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FEDERAL RESERVE BANK OF DALLAS
F I S C A L A G E N T O F T H E U N IT E D S T A T E S

Dallas, Texas, January 3, 1958

To all Banking Institutions and Others Concerned
in the Eleventh Federal Reserve District:
There is printed on the back of this letter the text of a press statement,
dated January 6, 1958, by the Federal National Mortgage Association,
concerning a forthcoming public cash offering of $750,000,000, or there­
abouts, of its Series ML notes. Enclosed is a general prospectus prepared
by the Association containing additional data relating to the offering and
providing information regarding FNMA background and operations, capi­
talization, borrowing authority, etc.
As indicated in the press statement, the FNMA offering will be made by
the Treasury Department on January 9, 1958, through the facilities of
the Federal Reserve banks as fiscal agents of the United States. The
Treasury’s announcement and subscription forms will be mailed out prior
to that date.
Yours very truly,
Watrous H. Irons
President

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

FOR RELEASE:

Monday A.M., January 6, 1958

FEDERAL NATIONAL MORTGAGE ASSOCIATION
W A S H IN G T O N 2 5 . D . C .

The Federal National Mortgage Association’s 21
/&% Series ML (Management and Liquidating)
Notes dated January 20, 1955, of which there are $570,374,000 outstanding, will mature on January 20,
1958. These notes may be redeemed through the Federal Reserve Banks and branches or the Treasurer
of the United States, Washington, D. C.
Funds for the redemption of the maturing notes will be provided by FNMA through a public offer­
ing o f $750 million or thereabouts of notes to be handled by the Treasury Department for delivery
January 20, 1958, it was announced today by FNMA President J. Stanley Baughman. The balance of
the proceeds of the new issue will be used to reduce the Association’s indebtedness to the U. S. Treasury.
The new notes will be offered for cash, no preference being given holders of the maturing issue.
The FNMA offering will be made by the Treasury Department on January 9, 1958 through the
facilities of the Federal Reserve Banks as fiscal agents of the United States.
The notes will have a maturity of approximately 2Va years. The maturity date and interest rate
o f the issue will be stated in an announcement of the offering to be made by the Treasury Department
January 7. Subscription books for the FNMA offering will be open only on Thursday, January 9.
Payment is scheduled for January 20 and must be made in cash.
The FNMA ML Notes are not guaranteed by the United States. FNMA has received assurance
from the Treasury Department that it will make loans to FNMA if needed to provide for interest pay­
ments and payment of principal at maturity of the ML Notes. After this financing the outstanding
ML Notes will continue to be less than S0% of the assets as described in the prospectus. In connection
with this, Mr. Baughman pointed out that “ FNMA’s Management and Liquidating Functions have an
excellent earning record with a net income of $105 million shown for the past three fiscal years based
on a net profit of $35 million for each of fiscal years 1955, 1956 and 1957.”
The FNMA notes are lawful investments and may be used as security for fiduciary, trust and public
funds, the investment or deposit of which is under the authority and control of the United States or
an officer or officers thereof. The notes may be pledged as collateral to Treasury Tax and Loan Accounts.
The FNMA Charter Act makes no provisions for specific exemption of these notes from Federal, state,
municipal, or local taxation.
Mr. Baughman also declared that “ these notes may be purchased by and held without limit by
national banks since the law exempts obligations of FNMA from restrictions and limitations generally
applicable to investment securities.”

FEDERAL
NATIONAL MORTGAGE
ASSOCIATION

General Prospectus Concerning
MANAGEMENT AND LIQUIDATING
FUNCTIONS (ML) NOTES
(Public Issues)

January 6, 1958

Address of Principal Office:

811 Vermont Avenue, N . W .
Washington 25, D . C.

FEDERAL NATIONAL MORTGAGE ASSOCIATION
Comparative Statement of Income and Expense
of the Management and Liquidating Functions
Period July 1 thru

INCOME

Fiscal Year Ended
June 30, 1957

June 30, 1956

____ $32,928,991
____
1,469
____
47,842
____
2,891

$101,990,811
54,244
149,307
10,417

$106,435,426
315,304
166,834
14,231

Total.

____ $32,981,193

$102,204,779

$106,931,795

Interest on notes to U. S. TreasuryInterest on notes held by public___
Fees for servicing mortgages____
Administrative _________________
Other ___________________________

____ $12,435,429
____
4,970,341
____
3,518,826
699,505
____
95,260

$ 39,904,630
14,259,350
10,905,642
1,865,783
198,759

$ 42,934,176
14,259,350
11,627,603
2,570,446
179,552

Total______________

____ $21,719,361

$ 67,134,164

$ 71,571,127

$11,261,832

$ 35,070,615

$ 35,360,668

Oct. 31, 1957

Interest _________________
Commitment and other fees
Service and acquisition fees.
Other ___________________

EXPENSE

NET INCOME

FEDERAL NATIONAL MORTGAGE ASSOCIATION
Balance Sheet of Management and Liquidating Functions at October 31, 1957
ASSETS

Mortgages and related receivables:
Mortgages guaranteed by Veterans’ Administration___ $1,483,979,744
Mortgages insured by Federal Housing Administration
804,497,198
Direct mortgage loans transferred from RFC_________
Accrued interest receivable___________________________
8,005,565
Other receivables arising from mortgages____________
216,313
Investment in DHC purchase money notes:
Unpaid principal_____________________________________
Accrued interest receivable___________________________
Less: Unrealized equity_____________________________
Assets acquired through foreclosure and claims in process:
Property held pending transfer to —
Veterans’ Administration _______________________
Federal Housing Administration__________________
Propertly held for sale_______________________________
Claims in process against —
Veterans’ Administration _______________________
Federal Housing Administration_________________
FHA debentures _____________________________________
Accrued interest on FHA debentures and debenture
portion of claims________________________________
FHA certificates of claim_____________________________

37,811,385
41,822
14,410,226

400,972
5,762,586
579,695
21,039,416

$2,288,476,942
438,984
8,221,878

23,442,981

6,163,558
6,784
21,619,111
40,580,600
1,037,624
3,217,261

Other assets:
Casha __________________________ •
___________________
Miscellaneous _______________________________________
Furniture and equipment, less accumulated depreciation

1,732,644
18,542
267,487
$2,395,224,396

LIABILITIES

Notes payable:
U. S. Treasury_______________________________________ $ 871,869,357
Held by public_______________________________________ 1,372,435,000
Accrued interest payable on:
Notes to the U. S. Treasury.__________________________
Notes held by publica___ ____________________________
Trust and deposit liabilities_______________________________
Accounts payble and accrued liabilities____________________

6,339,061
4,217,765

$2,244,304,357

10,556,826
33,636,569
1,754,934
$2,290,252,686

INVESTMENT OF THE UNITED STATES GOVERNMENT

Reserve for losses and contingencies______________________
Undistributed earned surplus.____ ________________________

93,709,878
11,261,832

104,971,710
$2,395,224,396

a Excludes $26,350 on deposit with U. S. Treasury at October 31, 1957 for payment of matured interest on
notes held by the public.

officio, and four other government officers appointed by him. The principal office of the Associ­
ation is located at 811 Vermont Avenue, N. W., Washington 25, D. C.
Financial Statements
There follows a statement of condition of the Management and Liquidating Functions of
the Federal National Mortgage Association as of October 81, 1957, and statements of income
and expense covering fiscal years 1956 and 1957, and the first 4 months of fiscal year 1958.
J. S. Baughman
President
Federal National Mortgage Association

I am of the opinion that the timely payment of interest on its outstanding obligations, and
the repayment of principal at maturity are unquestionably functions for which the Association
may properly borrow from the Treasury. Accordingly, the Treasury will make loans to the
Association under the procedures provided for in subsection (d) of section 306, if there be any
need therefor to enable the Association to carry out its Management and Liquidating Func­
tions, including the timely payment by the Association of interest and principal with respect
to its Series ML Notes.
Very truly yours,
(Signed) R obert B. A nderson
Secretary of the Treasury
Other Features of ML Notes. — FNMA will not issue additional ML Notes pursuant to
Section 306(b) of the Charter Act if, at the time of such proposed issuance and as a conse­
quence thereof, the resulting aggregate amount of its outstanding ML Notes issued pursuant
to Section 306 (b) would exceed 80 percent of the amount of the Association’s ownership under
the ML separate accountability free from any liens or encumbrances, of cash, FHA-insured
mortgages, VA-guaranteed mortgages, and bonds or other obligations of or guaranteed as to
principal and interest by the United States.
The notes are completely different from, and have no connection whatever with, Secondary
Market Operations debentures which are sold through FNMA’s Fiscal Agent, located in New
York City, assisted by a group of recognized dealers and dealer banks.
Legality as Investments. — The ML Notes are lawful investments and may be accepted as
security for fiduciary, trust and public funds under the authority and control of the United
States or any officer or officers thereof. National banks may invest in these notes without regard
to the statutory limitations and restrictions generally applicable to investment securities. The
notes are eligible as collateral for Treasury tax and loan accounts.
Tax Status. — The income derived from the notes does not have any exemption as such,
under the Internal Revenue Code of 1954. The notes are subject to Federal estate, gift, or other
excise taxes. The FNMA Charter Act does not contain any specific exemption with respect to
taxes now or hereafter imposed on the principal of or interest on the notes by any state or any
of the possessions o f the United States, or by any local taxing authority.
Examination and Audit
The FNMA is periodically examined by a regular auditing staff maintained by the Associ­
ation. In accordance with the Government Corporation Control Act, the Association is also
audited for each fiscal year by the General Accounting Office. Reports of such audits are made
annually to the Congress and are available to the public.
Management
The FNMA operates under the usual corporate officers and a Board of Directors of five
members consisting of the Housing and Home Finance Administrator who is chairman ex

Operations Under the M&L Functions
As of the close of business October 31, 1954 (the day preceding the effective date of the
Function provided in the Charter A ct), the mortgage portfolio of FNMA consisted o f insured
and guaranteed mortgages amounting to $2,368 million, outstanding commitments to purchase
such mortgages in the amount of $603 million, and $42 million of RFC Mortgage Company
direct loans and Defense Home mortgages. Thus, the portfolio and purchasing liability
amounted to $3,013 million. As of October 31, 1957, the portfolio amounted to $2,327 million
and there were no commitments outstanding. This represents a reduction of $686 million or
23 percent in 3 years. The purchasing phase of the Management and Liquidating Functions
has been concluded leaving only the management and liquidation o f this portfolio to be com­
pleted in the future.
Financing
The Charter Act requires that private financing be substituted as rapidly as possible for
Treasury borrowings otherwise required to carry the mortgages held under the Management
and Liquidating Functions pending their ultimate liquidation. The Act authorizes the Associ­
ation to issue for sale to private investors, on approval of the Secretary of the Treasury, and
have outstanding at any one time ML obligations having such maturities and bearing such
rate or rates of interest as may be determined by the Association with the approval of the
Secretary of the Treasury.
Management and Liquidating Notes
Relationship with the Treasury Department. — The Treasury will make loans to FNMA
if needed to provide for interest payments and payment of principal at maturity of the ML
Notes as stated in the following letter:
October 11, 1957
Mr. J. S. Baughman
President
Federal National Mortgage Association
811 Vermont Avenue, N. W.
Washington 25, D. C.
Dear Mr. Baughman:
In answer to your letter of October 9, the Secretary of the Treasury is of the opinion that
the timely payment of interest on the Association’s Series ML Notes to be issued to the invest­
ing public under subsection (b) of Section 306 of the Federal National Mortgage Association
Charter Act, and the repayment of the principal thereof at maturity, constitute functions of
the Association within the meaning of the following provisions of the Charter Act. Subsection
(d) of section 306 provides, in substance, that the Association may issue to the Secretary of
the Treasury its obligations in an amount outstanding at any one time sufficient to enable the
Association to carry out its “ Management and Liquidating Functions” under section 306, and
further prescribes that the Secretary o f the Treasury is authorized to purchase any obligations
of the Association to be issued under section 306(d).

FEDERAL NATIONAL MORTGAGE ASSOCIATION
General Prospectus Concerning

M anagement

and

Liquidating Functions (M L) N otes

(Public Issues)
Principal and interest payable at any Federal Reserve Bank or Branch or
at the Office of the Treasurer of the United States. Issued in bearer form
only in denominations of $1,000, $5,000, $10,000, $100,000 and $1,000,000.
Purpose of the Issues
Net proceeds of sale of notes will be paid to the Secretary of the Treasury in reduction of
the Association’s indebtedness under the Management and Liquidating Functions and will be
used to provide for the redemption of outstanding notes at maturity.
Description o f Notes and How Issued
ML Notes are offered at public subscription through the facilities of the United States
Treasury Department and the Federal Reserve Banks as fiscal agents of the United States in
the same manner as offerings of public debt securities. The notes, together with the interest
thereon, are the obligations of the Association and are not Federal Government obligations or
guaranteed by the United States Government.
The Federal National Mortgage Association
The FNMA is a corporate instrumentality of the United States. It was incorporated on
February 10, 1938, pursuant to the then Title III of the National Housing Act. Between the
date of its original charter and the enactment of the Federal National Mortgage Association
Charter Act (12 USC 1716, et. seq.), approved August 2, 1954, the Association was instru­
mental in establishing and maintaining a market for certain mortgages insured by the Federal
Housing Administration and mortgages guaranteed by the Veterans Administration.
Functions Under the FNMA Charter Act
The Charter Act authorizes FNMA to perform three separate functions (1) to manage
and liquidate the existing mortgage portfolio as of the close of October 31, 1954 (the “ Manage­
ment and Liquidating Functions” ) ; (2) to provide supplementary assistance to the secondary
market in guaranteed and insured home mortgages (the “ Secondary Market Operations” ) ;
and (3) to perform special assistance functions in the purchase of certain insured and guaran­
teed mortgages as authorized by the President of the United States or by the Congress
(“ Special Assistance Functions” ).
Separate accountability is imposed by the Charter Act with respect to each of these three
functions and each has its own assets, liabilities and separate borrowing authority. The opera­
tions of each of the three functions are complete, separate and distinct from the others — as
though there were three separate corporations. The capitalization of the Association (preferred
stock held by the Secretary of the Treasury and common stock held by the public) applies
exclusively to the Secondary Market Operations, and the other two functions have no recourse
to it. All of the benefits and burdens incident to the administration and operation of the
Management and Liquidating Functions inure solely to the Secretary of the Treasury.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102