1 2 3 4 5 and 5 (1) by striking out "and" before "consolidated"; (2) by inserting after "debentures," the follow 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”. 7 8 AMENDMENT TO FEDERAL RESERVE ACT SEC. 4. The Federal Reserve Act is amended by insert 9 ing after section 13a a new section as follows: 10 11 "DISCOUNT OF HOUSING CERTIFICATES "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 64% to savings and loan associations 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 62% 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 62% mortgage instead of an 82% 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, Washington, D.C. DEAR MR. CHAIRMAN: I am writing in response to your request for a report 1 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 would otherwise be marketed. In order to keep control of the reserve base, the Federal Reserve would have to offest its loans on Federal Home Loan Bank obligations with sales of Treasury securities or forego purchases of Treasury securities it would otherwise have made. Sales of $3 billion additional Treasury obligations in the capital markets would, of course, attract funds away from other uses, including credit that would otherwise finance housing as well as other capital improvements. Moreover, the Board opposes tapping Federal Reserve credit for specialpurpose lending, no matter how worthy, because it could frustrate the objectives of monetary policy. A $3 billion a year program to help middle-income families buy homes could soon lead to proposals for other types of special lending to state and local governments, small busineses, or others who find it particularly difficult to borrow under conditions of monetary restraint. To compel the Federal Reserve to meet credit needs of these magnitudes would lead at first to a weakened market position for Treasury securities-as the System made offsetting sales of Treasury issues-and ultimately to inflation, as it became impossible in practice to offset the expansion of Federal Reserve credit in that fashion. Accordingly, the Board recommends against enactment of S. 3503. ARTHUR F. BURNS. Subject: S. 3503. THE SECRETARY OF HOUSING AND URBAN DEVELOPMENT, Hon. JOHN SPARKMAN, Chairman, Committee on Banking and Currency, Washington, D.C. DEAR MR. CHAIRMAN: This is in further reply to your request for the views of this Department on S. 3503, a bill which would channel up to $3 billion a year through the Federal Home Loan Bank System to member institutions and to other regulated mortgage lenders. The funds would be obtained by discounting special Housing Certificates at the Federal Reserve Banks at a rate no greater than 6 percent. These funds would be advanced to member institutions and other regulated lenders at a rate between 6 and 64 percent. The advances could be used only for mortgage loans for housing costing less than $25,000 per unit, with the income of the homebuyer limited to $10,000, and with a maximum interest rate on the mortgage, including all points, not to exceed 61⁄2 percent. The Department of Housing and Urban Development does not recommend enactment of this bill. We believe the effect of the bill would be discriminatory since it would be of little or no aid to middle income families in many large metropolitan areas where housing units costing less than $25,000 are rare. Also, under this Department's present section 235 homeownership program, the interest rate payable by the homeowner can be reduced to a level as low as 1 percent. The income limits for eligibility range up to $10,000 for families of between 4 and 10 persons in places where incomes are high but are generally much lower for the country as a whole, thus better serving families on a basis of real need. In addition, the families aided under section 235 must themselves make contributions commensurate with their ability to pay. If it were the desire of Congress, although this Department recommends against such a measure, the formula for section 235 income limits could be adjusted upward to the S. 3503 level, accomplishing the objective of the bill in a more efficient and equitable way. Instead of the approach taken in this bill, we would recommend enactment of S. 3555, a bill which would authorize appropriations for a direct subsidy to the Federal Home Loan Bank System to allow it to adjust the effective rate of interest on short-term and long-term borrowings for residential mortgages. Such an approach would not only be more economical than that taken in S. 3503 but would result in less involvement with the monetary policies of the Federal Reserve Board. Sincerely, GEORGE ROMNEY. 918T CONGRESS 2D SESSION S. 3508 IN THE SENATE OF THE UNITED STATES FEBRUARY 25, 1970 Mr. SPARKMAN introduced the following bill; which was read twice and referred to the Committee on Banking and Currency A BILL To create a Federal Mortgage Marketing Corporation, and for other purposes. 1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 That this Act may be cited as the "Federal Mortgage 4 Marketing Corporation Act". 7 (a) The term "Board of Directors" means the Board of 8 Directors of the Corporation. 9 (b) The term "Corporation" means the Federal Mort 10 gage Marketing Corporation created by this Act. 11 II (c) The term "law" includes any substantive, pro 1 cedural, or other law of the United States or of any State 2 (including any rule of law or of equity) now or hereafter 3 in effect, and includes any provision of any law. 4 5 6 (d) The term “mortgage" includes such classes of liens as are commonly given or are legally effective to secure ad vances on, or the unpaid purchase price of, real estate under 7 the laws of the State in which the real estate is located, together with the credit instruments, if any, secured thereby, 9 and includes interests in mortgages. 10. (e) The term "organization" means any corporation, 11 partnership, association, business trust, or business entity. (f) The term "prescribe" means to prescribe by regula13 tions or otherwise. 12 14 (g) The term "property" includes any property, 15 whether real, personal, mixed, or otherwise, including with16 out limitation on the generality of the foregoing choses in 17 action and mortgages, and includes any interest in any of the 18 foregoing. (h) The term "residential mortage" means a mortgage which (1) is a mortgage on real estate, in fee simple or under a leasehold having such term as may be prescribed by the Corporation, upon which there is located a structure or structures designed in whole or in part for residential use, and (2) has such characteristics and meets such requirements as to amount, term, repayment provisions, number of families, |