan Bank Board would deposit the proceeds of its Housing Certificates into a special Middle Income Housing Fund. The fund would be used to make advances at a rate between 6% and 644% to savings and loan assa ciations and other regulated mortgage lenders subject to the following conditions:

(1) All of the funds so advanced be used for making mortgage loans for housing units costing less than $25,000;

(2) The income of the homebuyer be less than $10,000 ;

(3) The maximum rate of interest, including all points, not exceed 672% a year; and

(4) Adequate security for the advance be provided comparable to existing regulations.

Since the three billion dollars would be provided by the Federal Reserve System, it would not be treated as a budget outlay. Nor would the purchase of three billion dollars of Housing Certificates interfere with the Federal Reserve Board's monetary functions or its control over aggregate bank reserves. The purchase of Housing Certificates can easily be offset by reduced purchases of Treasury securities. For example, even during the record tight year of 1969, the Federal Reserve increased its Treasury security holdings by five billion dollars. Hence it would have had ample flexibility to have included the purchase of three billion in Housing Certificates within its overall operations without changing the aggregate level of bank reserves.

The provision of three billion dollars through this method can finance the construction of 150,000 homes at interest rates which middle income families can afford to pay. A 642% mortgage instead of an 842% mortgage can save the average homebuyer $30.00 a month or more in interest payments.

CHAIRMAN OF THE BOARD OF GOVERNORS,

FEDERAL RESERVE SYSTEM,

Washington, D.C., March 16, 1970. Hon. JOHN SPARKMAN, Chairman, Committee on Banking and Currency, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: I am writing in response to your request for a report

S. 3503, a bill to reduce mortgage interest rates charged middle income famies, and for other purposes.

The bill would authorize advances by the Federal Home Loan Banks to mortgage lenders for relending to families with incomes of $10,000 or less. The Banks would borrow the funds from the Federal Reserve, which would be required to discount Federal Home Loan Bank obligations at a maximum interest rate of 6 per cent. While such borrowing is limited to $3 billion in any one year, the total amount authorized over the years is unlimited.

The Board believes that any subsidies that are needed for housing should be included in the budget so that Congress may weigh them against other Federal outlays and reduce other outlays or increase revenues to cover their cost. S. 3503, in contrast, provides for a subsidy outside the budget.

If the Federal Reserve were directed to increase its holdings of Federal Home Loan Bank obligations by up to $3 billion a year, credit markets would have to absorb a corresponding amount of Treasury obligations over and above what

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