BankCodeExposed 2

The Bank
Code Exposed
The Ultimate Guide to
Understanding Bank Loans
First Edition
Secrets the bankers do not want you to know

exposed for the first time ever in this easy to use
manual.
-
PURPOSE AND INTENT OF THIS BOOK .-
Over the past several years the loss of a great number of homes, businesses, personal
property and the consequential breakup of marriages has been the direct result of incomplete and,
therefore inaccurate, information concerning the Who, How, Why, What, Where and When of
loan processes and procedures. It matters not if the loan is secured by real or personal property
or even by one's work or credit habits, i.e., credit rating (history).
Granted, much research and study has been done by large numbers of individuals and
groups over the years however, as that saying goes; "The road to Hell is paved with the stones of
good intentions." Further, this continuing situation is fraught with individuals or groups who
have made a business of publicly proclaiming that they know the Who, How, Why, What, Where
and When on this subject matter when in fact they do not have a complete picture on this subject.
For example most of those individuals or groups state 'the bank takes your promissory
note and deposits it into a transaction checking account which is used to fund the check'. Close
but close only counts in horseshoes. Without knowing the actual specifics as to the processes
and procedures of any specific type or form of a loan no one can make any claim of false
advertising, inducement, non-disclosure, fraud, etc. on the part of the actions taken by a state or
federally chartered financial entity. This is an absolute given period.
Each and every specific loan must be completely researched prior to making any of the
aforementioned claims. This is also an absolute given. There are no short cuts! There are no
magical silver bullet 'just fill in the blanks' forms established for the intelligence of a Mr. &
Mrs. Joe Lunch bucket to file at a county recorders, register of deeds office or just pop in the
mail to the particular financial entity with whom one has a loan. If you are seeking such magical
silver bullets then this book ofcompiled raw information is notfor you.
The individuals who have compiled the raw information in this book spent hundreds of
hours and a great deal of money to bring this work into being. Further, these same individuals
found out the hard way from personal experiences that there is no magical silver bullet forms.
They found out the hard way that there is no substitute for serious study, due diligence and
proper research to find out what those processes and procedures are. Their own experiences are
a direct result of this book. It is the authors desire to save you, the reader, from going through
the same miserable experiences they have gone through.
As previously stated this book is a compilation of "raw" material. This raw material is
taken out of governmental, quasi-governmental business, and wholly private business entities
that are fully involved in all aspects of loan processes and procedures. As they say - Straight
from the horses mouth. To our knowledge, this compilation of such information is the only such
information being made available anywhere.
Is this compilation complete? The only honest answer is, "NO!" Will it ever be
complete? That is rather doubtful because politicians work hand in glove with the various
financial entities that are in the business of making a profit off of loans. Politicians and bankers
have a vested interest in protecting and supporting each other. This compilation is not meant to
attack the basic nature of human greed. Rather, it is meant as an educational tool for those who
are tired of acting like and being treated like your average Mr. & Mrs. Joe Lunch bucket.
Sadly, a great many individuals who have mortgages do not know what papers they
signed at closing let alone what each grouping of papers said to which they, by signature, had
committed themselves. A large proportion of these individuals do not even know what an
escrow account is, what title insurance is, what mortgage insurance it, so on and so forth.
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'J
It is no small wonder that these same individuals spent thousands of dollars with certain
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other individuals or groups which proclaimed that they can resolve their mortgage, automobile or
credit card loans only to find themselves either and/or out on the street, deeper into debt,
involved with criminal charges for issuing bogus promissory notes, bonds, or bills of exchange.
Hopefully, you now have a better understanding why this compilation has been put
together.
When you finish this book:, you will be ready to enter the fray on more even terms against
the financial institutions that have been using your lack of knowledge against you. You should
have a much better than 50/50 chance of having any decisions made by bankers or judges
regarding the future of your financial obligations come out in your favor, and in the favor of your
family's own future financial interests.

Chapter l ••• lntrodudion to B.1IIm
Bank Defined
Welcome to chapter one of The . . . Code JixptnIeiI. this chapter is designed to

help you to better understand what a bank is. More importantly" because the iIIIent of the
law is the law" we are bringing you the official written intent of congress. right out of the
official record books, showing what was in the minds of the congressmen when they wrote
the laws that govern banks and banking.
Most people have a general idea about what a bank i~ however they generally know
very little about the ildIla11aws that govern banks. For instance, do you have even a general
idea about specific things that the banks do every day that are completely against the law?
Do you know the minimum number of people that it takes to create a bank? Do you know
where to look in the law books to find out whether the bank that you deal with is even
approved for making roans or whemer mey. are pntitbiteO from making \oanS}
This chapter took many days ofresearch to find the original intent ofcongress. When
we finally did find it, we discovered that very little has changed since the middle of the 19th
century. The same basic "core of the banking laws" has been regulating the banking and
securities industries for over one hundred and fifty years. In this book you will learn the
difference between a loan originator and a loan servicer, and why it is so important to your
financial freedom to ooderstand the difference.
When you are done with this chapter you will understand what a bank is, what all-
fmancial institutions are, what all brokers and dealers are, as well as what servicers /
originators and any other agent of any bank or financial institution is. If you score less than
9()o~ on the quiz at the end of the chapter, then read the chapter- a second time. Do not go
forward through the book until you can score at least 900,10.
SECTION ONE
This section deals with
A. Definitions; purposes; powers and duties of banks.
B. Definitions; purposes; powers and duties of a bank holding company.
C. Definitions; purposes; powers and duties of security brokers and dealers.
)
12 USC Chapter 17 Sec. 1841. - Definitions
http://www4.law.comell.edu/uscode/12/1841.htmJ
(e) Bank Defined. -
For purposes of this chapter -
(1) In general. -
Except as provided in paragraph (2), the term "bank" means any of

the following:
(A)
An insured bank as defined in sectlon 3(h) of the Federal

Deposit Insurance Act (12 U.S.C. 1813(h».
(8)
An institution organized under the laws of the United States,

any State of the United States, the District of Columbia, any
territory of the United States, Puerto Rico, Guam, American
Samoa, or the Virgin Islands which both -
(i)
accepts demand deposits or deposits that the depositor may

withdraw by check or similar means for payment to third
parties or others; and
(ii)
is engaged in the business of making commercial loans.
12 USC Chapter 16 Sec. 1813. - Definitions

http:llwww4.law.comell.edu/uscode/12/1813.html
As used in this chapter -
(a) Definitions of Bank and Related Terms. -
(1) Bank. -
The term "bank" -
(A)
-
means any national bank, State bank, and District bank, and
any Federal branch and insured branch;
(B)
includes any former savings association that -
(i)
has converted from a savings association charter; and
(ii)
is a Savings Association Insurance Fund member.
(2) State bank. -
The term "State bank" means any bank, banking association, trust
company, savings bank, industrial bank (or similar depository institution
which the Board of Directors finds to be operating substantially in the
same manner as an industrial bank), or other banking institution which -
(A)
is engaged in the business of receiving deposits, other than

trust funds (as defined in this section); and
(B)
is incorporated under the laws of any State or which is

operating under the Code of Law for the District of Columbia
(except a national bank), including any cooperative bank or other
unincorporated bank the deposits of which were insured by the
Corporation on the day before August 9, 1989.
)
12 USC Chapter 2 Sec. 214. - Definitions http://www4.law.comell.eduluscode/12/214.html
(a)
As used in this subchapter and section 321 ofthis title the term "State bank" means
any bank, banking association, trust company, savings bank (other than a mutual savings
bank), or other banking institution which is engaged in the business of receiving deposits
and which is incorporated under the laws of any State, any Territory ofthe United States,
Puerto Rico, or the Virgin Islands, or which is operating under the Code of Law for the
District of Columbia (except a national banking association).
(b)
For purposes of merger or consolidation under this subchapter and section 321 of this
title the term "national banking association" means one or more national banking
associations, and the term "State bank" means one or more State banks
12 USC Chapter 2 Sec. 21. - Formation of national banking associations; incorporators;

articles of association http://www4.1aw.comell.eduluscode/12/21.html
Associations for carrying on the business of banking under title 62 ofthe Revised
Statutes may be formed by any number of natural persons, not less in any case than five.
They shall enter into articles of association, which shall specify in general terms the object
for which the association is formed, and may contain any other provisions, not inconsistent
with law, which the association may see fit to adopt for the regulation of its business and
the conduct of its affairs. These articles shall be signed by the persons uniting to form the
association, and a copy of them shall be forwarded to the Comptroller ofthe Currency, to
be filed and preserved in his office.
12 USC Chapter 3 Sec. 329. - Capital stock required as condition precedent to membership
http://www4.law.comell.edu!cgi-
bin/htm hl?DB=uscode12&STEMMER=en&WORDS=329+&COLOUR=Red&STYLE=s
&URL=/uscode/12/329.html#muscat highlighter first match
No applying bank shall be admitted to membership unless it possesses capital stock

and surplus which, in the judgment ofthe Board of Govemors ofthe Federal Reserve
System, are adequate in relation to the character and condition of its assets and to its
existing and prospective deposit liabilities and other corporate responsibilities: Provided,
That no bank engaged in the business of receiving deposits other than trust funds, which
does not possess capital stock and surplus in an amount equal to that which would be
required for the establishment of a national banking association in the place in which it is
located, shall be admitted to membership unless it is, or has been, approved for deposit
insurance under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.). The capital
stock of a State member bank shall not be reduced except with the prior consent ofthe
Board
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TITLE 12 > CHAPTER 17 > sec.
1813. - Definitions As used in this chapter· (a) Definitions of Bank
and Related Terms. - (1) Bank. - The term "bank" - (A) means any nationaJba.nk, State bank;
and District bank, and any Federal branch and insured branch; (B) includes any former savings
association that· (i) has converted from a savings association charter; and (ii) is a savings
AssociatDn Insurance Fund member"
TITLE 12 > CHAPTER 17 > Sec. 1841.

Sec. 1841. - Definitions
(c) BlInk Defined. - For purposes of this chapter - In general. -
tA) An insured blink _ defined in section 3(h) of the Federal Deposit Insurance Act (ll U.S.C. 1813(h». (B)
An Institution organized under the laws of the United States, any State of the United States, the District of
Columbia, any territory of the United States, Puerto Rico, Guam, American Samoa, or the Virgin Islands
which both • (I) IICCepts demand deposits or deposits that the depositor may withdraw by check or similar
means for payment to third parties or others; and (ii) is engaged in the business of making commercial
loans.
As used in this chapter -
(h)
The term "insured bank" means any bank (including a foreign bank
having an insured branch) the deposits of which are insured in accordance with
the provisions of this chapter; and the term "noninsured bank" means any
bank the deposits of which are not so insured.
(7) Sec. 1752. - Definitions
The term "insured credit union" means any credit union the
member accounts of which are insured in accordance with the provisions
of subchapter II of this chapter, and the term "noninsured credit union"
meanspny credit union the member accounts of which are not so
insured;
TITLE 12 > CHAPTER 3 > SUBCHAPTER I> Sec. 221.
Wherever the word "bank" is used in this chapter, the word shall
be held to include State bank, banking association, and trust company,
except where national banks or Federal reserve banks are specifically
referred to.
"'~"'lIVII I L V I I '-L ..... ' " . -a- . _. -
ode of Federal Regulations]

Lritle 12, volume 1J
[Revised as of January 1, 2002~
From the u.s. Government printlng office via GPO Access
[CITE: 12CFR25.12]
[page 228-230]
TITLE 12--BANKS AND BANKING
CHAPTER I--COMPTROLLER OF THE CURRENCY, DEPARTMENT OF THE TREASURY
PART 25--COMMUNITY REINVESTMENT ACT AND INTERSTATE DEPOSIT PRODUCTION REGULATIONs--Table of Contents
subpart A--General
Sec. 25.12 Definitions.
For purposes of this part, the following definitions apply:
(a) Affiliate means any company that controls, is controlled by, or
is under common control with another company. The term "control" has
the meaning given to that term in 12 U.S.C. 1841(a) (2) , and a company is
under common control with another company if both companies are directly
or indirectly controlled by the same company.
(b) Area median income means:
(1) The median family income for the MSA, if a person or geography
is located in an MSA; or
(2) The statewide nonmetropolitan median family income, if a person
or geography is located outside an MSA.
(c) Assessment area means a geographic area delineated in accordance
with sec. 25.41.
(d) Automated teller machine (ATM) means an automated, unstaffed
banking facility owned or operated by, or operated exclusively for, the
1nk at which deposits are received, cash dispersed, or money lent.
~ (e) Bank means a national bank (including a Federal branch as ~
defined in part 28 of this chapter) with Federally insured deposits,
except as provided in Sec. 25.11(c).
(f) Branch means a staffed banking facility authorized as a branch,
whether shared or unshared, including, for example, a mini-branch in a
grocery store or a branch operated in conjunction with any other local
business or nonprofit organization.
(g) CMSA means a consolidated metropolitan statistical area as
defined by the Director of the office of Management and Budget.
(h) community development means:
. (1) Affordable housing (including multifamily rental housing) for
low- or moderate-income individuals;
(2) community services targeted to low- or moderate-income
i ndi vi dua 1s ;
(3) Activities that promote economic development by financing
businesses or farms that meet the size eligibility standards of the
small Business Administration's Development company or small Business
Investment company programs (13 CFR 121.301) or have gross annual
revenues of $1 million or less' or
(4) Activities that revita;ize or stabilize low- or moderate-income
geographies.
(i) community development loan means a loan that:
(1) Has as its primary purpose community development; and
(2) Except in the case of a wholesale or limited purpose bank:
(i) Has not been reported or collected by the bank or an affiliate
for consideration in the bank's assessment as a home mortga~e, small
business, small farm, or consumer loan, unless it is a multlfamily
dwelling loan (as described in appendix A to part 203 of this title);
and
(ii) Benefits the bank's assessment area(s) or a broader statewide
or re9ional area that includes the bank's assessment areaCs).
(J) community development service means a service that:
(1) Has as its primary purpose community development;
_[page 229]]
(2) Is related to the provision of financial services; and
vC!\.iUUII IL\lrn.LiJ.I.or- • -::1- ..............
-
(3) Has not been considered in the evaluation of the bank's retail
banking services under Sec. 25.24(d).
(k) consumer loan means a loan to one or more individuals for
-
household, family, or other personal expenditures. A consumer loan does
not include a home mortgage, small business, or small farm loan.
consumer loans include the following categories of loans:
(1) Motor vehicle loan, which is a consumer loan extended for the
purchase of and secured by a motor vehicle;
(2) credit card loan, which is a line of credit for household,
family, or other personal expenditures that is accessed by a borrower's
use of a "credit card," as this term is defined in sec. 226.2 of this
title;
(3) Home equity loan, which is a consumer loan secured by a
residence of the borrower;
(4) other secured consumer loan, which is a secured consumer loan
that is not included in one of the other categories of consumer loans;
and
(5) other unsecured consumer loan, which is an unsecured consumer
loan that is not included in one of the other categories of consumer
loans.
(1) Geography means a census tract or a block numbering area
delineated by the united states Bureau of the census in the most recent
decennial census.
(m) Home mortgage loan means a "home improvement loan" or a "home
purchase loan" as defined in Sec. 203.2 of this title.
(n) Income level includes:
(1) Low-income, which means an individual income that is less than
50 percent of the area median income, or a median family income that is
less than 50 percent, in the case of a geography.
(2) Moderate-income, which means an individual income that is at
least 50 percent and less than 80 percent of the area median income, or
a median family income that is at least 50 and less than 80 percent, in
the case of a geography.
(3) Middle-income, which means an individual income that is at least
80 percent and less than 120 percent of the area median income, or a
)median family income that is at least 80 and less than 120 percent, in
the case of a ~eography.
(4) Upper-lncome, which means an individual income that is 120
percent or more of the area median income, or a median family income
that is 120 percent or more, in the case of a geography.
(0) Limited purpose bank means a bank that offers only a narrow
product line (such as credit card or motor vehicle loans) to a regional
or broader market and for which a designation as a limited purpose bank
is in effect, in accordance with sec. 2S.25(b).
(p) Loan location. A loan is located as follows:
(1) A consumer loan is located in the geography where the borrower
resides;
(2) A home mortgage loan is located in the geography where the
property to which the loan relates is located; and
(3) A small business or small farm loan is located in the geography
where the main business facility or farm is located or where the loan
proceeds otherwise will be applied, as indicated by the borrower.
(q) Loan production office means a staffed facility, other than a
branch, that is open to the public and that provides lending-related
services, such as loan information and applications.
(r) MSA means a metropolitan statistical area or a primary
metropolitan statistical area as defined by the Director of the office
of Management and Budget.
(s) Qualified investment means a lawful investment, deposit,
membership share, or grant that has as its primary purpose community
development.
(t) small bank means a bank that, as of December 31 of either of the
prior two calendar years, had total assets of less than $250 million and
was independent or an affiliate of a holding company that, as of
December 31 of either of the prior two calendar years, had total banking
and thrift assets of less than $1 billion.
(u) small business loan means a loan included in "loans to small
businesses" as defined in the instructions for preparation of the
. consolidated Report of condition and Income.
)
. ([page 230]]
.;)CI",L1UII 'L\Jrl"'Lv. I L
. -~- - -. -
(v) small farm loan means a loan included in "loans to small

irms" as defined in the instructions for preparation of the
consolidated Report of condition and Income.
(w) wholesale bank means a bank that is not in the business of
extending home mortgage, small business, small farm, or consumer loans
to retail customers, and for which a designation as a wholesale bank is
in effect, in accordance with sec. 25.25(b).
[60 FR 22178, May 4, 1995, as amended at 60 FR 66050, Dec. 20, 1995; 61
FR 21363, May 10, 1996]
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12 USC Chapter 2 Subchapter 1 Sec. 24a. - Financial subsidiaries of national banks .. -
http://www4.law.comell.edu/uscode/12/24a.html
(g) Definitions
For purposes of this section, the following definitions shall apply:
(1) Affiliate, company, control, and subsidiary
The terms "affiliate", "company", "control", and "subsidiary" have

the meanings given those terms in section 1841 of this title.
(2) Appropriate Federal banking agency, depository institution, insured bank,

and insured depository institution
The terms "appropriate Federal banking agency", "depository

institution", "insured bank", and "insured depository institution" have
the meanings given those terms in section 1813 of this title.
(3) Financial subsidiary
The term "financial subsidiary" means any company that is

controlled by 1 or more insured depository institutions other than a
subsidiary that -
(A)
engages solely in activities that national banks are permitted

to engage in directly and are conducted subject to the same terms
and conditions that govern the conduct of such activities by
national banks; or
(8)
a national bank is specifically authorized by the express terms

of a Federal statute (other than this section), and not by
implication or interpretation, to control, such as by section 25 or
25A of the Federal Reserve Act (12 U.S.C. 601 et seq., 611 et
seq.) or the Bank Service Company Act (12 U.S.C. 1861 et seq.).
)
The terms "national.bank" and "national banking association"
used in this chapter shalt be held to be synonymous and
interchangeable.1'he term "member bank" shall be held to mean any
national bank, State bank, or bank or trust company which has
become a member of one of the Federal reserve banks. The term
"board" shall be held to mean Board of Governors ofthe Federal
Reserve System; the term "district" shall be held to mean Federal'
reserve district; the terrI' "reserve' bank" shall be held to mean Federat
reserve bank; the term "the continental United States" means the
States of the United States and the District of Columbia.
~7V Sec. 222. - Federal reserve districts; membership of national

(1 » banks .
\t( The continental United States, excluding Alaska, shallbe divided into not
\\f\ Q less than eight nor more than twelve districts. Such districts may be
readjusted and new districts may from time to time be created by the Board of
v
Governors of the Federal Reserve System, not to exceed twelve in all:
Provided, That the districts shall b~ apportioned with dlje regard ~othe
conven.ience and customary course of business and shall not necessarily be
coterminous with any State or States. Such districts shall be known as Federal
Reserve districts and may be designated by number. When the State of Alaska
or Hawaii is hereafter admitted to the Union the Federal Reserve districts shall
be readjusted by the Board of Governors of the Federal Reserve System in
such manner as to include such State. Every national bank in any State shall,
upon commencing business or within ninety days after admission into the
Union of the State in Which it is located, become a member bank of the Federal
Reserve System by subscribing and paying for stock in the Federal Reserve
bank of itsdistrict in accordance with thePfOvisions of this ch:apt~randsl1aH
thereupon bean insured bank under the Federal Depositlnsljri:lnce Act{12
U.S;C. 1811 et seq.), and failure todososhaU subject suc.tl.bank to the
penalty provided by section SOla of this title .
What Is a Bank?
In Blacks Law book, original"" EdItIon, a bank Is defined as: .. A bench or seat; the bench of the jUstl~; the bench of'
the tribunal occupied by the judges; the seat of the jUdgment; a court. The fuR bench, or full court; the assembly of all the Judges
of a court."
Main Entry: 3bank
Function: noun
tymology: Middle english, from Middle French or Old 1taf18ll; Middle French bsnque, from Old Italian bence, literally, bench, of
Germanic orlglni akin to Old English bene Date: 16th century
1 a : an establishment for the custody, loan, exchange, or Issue of money, for the extension of credit, and for facilitating the
transmission of funds b obsoIet8 : the table, counter, or place cit business cit al1lOney changer
2 : a person conducting a gambling house or gamei apeci1fcally: DEALER,,,, . . . .' <".
.• ..
3 : a supply of something held In reserve: as a : the fund of supplies (as money, chips, or pieces) held by the blrriker ordeaterfor '
use in I game b : a fund of pieces belonging to a game (as dominoes) from which the players draw
4 : a place where something Is held available <memorybank>; especially: a depOt for the collection and storage of a biological
product of human origin for medical use <blood bank>
TITLE 12 > CHAPTER 2 > SUBCHAPTER XV> Sec. 214.

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TITLE 12 > CHAPTER 23 > Sec. 2279aa.
--
Sec. 2279aa. - Definitions
(7) Originator
The term "originator" means any Farm Credit System institution,

bank, insurance company, business and industrial development
company, savings and loan association, association of agricultural
producers, agricultural cooperative, commercial finance company, trust
company, credit union, or other entity that originates and services
agricultural mortgage loans.
(16) Servicer
The term "servicer" has the same meaning as in section 2605(i)(2)

of this title, with respect to a residential mortgage.
12 CFR PART 620--DISCLOSURE TO SHAREHOLDERS--Table of Contents

Subpart A--General
Sec. 620.1 Definitions.
For the purpose of this part, the following definitions shall
apply:
(a) Affiliated organization means any organization, other than a
Farm Credit organization, of which a director, senior officer or
nominee
for director of the reporting institution is a partner, officer, or
majority shareholder.
(b) Association means any of the associations as described in
Sec. 619.9050 of this chapter.
(c) Bank means any of the Farm Credit banks as described in
Sec. 619.9140 of this chapter.
(f) Institution means any bank or association chartered by the Act.
(g) Loan means any extension of credit or lease that is recorded as
an asset.
TITLE 12 , CHAPTER 2 , SUBCHAPTER I, Sec. 21. Page I of I
LII
legal information institnte US CODE COLLECTION
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TITLE 12 > CHAPTER 2 > SUBCHAPTER I > Sec. 21.
Search this title:

Sec. 21. - Formation of national banking
associations; incorporators; articles of 1.- --..-.-.-.-.. - - ._.___ .---
association
Associations for carrying on the busin~ss of banking
under title 62 of the Revised Statutes.may be formed by any
number of natural persons, not less in any case than five.
They shall enterinto'articfes of assodatiorr, wfifCh shalf Notes
specify in general terms the object for which the association Updates
is formed, and may contain any other provisi.ans, not Parallel authorities
inconsistent with law, which the association may see fit to (CFR)
adopt for the regulation of its business and the conduct of its Topical references
affairs.. These articles shaU be ~igned by the perso~uniting_
to form the association, and a copy of them shall be.
forwarded to the Comptroller of the Currency, to be filed andJ
preserved in his office,
- - -
http://www4.1aw.comell.eduluscodeI12/21.html 3/22/2003
-
12 USC Chapter 2 Subchapter 1 Sec. 24. - Corporate powers of
associations
-
Upon duly making and filing articles of association and an organization

certificate a national banking association shall become, as from the date of the
execution of its organization certificate, a body corporate, and as such, and in
the name designated in the organization certificate, it shall have power - First.
To adopt and use a corporate seal.
Second. To have succession from February 25, 1927, or from the date of
its organization if organized after February 25, 1927, until such time as it be
dissolved by the act of its shareholders owning two-thirds of its stock, or until
its franchise becomes forfeited by reason of violation of law, or until
terminated by either a general or a special Act of Congress or until its affairs
be placed in the hands of a receiver and finally wound up by him. Third. To
make contracts.
Fourth. To sue and be sued, complain and defend, in any court of law and
equity, as fully as natural persons.
Fifth. To elect or appoint directors, and by its board of directors to appoint

a president, vice president, cashier, and other officers, define their duties,
require bonds of them and fix the penalty thereof, dismiss such officers or any
of them at pleasure, and appoint others to fill their places.
Sixth. To prescribe, by its board of directors, bylaws not inconsistent with

law, regulating the manner in which its stock shall be transferred, its directors
elected or appointed, its officers appointed, its property transferred, its general
business conducted, and the privileges granted to it by law exercised and
enjoyed.
Seventh. To exercise by its board of directors or duly authorized officers

or agents, subject to law, all such incidental powers as shall be necessary to
carry on the business of banking; by discounting and negotiating promissory
notes, drafts, bills of exchange, and other evidences of debt; by receiving
deposits; by buying and selling exchange, coin, and bullion; by loaning money
on personal security; and by obtaining, issuing, and circulating notes according
to the provisions of title 62 of the Revised Statutes. The business of dealing in
securities and stock by the association shall be limited to purchasing and
selling such securities and stock without recourse, solely upon the order, and
for the account of, customers, and in no case for its own account, and the
association shall not underwrite any issue of securities or stock; Provided, That
the association may purchase for its own account investment securities under
such limitations and restrictions as the Comptroller of the Currency may by
regulation prescribe. In no event shall the total amount of the investment
securities of anyone obligor or maker, held by the association for its own
account, exceed at any time 10 per centum of its capital stock actually paid in
) and unimpaired and 10 per centum of its unimpaired surplus fund, except that
this limitation shall not require any association to dispose of any securities
lawfully held by it on August 23, 1935. As used in this section the term
"investment securities" shall mean marketable obligations, evidencing
indebtedness of any person, copartnership, association, or corporation in the
form of bonds, notes and/or debentures commonly known as investment
securities under such further definition of the term "investment securities" as
may by regulation be prescribed by the Comptroller of the Currency. Except as
hereinafter provided or otherwise permitted by law, nothing herein contained
shall authorize the purchase by the association for its own account of any
shares of stock of any corporation. The limitations and restrictions herein
contained as to dealing in, underwriting and purchasing for its own account,
investment securities shall not apply to obligations of the United States, or
general obligations of any State or of any political subdivision thereof, or
obligations of the Washington Metropolitan Area Transit Authority which are
guaranteed by the Secretary of Transportation under section 9 of the National
Capital Transportation Act of 1969, or obligations issued under authority of the
Federal Farm Loan Act, as amended, or issued by the thirteen banks fot
cooperatives or any of them or the Federal Home Loan Banks, or obligations
which are insured by the Secretary of Housing and Urban Development under
title XI of the National Housing Act (12 U.S.C. 1749aaa et seq.) or obligations
which are insured by the Secretary of Housing and Urban Development
(hereinafter in this sentence referred to as the "Secretary") pursuant to
section 207 of the National Housing Act (12 U.S.c. 1713), if the debentures to
be issued in payment of such insured obligations are guaranteed as to principal
and interest by the United States, or obligations, participations, or other
instruments of or issued by the Federal National Mortgage Association, or the
Government National Mortgage Association, or mortgages, obligations or other
securities which are or ever have been sold by the Federal Home Loan
Mortgage Corporation pursuant to section 305 or section 306 of the Federal
Home Loan Mortgage Corporation Act (12 U.S.c. 1454 or 1455), or obligations
of the Federal Financing Bank or obligations of the Environmental Financing
Authority, or obligations or other instruments or securities of the Student Loan
Marketing Association, or such obligations of any local public agency (as
defined in section 110(h) of the Housing Act of 1949 (42 U.S.C. 1460(h))) as
are secured by an agreement between the local public agency and the
Secretary in which the local public agency agrees to borrow from said
Secretary, and said Secretary agrees to lend to said local public agency,
monies in an aggregate amount which (together with any other monies
irrevocably committed to the payment of interest on such obligations) will
suffice to pay, when due, the interest on and all installments (including the
final installment) of the principal of such obligations, which monies under the
terms of said agreement are required to be used for such payments, or such
obligations of a public housing agency (as defined in the United States Housing
Act of 1937, as amended ~ U.S.C. 1437 et seq.))
-
Eighth. To contribute to community funds, or to charitable, philanthropic,
or benevolent instrumentalities conducive to public welfare, such sums as its
board of directors may deem expedient and in the interests of the association,
if it is located in a State the laws of which do not expressly prohibit State
banking institutions from contributing to such funds or instrumentalities.
Ninth. To issue and sell securities which are guaranteed pursuant to

section 1721(g) of this title.
Tenth. To invest in tangible personal property, including, without

limitation, vehicles, manufactured homes, machinery, equipment, or furniture,
for lease financing transactions on a net lease basis, but such investment may
not exceed 10 percent of the assets of the association.
Eleventh. To make investments designed primarily to promote the public

welfare, including the welfare of low- and moderate-income communities or
families (such as by providing housing, services, or jobs). A national banking
association may make such investments directly or by purchasing interests in
an entity primarily engaged in making such investments. An association shall
not make any such investment if the investment would expose the association
to unlimited liability. The Comptroller of the Currency shall limit an
association's investments in any 1 project and an association's aggregate
investments under this paragraph. An association's aggregate investments
under this paragraph shall not exceed an amount equal to the sum of 5
percent of the association's capital stock actually paid in and unimpaired and 5
percent of the association's unimpaired surplus fund, unless the Comptroller
)
determines by order that the higher amount will pose no significant risk to the
affected deposit insurance fund, and the association is adequately capitalized.
In no case shall an association's aggregate investments under this paragraph
exceed an amount equal to the sum of 10 percent of the association's capital
stock actually paid in and unimpaired and 10 percent of the association's
unimpaired surplus fund
)
Prev I
Next:
sec. 22. - Organization certificate

The persons uniting to form such an association shaff, under their bands,
mttk att t1t"gttft~tftm t:t:;f'tff'ft;cttt:, ttffft:ft 1tftdff ~fftbcJ«¥ ~.~
First. The name assumed by sudl association; which name shall indude
the word "national".
second. 1be place w1lere its operations of discount aR£f. deposit are· .De
carried on, designating the State, Territory, or District, and tbe particular
county and city, town, or village.
Third. The amount of capital stoCk and the ~rrA~ into Whitft,
the same is to be diVided.
F-..b. ThoQ. ~ . . . .'_. . .- ~'t'IiIi:A. . . . . . ~ lI.lIIotLiIM..
number of shares held by each ofthem.
Fifth. The fact that the certificate is made to enable such persons to avail
themselves of the advantages of title 6.~ of the Revised Statutes
0710112001
-
12 USC Chapter 6 Subchapter 1 Sec. 601. - Authorization;
conditions and regulations
Any national banking association possessing a capital and surplus of

$1,000,000 or more may file application with the Board of Governors Of the
Federal Reserve System for permission to exercise, upon such conditions and
under such regulations as may be prescribed by the said board, the following
powers:
First. To establish branches in foreign countries or dependencies or insular

possessions of the United States for the furtherance of the foreign commerce
of the United States, and to act if required to do so as fiscal agents of the
United States.
Second. To invest an amount not exceeding in the aggregate 10 per

centum of its paid-in capital stock and surplus in the stock of one or more
banks or corporations chartered or incorporated under the laws of the United
States or of any State thereof, and principally engaged in international or
foreign banking, or banking in a dependency or insular possession of the
United States either directly or through the agency, ownership, or control of
local institutions in foreign countries, or in such dependencies or insular
possessions.
Third. To acquire and hold, directly or indirectly, stock or other evidences

of ownership in one or more banks organized under the law of a foreign
country or a dependency or insular possession of the United States and not
engaged, directly or indirectly, in any activity in the United States except as, in
the judgment of the Board of Governors of the Federal Reserve System, shall
be incidental to the international or foreign business of such foreign bank; and,
notwithstanding the provisions of section 371c of this title, to make loans or
extensions of credit to or for the account of such bank in the manner and
within the limits prescribed by the Board by general or specific regulation or
ruling.
Until January 1, 1921, any national banking association, without regard to

the amount of its capital and surplus, may file application with the Board of
Governors of the Federal Reserve System for permission, upon such conditions
and under such regulations as may be prescribed by said board, to invest an
amount not exceeding in the aggregate 5 per centum of its paid-in capital and
surplus in the stock of one or more corporations chartered or incorporated
under the laws of the United States or of any State thereof and, regardless of
its location, principally engaged in such phases of international or foreign
financial operations as may be necessary to facilitate the export of goods,
wares, or merchandise from the United States or any of its dependencies or
insular possessions to any foreign country: Provided, however, That in no
event shall the total investments authorized by this subchapter by anyone
national bank exceed 10 per centum of its capital and surplus.
Such application shall specify the name and capital of the banking
) association filing it, the powers applied for, and the place or places where the
banking or financial operations proposed are to be carried on. The Board of
Governors of the Federal Reserve System shall have power to approve or to
reject such application in whole or in part if for any reason the granting of such
application is deemed inexpedient, and shall also have power from time to time
to increase or decrease the number Of places where such banking operations
may be carried on
Page 1 of4 -
Page 1
') 12 U.S.C.A. § 34Th
UNIlED STAlES CODEANNOTAlED

TITLE 12. BANKS AND BANKING
CHAPTER 3--FEDERAL RESERVE SYSTEM
SUBCHAPlER IX--POWERS AND DUTIES OF FEDERAL RESERVE BANKS
-+§ 347b. Advances to individual member banks on time or demand notes; maturities; time notes
secured by mortgage loans covering one-to-four family residences
(a) In general
Any Federal Reserve bank, under rules and regulations prescribed by the Board of Governors of the Federal
Reserve System, may make advances to any member bank on its time or demand notes having maturities of not
more than four months and which are secured to the satisfaction of such Federal Reserve bank.
Notwithstanding the foregoing, any Federal Reserve bank, under rules and regulations prescribed by the Board of
Governors of the Federal Reserve System, may make advances to any member bank on its time notes having such
maturities as the Board may prescribe and which are secured by mortgage loans covering a one-to-four family
residence. Such advances shall bear interest at a rate equal to the lowest discount rate in effect at such Federal
Reserve bank on the date of such note.
(b) Limitations on advances
(1) Limitation on extended periods
Except as provided in paragraph (2), no advances to any undercapitalized depository institution by any Federal
Reserve bank under this section may be outstanding for more than 60 days in any 120-day period.
(2) Viability exception
(A) In general
If-
(i) the head of the appropriate Federal banking agency certifies in advance in writing to the Federal Reserve
bank thliit any depository institution is viable; or
(ii) the Board conducts an examination of any depository institution and the Chairman of the Board certifies
in writing to the Federal Reserve bank that the institution is viable,
Copr. © West 2004 No Claim to Orig. U.S. Govt. Works
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Page 2 of4
Page 2
12 U.S.C.A. § 347b
the limitation contained in paragraph (1) shall not apply during the 60-day period beginning on the date
such certification is received.
(B) Extensions of period
The 60-day period may be extended for additional 60-day periods upon receipt by the Federal Reserve bank of
additional written certifications under subparagraph (A) with respect to each such additional period.
(C) Authority to issue a certificate of viability may not be delegated
The authority of the head of any agency to issue a written certification of viability under this paragraph may
not be delegated to any other person.
(D) Extended advances subject to paragraph (3)
Notwithstanding paragraph (1), an undercapitalized depository institution which does not have a certificate of
viability in effect under this paragraph may have advances outstanding for more than 60 days in any 120-day
period if the Board elects to treat--
(i) such institution as critically undercapitalized under paragraph (3); and
(ii) any such advance as an advance described in subparagraph (A)(i) of paragraph (3).
(3) Advances to critically undercapitalized depository institutions
(A) Liability for increased loss
Notwithstanding any other provision of this section, if--
(i) in the case of any critically undercapitalized depository institution--
(I)" any advance under this section to such institution is outstanding without payment having been
demanded as of the end of the 5-day period beginning on the date the institution becomes a critically
undercapitalized depository institution; or
(II) any new advance is made to such institution under this section after the end of such period; and
(ii) after the end of that 5-day period, any deposit insurance fund in the Federal Deposit Insurance
Corporation incurs a loss exceeding the loss that the Corporation would have incurred if it had liquidated
that institution as of the end ofthat period,
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Page 3 of4
-
Page 3
12 U.S.C.A. § 34Th
the Board shall, subject to the limitations in subparagraph (B), be liable to the Federal Deposit Insurance
Corporation for the excess loss, without regard to the terms of the advance or any collateral pledged to
secure the advance.
(B) Limitation on excess loss
The liability of the Board under subparagraph (A) shall not exceed the lesser of the following:
(i) The amount of the loss the Board or any Federal Reserve bank would have incurred on the increases in
the amount of advances made after the 5-day period referred to in subparagraph (A) if those increased
advances had been unsecured.
(ii) The interest received on the increases in the amount of advances made after the 5-day period referred to
in subparagraph (A).
(C) Federal Reserve to pay obligation
The Board shall pay the Federal Deposit Insurance Corporation the amount of any liability of the Board under
subparagraph (A).
(D) Report
The Board shall report to the Congress on any excess loss liability it incurs under subparagraph (A), as limited
by subparagraph (B)(i), and the reasons therefore, not later than 6 months after incurring the liability.
(4) No obligation to make advances
A Federal Reserve bank shall have no obligation to make, increase, renew, or extend any advance or discount
under this chapter to any depository institution.
(5) Definitions
(A) Appropriate Federal banking agency
The term "appropriate Federal banking agency" has the same meaning as in section 1813 of this title.
(B) Critically undercapitalized

)
Page 4 of4
Page 4
12 U.S.C.A. § 347b
The term "critically undercapitalized" has the same meaning as in section 18310 of this title.
(C) Depository institution

•
The term "depository institution" has the same meaning as in section 1813 of this title.
(D) Undercapitalized depository institution
The term "undercapitalized depository institution" means any depository institution which--
(i) is undercapitalized, as defmed in section 18310 of this title; or
(ii) has a composite CAMEL rating of 5 under the Uniform Financial Institutions Rating System (or an
equivalent rating by any such agency under a comparable rating system) as of the most recent examination
of such institution.
(E) Viable
A depository institution is "viable" if the Board or the appropriate Federal banking agency determines, giving
due regard to the economic conditions and circumstances in the market in which the institution operates, that
the institution--
(i) is not critically undercapitalized;
(ii) is not expected to become critically undercapitalized; and
(iii) is not expected to be placed in conservatorship or receivership.
Current through P.L. 108-198 (End) approved 12-19-03
Copr. © West Group 2003. No claim to Orig. U.S. Govt. Works.
END OF DOCUMENT
-
12 USCA § 1841, DefInitions Pagel
*86316 12 V.S.c.A. § 1841 been found to have control in a proceeding under

U}ITTED STATES CODE paragraph (2)(C).
ANNOTATED 1 (5) Notwitllstanding any otller provision of this
TITLE 12. BANKS AND BANKING' subsection--
(A) No bank and no company owning or
CHAPTER 17--BANK HOLDING
controlling voting shares of a bank is a bank
COMPANIES • holding company by virtue of its ownershipot
control of shares in a fiduciary capacity, except
Current throughP.L. 105-175. approved as provided in paragraphs (2) and (3) of
5-11-98 subsection (g) of this section. For tile purpose of
tile preceding sentence, bank shares shall not be
§ 1841. Definitions deemed to have been acquired in a fiduciary
capacity if the acquiring bank or company has
(a)O) Except as provided in paragraph (5) of sole discretionary autllority to exercise voting
." ",~·.~·.·.~;~,: ...thi~jHl?s.ec1i9~ .. ~p~ . h9J'fulg ·~mpany': J:ll~ "rights,.»'ith: resJ}eCt .theiet~,. except.that . tbi.s.....-.._ ~... _~.
any company which has control over any ban or limitation is applicable in the case of a bank or
over any company that is or becomes a ank company acquiring such shares prior to
holding company by virtue of this chapter. December 31,1970, only if tile bank or company
(2) Any company has control over a b has tile right consistent with its obligations under
over any company if-- tile instrument, agreement, or other arrangement
(A) the company directly, or indirectl or establishing the fiduciary relationship to divest
acting through one or more other persons 0 . s, itself of such voting rights and fails to exercise
controls, or has power to vote 25 per cen ,or that right to divest within a reasonable period not
moreofanyclass-ofveting securities of the ~~ to exceed one year' after December 31, 1970:-
or company; *86317 (B) No company is a bank holding
(B) the company controls in any manner· the company by virtue of its ownership or control of
election of a majority of the directors or trustees shares acquired by it in connection with its
of the bank or company; or underwriting of securities if such shares are held
(C) the Board determines, after notice and only for such period of time as will permit the
opportunity for hearing, that the company sale thereofon a reasonable basis.
directly or indirectly exercises a controlling (C) No company formed for the sole purpose
influence over the management or policies of the of participating in a proxy solicitation is a bank
bank or company. holding company by virtue of its control of
(3) For the purposes of any proceeding wlder voting rights of shares acquired in the course of
paragraph (2)(C) of this subsection, there is a such solicitation.
presumption that any company which directlr or (D) No company is a bank holding company
indirectly owns, controls, or has power to vote ess by virtue of its ownership or control of shares
than 5 per centum of any class of voting secur ties acquired in securing or collecting a debt
of a given bank or company does not have co trol previously contracted in good faith, until two
over that bank or company. years after the date of acquisition. The Board is
(4) In any administrative or judicial pr g authorized upon application by a company to
under this chapter, other than a proceeding der extend, from time to time for not more than one
paragraph (2)(C) of this subsection, a com any year at a time, the two-year period referred to
may not be held to have had control over ~y herein for disposing of any shares acquired by a
given bank or company at any given time ess company in the regular course of securing or
that company, at the time in question, directly or collecting a debt previously contracted in good
indirectly owned, controlled, or had power to vote faith, if, in the Board's judgment, such an
5 per centum or more of any class of voting extension would not be detrimental to the public
) securities of the bank or company, or had already interest, but no such extension shall in the
Copyright (c) West. Group 1998 No claim to original U.S. Govt. works
Ii
12 USCA § 1841, DefInitions Page 2
aggregate exceed three years. the enactment of the Bank Holding Company Act
(E) No company is a bank holding company Amendments of 1970 and which would have been
by virtue of its ownership or control of. any a bank holding company on June 30, 1968, if
State-chartered bank or trust company ~hich- those amendments had been enacted on that date.
(i) is wholly owned by thrift institutions or (c) Bank defined
savings banks; and For purposes of this chapter--
(ii) is restricted to accepting--
(1) deposits from thrift institutions or ( 1) In general
savings banks;
(II) deposits arising out of the corp , ate Except as provided in paragraph (2), the term
business of the thrift institutions or sav gs "bank" means any of the following:
banks that own the bank or trust company' or (A) An insured bank as defined in section
(lID deposits of public moneys. 3(h) of the Federal Deposit Insurance Act [12
::
, . .. (f) No trust company or mutual savings ank
*. .
,·~\;·.:.,;,;~;o._:::.vvlllth: :is,:_~.. :,msur~~Lbank. .\W.d~.•i;be¥
Deposit Insurance Act [12 U.S.CA. § 181 ' et
~
U.S.C.A. § 1813(h) ].
;:);" . .tal AilJliostitution organized undet:_the_ _......_,
laws of the United States, any State of the
seq.] is a bank holding company by virtue 0 its United States, the District of Columbia, any
direct or indirect ownership or control of one territory of the United States, Puerto Rico,
bank located in the same State, if (i) such Guam, American Samoa, or the Virgin Islands
ownership or control existed on December' 31, which both-- .
1970, and is specifically authorized by (i) accepts demand deposits or deposits
applicable State law, and (ii) the trust company that the depositor may withdraw by check or
or mutual savings bank does not after that date similar means for payment to third parties or
.- "acquire-aninterest in'any companythat;·tagether·'----- .others-;--am:t--'·..----.. --·~· ~. .-----.- - -_-_ .
with any other interest it holds in that ·company, (ii) is engaged in the business of
will exceed 5 per centum of any class of the making commercial loans.
voting shares of that company, except that this
limitation shall not be applicable to investments (2) Exceptions
of the trust company or mutual savings bank,
direct and indirect, which are otherwis~ in The term "bank" does not include any of the
accordance with the limitations applicabl to following:
national banks under section 24 of this title. (A) A foreign bank which would be a bank
(6) For the purposes of this chapter, .any within the meaning of paragraph (1) solely
successor to a bank holding company sh : be because such bank has an insured or uninsured
deemed to be a bank holding company from the branch in the United States.
date on which the predecessor company bec a (B) An insured institution (as defined in
bank holding company. subsection (j) of this section).
*86318 (b) "Company" means any corpora ,'on, (C) An organization that does not do
partnership, business trust, association, or siIrtilar business in the United States except as an
organization, or any other trust unless by its terms incident to its activities outside the United
it must terminate within twenty-five years or' not States.
later than twenty-one years and ten months after (0) An institution that functions solely in
the death of individuals living on the effective date a trust or fiduciary capacity, if--
of the trust but shall not include any corporation (i) all or substantially all of the deposits
the majority of the shares of which are owned by of such institution are in trust funds and are
the United States or by any State, and· shall not received in a bona fide fiduciary capacity;
include a qualified family partnership. "Company (ii) no deposits of such institution
covered in 1970" means a company which which are insured by the Federal Deposit
becomes a bank holding company as a result of Insurance Corporation are offered or
Copyright (c) West Group .1998 No claim to original U.S. Govt. works
-
12 USCA § 1841, Defmitions Page 3
,j
marketed by or through an affiliate of such (I) which does not accept demand
institution; deposits that the depositor may withdraw by
(iii) such institution does not accept check or similar means for payment to third
demand deposits or deposits that the parties;
depositor may withdraw by check or similar (II) which has total assets of less
. means for payment to third parties or others than $100,000,000; or
or make commercial loans; and (Ill) the control of which is not
(iv) such institution does not-- acquired by any company after August 10,
(I) obtain payment or payment 1987; or
related services from any Federal Reserve (li) an institution which does not,
bank, including any service referred to in directly, indirectly, or through an affiliate,
section llA of the Federal Reserve Act [12 engage in any activity in which it was not
U.S.C.A. § 248a]; or lawfully engaged as of March 5, 1987,
.. (II) exercise discount or borrm .' g
., ,; •.. ~.~~. ~,' ,....:L. . wprivililges pUrsuant to- seGfjgJi :19(\)')V7' e.f .lt~' .' except.that:this subparagraph shall cease to
the Federal Reserve Act [12 U.S.C.. § apply to any institution which pemrits any
46 1(b)(7) ]. overdraft (including any intraday overdraft),
*86319 (E) A credit union (as describ in or which incurs any such overdraft in such
section 19(b)(1)(A)(iv) of the Federal Res~rve institution's account at a Federal Reserve
Act [12 U.S.C.A. § 461(b)(1)(A)(iv)]). I; bank, on behalf of an affiliate if such
(F) An institution, including an institution overdraft is not the result of an inadvertent
that accepts collateral for extensions of credit computer or accounting error that is beyond
by holding deposits under $100,000, and by the control of both the institution and the
other means which;;;;: . affiliate: . . ..-
(i) engages only in credit card (I) The Investors Fiduciary Trust
operations; Company, located in Kansas City, Missouri, so
(ii) does not accept demand deposits or long as such institution--
deposits that the depositor may withdraw by (i) engages only in trust, fiduciary, and
check or similar means for payment to third agency activities in which it was lawfully
parties or others; engaged on March 5, 1987;
(iii) does not accept any savings or time *86320 (li) engages in such activities
deposit ofless than $100,000; only at the same number of locations at which
(iv) maintains only one office :that such activities were conducted on such date;
accepts deposits; and (iii) does not accept demand deposits
(v) does not engage in the busines' of other than demand deposits which are
making commercial loans. maintained by such institution in--
(G) An organization operating der (I) a trust or fiduciary capacity;
section 25 [12 V.S.c.A. §. 601 et seq. or (II) the institution's capacity as a
section 25(a) [12 U.S.C.A. § 611 et seq.] 0 the custodian or as a paying, transfer,
Federal Reserve Act. I. shareholder servicing, securities clearing,
(H) An industrial loan company, industnal escrow, or dividend disbursing agent; or
bank, or other similar institution which is-- . (III) any capacity which is incidental
(i) an institution organized under' the to the trust or fiduciary activities of the
laws of a State which, on March 5, 1987, had institution;
in effect or had under consideration in such (iv) does not engage in the business of
State's legislature a statute which required or making commercial loans;
would require such iIistitution to obtain (v) does not exercise discount or
insurance under the Federal' Deposit borrowing privileges pursuant to section
) Insurance Act[12 V.S.C.A. § 1811 et seq:]-- 19(b)(7) of the Federal Reserve Act [12
Copyright (c) West Group 1998 No claim to original U.S. Govt. works
V.S.C.A. § 461(b)(7)]; and *86321 (3) District bank

(vi) is not directly or incfu tty
controlled by any company other th a The term "District bank" means any bank
company which directly or indirectly operating under the Code of Law for the District
controlled such institution on March 5, 1987. of Columbia
(1) A savings bank (as defmed in section (d) "Subsidiary", with respect to a specified bank
3(g) of the Federal Deposit Insurance Act [12 holding company, means (1) any company 25 per
U.S.c.A. § l813(g)]) which-- centum or more of whose voting shares (excluding
(i) is an insured bank (as defmed in shares owned by the United States or by any
section 3(h) of such Act [12 U:S.C.A. § company wholly owned by the United States) is
1813(h)]); directly or indirectly owned or controlled by such
(ii) is a subsidiary of the Great Western bank holding company, or is held by it with power
Financial Corporation as a result of an to vote; (2) any company the election of a
approval in writing by the S~ate bank majority of whose directors is controlled in any
sl,lperv~§or o~ the State..pf N.~w:. y.or~. ~efqr~.., .. m~er QY suclb.bank hplding co~pany~, or.J~L_._._
June 30, 1987; any company with respect to the management of
(iii) meets or exceeds the inves policies of which such bank holding company has
requirements which an insured insti the power, directly or indirectly, to exercise a
must meet in order to be a qualified controlling influence, as determined by the Board,
lender under section 1730a(0 ) of this after notice and opportunity for hearing.
and (e) The term "successor" shall include any
(iv) does not, directly,. or thr ugh company which acquires directly or indirectly
insurance products such savings ~ank from a bank holding company shares of any bank,
receives' from . or provides-to the . Gteat· when·-and···· if··· the- :relationshil" between' such
Western Financial Corporation, engage in. the company and the bank holding company is such
sale or underwriting of insurance, that the transaction effects no substantial change
in the control of the bank or beneficial ownership
except that this subparagraph shall cease to of such shares of such bank. The Board may, by
apply with respect to such savings bank or regulation, further defme the term "successor" to
any successor institution if any deposits of , the extent necessary to prevent evasion of the
any other subsidiary or affiliate of the Great purposes ofthis chapter.
Western Financial Corporation which are (f) "Board" means the Board of Governors of the
subject to an assessment of an insurance Federal Reserve System.
premium under subsection (b) or (c) of (g) For the purposes of this chapter-
section 1727 of this title are, directly or (l) shares owned or controlled by any
indirectly by any device whatsoever, subsidiary of a bank holding company shall be
transferred to or acquired by such sav ngs deemed to be indirectly owned or controlled by
bank or any successor institution w" ch such bank holding company; and
would have the effect of materially redu ing (2).. shares held or controlled directly or
such premium assessments. The exem ion indirectly by trustees for the benefit of (A) a
provided by this subparagraph shall cea e to company, (B) the shareholders or members of a
apply if Great Western Fin Cial company, or (C) the employees (whether
Corporation uses such savings bank or any exclusively or not) of a company, shall be
successor institution as a vehicle to rrl<i>ve deemed to be controlled by such company.
such Corporation from Federal Savings and (3) Repealed. Pub.L. 104-208, Div. A, Title
Loan Insurance Corporation insurance to II, § 2207(3), Sept. 30, 1996, no Stat.
Federal Deposit Insurance Corporation 3009-_
insurance. (h)(I) Except as provided by paragraph (2), the
application of this chapter and of section 371c of
-
12 UseA § 1841, DefInitions PageS
this title shall not be affected by the fact that a For purposes of this chapter, the term "thrift --.
transaction takes place wholly or partly outside institution" mew--
the United States or that a company is org zed (l) any domestic building and loan or savings
or operates outside the United States. . and loan association;
(2) Except as provided in paragraph (3), the (2) any cooperative bank without capital
prohibitions of section 1843 of this title shall not stock organized and operated for, mutual
apply to shares of any company organized der purposes and without profit;
the laws ofa foreign country (or·to shares hel .by (3) any Federal savings bank; 'and
such company in any company engaged in the (4) any State-chartered savings bank the
same general line of business as the inv tor holding company of which is registered pursuant .
company or in a business related to the bus' ess to section 1730a of this title.
of the investor company) that is principally (j) Definition of savings associations and related
engaged in business outside the United States if term
such shares are held or acquired by a bank holding The term "savings association" or "insured
cOUlpany .orgcptiz.cxi under,1;'he \~}VS _of a,. foreigp. .,,<: instit;utio~" mellQ$-- . ....._ ..._
country that is principally engaged in the banking (I) any Federal savings association or Federal
business outside the United States. For the savings bank;
purpose of this, subsection, the term "section (2) any building and loan association, savings
2(h)(2) company" means any company whose and loan association, homestead association, or
shares are held pursuant to this paragraph. cooperative bank if such association or
*86322 (3) Nothing in paragraph (2) authorizes cooperative bank is a. member of the Savings
a section 2(h)(2) company to engage in (or acquire Association Insurance Fund; and
or hold more than 5 percent of the outstanding (3) any savings bank or cooperative bank
shares-of any-class· of voting- securities- f·a--- -- which is·deemedbythe-Director of the Office of
company engaged in) any banking, securi ies, Thrift Supervision to be a savings association
insurance, or other financial activities, as de ed under section 1467a(1) of this title.
by the Board, in the United States: •his
paragraph does not prohibit a section 2 (2) < See also amendment set out after text >
company from holding shares that were la ly
acquired before August 10, 1987. (k) Affiliate
(4) No domestic office or subsidiary of a link For purposes of this chapter, the term "affiliate"
holding company or subsidiary thereof hoi ~ g means any company that controls, is controlled by,
shares of a section 2(h)(2) company may extend or is under common control with another
credit to a domestic office or subsidiary of such company.
section 2(h)(2) company on terms more favorable (I) Savings bank holding company
than those afforded similar borrowers in the For purposes of this chapter, the term "savings
United States. bank holding company" means any company
(5) No domestic banking office or bank which controls one or more qualified savings
subsidiary of a bank holding company .that banks if the aggregate total assets of such savings
controls a section 2(h)(2) company may offer or banks constitute, upon formation of the holding
market products or services of such section company and at all times thereafter, at least 70
2(11)(2) company, or permit its products pr percent ofthe total assets of such company.
services to be offered'or marketed by or through *86323 (m) Qualified savings bank
such section 2(h)(2) company, Unless such For purposes of this chapter, the term "qualified
products or services were being so offer or savings bank"··
marketed as of March 5, 1987, and then onl' in (1) means any savings bank (as defmed in
the same manner in which they were being 0 red section 3(g) of the Federal Deposit Insurance
or marketed as of that date. Act [12 U.S.C.A. § 1813(g) ] ) which was
)
(i) Thrift. institution organized on or before March 5,1987; and
I·
,I
(2) includes any cooperative bank that is an companies established by the Board.
insured bank (as defmed in section 3(h) of the
Federal Deposit Insurance Act [12 U.S.C.A. § (C) Other capital terms
I RI 3(h) ] ) and any interim savings bank that is
established to facilitate a 'corporate The terms "Tier 1" and "risk·weighted
reorganization, or the formation of a holding assets" have the meanings given those terms in
company_ involving a savings bank described in the capital guidelines or regulations established
paragraph (l). by the Board for bank holding companies.
(n) Incorporated defmitions (2) Antitrust laws
For purposes of this chapter, the terms "ins' ed Except as provided in section 1849 of this
depository institution", "appropriate Feral title, the term "antitrust laws"·-
banking agency", "default", "in danger of defa t", *86324 (A) has the same meaning as in
, and "State. b~ supervisor", have the s e s.!1bs~tion (~l,<?f sectioJ;l12 of Title 15; an~ _.,_... __..
"meanings as' In·
section 3 'of
the Federal '" . osit
....' ~)"l
(B) includes section 45 of Title 15 to the

Insurance Act [12 U.S.C.A. § 1813]. extent that such section 45 relates to unfair
I
II methods of competition.
(0) Other defmitions
(3) Branch
For purposes of this chapter, the following
definitions shall apply: The term "branch" means a domestic branch
(as defmed in section 3 of the Federal Deposit
(1) Capital terms Insurance-Act[12 U.S£.A. § 1813]);-
(A) Insured depository institutions (4) Home State
With respect to insured depository The term "home State" means--

institutions~ the terms "well capitalized", (A) with respect to a national bank, the
"adequately capitalized", and State in which the main office of the bank is
'\mdercapitalized" have the same meaning as located;
in section 38(b) of the Federal De psit (B) with respect to a State bank, the State
Insurance Act [12 U.S.C.A. § 18310]. by which the bank is chartered; and
(C) with respect to a bank holding
(B) Bank holding company company, the State in which the total deposits
of all banking subsidiaries of such company are
(i) Adequately capitalized the largest on the later of--
(i) JUly 1, 1966; or
With respect to a bank hoi; g (ii) the date on which the company
company, the term "adequately capitalized" becomes a bank holding company under this
means a level of capitalization which meets or chapter.
exceeds all applicable Federal regulatory
capital standards. (5) Host State
(ii) Well capitalized The term "host State" means--

(A) with respect to a bank, a State, other
A bank holding company is "well than the home State of the bank, in which the
capitalized" if it meets the required capital bank maintains, or seeks to establish and
levels for well capitalized bank holding maintain, a branch; and
-
12 USCA § 1841, Definitions Page 7
(B) with respect to a bank hal ing

company, a State, other than the home Sta of
review of such company or institution; and
(ii)af least a satisfaetOIy rating for
-
the company, in which the company con ols, management, if such rating is given; or
or seeks to control, a bank subsidiary. (B) in the case of a company or depository
institution that has not received an examination
(6) Out-of-State bank :1 rating, the existence and use of managerial
resources which the Board determines are
The term "out-of-State bank" means, With satisfactory.
respect to any State, a bank whose home State is
another State. (10) Qualified family partnership
, (7) Out-of-State bank holding company The term "qualified family partnership"
means a general or limited partnership that the
The term "out-of-State bank holding Board determines--
company" means, with respect to any State,:a ,; (A) does,.'not directly control any bank,
bank holding company whose home State is except through a registered bank holding
another State. company;
(B) does not control more than 1
(8) Lead insured depository institutions registered bank holding company;
(C) does not engage in any business
(A) In general activity, except indirectly through ownership of
other business entities;
The term "lead insured deposi ory (D) has no investments other than those
institution" means the largest' ins ed petIiiitted fof abankhOldiligoompariy pursuant
depository institution controlled by the su ',eet to section 1843(c) ofthis title;
bank holding company at any time, based . p a (E) is not obligated on any debt, either
comparison of the average total risk-weighted directly or as a guarantor;
assets controlled by each insured depository (F) has partners, all of whom are either--
institution during the previous 12-month (i) individuals related to each other by
pl-"Tiod. blood, marriage (including former marriage),
or adoption; or
(B) Branch or agency (n) trusts for the primary benefit of
individuals related as described in clause (i);
For purposes of this paragraph and section and
18430)(4) of this title, the term "insured (G) has filed with the Board a statement
depository institution" includes any branch or that includes--
agency operated in the United States by a (i) ,the basis for the eligibility of the
foreign bank. partnership under subparagraph (F);
(ii) a list of the existing activities and
(9) Well managed investments of the partnership;
(iii) a commitment to comply with this
The term "well managed" means-- paragraph;
(A) in the case of any compan or (iv) a commitment to comply with
depository institution which rece yes section 70f the Federal Deposit Insurance
examinations, the achievement of-· Act [12 V.S.C.A. § 1817] with respect to any
*86325 (i) a CAMEL composite r ing acquisition of control of an insured
of 1 or 2 (or an equivalent rating undef Ian depository institution occurring after
equivalent rating system) in connection with September 30,1996; and
) the most recent examination or subsequent (v) a commitment to be subject, to the
12 USCA § l84l,Defmitions Page 8
same extent as if the qualified family 1956 Act. Senate Report No. 1095, see 1956 U.S.Code
Congo and Adm.News, p. 2482.
partnership were a bank holding company--
(I) to examination by the Board to 1966 Act. Senate Report No. 1179, see 1966 U.S.Code
assure compliance with this paragraph; and Congo and AdmNews, p. 2385.
(II) to section 8 of the Federal
Deposit Insurance Act [12 U.S.c. ' § 1970 Act. Senate Report No. 91-1084 and Conference
Report No. 91-1747, see 1970 U.S.Code Congo and
1818]. AdmNews, p. 5519.
CREDIT(S) 1977 Act. House Report No. 95-774, see 1977 U.S.Code
1989 Main Volume
1978 Act. Senate Report No. 95-1073, see 1978 U.S.Code
(May 9,1956, c. 240, § 2, 70 Stat. 133; July 1,1966• .ub.
L. 89-485, §§ 1-6, 80StaL 236, 237; Dec. 31, 1970, PAL.
1982 Act. Senate Report No. 97-536 and Senate
91-607, Title 1, § 101,84 Stat. 1760; Nov. 16, 1977, Pub. L.
,.'lc Conference Report ;t:-lo. 97-641, see 1982 U.S.Code Congo
95-188, Title 1Il,§ 301(b), 91 Stat. 1389; Sept. n,1918, and AdmNews, p. 3054. ..
Pili•. L. 95-369. § 8(e), 92 StaL 623; Oct. 15, 1982, pilb.L.
97-320, Title 1, § 118(b), Title III, § 333, Title IV, § 404(d) 1987 Act. House Report No. 100~2, Senate Report No.
(/), 96 Stat. 1479, 1504, 1512; Aug. 10, 1987, Pub.L. 100-19, House Conference Report No. 100-261, and
/00-86, Title I, § 101 (a), (e), Title II, § 205(a), 101 StaL Statement by President, see 1987 U.S.Code Congo and
554, 562. 584; Aug. 9, 1989, Pub.L. 101-73, Title VI. § AdmNews, p. 489.
602(0). 103 Stat. 409.)
1989 Act. House Report No. 101-54 and House Conference
1998 Electronic Update Report No. 101-209, see 1989 U.S. Code Congo and Adm.
News,p.86.
'86326 (As iimended SepL 29, 1994, Pub.I.. 103"328, Title
I, § 101(c), 108 Stat. 2341; SepL 30,1996, Pub.L. 104-208, 1994 Acts. House Report No. 103-448 and House
Div. A. Title II. §§ 2207, 2208(b). 2304(b), 2610, Conference Report No. 103~51, see 1994 U.S. Code Congo
2704(d)(l7), 110 StaL 3009-406, 3009-408, 3009.425, and Adm. News, p. 2039.
3009-475,3009-495.)
References in Text
<General Materials (GM) - Refere s, The Federal Deposit Insurance Act, referred to in text, is Act
Sept. 21,1950, C. 967, § 2,64 Stat. 873, as amended, which
Annotations, or Tables> is classified generally to chapter 16 (section 1811 et seq.) of
this title. For complete classification of this Act to the Code,
TEXT see Short Title note set out under section 1811 of this title
and Tables.
AMENDMENT OF SUBSEC. (J)(2)
This chapter, referred to in subsecs. (aXl), (4), (c), and (g)
to (0), was in the original "this Act", meaning Act May 9,
< Pub.L. 104-208, Div. A, Title II, ~ 1956, c. 240, 70 Stat. 133, as amended, known as the Bank
2704(c), (d)(17), Sept. 30, 1996, 110 Stat. Holding Company Act of 1956, which enacted this chapter
3009·487, 3009-495, provided that, and sections 1101 to 1103 of Title 26, Internal Revenue
Code, and enacted provisions set out as notes under this
e1Tective Jan. 1, 1999, if no insured section. For complete classification of this Act to the Code,
depository institution is a savings see Short Title note set out under this section and Tables.
association on that date, subsec. 0)(2) of
this section is amended by striking "Savings *86327 "Enactment of the Bank Holding Company Act
Association Insurance Fund" and inserting Amendments of 1970", referred to in subsec. (b), means
"Deposit Insurance Fund". > enactment of Pub.L. 91~07 on Dec. 31, 1970. For~
classification of Pub.L. 91~07, see Short Title of 1970
Amendment note set out under this section and Tables.
HISTORICAL NOTES
~"
The Federal Reserve Act, referred to in subsec. (c), is Act

HISTORICAL AND STATUTORY NOTES· Dec. 23, 1913, c. 6, 38 Stat. 251, as amended, which is
classified principally to chapter 3 (§ 221 et seq.) of this title.
Revision Notes and Legislative Reports Section 25 of the Act is classified to subchapter I (§ 601 et
Page lof2 -
Page 1
) 12 U.S.C.A. § 1422
UNITED STATES CODE ANNOTATED

CHAPTER ll--FEDERAL HOME LOAN BANKS
... § 1422. Definitions
As used in this chapter--
(1) Board
The tenns "Finance Board" and "Board" mean the Federal Housing Finance Board established under section
1422a of this title.
(2)(A) Bank
The tenn "Federal Home Loan Bank" or "Bank" means a bank established under the authority of this chapter.
(B) Bank system
The tenn "Federal Home Loan Bank System" means the Federal Home Loan Banks under the supervision of the
Board.
(3) State
The tenn "State", in addition to the States of the United States, includes the District of Columbia, Guam, Puerto
Rico, the United States Virgin Islands, American Samoa, and the Commonwealth of the Northern Mariana
Islands.
(4) The tenn "member" means any institution which has subscribed for the stock of a Federal Home Loan Bank.
(5) The tenn "home mortgage loan" means a loan made by a member upon the security of a home mortgage.
(6) The tenn "home mortgage" means a mortgage upon real estate, in fee simple, or on a leasehold (1) under a
lease for not less than ninety-nine years which is renewable or (2) under a lease having a period of not less than
fifty years to run from the date the mortgage was executed, upon which is located, or which comprises or
includes, one or more homes or other dwelling units, all of which may be dermed by the Board and shall include,
in addition to first mortgages, such classes of first liens as are commonly given to secure advances on real estate
by institutions authorized under this chapter to become members, under the laws of the State in which the real
estate is located, together with the credit instruments, if any, secured thereby.
(7) The tenn "unpaid principal," when used in respect of a loan secured by a home mortgage means the principal
thereofless the sum of (1) payments made on such principal, and (2) in cases where shares or stock are pledged
as security for the loan, the payments made on such shares or stock plus earnings or dividends apportioned or
credited thereon.
(8) An "amortized" or "installment" home mortgage loan shall, for the purposes of this chapter, be a home
mortgage loan to be repaid or liquidated in not less than eight years by means of regular weekly, monthly, or
quarterly payments made directly in reduction of the debt or upon stock or shares pledged as collateral for the
repayment of such loan. .
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Page 2 of2
Page 2
12 U.S.C.A. § 1422
(9) Savings association
The term "savings association" has the meaning given to such term in section 3 of the Federal Deposit Insurance
Act [12 U.S.C.A. § 1813].
(10) Chairperson
The term "Chairperson" means the Chairperson of the Board.
(11) Secretary
The term "Secretary" means the Secretary of Housing and Urban Development.
(12) Insured depository institution
The term "insured depository institution" means--
(A) an insured depository institution (as defmed in section 3 of the Federal Deposit Insurance Act [12
U.S.C.A. § 1813]), and
(B) except as used in sections 1441a and 1441b of this title, an insured credit union (as defined in section 1752
of this title).
(13) Community financial institution
(A) In general
The term "community fmancial institution" means a member--
(i) the deposits of which are insured under the Federal Deposit Insurance Act [12 U.S.C.A. § 1811 et seq.];
and
(ii) that has, as of the date of the transaction at issue, less than $500,000,000 in average total assets, based
on an average of total assets over the 3 years preceding that date.
(B) Adjustments
The $500,000,000 limit referred to in subparagraph (A)(ii) shall be adjusted annually by the Finance Board,
based on the annual percentage increase, if any, in the Consumer Price Index for all urban consumers, as
published by the Department of Labor.
END OF DOCUMENT
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TITLE 12 , CHAPlER 2 , SUBCHAPTER I, Sec. 39. Page 1 of 1
-
."': ..
LII -\
legal information instim~ US CODE COLLECTION

collecti<m horne
TITLE 12 > CHAPTER 2 > SUBCHAPTER I> Sec. 39.
Notes on Sec. 39.
SOURCE
R.S. Sec. 5156.
REFERENCES IN TEXT
Title 62 of the Revised Statutes, referred to in text, was in the original "this Titl.e u
meaning title 62 of the Revised Statutes, consisting of R.S. Sec. 5133 to 5244, which are
classified to sections il, 22 to 24a, 25a, 26, 27, 29, 35 to 37, 39, 1J, 52, g Th g 59 to
62, Q§" 71, 72 to ~ M, 83 to 86, 2Q, 91, 2J., 93a, 94, 141 to 144, 161, 164, 181, 182, 192
to 194, 196, 215c, 481 to 485, 501, 541, 548, and 582 of this title. ,See, also, sections ~, 333,
334, 475, 656, 709, 1004, and 1005 of Title ~ Crimes and Criminal Procedure. For complete
classification of R.S. Sec. 5133 to 5244 to the Code, see Tables.
Act of February 25, 1863, referred to in text, was act Feb. 25, 1863, ch. 58, 12 Stat. 665,
which was the original National Bank Act, and was repealed by act June 3, 1864, ch. 106, Sec.
62, 13 Stat. 118 /
CODIFlCAnON
R.S. Sec. 5156 derived from act June 3, 1864, ch. 106, Sec. 62, 13 Stat. 118, which was
the National Bank Act. See section 38 of this title
- - -
Zl ":.
LV 4- ::. F.""n r, &, I oS (/t/~'" yr
http://www4.law.comell.eduluscode/12/39.notes.html 3/22/2003
...... '-.', .
r.
,. ~\ "
D9
'" "
"
THIRTY-EIGHTH
.
proof ;15,
CONGRESS;SESS.
.. .. . .-.
nforcs.~it1.
L,' CII. 10-1, lOG..
of the
..
18G·1.
completi~n
. of tile. ;dditionnt'
'
~edions
of th,~
V
I road as aforesniu; aou upou the flLllureof eIther company to complete
I either section as aforesnid; to be annually built, 'the portion.of the land
~. remaininn-uncertitietl shall become subject to the control and di~po:;ition of
the 'len-isl~ture of the ~tate of Iowa, to aid· in, the conlpletioll of'such road;
." .....,
o
';:EC 9 ,Ana be i! jiurther 'enacted That all lanus 'hereafter certified to L:I1\1I,: h:n"
. " . \L1 . • . .' • . ' • .',
either of the land-grant. rallroaus 11\ Said, stafe. and Iymg OpposIte lilly t.,: "m"",,, (.,r 's:tl~
'. .
all\'I' n'rtllll'ct In
.
~t eompleteu section of such .road. ~ha~l ~e offered for sale by the corr~pall.\'.~~~'.lt~~n !l:,r"c
it :to whieh they shall be certified wlthm three yenrs. from the. completIOn of· .. ", .
such section, if then certifieu; anu if not, then. within three years frolll
the uate of stich certificate at reasonable price;; ; amI if not all.solt! within
e· ., that period thcn durin .... tbe fourth year all sllch. land~ remaining un:iol([ \\'10"11 tn I,,· "
"I' ~:
shall.be expose . d to pub0 "1
1IC ~a C, a fi' ,
tel' p,renons .
notice. .1
posteu'a t'tl Ie eOlllll)' '·''1",.""ltOplll'!IC
~:';l"
Ie ... ·It
seat of thecouDty in which such lallds shall be. situated, to .the highest .
I biJder, and in tracts not exceeding one hundred l:.nd sixty acres each.
in APPROVED, June 2,.186~.· ,
fl.':
CIIAP, CIV. -An Act to illcorporale the News,oo!Js' Home,
Be it enacted' by the Senate and Ho.'uie of Repl'eselilatit'es of the [hlltNl
States oif America in Congress assembled...- That Ju~epli Henry, .J. W. I .. '!"lIOl' 'Itlll'
:'\,'\\"sr-
0 • Ifl'·~
I1~ Forney, Henry Beard, Sayles J. Bowen, anu A. l\J. Gnngwel', thclr ,i';,. hill~I(\1I
C associates and successors, being' mcmbers of ~aid ~ociet)', Ly paying in!,) til,"" illclJrl'o-
I its treasury tlie ~um of two dollars 'annually, or lite 'members, by payin~ ral,',l,
he fifty dollars at one time, nre 'hereby incorporated an,1 made a body polilil',
Pot by the name of "The News-Loys' Home of 'Washington City,:' rUI' thc
.1 purpose of prc)\;iding lodgings, meaL5, anu instruction to such homeles:-, an(l
. indigent boys as may properly come under the ch:'rge of such association. l'owrnl or cor-
by .to pru\'idc fiJI' themn. suitable home, lJOard, Clothin~. :md jll~trnction, :tI1c1 poration,
to bring them' unuer Chri"tian influenc'~; and by that name ~hall Imve
perpetual succession, with p:)\\,el' to usc a· common .-cal, 10 sue and 'bci
II sued, to plead aliu be in'lpleaucd in anj court of competent ,jlli'isuietion
witlJin the District of Columbia, to collect sub5cription~,'make by-laws,
~y.
I'~"
rulc~, anti regulations needful/or the gO\'cl'nmcnt or
snitl (:orpomtion not
inconSlstcnt with the laws of 'the Uniteu· States; to Im\'c. 110111, :and' re-
ccive real estate by purcha~e,·.gift; 01' ..Ic..-isc; to usc, sell, or con\'cy the
nor same for the purposes and bemdit of said corpora.tio!'!, nnrl to dloo:-,c ~lIeh
e''',\· officer,; IIncl teachers as may be necessary, prescribe thcir duties, ,inu fix
n [ the rate of their 'compenmtion. ' ,'. .
~ . SEC. 2. And be it furtlter enilcted, That the officers of said as;:ociatio((
~hall eonsi5t 'of a president, twovice-presiuents, secretary. tre:130rl'r. anll
I)lij..:.crs, &c.
Jity
pni a board of manngers, to be' composed of fifteen memher~; the whole to
,r e constitute a.n exeeuti,e committee, whose. cluty it shaH be to carr\' into
1 • effeet the plans and' purposes for which saitl association \\'a,,; formcd:all or'
the which otlieers shall be ele<;ted on the first 'l'lle;day in Feuru:ll';' in eal:h
year at the .annual meeting of mid ~5.oeiation. \\:hich shal1 be hd" 011 .-aid
r t- ·tlay; their successor" shall be electe<l aill! holJ their 6tH,,(,,; for tlt,~ tcrlll
; ~.,
of one. year, anti until thek ~lIccc~sors shall be duly CiCCII'll.' . An,l iii ca-';
nnrlo of a vacl\ncy it shall be filled by the olher 'lIIe;Tiuct's of th~ t'~"l'llli\'e
committec. . ".
l-,'i·
3 to
Al·I'I(OVEtJ •...Julle 18G·l; '2;
,>r.
shnn CII.II', C:'[, - An Art to 1'1'()ui"~'11 ,\\c/io1l'11 CIl""'''~J' ,(,'n"'_l! f..t r,·I";,:.I." ,,( {:"il. .! ,I"".·;. :,,:1.
It- or 1,/I",lJoII,).<, tlmi t~ lJrlJeidrfior ilte Cireuflilioll iN"i1icd~/I;.lJliulI ti,e;-",',I:
:So l
~'i·t.' -
t h......
r Iy
: ,,:st.
• Re it l:,U,u:lc.d .!I.1f the SCllll{C' (lIld irmr,'er~r J~"'Pr!'sl!llt(ltit·t!s r.!f titPo .Crtt'ter[ ,! /:,:.. (~ 'I" .- I.
~1(l.l.es ~J. ..!lIIcnt:a 'In CUI1!Jrcss' IIsS<'mb/ecl• . That tlll'rc slmli' b::- estah- C",n'III'" !oil'
..
'csent Itsh~u TIl .the tr<'fisUry d~parrllll'llt Il ~eparnte hureau. which ~hal1 hI' r.nl\ ·:<tll!ili .. h,.t.
}::'~c·
chll1'c>cd
r:> WIth the Cleel' • , .n t'LOll 0 f t.ll~
I' :Il1u.1 a'II'tIt Iler I:tl\'''
. that.may be'l',,:"sl'd
..' . '
,by .eungress re~pt'et\l)g the i5~lte lillli rl'l;lIliltiun v(':\ national current;y
".
JOq TrrIRTY-EIGHTH CONGRESS; SESS. r. Crr,l06. 1.864.

, , '
~eetll't'd bJ~ Uniteti Slate;; Londs,T!\l~ chief officer of the said bu~e:iu shall
(;olllptrlll1~r of ue ,lenolllinaIeu the comptroller of the cuneney, and shall ht' unuel' the gem-" . VISI".
,:", "",.f'·I1",\', er:d clirectioll of tb~ Secretm'y of the Treasury. He shall be nppoiriled, , , rcguh.
~'''''\i\poilljlllrll't, by lhe Pre~jdent, on the recommenuation of the Secretary of tbe 'freas: ",,!liel,
,,' . '. 111')', by anu with thc advice and consent of tho Senate, and .shall hold his. llssoci:
'1
I crill or oflrcc. ol!ic:c lin' the term of five yenrs nnle;;s sooner remon~u by the Presiuent, rency,
. . upon reasons to be comJn.unicateu by him t.o the Semtte; he shall receive ... SE(
., such 2
:,,,rary, :\11 anllual !'abry of fire thousnnu dollars; he shall have· a compet.cnt
P",'"I)' comp' dcputy, appointed by the' secretary, whose salm'y shall be two thotlsnnu ,.
ficatc.
D'"II,'r, fin:' lllllldrcd dollal':', nnd who shall i)osse~s the power anu perform .the Fi~
,IUlie,,; attached by law to the olrice of comptroller during a vacancy' in Bubjec
. Sec
~ne'h ofIice. and. durill~ hi;; absence 01' inability; he shall employ, from.
t(me to timC', the nCl;t~;:~nt'y clerk~ to disc:hargc l"uch dllties as he shall be car
liculal
"I,'rk., direc:t, which c1crk~ shall be appoilited and classified hy the 'S"crclal'y of
Thi
tire' T~I.·a"lll·y in tht' IIIHniwr now provided by!:tw. 'Within fifteen daY!l
,1:(lll1 p lroll,:r l.(l l'rom tlr(~ time of notice of his appointment tlw eomptJ'ollcr shall lake and which
In",' o;lth W,l11l1 l I. 't, I I f' I' 'I I - I " I Iaw;; 0 f t Jle For
",hat tillh', ;:lIu~Cl'lue tit: Oal I 0 01 Ice prcl:'CI'l JC( lJy t Ie con:'lltutwn ane
the nu
l:lIitctl State~; and he shall gi\'e to thc Unitcel State;;:l bond in {he pen-
Fin
alty of onc hundred tlwlI:':lnu dollar~, with not Ic~s t.lran two re:,pon"ible
"
','
sons V
;'lIn.:tie:>, to be nppl'Oved by the Secretary 0[' the Trr.a~IIJ'Y, l;onditionecl
Th(
. for lire faithl'lll di~l'harge of the dlltie~ of hi" ofli (X' , The deputy-cump- .::ourt,
flat" :11,,1 1",,,<1 trolkr 1'0 appointed shall also take the oath 0[' ollice prescribed by the
.,r .1 I t' I U' edgmc:
rl",1II1\' C(J'"p'
Ir"II"r. - " .
con~lltlltlOll :lIlu aws 0 tIe llIteu.1 S·
tntes, anu.1 sI mI Igl\'c
' a 1'1I,e bon d'In
be tra:
Xvt t ... be ill- the pcnalty of' lifty thousand dollars. The comptroller and deputy-comp-
carefll
tPr"'I~ll ill :In.'" trollcr ,;11;'111 liot, either uircetly oi' inuirectly,be intere,;teu in any associa-
cerlifi,
~i~~~~U:;: '!>"(leO:!- tion i;;~lting ~ational ctJ:Tency uuder the provisions of tbis, act. be leg
::it'a' eof Cllr- s·~;c. Z. And be it further enacted, That the tomptroller of the eur- , State~
rene.v hurcan, reney, with the appro\'ul of the Secretary of the Treu,;ury, sll:\11 uevise a :;uch :
:111<.1 whe " to ,;(.:t1, lI'ith ,;uitable inscrintions, for his ollice, a. description of which, with !)rovp (
hc k"I,t, a certificate of apprO\'a. by thc Secretary of the Treasury, shall be filed
in the otTice of the Secretary of Statc with an impre's,;ion thereof, .which· I
:!n>
shall.thereupon become' the seal of office of the comptroller of the eur- ;!o]Jal':'
C~rtnin pnpl'r.ot I'C~Jley, and the same may be renewed wheH necessary. Evel'y certifi-
1J IH!<:r !'lHr-h ~clli
with a
:0 Iw c\"itl,,·!I(:u. calc. a:i:ijgllmCrit~ anu conveyimce executed by thc comptroller, ill I)Ur,.;u- banks
all('" of any ailtlrority conferred on him by law,.anu scaled with his seal :tppro~
of ollice, sh:lll be rec(:ivecl in·cviuencc in all places anu courts whatsoever; ;,opu!a
alld all copies of papers in the olliee of the comptroller, certified by him SEC
ancI authenticated by the said scal, shall in all ca,;c;; be evidence equally pursua
Imprc"iol1llluy ane! iri like manner as the original. An impressi.on of such seal directly. of its c
lie upon p"!IC', on the paper shall be a.,; valid as if made on wax or wafer. husine:
r.l)om' fcor'em- SEC, 3,· And be it further enacted, That thcre shall be assigned to sarily:
p'nt'y hllr".Il;. the comptroller of the ,culTency by the Seeretal'y of the Treasury suit- "ommc'
able rooms in the treasury building for conducting the business of the' . ~o aUOI
Fi r(·· J,rei' ,f currency bureau, in wllich shall be safe and secure fire-proof vaults, in nated 'j
·":l"ll •.
1I'1lich it shall be the uuty of the comptroller to ucposit anrl safely keep' I'rgnni:
all th(, plates not necessarily in the pos~ession of' engraver., 01' printers, :lrtic!C:·
:lncl other. valuahle thingA belt)ngin~ to his Ucpllrtmerlt'; and lhe conip-. (Jf' its ~
F"rnil"'I'. $,;(', trollr.:r shall from time to timo furnish the necessary furniture, illatiollcry, rct; I,'
fllcl. li~his, and other proper convenicllcie~.for the.: tl'ansaction 0(' the said r!c('encl
1l1l~ines~. . . dect 0;
T.. rnt " l'nile,] SEC, ·L And be it ju.rther enacted, That the tel:rn "United St.atem vice-pI'
Slat'·" °Bnlld .....
llollll~," a" usecl in, Lhi~ act, sImI! be con~triJed to mean allregistereu bonus J100lCls (
III .indntl" ·whnt.·
now i"sueu, or that may hereafter be 'is~ued, on the f:!ilh of the Unitcd tllcrn
StilI!'..; by lhe S·r.:crelary of the Treasury in pursuance of law. under.1
SEC, ;j. A nrl be it ju.rtllf!r CTlflcted, That associations 101' carrying on th~ " tin tbe
I~Hnk:n;; :1"'!-0·
~";',·intipn~, h'J\\· l)ll"iness of Lnnking may be ['orml:d by any number of' pcrsonB, not les~ Ilol~s, (
IlIn," b" fo rIO c<.I , ill any (~Ise limn five, who Hlnl!1 enler into article!! of association, which deposit:
shall sp(~ciry in gencral terms the objee.t. lor whieh the association is formoillt, money·
and may contain any other provisions, not inconsistent with the pro~ ~ccorcli
,. ./
·------~S'J:SI!:ZI.'l~~ll'mBd
;4. THIRTY-EIGHTHCONGRESS.SEsS. I, Cn. lOG. l8G,I. 101 "
.,.';'
a~t,
:~
] urenu shall' visions of this which the nssocint,ionmay see fit to adopt' fiJr tllc ,
l .. JCl'thc gen- rerrulntion of-the business :of thc associatio'n' and .the, conduct ofit"s afThir:;,
ue 'appointcd , wLich said articles ,shall be signetl by the persons uniting to form the.
I ,. tile Trea~ association, and a copy of them forwardcd, to the comptroller of the cur-
~ \11 hold his renc to be filed and preserved in his office. . .~
,L~ President, , n, 'it cl'uFth"'e£ iinac edr That the persons unitin rr to fOTm O,.~allizatil)1l
. • • •• :J'. • ~ • t:<-rtlfl(:atc to
~ shaIl receive , ,such an aSSOcIatIOn shaH, under their hands, make an organizatIOn cel'll- ~pccili1"
: ,::", conlpf~tellt ficate, which shall specify-
'0 thollsand , -D'S , ~he name assumed by, such association, which name shall 1.>c 1l1\1IIC,
t.. pcrform the sub' ~ t he approval of the comptroller." '' ,:' , "
, a vacancy in , e in • The place ,,,here its operations of discount and deposit al'c to placc of bll~l·
. --nploy, from be c.:lrried on, designating the state, territory; or district, and abo the par: ncss"
f as he shall tic 1 ~ounty and city, town, or village. "
'- 'secI'clary of 1m. ['he amount of its capital stock, and the 'number of shares into <;apitnl anll'
lin fifteen days' "'(' , ,,,bich the snmc shaH be divided. '. " shaw, '
nnll1('~l ",'\:c.,
, all take and' gJii: . The names and places of residence 0 f the shareholder;:, :llltI or sharcholJers.
,I Iuw~ of the the n.lunb.CI of shares beld by each of them. ', " pllrpo>c of ecl'.
0 .. ,1 in thc pen- , iftb:"':A. declaration that said certificate is' made to enablc such [lcr· ti!icalc.
~woresponsible sons to avail themselves of the advantages of this act. ' , ,
1 conditioned The said certificate shall be acknowledged beforc a judgc of ~o;n(: Crnil1calc to UP.
~ leputy-cump- court of record' or iJ. notary- pu ~lic, and such certificate, with thc ackno\\' 1- ",-,knowledgcl!.
,c,,,..:ribed by the eugment thereof authenticatr-d by thc seal of such cOllrt ornolar.", shall
e a like bond in be transmittcd to the comptrollcr of the cUlTency, who ~hall l'J.·cortl :1Ii11 ,
II· leputy-comp- carcfully preserve tbe same in his omcc. Copies of such ccrtificate, tluly (";Jlir~ ulldcr
, any a,;socia- certifieu by the comptroller, and authenticated by his seal of olTIce. sldl >t: d ,~' be ~\'l7,
ud~ , be lcgaland sufficient cvidcnce'in'all court~ and placcs within the unitcd" elle :
lIer of the cur- States, or the jurisdiction ,of thc government thereof, of the l'Xi~lcnct: uf
y ., devise a Euch association, and of every other' matter or thing which cuuld Iw
I ell, with proved bytllc production of the original certificitte.' '
ry, ,,"ad be filed SEC. 7. And be it further enacted, That no association shall b~ 01'- AIlI"unl,)feap·
n thereof, which gaJlized under • •
this nct, ,vitli a less capital
•
than one- hundrc'tl
.
tholl:';\Ilc1 till'~1 110 \I~: notlr~"
1.111. (\.c.
1
J -':r of the cur- dollars, nor III a cIty whose populatIOn exceeds fifty thousand pl'r'-Ull~, , 1
Every ccrtili" with n le;;s eilpital than' two hundre<1 thousand dollars: Provided, Th:lt, l'r.)\·j;;o, ,.1
twIlcr, in pur,;u-, banks wit Ii a C:lpital of not less ·!Iian fifty thousand dollars' mny, with the
\lcd with his seul, approval of t11e Secretnry oftbe Treasury, be orl-ianize<1 in 'any place tIll: j
II ts whatsoever; populntion of which does not exceed six thousand inhabitants. ' , I
, SF: ...... '!11.ni1;-be--~£t'jUrlher~enadefl; l'hat every association funDc;] A-,-, eiatiQlI~
rtified by him
evidcnce equally pursuant 'to the provisiolls of this act shall, from the date of the CXI:cutioll ,rh"'!,IU b" ,'(If. I,
such senl directly' of its organization certificate, be a body corporate, but shall transact no ~,:(;~:,I,"::'::~::;~ ,
j
\; business except such as may be incidental to its organization and I)(:ce,~- 1IJI"III"e ltll;dllC"~.'
'j
.I )e 'assigned' to sarily preliminary, until authorized' by :the comptroiler ofthc currene:)' to , I
...j
1~ Treasury suit- commence thc businc'ss of banking., Such association shall h~l\'e p:Jwer,
,e business of the toadopt a, corporate seal, and 8hall have succession by the 'lJarn(; dt:..;i,~,. Seal.
r ~roof vnult9, in nated ,in i,ts organization certificate, for thc period of twcnty year.' from il~ , '
II md safely keep ,'.
orgnmzatlOn, unless sooner dissolved accot'ding to the provision~ tit" i't~" ~11I\' I'<Yll!illll\'
'aver!l or printers, art!c1es ofnssocintion, or b! the ,act of' its 8h~rch?lders own.in~ ;11'1) 1~I;rcl' :~~~:,&/·ear'.llll'
It; amI thci comtr Oflts stock, or unless the frnnclw:t' .shall be forfeIted by It VIolation of tl,i~ "
I ture, Iltntionery, , nct; by. such name it mny mnkc t .r~tracts, snc and bc sued, cO:'l[d:t1l1 a'Jlll ' /';"11.:",1 pu\n:~.
I ctiori of thasnid' dcf~nd, 111 nn! co~rt of ll\w alld eqUIty as fully as natural Ilcr,'oll,,; it Ill:':' ,,',
e~cct or ~PPOtnt dlrc:tors, and by its board of dircctor" appoint :t l'r<::;itl,-, II I, I.lirt'ft',i; amI,
'Ill II Unitcd Stnlcs " vlcc-presltlcnt;,t:aslllcr; and Oilier omcer~, define, their tlutie.;, re'l'lil'l~ ~Iheer·,
D rcgistered bo~dg , bonds of them and fix the penalty thereof, dismiss said officer.' UI' (Ill \' of' ,",
:: h of the United them at .pleasure, nnd appoint othcrs to fill tllcir place~. :rfti ~'I'X't'~,~:'.
ot la,y. u .u.er thiS '~ct all stich· i~ciilentl\l powers'-aij"shn n'15c";;ccc~~ar/'I(j";:h"'':.t''
for carrying- on th~ on .,tbe' bUSIncs.s Qf,bnnkll1~ 'by~ disco~ting;a,Dd_ne~btiatill~promi~66r)l"'"
( pcrson9, not less notes.. drnfts, bIlls.of,!xcll11n~e, 'nnd olfier evidenccs ,of 'deLt; bj 'r't:c-ei vi ntY ;>$' ,
f ~!\ociJltion, which d~POSltS"~1 by·J)uying'·afid""scBing' exr.Jinrigc',""roin:' :in\CLil1liol~ ;0,· Ti':lnirJ~" "
ISgo" ';on is formed, mO,neJ; oll.,pcrSOI1IU .security;· byobtninirig;iSsuifJ~;,·.lI{t'';cir"cll!:;till'''''ntf,'~""
,~ Lh the pro~ ',' 1\ccordrng fOTlie 'lJrovisi-ons :of this ":\cI'(ttnd its board of direi:tor~ sball,
, 9- •
. :.
102 THIRTY-EIG-nTIt coi'mmss. SESS. I. Cn. lOG. 1864.,

'. ' . . .
ny·la\\'~. also 'ha've p~'\'crto tldjn~ nnd regulate by by.iaws, not inconsistent wi'th
the provisions of this act, the manner in which its "toc:k 1>h:l1l be 'trans. '
felTed; its dircctoi';; elected or appoilitcd, its officers lIppointed;' its prop'
erty, 'transferred, its gcncral business conducted, and all the privilege:!
granted hy this act to associations organizerl under it shall be elCerciscu
and 'enjoyed; anu its usual business shall be trnnsacted at an office, or
banking house located in the place specified in its organization certificate;'
nirectoT$; lJual- ,SEC. 9. And be ,it further ena'cted, That the affllil's of every associa-
jlicati,olls; tion'shall be managed by not less than five directors, one (If whom' shall
" OlLC, \0 I.e pres- he the president., Every direCtor shall, during his whole term of ser'lilrce,
"IClIt., be a citizen of the, United States; and at least three fourths of the direc-
101'5 shall 'have resided in the state, territo!'y, or district in which such.
:I;:~ociation is locatcd one year ncxt preceding their election as directors;
:md he residents of the same during their continuance in office. Each
director shall o\\n, in his own right, at' least ten shares of the capital stock
of the association of which he is a director. Each director, when ap-'
Oath.' pointed or elected, shall take an oath that he will, so far as the duty de-
volves on him, diligently and honestly administer the affairs of such asso-
ciation, and will not knowingly violate, or willingly permit to be violated,
:lny of thc provisions of this act, and that he is the bona ,fide owner, in
hi" own right, of the number of shares of stock required hy ~ilis act, sub- ,
~cribetl by him, or standing in hi" name on the books of the association,
and that the same is not hypothecated, or in any wny plcuged, a.'l security
for any loan or debt; which oath, subscribed by himself; and certified by
the oflic'er before whom it 'is tak,'n, sliall be irnmerliately transmitted to
the comptroller of the currency, ~nd by him filed and preser~'ed in his
~~, " ' , ,
Tcrm of offiee SEC. 10. .And be it further enacted, That the directors of any associa:"
til' d ircctoTs. tion first elected or appointcd shall hold thcir placcs until their successors,
~hall ue elected amI qualified. All subseqilCnt election!l shall be held
Elcction". :lnnually on such day in the month of ,January H':; may he specified ,in
tIle articleil of :wlOeintion; and the dir,cctors so pleCl'ed shall hold their
places for one year, and ,until their successors :ire, elccted and qualified.
But any director ceasing to be the 'owner of the requisite amount or stock,
01' having in any other manner become di1>qualified, "hall thereby vacate,
V'\('lI;,c:,e" how hi.; place. Any vac:ancy in the hoard shall 'be ,filled by appointment 'by
Ii lieu. the r')ruaining dircctors, and any director.so appointed shall hold his place
lI11til the next elcction. If from any cause an election of directors shall
not be made' at the time appointed, the association shall not for that
causc be' di5so1ved, but aT). election may be IH~ld on any subsequent day,
thirty days' notice thercof in nil C:L<;e5 having bcen 'given in 'a newspnp~r
pllbli",IH~d .in the city, town, or county in which the association is located;
and if nl) newspaper is published in such city, town, or count)', such notice
~h:dl be puulished iii a ncwspaper publi;lhed nearc~t thereto. If the nrti-
(;1 ..", ()fa';~f)ciation 110 not fix the day on which the e)~ction shall be held,
01' if the election ~hould /lot be held on the day fixell, the day for the elec-
ue
tion shall lh!si~flt~d by the board of directo~, in their hy-laws, or
l.lherwi..;c: ProL'iderl; That. if thc di,rectors fail to fIx the day" 115 Il(ore~aid,
.-Ii:il"dlOldr:'"li l"C~pl'c:,cntin~ two thi,rds of the:!lhares may.
V ' l1ill:'; :lild ~EC~ 11. And bn it further enacted, That in all eJections' of directors. '
Ilr,,>: il'·. and in tleci,li'll~ all qneslion~ at mcetings of sllllrelwlllel'iI, each share-
holder 'sllall be lmtitlcd to one votc Oil' each ~hitr(:' of' st.ock held by him.
Shan:II{Jld(~r!I may Yote by proxics duly authorized iu, writing; hut, no,
tdlieer, derk, teller, or hook.keeper 01' Huch :islIociation .shall, net as
PI'O'x,)'; and no sha,"c"holder' whmll: li,llbility is Pl.L~t dlle,.and unpaid shaH be,
a!lowed (I) vote. .. , ' ,, , " , ' , ,
. Capital ":f,ck SEC. 12. An([uciZ fi~rllt~'r ;ma~ted, That thc cailital stock of any us>
!/, Lr: "divide",i
. jJ~~"J ~hiJrc.,.
~l.ciat.ion formed under this act shall be divided into sharcs of one ,hundred
dullar,; ~ac:h, and be deemed pcrsonalpr~)pcl;ty ~nd tran;lferable on tho
.
TlliRTY-EIGHTH CONGRESS; SESS. T. Cu, 106,' ' i864:' i03
1-'"
books of the a5~oci~ti'on' iJl 8u~h ~n.Dncr.w may he'prescrioed in the 'by-,'
laws or articles of association; and every person becoming a shareholder
prop· "by such t~ansfer shall, in proportion' to his shares, succeed to all the rights Tr:msfcr. "
..,.~. gc~ rind liabilities of the prior holder of such shares, and .no change"shalL 'W;:ht. of'~x
~I ~c<1, be made in the nrtic1esof a..sociation by which the rights" remedies, 01' i_ting crc~lit"";
or' , ' . . . t' h .. h II b ' . d IInl til be 1I1l-
Tn;': security,of rhe ',cxlstmg, creditors 0 t e 'nssoc1atlOn' s a .~ unpalre .. p:lirod.,
ificate. The sbarcholder~ of eacb association formed under the provlSlons of thIS,
!l cia- act, and of each existin~ bank 'or banking association that may. accept the
n Iud I provisions of this act, shall be 'held individually re"ponsible, equally and "I.".lil'idllal li,,-
e•• ice, r~tably, and not one for another, for all contracts, debts.' and engagen;'ents Iililly. , '
direc- of auch a'ssociation to the extent of the amount of theIr stock therem at
h uch ,the par "alne thercof, in addition 'to the amount invested in 'such slimes; "
'( ors, except that shareholderS of any banking association now existing under '
,~ach ' state laws; having not less tban five million's of dollars of c..'lpital actually'
,I stock paid in, and a surplus of, twenty per centum on hand, both to be deter-
€ ap- mined by the comptroller of the currency, sh,all be liable only. to the amount
u de- invested in their shares; and such surplus or twenty per centum shall be
,h l1.5S0-, kept undiminished, nnd be'in addition to the srirplus provided for in this'
iolated, act; and if at any time there shall'be a ,deficiency in said surplus of
'I r, in twenty per centum" the said banking association shall not pay any divi-
c sub- dends to its shareholders 'until such. deficiency shall be made good; apr!
clRtion, in ca~e of such deficiency, the comptroller of the currency Dlay compel said
,ecurity banking association to closc its business and wind up its affair,:; under thc
if 1 by , pro.isions of t,his act. And the comptroller,shall have authority to with. When cnmp-
i, dto, , hold from an nssociation his certifiC<'1!e authorizintT' the commencement of trnll~r ma~' ,Yilh·
· 'I' I I I 0, I I ld huld t:crl.llcatc.
, 10 his buSlOess, 'IV lenever Ie sha I lHve reason ,:to suppose that the s Jarc 10 ers " ,
thereof have formed thc slline for any other ,than the legitimate objccts
contemplated by thi.~ act.' ", " ,," , '
SEC. 13. And be itfuri/ler enacted, That it sbnil be lawfulfor any' nssa- . '1I1crc:l"~ofcRp,
be ueld ciation formed under this nct, by its articles of association, to provide for arl Ital >tock.
:ified in increase of it.q capital from time to time, 11.<; may bc deemed expedient, suh- .
II their. ject to the limitations of thii! nct: Provided, That the maximum of such ,)!"ximilln.
u ified. in<.;rcase in the artides of nssociation shall b,e determincd by thci complrol~
or stock, IeI' of thecurrcncy; nnd no increase of capilnl shull be "alid until the
. vacate wholc amount of such incrcase shall be paid in, nnd notice thcreof ~haU
n 1t by , have been transmitted ,to the comptroller of the currency, and his certifl- '
1i place cate obtained speci(ying the amount of such increa.~e of capital stock, with
>rs shall bis approval ,thereof, ana that it ~as been duly' paid in as part of the capi-
for that tal of such association. ' And every association shall have power, bj the'
e day, vote of shareholders owning two thirds of its capital stock, to 'reduce the
:~ paper , capital o~such aS90ci~tion ~o any sum not below tbe amou,nt required by
locateu; th1s act, m tbe form.'1tlOn o{ associations: ProL-ided, That by, n6 ~uch re- '~Iillimum.
ch notice duction shall its capital be brought below the amount required by thi" act'
I 1 arti-
for its outstanding circulation; nor shall any such reduction be llUH.le until
held, ' the amount of the pr~po~ed reduction hns beenr~ported to the comjltrollcr
the c1ec- of, the curr~ncy nnd hIS approval thcreof obtained.
SF.c'.14~ Ami be it furl/lCr crtacted, That' lit' least fifty per centum of :-\II.',,\:lIt I,) I".'
r-Ia'ws, or
n re~aid, the cn~ltal stock of every ~gocintion l;hall be paid in i:efore it. ~h.nll be ;"~":'\'~::Ill::;:j~t
nl~thoflzed to .co~mence buslOes.~; nntl the rcmmnder of ,the capltnl ~tock b,,-,i,,;--., ,
directors, of such aSSOClUtlon shall bo pnid in inswlments of at least ten per 'ceruuln '1:,'llI"j,"h'"
each on the whole amou'nt of the Cllpital' as f'niejllently M onc' in"tlllrrH:nt whell t,. 1".' I:-"'\.
~h ahnrc-
.at the cnu of enchsucceeding, month from tho tiJilO it sllll,lIbc authorized ',', '
It Iy hiln.
lmt no, by the comptroller. to commence business '; !lntl the pnymentof each instal~',
men~ shn~1 be certlfi,od. t~, ihe ~mptl'ol1cr, ullder oath, by tlie presiuclIt or
III act as cashIer 01' the nssoclallOn. .:', " ' ' , , '
id shall be
. ~h:·c. 15. .And
' 1 II "1 be it jiurther'
..'enacted Thrtt if any' "hllreh~ldcr
'- &
or
•
hi o n.s
~t
I' rc'('I"1.'\.I
-
" Ih,""f.
sl~ee" s la, fm to pay any mstnlment Oil the stock n'hen the same is re- if ~hl\:'>'!h'II!,r
o i~y llS-
qUlred by tho forl'goinn-, :lection to uc paid the director:!' of' such ll.~,;ocin- f:1i1s () pl')' in-
16 h -ed tion mar sell the stock°of such delinquent' shareholder at p;lblic n~'clion" stp.lm,:~lt~.
JI ,lIO
J
•
.iJlI•••E • •R~.Zll;:~!mi:l__r."..:z_-"""."E'"...*--:--------.~_ ... . ,..~ " '~.:.'''. .... ,. ~'... '. -.'
. 10·{ THIRTY-EIGfI'IH COf'iGRESS. SESS. I. Crr: lOG. 1864,· Tf
. ~fock of l1clin- haying thrcc~ceks'prcvibus

givcif th~reof
not:iee in a newspaper rmb~ • to
of
~~i.;~tr:I~~rb~
sold,
. lished and of general circulation in the city or connty wlwre the association
is located, and if no newEpaper is published in said city or.county, then in
a newspaper· published nearp-st thereto, to ariy person· who .will pay the
know.
appoir
associ:
-
highest price therefor, and not less than the ·amount then due. thereon, enlith
',.
with the expenses of advertisement and sale;· and the excess, if any; shall to sue
be paid to the delinquent shareholder.· If no bidder can be found wh6 associ
will pay for ~uch stock the amount due thereon to the association, and ·tbc compl
cost of advertisement and sale, the amount previously paid shall be for- UDder
.fcited to the.a!<soeiation, and such stock shallbe sold os the direclors.:may ness l
order, within six month,; fmm the time of such forfeiture, and if not soM it· ·certif
shall ·be· cancelled· and deducted from the cap:tal. stock of the association j . counl
and -ff such cancellation and reduction shall reduce the capital of the· asso·· the iF
ciation below the· minimum of capital required by. this act, the .capital city (
stock shall, within thirty days from the date of such cancellation, be in- nearc
',. "
creased to the requirements of the act; in default of which a receiver SE

may be appointed to close up the business of the· association according to bond!
the provisions of the fiftieth section of this act... _ this r.
United States SEC. 16. And be it further enacted~ That every association, after having ·the a
re"i<tered
to he depo<itedbonds comp . l'te d WIt . h t h e provtslQns·o
' • f t h'IS act, pre I imlDury
. J commence-
to tIe signe
with treasurer to ment of banking business under its provisions, and before it shall be depo'
Il n amotlu.nt,equtahl authorized to commence busine~s, shall transfer and deli\"er to the trcas- trolle
t o one urI 01 C
c:1li ital ~tlJck. urer 0 f tc h U I1lte
' d S tates any U mte ' .d S.tates reglstere
. d bonl1s bea1'lng
. .m- statir
. . terest to an amount not less than thirty thousand dollars nor less than tram
one third of the capital stock paid in, whic11 bonds shall be depo~ited with clreu
the treasurer of the United States and by him safely kept in his office No :
until the same shall be otherwise dispos.ed of, in pursuance of the pro- deen
visions of this act; and the S·ecrdary of the Treasury is hereby author- coml
jzed to receive and cnncel any Unitcd States coupon bonds, and to issue the (
in lieu thereof registered· bonch of like amount, bearing a like rate of· na ml
I
interest, and having the same time to run; and the doposit of bonds shall
l~
·be, by evcry association, increased as its capital may ue paid up or in-
·l/epa.it to be creased, so that every association shall at all times have on deposit with . there
increasc,l; the trea>lurer registered United States bonus to the amount of at least· coun
from
one thinl of its capital stock actually paid in: Provided, That nothing in
desir.
may be dimin· this section shall prevent an association that may de!:lire to reduce its
i s h e d :capital · or to close ujYits business .and dissolve its organization f rom taking
S~
comj
up· its bonds upon returning to th~ comptroller its ·circulating Dotes in, the
mam
proporti.on hereinafter named in tbisact, nor from· takil)g up any excess
trea~
of bonds beyond one third of its capital stock and. upon wllich no circulat- . all ti
. ing notes have been deli"ered. .. . . .. . .. purp
Co!!'ptr r 'lp.r. to .. SEC, 17. And be i~ further ·enacted, That whenever a certificate shall scntt
ClCamlDC and de- h
termine ij a;"llcl- a,e b een · ·transmttle' d to t IIC comptro
. . f t he currency,
II er a . as provl.'d Cd In
.
. to t.b
"tilln can torn- . this act, nnd the association transmitting the same shall notify the comp- to a~
mcncc l>u~lIlm. troUer that at least fifty per centum·of its capital stock lias been paid .in Icr s
as aforesaid, and: that ·such association has complicd with all the provis- trea:
ions of this act as required to be complied with before Bueh association S
. shall b~ authorized to commence the business of banking, the comptroller· liver
shl\ll ~)(aminc into the condition of such nssocintion, ll~eei'tain especially as,'iOl
the nmount (}f money paid in on a<;coll.nt of it.~ capital, the name and place . .troll
of residence of each of the dircctQr:i of silCh ·association, lInd the· amount· hlnn
of tlie capital stock of ·which each is the bnna fide owner; ariel genetlllly '1010.
whcther such .nssociation has eomplieu· wilhnll the rerl'lirl~merit9 of ·thiB _. i;'ilat,
.act to entitle it to en~nge in the lmsiness of ·banking; and Bhall cause· to· cent'
be m~rle nnd attested hy the oaths of lL majority of tlie directors and ·by ·int<:J
the president or" cashrcr of such lL:isociation; a statement of all the facts· time
necessary to enable the comptroller todetcrminc. whether such as~ociation . exec
is lawfully entitled to commence .the busiriess of banking under this act s:
SEC. 18. And be it further enacted, 'Ibat if, upon a carcful examination·
:.
~ .
. - .. -.
"
I ,THIRTY-EIGHTH CONGRESS. SES:::. I. Crr.106. '1864. 105
. ' . ~
of thc fac~' so 'repo~ied, nnd of any other filets which' may' 'c~me tb the '.W!l(;~ ll""l~cin-
, f ' l ' ' . . tl.on I~ ,ounc ell-
kno\Vled~e of thc comptroller, whether by means 0 a SpP.CHI co~mlsslon titled to COIll-' ,
. appOinll'd by him for the purpose of inqniring into the condition .of &uch mCllcc b1l8inc~,~, '
. . ' . s hal'1 appear th :I. suc .. t'IOn .IS JaW'IU
··il tlSSOCIU r. 11 COJllptro\l~r to
lClsoCI,atlOn, or otherwH:c, It I
Y gi\'O certificalC.
entitled to commence tbe business of banlring. the comptroJler shaJl give, "
'to such associalion n certificate, under his hand and omcial' seal, that such
association hn.~ complied with all the pro\'isions of ,this act required to lie
complied witll before being 'e.nt~tle~ to com~ence the business of ?unkinp
under it, and that such aSSociatIOn IS ,authorized to commence saId hmn- ,
ness accordingly; an~ it sb~ll be. the dutr of the a,,;:~ciatio~ to caus~ said , ,
certificate to be' publIshed m some ne~'lSp3.per ,pubhshed 10 the city 01' Ccrti~catc to
eounly wbere the, 'association is located for at lea"L sixty days next rifter hc puhlIsbed.
the iss'uino' thereof: Pravided,Tbat if nO newspaper is publish.ed in ,such
city or co~nty tlie"certificate shaH be published in a neWspaper publi~hed
near~st ther.eto, ' , ' , ' , " "
,SEC. 19. Arul be it further enacted, That all transfers or' United States Trangfers "f .
bonds \vhieh shall be made by any association' tinder tbe provisions of ~;j~~~ ;;;'b:'~de
this act shaU.'be niade to tbetr'easurer of the United States in trust for ~o th~ treasurer'
the association; with a ,memorandum written o~ printed on each bond, and in trust. '
, signed by the ca;;hier or .some other officer of the association making the
deposit, areceipt thereFor to be given to said association, or by the- comp-
"troller of ihe eurrericy, or bj a clerk appointed by him for that purpose, How executed. ,
statin" that it is held in' trust for the association on whose, behalf such
transr~r is made, and as securIty for the redemption' and ',payment of any
circulating notes that have been or may be delivered to such association.
No assignment or transfer of any wch .bonds by the treasurer shall be
deemed valid or ofbindir:g force and effect unless countersigned by the
comptroller of the currency. It shall be the duty of the comptroller of
the currency to keep in his office a book lnwhich shall be entered the' Comptroller to
name of every n.ssociation from whose accounts such tra'nsfel' of bonds is keep transf.!r
. uook oS:
made by the treasurer, and the name of the party to whom such transfer I'
i!i made j' and the par value of the ,borids so transferred shall be entered
therein j and it shall be the duty of the comptroller, immediately upon
countersigning nnd entering the same, to advise hy mail the' association
from whose ac'count sur.h transfer was made of the kind and numerical,
designation of the bonds and the amourit thereof so transferred., " ,,' , '
SEC. 20. And, be it Jartller, enacted, That it shall be the duty of the ,Trnns~m to be
comptroller of -the cun'ency to countersign and enter in, the 'book, in the counw'lr;n~d,
r'
manner aloresall,.l, '.1'
every trans fier or assignment
. f' b .1 1 I
0 any onus' 1e d by the,
and, entcred, '
treasurer prcscnt'ed for his signature ,; and the comptroller shaH hnve ' at.'
all times during office hours access to the books of the treasurer, for 'the B'lok, to bc'
purpose of ascertaininG' the correctness of the transfer or assignment pre- acce~s,ibk
sentcd to him to countersign; und thetrea.surer shall have the like' access. '
to the book above mentioned"kcpt by the comptroller, during ollict: hours,
'to ascertain the correctness ,of the entries 'in 'the ~ame' j all ~~ com TO
I!l' lililill'tilw'tffatFtimes, h!1"'e' aF.~ess 1ft> Hip- bonM 6fi-dcPo,,)'t~~i u"'fllc<
treallt1l'C ,t . ,cerUtin tlieir amount and ~conclifioIf.,' ; , ,
. ~J;c. 21. And 'be it further enacted, That' uJlOn the t~n'Sfp.I· ~nd tie-' , A~"I)';int~"n~"
livery of lJond~ to the treasurer ,ug provided in the forCrToih", 8e,ctiori the nCter lrar';'lcr., '
..... , ., k"· , . . 0 1:: . t rnn"" rl~l'CIYt' ~Ir·
llS~OCJlltlOn ma mg the snme shull be entitled to receive frOr;} tho camp- r!llarin/; notes:'
troller of t,he currenGY circulating no,tes of different denOlninations, in .
blank, regl~.tcred antI counte,rsio"ned ll:! hcreinaftcr provided, entlal, 'J
l~';,'j, <'II,
in, J'II:1-!, ,O~"
I'. 1: 1:-<.
amount to nmety pel ccntum ,of thll current market value ,of the Urtited
Silltes bonds so' transferred ,and, delivcred, hut nO,t exceed,in);, niudy per Limit of,
~cntum of the amount of sual bonds at the par ,alue then~of" if hearing llmount.
I~tere:!t nt l\ ratc not less than five per eelltum per annum; urltl at' 110
tune shall the totnl amount of such ,noteg, issued to any :>uch a.~;;Ociatioll.
exceed tho' amount at. ~l1ch time actually paid iu of iti! c.'1pirv! stock., '
, SEC. '22. And be tt fill·ther. enacted,
: ..
That tbe entire
.
IImotl!>t ot notc:>
..,
---:--".~ .. ,
106 .. THIRTY-EIGHTH CONGRESS.. SEss.I. crr. lOG. ]864.
" , 'Entire circula- fOf circulation' t~ bc issued under this act shall not excccc1 ifll'l~e l1tln(~~crl ... t() I ..
han not
. '~JOO 000to'cxece<1
000, 'II' . f'·1 11
fit IOns 0 uO :U'i;'.
I n oruer
.1 to f ' h sUltn
urnJs ' . bl e no t es lOr
jo " I ' " t IIe
Cll'cuallOll, . kinel
. ' . ' . , com.ptroller of the currency is hereby nuthorizeu 'and reCJuii'ed, unclcr the Ilnd,
, .' . Comptrollcr to dircc~ion of the S('crctnry of the. Treasury, to cause .plates arid dies tn be inllti
1
.prepare the.,'lOtcs, engrnwd, in the best manner to guard 'against counterfeiting und fraudu- . appc:
. . lent altemtions, andto have printed therefrom, and numbel'ed, such quan-. shaD
Dcnominations. tity of cir'culntin.i notei:, in blank, of the denominations of one dollar, two· cash
. dollars, three dollars, five dollnr'.;;, ten dollar!>, twenty dollars, fifty dollars, asso·
one hundred dollars, five hundred dollars, and one thou~and dollars, as' S
may be required .to supply" under. this act, the a~socintions entitled to'. oep'
Kotes to cx,-' . receiyc the' same; whiclJ notes shall express upon their face ihat tlloyaro' .' ,
vide
prcss wbat, sccured by .U n'ited States' bonds, Jeposited with ·the treasurer of the shaJ:
;.",. United States by the written or engra"ed signatures'of the treasurer and redt:
,
. ..-- register, and by tbe imprint of the seal of the treasury; and shall also
. 'express upon theii' face the promise of the association receiving the same
renc
rece
·to pay on demand, attested by the signatures of the president or vict!: shU
, I
De"ice~,.· '. 'president and cashier, And the said notes shall bear such deyices and mop
such other statements, and shall be in such form, as the Secretary of the' circl
I
Treasury shall, by regulation, direct: Provided, That not marc than one a~t
sixth part ()f the notes furnished to an association shall be of a less denom-
Xotes untl.cr ination than' five dollar;;, and that after s'pecie payments shall be resumed :~~; I
S5, no association shall be furnished with notes of no less denomination than rece::
fi,e dollars. .. cash
~iJ:~
,rher, nolc~ SEC, 23. And be it furtlter enacted, That after' any such association'
rna\' be cireu-
latc<1as money j shall'have cnusetI its promise to pay such Dotes on demand to be signed the
by the president or vice-president and cnsbier' thereof, in such manner as
to make them obligatory promissory notes, payable on demand, at its place· any
of business, such association is hereby'authorized to issue and ·circulate Lone
to he rccci"c<1 the same ns money.; 'and the same shall be received at par in all parts of rity
(or all ducs, ex,
ccpt, &c. the Unitc9 Sl<ltes in payment of taxes, excises, public land:::, and all othel'
dues to n.e United States, except for duties on imports; and alw for all
the ,.
salaries and other debts and demands owing by the Unitp.d State:::. to indivi-
del' 1
duals, corflorations,and associationR within the United States, except interest . (~ulnt
'. . on the puhlic debt, and in redemption of t,hc national currency, And no .
heen
I'osl notp.<.•,\:~" such association sha1l issue post notes' or any other notes to' circulate ns
11l1t tv l,c I<SlICtl,
money tan h .' such" as are aut h orJze
' db I fioregoIng'
y 'tie • pro\'I.~lOns
.,., f h'
0 I. IS·
Jflg 1:
act.·.··,· .. .. ' . . . , '. .... .' ... not ,.

ill til
Wom.Qur "m1 SEC, 24~ And be it further enacted, That it shall be the ·dllty of the requi
'm'utillllcd DOles, comptroller of the currency to receive worn-.out or mutilated' circulating there
notes issued byany such banking association, ancI also; on.. due proof 'of' . ~Ji culat
the destruction of any such circulating notes, to deliver in' place ,thereof ions.
to such association ·.other blank circulating notes to an cqual amount. :,;hall
And' such worn-out or mutilated notes, after a memorandum shall have . Rame
been cn-t'ered- in thep'roper 'books, in accordance with such regulations as . ~E
may be, eR,.tnblished by' the comptroller, a'S .\vell as all circulllt-in~ 'note~ of1icc
whir;h shall have been paid 0'1' surrendered to 'be cancelled, shall be burned .nuy r
. to ashes in presence of four persons, one to be appointed by the' Secretary. conte
of the Treasliry, one by the comptroller o( the curreney; oue 'by 'the nllCG
tre!a~\lrer of the 'Uniteel State,4, lIIar one' by ilie. n!'r:,oeiatioll, undet' BUch slndl
regulations as the Secretary of the Treasury mny ·rre~crihe,· And a cet- li\i,:d,
tilicatc of-such burning, fiigried by the parties so nppointcd,.sllltli he mnde' l'X('C('
in the hooks of the cO'rnptroller, alia a duplicate thereof forwnrdl,!tl it? the '''1';''01
'. . association w.hose noteR are thus can·celled.· . . . . '. di"I'I'('
,\~~:><;i~t.ion. to SEC; 25. And be ·it. fUillle.r enacted, That it sh:ill be the duty of 'every ·SE.
,'xornll!" annUli!- bankin" nssociation· havin" bond's deposited in the office of the treasurer ~lI('h
h· ,t< uUI1110 de- . 0 0 · . .
.'\;',<itrcl.nnll .' of the. Uniteu State;:, onee '01'· oftener in each fi,;cnl year, and at such timo b\\'5 :
make ccrtilicate. 'or times during the or(linary bu!'ine~s hours as said officer or officcrs may Fir
select, tO'examine and compat'e the· bonds so pledged with the Looks of. the tr:
the comptroller and the accounts of the association, and, if found correct,
...'. )
.- .
,..;.- ..,J
THIRTY...,EIGHTH CONGRESS., SESS. T. Cn.106.1864. 107
, t~ ~~(Icute' to, till) snid trensurer a, certificate

} h
setting 'forth 'the differcnt, E"n":',i~,nlion o(
. I' ," ns.ocK,I'uns.
kinus allll the amounts thereof, and t lnt t e same fire 111 t le po~;;esslOl~ , ,
nnd cw,to,lv of the treasurer at the date of such certificate~ Such 'exam-
j'naiion m:~y be made by an ofnccr or agent or
such ~issocitltioil,~July:
appointed in writing for that pyrpose, ,~'h05C certIficate before m?ntlOned ,
,shall be of like force and validity as If executed hy such prcsldent or '
cashier j and a'duplicate signed by the treasurer shnll be retained by the
nssociation. ': ' , : ' , ' ::", ' " ,
SEC. 2G.And beit'jiitrth~enacted, That' the bomktransferred to and b Deposit..l '
, ' '. S h' b ~ , Ofllis In I>~ 1",1.1,
depo~itcd with the treasure~ o,f thp. United. t,ntes, a;; , ~I'elll e, ore pro- cxci"nsh'",I,\' to '
vided by allY bankm rr as;;ocmtlOn for the sr~curlty of It.5 clrculatlllg note;:, s~cllrc c,rcul.,-
shall' be held exc.lu~vely for that' purpos-:, until' ~uch, ll~tes shall be tlOll. "
redeemed, except as pro,vided ,in this act; but the comptroHer of the cur-, ,l'm:isioll liS to
, renc)' ~hnU' give ',to any such banking association powers ,of' attorn~y t.o mterest.
receive and llppropriate to- ,its'own usethe interest on the bond;; whIch It '
!lhall have so transferred to the 'treasurer;' but such powers, shall become
in2"perative whenever such banking, nS50ciation shall fail to redeem its
circulating notes as aforesaid. Whenever' the, market 'or cash ,'al,le of If ,hol1(\' de. ,
any bonds deposited with the tr'easurer of the United Stale;;, as, afore_pfl"',nle, .wtrll\· ...
smel,, ' fl" I .'.
shall'be redllced below the amount 0 t 1e ClrCll atlOn IS;;UCu or t 1e'
.1 f' I to he mati" 1;<>0<1.
same, the comptroller of the currency is hereby authorized to de'In,and and'
receive the amount of such depreciation in other United Sfritesboricls at
ca.~h ,~allle, 01' iiI money, from the a;:~oci(\tion receiving said bill~, to be
deposited with the treasurer of the United States as long as such depre-
ciation continues. And said comptroller, upon the terms' prescribed by
the Secretary of the Treasury, inay permit an exchange 'to' be made of nl)ll,l, ma,' be
any ,of the bonds depo~ited with the trca;;urer by an association for other e,xcltau;;cd, if,
Londs of the United Slates authorized by this act to be reccived :is "CCII- s.:c,j ,
rity for circulating notes, if he shall be of opinion tuat"such an exchange
can he made without prejudice to the United, States, and he may clin;ct
the reiurn of any of ~nid bonds to tlie bnnkin rr a<:<:r'J"ciation which t ran~l'el'n.:d ma:' 1,r re-
. sllm~ 0 f not Jc~s t Jlan one IIOU5an<
I ,'" I (0 J 11 l. tnnll,,1 "I"'" c:tn-
t I Ie same, III ar;l. upon tue "UITI'II- ct'"aii"u ,,( cir-
del' to him an~1 the cancC'lIation of a proporrionate amount or i1ltr',h eil'- clILlIii,J.,: "'llo~.
p.ulllting, notp;;: Provided, That the rcmaining bonds which shall ha\',~ 'l'fI,,,i,,,,
been transf(~rrcd by the lJankin~ n;:sociation olferin~ to surn'ruler eirclllat-
ing notcs ~hall be equal to the amount required for tIll.: circ~illatin~ 'not!'~
not ,~'urrcn(le1'(~(1 by such banking as;:nciation . .arirl that tire amount urbolld~
in tlJP.,hand~ of' the, trcn.~urer slJ'all not he (fimilli~hcil 'below tlie amoullt
required to be kept on 'depo;:it with Ilim hy
this act:' A1I.d pTo;':ded, That
there shall ha.ve be'en no hlilure hy such a~~ociation' to r<.:dl~em its' cir-'
~ulating notes, and rio other violation' by s,ich as"ociation of the !,l';n,j,,-
lon$ ohhi" act, and that the market 01' S'~I-h val,lIc of the 1'I~maining hOlld,;
"hall not be below the amount !('qllire(1 for the cil'<:ulatinn i;:sucil for the
Hm~ " '" '" " ,
SEC. 2~;, ..t1.nrl be i~t fl/TliwT cnricterl, That,'it shall lie linlliwl'ul for any 'I'll" "'""1ter-
officer ac;tllll! llnder the provi~i'ms ,of tlli.; art to eOlllltl'r-j"n or deliver to' ~i':lIill~ /JII'! de-
,nny l\.9sociatioll, or .to 'an)' olfler. . . company'
. or per,;oll, an}' (In'lIlflli,1'' li,,:'r.'" ..:, ,i",u-
..... IlO!"" Int Ill" flf':l'~
contelnp Ilite, 11Jy thl- lid, f')«:epl a:< hel",:in!lc·I;,I'I: prtJ\'id,:'!, and ;"11 aeeord- ..",':';;, ". ,,,:r.
IIncc -"',ltll Ih<llrn,; intclll :lnd'"1f'nnin~, of', tlJi- :"'1. And any ufl1el~r \v,ho I"ill"" I,)" :hi.
i!
sh,all "Iolnt,; the, pr."Yi,;;ion:, o,r liii :<ecl ion :<iJ:dl'lw '<!,;"nl,'f!':!" ilt): of n Ili~h ;~:;;: '""'\",,,,,1,,,..·
ml:<den~f:lInor. lind on COII\''''IIOO thcl'col' ~lrall lJ': 1'"l1i .. lll'tl l;y litH; lI"t 1"'II"b',
eX.t'eculIlg douhle th,: Hmonilt 'so COlJl1tel'~i~nl"u Itlltl d,.Iivf'rt'tI. Itllll,irn- ..
P:t-'OIll~'Wl1t not It;...~ lh:~fl one yenr :lml not cxccedil1t; fil'l(:l~n year", at' the
tll~ert'llOlI of the eOllrt 111 which bc "Iran h(~ tried. '
~.:c. 28, .Allri 1J~ ':it fl/TllieT 'enact;'rl, That 'it ~lrall'I,(~ Iawfill f',r 'nny, " •• "<'i,,Ii')O~
iHlCh n~soci:lti()1l [0 {lurcha.";I!, hol,l,' allli COIl\";}" r,:a1 ,e"tatc :i~ fol- m",v .",,101, ,""t'"
lows: _ , ',,' ' "Cf:rll\llI rl:uI "lI-
, " late.
,First. Such ns :ilrall he
'ncccs~ary for' it.; immcdiati; nc('omrTJO,lation in
,the tranmctioll of it:' !lu~ine5.";. '
..
. ~
·:;,··i
108 THIRTY-EIGHTH CONGRESS. Siss. I, Cn. lOG. 1864. .....'J
,':1 .TJ
Real estil.te. Second. Such as ~'hall"'bc mortgaged to it in good faith by way of seeu. . ' :.)
illl
rity for debts previously contracted. . . . "". '. , . ..' . not,
·Tbird. Su~h as ~hnIl be conveyed to it in satisfaction of debts previously State:
, cont ,nct~, d .in the course of its dealings. . clmtu
" our 1. Sud!'!l in1fnU''Purcha~ .f1t 's.ttles· ndtr jlld~mentS', decr.ees;~ . ,reder
() mortgage . heM by sucl!..association;·or.. shnllp·iJrchas~ to:sec-ureaebtsl.l' camp'
ddt! 0' mu:m-soclnfion:~" ' . ' ., .' '. . Saint
Such associations shall not purchase or hold real· estate in lIny other. cmna
c<,tse or for any other purpose than nsspecified in thi:! section, Nor shall. Alba-
it hold 'the possession of any real estate under mortgage, or holu the title I "
also,
lind po:::session orany renl est..'\te purchased to secure any dchtsdue to it· ~peeil
,'. for a lon!;er period than five years.' .. . shall
No pCl"!'on, &C'., . SEC. 29. And he it further enacted, That the totnl liabilities to any. belon
to be liable to .
IlS50cintiuI1 (or
•• f . f '
aSSOCiatIOn, 0 any person, or 0 any company, corporation,. or. rm or
. fi ~
~hnlI
morc Ih.nll, ,.'I.e, money borrowed, .including in the liabilitieil of a company or firm the' tion j
liabilities of tlie' several membus thereof, shall at no time exeecd one Pro/)
tcnth part of the' amount of the capitni stock of such 115~ociation actually' '~he 1;
C~rtnin ,lis- paid in: Pro.~·ided, That the discount· of bona. fide bills of exchange.
COOllt~· no[ [0 !Ie-
may.
'jnclu<1~<1.
drawn against actually existing value~, and the di,;cflunt of commercial or tlie c,
....- busi'ncss paper a'ctunIIy owned by the per,;on or persons, <:orJl~l'ation, or warr:
firm negotiating the same sh:lll not be considered as moner borrowed. ". to n(\:
Rate of i:l!cr- SEC. 30. And be it further enacled, That every association may tak~ be be
est. . recei';'e, reserve, :mn charge on any loan or di~count made, or upon nny' reser
note, bill of exchange, or other evidences of debt, interest at the rate make
allowed by the laws of the state 'or territory where the bank is located, troll<'
and no more, 'cxcept that where by the laws of any state a different rate' point
is limited lor banks at i,;sue organized untler state Jaws', the rate so limited in th
~hali b(~ allowcc1 for :t.-sociations or~anized in ,any such state nnder this aet. SF
And when no rate is fixed hy the laws of the state .01' territory, tIle hank In an
may tak~, rCl:cive, rcserve, or ell,arge a rate not exceelling scven per th,c. ~
cl~nlurn,. anel such interest may be taken in m]vancc, reckoning the 11:1Y1l <;
Pennlt \. ('Jr for which the note, LiJl, or other e\'i<lence of tkbt has to rnn. And the ,1\
t:lkin~ ~;'rll[er
interl":-.L knowingly' tal: ing, receiving,' reserving, or charging n rat.r. of intere,;t l'e1't~J'
greater than afJrcsaitl shaJl be held and :\fljndgcd a forfeiture of the entire not 0
intl~re,;t which the note, bill, or other e...· idencc of deht carrie,; with it, or ~I]bjr~
which h:t.s. hee~l agreed to be pairlthereon. And in case a greater rate of in cit
interc;:t has been paid, the pel'wn 'or per..; ons paying the 1Iame, or their rrdcl'
legal represp.r.rati"e,;, mny rcco\'cr 11<lck, in allY action of <lebt, twil;e the nOlic!
aInount of the ;inte'l'cst thus paid from the :i.s,:;ociatioll taking 01' receiving are jt
AC'finn tn "Ie the 5ame: Pro~'ided, That such action is commenced within two years' be m,
corntn~n(·.:d il,a
t \;/0 year.:!. froffi' the time the u~uriou;; transaction occurred. But the purchase, .dis- deem
count,. or 'sale of :\' bona fiue bill of e::tehang(~, .payable at another plac.'e ]'t'ue(;
than the' place of ~uch purchase; discoullt, or sale, at not more th:m the, rccei-
'current nite of exch:tngl~ for sight ur'afts in addition to the intcre~t, shall provi
not be considered as takirig or receiving a grcater rate of interest. Ihi,
Amonnt of. SEC, :H~ And be it further enacted, Thntcv'ery :i,:sociation in the I'i,,'n'
mOIli:.v 1'0 hc kept citie,:·lwreinaOer named ~hall, at aU times, have on Iland, in lawful m'oney: -f 11r1
on h:uJd. o f'"tn(~. TJ' ~
l nrte!1 .-,tates, lilT amonnt, erJl.Ja I to at Il'1I!!! twenty-llvn.
' . per centum , Ihe I'
of -tli'c ll;!~re;;ntc nuillunl 6/' .·its nOf.(:s·in circulation lIwl it~ deposits; nnll 'Jiahil
. every othi:r a!f':OI:ialion shall; at all timeR, have 011 hflTlfl, in lawful rnoney I'ialio
.of the U nitcd St.llte~, an amount e.l.lunl to at least.fiftr;IJO pel' eentum of f-;i.:
. the I\ggrl~gate.amount of its. notCH i'n circulation, nrid of.it~ d!~pr>sils, An'lf lioll r
whenever the I;lwful money of any :t.~socilltion in any of' 1I\l~ Cities here- ',wit'
inafter named shall he Iidow the amount of twenty-Jive per centum of 'its . :,",:or..
of il~
circulation nnd dero':its, nOll whenever the. J:\wful rnnnl!y' or My other
~nrilt:
11."Bociati(in shall be IJI:low fifteen. ill~r centum of iL., cireulation and de~
Li&bi1iti~ n'it po.sit:"slJch ns~oi;ialions !llmlr not increase. jL~ linbilitic>l hy rnakj·n!!·nny.· Sr·:
tt.)~ ir,c:r"Il.OVotj .....
UII:il r~".r'\'c ill. ' new lonn!! or <li,.dHlIlt.~ olhf!nvill"~ than by lli~cot,l,nti·ng·(jr pnl'chn.>ling billA
to .lh~
II1n)" :
U,",j" ~"".1. l,f I;xclmnge payahl!: at Hi:;ht., nor makl: any dividend. of ..it>! pr·ofit.~ ,until' ,
\'0
THIRTY-EIGHTH CONGRESS. SEss.I.. Crr.IOG. 186 /t:.
the rcq~lir~d' p~opo~tion' be~\veen. .the aggregate' nmount of its O(ltst:,'ntling:

notes of circuln:tion nnd Geposit..s antl its lawful' 1IIoncy 'of the United
i 181y ,States F.hall be re5torcu; Provided, Thnt. thl'ee Hfllis of said fifip.cn per 1)!0I1~~ ,l.r:u
... . . . fbl.1 . . ' 'I' '1'1 I" 1 JlOOlh'(! 1,lf r •
centum ,m:,y CO:1:>1~t.O . It. .llnces uue to nn· lls~~el~tlon aVai au e·. or t lC I!"~:'ptiol~ "I' (';" .
I'rees, . . redemption of ItS . clrculntmg note~ from a;;50cmtlOns approved by tlJ(~ rlliniioll 111 C'·"·
lbts comptroller of the currency, organized under. this' ac't, in . the citic~ of ~aill (·jlir, l'~ Ii,·
' L . L . '11 CI" D . "{'I I' N' 0 1 C" lll.c!UI!c.I..
Salllt OUI5, OUISVI c, lIcn.::ro, etrOlI, 1\ I wall UC, ew r· ean~, .. m-
other cinnati, Clc\'eland, Pittsburg. Baltimore, Philatlclphia, Bostol1,Ncw York, .
r ~hall . Albany, Leavenworth, San Fra!1ci5co, amI-. 'Vnshi!'glon City: Provided, .
title alSo, That clearinrr-house certificates representing speCie or lawful money C.It:"rill:!'''''· :""
. d
!'peclully . eposltc
. °d Iior t I ' 'f I' 1 .." cro'llli(·al,·. 111 I,..
Ie purpose 0 nny c carmg- lOuse aSSOl:wtllm, il~.t'lIle;1 l:1w:hl
:0 it
shaH be deemed to be lawfu.l. money in the P05~c5sion of any a~sociatiQn mOI'c.'.- I'i'" tl1i_ .
.l' any, 'belonging to such clearing-house holding and (\\vning such CCl'tific:itc, :'1I1'] pUfjll'''·...
for '~ha!l be considCl~etl to be a'partof tlie·law..ful money whieh ~ueh as:,ot:ia-'
the tion js" required. to Illl'vc under' tbe foregoing. prol'i,;ionii of this sec:ion :
ed one' . 'pl'ovided, That the cities of Charleston and Riehnioncl m:l'.' !", :f\:'~ecl to C!lnrlc,lon ami
r t1 lally' the li5t of eitie's in the .natio~af a~sociatioris' of' which OU1':l: ::-.-"".;al ions l:idIlI101id. .
.0'
( lnge may keep three fifths of thcir lawful money, whene\'er, in the ol;,nioll .of
: 11 or the comptrollernf the currency~ the condition bfthe ·"o.uthern "tate:; will
tion,.or . warrant it. And it 5hall he competent for the comptroller of the CU1Tellt'y
·pr1. to notify aoY':i:'50ci:\tion; \\'hose lawful inoney re:;c1'\'c as 'aforc,;airl :,ball If'lI<'',cihlicoll
. take, .....be below the amount to be kcpt'on hand as aforesaid, t.) makc ~00t1 i'tlch falis l artcr lI,,~il"',
{ any' reserve'
. ' .
and if such association . '
to mn.k,~. ;.:()o.! It'.
shall'fi,ll for thirty da)'s . 1hcI'eaftel' ':0 'to rec;en·c.
ne rate make good its rescn'e of lawful money of the U11iteu ~:1t1 cs, the comp-' .
l"~ated, . troller may; with the concurrence of the Secretary of tll'~ 'frca:'llry, rip- .
rate point a receiver to ",intl up thc uusinc5s' of such association,.:\s providcd
nited· in this act.. ..' '. .' .' . .'
this act. SEC. '32. And· be it further cnr(ctcd~ That' each as~ociation organized Circl111\lio.l t\l
I,n l'''ok in any of the citie5 namet! in the foregoing section ~hal1 ~clcct. subject to !I.e r"d~!"lIlc\1 ill·
the appro\'al of the compll'Ollc/' of lhe . currency, an a~50eiat ion· in the :\r.w ) IJrk at I'ar.
.' . city of' New York, at wliichit will rcdecm its'circulnting 1I0tc-; at par.
~fi{l the Antl cach of such associations may keep.one half' of its lawful' melliey"
:~t~re5t reser,e in cash tlCJlO~iIS in. the city of ::"'ew York. Allcl cach a5:;oeiati,'~1 (>rl~ill :I,.",,·i·
entire not organi'zed within the citics namecl in the precetlilw seetiim "hall "clc'cl ~lj"I1".t .. "·1,·.,,
I · 1. I f I I f °
~I] b~ect to tIC ·appronl 0 tie comptrol er 0 the currCllcr, an a<~ociatioll ti,,"'Of' "ircula·
, 1,lnc,' 1.,1' n'd"II'l"
Lit,OI:
rrate of in cithe~ of .the ci~ie5 namct! in the precetling section' at which il will li'.'I1.
-- their' red.cem Its cll'culatmg 11ote5 at par., and thc comptroller ~hall "i\'c Jlublic .'
\ ,e the notIce of thc names of the a~sociation;; so' selccted at \\'hich'r~d(~l1lption;;
rv_eiving '. arc to be. made by th~ r?spective i.l~.5o<:iation;;; alld of' an)' change that may
;vo y·enrs·· be roatle of the assocJat.lO~ at which the notcs of any a."~oeiation are l'e-
r,e, dis- deemcd.. If any l\S50cmtJo.n shall fail cither to make the selc'ction 01' to l·r.,c(·e,lin~" in
rede,e~ ItS n?tes n.~ afor smtl, the comptroller of thc' currency may. IIPOI1 cn.-c ,q' (,.iltm·,.
h 'plaee 7
rccel.vlng satl.sfilct?ry cVldcnce thereof; appoint n rCI:(·ivel'. in the manner. . .
...an the
'est, shall pr?v,uetlfor In thIS (\<;t, to wind up its affairs: Pr-ot'ided, That nothing.iil
tIn,; sectIOn shall rdlc\'c an)' association from its liability to' rt:llnem' it"
in the. '·irclIlating. noleR at its own counter, at par, in lawfu'l 1Il011·cy. rln ,il':;la:ld:
I.., money' 'Inel pro,r;~dl!d. f!lr(/~er. That ev.ery.associntion. formctT or exi"ing lind.,,· E",'" :I .. I'CLI·.
~r centum t!le .I1.rovlslon~ .of thl~ :Ict shnll tllke n'nd reccivc at par, fOl' .:.lil.\' llel'l '''1' )i,.'" ,., ,«k,· ": I", .
)...!~s jnnd·.· I:.:.'h~hty..:t~ ~~JlI lI~s<)elallOn, lIny.antl al1l1~tes or ·bins i";'llC;1 j,y :IlIY :I,,'''' ;',I":I\:~"" a"',·n.l· .
r, moriey (1.ll.lOn eXtstmg under anti by vlrlllC of tins ncr. '. '.
Cv.ltum.· of. ; S~:c. 33, A~ld b.c it fllrfh~r cTlac{u{, Thllt Ilif' clircC'tors of .:hl\' ·:I<.''';'i,,- IIi',';.!,·;:,!.,
,its, Anu 1'011 ma)', ~flml·lInnun.ny, . el\ch ycar, 'dcell\r~ II c1i\'idl~/\{1 Ill' ';'0 III\;ch or 11\1'
:i':~s here-
11:ll ,rr?f1t;. of thl) ~:'soeintion as. they ,lml1 ji1CI~t: exp~'lli('u~: l.'tIl "".-)1 .
I m of its: .. . '~~.' nS,,?ellllIOn ~hllll, before thc tleclaration of a tli\'.ilkl'J(I. t':\I'I'.\' Oilt~i(~l1lh P:\I'( .
of IL~ l1ett profil~ of the preceding half year to it" sllrplll~ flln,l \Illtil rill' ~"rplll' (':I;,!"
".Iy othcr
In' and de-
.~an~c. ~halll\mtlllnt.t~ twcllty pCI' ccntum of ih·.enpit:tl ,.loek..· · .
n-i:ing nny . Sf-c. 3·t Allfi IX' .It fi.crth~ enacted: Thnt c\'ery :i.<:'(lri:llioll .;It:111.1ll:1ke A· •.·oi.'I;,o1\. I.
h ing bills to t:le comptro.llcr of thF cllrr'e.ncy·,n report, nCl.'onlini:: to tl,i., r(\~1ll -'\'hi"h "'l"rI 1<' ""1111"
mn) be p:e~crab~cl. uy Inm, vCrlfied uy the oath or atlir1l11\lion or th'.'v r ,':'- 1",11"r <l".1r:d.c
p.. fits until VOL. X/I!. 1 t.u.~·10 .'. .
{
"'-~ '.1'., t.
;'
~ .. . ·5·
....
'
, , .
110 TIllRT:Y-EIGHTII' GO~Gm~ss:SF.Ss.I. Crl.l06. iSG4;' Trull'f'"
:Cont/)1l1s ~frc~ illcnt or ca~!Ji~r OfSIH;h a~~oci~ti~n'; which repof~ shall 'cxl;ibit i~dc'l:iil,'
-
\
nssocialiL
port. . ":lIHI u~luci' nppropl'iate hcnrl~, thc rCSOlll'res and . liabilities of the 'asgocia-' . UlOlItllS, un!
t:on :before the comillClicl:mcnt of bnsinc.,s oti the' morning 01 the. first. collel'tion. s
l\Ioniby of the months of' ,January, April, July, n.nd October of each j'(mr, P1'ot'ided, '
. :~IJ(l ,;11.'111 ti'ltnsmit the same :0 the 'comptroller within live days thereafter:' ·ClIp ilal s loc
.:AnU any bank f:tiling to luake :md tl'ansmit such rcport sllall be subject SEc.3!.l.
I'CII3!tI' fi,r' to'a penalty of ouc hundred dolla~'s for each day after five days that such time pay. (
f;ti!ill;:' ('J' rcl'0\f.· yeport ,is <.1elaycd 'beyond that· time. And the comptroller shall pnblish exchangc, I
. a~JSl,I~lcts of' said' reports in' a newsp'aper to be designated by him for . that. circulation
. C~lllptrollc'r 1<:> l;lIl'Jlo~e in:.the city 'of 'Vw;hingtGi..i, aud the gepamte. nport.of each nA~O-" . 'at any ·sue
puuh,ch ab;;:r::c~ .. ciation shal.1 he pubiishcd in a newspapel' in tbe I.,lacc whcrc such associ. , dcbts by tl
alion),;' cstaLlished, or if·t.hcl'e be no newspaper 'at such place, then in II .. · ,;IJall it kno
newspalier pu~l!shed ':1t the nearest place thercto, at the expense of the . ':':." bank or b,
:L~sociajion. makitig such repOl;t. In 'addition to the qtll(rterly' reports (lutting in
!'t!llllircll by t!lis section, e ....erj' association shall, on thc first Tuesday of '.moneyof t
~ach n1onth, make to the comptroller of tlie currcncy a statemcnt, undcr . SEC. 40,
t
)[ontllly ~t;ttc' the 'oath of the prcsident or cashier, showi'ng the condition of .the associa- : . every 'guch
u:cuts, tit'll making such state-reient; on th~ morning of the day next preccding" .list of th.e 1
. thc (l:tte of slIeh st:ltem.eilt, in re,~p('d to .the following items nnd pnrtieu-' .... , :\I1d thc
.I:i!'~. to wit: ~n·el'a~c.amouut .of loans. alld disccunt,;, specie, an'd other. ·ra•. 'lete
lawfiil moneybclong.ing to the association, deposits, and circulation. And holucrs ' n
," :l,,~ociations in other nbccs ·than those citi~s' named in the thirty-first aSFess talc
~cction or' this aet sh;n also return thc amount due them 'available fur which bu~j
- the redemption of their circulation:' the jir"t i\J
A;5OCia:ions*, S-t;C. ;};), And be'it further cnact'ed, That no nssoci:\tion shall makc .. idcnl 01' C:1
n 0(:0 l;,ak,c J :111)' 'Ioan or ,liscoullt on the securily of the ghares of its own capitnl stock, . SEC. 4]
J0'"'3, """, on I Ie
,-ceuri:,· ollhcir nOl' I: uC I. IIe PUl'1: l ' or. 110 11( cr 0 f any sue h"
:a~er. snares., un Iess sucI" .-
1 ·sc,curlly to be procl
OWD ~lock, &c. . 01' ptlI'ch:t~e ;:hall .be llecess:u'j to prcvent loss upon' a debt previously.: " circulating
cOJilr:lctc<1 in 'good f:lilh ; awl ,;tock ~o rurclru~ed or acquired shall, witllin CXpCIIS?I:
,.'
,:ix n'JOnl lis fJ'lJlli th~ time 'of its pnrchase, be soM or disposed of at public' .' l'l.'spect· .
01: liri,'ate ~al(!, in (kfault of which a receiver may be ap'pointed to close lall'l'a I
u'p the bll~inc$s of. ihe·n~~ociati()n,nccol'<1ing to the pl'ovision~ of this act. llcn:aftc.
'jn,lchICdlJcs~ Sr·:c, :]G, Awl be it further CJlflcte,[; That no a~,;ocia(ioil ~hall at allY orgallized
nott" eXCcl·,t time. Ih) indeLtcd, or. in any \\':\)' liaLJe, to.:Ill amount exceeding the eialion 811:
C;lPlt:l~ :'tock, ex- 'amolllit of it;; c:tpital ;:tock at snch rillle actllally paid in and remaining" ... I:illl1arY~ll
ccpt,
. &c, . un(I'11T11111~
, , I ICII I.u)' 105".es 01' ot l '
1(';t'\\'Ise, cxeept. on tie I JO
r II oWlIlg
' accounts, . ". from an :t
t,hat is to my : - . .. 'u:'OI1 th 1 '
.Fir;;t., On account of. its notes of circulation, qllarlel' of
SI;conl1. On' account of mOIH'}s deposited willI, or collected by, such de(lQsits, u'
. us"ociatiOJi. " .' . ' afoJ'l:~aid, (
Thir<.1, On account of bill". of exchange or tirans drawn against muriey illn:,;tcd in
actually on deposit to the credit of such association, .01' due thereto, . ,thereof ~y
;' Fourth. O'n account of liabilities to its 'stoekhol,lcrs for. divi(lends and mann,cr !'
'. ~re5el'\:cd'profits. . . . .' ...,..' . " ..: , poratlOn, ,

,\"ot'iat;'ms '\l' SI~G', 37, .Alld he it further enacted,. Thal no .a';.:oeiafion sli:ill, ei'ther'
Ihe ill(eJ'c~
nt,1 to,h,l·r,,·:I:'~ ,·lircclly.ol' il1dir(~ctly, pledg(~ OJ' hypothecale nny of it:;, notc~ 01' cil'culation, ~, ~I\l;" llef:lll
.'
"'nlc (·,ro'lllallllt;· j' I f ' . 1.' , I ' . ... '\' k . \virliin tcn
;"'.<, ("r, ""('.; . Ill' t II;. !,nrp(JSt~ 0 !JI'ocnrlng money to ue p:1I( . JrI on IL~ c:tIJltll stoc ,or.
tn he .lhC.1 in iH hankin:; 0p'~l'al ilJlI';, or' othcrw;,;r:; lIor ~h:lll nil)' a~~l)cin· .
, make arc'
"f llll~ UI!
tion lI~e it,; 'c:irr:ulatill~ t1otc~, or any pal'! nJl:reof~ in any m:1I111CI' (II' form,
tIllldlJlIt (,I'
. . ~" creal!' or'illcrl;asc its capital ~tock. . ", . .
l'ti~it.<,. nlld
.. ";'f l:, wilh •. ~ ~t,c.·;J8.- .lUll bf! ·it /ltriher i:nllcted, Th:il no 1I.~~oci:llilJn~or 1.I1IY mci~ •. ' ill"I~."tcd il
"',a\\' .'I~'Y ,".'r.ll/," lwl' t!H:'I:t:'Jf,.,:llIIlI, d.urin~ the timei.t RJlall eontintH: iLq LltI.lJ{in~ opemtions,
"f· thell lllf'It.II.. . 1 1 . , \.Ie IVI!.IUrawn,
, I" . rJOrm 11'f UI\lIl
' Ilt~r.1ll .1' , 1 ,1 ji,.~t day""
. .' WIt II rail', '01' ·.permlt to .mt (;lIu;; or:
1111,1 till' ca,
.L(,,;,,~, '. (ltherwi~;.~, allY portion. or its capital. .And if llis;;c.~ iihllllat. ·nny t.imo·.
'10.11.0: lJui
lJaye bel'n Ruslair)(~d by.nny sudI' nr.Fotiation ellllnl 'to or eX(;i~t:din~ itll
'lIlil;~lr lIw
tllldi\'idetl -profit.s thcn on bawl, iIC> dividend Hlmll. hc.made: anrl no·divi··
· IlqJO,;it",1
<.It.'llIl slJall 'c\'pr ..be mudc by u~y, as~()cialion, wlliJe it shall ·continue itll ,r, ,
. p!'lI111tic:'.1l
h:1lI1:illi; operations, t.o :111 amount· greater than.its nCrt profits tlt!.'n on hanll,
United St:'
Bad o.\c1,18,· dedncting IheJ:efl'Om its' Jo;;;;cs ami. bail dc!Jls, AntI an debt>! diw, to 'any
. ~
.'
.THIRTY-EIGHTH CONGRESS. SE?S, I. ClI, lOC, l8GJ, 111
}. · ll~soci'll.ion·
- t , onid;ich' intcrc~t . is ' past.<1ile'. and unpai<1 . for'll p'erioll
. Wh~,t uau
of six.. C11'~IIllCu ~,~ h~
." , ,months, unlc~~ the same shall be well secured, and ·shall be In pror:<.\'s of dellts,
t'ollection, .shall .1Je cOJl:;idcreu .bm] debts within tIm meaning. Of'lhi~ acl.:"
~~
r, ProL'itled, That nothing in this section'shal! prevent tlt~ l'eLllleti.ol\ of tlte "
I'; ," · 'cnpital stock of the association under the th!rtcenth sectIon of tllli;, nct. '. " , ...
: ~. SEC, 3D, And be it further enc,lcted, That no :rs~ociation shall at all,V .' ;\.'sO<:i:lliOIl'· .
I time 11,'ly out • on loan:; or discount" ."
or in pUl'ehasin!! ....
drafts 01' bills '.
'of
•
Ilut t~, paytullt
ctr::I111 JJU C:;.
h , excballge, ,01: In pn}'ment of. deposIts, or In, any othe: ~node .~ny or put·m. .
It circulation the ,notes of allY bank or bankl!lg a~soelatlOn ":tllch shall not. .
'at any such time, he rcceimblc" 'at par', on ueposit and .in payment ot'
-. c,leu's by tlw as~ociatipn so paying out or circulating sneh notes j nOl",
a ,;hall it knowingly payout 01' put in circulation any 110tes iss~ed byailY.
e " bank or hanking association ~\'hich at tlw tim·c. of such paYlllg out UI'
t putting in cir::ulation' is not rt:(l'eeming its' circul;•.ting 'notes in' lawful'
) money of the United S t a t e s . . . ' ,
~r
, SEC. '40. And be it fur/lief enacted, That the presiucnt and e:t;.hier of J.H ,~f 1l:l:111'g
\-
cYcr)' 'such association shall c.'iuse t.o be kept, at alllirncs a full :lnll·correct. :l,1I11r,";I,tl ~
lUI ~
Clll'l't'; Ilf
10 I. I t:T.-\ 0 .
list of t1J~ names and residences of aU the share1lOhlers in the nssociation, lie kepi;
anu the nllmber. of shares held'by caei!, in the 'olfiee whcre .its busints,; is
31' 'ra, ···tcted; alid such Jist shall be i'ubj'ect to the inSpeClion of all tIle ~h:\re-, to '1l',Ollb;cct 1.0'
lfl holaers and creditors' of the ds~ocjation', and -the' officcrs :mtlwrized to mSllr,dlllll i .
a:;sc;;s .taxes undeI' state authority,. dul'ing business hour" of each day ill
which bU'siness' may be legally tran~~cted; and a copy of sudt list, on
the first j\fonuay of July in ench year, verified by the oath of ,;uclt Jlres- tIl I,e "'nt 10
J'd tont or cas IIIcr,
' SIla II b' e tl'ansmltteu
,'.1
to t Ilecomptl'o IJ cr 0 f' !.Ie I CUJ'l'l·:l'·~'. CUll'l'l-'I,llcr
,. ,
~
t
~}'
, SEC,... 41. And be £t fU'rtlter enacted, Tltat t}le I~latrs :ll'.t.~ i,'pcci:l~. dic,. C,,:nl'trc,llc; I;,
1-0 be procuretl by the comptroller of tbe currency lor the 1'l'Intlni; of ~Ul'!1 Icc,'}' cOlltn" oi .
cireu];lting notes 'sltall remain under hi,; control ancl clin~dio:l, an,1' the r~ale:: lIu.1 ~Jlecial
expenses necc;s~ari!y incul'l'eu iil 'cxecuting the pro\'isiCJ!I" or' tlli,;' a<:t Ole" .
..
.1 re:ipectin~ tlte pl'o::ul'ing of such uotes,' and all otll<:1' ('xl,j·lI-t·;; lA' tile ":"pell'l';::O be
Lure:llI, sbnlJ be l'aitl out of the proceel],; of the t..'lXC'; 01' "lItie~ now or ",lIr11l" hy a"",,'i...
::t, I Icrea f'tel' to IJe as,;e::se d on 1IIe clreu ' IatlOn,
' anu.1 co JJ ectecl 'fro:n :I~5or.:al!on5
.. llUn;. .
1 ' organized tllltlcr thi:; nct, ~\nd in Jil'U <il" :ill exi~lin~ t:lX':~,.l'\ l:ry a,,·,c'· ..
I! c:ialioll Hhnll pay to the trea"urer of'.lhc .Uu·ilCll SI:II~", in dll: nil'lIth,; 1Ir-
11 ,January and .July, :1 <iut.y of one half' ur one Iwr l'(:Il~lIlll ('al:1I 11:111" v"ar, n"l\' III'0n ,',r-
t~,
from and nfter the iir:it- day or January, eighteen hlllHirl·d ,'IlIII ,:ix[y-iiJiir. 1·I.d:.;!i'~lI. tI,,· ,
ul,on (he ,avcmge amollnt 01" its nut':?~ in CiI'ClIlatil)!I, :l!1l1 a dilly "I' O:le l;'d':':~:c;~:;I,,\~,I:"
qllartl,:r (il I,ne pel' centum each half };ear upon thc a\'l.r:lge :1Il1'.HlII! 01" it,; p,li,1 .. ,:::',i1,-
L1epo~tls, anu n dl:ty of one quartel' of' one pCI' ec·nl·um 'i:ach It:dl" y.:ar, a, 1II:,"i,",
nf'orc:~aid, on the average amoullt of it's capilal ,tol'k l'l'}ond the Itilll1Unl .
f'"
illVcstcd in Unite'~ SUl!e,; bonds; and in c:ise of dct:1Ult ill I he 1':1 nnrnt
thereof by any association, the ,~utie:; ~foI'c~hid may b(' collccJc:,J in lll(~
,I mann.er lJ:'oYided fol' the eollectioll o( United State" lJurics of otilt:r e.or- lid',\' C' :;e~:c"~'
por:~tl(JI1~, or the treasurer rna)' re"er\'c the amOllllt.Or ~a:li utllic::, out .uf';t' I'''l I'''''' ill
thc mte,:est, .:u; it Ill:~}' become dnc! 011 the. b,on(!,~ depo;;ited with Itim b;' lllll~.
:::1I.ell. delaultmg a,~socllltjon; • And it "hall be tlte dnty of cadi ':i:"';;"'la:'il1l1,
wlthlll tell ll:tr froll1 tl,.: fir"t (lap (·r Jmllllll'j' :llld July '01" e:l.:h· yl'al', Iv
:in- muke n retllru, untler tlte oalh of it..; }Irc"illelll or l'lIshier, to tlt,~ trl':t~tlr\',l' I:', :"r!1 "( ,.,-.
r'- . LJr tile UI~il.e~1 St(ll.e~, in, ~ill:h l,urll1' a.; h~ 11l:1)' il1'c~l'I;ilJl" or ti'1: ~i\~l'l';i,; .. t;~~!,',;:;::~', :,,'., :..
IIrn?l.Il1t CIt Il~ llOte~ In ClrcullltlOn,lIl1tl of· the 1I\'l'rage amOlln! III It., ti" .
. " )'O';lt:" lIn,tI ·ul.l~1C ll\'(~I"l1~e llUllllll1t or ils capillll" ;lock, bl'you,1 lit,' lI\tI,'IIII~
1~I\'(:"Il:d 111 ~1ll11c\1 Slale~ bOlld", fa l' the "ix mouth,; Ill'xl I lI'l'e"lI in;.: .';:Ii:!·
11I'"lI I"day~ (.1I January
I ' IIml ,Jul)' II;; :diJl'C:::llid , aliI! in c1l'1ill1lt tlf "liCit I'l'IliPl" ' , I' , 11.1 ,1\'.I"r d.· .. .
) " , ...... lItll . 01' .el~l' 1.( l',lrllllt lhereuf: cal'll lll'!:wltin:r a~"uciatioll ~ltall.fIII't(.'il and I'll} tlalr. .
1 · tOllte, t.n,~e(l ~tllte,; lite 'suni of tl\'O lltllldred c1()ll:tr'~, to Ll{eulIl'l'I,'d \,;':11('1" . ....
lIuL of,lhl,l 1ll.1(:I'l.':'t a.; it may become due .:'IIl'h a,,~ol'illtiun llll the bond,,'
"
tivi-
I ;'s clepo';(~f'11 With lhe .t1'l'n~lIl'el", or, llt hi'~ uption, ill dte l1lallllel' 'ill 'whid;
'. ..P':II,lIltle:, ltre (0 be 'colll'ctl'c\ or olher' l:orp()ratioll~ ullcki: the law:' vt: ihe
l "
I J UlIItecl Stale~; IIl1l1 ill 'ea~e or such (}cl'l\ult the ailiuu:il vf the dlltit'~ to uc :
(
"
H2 Tl:IIRfY-EIGHTII CONGRESS. SF-ss. I;Cn;·106.: ' 1,864.
'pnicl by:$uch n~socintiOll ,;haJ.! be ~,:!,p.:i!'rrl npon the amount of notcsclfi· dare t
, JiYCl'Crl to such n~~()cjlltioll, I.y thc"'comptruUcr of thr. ciu'rency. nnd IIpon the dirc~
,thc highest' amount: of it!' (!epo,:its'nlHl capital stoc)<, to be ascertained in ' bank or I
Share; nnt ' '~Ilr.I~,' Otll:f manncr as the. trc:t':lIrer may deem best; Prot:ided, :Thnt not~l.' And a m:
hereh," exe".,p~eil lllg In ,tll1" act shall be constrllrd to prcvent all the shares III any of the smd , tion and
from laxalj~,n U)' a,:socintions, held by :'"y person or body corporate. fi'om being includeu papcrs, a
stnle anthonl'-, •
. I I ' f I I
In t le va untlon 0 t Jr. pCI':;ona propert}' 0
f SIIC II pcrson or corporatIOn
'. "
Ill'
pcrfectfl
, the :l!'sessment of taxes impo,:ed by or unller st:1te, authority at the plllee Lank m )
whcre SilCh hank is located; and not elsp.wherc, bnt not nt a ~reater rate , . suid co, \'
'tll~1I is ,as!'e~scd upon other m'oneyed capital in the hand,:; of inuividual ' ' ",
, , ,as,;ocintio
Linlil of ft:l(C citizens of !'ueh ;,tate: Pro'/-'(ded.jilrther, That the tax so imposed under
prO\'iSi~lJ'
t~:,. the In",,: of any state upon the shares of any of the associations lInthol'izcd other :11
by thi~ nct. ~h311 not' exc(~etl the rate, imposed upon th~ !'hares in any, of ,<
, ,
althoug 1
tlic "anksor~:tnized urlller nu~hority of the !;tate whet·c such association the provi
r;C:ll' ~'faie tpi~ loeatcII: Provided, "also, That nothin~ in ,this actshall exempt the real .: :~. us~ociati(
,be tax,>'1. estate of' ris'~ociai.iOli~ from either state; cminti, 'or, municipal taxes' to the- visions oj
as
same 'extent, accordiri'g: fO it" v'alue, ,othe!"Teril c~tate is taxel]; commeBe
How a,~nl'i,, SEC. 42: And be ~it fllrther enacted, That any as!;ociation may go'. th~ Gamc
tions'III:<\' he ., into liquidation and 'be closed by the vote' of its shareholders. owning two: : l'esponsil
Closed, .. , thirJs of it,S stock. Aird' whenever such v.ote !;hall be taken it sllaU be,' other as~
the duty of the board oLdil'l'ctor" to cause notice of this fact: to be certi- an associ
fied, un~ler the seal 'of the a~sociation, by its, president or cashier, to the, tion shal
l'r"tcc,lil1;;~. ('ompti-oller of the l'urr('llc.y, and publicntion thereof to, be made tor a , :~5socinti(
pcrio(l of tim morith,:; in a newspap(;r published ill the city of New York, SJ;;C,
-- ,ann al<o in n new,:paper puoli!;hcd in a city or town in which the associa-

tion is loented, and if no new,:paper be there published, then in the news-
act, whe
~hall be
paper pllblj~hcd ne~rest thereto, that said ns:,ociation is closing up its • sueh reg
nfIilir< and notifying the holders of its notes and other creditor:> to present also be l
the notes nlHl othr~.l' claim,:, against the n~sociation filr payment. Anrl at perform
:lily time aft('r the l'xpiration of one year from the tim(: ot' the publication, finnocial
of' !'ut:h notice a- afiJl'("said, the, snid association' may pay ovel' to the the
,! tl'cn':llr<'r of the Unite(1 States the :ui10unt of it:-l1>uisl:mllin~ notc'i in lhl: dc,:)::.
}' ,
\, lawful monr) of tire Unitcd SUites, anll taKe up thobOt;d~ which said , nnd OUI'
: :t,~,:ocjatil)n h:l,~ on uc,'lo.-;it wilh the l1'ca':;lll'l~l' for Ihe sec,urity of it~ circII-. Ilioncy t
... 1-
btin!! nnte,~; whi<:!I'llotHls shall be ,ll~sjgned to the bn'lIk in the mannel' duties :1
;:pcc:ifi(;11 in the ,n'inl!tl'enth sec:tion of thi" nct, and f!'Om thnt time .the out- , :Issoeiati
f
\' 'standing nl)lr;: of !'aid a:':iociation shall be rellecmod nt, the treag\ll'y of' tary of t
~ the Cnitel! State;:, :11]11 the said, as,:ociation nnd the slillreho!ueril thel'i~of elilTenC 1
~ i :ihall be ui~eh:ir~,~d froin all liabilities therefor. ' to the g.
SEC, 43.. And b~ it lilrtner enacted, That' the treasurer, on reeeivill"rr SEC.
i Trc;lslI,rcrltn .
t'Xf'cute '..1UP 1C';.I.lC
rccei!,t:',
_ •• .J' .
from an :\S,<OClntlon lawful'money,for the payment and redemptIOn of ltil
.. . a~ any t
oltb;tanding note;:, n~ ,provided for in' the p'receding .section of this act, of' il~ eil
I! ;:hnll ':xecule duplicate receipt,:; therefor. one to the as~ociation and th,i, <luring t
, it" plac.
other to the comptroller.of the currency, stating the amount reccivcu hy
Frotc!'tr
hinl, and the purpo"e for which, it has :beell re~eived, which amount shnll
c:lshier
bl~ paiu inlO the trea.-;ury of the United States, nnd placcu to, the creilif
,presiucr
J:,ldt':llll'l! of ~lIdl a-,-;ol'iation up'on redemption account. And it shall he the duty
rcdeem:
JIl·tr" 1ft J·f· II1tl~ 'of tIll: ti-cil-IIr':r, whcnever h,:sh:lll mdeem riny' of tIJe .notes of 8airl a'sso~ ,
,il:lli:d. ~l.". ~llldJ, in
ci:ltirin, to e:lu,.c tIle ~nme to be mutilated, and ehargcdto ,the redemption , Illllking
aCl'Ollnl of mill as~oeif\tion ;' an,l, nil notcs 'so redeemed by tl!e trcllsurCI.' !I I: f1\1I11 d
,~h:lll.'t:\'l·I'Y threc months, lie certified to, lind burncd 'in the manner pre- ':IIlt! ~IIC
~cr1licd i'n (lIC l'wcnty-fotlrth section of Oii.s net. .. .. ,' . :I;lmi,~il
Stnt'· hnnk~' SEr;: <\4. And be it /t!rtli'e'" enrrcted., That anY' bank ~neo'rporntc(1.hy.
In:l\' lu.:curni! un... · til(: 'COlIl
. ,.ioiH\\ ~IH.IC.:jn··· ~[>('<:i:ll hl\\:, or 'any hanking jn~ti(lltion organized ,unde'r, n general 'l:tW of t!('!:llllt,
-.' tj(,n~.· ill'ly ':l~\le; IIIny, , by authority or this act, become n national nssoCintiop to 'the :l
under its p'rovi:~iOri~, hy the name pre,qcrihed In' itB or~nni7.ntion' cerliti, !\alUC 10
eate; anu in !?uch case the articles of ass.oeiatiori. "and' the o'rgnnizntion, ':'J,', prvscelli
('I:rtifkatc' rNluired by this aCt' may he cxeeutcd by n' majority of the' , " money I
director,s of the bank or ba~kirig in~titution; anll suill certificate shall de- ' " ." ..,-,"
. :.~
"
" ',I'
:'l:~i;
, f
"
TIIIRTY':"EIGirtn CONGRESS. SF.!i5. I. Cll. lOG. l8G·J.·· 113
. " . clarc thnt tllc ow'hers of .t,'·othirds oflhe earltni .stock l\n\'c :llllhol'i;ed .
.' "
the dircc:for,; fo make 'such eert.iliente nnd 10 ehangp.· and eo·li\'(~l·t .the 'said
. bank or ballkin~ institution. into a national a;:socialion unuC'r this. :let... '., . . '.
And a majority of tl.le dil'ector", after executing ~aid· arlieles of ·a:;50ci.n- }[o<1c.of pro·
·tlOn ····
• an d or"UllIzatlOn I iIcnte, ~ ! InII IIl\\'e power t 0 execu I e:r1\ 0·tl ICl' c .dure.·
eertl '.
paper;:, undO 10 do ",vila lever mar be requil'ed to make its' ol'gan\z:Jtion
perfect and complete ·as a national' association. Theshnrcs of allY such
.bank may co'nlinue to be' for the '~ame amount each as they wel'e I) l.''f\)l'(\
sair! coti\'crslon, anu the tlirectors nfore~aid may be the directol'S of' the'
aSiiociation ulltil other;; are eleeteu '01' appointed iii 'accordi\lJr:e with.tll!l .
prodsioll:i of this act;. and any state bank which is' a stockholcl?r in allY'
othel' bank, by authority oLstate In\\'5, m:lY continue to hold It;; stock,
.-: although either bank, 01' both, may bc organized \.imler :lnd hn\'c accepiell'
the pro.isions' of this. act. . When the comptroller shall gi "e to: such
• I association acertificatc, under ·hi.~ hand' and official scal, that. the [11'0-
vi"ions of this act have becn. complied with, an.d that it is authorizeu to
commence the business of banking. under it, the a~sociat.ion 's'hali ha,,/:"
th~ sam<\ 'powers and p~ivilege~, and 'shall be sullject· to the ':inmr; tll1tir~:"
resp.onsibilitics. 'and rulcs, iil all respects a~ arc' p!·e.ocribed in. tlli;; net for'
other associations org:mizcd uuder it, :lml shall. he held and rega;"r]c,l a.;
an association under t.his ac't: Provided, !iowcrcr,. ThaI no stich a:isocia-
tion shall han;' a les~ capital than ihc'am9unt prcscribed liJr Lankin;;
;"50ciations under this a c t . · · . .
SEC. 45. .And be·it fartlwr en'acted, Tl:nl nil associations' under tIli ..: .\ .•,... iati"n"
act, when designated for that purpose 1;y the Sccretar}' of t h,~ T:'(::l";lIry. '1'),"11 ,,, "r.'i·~-
I 11....-·'·
I; llJ
. '. f I I' . f' j' ,nat.'·1. lila" I,,·
UC uCP?:'llane,; 0 pu J IC mon~)', except rceclpt.; rom custom '. :I.n, ~'r d"l'"..;ilari~..; ,,;.
such regulatIOns as rna}' be pres(,rlbeu by the Sc:crt:lni'y; an'] thcy lIIay 1',,!>li.: 1111'''''::',
:llso' bcemplo}'eil ;lS financial ag.ent..; of the go\"<~rnmcllt ; alH] tilt,)' ...:hall ""''<'1'1. ~"'.:
pcrform all sue!1 rC:I.-onablc (]utic~, :1" uepositaric5 of public mOll".'"s :tll.1 . fIl:l.'· h,· fill.lll'
financial :lgel1ts of t.he i!o\'crnment, a~ ola)' be reqtlin·,1 of tlw:lJ.. AIH! ,·.. ,,1 :1-';-""1'.
e the ~. Sccrctllry or the Trca,:ur}'. s.hall rr~nllire '1
of the a.... ()(.:i:lt:Ull..; .tlll1": I I•· ..', ... lIaf... I I
I I'.
P- 'l1eslgnatcd salt;:[;lctory sccllrity, I;y the. (}r.pO..;il of Ullite,l Stall'''; :,<111;1·; 1'.• ,il"r~" I.. 1'.'V
I! alltl otherwise, Tor the ';:afe-kecrill~ allli prompt p:lj"mcnt of tIll' puhlj,. ,.r'''''1 01l .'';
I- ·money.deJlo..;itcd witlr them, and for tlte f:titbful perfOflll:1IIC'j.'· l,f l!ll:ir
~t· l1uties as financial :lgents of tbe gO\'crnnwnt: . Prot:idl'll, . 'I'lI:lt "\'('rl'
t- H!Owciation whieh ,hall be selcctl'd ntHI de;:ignatefl as rCCt·jt"pr Ill' ,1r·j1,,·,f. t., r.';"';'· .. ,.."
) tary of tire. public llJOlwy "hall takc :mcl reecin~ at par :tll of 111,' :::l!hll:d li""a! "lIr'n':I"';
) cur·renc)" 1.11 ul ", by IV Imt(~\'cr as':Ol:latlOn
···. 1 W I'
J5SIJ(~U, 11 ....I 1 I la\'c 1"
"'ell I':li, 1 ill I,;ii"';lt 1J.lr..-
to the go.crnment 101' internal rcvenne, or for loins or sto:'k,;.
,
ICY St:c• .j G~ And be it ji/rtller: f?naded, Titllt jf :1m' :,ue'h ~,:;r)('i:ll: (,;1 sIf;:11 . ." :"''''';al,,,n,
.t at any time fail to redecm. in the lawfui 'mot:!C~: oj' the Ln:t('11 S::lll:";, :In" ~"llt" ! .... i"'·,:, .
of it~ circulating not~, when paymcnt thei-eaf shalllw h",fllll\" dpma::.J;.;!. ;::::!~,.~:::~Il~::::i.:'f: ..
during'tlte usual hourg of business, at ·the office of !Ouch ·:l.;<o;·j:1tiOll. IIr a: j'r".:c .. Ic,!. II:;;"""
its place of redemption aforesaid; the bolder' 'm:'!" e:nH' Ih:,. ,:;lll(' ;" J., ..... c.
prot:~t('d" i,n one I.'a~kagc, ·by-~a.n6hr:'-publi('.·unlc-.; Ihe ill"'·...:idell:. nr
ca~h~cr 01 tile lL'~O?laUOn \\'ho:,e nntf';; :Ire pre:o.entcd for 1':J;'!Il"nt. 0,:Ii,:
presldcnt or ca,,'ll1cr of tlle as:,oci:ltiotJ at tlte pbcC' ':It whi\'!! 11,1'\' aI'"
rcdeCl~abIe; ;;lwll offer'to II :li,'c 'demand all,1 notice :(If thr 11l.. ,~,··:·.;11l.1 :\.;1;". ni 'n"
"hall.. 111 pursUlJllcc of HICh oAcr, llInk0, :>ign: :lntl Ill·li,-i·.: til rh," !,::~i .....1·":' ":",. \" I.,:
mnklllg ~lIclt ,lellJallll an :lclrnis"-1011 in wri"til1z. ~tnlil1;' tit" lillll: ('It" tl".' :,·r,,·.lr".·,l :..
re- demand. the nnl,)ll1lt ~!pm:lllll,"l,' :In'] the f:irt 'o( :11"1 nOl~-I':I:"n:'lll th"r:':<: '.<ill.': Ir 11.·r.
:IIHI ~\I?h not:trY-l~\Ibhe, on n'l\kin~ "l1ch proll,,,t. or \Il'lll1Tl·~'.'j,:il::-: ';ll"!;,
. I 1IllmlSSloll, ;:Imll lnrtlnvith forwnrd ""r.h lJullli"sion 01' notice oj' I'!·P:'.'-: III .
the .comptrollcr ~f Ih.e currency. retnining :l ('op.'" thereof. . }i.ncl n(:I:r -1I1;!I' '·\'~""i:l:j,·,,, 'lin'
ion '"'.,' l1cCalllt, on l.')(l\ml~rttlon ot the fnct!' by the ('omi'troll,'r, and ll(llic,~. h: h:m I:' rI" bu';",·"
lifi- ~o lite lIssocil~tion, it· sh.n!I.llof. h~ '.:I\\:flll for. tit., :i.:,soci:ltioll :,utli.;rin·;! th,,' ~~,;~".:r, <x.-q,,- .
.i same to pnyollt,"~y' of It·;; note!', tll:,count any nor.(~" or' bills, or r'llh.:rwj"..
t . prvscclItc the. b:.l"m~:ss of banking. l'xcept to I!(·t'i.~i\;\: nTlll ~:tfi'ly k.. ,.I'·
d" money bclonglllg to It, anu to ueliver ~l'eeia] lIepo-itl's : Pro:·,·r!,·d, ·I·Ir:lr.. it"
. . . 10·' . . .
. /
...•
" ..
ll·l '. THIRTY-EfGII"i'Ir CO:-<GH.ESS. S~ss. t- Cn. lOG. 18.64..
Xnl('~n?f'lo h~ sn;;,;f.'lcIOl:y pl"o~f I,(~ pro~II1(,l'd to su~h·. ~olnr,}',puDlic f'bat the pa)'~cnt of
. I I,u)' orrI er 0 f' any .cour t 0,f .competent JuriS
. . d'IC- noles:
.....
proteMl'1! In ccr·
tnl,J ~";:C3. ,." !'ucI1 !1utc~.
nn,}'' . .',IS l'C'~1 r:IIIWt
rency
" lioll, ~ucli llut,lI\'j'-pulilir: ;;hnll not protest the 81\me ;' amI ,,,hen iheholder
. , and Sf
, :o( ~uch' notes ,~h[lll' C:lll~e more than one note' or. 'package to be protested'.
. compt
on
Fcc~'or ilOt:lry. the'Fame uny, he ,;hall not receive pay for more tlinn one protest. '
every
. liPM 1'lItke' , S~c. 47: '1ndbe it.(ur!ller eIlflcled, That ~n r.eceivi~g notice tbat nnr . ,'.~:
:' :1. belon•
. or Ii<illlr~ tn n" . Fu,ch nFSoclatJOn has roliled to redeem an)' of Its clrculatmg notes, as specl-
.
.,~
,., compl
d""m ,·;rrllb(j,,". tieu in the; next .!,rceedinrr Fection the comptroller Qf the currency, with:
. l'otup:r"lkr tu . .... n , T . .. .. nnd, (
,,'Itt! >1'0";,11 the concurrence of tllf~ Secretary of the reasur)', may appolllt a specrn! 'J.
ciatiOl
, :!J:"Ilt t.. :'L<,·,:r:a;n agent (of whoFe appointmcnt immctliate notice shall. be givcn to such ,.
pay t1
,1:<.1,., . :i~;;ocrationY wh.o ~haa immcdiately pl'Oceed to' ascertain. whctlier s'uch
st.ockl
a<;;ocirition h:L~ refused 10 pay its circulating notes in tile lawful money oC "
~;
, recei~
1 he..United StateF, whcn dcmandcd as aforesaid, and report to the comp-
State!
, t roll..r thc t:'let son"certained ; and if, from such' pl'otest or the report 80
make
m:lCle,t!lc compti-oller ~hall DP. ~ntisfied that such nssoc,iation .hns,' refuscd
ceedi!
'. . I;" pay, its circulaling ':I0tes a.<; aforesaid and is in default, he shall, within
adveJ
, wh,·" to .!." thirty (h~.'" afrer he ,hall ha,c recein,a notice of such failure, dcclare the'
1S 1 .1 h association
.. f'orIi' montl
('br.· ~'·I·uriti",:
("r:"';Iod.
T-· .1 .. .. l I d ' 1.
v IIlte( ,t.ates JOnu,; anu ··secuntte..; p c( ~e . uy suc CIte d . tion 1
to the Unitcu S!a.tes~ and the same shall thcreupon be forfeitetl, ilcc~rd~ time
. t., lIu:i:'" }",:.I· i·r:~ly. Anu thereupon t'he comptroller shall immediately ~i,c notice 'in made
l'r...' n( rini.... ..: In ' .
~11t' JI m:llIner. a". t IIe " ,~ecrelary o. f tIC' I T reasury s Iia 11 I I.uj" genera I ru Ics or, '
.i.rl·";j'.II-: t Iwtl1 J~,r . in~ t.I
1'.1;,'11\<'111. o!!wrwi-e, din'ct: to Ilw holelers of the circulating 110tes of Fuch association ratab
t" prr.-l'ilt. fhPlll for payment at 'the treasury of the United Sta'les, and such
t11l' ~allle ;::llall be paid as presented in lawful lllont:!y of the United a cou
•__ :0 p'." II ..:'" ~::Ite;;; whl'rc'upon ~aid comptroller may, in hi,; di-crelion, cancel an
of thl
~ntl "I!II"f'II",",\" :IIIl'OUllt of uond- plcd;;ed by ,;uch a,;sociation' ('(1'1:11 at ennent 'nmrk~ furll;,
Ta:e,", !lvt excectlin;; par, to the.notes paid.. Anli it "hal] bl~ lawful for the CHtco
~een:tary of tll(~ Tr'l'~l;::lIry, from time to time, to rn:lke ~lIch regulat.ion" ii,,,
r('~I'('(,tin~ 1111; di<lio-ition to be mildc of ~uch circillatill~ note:.; after pre-
l>eut:lrion Ihel"'of fill' paymcnt ;1.<; aforc~aitl, Hllei r(·~pp.cliug tlltl perl'ctnn-
r
'1
:illll of tlu· .."I'ic1 .. uc" of I he payment. t!Jer{'of as may ~'!l'lI1 to !Jim ",:ollcr; tilted
t;u: all 'Ildl i1l1le,-. illl hl·illg l1aid. ,;hall 11Il eallcdl(:r!..· Allu for :lIlY tlcfi- Idill'{':
ej(·ney in till: pl'll<:I'('IL.,. of' the boud;; pll:ll~f'11 hy ~ilch a~,;oeiation, when time
di~I'0,(~d of a~ Iu:ri:iuaflf:t ~p(:cili(lll, to rcilllblll';'iC to the ,tinitel! Slides tile the n
'I'}", ri,il"ll
. ..;,t:1·I,·, to !I:;'''t~ :lInOnllt ~o expcIICII.r! in I'nying die eirctilatill~ note;; of ~Ileh a"Sociation, ci
(',;1
11:- ... ri~·" f\f b::i the. Lu'ili:u· Sl:ltt~- ,-kdl Ila\'C a fiTst and p:lr:uIIOIJrll licn 'lipori all the furlhl
;:I"'~1 ;l~--t'~" l~,r
;11\\' d,·rkiel1e\" Hl
a-~l':" of" ';lIch a':;nl:iation'; anti such llcficicncy shall he rn:lllf~ ~ood out of eomp
: l·d/~~\:if~i":l 'lJi', ';lIeh fl';-I'(- ill !,rc!;.. renee. to 'any mld all other c1aim~ what"ocI'er, except not b
,':r,·,tbti.,u', . tile nee.... "nry eo~t" :Oint! cxpenses. of administering the i;arne. " . ,lIeh
H"".I" l''''''!:;(''!' S EC. ·1~. '!I/(( Uf!' it fllrl1(erenacted, That. whrne\'er t.he comptl'olIcr lcgall
" =<',':,nly II"." ,,,kill hl·eoil.ie ,;ati,;tied,':)'; in the.last prcced, in o" section specified, tha(any an 01
:l~' . . "h~:l.t llUc..:.-
a.--ocialioll h:l,; rcJ:Jsed tf)' pay its circulat.ill~ notcs a.'l therein mClltioJled, . <1 irl:c1
lie lIlay.in-tead of ":IIH'('J1ill~ tlib Unitcd States bonds pledgel! hy Illich fi,,;nl.
lI""u\:ialioll', a" /:'1'0\ ill.:,! in the next preceding scdion. eall~e ;;1) much or SF.
thelll :1" l1lay he lIt'e(:~-:(ry' to redeem the outstnnuin~ cin':lIlatill:; n'l)!l;g of IlOI('~
~ilclr a--ol'iat.i'JIl to I'e siJlu Ill. }Julille lIuction in 1Ire citY' llf! Xew y~., ' IlI'f)cr
an'e.r ;..;i\'in;; thirty d:t;-s' Ttolieeof~(Il;h s,llle to ~uch a~~o(:iation. . lialole
. IIr ~t ('I i\"u til
S::I:. ,1:.1. And b'! It .r,./rlf'cr
I ~
CTV.1eted.. fhat the comillrolier of the ." ·l.'ialio
"It", f";lll'y tTlay. if he ,hail hi.' of opinion that tlJ.C illt(:re~ls of the Un.itl:d 1111 l~~
Stall·.- will I" h,:,t'prbrno(ed,the1'f:hy, sdl lit priviltt~ ~rdcany of!lw bonuR Offill,
p!"r);';"d liy :<III:h H-~f)cillljOll, antI I'l~,:eive: thl!rc:!iJl' c,il'lllit· rnartey, 01',' the ' llll,)' r
.i:irc'lIlali·ll~ 'II"II~- ,A' such f:li}in;;' a'l'\ociation: Provirlr-d, Thilt rio' such :. di"I\'j
hOllrl~ ~lrall be ~olcl 1,y primte 'sltle fi)r Ie!'!! lha'n par, nor' Ir;s~ !lm'n tho SI':
l1l:II:k i :l. \'allie .t IWI'l:of at the lime of !'ale: And :prOlJidr-d, .!rlrllt.cr, That no !>ntltl,
sale, orarl)' ~ueh bund;;, citlll:l' public or pri\'ate, ~hllll he coml'let~ ,lIntil eint ill
, the trall,rct.thcr~ofshall have been ,made wilh tllc fOl'loalilies prescribed on rt~,
in thi;; net. . ._ 'mone'

.Sf:C~ iiO. A;If~ bc' it furti,e;en~clcd, Tlwt or1bccorningsatisfied; ~~ ' . of it.o;'
spc::cified in, thi,j act, that,anyassociation has refused to paJ its ci'rculating' II"
{
J
,
i. TI-iIRTY-EIGHTH CONGRESS. SESS. I.' Crr. ~OG. , 1864.. 115
"
r nt of
'r n'ot'c's 8Js··thc~ci~ ~entioncd, an'u is in uefault, the
. • "
compir~llet· of th~;
CllI'- ." comPtor~l1tCr'
, }. rnny app III n
jurisdic- rency mn.y forthl\'ith appoint a receiver, and rcqUlr.e of ~Im ?uch ?om rc~;:i\'cr to c10~p.·
Ie holder .~
...{
and seeuritv as he ~hali. deem proper, who, under the dlrcetlon 01 dIP. !!tl:lIr~ or,"p.rault-
): ;ested comptroller,• shall take 'P05SC~SI?n. .' I b00I<:5. reeor,s,
0 f' tIC I an d'" n~~ets. 0 f .'
Ill:' 11:'.SOClallpll.
.
e ~?"
c\'cry de~cription of suc.h. a.;;~OClatlOn, collect all debts, dues" an~ _chum,; 1I011c[ nnel
that nny .' .
belonging to. such assoCiatIOn, :lnu, .t
upon t I1C or d er 0 f a court 0 f recol'u .. ,t 0 f ,[lIlies.oj"
&c. n'cci,,;cr,
B5 speei- { competcnt jurisdiction, may sell or compounu all bau or doubtful deb.t.,;,
H . with
rind, on.a.like order. scll all the real and pcr50nal propert.f of such as"o-
a )cci:{1 ciution on such terms as the court slwll dil'cet ;. and rna)', If ner.essm'y to'
to 'such
her such
ti
f~
pay tb~ debts of s~ch association, cnforce thc .inuividu::lli'ahility
stockholders pro\-ided for by the. t\~'elfth sectIOn of tillS act; and s.ueh.·
or
the .
l' ey oC f.
f/' receiver sl1a11 pay o\'erallmoney so made to ~he treasurer of the U l11 ted.
Ii ~omp- :1
·;x SUIte", subject to the order' of the comptroller of the'eu:rency, and~\lw
'eport so make r.eport to the comptroller of the currency of nil. hI" nets n.nd pro-
; refuscd. eeedinrrs.· The comptrol1~r shall thereupon cause notICe to be' gIven, .by
11 ,vlthin . ''/" ad\'el'fuement in S'UC!I newspapers' as' he may uireet, fO'r .three consecutive
c re the mo.nths, calling' on all person;; \.i'l10 n:'ay have claims against such' a"sQci[l,-
forfeited tion to pre5ent the fame;and t~ make legal.p.roof thereof. And from.
I aceord-:. tiinc to time the comjltroller, afler full pronslOn shall have beclI fil'"t
n ice 10 maue for refunding to the 'Gnited States any such deficiency in re'leem-
le5 or
;soeiation .
in rr the notes of such .ns:,ociation as i" m<lntioneu in this ad, shall make' a
ratable uividen'u of the money sopaiu over, to him by such reel'i;"er on all
:ate,~, and "Hch claims as. may ha\'e been 'proved to his satisfaction or alljudicatcd in
e Jnited a court of eompetellt jLiri~didion; and from time to time, as tllC proceed:,·
,. ::e'l an
of the: a~~cti; of sucb a~socjntion 51 mil be paiu over to him, he shall make
,t market ......fllrll;cr tli.viden(15, 115 aforesaid, on Ill! claims previously pro\"ed or adjudi-
'ul for the' catcd·; and the remaindet' of ~lIch (lroc·e,~d., if .any. shall be paiu O\'CI' to
" the sharcholders of sitch a~sociation, or their Icgal repre;:cntatin~;:, in
"
, c· proportion to the stol.:k 'U)' them r'.""pectivcly helu: .Provided, 1107Ccur, If" n~.,.,,(;i:lli"11 .
pr.rpetnn- That if Fuch n".,v<;intion ag~lin~t \l'hir.h·IIl'oC(~edillgs h:I\:(~ l)f:ClI ~o in-ti- ;1,:1,';'" llaal t'I1~.
I nroper; tlttcli on accoltnt of ,lII\' 1111,.,,('(1 reflt~al to' redeem its·circulatirw liMp,; :\ .. 1.1".",11.",.',.10:"111
y defi- , . . .... "'0. ...." II" 1.,,1,"0(. n 11l~IV
I
IIftlreslllfl. ~hall denY'ha\'ln(; fadell to <10 I'(J. such IL~':O(:llltll!lr lIlay. al any "l'I,k I" :Ia,;. '
It , when lillle within ten U:IVS :d'tc:r slIch a~so,:ialiOIl dl:lll ba\'l~ been nutifi,;cl "I' ,'..,,,, ....... lin in-
Slates the .
thc nppollltrnent . 'I e(I" III tI liS
o'f" 1111 agent, n<; .pronl . ad,. npp I}' to t I1<: lIf'a!"- jun,'li.,n,
~~hciation, e,t circuit, or district, 01; t<:rritorial C(lurt of the cltited States, to f:njoilt
H the i\l1
further Jlroeeeding~ in the p!"ell1i:~; and sudt courl, aft.er(;itilt,~ tIll:
:l' out of complroller of the clInenc)' to -1101',' causc wh), furlber proccedin;!~ ,:llOulel' I'n'l·n,lin;:'·.
cr, except not be 'clijoinell, atHl aftei' the dcci;:ionof tbe comt or finding of a jury tlf:lt
:::uch association has not refu:,eu to redeem it:; cireulatin 6 noh':', when
)1 )troller' leg:111)' pre:,cnted, in the· l:iwful inoney. of the Un'ileu ~tate:,. ~h:l1l 'In:tke
Illt any' an order enjoinillg fhe. comptroller, :lnu allY reeei';'er' acting· unrl ..:r hi:,.
nentloncd, direction, from nil further pr()ceeding;; on account of slIeh al1'~;;!'d re-
d' by sucll.
y:
fil::aJ. . ..':". . . '.. " .
lIch oC SEC,.VI. And be it furl/fer. C1/(/cled, That· all f('e5 for protc:'ting' till' r,·.·.. !~)I· !,r,~
,.," lotes of noles i:,~ucd hy nny ~uch hankin<T assoeiation ,:11:dl.Le paid by tllc ('t'r';')lt. to·_· ,,",l ..,I,,·r
';CIV l:roc1lring the prote"t to Lc rn:~d~.nll(r :<ueh b:ulkilil; a:,:,O<.:illtion,:<halI },t' ;'.~\~.~III;:;;:I.""'~·
Ilal,le Ilrc.Tl'for; but nll part of the Lond~ 1'1('I1;:cd hy ;lul'h banklll':; a:'~·()-. .
If he . '. ciation. rill nf'orl.:;tai(l. shrill b(~ IlJiplicd to the pnYlUenr of 5(Jeh ft"_:', AI,,1
h Unitt:cl nil eXpcltlles of anY' prelirnilllll'j" or aIrier' examination" info tlii:: ('ulltliti(ill
. tIl!, Lond~ ol.'.liny a~50cintion ,halll.ll: pnid by ~uch lls:,odation ; and an CXpCll~\.':'· of
lPV 01' tho
. llll),. rCCl'i\"crshlp shall lre paid Ollt 'Of t Iic' a:'~et,; or :::uch 113:'OL'iatiQ'n beforl'
II to stich ..~ tli-ll'ibution of tltc proceed,; Ihereof,.. ' . '. ... : - . . . . '..
11m tho Xl ~KC. 52. And (JC 1't f((rlilcr' C/lacled, Tllat nil tra'n"rer qf the note,,; Tra'l";·r'..,.;
!r, Tria.t· no
Il"t>te until
.
','
bonds, 'bills or excillinrrc, 'anu otllt~r c\'itIcnre,;
f l . o. :' .... .
of·deLr owinrr io any n."':()- 'i~nlU""I•. ,<.,....
n· . III t"lHllc.'fllpl,L-
Cll\tlOn, or 0 I ('PO~lt5 to It:;. credIt: aIllls';lgnments of mort;...·:r;;e,:. ,,"r<'tl('~ ti"" l'! :" ..,1,
• 0° .'
.
!.'
'1 ):lcribcd . ':'~ :Jll rcaIC5In~c, or of jmlgmcnts or' t1t'Cf<'c:s in it~ fl\\'oi,; all tlepo"it" ot' \'e!,.'·y, ,t:e:: tu lJ~
.~ money, bullion .. or other \'lIlu:ib!e tl1.in·' fur it:! use. or lor. the Ibe of nny '·uld. " ..
In!' n~ of its· ~IiarehQI<l;.~r~ ai' ci'cclitbr:l; llnd <>all payment". of ·mont·y. to .citla·r,
"'-:',
·'t·
.t /-
In"0 . ~~ mnde after the commis,;ion of an acf of illsol,e'ney, orin contemplation
:r.
'~
'.
A
~t
~t
/~ ..
J.~
'.'
:/;;..
' .."r
~
THIRTY-EIGHTH C6:NGRESS.Sj~'ss.,t ClI~10G, 1864.,
. thereof, with it 'view (0 pren~nt the application of it,q, ns~etsin the manner
11.'lV,u .--
to ,
*
prescribed by t bi~ ..,r.t, or with n vi~w to'the preference of one cl'edit<>r 'ings I
" another. except i.Il' payment of its circulating notes, shall be utterly 'null , distri
. '," and void. ' , ,.' " ' .',' ,
,P~n~lty SEC, ;j3: And'be 'ilj'lll'lller,'enactcd, That if the directors' of any 'a~socia. '
:whicl
IIp..',n S~
d1r,ect n "" r'Ir,\'I~ t if)" ~hall. knowingly "'iolate, or knowingly permit nny of the omcer~, . "late, r-
)alJoD~ or lhl~ . f I ' . , I fl' .
acc, a:;ent..:, or Fel'l'ant~ 0 t Ie as~oclatIOn to \'10 :lte any 0 t Ie prOVISIOns ot CCOle
, " ' : ,I his act, 'all the rights, privi!e;;cs, and francJlises of tlie association derived' :othCI
Y;o!,,'liOli, how from this act shall be thereby forfeited. Such ,iolation shall, however, , proc~
to be dde,lII:nc'd'bc determined an,] aujudged by a proper cireui'!, distril't, or territorial note,
' c o m t of the United. State:" in l\ /;uit· Lroltght for, that purpose 1,Jj the shaH
comptroller of the currency, in hi~ own mime, beforc the ,a~"ociution shalt . ~.' inju!
be ~eclared 'dissoh'cd. And in C~L.;es of such violation', c\'ery director who dietiti
Personallia- participated in or a.~,.ented to the 5'lmC shalI be hcld liable in his personal' S!
biiit)', ,ind indi,ioual <;ap:lcity for alI damage:'! which, thc association, its share-, ' ,mnk
bolder~, or anj other person; shall ~lave sustained in consequcnef; ofsuch COUI'
violatio'n. . ' ' 'terft
CUIT~p:r~,l1cr ,- ,S~C. 54, And ,1M t'l further cllacted, That the comptroller of the cur· eircl
,l11a)'tar:poIII1"pcr- rency, wilh :the a!)!Jrobation of thc Secretary of the Treasury, as' often 'as' utte!
~on 0 e",1Illmp. I' I . II . . 'LI
'ille otl'air.. of an)' 5 la I Le aeemed ncccs,.ary or proper, sha nppolllt a sUlta e person or or c·
a.ss6eiati'm, per50n3 to make an examination of the affairs of every banking associa· bani
tion, whieh person sLall not UP. :l director or other officet' in iUlyassoCiation falsf
whose aWait,s he slJall Lc nppointetl to examine. llnu \\'ho slHilI IUlv.e 'power pror
to make a thorough examination into all the affilirs of the. :tssociation, anti, any
Ilut" or suc!i. . in doin;; so, to 'cxamine any of the omccr" alia agent" thereof on oath; and pulJ
cxami'ncr'shalI makc a full and uetailc-<l rcport of tlw condition of tlte ,association to '01' S
the comptroller. Anti the association shall hot Le ."ullject to any otLer nfor
vi,sitorial powers than such as arc nuthol'ized Ly tltis net, except stich as per:
arc \'estcd in the se\'er:il conrts of law an(1 ch:~nccry. And cver)" pci',;on Cclll'
ilppointcd to: m:lke slJ('h examination 7ihnll' receive for his services at ~
PRr, rale of fi\'c ilollnr~ for each day by him ('rnplo)'f!d in ~nch cxnminntion, and
111'0 dollars for e\'cry t\\'ruty-fin' mik~ he "hall ncces~nrily travel in th,:, f.
l'er:l'l'lllanCC <if 1Ii.~·'dllty, which shllll Lc paid by lllt~ a~~ocil\tion Ly him cn~
examim:(L ' ' CII~1
~'cnnlr," t11'''~'~ s~:c. ?i,i, And!'e l~l fllrtlur c;/Gcil'd, T'!Iat every prcsitlcnt, dii'eelol', pial
oll,c,'ro, "\-"",,,,1 ('11...:hier, tellcr. c!cl'k, or ngl:JJl of any ,n!'~or-i'ation, who shall cmbezzle.' 7iha
n~'O':Jall('!1 r..r ,
I'IIILczzl"lIh'III,
1 'I'..' . f f ' "
a l,lra-:l. vr \1'1 fulTy.rnl:'arr1y any 0 the moneys, unrl3, or credIts of th.: bloc
.xc" "f (Ulllt-. I'\-,:ociatioll, or :,!I:dl, without auth,orit)' from tite direc[ol'~, is!\uu or put in an)'
5CS'
circulation 1111, of' the noles of thc a~;;ocjation,. 01' shan, withont such'
'authority, i;:~u~ o'r pnt fortll all)' cCI,t,ifiente. of deposit, (I raw' any' or(ler 01' of:
uill of exchange, ma.kc anf accepl:lIICe, IL,~i~ any notl', bond, draft, bill. stlfl
iSSl
, of cxchall~e, mort;,;age, judgmcnt, or d'~crcc, or shaIllllakc any false clltry
aWl
in any book, Terort~ or "tatement of the ;lS~oci:Ltion, with i'ntent, in either'
an,
case. 10 injure or ilefrautl Ihe' a,."ociation Or ailY ot!rer company, hody
C:II:
politic or corpora'te, or any iI1(Ji\'if,l~al pcrsfJ!l, or to decei\'e nny officcl' of
thl'
the association, 01' 'any agent appointi~(1 to exnr!Jinp, the nfli\irs of any ,such,
by
w;sociutioll. ~IJall he deenl'~d"gu'iltj' 0(' a mi<;dcmcnnor, liml upon C() 'vietj'oll hill
thereof sllnll be ]1unishCl! by imprisunment not less tlmn five nor moJ'(; /ill'
than ten yellr,:. ,. _ "
Di'l rid ~tt",·r·' ',~~;c.5li.AlId ftc \'t }rrllicr CllItr:lcd, TIIlLt .I'll ~uitH, nn'I1 'l'ror:ec(lirlg.~, COl,
f]/"\'- tl} rflnd:'r"l
llri~il1g out of the pl'o\'i,-joll:, of this lle!., in \\'bich, tlw United ~UttGA odt:l lilt
.. ";Inin ·'tllt-,'-
olnccr" or IIgf;rlts -hnll be parti(;~, 7ihall lic,eomlllctc(J by ,the dis!.rict nttOl'·
IIC'Y!! of th,e ~c\'(:ral districts, uncleI' the directiou :\lIIl' wpervision of the wh
~olicitor of the tn:llsury.: " .' " ' dal
."it!.
In \.h3t muTt.;.' S r:c. Ii 7• .A lid be it' further eliacled, That'sui1.'\, actions, .aDd proceed-:'
&c,.,un,l"," ing,~, against lIny a<;sociation untlel' tId!! act, mllY bc had in nny,Circuit" :"
. of
, ant
this act mRV Lfl Ui!lt.ricl" or'tcrritorial' COlIl't of the Uilitcu States heM witllin th,c district II'.
pro,ecu ted: IllJl
in which Buch lUl~oclation 'm:iy be eSlaLlisfletl ;: or in: il/lY sUllc, county, or Le]
municipal'couttin the co:mty or city in. which said' as~ociation is locli~cd,
THIRTY-EIGHTH CONGRESS.' SESS. I; Crr. 106, 18G4. 111
I( ~:tnner
:r Iilor to t
h.'1vin~0J; ~~i-dictio~
"
in 'similar cases; Provided, however, That nil }1~occed~', .I'r°clc~eding~llror·
, . .d ' "InJun IOU9 to e,
:"7& .
iugs to cnj,o.iu rhe comptroller under 1.11l~ act sbaH be ~hn ..m,~ '::l.rcu~t. iu what COUl'l.i,.
:terly null, 'j districl, or territorial court of the DOlled States, beld' In the tllstnct 1!1
..... .
, ~ which the a~~(J<.'iatiun is located. . . . ' .
J ."socia- '.1\( SEC. :i8• .And be it further enacted, That C\'ery person who shall muti- l'~nnlly fur, .
.fficer:,. '01' ~llall un'lte 01' lIlutJll1tJllg notcs
wte. cut,. dc f:ace, d"I~ Ii gure, or penrora te WI"tl 1 1'1'
l!
. 1.. 10 e", .. " ' , 'til make thcm llU-
,vi!!ions ot cemcnt tOirether, or do any other thing to any bank bill, draft, note, 01' lit lor reissue,
In derivt·<J.
Olher e¥i<J~nce of debt, is~ued by nny such a:,sociation, or sha1l cause or
,wt!\'cr. procure the S2.me to be done, with intent to re,~der such bl~nk bi1l," d~aft,
t ritorial note, or other e.idence of debt unfit to be reissued by smd aSSocIatIOn,
sa by the t
.~ . shall, upon com'ietion, forfeit fifty dollars ,to tl~e association who. sha,ll ~e
It ion shall injured thereby, to be recovered by actIOn In any court havlrtg Jurls-
:c or who , .'. diClion. . " .... . . , . '. ' . ,. '.,.
s er"onal ~ SEC. 59. And be it further enacted, That if any person shall. falsely Pennity (c,r
its share- 1'\ make for"'e or counterfeit;or cause or procure to "be made, forged, or conntcrfcitin b
Cf:; of such . ," counterfelte , ,'" d'·, or WI'II'IllgIY alu
'.1
or asSist ". f: 1. I k' r "
10 a1.Se y rna "mg, Jorgmg, 01' COUll-
notes, . '
. terfeiting, any note in imitation of, or purporting to, be in imitation of, the ". "
,f fie cur- circulaling noie3 issued under thc provisions of this act, or 5h:lll :pass,. .forknowingJr
M often as utter, or pt;hlish, or attempt 10 pass,' utler, or publish, any false, forged, utterlug.. &c,
'person or· or counterfc:ited note, purporting 10 be issued by any ~ssociation doing a
'I Msocill- banking business under thc prodsions of this act, knOWIng the same to be
n ~ciation fal-ely made, forged, or counterfeited. or shall falsely alter, or cause or
nve po\l'er __ procure to be fal~cly altered, or willingly aid or assist in fal5ely altering,
iatioQ, nno. any such circulatinG notes, issueu 'a'l aforesaid, 01' ~hall·.pa5;;, utler, or'
, til; Rnd 'puulish, or att<:mpt to pass, uUer, or publish, il5 true; any fidsely altered ..
;c ation to or spurious circulating note issueu, or purporting to hayc been issued, us
any otber ' aforesaid, knowini; the SlUlle to 1;e fulsely altered 01' ~puriou5, every such,
I't ': Il eh as. per,:on ,~hnll be deemed anu' aujlld;;f~u g-uilty of felony, and. being thereof,
c 'on .convicted uydue cour~e .of law ,:hall bc sentenced to be irnpri,ol\(:u and
..i ,he kept at hard labor for a period of 1I0t less than five year.-, lior mure thall
Illition, nnd . Gftl'{ln )'f'ar:" IUH] (incu in a slim not I:xcecJing une tlJOusand ,Iollar.';,
IV'" in thr:' SI·;C, {jO,. And be it f,o'l/,er enacted.. That. if llny perf'on shall make or (..r "l1 l::rtl\·illl:.
ic by him cn1-;l'a\'e, (II' C41use or pl'uclin: to be made or e,ngra\'ed, or shall ha\'t: in hi..; \~"".I'I:lI;·' Iv"..
.
CU.-IOI Iy or pos.;(:ssion any I' Iate, \I'Ie, or 1.1
u OC"k a ('IeI' tIIe ~Irnl
.. '1'Ituuc
,I u f any"r"r,'11'"h 11 o!I' ", .s.c,
t, dil·cctor. plJIIC, die, or Llock from wbich any eirc·ularing nott;!!. isslled rL~ afuresnid
~-nbczzlc, shall huve been pI'I~parc.d or printed, with illlent 10 tlse stich plate. dill, 01'
dI of lhe block, 01' ellus'e or suD'cr the ,:ame to be u,;ctl, ill fc)rging or coulltl'rlciling
.Jr 'put ill
Il nny of the notes issued n.> aforesuil],'or ;;hall h:l\'c in his custody or jJOi-
ithout.such .. scs,:ion ariy blank note or /lol'es engr:wed and printed :lfte.r thc similitude (or ha"ing
no- order or of any notes iSi!t:.cd us aforesaid, with. intent to usc such bJanb, or cause or lJlllnk. nw,~, &c"
], rnfl, bill ' 1. 1." '.1' II' .
~ll l1ier tilC ~ame to ue u.,:eu; III orglllg or countcneltlllg any 0 t Ie notl'S
r' , f I With.IIlten!.,
, ,
r ,_Ise entry ISSUt:U as aforesaid, or shall bn n: in his custodioI' pos~e~sj()n :1Oy paper (ur hn\'inf; i,~-
nt, in cithr'r' , adapted to the making of such note~, and ~imilar to the paper upon whieh pcr, &c.
If ""y. hody any such not'~:3. shall !J:n'e beel! i~sued. wilh iptent 10u~.c ~u~hl'apcr, o r ' .
I) ,/neer or ellL:3C or suffer the ;;nInP. to' .be used, in forging or 'count':rfcitj~g any of
o. ,my such the notes is~ucd as nfurc:'laill, e.ery such pcr~OlJ, bein o' thereof <.'on\'icted
n CCJ 'Yielioll by tlue CO\lrse of 11IW, shall be ~entcnced to Le' imprisoned and kept to
o lor morc l~lIrd ~nbor for 1\ teno not less ~h:\II,five or lIlore' .than fifteen Yf~,lr~, :Ind..
hncu III n sum not exceeding' one thou;nnd tlullllr~. ' " .
p. ,;ccodillg~ " .:;h;c.GL Alld [.0 it fllrtl/crcTlaclcdj Th:it. il ~hllll. lie IL.~ dUI)' of the Cnrn"irlJl.r-r:o
Stntcs or it~ eOtnl'trol1cr of the currency to rcport lln/lunlly, to cungrc:;s Ilt the com- T~I.·rllln""illly
i!' ict nttor- I1)CllCemOllt of i~ se5~ion _ . . .,' , . . ' 10 e"'lll;n",'.
ri to of tlw Fir~t. . A summllry of the stntc :Inti condition' of evcry' ri5socintion from C('lltcn~ of rr-.'
whom repo.rts hn\'u he,c·n,. received tlic prcceiling year, Ilt (lie sevcral-potl.,
nd proceed- tlnt.C5 t.o \vluch' such reports refer, wilhan austract of thc.·whelc amonnt
, y circuit, of u~n~~r~l:\ ~pitnl returned hy them. of tllcwholc um01int of thcir deuLS'
c district und IUWl!ltICS, tho amount of circulatin p notes oUls,nn(lin~; :lOll the total ", ~
0, ~ollnty;"or amount of mean~ lind tcsourccs. speeif)'in;:; Ihe amoUnt of, L'\wful money'
,n, Itcd, held by. thcm at the times of. their severnl rcturM,' and such o:hcr in-
. 11 i3 . THIRTY-EIGHTH CO~GRESS. SESS. I. Crr. lOG; 107. 18M.·
C.,nt~nt. of fOl'nlation in relation to 5::\id· :15506:1tio05 ;s~ ill his jUIIglllent, Illay he
'·":111,1 roller's r~
I,urt to eonGT~5.ol·
useful.
Secu:ltl. A dalerntl1! of' the :t:;:;oci::ltiollS whose lJu~jll(,.:s !las heen
c!05cII uurin:; the }'I·:!r. wilh Ihe .::lIlou·nt of theIr circulation· n~aecml~u
anu the amouill ouL-t:lIIdiu;:;. .
Thinl. Any alllrlHlulf'nt fa the law:; rdativc to banking by which the
"y~tclll ilia)' be illlprO\'CII, :uIlI the ::ccurity of the holuers of its nolc,; alll]
other cr,·,lit'ir.- ilia)' he incrc:a~cll.·. ..
Foilrlh. 'I Itt· n;\IIJ(.'~ antI cOlllpeni'ation of the clerks l'Inplo)'c/] hy him,
:lllJ· tJII~ \\'hole :,mount of IliC cxpen:'e.~ of the hallkill~ /11~l'al'tllH:nL dUI'ing
Ihe year. ~\nJ :,uch rC:[Jurt "hall he m:llle h)':or hcli)l'e the lir4 da)' of
, D':I:em ucr ill each yC::lr, alll] tbe ui'ual nllll1UCr uf' copies fur t hc U';'; of
the ,cnatc all'] house, :1.1111 one tllOu:,aml copies fill' the usc of the
tlC'partnwnt, ,hall Lc prin/("} by the public printer·anll in Te:ulincs:5 for
Ji:'lriblltion at the fir:'t meC:lin~ ut' con~l'e:'~. .
P.~JX':Jl fli act SEC. G:2, Aml be it further eJlf/cted, That the act entitled" An' act to
or ~:>I~J. ~h. [,~'._'. produ\.: a national currenc}'. :,eclIn·tl by a pleJge of' l:nited States ~tuck",
\ I01. XII,l', Gi,;), an tl to pron'u c.lOr r t I 11: clJ'ca
. Iauon ' am ] re' I emption. t L'
cJ'eo,f'" :\ppro\'eu
.1
. FdJrllary ~wellty-{jflh. cightc::en hundred alld ,;ixty-thrcc, is hCJ'eby re-

, ~:Jd:l;;c1:w;(:;, pealc:U: Prodded, Tltat such repeal :,ball not alli:ct 'allY appointmcllts
made. acts June, or proct'l'diIl 6 " Ita,l, or tJle organization, nds, 01' pro-
ceedings of :.HI)' a,:,ocialiun org:lllizt' l l ur ill the I'r(ll'l':'~ of' oq;anizali.on
under the act afore;,ailI: .And }Jro!'ilhd. (llso, Th:lt all :,ncII :l.""oeiations
:'0 ur;!allizcu 01' ill l;rn..:t":' uf Ol':!:llIizalioll "kill cnjll,t' all IJ1I~ ri~hl;; and
liri\'iJr::;es granteu. and l,c :'lIhject 10 all Ihe dutie:" liabiJitic;;, :u.v rcstrie-
tions illlpo,ed by this act, alld with the appro\"al ur tile comptruller of.
the c·urfl.'ncy, in li,:u of llic nalllc :'l'ccili"'l! in their J'e:'I'L'cti\'(: organiza-
I tion ccrtili(;~I(('" 111;1)" takl: an}' tither nalllC l'ret'l'l'p'l] hy th,:ni :llId (luly
i 1":I'l:!i.:,1 to tl1l' ,·ollll,trollel. wilhout pnjlldic/; II) any ri;.:ht al'IJllin' l } ullllel'
lhi..; !l1:1. or IIn,h'r III!: ad lll:n'hy 1'('1"':111'1\; hu llIi "Iwh c!J:llIge ~h:dl he
, 1,1
II 111:,01(' artl;r ·,i:-.: ·lIlfmtll" f'''''1Il till' I'a.-~:l.~t: uf Illi.; :Ict: }'rrll'/,I,'d,ld.w/, That
till, "ircllhtiull i-"IWd Ilr to b.. i~~ucd by ;,u(·h a,.. ,,('i:lli'l1\ ~haJl be l·uII..;ill-
·ql ('lnIH- a flat"> of tlte I·j,.('olalinll provided r'll' ill til;'; ;11:1.
SEe. G:J. Alld &,. it jilrtl,er ('lIartc';,. ThaI I":I'"UII~ holding ~fnck :IS
.
;~fl ~r!1 .. t··"". ~t· .• I:X"/'otor,,', adlllini,tral"I''', ;";lIarrJiall-, allll trc:~le(':', ,I"dl 11"1. ],e [l/.'J':,ollally
i~i 1\'11.1.11": . . tu('k.
I. .. ! t " J,~~ J 't.' :'1)1'1"
·~ull·il'('t l(J :111\' lia]'ilitj(·" :L,; >(lI('klt"ld,·I'';; lJUt IIJf~ ('.;Ial('~ :11\11 fUlII!:; in
lI· ",.i
, ' ull~' I, ,bl.;, .. tllt:;r hanel, .l;:.dl be·lia!Jk in like· 111:1111'1'1' :1II(1 10 Ille ,:lnJ" cxll'llf. it.; tllc
lestator, inibliltt.:, \ranL 1)1' Pt'f;~'OIl inll'n:_tl;cl ill ,,:li'd tl'll.-I.-fllnd" w()~lll])c
, I
~ ~f
\ !'. . if Iltey \\'c:re rbpectin:ly li\;ill;'; all·l CI)lrljl':ICr.t !().ad :lIIel lwltl tlte :'lock
I .1
l q in tlteir own nanH.::'. .
: ii .\L: i:')3\" h~ SEC. GA. .Bndbe i/ (adh'.'r enrlcted, Tliat C')Il~I'l~;;~ may at any time
.,t II" ni":- ;".·d c.~· :0<'- amcnd, al;f:r, (Ir·r':I'I::d·:ili" [ICI.
1 itI, T"·J;' 01.
.AI'J'l:IJV~:!.', 'JUII{' :;, I:;C I.
\
j!
/.
I !In,' ·1. I ,.:~,
h. "il.
,ltll' , 1', '.!~, Ilo/lsl! I!( RI'fircSf!/lf(/III""~ (!( fill! (JfL/lCll
j ",Ii'" '.
('nf/cteri 1,.'1 lit" 8"1/11 1,: .
Ik It find ' . • •
• ,., I .';"1111'5 of A'II/ln'J;fi ill r:"";rr,•.• Of.•':"I"!'·", '1'I.lIl 11."1 I'lIl't I,f' 1111: :II'L (~IILilll)ll
1.'·ln"'I'''~' "r
I I),,\t1,<,:, ' JY (Ij ' ['.
,'"',.".f> ':.\ II lIet tl) -111'1' , ,III II If;."I'PI:lil'l'Il1llf)lI~
Lr:I':lI f ;I':" ,. f'f,,. IIIf: ~':I'VI~;':"
. fl '
'.1')
, .. Ill' i.·I,~' It'- fl~I'al year f'lldllJ;; tl,,~ 11111'111'11t fif .IlIn'" ':Iglat"/:n Illlllfln'rl lIud ~lxIy-rf)lrr,
',-::11,1, ..... ,,11 und for otla.:r l'IIl'I'o,""," ",',If'Ij\'l'd .'\1"r<;1a 1'0111'1"':11111 ,·j"lil"1'11 IJIII"II":l1
'l~ !,V Ilt'ltt!· {J( . ' ,., .
:,.·i,.;rllll.::II..... und sixty-follr. a~ \Irli\ id!·" .. tltal I,,:!"':,ft';r IIli l'rillfill~ 'II' Ilj'lIdill;'; :-1a:t11 1)1:
uvnf: or blank 1,1J'Jk; ~JI: pmCIll'f:'! fi,r allY 11f' till: <;xf.:t:uliv,; .r'·l'arfltl lml>l
of the I!I.JH;rnrn l:llt withlJllt a writll:n n:ll"i:'Iilill1l lin ti,l: ~lIpel'illt':lIflr:llt
of jJublil: (irintin~ from tIll: II.;arl f,f· ~Ildl dl'l'al'trtll:nl," },I:, iuid 11-,,: ~arlle
i'\ II';rd,y, lIm':noI,:d by ill.:;I:I'ling a 1'1 ':1' tlv: wllrd "dt:parttn.::lIl," wlll:n: it j~
1:.I,..;t aho\'(: writtclI, tile fiJlJ',w.irl;!; \\")I'd~, vii.: " 01' hi, as~i~lant 0)' IIs:"i~tant~,".
~tj that it will re.ad - " t},l: 11,::,,1 of' ~Il(;h (11:parlrn':lIt or liis a:-sistant or n,s·,
bi;;~lll ts."
AJ·['/W\,Y.li, .Jun r: :;, 1i:sG·1.
f
J
··r••
"
t
.,.
~ectlon ..... ~ ...... . _.-
de of Federal Regulations]
.tle 12, Volume 3J
tRevised as of January 1, 2003]
From the u.s. Government printing office via GPO Access
[CITE: 12CFR225.2]
[page 84-87]
CHAPTER II--FEDERAL RESERVE SYSTEM
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y)--Table of Contents
subpart A--General provisions
sec. 225.2 Definitions.
Except as modified in this regulation or unless the context
otherwise requires, the terms used in this regulation have the same
meaning as set forth in the relevant statutes.
(a) Affiliate means any company that controls, is controlled by, or
is-Under common control with, another company.
- -...~... (b) (1) Bank means: '
- ---.. (i) An insured bank as defined in section 3(h) of the Federal
Deposit Insurance Act (12 U.S.C. 1813(h»; or
-~ (ii) An institution organized under the laws of the United States
which both:
~ (A) Accepts demand deposits or deposits that the depositor may
withdraw by check or similar means for payment to third parties or
others; and
"(B) IS engaged in the business of making commercial loans.
(2) Bank does not include those institutions qualifying under the
"ceptions listed in section 2(c)(2) of the BHC Act (12 U.S.C.
fl(c) (2».
~ (c)(l) Bank holdin9 company means any company (including a bank)
that has direct or indlrect control of a bank, other than control that
results from the ownership or control of:
(i) voting securities held in good faith in a fiduciary capacity
(other than as provided in paragraphs (e)(2)(ii) and (iii) of this
section) without sole discretionary voting authority, or as otherwise
exempted under section 2(a)(5)(A) of the SHC Act;
(ii) voting securities acquired and held only for a reasonable
period of time in connection with the underwriting of securities, as
provided in section 2(a)(5)(B) of the BHC Act;
(iii) voting rights to voting securities acquired for the sole
purpose and in the course of participating in a proxy solicitation, as
provided in section 2(a)(5)(c) of the BHC Act;
(iv) voting securities acquired in satisfaction of debts previously
contracted in good faith, as provided in section 2(a)(5)(D) of the BHC
Act, if the securities are divested within two years of acquisition (or
such later eeriod as the Board may permit by order); or
(v) votlng securities of certain institutions owned by a thrift
institution or a trust company, as provided in sections 2(a)(5)(E) and
(F) of the BHC Act.
(2) Except for the purposes of sec. 225.4(b) of this subpart and
subpart E of this part, or as otherwise provided in this regulation,
bank holding company includes a foreign banking organization. For the
purposes of subpart B of this part l bank holding company includes a
foreign banking organization only lf it owns or controls a bank in the
uniteCl States.
(d) (1) company includes any bank, cor~oration, general or limited
partnership, association or similar organlzation, business trust, or any
other trust unless by its terms it must terminate either within 25
years, or within 21 ¥ears and 10 months after the death of individuals
living on the effectlve date of the trust.
(2) compan¥ does not include any organization, the majority of the
'oting securitles of which are owned by the united states or any state.
(3) Testamentary trusts exem~t. Unless the Board finds that the
,_rust is being operated as a buslness trust or company, a trust is
presumed not to be a company if the trust:
.:>I::I",UUII
-
-
(i) Terminates within 21 years and 10 months after the death of
lrantors or beneficiaries of the trust living on the effective date of
,he trust or within 25 years;
(ii) Is a testamentary or inter vivos trust established by an
individual or individuals for the benefit of natural persons (or trusts
'-
for the benefit of natural persons) who are related by blood, marriage
or adoption;
(iii) contains only assets previously owned by the individual or
individuals who establlshed the trust;
(iv) IS not a Massachusetts business trust; and
(v) Does not issue shares, certificates, or any other evidence of
ownership.
(4) Qualified limited partnerships exempt. company does not include
a qualified limited partnership, as defined in section 2(0)(10) of the
BHC Act. ,
(e) (1) Control of a bank or other company means (except for the
purposes of subpart E of this part):
(i) ownership, control, or power to vote 25 percent or more of the
outstanding shares of any class of voting
[[page 85]]
securities of the bank or other company, directly or indirectly or
acting through one or more other persons;
(li) control in any manner over the election of a majority of the
directors, trustees, or general partners (or individuals exercising
similar functions) of the bank or other company;
(iii) The power to exercise, directly or indirectly, a controlling
influence over the management or policies of the bank or other company,
as determined by the Board after notice and opportunity for hearing in
accordance with sec. 225.31 of subpart D of this part; or
(iv) conditioning in any manner the transfer of 25 percent or more
of the outstanding shares of any class of voting securities of a bank or
other company upon the transfer of 25 percent or more of the outstanding
shares of any class of voting securities of another bank or other
tompany.
) (2) A bank or other company is deemed to control voting securities
or assets owned, controlled, or held, directly or indirectly:
(i) By any subsidiary of the bank or other company;
(ii) In a fiduciary capacity (including by pension and profit-
sharing trusts) for the benefit of the shareholders, members, or
employees (or individuals serving in similar capacities) of the bank or
other company or any of its subsldiaries; or
(iii) In a fiduciary capacity for the benefit of the bank or other
company or any of its subsidiaries.
(f) Foreign banking organization and qualifying foreign banking
organization have the same meanings as provided in sec. 211.21(n) and
sec. 211.23 of the Board's Regulation K (12 CFR 211.21(n) and 211.23).
(g) Insured depository institution includes an insured bank as
defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C.
1813(h)) and a savings association.
(h) Lead insured depository institution means the largest insured
depository institution controlled by the bank holding company as of the
quarter ending immediately prior to the proposed fillng, based on a
comparison of the average total risk-weighted assets controlled during
the previous 12-month period by each insured depository institution
subsidiary of the holding company.
(i) Management officlal means any officer, director (including
honorary or advisory directors), partner, or trustee of a bank or other
company, or any employee of the bank or other company with policy-making
functions.
(j) Nonbank bank means any institution that:
(1) Became a bank as a result of enactment of the competitive
Equality Amendments of 1987 (Pub. L. 100-86), on the date of enactment
(August 10, 1987); and
(2) Was not controlled by a bank holding company on the day before
the enactment of the competitive Equality Amendments of 1987 (August 9,
1987) .
(k) outstanding shares means any voting securities, but does not
l~clude securities owned by the united states or by a company wholly
.owned by the united States.
(1) Person includes an individual, bank, corporation, partnership,
~ectlon
"Ist, association, joint venture, pool, syndicate, sole proprietorship,

ncorporated organlzation, or any other form of entity.
(m) savings association means:
(1) Any federal savings association or federal savings bank;
(2) Any building and loan association, savings and loan association,
homestead association, or cooperative bank if such association or
cooperative bank is a member of the savings Association Insurance Fund;
and
(3) Any savings bank or cooperative that is deemed by the director
of the office of Thrift supervision to be a savings association under
section 10(1) of the Home owners Loan Act.
(n) shareholder--(l) controlling shareholder means a person that
owns or controls, directly or indirectly, 25 percent or more of any
class of voting securities of a bank or other company.
(2) principal shareholder means a person that owns or controls,
directly or indirectly, 10 percent or more of any class of voting
securitles of a bank or other company, or any person that the Board
determines has the power, directly or indirectly, to exercise a
controlling influence over the management or policies of a bank or other
company.
[[page 86]]
(0) subsidiary means a bank or other company that is controlled by
another company, and refers to a direct or indirect subsidiary of a bank
holding company. An indirect subsidiary is a bank or other company that
is controlled by a subsidiary of the bank holding company.
(p) united states means the United states and includes any state of
the united States, the District of columbia, any territory of the united
states, puerto Rico, Guam! American Samoa, and the Virgin Islands.
(q)(l) voting securitles means shares of common or preferred stock,
~eneral or limited partnership shares or interests, or similar interests
lf the shares or interest, by statute, charter, or in any manner,
entitle the holder:
(i) To vote for or to select directors, trustees, or partners (or
'sons exercising similar functions of the issuing compan¥); or
(ii) To vote on or to direct the conduct of the operatlons or other
significant policies of the issuing company.
(2) Nonvoting shares. preferred shares, limited partnership shares
or interests, or similar interests are not voting securities if:
(i) Any voting rights associated with the shares or interest are
limited solely to the type customarily provided by statute with regard
to matters that would significantly and adversely affect the rights or
preference of the security or other interest, such as the issuance of
additional amounts or classes of senior securities, the modification of
the terms of the security or interest, the dissolution of the issuing
company, or the payment of dividends by the issuing company when
preferred dividends are in arrears;
(ii) The shares or interest represent an essentially passive
investment or financin~ device and do not otherwise provide the holder
with control over the lssuing company; and
(iii) The shares or interest do not entitle the holder, by statute,
charter, or in any manner, to select or to vote for the selection of
directors, trustees, or partners (or persons exercising similar
functions) of the issuing company.
(3) class of voting shares. shares of stock issued by a single
issuer are deemed to be the same class of voting shares, regardless of
differences in dividend rights or liquidation preference, if the shares
are voted together as a single class on all ,matters for which the shares
have voting rights other than matters described in paragraph (0)(2)(i)
of this section that affect solely the rights or preferences of the
shares.
(r) well-capitalized--(l) Bank holding company. In the case of a
bank holding company,\2\ well-capitalized means that:
\2\ For purposes of this subpart and subparts Band C of this part,
~ bank.holding company with consolidated assets ~nder $150 million that
.~ sub~ect to the small Bank Holdlng company pollCy statement 1n
,pendlx c of this part will be deemed to be "well-capitalized" if the
Jank holdin~ company meets the requirements for expedited/waived
. processing ln Appendix C.
\:)eC{lorl • -0- . _. -
-
-
) (i) on a consolidated basis, the bank holding company maintains a
total risk-based capital ratio of 10.0 percent or greater, as defined in
~ppendix A of this part;
(ii) on a consolidated basis, the bank holding company maintains a
Tier 1 risk-based capital ratio of 6.0 percent or greater, as defined in
Appendix A of this part; and
(iii) The bank holding company is not subject to any written
agreement, order, capital directive, or prom~t corrective action
dlrective issued by the Board to meet and malntain a specific capital
level for any capital measure.
(2) Insured and uninsured depository institution--(i) Insured
depository institution. In the case of an insured depository
institution, "well capitalized" means that the institution has and
maintains at least the capital levels required to be well capitalized
under the capital adequacy regulations or guidelines applicable to the
institution that have been adopted by the appropriate Federal banking
agency for the institution under section 38 of the Federal Deposit
Insurance Act (12 u.s.c. 18310).
(ii) uninsured depository institution. In the case of a depository
institution the deposits of which are not insured by the Federal De~osit
Insurance corporation, "well capitalized" means that the institutlon
has and maintains at least the capital levels required for an insured
depository institution to be wel1 capitalized.
[[page 87]]
(3) Foreign banks--(i) Standards applied. For purposes of
determining whether a foreign banking organization qualifies under
paragraph (r)(l) of this section:
(A) A foreign banking organization whose home country supervisor, as
defined in Sec. 211.21 of the Board's Regulation K (12 CFR 211.21), has
adopted capital standards consistent in all respects with the capital
Accord of the Basle committee on Banking supervision (Basle Accord) may
-alculate its capital ratios under the home country standard; and
r (8) A forei9n banking organization whose home country supervisor has
not adopted capltal standards consistent in all respects with the Basle
Accord shall obtain a determination from the Board that its capital is
equivalent to the capital that would be required of a u.s. banking
organization under paragraph (r)(l) of this section.
(ii) Branches and agencies. For purposes of determining, under
,paragraph (r)(l) of this section, whether a branch or agency of a
forelgn banking organization is well-capitalized, the branch or agency
shall be deemed to have the same capital ratios as the foreign banking
organization.
(s) well managed--(l) In general. Except as otherwise provided in
this part, a company or deposltory institution is well managed if:
(i) At its most recent inspection or examination or subsequent
review b~ the appropriate Federal banking agency for the companr or
institutl0n (or the appropriate state banking agency in an examlnation
described in section 10(d) of the Federal Deposlt Insurance Act (12
U.S.c. 1820(d» , the company or institution received:
(A) At least a satisfactory composite rating; and
(B) At least a satisfactory rating for management, if such rating is
given.
(ii) In the case of a company or depository institution that has not
received an inspection or examination rating, the Board has determined,
after a review of the managerial and other resources of the company or
depository institution and after consulting with the appropriate Federal
and state banking agencies, as applicable, for the company or
institution, that the company or institution is well managed.
(2) Merged depository institutions--(i) Merger involvlng well
managed institutions. A depositor¥ institution that results from the
merger of two or more depository 1nst;tut;ons that are well managed
shall be considered to be well managed unless the Board determines
otherwise after consulting with the appropriate Federal and state
banki ng agenci es, as app1, cab 1e, for each deposi tory i nsti tuti on
involved Tn the merger.
\. (ii) Merger involving a poorly rated institution. A depository
.~nstitution that results from the merger of a depository institution
that is well managed with one or more depository institutions that are
~ectlon - _ . ..-1.
well mana~ed or have not been examined shall be considered to be

managed lf the Board determines, after a review of the managerial
... ~ other resources of the resulting depository institution and after
consulting with the appropriate Federal and state banking agencies for
the institutions involved in the merger, as applicable, that the
resulting institution is well managed.
(3) Foreign banking organizations. Except as otherwise provided in
this part, a foreign banking organization is considered well managed if
the combined operations of the foreign banking organization in the
united states have received at least a satisfactory composite rating at
the most recent annual assessment.
(t) Depository institution. For purposes of this part, the term
. 'depository instltution' , has the same meaning as in section 3(c) of
the Federal Deposit Insurance Act (12 u.s.C. 1813(c)).
[Reg. Y, 62 FR 9319, Feb. 28, 1997, as amended at 65 FR 3791, Jan. 25,
2000; 65 FR 15055, Mar. 21, 2000; 66 FR 414, Jan. 3, 2001]
r U l v . LClVV, 1'~UICllivll;:), ,",CICllCU /",\I"l;:) - UClIIr\. nVIUlIlY vVlllfJClllY /"'\\"l rdY~ I VIO
,...
" ~ FDIC Home, federal Deposillnsurance Corporation: Insunng America's

). Future
~UlKsma IBankers
,f)(] Deposilinsurance j~ Consumer Protection i~ Industry Analysis ,0 ~egulat~?~ a~d

FDIC law, Regulations, Related Acts
6000 - FDIC BANK HOLDING COMPANY ACT
DEFINITIONS
SEC, 2. (a)(1) Except as provided in paragraph (5) ofthis subsection, "bank holding company" means any
company which has control over any bank or over any company that is or becomes a bank holding company by
virtue of this Act.
(2) Any company has control over a bank or over any company if-
(A) the company directly or indirectly or acting through one or more other persons owns, controls, or has
power to vote 25 per centum or more of any crass of voting secun'ties of the bank or company;
(B) the company controls in any manner the election of a majority of the directors or trustees of the bank or
company; or
( 'j (C) the Board determines, after notice and opportunity for hearing, that the company directly or indirectly
~xercises a controlling influence over the management or policies of the bank or company.
(3) For the purposes of any proceeding under paragraph (2)(C) of this subsection. there is a presumption that
any company which directly or indirectly owns, controls, or has power to vote less than 5 per centum of any dass
of voting securities of a given bank or company does not have control over that bank or company.
(4) In any administrative or judicial proceeding under this Act, other than a proceeding under paragraph (2)(C)
of this SUbsection, a company may not be held to have had control over any given bank or company at any given
time unless that company, at the time in question, directly or indirectly owned, controlled, or had power to vote 5
per centum or more of any dass of voting securities of the bank or company, or had already been found to have
control in a proceeding under paragraph (2)(C).
(5) Notwithstanding any other provision of this subsection-
(A) No bank and no company owning or controlling voting shares of a bank is a bank holding company by
virtue of its ownership or control of shares in a fiduciary capacity, except as provided in paragraphs (2) and (3) of
subsection (g) of this section. For the purpose of the preceding sentence, bank shares shall not be deemed to
have been acquired in a fiduciary capacity ifthe acquiring bank or company has sole discretionary authority to
exercise voting rights with respect thereto; except that this limitation is applicabfe in the case of a bank or
company acquiring such shares prior to the date of enactment of the Bank Holding Company Act Amendments of
1970 only if the bank or company has the right consistent with its obligations under the instrument, agreement, or
other arrangement establishing the fiduciary relationship to divest itself of such voting rights and fails to exercise
that right to divest within a reasonable period not to exceed one year after the date of enactment of the Bank
Holding Company Act Amendments of 1970.
(B) No company is a bank holding company by virtue of its ownership or control of shares acquired by it in
connection with its underwriting of securities if such shares are held only for such period of time as will permit the
sale thereof on a reasonable basis.
(C) No company formed for the sole purpose of participating in a proxy solicitation is a bank holding company
by virtue of its control of voting rights of shares acquired in the course of such solicitation.
{{12-30-99 p,6022}}
(D) No company is a bank holding company by virtue of its ownership or control of shares acquired in
securing or collecting a debt previously contracted in good faith, until two years after the date of acquisition, The
Board is authorized upon application by a company to extend, from time to time for not more than one year at a
time. the two-year period referred to herein for disposing of any shares acquired by a company in the regular
Furse of securing or collecting a debt previously contracted in good faith, if, in the Board's judgment, such an
extension would not be detrimental to the public interest, but no such extension shall in the aggregate exceed
rUlv. LdW, n.~UICfllUmS, r\t:m:uea Jo\CIS -ljanK MOIQlng ljompany Act Page 2 ot8
'ree years.
(E) No company is a bank holding company by virtue of its ownership or control of any State-chartered bank
or trust company which-
(i) is wholly owned by 1 or more thrift institutions or savings banks; and
(ii) is restricted to accepting-
(I) deposits from thrift institutions or savings banks;
(II) deposits arising out of the corporate business of the thrift institutions or savings banks that own the
banI< or trust company; or
(III) deposits of public moneys.
(F) No trust company or mutual savings bank which is an insured bank under the Federal Deposit Insurance
Ad is a bank holding company by virtue of its direct or indirect ownership or control of one bank located in the
same State, if (i) such ownership or control existed on the date of enactment of the Bank Holding Company Act
Amendments of 1970 and is specifically authorized by applicable State law, and (ii) the trust company or mutual
savings bank does not after that date acquire an interest in any company that, together with any other interest it
holds in that company, will exceed 5 per centum of any class of the voting shares of that company, except that this
limitation shall not be applicable to investments of the trust company or mutual savings bank, direct and indirect,
which are otherwise in accordance with the limitations applicable to national banks under section 5136 of the
Revised Statutes (12 U.S.C. 24).
(6) For the purposes of this Act, any successor to a bank holding company shall be deemed to be a bank
holding company from the date on which the predecessor company became a bank holding company.
[Codified to 12 US.G. 1841(a)}
[Source: Section 2(a) of the Act of May 9, 1956 (Pub. L No. 511; 70 Stat. 133), effective May 9,1956, as
amended by section 1 of the Act ofJuly 1, 1966 (Pub. L No. 89-485; 80 Stat. 236), effective July 1, 1966; section
101 (a) of title I of the Act of December 31, 1970 (Pub. L. No. 91-607; 84 Stat. 1760), effective December 31,
1970; section 301(b) of title 11/ ofthe Act of November 16, 1977 (Pub. L No. 9~ 188; 91 Stat. 1389), effective
November 16, 1977; section 101(e) of title I of the Act ofAugust 10, 1987 (Pub. L. No. 100-86; 101 Stat. 562),
effective August 10, 1987; section 724 oftitle VII of the Act of November 12, 1999 (Pub. L. No. 106-102; 113 Stat.
1471), effective November 12, 1999]
.:» "Company" means any corporation{1}
{1 So in statute as enacted. A comma should probably follow the word "corporation".}
partnership, business trust, association, or similar organization, or any other trust unless by its terms it must
terminate within Wienty-1ive years or not later than twenty-one years and ten months after the death of individuals
living on the effective date of the trust, but shall not include any corporation the majority of the shares of which are
owned by the United States or by any State, and shall not include a qualified family partnership. "Company
covered in 197(J' means a company which becomes a bank holding company as a result of the enactment of the
Bank Holding Company Act Amendments of 1970 and which would have been a bank holding company on June
3D, 1968, ifthose amendments had been enacted on that date.
[Codified to 12 U.S.C. 1841(b)J
[Source: Section 2(b) ofthe Act of May 9, 1956 (Pub. L. No. 511; 70 Stat. 133), effective May 9, 1956, as
amended by section 2 of the Act ofJuly 1, 1966 (Pub. L. No. 89-485; 80 Stat. 236), effective July 1, 1966 and
section 101(b) of title I ofthe Act of December 31, 1970 {{12-30-99 p.6023}}(Pub. L No. 91-607; 84 Stat. 1762),
effective December 31. 1970; section 2610(r) oftitJe II of the Act of September 30, 1996 (Pub. L No. 104-208;
110 Stat. 3009-475), effective September 30, 1996]
(c) BANK DEFINED.-For purposes of this Act-

(1) IN GENERAL.-Except as provided in paragraph (2), the term "bank" means any ofthe following;
(A) An insured bank as defined in section 3(h) of the Federal Deposit Insurance Act.
(B) An institution organized under the laws of the United States, any State of the United States, the District of
Columbia, any territory of the United States, Puerto Rico, Guam, American Samoa, or the Virgin Islands which
both-
(i) accepts demand deposits or deposits that the depositor may withdraw by check or similar means for
payment to third parties or others; and
(ii) is engaged in the business of making commercial loans.
(2) EXCEPTIONS.-The term "bank" does not include any of the following:
(A) A foreign bank which would be a bank within the meaning of paragraph (1) solely because such bank has
.,1 insured or uninsured branch in the United States.
t-un,;: Law, Kegulatlons, Kelatea Acts - BanK Holding company Act Page 30fB
-
,""""""-
-
, (B) An insured institution (as defined in subsection (j)).
I (C) An organization that does not do business in the United States except as an incident to its activities
outside the United States.
(0) An institution that functions solely in a trust or fiduciary capacity, if-
(i) all or substantially all of the deposits of such institution are in trust funds and are received in a bona fide
fiduciary capacity;
(ii) no deposits of such institution which are insured by the Federal Deposit Insurance Corporation are
offered or marKeted by or through an affiliate of such institution;
(iii) such institution does not accept demand deposits or deposits that the depositor may withdraw by check
or similar means for payment to third parties or others or make commercial loans; and
(iv) such institution does not-
(I) obtain payment or payment related services from any Federal Reserve bank, including any service
referred to in section 11A of the Federal Reserve Act; or
(II) exercise discount or borrowing privileges pursuant to section 19(b)(7) of the Federal Reserve Act.
(E) A credit union (as described in section 19(b)(1)(A)(iv) of the Federal Reserve Act).
(F) An institution, including an institution that accepts collateral for extensions of credit by holding deposits
under $100,000, and by other means which-
(i) engages only in credit card operations;
(ii) does not accept demand deposits or deposits that the depositor may withdraw by check or similar means
for payment to third parties or others;
(iii) does not accept any savings or time deposit of less than $100,000;
(iv) maintains onJy one office that accepts deposits; and
(v) does not engage in the business of making commercial loans.
(G) .An organization operating under section 25 or section 25(a) of the Federal Reserve Act.
(H) An industrial loan company, industrial bank, or other similar institution which is-
0) an institution organized under the laws of a State which, on March 5, 1987, had in effect or had under
consideration in such State's legislature a statute which required or would require such institution to obtain
insurance under the Federal Deposit Insurance Act-
(I) which does not accept demand deposits that the depositor may withdraw by check or similar means for
payment to third parties;
(II) which has total assets of less than $100,000,000; or
l{12-30-99 p.6024}}
. (III) the control of which is not acquired by any company after the date of the enactment of the Competitive
Equality Amendments of 1987; or
(ii) an institution which does not, directly, indirectly, or through an affiliate, engage in any activity in which it
was not lawfully engaged as of March 5, 1987,
except that this subparagraph shall cease to apply to any institution which permits any overdraft (including any
intraday overdraft), or which incurs any such overdraft in such institution's account at a Federal Reserve bank, on
behalf of an affiliate if such overdraft is not the result of an inadvertent computer or accounting error that is beyond
the control of both the institution and the affiliate.
(I) The Investors Fiduciary Trust Company, located in Kansas City, Missouri, so long as such institution-
(i) engages only in trust, fiduciary, and agency activities in which it was lawfUlly engaged on March 5, 1987;
(ii) engages in such activities only at the same number of locations at which such activities were conducted
on such date;
(iii) does not accept demand deposits other than demand deposits which are maintained by such institution
in-
(I) a trust or fiduciary capacity;.
(II) the institution's capacity as a custodian or as a paying, transfer, shareholder servicing, securities
clearing, escrow, or dividend disbursing agent; or
(III) any capacity which is incidental to the trust or fiduciary activities of the institution;
(iv) does not engage in the business of making commercial loans;
(v) does not exercise discount or borrowing priVileges pursuant to section 19(b)(7) of the Federal Reserve
Act; and
(Vi) is not directly or indirectly controlled by any company other than a company which directly or indirectly
controlled such institution on March 5, 1987 or that is otherwise permissable for a bank controlled by a company
described in section 4(f)(1).
(J) A savings bank (as defined ill section 3(g) of the Federal Deposit Insurance Act) which-
(i) is an insured bank (as defined in section 3(h) of such Act);
(ii) is a subsidiary of the Great Western Financial Corporation as a result of an approval in writing by the
State bank supervisor of the State of New York before June 30, 1987;
(iii) meets or exceeds the investment requirements which an insured institution must meet in order to be a
.Qualified thrift lender under section 408(0) of the National Housing Act, and
. (iv) does not, direc1ly, or through insurance products such savings bank receives from or provides to the
FDIG: Law, t<egulatlons, Related Acts - Bank Holding Company Act Page 4 of 8
"reat Western Financial Corporation, engage in the sale or underwriting of insurance,
except that this subparagraph shall cease to apply with respect to such savings bank or any successor institution
if any deposi1s of any other subsidiary or affiliate of the Great Western Financial Corporation which are subject to
an assessment of an insurance premium under subsection (b) or (c) of section 404 of the National Housing Act
are, directly or indirectly by any device whatsoever, transferred to or acquired by such savings bank or any
successor institution which would have the effect of materially reducing such premium assessments. The
exemption provided by this subparagraph shall cease to apply if Great Western Financfal Corporation uses such
savings bank or any successor institution as a vehicle to move such Corporation from Federal Savings and Loan
Insurance Corporation insurance to Federal Deposit Insurance Corporation insurance.
(3) DISTRICT BANK.-The term "District bank" means any bank operating under the Code of Law for the
District of Columbia.
{Codifiedto 12 U.S.C. 1841(c)J
(Source: Section 2(c) of the Act of May 9, 1956 (Pub. L No. 511; 70 Stat. 133), effective May 9, 1956, as
amended by section 3 of the Act of July 1, 1966 (Pub. L. No. 89-485; 80 {{12-30-99 p.6025}}Stat. 236), effective
July 1, 1966; section 101(c) oftit/e I of the Act of December 31, 1970 (Pub. L No. 91-607; 84 Stat. 1762),
effective December 31, 1970; section 333 ottitJe JJJ and section 404{d)(1) ottitle IV of the Act of October 15, 1982
(Pub. L No. 97-320; 96 Stat. 1504 and 1512 respectively), effective October 15, 1982; and section 101(a)(1) of
title I of the Act of August 10, 1987 (Pub. L. No. 100-86; 101 Stat. 554 to 557), effective August 10, 1987; Section
2304(b) of title /I of the Act of September 30, 1996 (Pub. L. No. 104-208; 110 Stat. 3009-425), effective
September 30, 1996; section 107(c) of title I of the Act of November 12, 1999 (Pub. L No. 106-102; 113 Stat.
1359), effective March 12, 2001]
(d) "SUbsidiary", with respect to a specified bank holding company, means (1) any company 25 per centum or
more of whose voting shares (excluding shares owned by the United states or by any company wholly owned by
the United States) is directly or indirectly owned or controlled by such bank holding company, or is held by it with
power to vote; (2) any company the election of a majority of whose directors is controlled in any manner by such
bank holding company; or (3) any company with respect to the management or policies of which such bank
"lolding company has the power, directly or indirectly, to exercise a controlling influence, as determined by the
'ard, after notice and opportunity for hearing.
(Codified to 12 U.S.C. 1841(d)]
(Source: Section 2(d) of the Act of May 9, 1956 (PUb. L. No. 511; 70 Stat. 134), effective May 9, 1956, as
amended by section 4 of the Act of July 1, 1966 (Pub. L. No. 89-485; 80 Stat. 236), effective July 1, 1966 and
section 101(d) of title/ of the Act of December 31, 1970 (Pub. L. No. 91-607; 84 Stat. 1763), effective December
31,1970]
(e) The term "successor" shaff include any company which acquires directly or indirectly from a bank holding
company shares of any bank, when and if the relationship between such company and the bank holding company
is such that the transaction effects no substantial change in the control of the bank or beneficial ownership of such
shares of such bank. The Board may, by regulation, further define the term "successor" to the extent necessary to
prevent evasion of the purposes of this Act..
(Codified to 12 U.S.C. 1841(13)]
(Source: Section 2(e) of the Act of May 9, 1956 (Pub. L. No. 511; 70 Stat. 134), effective May 9, 1956]
(f) "Board" means the Board of Governors of the Federal Reserve System.
(Codified to 12 U.S.C. 1841(t)]
[Source: Section 2(t) of the Act of May 9, 1956 (Pub. L No. 511; 70 Stat. 134), effective May 9, 1956J
(g) For the purposes of this Act-

(1) shares owned or controlled by any subsidiary of a bank holding company shall be deemed to be indirectly
owned or controlled by such bank holding company; and
(2) shares held or controlled directly or indirectly by trustees for the benefit of (A) a company, (8) the
shareholders or members of a company. or (C) the employees (whether exclusively or not) of a company, shall be
)emed to be controlled by such company.
{Codifiedto 12 U.S.c. 1841(g)J

t-UIG: Law, Kegulatlons, Kelated Acts - ~anK HOlding company Act Page 50t8
-
I{Source: Section 2(g) of the Act of May 9, 1956 (Pub. L. No. 511; 70 Stat. 134), effective May 9,1956, as
amended by sections 5 and 6 of the Act of July 1, 1966 (Pub. L. No. 89-485; 80 Stat. 236, 237), effective July 1,
1966; section 2207 of title 1/ of the Act of September 30, 1996 (Pub. L. No. 104-208; 110 Stat. 3009-406), effective
September 30, 1997]
(h)( 1) Except as provided by paragraph (2), the application of this Act and of section 23A of the Federal Reserve
Act (12 U.S.C. 371), as amended, shall not be affected by the fact that a transaction takes place wholly or partly
outside the United States or that a company is organized or operates outside the United States.
{{12-30-99 p.6026}}
(2) Except as provided in paragraph (3), the prohibitions of section 4 of this Act shall not apply to shares of any
company organized under the laws of a foreign country (or to shares held by such company in any company
engaged in the same general line of business as the investor company or in a business related to the business of
the investor company) that is principally engaged in business outside the United States if such shares are held or
acquired by a bank holding company organized under the laws of a foreign country that is principally engaged in
the banking business outside the United States. For the purpose of this subsection, the term "section 2(h)(2)
company" means any company whose shares are held pursuant to this paragraph.
(3) Nothing in paragraph (2) authorizes a section 2(h)(2) company to engage in (or acquire or hold more than 5
percent of the outstanding shares of any class of voting securities of a company engaged in) any banking,
securities, insurance, or other financial activities, as defined by the Board, in the United States. This paragraph
does not prohibt a section 2(h)(2) company from holding shares that were lawfully acqUired before the date of
enactment of the Competitive Equality Banking Act of 1987.
(4) No domestic office or subsidiary of a bank holding company or SUbsidiary thereof noJd.ing shares of a
section 2{h)(2) company may extend credit to a domestic office or subsidiary of such section 2{h)(2) company on
terms more favorable than those afforded similar borrowers in the United States.
(5) No domestic banking office or bank subsidiary of a bank holding company that controls a section 2(h){2)
company may offer or market prodUcts or services of such section 2(h)(2) company. or permit its products or
services to be offered or marketed by or through such section 2{h)(2) company, unless such products or services
were being so offered or marketed as of March 5, 1987, and then only in the same manner in which they were
being offered or marketed as of that date.
JCodifiedto 12 U.S.c. 1841(h)]
[Source: Section 2(h) of the Act of May 9, 1956 (Pub. L No. 511), as added by section 6 of the Act of July 1, 1966
(Pub. L. No. 89-485; 80 Stat. 237), effective July 1, 1966; as amended by section 8 of the Act of September 17,
1978 (PUb. L No. 95-369; 92 Stat. 623), effective September 17, 1978; and section 205(a) oftitJe II of the Act of
August 10, 1987 (Pub. L. No. 100-86; 101 Stat. 584), effective August 10, 1987]
(i) THRIFT INSTITUTION.-For purposes of this Act, the term "thrift institution" means-
(1) any domestic bUilding and loan or savings and loan association;
(2) any cooperative bank without capital stock organized and operated for mutual purposes and without profit;
(3) any Federal sailings bank; and
(4) any State-chartered savings bank the holding company of which is registered pursuant to section 408 of the
National Housing Act.
{Codifiedto 12 U.S.C. 1841(J}]
[Source: Section 2(1) of the Act of May 9, 1956 (Pub. L. No. 511), as added by section 101(e) of title I of the Act of
December 31. 1970 (Pub. L. No. 91-607; 84 Stat. 1763), effective December 31, 1970; as amended by section
118(b) of title I of the Act of October 15, 1982 (PUb. L. No. 97-320; 96 Stat. 1479). effective October 15, 1982;
and section 101(a)(2) of title I of the Act of August 10, 1987 (Pub. L. No. 100-86; 101 Stat. 557). effective August
10,1987]
(j) Definition of Savings Associations and Related Term.-The term ''savings association" or "insured institution"
means-
(1) any Federal savings association or Federal savings bank;
(2) any building and loan association, savings and loan association, homestead association, or cooperative
bank if such association or cooperative bank is a member of the Savings Association Insurance Fund; and
{{12-30-99 p.6027}}
(3) any savings bank or cooperative bank which is deemed by the Director ofthe Office of Thrift Supervision to
be a savings association under section 10(1) of the Home Owners' Loan Act.
lCodified to 12 U.S.C. 1841(j)]

run,;: Law, KegulatiOnS, Kelatea Acts - t:San~ HOlolng t,;ompany Act page 0 ot ts
"'?urce: Section 2(j) of the Act of May 9, 1956 (Pub. L. No. 511), as added by section 101(a)(3) of title I of the Act
~ugust 10, 1987 (Pub. L. No. 100-86; 101 Stat. 557), effective August 10, 1987, as amended by section 602(a)
lJrtitle VI of the Act of August 9, 1989 (Pub. L. No. 101-73; 103 Stat. 490), effective August 9, 1989J
(k) AFFI UATE.-For purposes of this Act the term "affiliate" means any company that controls, is controlled by,
or is under common control with another company.
[Codifjedto 12 u.s.c. 1841(k)]

(Source: Section 2(k) of the Act of May 9, 1956 (Pub. L. No. 511), as added by section 101(a)(3) of title I of the
Act of August 10, 1987 (Pub. L. No. 1OG-86; 101 Stat. 557), effective August 10, 1987]
(I) Savings Bank Holding Company.-For purposes of this Act, the term "savings bank holding company" means
any company which controls one or more qualified savings banks if the aggregate total assets of such savings
banks constitute, upon formation of the holding company and at all times thereafter, at least 70 percent of the total
assets of such company.
[Codified to 12 U.S.C. 1841(1))
[Source: Section 2(1) ofthe Act of May 9, 1956 (Pub. L. No. 511), 8S added by section 101(a)(3) oftit/e I ofthe Act
of August 10, 1987 (Pub. L. No. 100-86; 101 Stat. 557), effective August 10, 1987)
(m) QUALIFIED SAVINGS BANK-For purposes of this Act, the term "qualified savings bank"-
(1) means any savings bank (as defined in section 3(g) of the Federal Deposit Insurance Act) which was
organized on or before March 5, 1987; and
(2) includes any cooperative bank that is an insured bank (as defined in section 3(h) of the Federal Deposit
Insurance Act) and artj interim savings bank that is established to facilitate a corporate reorganization, or the
formation of a holding Company, involving a savings bank described in paragraph (1).
(Codified to 12 U.S.C. 1841(m)]
)urce: Section 2(m) of the Act of May 9, 1956 (Pub. L. No. 511), as added by section 101(a)(3) oftit/e I of the
..i of August 10, 1987 (Pub. L. No. 1OG-86; 101 Stat. 557), effective August 10, 1987]
(n) IN.CORPORATED DEFINITION.S.-For purposes of this Ad, the terms "depository institution", "insured
depository institution", "appropriate Federal banking agency", "defaUlt", "in danger of default", and "State bank
supervisor" have the same meanings as in section 3 of the Federal Deposit Insurance Act.
(Codified to 12 U.S.C. 1841(n)]
(Source: Section 2(n) of the Act of May 9, 1956 (PUb. L. No. 511), as added by section 101(0) of title I of the Act
of September 29, 1994 (Pub. L No. 103-328; 108 Stat. 2341), effective September 29, 1995; as amended by
section 103c(1)(A) of title I of the Act of November 12, 1999 (Pub. L. No. 106-102; 113 Stat. 1351), effective
March 12, 20001 .
(oJ OTHER DEFINITIONS.-For purposes of this Act, the following definitions shall apply:
(1) CAPITAL TERMS.-
(A) INSURED DEPOSITORY INSTITUTIONS.-VVith respect to insured depository institutions, the terms "well
capitalized", "adquately capitalized", and "undercapitalized" have the same meanings as in section 38 of the
Federal Deposit Insurance Act.
{{12-30-99 p.6028}}
(B) BANK HOLDING COMPANY.-
(i) ADEQUATELY CAPITALlZED.-With respect to a bank. holding company, the term "adequately
capitalized" means a level of capitalization which meets or exceeds all applicable Federal regUlatory capital
standards.
(ii) WELL CAP1TALlZED.-A bank holding company is ''well capitalized" if it meets the required capital levels
for well capl~alized banI< holding companies established by the Board.
(C) OTHER CAPITAL TERMS.-The terms "Tier 1" and "risk-weighted assets" have the meanings given those
terms in the capital guidelines or regUlations established by the Board for bank holding companies.
(2) ANTITRUST LAWS.-Except as provided in section 11, the term "antitrust laws"-
(A) has the same meaning as in subsection (a) of the first section of the Clayton Act; and
(B) includes section 5 of the Federal Trade Commission Act to the extent that such section 5 relates to unfair
,ethods of competition.
(3J BRANCH.- The term "branch" means a domestic branch (as defined in section 3 of the Federal Deposit
r-UH...: Law, t(egulatlons, t(elatea ACtS - tsanK MOlolng liompany ACt t-'age { Of l:S
-
Insurance Act).
\1 (4) HOME STATE.-The term "home State" means-
(A) with respect to a national bank, the State in which the main office of the bank is located;
(B) with respect to a State bank, the State by which the bank is chartered; and
(C) with respect to a bank holding company, the State in which the total deposits of all banking subsidiaries of
such company are the largest on the later of-
(i) July 1, 1966; or
(ii) the date on which the company becomes a bank holding company under this Act.
(5) HOST STATE.-The term "host State" means-
(A) with respect to a bank, a State, other than the home State of the bank, in which the bank maintains, or
seeks to establish and maintain, a branch; and
(B) with respect to a bank holding company, a State, other than the home State of the company, in which the
company controls, or seeks to control, a bank subsidiary.
(6) OUT-OF-STATE BANK.-The term 'out-of-State bank" means, with respect to any State, a bank whose
home State is another State.
(7) OUT-OF-STATE BANK HOLDING COMPANY.-The term "out-of-State bank holding company" means, with
respect to any State, a bank holding company whose home State is another State.
(a) LEAD INSURED DEPOSITORY INSTITUTIONS.-
(A) IN GENERAL.-The term "lead insured depository institution" means the largest insured depository
institution controlled by the subject bank holding company at any time, based on a comparison of the average total
risk-weighted assets controlled by each insured depository institution during the previous 12-month period.
(B) BRANCH OR AGENCY. -For purposes of this paragraph and section 40)(4), the term "insured depository
institution" includes any branch or agency operated in the United States by a foreign banI<.
(9) WELL MANAGED.-The term ''well managed" means-
(A) in the case of any company or depository institution which receives examinations, the achievement of-
0) a CAMEL composite rating of 1 or2 (or an equivalent rating under an equivalent rating system) in
connection with the most recent examination or subsequent review of such company or institution; and
(ii) at least a satisfactory rating for management, if such rating is given; or
(B) in the case of a company or depository institution that has not received an examination rating, the
existence and use of managerial resources which the Board determines are satisfactory.
{{12-30-99 p.6028.01}}
) (10) QUALIFIED FAMILY PARTNERSHIP.-The term "qualified family partnership" means a general or limited
paTtnershipthat the Board determines-
(A) does not directly control any bank, except through a registered bank holding company;
(B) does not control more than 1 registered bank holding company; .
(C) does not engage in any business activity, except indirectly through ownership of other business entities;
(D) has no investments other than those permitted for a bank holding company pursuant to section 4(c);
(E) is not obligated on any debt, either directly or as a guarantor;
(F) has partners, all of whom are either-
(i) individuals related to each other by blood, marriage (including former marriage), or adoption; or
(ii) trusts for the primary benefit of individuals related as described in clause (i); and
(G) has filed with the Board a statement that includes-
(i) the basis for the eligibility of the partnership under subparagraph (F);
(ii) a list of the existing activities and investments of the partnership;
(iii) a commitment to comply with this paragraph;
(iv) a commitment to comply with section 7 of the Federal Deposit Insurance Act with respect to any
acquisition of control of an insured depository institution occurring after date of enactment of this paragraph; and
(v) a commitment to be subject, to the same extent as if the qualified family partnership were a bank holding
company-
(I) to examination by the Board to assure compliance with this paragraph; and
(II) to section 8 of the Federal Deposit Insurance Act.
[Codified to 12 U.S.C. 1841(0)J
[Source: Section 2(0) of the Act of May 9, 1956 (Pub. L No. 511), as added by section 101(c) of title I of the Act
of September 29, 1994 (Pub. L. No. 103-32B; 10B Stat. 2341), effective September 29, 1995; as amended by
sections 220B(b) and 2610(2) of title 1/ of the Act of September 30, 1996 (Pub. L. No. 104-208; 110 Stat. 3009-
408 and 3009-475, respec/jyeJy), effective September 30, 1996; section 119 of title } of the Act of November 1.2.
1999 (Pub. L. No. 106-102; 113 Stat. 1373), effective March 12, 2000J
(p) FINANCIAL HOLDING COMPANY.-For purposes of this Act, the term ''financial holding company" means a
. bank holding company that meets the requirements of section 4(1)( 1).
)
[Codified to 12 U.S.C. 1841(p)]
r-Ulv: Law, ~egUiatlons, ~elateo ACtS - JjanK HOlolng vompany ACt ,...age ts or ts
IUrce: Section 2(p) of title I of the Act of May 9, 1956 (Pub. L. No. 511), as added by section 103(c)(1) of title lof
II ,e Act of November 12, 1999 (Pub. L. No. 106-102; 113 Stat. 1351), effective March 12,.2000]
(q) INSURANCE COMPANY .-For purposes of sections 4 and 5, the term "insurance company" includes any
person engaged in the business of insurance to the extent of such activities.
(Codified to 12 U.S.C. 1841(q)]
[Source: Section 2(q) of title I of the Act of May 9, 1956 (Pub. L. No. 511), as added by section 103(c)(1) of title I of
the Act of November 12, 1999 (Pub. L. No. 106-102; 113 Stat. 1351), effective March 12, 2000]
Home Contact Us ~~rch Help SiteMim Forms

EJ.ilsdpm of Jnformlltio.n..A~ W~.~ite Eolicies EjrstGov.Q9..Y
Page 1 of3 -
Page 1
) 12 U.S.CA. § 1831n

CHAPTER 16-FEDERAL DEPOSIT INSURANCE CORPORATION
o+§ 18310. Accounting objectives, standards, and requirements
(a) In general
(1) Objectives
Accounting principles applicable to reports or statements required to be filed with Federal banking agencies by
insured depository institutions should--
(A) result in fmancial statements and reports of condition that accurately reflect the capital of such institutions;
(B) facilitate effective supervision of the institutions; and
(C) facilitate prompt corrective action to resolve the institutions at the least cost to the insurance funds.
(2) Standards
(A) Uniform accounting principles consistent with GAAP
Subject to the requirements of this chapter and any other provision of Federal law, the accounting principles
applicable to reports or statements required to be filed with Federal banking agencies by all insured depository
institutions shall be uniform and consistent with generally accepted accounting principles.
(B) Stringency
If the appropriate Federal banking agency or the Corporation determines that the application of any generally
accepted accounting principle to any insured depository institution is inconsistent with the objectives described
in paragraph (1), the agency or the Corporation may, with respect to reports or statements required to be filed
with such agency or Corporation, prescribe an accounting principle which is applicable to such institutions
which is no less stringent than generally accepted accounting principles.
(3) Review and implementation of accounting principles required
Before the end of the I-year period beginning on December 19, 1991, each appropriate Federal banking agency
shall take the following actions:

)
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Page 2 of3
Page 2
12 U.S.C.A. § 1831n
(A) Review of accounting principles
Review--
(i) all accounting principles used by depository institutions with respect to reports or statements required to
be filed with a Federal banking agency;
(ii) all requirements established by the agency with respect to such accounting procedures; and
(iii) the procedures and format for reports to the agency, including reports of condition.
(B) Modification of noncomplying measures
Modify or eliminate any accounting principle or reporting requirement of such Federal agency which the
agency determines fails to comply with the objectives and standards established under paragraphs (1) and (2).
(C) Inclusion of "off balance sheet" items
Develop and prescribe regulations which require that all assets and liabilities;including contingent assets and
liabilities, of insured depository institutions be reported in, or otherwise taken into account in the preparation
of any balance sheet, fmancial statement, report of condition, or other report of such institution, required to be
filed with a Federal banking agency.
(b) Uniform accounting of capital standards
(1) In general
Each appropriate Federal banking agency shall maintain uniform accounting standards to be used for
determining compliance with statutory or regulatory requirements of depository institutions.
(2) Transition provision
Any standards in effect on December 19, 1991, under section 1833d of this title shall continue in effect after
December 19, 1991, until amended by the appropriate Federal banking agency under paragraph (1).
(c) Reports to banking committees
(1) Annual reports required
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...70-_ r ,·'r
5£G u\{:/15 -
Division of Market Regulation: ])
Complianc;e Guide to the Registration and Rl;lation of Brokers
'~1
and Dealers
October 1998
Table of Contents
L Introduction
II. Who Is Required To Reqister
A. Who Is a "Broker"
B. Who Is a "Dealer"
C. What To Do if You Think You May Be a Broker or a Dealer
D. Brokers and Dealers Generally Must Register
with the Commission
1. "Associated Persons" of a Broker-Dealer
2. Intrastate Broker-Dealers
3. Broker-Dealers That Umit Their Business to Excluded
and Exempted Securities
4. Broker-Dealers Must Register Before Selling
Unregistered Securities
5. Issuer's Exemption
6. Foreign Broker-Dealer Exemption
E. Requirements Regarding Brokers and Dealers of Government
and Municipal Securities
F. Regulation of Financial Institutions
III. How To Register as a Broker-Dealer
A. SRO Membership
B. SIPC Membership
C. State Requirements
D. Associated Persons
E. Successor Broker-Dealer Registration
F. Withdrawal from Registration
~ Conduct Regulation of Broker-Dealers
A. Antifraud Provisions
1. Duty of Fair Dealing
2. Duty of Best Execution
3. Customer Confirmation Rule
4. Disclosure of Credit Terms
5. Restrictions on Short Sales
6. Trading During an Offering
7. Restrictions on Insider Trading
B. Trading by Members of Exchanges, Brokers
and Dealers _
C. Extending Credit on New Issues
D. Order Execution Obligations
E. Penny Stock Rules
V. Financial Responsibility of Broker-Dealers
A. Net Capital Rule

B. Use of Customer Balances
C. Customer Protection Rule
)
, .
D. Required Books, Records and Reports
VI. Other Requirements
A. Examinations and Inspections

B. Lost and Stolen Securities Program
C. Fingerprinting Requirement
D. Risk Assessment Requirements
E. Use of Electronic Media by Broker-Dealers
VII. Where to Get Further Information
I. Introduction
The Securities Exchange Act of 1934 governs how the nation's securities markets and its brokers and
dealers operate. We have prepared this Compliance Guide to summarize some of the significant provisions
of this Act and its rules. You will find information about whether you need to register as a broker-dealer,
how you can register, and what standards of conduct and financial responsibility rules broker-dealers must
follow.
Caution - Make Sure You Follow All Laws and Rules
Although this Compliance Guide highlights some of the significant provisions of the Act and our
rules, it is not comprehensive. Brokers and dealers, and their associated persons, must comply
with all regulatory requirements of the SEC and their self-regulatory organizations, and not
just the requirements summarized here.
The SEC staff stands ready to answer your questions and help you comply with our rules. Please feel free
to contact the Office of Interpretations and Guidance in the Office of Chief Counsel of the Division of
Market Regulation or the Regional Office of the SEC in your area. (You will find our phone number at the
end of this Compliance Guide.)
The SEC staff, however, cannot act as an individual's or broker-dealer's lawyer. Therefore, you may wish
to consult with a private lawyer who is familiar with the federal securities laws, to assure that you comply
with all laws and regulations.
II. Who Is Required To Register
Most "brokers" and "dealers" must register with the SEC and join a "self-regulatory organization," or SRO.
This section covers the factors that determine whether a person is a broker or dealer. It also describes the
types of brokers and dealers that do not have to register. Self-regulatory organizations are described in
Part lILA. below.
A. Who Is a "Broker"
Section 3(a)(4) of the Act defines "broker" broadly as
any person engaged in the business of effecting transactions in securities for the account
of others....
Banks, however, are excluded from this definition.

Sometimes you can easily determine if someone is a broker. For instance, a person who executes
transactions for others on a securities exchange clearly isa broker. However, other situations are less
, (. ...
clear. For example, each of the following ihdividuals and businesses may need to register as a broker,
depending on a number of factors:
.-
• "finders," or those who find buyers and sellers of businesses or find investors for registered
broker- dealers and issuers;
• investment advisers and financial consultants; and
• those who provide support services to registered broker-dealers.
In order to determine whether any of these individuals (or any other person or business) is a broker, we
look at the activities that the person or business actually performs. You can find analyses of various
activities in the decisions of federal courts and our own "no-action" letters. Here are some of the questions
that you should ask to determine whether you are acting as a broker:
• Do you participate in important parts of a securities transaction, including solicitation,

negotiation, or execution otthe transaction?
• Does your compensation for participation in the transaction depend upon the amount or outcome
of the transaction? In other words, do you receive transaction-based compensation?
• Do you handle the securities or funds of others?
A "yes" answer to any of these questions indicates that you may need to register as a broker.
B. Who Is a "Dealer"
Unlike a broker, who acts as agent, a dealer acts as principal.

Section 3(a)(5) of the Act defines a "dealer" as:
any person engaged in the business of buying and selling securities for his own account,
through a broker or otherwise...•
Two groups are excluded from the definition of dealer - banks and "traders." A trader is someone who
buys and sells securities, either individually or in a trustee capacity, but not as part of a regular business.
Individuals who buy and sell securities for themselves generally are considered traders and not dealers.
Sometimes you can easily tell if someone is a dealer. For example, a firm that advertises publiCly that it
makes a market in securities is obviously a dealer. Other situations can be less clear. For instance, each of
the following individuals and businesses may need to register as a dealer, depending on a number of
factors:
• a person who holds himself out as being willing to buy and sell a particular security on a
continuous basis; or
• a person who issues or originates securities that he also buys and sells.
Here are some of the questions you should ask to determine whether you are acting as a dealer:
• Do you hold yourself out as being in the business of buying and selling securities?
• Do you do a large portion of your business with the public?
• Do you make a market in, or quote prices for both purchases and sales of, one or more
securities?
• Do you participate in a "selling group" or otherwise underwrite securities?
• Do you provide services to investors, such as handling money and securities, extending credit, or
giving investment advice?
A "yes" answer to any of these questions indicates that you may be a dealer.
c. What To Do if You Think You May Be a Broker or a Dealer
If you are doing, or may do, any of the activities of a broker or dealer, you should find out if you need to
register. If you aren't certain, you may want to review SEC interpretations, consult with private counsel,
or ask for our advice.
D. Brokers and Dealers Generally Must Register With the Commission.
Section 15(a)(1) of the Act generally makes it unlawful for any broker or dealer to use the mails (or any
other means of interstate commerce) to "effect any transactions in or to induce ,.. the purchase or sale of,
any security" unless registered with the Commission in accordance with Section 15(b) of the Act. There
are a few exceptions to this general rule that we discuss below. In addition, we discuss the special
registration requirements that apply to broker-dealers of government and municipal securities in Part II.E.
below.
1. "Associated Persons" of a Broker-Dealer
We call individuals who work for a registered broker-dealer "associated persons."

Although these people do not have to register with the SEC, they may have to register
with their employer's self-regulatory organizations. This is discussed further in Part Ill.
D. below.
2. Intrastate Broker-Dealers
Any broker-dealer who conducts all its business solely in one state does not have to
register with the SEC. (State registration is another matter. See Part III. C. below.) This
is a very narrow exemption. To qualify, all aspects of all transactions must be done
Within the borders of one state. This means that, without SEC registration, the broker-
dealer cannot participate in any transaction executed on a national securities exchange
or the National Association of Securities Dealers Automated Quotation (Nasdaq) system.
However, there is no exception from registration for intrastate broker-dealers that sell
municipal or government securities; they must register as municipal or government
secu rities broker-dea lers. .
3. Broker-Dealers That Limit Their Business to Excluded and

Exempted Securities
A broker-dealer who transacts business only in commercial paper, bankers' acceptances,

and commercial bills does not need to register under Section 15(b) or any other section
of the Act. On the other hand, persons transacting business only in certain "exempted
securities," as defined in Section 3(a)(12) of the Act, do not have to register under
Section 15(b), but may have to register under other provisions of the Act. For example,
some broker-dealers of government securities, which are "exempted securities," must
register under Section 15C, as described in Part II.E. below.
4. Broker-Dealers Must Register Before Selling Unregistered

Securities
A security sold in a transaction that is exempt from registration under the Securities Act
of 1933 (the "1933 Act") is not necessarily an "exempted security" under the Act. For
example, if a person sells securities exempt from registration under Regulation
D of the 1933 Act, he or she must nevertheless register as a broker-dealer.
5. Issuer's Exemption
(Rule 3a4-1j
Traditionally, the SEC does not consider a company that sells its own securities directly
to the public to be either a "broker" or a "dealer". However, the employees and other
related persons of an issuer who assist it in selling its securities may be "brokers,"
especially if they are paid for selling these securities and have few other duties. You
-
should consult Rule 3a4-1 for further guidance.
In addition, some issuers offer dividend reinvestment and stock purchase programs.
Under certain conditions, an issuer may purchase and sell its own securities through
such a program without registering as a broker-dealer. To qualify for this treatment, the
issuer must comply with conditions that the Division of Market Regulation has
established regarding solicitation, fees and expenses, and handling of participants' funds
and securities. 1
6. Foreign Broker-Dealer Exemption

(Rule J5a-6)
The SEC generally uses a territorial approach in applying registration requirements to

the international operations of broker-dealers. Under this approach, all broker-dealers
physically operating within the U.S. that induce or attempt to induce securities
transactions must register, even if their activities are directed only to foreign investors
outside the U.S. In addition, foreign broker-dealers that, from outside the U.S., induce
or attempt to induce trades by any person in the U.S. also must register. However,
foreign broker-dealers may be exempt from U.S. broker-dealer registration if they meet
the conditions of Rule 15a-6 under the Act.
E. Requirements Regarding Brokers and Dealers of Government and

Municipal Securities
Broker-dealers that limit their activity to government or municipal securities require specialized
registration. Those who limit their activity to government securities do not have to register as "general-
purpose" broker-dealers under Section 15(b). However, if they are not "financial institutions" (banks,
foreign banks or savings associations), they must register as government securities broker-dealers.
Financial institutions that are government securities broker-dealers must file a notice with the "appropriate
regulatory agency" (their federal regUlator). General-purpose broker-dealers that conduct a government
securities business must file a notice with the SEC regarding this activity. All firms that are brokers or
dealers of government securities must comply with rules adopted by the Secretary of the Treasury, as well
as SEC rules.
Firms whose securities business is limited to buying and selling municipal securities for their own account
must register as general-purpose broker-dealers, with two exceptions: If they are banks or meet the
requirements of the intrastate exemption discussed In Part II.D.2. above, they must register as municipal
securities dealers.
F. Regulation of Financial Institutions
Since U.S. banks are excluded from the definitions of "broker" and "dealer" under the Act, the SEC does
not regulate them. However, the SEC does regulate broker-dealer subsidiaries or affiliates of banks, which
are required to register. Banks that act as municipal securities dealers also are required to register under
the Act.
The Act's exclusion for "banks" does not extend to other types of financial institutions, such as savings
and loan associations and credit unions, which generally must register if they act as brokers or dealers.
The SEC staff may permit these financial institutions, as well as insurance agencies, to make securities
products available to their customers without registering as broker"dealers. This is done through
"networking" arrangements, where a broker-dealer provides brokerage services for the financial
institution's or insurance agency's customers, according to conditions stated in no-action letters. Those
interested in structuring such an arrangement should consult our no-action lettersZ or contact private
counselor the SEC staff for further information. Also, see the discussion in Part II.E. above for financial
institutions acting as government securities broker-dealers.
III. How To Register as a Broker-Dealer
If a broker-dealer does not qualify for any of the exceptions outlined above, it must register with the
Commission under Section 15(b) of the Act. Broker-dealers register by filing an application on Form BD,
which you may obtain from the SEC. You also use Form BD to:
• apply for membership in an SRO, such as the National Association of Securities Dealers, Inc.
(NASD) or a registered national securities exchange;
• give notice that you conduct government securities activities; or
• apply for broker-dealer registration with the states.
Form BD asks questions about the background of the broker-dealer and its principals, controlling persons,
and employees. The broker-dealer must meet the statutory requirements to engage in a business that
involves high professional standards, and quite often includes the more rigorous responsibilities of a
fiduciary.
You register with the SEC by filing one executed copy of Form BO through the Central Registration
Depository operated by the NASD. (The only exception is for banks registering as municipal securities
dealers, which file Form MSD directly with the SEC.) The SEC does not charge a filing fee, but the SROs or
the states may. Applicants that reside outside the U.S. must appoint the SEC as agent for service of
process using a standard form. The SEC will return the application if it is incomplete.
After you file a completed application, within 45 days the SEC will either grant registration or begin
proceedings to determine whether it should deny registration. The SROs, however, do not have to act
Within 45 days.
A broker-dealer must also update the Form BD by filing amendments whenever the information on file
becomes inaccurate or incomplete for any reason.
A broker-dealer may not begin business until:
• the SEC has granted its registration,

• it has become a member of an SRO and (in most cases) the Securities
Investor Protection Corporation,
• it complies with state requirements, and
• its "associated persons" have satisfied qualification requirements.
A. SRO Membership
A broker-dealer must become a member of an SRO before it begins business. The NASD and the
registered national securities exchanges are all SROs. SROs assist the SEC in regulating the activities of
broker-dealers. If a broker-dealer does transactions solely on one national securities exchange, the
broker-dealer is only required to be a member of that exchange. If a broker-dealer effects transactions in
securities over-the-counter, however, it must be a member of the NASD. A broker-dealer that does both
exchange and over-the-counter business must become a member of the exchange(s) and the NASD.
Firms that engage in transactions in municipal securities must also comply with the rules of the Municipal
Securities Rulemaking Board, or MSRB. The MSRB is an SRO that makes rules governing municipal
securities dealers, but unlike other SROs, it does not enforce compliance with Its rules. Compliance with
MSRB rules is monitored and enforced by the NASD (in the case of broker-dealers), and the Federal bank
regUlators (in the case of banks).
B. SIPC Membership
Every registered broker-dealer must be a member of the Securities Investor Protection Corporation, or
SIPC, unless its principal business is conducted outside of the United States or consists exclusively of the
sale or distribution of investment company shares, variable annuities, or insurance. Each SIPC member
must pay an annual fee to SIPC. SIPC insures that its members' customers receive back their cash and
securities in the event of a member's liquidation, up to $500,000 per customer for cash and securities
(claims for cash are limited to $100,000). For further information, contact SIPC, 805 15th St., N.W. Suite
800, Washington, D.C. 20005.
C. State Requirements
Every state has its own requirements for a person conducting business as a broker-dealer within that
state. Each state's securities regulatorcan provide you with information about that state's requirements.
You can obtain a list of these regulators from the North American Securities Administrators Association,
-
-
Inc., 10 G Street, N.E., Suite 710, Washington, D.C. 20002, or by calling NASAA at (202) 737-0900.
D. Associated Persons
-
(Rule 15b7-1)
An "associated person" of a broker-dealer is any partner, officer, director, branch manager, or employee
of the broker-dealer, or any person controlling, controlled by, or under common control with, the broker-
dealer. A broker-dealer must file a Form U-4 with the applicable SRO for each associated person who
effects transactions in securities, when the person is hired. Form U-4 is used to register individuals and to
record these individuals' prior employment and disciplinary history.
An associated person who effects or is involved in effecting securities transactions also must meet
qualification requirements. These include passing an SRO securities qualification examination. Most
individuals take the comprehensive "Series 7" exam. If individuals engage only in activities involVing sales
of particular securities, such as municipal securities, direct participation programs (limited partnerships) or
mutual funds, they may take an examination focused on that type of security, instead of the general
securities examination. Similarly, there is a special exam for assistant representatives, whose activities
are limited to accepting unsolicited customer orders for execution by the firm. Supervisory personnel and
those who engage in specialized activities, such as options trading, must take exams that cover those
areas. These examinations require the Series 7 exam as a prerequisite.
You can obtain copies of Form U-4 as well as information on securities qualification examinations from an
SRO.
E. Successor Broker-Dealer Registration

(Rules 15b1-3, 15Ba2-4, and 15Ca2-3)
A successor broker-dealer assumes SUbstantially all of the assetS and liabilities, and continues the
business, of a registered predecessor broker-dealer. A successor broker-dealer must file a new Form BD
(or, in special instances, amend the predecessor broker-dealer's Form BD) within 30 days. The filing
should indicate that the applicant is a successor.
) F Withdrawal From Registration

(Rule 15b6-1)
When a registered broker-dealer stops doing business, it must file a Form BOW with the SEC and with the
SROs where it is a member. This form requires the broker-dealer to disclose the amount of any funds or
securities it owes customers, and whether it is the subject of any proceeding, unsatisfied judgments, liens,
or customer claims. These disclosures help to ensure that customers of a defunct firm receive back their
funds and securities to the extent possible. The SEC may also cancel a broker-dealer's registration if it
finds that the firm is no longer in existence or has ceased doing business as a broker-
IV. Conduct Regulation of Broker-Dealers
Broker-dealers, like other securities market participants, must comply with the general "antifraud"
provisions of the federal securities laws. Broker-dealers must also comply with many requirements that
are,designed to maintain high industry standards. We discuss some of these provisions below.
A. Antifraud Provisions
(Sections 9(a), 10(b), and 15(c)(1) and (2))
The "antifraud" provisions prohibit misstatements or misleading omissions of material facts, and
fraudulent or manipulative acts and practices, in connection with the purchase or sale of securities. J While
these provisions are very broad, we have adopted rUles, issued interpretations, and brought enforcement
actions that define some of the activities we consider manipulative, deceptive, fraudulent, or otherwise
unlawful.~ Broker-dealers must conduct their activities so as to avoid these kinds of practices. We discuss
some of these rules and interpretations in this Section.
)
1. Duty of Fair Dealing
Broker-dealers owe their customers a duty of fair dealing. This fundamental duty derives
from the Act's antifraud provisions referred to above. Under the so-called "shingle"
theory, by virtue of engaging in the brokerage profession (e.g., hanging out the broker-
dealer's business sign, or "shingle"), a broker-dealer represents to its customers that it
will deal fairly with them, consistent with the standards of the profession. Based on this
important representation, over time the SEC and the courts have set forth, through
interpretive statements and enforcement actions, certain duties for broker-dealers.
These include the duties to execute orders promptly, disclose material information (I.e.,
information the customer would consider important as an investor), charge prices
reasonably related to the prevailing market, and fully disclose any conflict of interest.
The SRO rules reflect the importance of fair dealing. For example, NASD members must
comply with the NASD's Rules of Fair Practice. These rules generally require that a
broker-dealer observe high standards of commercial honor and just and eqUitable
principles of trade in conducting its business. The exchanges and the MSRB have similar
rules.
2. Duty of Best Execution
The duty of best execution, which also stems from the Act's antifraud prOVisions,
requires a broker-dealer to seek to obtain the most favorable terms available under the
circumstances for its customer orders. This applies whether the broker-dealer is acting
as agent or as principal.
The SRO rules also include a duty of best execution. For example, NASD members must
use "reasonable diligence" to determine the best market for a security and buy or sell
the security in that market, so that the price to the customer is as favorable as possible
under prevailing market conditions.
3. Customer Confirmation Rule

(Rule 10b-10 and MSRB Rule G-15)
A broker-dealer must provide its customers, at or before completion of a transaction,

with certain information, including:
• the date, time, identity, price, and number of shares involved;

• its capacity (agent or principal) and compensation: commission and whether it
receives payment for order flowS (if it acts as agent) or in some cases mark-up
or mark-down (if it acts as principal);
• other information, both general (such as if the broker-dealer is not a SIPC
member) and transaction-specific (such as the yield, in most transactions
involving debt securities).
A broker-deafer may also be obligated under the antifraud provisions mentioned above
to disclose additional information to the customer at the time of his or her investment
decision.
4. Disclosure of Credit Terms

(Rule 10b-16)
Broker-dealers must notify customers purchasing securities on credit about the credit
terms and the status of their accounts. A broker-dealer must establish procedures for
disclosing this information before he extends credit to a customer for the purchase of
securities. A broker-dealer must give the customer this information at the time the
account is opened, and must also provide credit customers with account statements at
. ,
-
least quarterly.
S. Restrictions on Short Sales

(Rule 10a-1)
A "short sale" is generally a sale of a security that the seller doesn't own. Rule 10a-1 is
designed to limit short selling in a declining market. The rule generally bars a person
from selling an exchange-listed security that he or she does not own, unless the sale is
at a price above the price of the last sale, or at the last sale price if that price was above
the next preceding different price. Similarly, the NASD rules restrict short selling in the
over-the-counter markets.
In addition, Rule 105 of Regulation M, describETd in the next section, restricts the
covering of short sales.
6. Trading During an Offering

(Regulation M)
Regulation M contains the rules governing activities of persons with an interest in a

securities offering. These rules are aimed at preventing broker-dealers and other
persons participating in an offering from manipulating the price of the offered security.
Rule 101 generally prohibits underwriters, broker-dealers and other participants from
purchasing the security being offered, or "subject security," during the "quiet period."
The "quiet period" begins one or five business days (depending on the trading volume
value of the security and the public float value of the issuer) before the offering's pricing
and continues through the end of the offering.
There are several exceptions to the rule's pl"Qhibitions. For example, underwriters can
continue to trade in actively-traded securities of larger issuers (securities with an
average daily trading volume, or ADTV, value of $1 million or more and whose issuers
have a public float value of at least $150 million). In addition, the following activities,
among others, may be excepted from Rule 101, if they meet specified conditions:
• disseminating research reports;

• making unsolicited purchases;
• purchasing a group, or "basket" of 20 or more securities;
• exercising options, warrants, rights, and convertible securities;
• transactions that total less than 2% of the security'S ADTV; and
• transactions in securities sold to "qualified institutional buyers."
Rule 102 prohibits issuers, selling security holders, and their affiliated purchasers from
bidding for or purchasing any subject security and certain other related securities during
the quiet period.
Rule 103 governs passive market making by broker-dealers participating in an offering

of a Nasdaq security.
Rule 104 imposes disclosure, recordkeeping, notification, and pricing conditions on

underwriters that stabilize, or maintain, the price of a subject security at a desirable
level to facilitate the offering.
Rule lOS prevents manipulative short sales in anticipation of an offering by prohibiting

the covering of short sales with securities obtained from an underwriter, broker, or
dealer that is participating in the offering.
7. Restrictions on Insider Trading
The SEC and the courts interpret Rule 10b-S to bar the use by any person of material
nonpublic information in the purchase or sale of securities, whenever that use violates a
duty of trust and confidence owed to a third party. Section 15(f) requires that broker-
dealers have and enforce written policies and procedures reasonably designed to prevent
their employees from misusing material nonpublic information. Because employees in
the investment banking operations of broker-dealers frequently have access to material
nonpublic information, firms create procedures designed to limit the flow of this
information so that their employees cannot use the information in the trading of
securities. Broker-dealers thus can use these information barriers as a defense to a
claim of insider trading. Such procedures typically include:
• training to make employees aware of these restrictions;

• employee trading restrictions;
• physical barriers;
• isolation of certain departments; and
• limitations on investment bank proprietary trading. 6
B. Trading by Members of Exchanges, Brokers and Dealers

(Section ll(a))
Broker-dealers that are members of national securities exchanges are subject to additional regulations
regarding transactions they effect on exchanges. For example, they generally cannot effect transactions
on exchanges for their own accounts, the accounts of their associated persons, or accounts that they or
their associated persons manage. However, there are several exceptions to this restriction, including
exceptions for transactions by market makers, and transactions routed through other members. Exchange
members may wish to seek guidance from their exchange regarding these provisions.
C. Extending Credit on New Issues

(Section l1.(d))
A broker-dealer that is a member of a national securities exchange, or that transacts business through a
member, must comply with restrictions on extending credit to a customer for the purchase of a new issue
if the broker-dealer participated in the distribution of the new issue. Such broker-dealers must also
disclose to their customers in writing at or before completion of each transaction, the capacity in which
they are acting.
D. Order Execution Obligations

(Rules 1.1.Ac1.-1. and 11.Ac1.-4)
Broker-dealers that are exchange specialists or Nasdaq market makers must comply with particular rules
regarding publishing quotes and handling customer orders. These two types of broker-dealers have special
functions In the securities markets, particularly because they trade for their own accounts while also
handling orders for customers. These rules, which include the "Quote Rule" and the "Limit Order Display
Rule," increase the Information that is publicly available concerning the prices at which investors may buy
and sell exchange-listed and Nasdaq National Market System securities.
The Quote Rule requires specialists and market makers to provide quotation information. The quote
information the specialist or market maker publishes must be the best prices at which he is willing to trade
(the lowest price the dealer will accept from a customer to sell the securities and the highest price the
dealer will pay a customer to purchase the securities). A specialist or market maker may stili trade at
better prices in certain private trading systems, called electronic communications networks, or "ECNs,"
without publishing an improved quote. This is true only when the ECN itself publishes the improved prices
and makes those prices available to the investing public. Thus, the Quote Rule ensures that the public has
access to the best prices at which specialists and market makers are willing to trade even if those prices
are in private trading systems.
Limit orders are orders to buy or sell securities at a specified price. The Limit Order Display Rule requires
that specialists and market makers publicly display certain limit orders they receive from customers. If the
limit order is for a price that is better than the specialist's or market maker's quote, the specialist or
-
market maker must publicly display it. The rule benefits investors because the publication of trading .-
interest at prices that improve specialists' and market makers' quotes present investors with improved
pricing opportunities.
E. Penny Stock Rules

(Rules 1.5g-2 through 1.5g-9)
Broker-dealers that engage in transactions in "penny stocks" have certain enhanced suitability and
disclosure obligations to their customers. The term "penny stock" generally refers to low-priced
speculative securities, largely traded in the NASD's Bulletin Board Service or the "pink sheets. lIZ Before a
broker-dealer may effect transactions in penny stocks for or with a customer it must first approve the
customer for transactions in penny stocks and receive from the customer a written agreement to the
transaction. A broker-dealers also must give each penny stock customer:
• a document describing the risks of investing in penny stocks;

• information on market quotations, if any;
• information on the compensation of the broker- dealer and its salesperson in the transaction; and
• monthly account statements showing the market value of each penny stock held in the
customer's account.
v. Financial Responsibility of Broker-Dealers
Broker-dealers must be financially sound. We regulate this through financial responsibility

rules that are designed to:
• provide safeguards with respect to customer funds and securities that broker-
dealers hold;
• ensure accountability for those funds and securities; and
• require accurate books and records.
These rules also require a broker-dealer to maintain sufficient liquid assets so that, if
necessary, it could be liquidated in an orderly manner without a formal proceeding.
A. Net Capital Rule

(Rule 1.5c3-1.)
The purpose of this rule is to require broker-dealers to have at all times enough liquid
assets to promptly satisfy the claims of customers if the broker-dealer goes out of business.
Under this rule broker-dealers must meet certain ratio tests. They must also maintain
minimum net capital levels based upon the type of securities activities they conduct. For
example, broker-dealers that clear and carry customer accounts must maintain at least
$250,000 in net capital. Other categories of broker-dealers can operate With lower levels of
net capital.
B. Use of Customer Balances

(Rule 1.5c3-2)
Broker-dealers that use customers' free credit balances in their business must establish
procedures to provide specified information to those customers, including:
• the amount due to those customers,

• the fact that such funds are not segregated and rnay be used by the broker-dealer
in its business, and
)
• the fact that such funds are payable on demand of the customer.
C. Customer Protection Rule

(Rule 15c3-3)
This rule protects customer funds and securities held by broker-dealers. Under the rule, a
broker-dealer must have possession or control of all fully-paid or excess margin securities
held for the account of customers, and determine daily that it is in compliance with this
requirement. The broker-dealer must also make periodic computations to determine how
much money it is holding that is either customer money or obtained from the use of
customer securities. If this amount exceeds the amount that it is owed by customers or by
other broker-dealers relating to customer transactions, the broker-dealer must deposit the
excess in a special reserve bank account for the exclusive benefit of customers. This rule
thus prevents a broker-dealer from using customer funds to finance its business.
D. Required Books, Records and Reports

(Rules 17a-3, 4, 5 and 11) I
Broker-dealers must make and keep current books and records detailing, among other
things, securities transactions, money balances, and securities positions. They also must
keep records for required periods and furnish copies of those records to the SEC on
request. Broker-dealers also must file with the SEC periodic reports, including quarterly and
annual financial statements. The annual statements generally must be certified by an
independent public accountant. In addition, broker-dealers must notify the SEC and the
appropriate SR02 regarding net capital, recordkeeping, and other operational problems, and
in some cases file reports regarding those problems, within certain time periods. This gives
us and the SROs early warning of these problems.
VI. Other Requirements
In addition to the provisions discussed above, broker-dealers must comply with other requirements. These
include:
• SUbmitting to Commission and SRO examinations;

• participating in the lost and stolen securities program;
• complying with the fingerprinting requirement;
• maintaining and reporting information regarding their affiliates; and 2
• following certain guidelines when using electronic media to deliver information.
A. Examinations and Inspections

(Rules 15b2-2 and 17d-1)
Broker-dealers are subject to examination by the SEC and the SROs. The appropriate SRO generally
inspects newly-registered broker-dealers for compliance with applicable financial responsibility rules Within
six months of registration, and for compliance with all other regulatory requirements within twelve months
of registration. A broker-dealer must permit the SEC to inspect its books and records at any reasonable
time.
B. Lost and Stolen Securities Program

(Rule 17f-1)
In general, all broker-dealers must register in the lost and stolen securities program. The limited
exceptions include broker-dealers that effect securities transactions exclusively on the floor of a national
securities exchange solely for other exchange members and do not receive or hold customer securities,
and broker-dealers whose business does not involve handling securities certificates. Broker-dealers must
. . -
report securities losses, thefts, and instances of counterfeiting on Form X-17F-1A, and in some cases must
make inquiries regarding securities coming into their possession. Broker-dealers file these reports and
) inquiries with the Securities Information Center, which operates the program for the SEC. A registration
form can be obtained from Securities Information Center, P.O. Box 421, Wellesley Hills, Massachusetts
02181.
C. Fingerprinting Requirement
(Rule 17'-2)
Generally, every partner, officer, director, or employee of a broker-dealer must be fingerprinted and
submit his or her fingerprints to the U.S. Attorney General. This requirement does not apply, however, to
broker-dealers that sell only certain securities that are not ordinarily evidenced by certificates (such as
mutual funds and variable annUities) or to persons who do not sell securities, have access to securities,
money or original books and records, and do not supervise persons engaged in such activities. A broker-
dealer claiming an exemption must comply with the notice requirements of Rule 17f-2. SRO members may
obtain fingerprint cards from their SRO and should submit completed fingerprint cards to the SRO for
forwarding to the Attorney General.
D. Risk Assessment Requirements

(Rules 17h-1 T and -2T)
Broker-dealers must maintain and preserve certain information regarding those affiliates, subsidiaries and
holding companies whose business activities are reasonably likely to have a material impact on their own
financial and operating condition (including the broker-dealer's net capital, liquidity, or ability to conduct
or finance operations). Broker-dealers must also file a quarterly summary of this information. This
information is designed to permit the SEC to assess the impact these entities may have on the broker-
dealer.
E. Use of Electronic Media by Broker-Dealers
We have issued an interpretive release discussing the issues that broker-dealers should consider in using
electronic media for delivering information to customers. 1Q These issues include the following:
• Will the customer have notice of and access to the communication?

• Will there be evidence of delivery?
• Did the broker-dealer take reasonable precautions to ensure the integrity, confidentiality, and
security of any personal financial information?
VII. Where to Get Further Information
For general questions regarding broker-dealer registration and regulation:
Office of Interpretations and Guidance

Office of Chief Counsel
Division of Market Regulation
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
(202) 942-0069
E-mail address: [email protected]
For additional information about how to obtain official publications of SEC rules and regulations:
Superintendent of Documents
Government Printing Office
)
Washington, D.C. 20402-9325
For copies of SEC forms and recent SEC releases:
Publications Section
450 Fifth Street, N.W.
Washington, D.C. 20549-0011
(202) 942-4046
Other useful addresses, telephone numbers, and Web sites:
SEC's World Wide Web site: www.sec.gov
National Association of Securities Dealers, Inc.

1390 Pickard Drive
Rockville, MD 20850
(301) 590-6500
World Wide Web site: www.nasd.com
New York Stock Exchange, Inc.

20 Broad Street
New York, NY 10005
(212) 656-3000
World Wide Web site: www.nyse.com
North American Securities Administrators Association, Inc.

10 G Street, N.E., Suite 710
Washington, D.C. 20002
(202) 737-0900
World Wide Web site: www.nasaa.org
As we noted at the beginning of this brochure, we have published this Compliance Guide as an
Introduction to the federal securities laws that apply to brokers and dealers. It only highlights
and summarizes some of the significant provisions, and does not relieve anyone from
complying with all regulatory requirements. You should not rely on this Guide without referring
to the actual statutes, rules, regulations, and interpretations.
Endnotes
1 See Securities Exchange Act Release No. 35041 (December 1, 1994), 59 FR 63393.
Letters re: Chubb Securities Corporation (Nov. 24, 1993); First of America
Brokerage Services, Inc. (Sept. 28, 1995).
Section 9(a) prohibits particular manipulative practices regarding securities

registered on a national securities exchange. Section 10(b) is a broad "catch-all"
provision that prohibits the use of "any manipulative or deceptive device or
contrivance" in connection with the purchase or sale of any security. Sections
15(c)(1) and 15(c)(2) apply to the over-the-counter markets. Section 15(c)(1)
prohibits broker-dealers from effecting transactions in, or inducing the purchase or
sale of, any security by means of "any manipulative, deceptive or other fraudulent
deVice," and Section 15(c)(2) prohibits a broker-dealer from making fictitious
quotes.
These include Rules 10b-1 through 10b-lS, l5cl-l through 15cl-9, 15c2-1 through
15c2-11, and Regulation M.
s In addition, Rule 11Ac1-3 requires broker-dealers to inform their customers, upon
-
opening a new account and annually thereafter, of their policies regarding payment
for order flow and for determining where to route a customer's order. -\
SEC, Report by Division of Market Regulation, Broker-Dealer Policies and Procedures
Designed to Segment the Flow and Prevent the Misuse of Material Non-Public
Information, [1989-1990 Transfer Binder] Fed. Sec. L. Rep. (CCH) ~84,520, at
80,620-25 (March, 1990).
z Rule 3a51-1 generally defines "penny stock" as any equity security other than any
security that is listed on a national securities exchange or approved for quotation on
Nasdaq, has a price of five dollars or more, is issued by an investment company or
by the Options Clearing Corporation, or whose issuer has certain minimum net
tangible assets or average revenues. Exemptions from Rules 15g-2 through 15g-6
are provided for non-recommended transactions, broker-dealers doing a minimal
business in penny stocks, trades with institutional investors, and private placements.
Rules 17a-2, 7,8, 10 and 13 contain additional record keeping and reporting
requirements that apply to broker-dealers.
Where a broker-dealer is a member of more than one SRO, the SEC designates the
SRO responsible for examining such broker-dealer for compliance with financial
responsibility rules (the "designated examining authority").
III Securities Exchange Act Release No. 37182 (May 15, 1996), 61 FR 24644.
http://www.sec.gov/divisions/marketreg/bdguide.htm
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Home I Previous page Modified:08/01/1999
)
Chapter 2 Lenders
Types of Lenders
Welcome to chapter two of The Bank Code Exposed. This chapter is designed to
help you to better understand what a lender is, how many different kinds of lenders there are
and why. More importantly, the term lender, contrary to common belief: does not always
mean the actual loaner ofproperty/money. We will attempt to bring you the official, written
difference between the different kinds and definitions of all forms of lenders. This book may
not hold all the different kinds but we are confident that this book will give you a great
foundation and start into this all important section and why it is so important for banking and
transactions.
Most people have a belief that a lender is the actual company that loaned you their
money. This chapter will dive right into different terms that one really may wish to study
closely like; broker, mortgage banker, mortgage broker, servicer, and originator.
This chapter will also help explain where you can find their license that will also
show you what this company is registered as. This becomes very important when a company
claims a right to something that they in fact may not even be registered to have the authority
to make such claim. Once known this part becomes one of the single most important
foundational elements in any financial transaction.
When you are done with this chapter we hope you will understand what lender means
and what most, if not all, kinds of lenders are, where they register, why they MUST register,
and what they can or can not be because of the true nature and intent of the type of business
they are registered as.
-
SECTIONlWO -
This section deals with:
A Types of lenders.
B. Mortgage bankers and mortgage brokers.
C. Roles of mortgage brokers.
D. North Carolina mortgage lender & broker licensing {as an example}
One needs to check into one's one state for particulars for that state.
E. General information on mortgage brokers.
F. General information from Federal Trade Commission and H.U.D.
regarding mortgage servicers.
G. United States Code Annotated [Federal statutes] regarding mortgage
Servicers. Fact that mortgage servicer is NOT owner of mortgage note.
H. General correspondence from debt collector representing mortgage
servicer stating that servicer does not own mortgage note and represents
government sponsored enterprise.
I. H.U.D.'s regulation of government sponsored enterprises.
J. United States Code Annotated [Federal statutes] regarding federally
related mortgage loans.
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Lenders are considered to be direct lenders if they fund their own loans. A "direct lender" can range
Personal Finance anywhere from the biggest lender to a very tiny one. Banks and savings & loans obviously have deposits
they can use to fund loans with, but they usually use ''warehouse lines of credif' from which they draw the
Loan Questions
money to fund the loans, Smaller institutions also have warehouse lines of credit from which they draw
money to fund 10allS.
Loan Search
Direct lenders usually fit into the category of mortgage bankers or portfolio lenders, but not always.
Conventional Loan
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'?nq.MClrtg~g€;. One way you used to be able to distinguish a direct Jender was from the fact that the Joan documents
Bi.·_We~kJY_P<l.YmeD~ were drawn up in their name, but this is no longer the case. Even the tiniest mortgage broker can make
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arrangements to fund loans in their own name nowadays.
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MTG BANKER vs MTG BROKER
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Contrary to misconception that mortgage banker is only regulated by CRMLA. both motgage banker and mortage
broker are regulated by the California Department of Real Estate (ORE). While a broker could also call himself or herself
a banker, a banker could not do vice versa without a license from ORE.
Though CRMLA allows some non-ORE·licensed companies to operate as "quasi·broker" under Dept of Corporations, so
long as the percentage of loans originated in the form of brokerage with individual borrowers is limited to 5% of the
tota I number of loans made for the 1st year and subsequently limited to 10% each year, the supervision of this 5% or
10% brokerage business is doubtful and the other 95% or 90% CRMLA business fall almost exclusively into the
category of ~oncurr~nt funQio.& or warehous~ne, means of avoiding full disclosure ... If the 5% or 10$ limits are
exceeded. CRMLA companies will be subject to DRE regulation. The very fact that the owner and sales staff under
CRMLA do not need to be licensed individually pinpoints the main drawback of CRMLA . the lack of the CRMLA
companies' fulfilling the training and continuous education requirements under the DRE. The other disadvantage for
CRMLA is that most investors in the nation require DRE licensing before correspondent relationship could be
established for loan submission. DRE-licensed lenders enjoy pricing advantage over CBMLA companies as a result of
the choices of conduits for loan submission.
Most mortgage brokers are proud of calling themselves "broker" in the sense that they represent the interests of the
borrowers against the "bankers" who may claim to represent their sponsors and subsequently steer business to their
select channels, only. The fundamental reason that brokerage form of business flourishes in America lies in the fact that
brokers always put clients' interests in the first place while bankers might reserve their interests for the sponsors
behind them. However, many mortgage brokers called themselves bankers which makes the division of two difficult:
brokers call themselves bankers either because of the membership in such national or State trade organizations as
Mortgage Banker Association (in addition to Mortgage Broker Association) or because of a technicality in operating
"concurrent funding" or "warehouse line" on the pretense that they are using "lender-controlled funds".
·C.F.L":
Licensees under the California Finance Lenders Law (CFL) have fimited business praclices. CFL 6censees ani. in fact, authorized to broker loans to other CFl
!enders. only; CI"l ficensees alii not authorized to broker loans to CRMLA !enders. Since some lenders nke Countrywide were pnlviously ficeosed as CFL (and now
CRMLA). we have some limited number of CFL lenders submitting loans to Countrywide. CFL lenders ani not included in the definition of institutional lenders. They,
liKe CRM\.A, have a a blanlcm ljcense similar to banks, savings and loans. and etc.
DISCLOSURE ISSUE:
While mortgage bankers would not have trouble in evading disclosure requirements via the technicality mentioned
above, some mortgage brokers could still find wholesale conduits to do loan closings in the name of the "mortgage
broker" just as mortgage bankers do. When mortgage brokers and mortgage bankers close loans in their names. the
result is that the borrowers will find out that their 1st lien mortgage from the 'lender' on the tWD would be sold
simoultaneously to another lender on the day of close of escrow (COE). ··This will'be shown on their credit report as
two lenders changing hands on the date of COE. (Effective Jan 1st, 1999. mortgage broker or banker engaged in
"concurrent funding" or "table funding" will be required to record the trust deed with county recorder's office in the name
of the ultimate lender. not in the name of the "broker" or "banker". See DRE Business & Professions Code Section 10234
Artilce 5 & Assembly Bill 1203. CRMLA companies' observance of urgency measure AB 1203 is not known to us. )
mtg DanKer vs mtg DroKer Page 20f3
What's the "lender-controlled funds"? More F.A.Q.

California Department of Real Estate (ORE), on the "Additional California Disclosure" form, requires that the lender disclose whether the
funds for proposed loan are from "lender-controlied funds" or not. Because the lenders do not have to differentiate between the
origination point and the discount point, nor to disclose the yield spread or service release premium or time premium or volume
discount, if the proposed loan is funded by the money from the lender's pocket. Thus, We see many lenders setting up "warehouse line"
or doing ·concurrent funding" in attempts to disguise the 1st mortgage shown on the HUD-l settlement statement as from the lender,
not from the investor who wires the ultimate money over for closing.
DRE, being aware of this operations, now require all fenders involved to record the deed of trust in the ultimate investor's name
beginning from Jan 1st 1999. This extra requirement by ORE in trust deed recording may prevent "concurrent fundinger" from avoiding
disclosure, but not necessarily the lenders who fund loans via "warehouse line" supplied by a disinterested party as an interim source of
funds.
'CONCURRENT FUNDING' and/or WAREHOUSE LINE'
Who in this world will actually lend money to individyal borrowers at interest rates not much higher than the bank deposit rates7
The acutual behavior of most mortgage bankers and some mortgage brokers is nothing more than wiring investor's
money into their bank accounts & then wiring this money again to escrow company's bank account to create
an illusion that the first mortgage on the HUD·l is from the mortgage banker or broker, not the investor. Then, they
recoup the cost of wiring by charging clients doubfe the normaf wire fee, as much as $80 in some cases. fn order to be
qualified for closing loans in their own names, brokers or bankers need to set up a warehouse line of $500,000 as an
interim source of funds. With this warehouse line, brokers or bankers could even decide to sell the closed loan to a
different conduit to make a market pricing gain should the bond market improves over the rate actually locked before
the close of loan. ··There is an exception to this warehouse line: Some investors have so·called "table funded" loans by
which investors would allow mtg broker or banker to close the loan in broker or banker's narne with investor's funds
wired direct to escrow. This "table funded" program could help the banker or broker to close the loans without setting
up a "warehouse line" of maybe $500,000.
Caution! By doing do, the mortgage bankers (and some brokers) could evade the rules and regulations of mandatory
disclosure:
• Mortgage lenders could choose NOT to disclose the yield spread paid by the investor, in cases of no point loans;
• They could choose NOT, in most cases, to differentiate origination point from investor's discount point;
• They could choose to relock a same rate to make extra pricing yield while NOT passing on the savings to individual borrowers.
"IIolume Oiscount OIsclosure"

Since investors offer volume discount retroactively based on the !Dial volume funded with the said investor for the past months via a variable scale per volume, it is
not possible !D delennine the exact percentage point incentive !D be passed on !D a particular borrower in light of past experience alone, especiaHy so when the future
market conditions are unclear.
More, when the loan originator has a "warehouse line" (paying, for timited number of days, 'prime+2'lf>' plus $195 warehouse line fee, usually). it
could
fund the loan with the warehouse line, speculate on the market, and then sell the closed loan to a different conduit for a pricing gain in
terms of service release premium. EXAMPLE: After the loan originator locked a rate of 7% (with GE, e.g.), funded the loan and closed
the esc:row, the originator could wait for a week or so and sell the closed loan to another conduit (e.g., PRUDENTIAL) when the market
rate is 6.875% or lower, thus making the pricing gain.
The terms of "Inhouse Lending" or "Delegated Underwriting" are similar wording to imply that the mortgage originator
has an inhouse staff to do the underwriting and does not need to ship out the original document until after the funding
of the said loan via the warehouse line. (NOTE: Delegated power stops at 500k maximum loan amount.) Rate·locking, in
above cases, is a flexible matter as mtg bankers (and some brokers) could lock in any rate any time with any investor
on the approval list as long as the said investor allows a percentage of undelivered rate committments. The practice,
however, is that mortgage company owners would not allow their sales staff to understand this intrincacy nor allow their
sales staff to share the pricing differential with the company owners, not to mention passing on the savings to the
ultimate consumers.
mtg banKer vs mtg orOKer
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o Click Here for Today's Best Mortgage Rates
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lJumbo/Conforrn BI 3
tlQm~'p;;I~ I Ac;ljustable R;:tm I Qiscounter I Fixe(U:~ates I Money H'LW I Mortgage Banker
Prgql,lg.lifjcation I B~~_Lo<;;1<lD.9.1 R;R~J::l!J_Q~~ I form 1~~t~ I Ch~~.bl~ I Commer~ial J-oan
G Real Estate Broker #01197494, calif. Dept of Real Estlite 916-227-0931 per Section 2847.3. Regulation Elf. July 1st 1998
EJRai7s: narthca7ir~tg-loan.com; [email protected].
Mirror sire: http://www.mtq-7oan.com/; htt:p:/Twww.lfJ1i17ennia.com/. L§J@J
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The Varied Roles of Mortgage Brokers in Lending ~
Mortgage I.,.ibrary: ShQPping fQra N!Qrtgage: Mortgagl;!brpk~rs: The Varied Roles of Mortgage Brokers in Lending
Today there are two main types of mortgage brok.ers-those that represent the borrower and
those that do not Mortgage brokers may fill one role in one transaction and a different role in
another. The first type of mortgage broker represents the borrower and generally has an agency
relationship with, and a fiduciary duty to, the borrower. This type of broker has two variants: a
mortgage broker that does not receive fees from any source other than the consumer, and a
mortgage broker that does receive fees from a source other than the consumer. namely, the
lender. An agency relationship may arise under State law or may be created by agreement
between the mortgage broker and borrower. Although State law is largely undeveloped in this
area, in some States mortgage brokers may be found to have a fiduciary responsibility to the
borrower even in the absence of a contract provision.
The second type of mortgage broker does not represent the borrower. This type of mortgage
broker makes mortgage loans available to borrowers either from one or a number of sources of
funds with which the mortgage broker has a business relationship. This type of mortgage broker is
not the borrower's agent; rather, brokers of this type present themselves as entities that try to sell
borrowers mortgage loans as would other mortgage loan providers in the market If this type of
mortgage broker only makes mortgage loans available from one source of funds, the mortgage
broker mayor may not be functioning as the lender's agent
Differing Methods of Mortgage Brokers in Originating Mortgage Loans
Some mortgage brokers process loans and close loans in their own names. However, at or about
the time of setliement, they transfer these loans to lenders that simultaneously advance funds for
the loans. This transaction is known in the lending industry as "table funding." In table-funded
transactions, the mortgage broker does not furnish the capital for the loans. Instead the lender
provides the capital and, immediately after the loan is consummated, the mortgage broker
delivers the loan pack.age to that lender, including the promissory note, mortgage, evidence of
insurance, and assignments of all rights the mortgage broker held.
In some transactions, mortgage brokers originate loans that are dosed in the mortgage brokers'
names, fund the loans temporarily using their own funds or a warehouse line of credit, and sell the
loans after closing. These mortgage brokers function similarly to mortgage bankers, but they do
not service loans. .
Still other mortgage brokers function purely as intermediaries between borrowers and lending
sources. They originate loans by providing loan processing and arranging for the provision of
funds by lenders. The loans are closed in the names of the funding lenders.
Mortgage Broker Compensation
Compensation for the services of mortgage brokers frequently comes from fees paid by the
borrower. Compensation mayor may not also come from "indirect" fees paid by the lender
prOViding the mortgage loan funds. Frequently, mortgage brokers offer the following payment
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methods for the fees or points the borrower pays directly: -

1. the borrower may pay from his or her own funds at closing,
2. the mortgage loan amount may be increased to finance the mortgage broker
fees or points (which increases the amount the borrower borrows), or
3. some combination of 1. and 2.
Frequently, mortgage brokers offer payment options that enable the borrower to pay lower fees
and poin~, or even no fees and/or poin~, in exchange for a higher interest rate, or higher poin1s
and fees for a lower interest rate. If the borrower pays lower fees and points and agrees to a
higher interest rate, then the lender will pay the mortgage broker a fee that reflects the higher
interest payments the lender will receive from the borrower. In other words, indirect fees paid by
lenders to mortgage brokers are largely based on the interest rate of the loan entered into by the
borrower and the amount of points and direct fees paid by the borrower. Typically. one or more
times a day, lenders set prices that they are willing to pay to mortgage brokers for loans delivered
to them. The price to be paid for a loan is generally expressed as a percentage of the loan
amount These prices are based on the interest rate of the loan arranged by the mortgage broker
and the points and fees for the loan as compared to the price (a combination of an interest rate
and points) that the lender would purchase the loan for that day.
The price that the lender will pay is, in tum, based on the value of the loan in the secondary
mortgage market (Le., the market price). Generally, the greater the difference between the rate a
loan is entered into with the consumer and the market price for the loan, the greater the total
compensation that wilt be paid to the brol<.er. The price may also reflect factors such as the type of
loan, the "Iock-in" period, and the creditworthiness of the borrower. The price that the lender pays
the mortgage broker, therefore, is based on the differential between the combination of rate and
points that is the par or market rate for a loan at a given time, and the combination of rate and
points at which the loan is entered into with the borrower. The lender may also make additional
payments to the mortgage broker at or after settlement attributable to the number of loans
prOVided over a given period These additional payments constitute a "volume-based discount."
,. This article is citation from the House of Urban Development PrQPQ$?cf.MQrtIJggt} 8fQk.ftrBufft
Related Articles:
HUD is proposing a newMor:tgageJlrols~U:;ontr:?Qt to provide essential

information to consumers concerning the broker's functions in the transaction, its
duty to the borrower (whether it does or does not represent the borrower), and
compensation to be received in the transaction induding the amounts paid by the .
borrower and by the lender. This contract is to permit consumers to understand a
broker's functions and fees before becoming obligated to use the broker's
services.
C<m_mQr:t.aaa.~_p!:Q.~P.r.?-,~gY©YQJLro.onev1 The article permits you to understand

that you don't pay extra for using a mortgage broker because he obtains discount
pricing from the lenders
Home I For Lenders I Affiliate Program I Contact Us I Disclaimer

Mortgage-X is an indePendent information seN ice and is not affiliated with any lending institution.
Copyright C 1998·2003 Mortgage-X

All Rigl\1s ReeNed
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Completing The Transformation From Broker To Mortgage Banker

R~sour..ce
0; rectory - Is this the right time for you to start on the road to becoming a mortgage banker? A thoughtful
measure of the pros and cons will provide an answer.
Editorial
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story Index I'UIfI
Repr;nt~
Back Issues "Change alone is unchanging" (Heraclitus, Greek philosopher, 475 B.C.)
§.uidelines
calendar Nowhere has the notion of change been felt more dramatically than our industry's unprecedented
IrldUStrv Events dependence on the independent, autonomous mortgage originator as a source for mortgage
Editorial product.
subscri ptions
Renew One very significant consequence of this recently formed dependence is that opportunities once
Address change reserved for a privileged few are now accessible to a far broader spectrum ofthe mortgage
~ample Issue origination community than would have ever been thought possible only a few years ago.
~~'ye rti s i "$).
sped fi cat' ons An impressive example of this transformation is the ability of even modestly sized originators to
opportuni t; es achieve correspondent status ~ and the accompanying premiums ~ provided they have the means
~~der su r\LE!Y to fund and close loans in their own name.
Readershi p
Contact Us As the traditional middle-market mortgage bankers have been either bought, merged or acquired
by the large national conduits, warehouse lenders are keenly aware of the increasingly significant
Secondary role that smaller, independent originators are playing in generating both commercial and
-.--!!!a rk...lf!:ti /?9 residential mortgage loans.
_~2!.ecut:ive
servicing Competition for warehouse outstandings is fierce and consequently, this long-neglected segment
J1i! na.Sl!M!.!i!/1t: of the origination market has become the latest battleground for warehouse lenders. As the
millennium approaches, increasing numbers of brokers are heeding the call and becoming
bankers by obtaining warehouse Ii nes of credit.
The purpose of this article is therefore to highlight the critical issues that should be given
consideration prior to making a decision to step from broker to banker. As a warehouse line is a
pre-requisite to making this step it needs to deliver the benefits - as promised - once you sign on
the dotted line.
Warehouse lenders are qUick to point out the benefits of having a warehouse line and their
arguments are well-taken. Fil'$t and foremost, a warehouse line gives the originator access to
capital. And access to capital gives the originator control. Failure to close on time and as promised
can have disastrous consequences in a market where the Internet mentality of faster, better,
cheaper is becoming increasingly pervasive. It can also be the decisive selling point when
soliciting builders, developers, realtors or top producing loan officers.
The economic argument is also straightforward: In a tough market the best execution is critical.
Failure to achieve best execution means less profit is available to be reinvested in those
necessities that will be required to successfully compete in the new millennia - resources like
technology, back office efficiency, an Internet presence, advertising/marketing or an over-
achieving sales staff.
As correspondent pricing schedules are typically more generous than the wholesale rate sheets,
an originator is able to generate enhanced fee income on each loan transaction when operating
asa mortgage banker as opposed to a mortgage broker.
SeNicing retained
A warehouse line is also an essential pre-requisite for any mortgage banker wishing to either
l;ommerclal Mongage mSlgnt I-'age :l ot 3
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bundle or aggregate loan denveries or retain servicing. By selling product servicing retained, the i
mortgage banker owns the annuity value of the servicing component of the future payment stream
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and, in an industry as cyclical as ours, this annuity income can go a long way in smoothing out
cash flow swings during those periods when the phones have stopped ringing. 'I
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There is a cost, of course, to this annuity, and it is paid by foregoing the servicing released
premium that is typically received at the time of loan sale. This is an extremely important
consideration as many mortgage bankers depend on this premium to cover current cash flow
obligations.
Warehouse lenders correctly point out some additional, if more subtle, benefits. Certain investors
are increasingly demanding that originators deliver closed loans as a prerequisite to the
continuation of a business relationship and some states require a warehouse nne for specific
licenses. Enhanced prestige with consumers, brokers, builders and developers is also cited as a
tangible benefit. And for originators of residential mortgage loan products, less onerous disclosure
requirements under RESPA are of no small importance.
VVhile all of these benefits are undeniable, they are not always attainable. It is necessary for
anyone contemplating the step from broker to banker to walk before they run or a mistake will be
made that will cost money. Potentially big money.
It is hard to get around that old truism that "Nothing is Free in America." Operating as a mortgage
banker means additional opportunity, at a price. And that price is more than just the monetary cost
ofthe rates, fees and charges imposed by the warehouse lender.
The correspondent pricing schedule is typically more generous because the originator is being
paid to assume a higher degree of risk. Stated another way, the originator has stepped up and
accepted a higher level of recourse on each loan delivered through the correspondent channel.
Focus on quality control
Prudence then dictates a renewed focus on internal quality control infrastructure and procedures
to ensure that a rigorous front-end system catches and prevents problems before they become
repurchases later down the road. It also follows that care should be taken as to Which loans go on
the warehouse line because an investor may refuse to purchase a loan which has not undergone
proper quaiity controf.
The result? Recourse risk for the correspondent is not only the threat of repurchase. but the
poss\bi\\ty that a \oan is never purchased in the first p\ace.
The expense associated with a vigorous QC effort is an example of infrastructure costs which
must be incurred to ensure successful implementation ofthe warehouse facility.
Other costs may include the potential addition of staff to perform the shipping and funding
functions, insurance premiums for errors and omissions and fidelity coverage, audited financials
and management information system upgrades.
In most instances staff training is also required as deeply entrenched operational procedures must
often be modified to accommodate program requirements. All of these costs represent material
expenses which need to be factored into the cost/benefit equation.
How to choose
The question as to which warehouse lender or program begs a strategic as opposed to a tactical
) decision. Pricing is certainly a material consideration, but the evaluation criteria needs to be more
far reaching.
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The real issue for any originator wishing to take their company to the next level is strategic
alliances. Consequently, the stability of the warehouse lender as a long-term, consistent funding
source should be evaluated and considered.
Because of the inherent volatility of our industry, mortgage bankers are well advised to align
themselves with a warehouse provider that is relational - as opposed to transactional - in
orientation.
Murphy's Law still prevails, and it is at those times of market uncertainty when the performance of
the warehouse lender is most critical.
An often overlooked but critically important component is the operational impact of the warehouse
program on the originator's back office. Warehouse programs are not all created equal and the
demands on your processing staff can differ greatly. The expediency in which a warehouse lender
can fund, ship, process payoffs, execute wires/checks and remedy exceptions and document
deficiencies will directly impact cash flow.
Keep in mind that pricing is as much art as science or, in other words, while all warehous'e lenders
have certain minimum pricing thresholds, flexibility should exist as to the individual rate and fee
components.
This is very important because an originator's product profile may result in a financial structure
that is far less impacted by changes in rates than fees (or vice versa). As production grows, the
capital requirements to self-fund a portion of every loan can create a cash flow squeeze. It is
therefore necessary to carefully consider how aggressively the warehouse lender will advance
against any given loan.
The warehouse lender should also be entrepreneurial, innovative and creative, otherwise the
warehouse program you're locked into may not fit evolving market realities.
How can you tell? Probe for expertise in your core products and niches. Does the lender
understand your prodUct profile? Does he grasp the nuances of your market niche? Is he
comfortable with your origination channels; e.g. retail vs. wholesale? Has the lender approved
those investors which are strategic buyers of your products? Keep in mind that innovation and
fleXibility often go together.
One ofthe biggest winners in the mortgage wars that emerged throughout the '90s is the
independent mortgage onginator. These companies have proved themselves adept at generating
loans and capturing market share and are now expanding their perspective, their vision.
Becoming a mortgage banker is a natural progression. lMth this in mind, the decision to obtain a
warehouse facility is strategic in nature and is also an essential prerequisite to become a full
correspondent, bundle or aggregate loan deliveries or retain servicing.
Care must be taken however to measure - and manage - both the direct and indirect costs of the
facility. Finally, a relational (as opposed to transactional) approach will pay long-term dividends
when selecting a warehouse lender.
William L. Beschel is a principal of Warehousing Advisory Services Inc., a marketing and

consulting finn with offices in Pasadena, Calif., Spokane, Wash. and South Miami, Fla. The finn
specializes in arranging warehouse lines of crecfd for its clients and in developing brokers into
bankers. He can be reached at (509) 448-3851.
This article was previously published in the May 2000 Issue of Commercial Mortgage Insight.
Copyright @ 2000-2003 Zackin Publications Inc. All rights reserved.

';)Li:lLt:: U' '''UILII VC:U UIIIICI IVIUI L~CI~C: L.C:IIUIII~ I Cll:::lC: I VI V
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~ NC
Con North Carolina Mortgage Lending
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I :an NC Commissioner of Banks, Mortgage Licensing Section, State of North Carolina
NC Mortgage Lender & Broker Licensing
Ucensing Overview
Effective July 1, 2002, the a href=nMortgage Lending Act rMLA" as codified in NCGS Chapter 53,
t\dtcl~~A) requires that any entity engaged in the business of making or brokering residential
mortgage loans secured by North Carolina real estate be licensed by the NC Commissioner of
Banl<s ("NCCOBj, unless El.xempt. All licenses expire annually on June 30 unless renewed. Ucense
types are summarized below.
License Type Authorized Activities

Mortgage Lender Make or broker mortgage loans at a designated principal office
Broker or table-fund* mortgage loans at a designated principal office
Mortgage Broker
located in NC
Branch Office Conduct same activities as authorized at principaf office
Accept or offer to accept applications for mortgage loans as an employee
Mortgage Loan Officer
of a licensed Mortgage Lender or Broker
*Table-funding: The closing of a loan in the name of a party shown as payee on the mortgage loan
note, who, within one business day of closing, consummates sale and sefflement ofthe note to
another party.
Exemptions
Under the new law, HUD-Approved lenders lose their former exemption and must be licensed.
However, several classes of Mortgage Lenders and Brokers and their Loan Officers are exempt
under the new law, primarily banks, thrifts and credit unions and their Wholly owned subsidiaries.
Filing & Ucensing Requirements
Filing Overview & Forms
Mortgage Lenders and Brokers should use application form MLA001 to apply for a license. An
appropriate Surety Bond (see below) must also be included and a Managing Principal who is also a
NC Licensed Loan Officer must be designated in the application.
Fillable versions of all for:m~ are available on this website.
Loan Officers
Any individual who for compensation accepts or offers to accept residential mortgage applications
must be licensed as a loan Officer and be an employee of a licensed Mortgage Lender or Broker
unless covered by the law's exemption provisions. An individual must complete an approved NC
.:lLC::tll:' UI I~UILII val UIII ICl IVIUlll:fayl:' Ll:'IIUII Iy
Mortgage Fundamentals Course and pass the NC Mortgage Loan Officer Ucense Test in order to be
licensed as a Loan Officer.
Branch Offices
All Branch Offices which make or broker loans secured by North Carolina real estate must be
licensed in North Carolina and should be included in the licensing filing. Branch Offices opened or
closed after initial licensing must be Ucensed using a form MLA003-A "Notice of Office Change, If
which should also be used to report other Branch Office activity such as closings or address
corrections.
Designated Managers
Each Mortgage Lender or Broker licensee must designate a Managing Principal. If the Managing
Principal is the individual who will be responsible for resolving consumer complaints regarding Loan
Officers ofthe company, then he/she must also be a licensed Loan Officer. In addition, every Branch
Office must have a designated Branch Manager who is also a licensed Loan Officer. The Managing
Principal and each Branch Manager must have three (3) years of residential mortgage lending
experience. If the Managing Principal is a licensed Loan Officer, then the Managing Principal may
seNe as a Brancll Manager for one Branch Office in addition to any duties at the principal office, but
otherwise a Branch Manager may manage only one Branch Office. The Managing Principal will serve
as the primary contact for licensing matters.
Surety Bonds
A Mortgage Lender Bond in the amount of $150,000 or a Mortgage Broker Bond in the amount of
$50,000 must be submitted with the grandfathered license filing unless the licensee meets the
definition of a "Qualified Lender·" and is submitting an audited Financial Statement that shows Net
Worth in excess of $250,000 in assets acceptable to the Commissioner.
*Qualifiedlender: An entity who is engaged as a mortgage lender in North Carolina and is either a
supervised or a nonsupervised institution, as these terms are defined in 24 C.F.R. § 202.2, approved
by the United States Department of Housing and Urban Development
Filing Fees
The initial application & licensing fee for a Mortgage Lender or Broker is One Thousand Dollars
($1,000), plus One Hundred Dollars ($100) per Branch Office for any portion of the first licensing
year beginning July 1 and ending the following June 30. The initial license fee for Loan Officers is
Fifty Dollars ($50) for any portion of a Ucense year ending the next June 30 plus the $55 fee to cover
the cost of obtaining a credit report and conducting a criminal history check. These fees must be paid
via money order or cashier's check made payable to the NC Commissioner of Banks. All fees are
non-refundable.
Renewals & R~quired Notifications
Annual Renewal
Licenses expire each year on June 30. Renewal forms will be sent to each licensed Mortgage
Lender, Broker and Loan Officer annually in May. Individual Loan Officers will be sent renewal forms
directly; they will not be sent to employers. To be eligible for renewal, Loan Officers must fulfill
annual continuing education requirements. Mortgage Lenders and Brokers must continuously satisfy
all requirements of initial licensure to be eligible for renewal. Failure to renew licenses by June 30 will
result in a $250 late penalty per license in addition to regular renewal fees and may require ra-
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application as a new license if attempt to renew is after September 30. Annual renewal fees are
$500 for Mortgage Lender or Mortgage Broker licenses. $100 for each Branch Office license. and
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$50 for a Loan Officer license.
Notification of Changes
Ucensees are required to keep all information on file with the Commissioner current. This includes
all hirings and terminations of Loan Officers, changes of Branch Manager designations and Branch
Office openings, closings and other changes. Forms are available on this website for notifying the
Commissioner of most common types of changes. Ucenses are non-assignable and non-
transferable without the Commissioner's prior written approval. If a licensee's information changes in
any material respect, the licensee must notify the Commissioner in writing within 15 days of the
effective date of such change on the appropriate form. Should a change require the re-issuance of a
Ucense certiiicate. a $25 fee is required per certificate.
Designated Contacts
The individual designated by a Mortgage Lender or Broker as "Managing Principar must be

authorized to submit information to the NC Commissioner of Banks. to receive all communications
and mailings from the NC Commissioner of Banks and be responsible for the distribution of
information within the licensee's organization. The Managing Principal may however designate
another individual. SUch as an attorney or other designated contact within the company. to serve as
the initial applicationffiling contact, otherwise all communications during the processing of the
application will be directed to the Managing Principal as well.
Rev. 1010612003
NC Commissioner of Banks, Mortgage Licensing Section

Mailing address: 4309 Mail Service Center, Raleigh, Ne 27699-4309
Street Address: 316 W Edenton St, Raleigh, NC 27603
Phone 919-733-0589 * Fax 919-733-2978
)
UlllIlIl::U r e:t~t: I VI ~
Chapter 8
TOP 150 LOAN BROKERS
Loan Brokers: A. Force to Be Reckoned With
I'm going to go out on a limb here and make a small prediction: In five years the National Association of Mortgage Brokers
will be the dominant trade group in the mortgage industry - and not the Mortgage Bankers Association. This comment
isn't a slam, by any means, on MBA. But structural changes are occurring that threaten the bread and butter, rank and file
member of the MBA. Non-depository mortgages have been - and continue to be - gobbled up by competitors, be it a
bank-owned
mortgage company, a thrift, or a conglomerate owned non-depository.
The residential mortgage banking industry is becoming an industry of 'whales and minnows," which means: 40 to 50
wholesalers working with 10,000 or so active loan brokers as opposed to 100 wholesalers interfacing with 4,000 mortgage
bankers. This shifting of weight in the industry has benefitedlarge wholesalers (that are plush with capital) and the
mortgage brokerage community. In short, the non-depository mortgage banker has become the industry's Edsel- at
that's why brokers will excel and mortaaae bankers will become, simply, affiliates of banks and thrifts. One thing is for
o certain: loan brokers are not going away.
Brokers and correspondent lenders (those that make the loan and
then sell it to a correspondent buyer) will continue to control 60% to
65% of the market. \Nny? Because when loan volumes fall (as they
eventually Will) retail mortgage lenders (bank-owned mortgage firms,
banks and thrifts) will move to cut costs by closing branches. And
then, when volumes rise (as they eventually will) these same retail
EI
lenders will ask:
"Should we open
the branches that
we closed two
years ago or use
that loan broker in
l-- ,- -=- , - - , - - - - J South Florida?"
Most will choose the loan broker. Two years back when the Internet
- and Internet mortgage lending - was all the rage some industry
"experts" predicted that brokers would become obsolete, that the big boys of the industry would dominate and drive all the
business to their websites.
Well, guess what? Loan brokers are still around and if anything their futures look as bright as ever. So called "experts"
forget that the Internet is a great rate shopping tool but just because a mega funder blankets the airwaves with ads about
how great their website is, that doesn't mean a thing. Buying a home is still an expensive and emotional proposition and
consumers - especially first time home buyers - want their hand held. And how. Keep in mind that Internet scams are
increasing and some consumers might actually be weary of using web-sites, especially in regard to large loan amounts.
Yes, the 'net' can be useful for transmitting certain financial information to a mortgage company but many are still a bit
concerned about a little thing called "Internet Security."
DEFINING LOAN BROKERS

Let's discuss for a moment what exactly a broker is. Is a broker(age) a firm or individual that is merely a facilitator to a
loan closing, one that doesn't use hislherlits own funds (money) to close a mortgage? Or is a broker merely a mortgage
firm that originates but doesn't service? Depending on who you ask the answer could va wide . In this cha er we rank
and provide profiles on the top 150 loan "brokers." The broker ixl
definition that National Mortgage News, thepubUsher of this book, l.:J
uses is: any firm that uses table-funding to facilitate the closing of a
loan. In other words: the broker DOES NOT use its own money. But if
you study the profiles in this chapter you will discover that some firms
ay they "sometimes" use table funding while other times they use
(heir own money. That money is usually pr'Ovided via a warehouse
Ullllll~U t"age L. or L.
-
line of credit. In other words the definition of "broker" is not always so - \
cut and dry. Also, we've discovered that some respondents have both a mortgage banker and a mortgage broker Ucense.
Such is life.
HOW THE SURVEY WAS CONDUCTED

The word production refers to both loans funded and/or facilitated. In an effort to rank the top loan brokers for 2000 we
sent surveys to our master database of 4,000 loan brokers. The 4,000 list was culled from a variety of sources:
subscribers to Broker magazine, Origination News, attendee lists of loan broker conferences, online searches using
Internet search engines, and firms that answered advertisements in ON and National Mortgage News. Each of the 4,000
were faxed a simple, three-page survey, asking loan volumes, and prodUct questions. Because many brokers do not fund
loans with their own money they are NOT required to file Home Mortgage Oisclosure Act. (HMOA) reports with the Federal
Reserve Board. This means the loan volumes listed here must be taken at face value. There is no way of verifying the
numbers. we rely on the honor system. If a brokerage firm tells us that its loan volume is $200 million we accept that
figure as true unless something seems suspicious about the response. Even though we are listing the top 150 loan
brokers in this edition of the MID, we actually have loan production data on close to 350 firms from 2001, 300 brokers
from 2000, and 400 from 1999. If you're interested in receiving information on all brokers in those years plus gaining
access to our loan broker database of 4,000 drop us a line at (202) 434-0322 or email: [email protected]. In the
meantime, we hope you find the rankings and profiles in this chapter useful.
J
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I r;:"l H".. I General Discussion
0 Who Bre the parties In a mOltgBge-brokered real estate transaction and whet are their roles?
1. 801Tower -this is you the consumer. It ill essenlialthat you know the basics of a real estate closing ahead
of time. Trying to leam the vocabulary of the industry at the closing is too late. The industry has evolved
rapidly with the provision of intemet • based mortgage brokers as well as direct lenders. At the end of this
r::1 ~"vwnrrl ~.:IIr,..h
I document is a fist of websites which provide basic information yOu wiD need to understand about how a
closing should 90, which disclosures you are entitled to and when, and what your rights are at the real estate
~~~t~~~C? [[;:;1 ron r closing.
2. Mortgage Broker· this middleman brings together a lender and a prospective borrower for a fee. He is
usuaUy not a fiduciary or an agent of you the consumer. Most of the time he gets two fees for a successful
real eslal!l closing: one from you the consumer at lhe closing, and a second lee • from lhe lender· usually
called "yield spread premium". The HUO·1 SetUement Statement, required by the federal Real Es1ate
Settlement Procedures Act ("RESPA"). and provided to you at the closing, lists all the costs of the deal, for
both you the borrower and the lender. Any yield spread premium that is to be paid by the lender to the
mor1page broker is supposed to be listed, and wiD be marked "p.o.c", meaning paid ou1Bide of closing. If
there is a chance that yield spread premium is to be paid, the first notice you will get is when the mortgage
broker gives you a written "Good Faith Estimate of Closing Costs- (known as the "GFEj, as required by
RESPA, within 3 business days of taking your mortgage loan appfication. It is usually listed with an acronym,
such as "YSP, 0-3%". Ask him If the proposed loan Involves Yield Spread Premium, Lastly, the
mortgage broker is required by the Act to give you a written "loan Broker Services Contract" (also
sometimes called a "Retention Agreementj, which lists the amount of the proposed mortgage, his fee
expressed as a percentage of the mortgage, and the time period during which you must work with him
exclusively. Mortgage Broker fee rates are unregulated by the Act or any other state law. IdeaDy they are
held down by market forces, but depending on how risky a loan you are (based on your credit report and
creditscore-loans are graded -A-, "B-, "C", and -0" based on this information)· you may be looking at a
mortgage broker fee of from 1% of the proposed loan amountto 10% of the loan amount.
"B·", "C" and "0" loans are called subprtme loans. SUbprime Lending is a specialized lending market for
consumers with bad credit· many Mortgage Brokers do not represent subprime lenders. If you are a
subprime loan, you may have to go somewhere else, or wait until your credit improves. This is in addition to
shopping for a good mortgage interest rate.
One more time: ~ d~sures which the mortgage broker is required to make to you by II. combination
of state and federal law are, based on order of timing: Loan Broker Services Contract and Good Faith
Estimate of Closing Costs (GFe).
3. Lender· this is the party Who funds your loan and controls the lending process, They ultimately
control when and whether the real estate closing happens. Most mortgage brokers do not have a warehouse
fine of credit, and do not lend their own money. They submit your loan package to several of their lenders.
Then the Lender, not the Mortgage Broker, decides whether to fund your loan based on a credit risk analysis
of the underwriting package submitted to them on your behalf by the mortgage broker.
Some loans are -fable-funded- - meaning that the Mortgage Broker is named on the mortgage and
promissory note as the Lender (Creditor), but the money to fund your mortgage actually comes form the
Lender. The funds are wired to the title company the day of your closing or several days after your closing,
Table funding is not specifically discussed in the Act, and is not Hlegal in Indiana at the present lime.
Note: Indiana is II -dry- closing state (as contrasted with a "wet" closing state) where a legally binding
loan closing can be held, with you signing all the legal documents and being legaUy bound, WITHOUT the
funds for your mortgage having been wired to the escrow account of the title company. It is essential that
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-
.-
) you ask the mortgage broker lD find out from your proposed lender, well before the closing. how your Lender
proposeslD fund your loan. If they won't alve you lin answer. you may went to ao somewhere else. The
loan interest rate can shift upward, or other problems develop, like haVing lD get a new mortgage pay-olf
statement for your old mortgage in a refinance situation· while you are waiting around for the Lender to fund
your mortQage. .
VlEI.COME FROM TODD ROKITA I DUTIES & BIOGRAPHY I PRESS RELEASES I BUSINESS SERVICES DIVISION
SECURITIES DIVISION I ELECTION PIVISlQN! CONTACT US ! ~ IIM1ATS NEW
HOME
)
rl::Ut11 QI II C1Ul:: \.lUll III 1l<:)<:)IUI I
~~EDERAL TRADE COMMISSION

FOR TIlE {.'()~'SUltn
HOME I CONSUMERS I BUSINESSES I NEWSROOM I FORMAL I ANTITRUST t CONGRESSIONAL I ECONOMIC I LEGAL

Privacy Policy I About FTC I CommissiOMl"$ I File a Complaint I HSR I FOIA f IG Office I En Espanal
Fac.ts for Consumers PDf Versim
Mortgage Servicing: Making Sure Your Payments Count

'MIen you apply for a home mortgage, you may think that the IenderwiU hold and service your loan until you pay it off or you sell your house. That's often not the case. I
today'. market, loans and the rights to service them often are bought and sold.
A home may be one of the most expensive purchases you ever make, so it's important to know who is handfing your payments and that your mortgage account is prope
credited. The Federal Trade Commission (FTC) wants you to know what a mortgage servicer does and what your rights are.
Mortgage Servicers: Their Responsibilities to You
A mortgage servicer is responsible for collecting your monthly loan payments and crediting your account. A servicer also handles your escrow account, if you have one.
Escrow Accounts
An escrow account is a fund held by your servicer into which you pay money to cover charges like property taxes and homeowners insurance. The escrow payments
typically are included as part of your monthly mortgage payments. The servicer pays your taxes and insurance as they become due during the year. If you do not have a
escrow account, you are responsible for paying your taxes and insurance and budgeting accordingly.
The Real Estate Setllement Procedures Act (RESPA), enforced by the Department of Housing and Urban Development, is the major law covering escrow accounts. If
your mortgage servicer adminialers an escrow account for you, the servicer is generally requITed 10 make escrow paymems for ma, insurance, and any other charges
a timely manner. Within 45 days of establishing the account, the servicer must give you a statement that clearly itemizes the estimated taxes, insurance premiums, and
other anticipated charges to be paid over the next 12 months, and the expected dates and totals of tflosepaymenta.
Under RESPA, the mortgage servicer also is required to give you a free annual statement that demOs the activity of your escrow account. This statement shows your
account balance and reflects payments for your property taxes, homeowners insurance, and other charges.
Transfer of Servicing
If your loan is about to be sold, you generally get two notices: one from your current mortgage servicer; the other from the new servicer. Usually, your current servicer
must notify you at least 15 days before the effective date of the transfer. unless you received a written transfer notice at settlement The effective date is when the first
mort;age payment is dUll atthe new servicer's add",_. The newservicer ml/$t notify you within 15 days after the transfer has occurred.
The notices must include:
• the name and address of the new servicer.

• the date the current servicer win stop accepting your mortgage payments.
• the date the new servicer will begin accepting your mortgage payments.
• ID/l-free or coilect-caU l'/Jleplrone numbers, for ttre cumlnt and new mortgage Stfwicer, for information about ttre transfer.
• whether you can continue any optional insurance, such as credit fife or disability insurance; what action, if any, you must take to maintain coverage; and whether the
insurance terms will change.
• a statement that the transfer will not affect any terms or conditions of your mortgage, except those directly related to the servicing of the loan. For example, if your
contract says you were allowed to pay property taxes and insurance premiums on your own, the new servicer cannot demand that you establish an escrow account
There is a 60-day grace period after the transfer: during this time you cannot be charged a late fee if you mistakenly send your mortgage payment to the old servicer. In
addition. the fact that your new servicer may have received your payment late as a result cannot be reported to a credit bureau.
Posting Payments
Some consumers have complained that they've been charged late fees, even when they know they made their payments on time. To help protect yourself, keep good
rt::ut='ICfI IICfUt=' \",OllUIlISSIOn Page 2 of4
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records of what you've paid, including any billing statementa, canceled chec:kll, or bank account &tatemenlB. You also may check your aCCCltlnt history online if your .
servicer's Web site has this feature. If you have a dispute, continue to make your mortgage payments, but challenge the selVicing in writing (see Sample Complaint Lettl
10 Lender), and keep a copy of the letter and any enclosures for your records. Send your correspondence by certified man, and requeet a retum receipt. Or send it by fa)
and keep a copy of the transmittal confirmation.
Force Placed Insurance
Ifs important lD maintain the required property insurance on your home. If you don't. your selVicer can buy insurance on your behalf. This type of policy is known as foro
placed inSWllnC8; It usuaDy is mont IIlCpensiYe than iypX:a1 insurance; and it provides Jess covelJlge. The plimaJY pUJPOse of a hm:e placed poflC)' ill 10 prolect the
mortgage holder, not the property owner.
Review all correspondence you receive from your mortgage servicer. Your mortgage selVicer may request that you provide a copy of your property insurance policy.
R.e.pond prompliy to Tequesta regarding property iT\$\lTance, and Ileep cop\e$ of al documenIB you und to your mortgage serficer.
If you be6eve there's a paperwork error and that your coverage is adequate. provide a copy of your insurance policy to your servicer. Once the servicer conrec:ts the erro
removes the force placed coverage, and refunds the cost of the force placed policy, make sure that any late ~ or interest you were charged as a result of the coverall'
also are removed.
Fees
Review your baling &tatements carefully lD make sure that any fees the "lVicer charges are legitimate. For example, the fees may have been authorized by the mortgag
contract or by you to pay for a service. If you do not understand what the fees are for, send a written inquiry and ask for an itemization and explanation of the f_. Also.
you call your mortgage servicer lD request a service, such as faxing copies of loan documents, make sure you ask whether there is a fee for the ulVice and what it is.
Inquiries and Disputes
Under RESPA, your mortgage servieer must respond promptly to written inquiries. known as qualified written requests (see Sample Complaint Letter lD Lender). If you
believe )lou've been dlarged II penalty or late fee that )lOll don't owe, or II )'OIl have other problems with lhe se1\ficing of )'OIlT Joan, contact )'OIlT lIe1lIiceT in writing. Be su
to include your account number and clearly explain why you believe your account is incorrect. Your inquiry should not be just a nota on the payment coupon supplied by
your servicer, but should be sent separately 10 the customer service address.
lMthin 20 business clays of receiving your inquiry, the servicer must send you a written response acknowledging It. Within 60 business days, the selVicer either mult
correct your account or determine that it is accurate. The ulVicer must send you a written notice of the action it took and why, along with the name and telephone numb
of someone you can contact for additional assistance.
Do not subtract any disputed amount from your mortgage payment Some mortgage urvicers might refuse to accept what they consider to be partial payments. They
might retum )lOUT check IiInd chaTge you Of late flte, or claim that )lour ITIOftgage is in default and stan forecJDsuTII proceedintp.
Sample Complaint Letter to Lender

The following Is a sample qualified wrlttetJ mquest from you, the borrower, fo a lender. Use this format to addTe$S
oompfainfs uncler the Real Estate Settfement Procedures Act (RESPA).
Atlantion Customer Service:
Subject: Your loan number

YourName
Your Address
y OUT City, Statlt, Zip Code
This is a "qualified written request" under Section 6 of the Real Estate Settlement Procedures Act (ReSPA).
I am writing because:
Oncribe the issue or the question you have andior what action you be6eve the lender should take.
Attach copies of any related written materials.
Describe any conversations with customer selVice regarding the issue and to whom you spoke.
)
Describe any previous slepsyou have taken or attempts to resolve the issue.
rt::ut::1 Cli II ClUt:: \JUIIIIIII:S:SIUII ~age ~ Of4
List a day time telephone number in case a customer service representative wishes to contact you.
I understand that under Section 6 of RESPA you are required to acknowledge my

request within 20 business days and must try to resolve the issue within 60 business days.
Sincerely.
Your name
Fair Debt Collection
By law. a debt collector is a person who regularly collec:1s debts owed to others. Your mortgage servicer is considered a debt collector only if your loan was In default
Ml~ 1M StNVicM acquinld it. If thaI's t1W. you haWl addition4Il righls thllt you ~n INd about in Imt FTCs bn>chure -Fair Debt C<>IIectioR."
Your Credit Report
Many mortgage companies proVide information about your payment history to credit bureaus. companies that maintain and seD consumer credit reports - which contair
information about your credit payment history - to other creditors. employers. insurers, and businesses. Both the credit bureaus and the information provider have
responsibilities for correcting Inaccurate or incomplete information.
If you beDeve that your mortgage servicer has proVided inaccurate information to a credit bureau. contact the credit bureau and the servicer. Tell the credit bureau in
writing (see Sample Dispute Letter to Credit Bureau) what information you believe is inaccurate. Include copies (NOT originals) of documents that support your position.
addition to providing your complete name and address. your letter should clearly identify each item in your report you dispute. state the facts, and explain why you displ1
the information. and request deletion or correction. You may want to enclose a copy of your report with the items in question circled. Send your letier by certified mail.
Wl1.um receil" ~qu_ed, so you can document what the cre<iit bureau received. Keep copi5 of your dispute letter Il.l\d enclow~s.
Credit bureaus must re-investlgate the items in question - usuaRy within 30 days - unless they consider your dispute frivolous. They also must forward all relevant
information you provide about the dispute to the information provider. After the information provider receives notice of a dispute from the credit bureau. it must investiga~
review alt relevant information provided by the credit bureau. and repol1 the resu/ls to the credit bureau. If the inforrnatli:m provider finds the disputed information 10 be
inaccurate, it must notify all national credit bureaus so they can correct this information in your file. Disputed information that cannot be verified must be deleted from yOl
file.
• If your report contains erroneous information. the credit bureau must correct it.
• If an item is incomplete, the credit bureau must complete it. For example, if your file showed that you were late making payments. but faRed to show that you were nc
longer de6nquent. the credit bureau must show that you're current
• If )lour file shows an account that belol19s to another person, the credit bureau must delete It.
When the re-investigation is complete. the credit bureau must give you the written results and a free copy of your report if the dispute results in a change. If an item is
changed or removed, the credit bureau cannot put the disputed information back in your file unless the information provider verifies Its accuracy and completeness. and
\he credit buTeau gNu you awritlen notice \hat includes \he name, addTeSS. and phone numbel of the providel.
Also. if you request it, the credit buresu must send notices of corrections to anyone who received your report in the past six months. If a re-investigation does not resolve
your dispute. ask the credit bureau to include your statement of the dispute in your file and in future reports.
In addition to writing to the credit bureau. teU the servicer In writing that you dispute an item. Include copies (NOT originals) ofthe documents that support your position.
a S8rvicer specifies an address for disputes. it is important to send your dispute to that address. If the provider then reports the item to any credit bureau. it must include
notice of your dispute. if you are correct - that is. if the disputed information is inaccurate - the information provider may not report it again.
Sample Dispute Letter to Credit Bureau
Date
Your Name
Your Address
Your City. State, Zip Code
Complaint Department
Name of Credit Reporting Agency
Address
City. State, Zip Code
rl:#ut:#1 eU II i::lUt:# \JUIIIII II~~IUII ...age 4 ot4
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Dear Sir or Madam:
( ,-'
I am writing lD dispute the foUoVlling information in my file. The items I dispute also are encircled on the aliached copy of the
report I received. (Identify item(s) disputed by name of loan _rvicer and loan number.)
This ilem is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that
tM item M d~ (or request anotMr SfHICIic chIlnge} to 0tJrrlJCt the il'lformalion.
Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment
records, court documents) supporting my position. Please re-investigate this (these) matier(s) and (delete or correa) the
dISputed item(s) as soon as possible.
Sincerely,
Your name
Enclosures: (List what you are enclosing)
If You Have a Complaint
If you beReve your mortgage servicer has not responded appropriately lD your written inqUiry, contact your local or state consumer protection ~. You also Mould
conllilct the Depattment of Housing and Utban Development (HUt:>} to • a complaint under Ih~ RESPA regulations. Writt: 0fflct!I of RESPA and Interslattf Land SIMs,
Department of Housing and Urban Development, 451 Seventh Street, S.W., Room 9146, Washington, DC 20410.
In addition, you may want to conllilct an attorney to advise you of your legal rights. Under certain sections of the RESPA, consumers can initiate lawsuits and obtain actu
damages, plus additional damages. for a pattem or practice of noncompliance. In successful actions, consumers also may obtain court costa and attorney's fees.
You may want to contact a housing counselor to discuss your situation. You can call HUO's hotline at 1-800-217-45970 for a referral to a local HUD-approved housing
counselor. .
You also may wish lD contact the FTC.

The FTC works for the consumer lD prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot,
stop and avoid them. To file a ':~lT'p';;int or to get iT>!;>!; hf~rn1zt!O!i cr <>:,'-.';','C~!!r ''S5U!!5, visit http:""','f,'!/,fu:;,gO'!! or caU toll-free, 1-877·FTc-HELP (1-877-382-4357); TTY
1-866-653-4261. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into O'JJ\sumer Sentinel, a secure, online dalabase available tc
hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
November 201
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Housing Your Rights and the Responsibilities of the

About Housing
Contact us Mortgage Servicer
Keywords When you apply for a home mortgage, you may
~' local information
II Sl:1g~ Family think that the lender, or loan originator, will service
• Audience groups the loan until it is paid off or your house is sold. Rl:nespafiof
• Buying a home However, in today's market mortgage servicing & Pti~.~~~
• Events &. training rights often are bought and sold. l1:le Real Estate
~ Email thisto-a.friend
• FHA insured leans Settlement Procedures Act (RESPA) is a consumer
• Common questi.ons protection statute. Sections 6 and 10 of RESPA
• Housing counseling provide you with certain rights regarding the
.. HUO homesl REO servicing of your mortgage and escrow account. Please read this important information
• Owning a home concerning your rights and the responsibility of your loan servicer.
II Reference guide
.. Regulatory programs
Hospitals Duty of Loan Servicer to Respond to Complaints. If you have questions or problerr
Multifamily with the servicing of your loan, the servicer is required to respond to you. Write to yoU!
OMHAR servicer and call it a "qualified written request under Section 6 of RESPA." It should be
Reading room separate letter and not mailed with your payment. The mortgage servicer must respom
Online forums you within 60 business days of receipt. (See Sample Written Complaint to Lender.)
Work online
Loan Transferred to New Servicer. Your loan servicer Is required to notify you in wr
HUD news at least 15 days before the servicing of your loan is transferred to a new servicer. The
notice must include the follOWing information:
Homes
Communities • The effective date of the transfer, the date your current servicer will stop acceptl
payments and the date the new servicer will begin accepting them.
Working with HUD • The name, address, and toll-free or collect call telephone number for the new
servicer.
Resources
• Information that tells whether you can continue any optional insurance, such as
Tools mortgage life or disability insurance, and what action, if any, you must take to
Let's talk maintain coverage.
\Nebcastl> • A statement that the transfer of servicing does not affect any term or condition c
Mailing lists your mortgage documents other than the terms directly related to the servicing I
Contact us the loan.
Help
Treatment of Payments During Transfer Period. During the 60-day period beglnnil
on the effective date of the transfer, the payment may not be treated as late if you
mistakenly send it to the old mortgage servicer instead of the new one.
Escrow Account. RESPA does not require that you maintain an escrow account for the
purpose of paying property taxes, hazard insurance, etc. Nor does RESPA have any
jurisdiction over the decision of the lender or servicer to require or terminate an escroYl
account. RESPA does, however, provide you with the following protections with regard'
the escrow account:
• If your lender or mortgage servicer requires you to maintain an escrow account I

the purpose of paying property taxes, hazard insurance, etc., RESPA requires thi
the servicer pay such items by the dates due to avoid a penalty or late charge.
• RESPA sets limits on the maximum amount of money the servicer may require y,
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to maintain and pay in the escrow account. (More informatiOn about escrow .--
accounts, including how to calculate the maximum amount RESPA allows the len.
to require in the escrow account.)
PMI (Private Mortgage Insurance). RESPA has no jurisdiction over the lender's ded
to require PMI. Nor does it have any jurisdiction over the lender's decision to cancel PM
(The PM! Act provides information regarding cancellation of PMI.)
Content updated June 21,2002
,~~.....\ . U.S. Department of Housing and Urban Development

Prwacy pm
~. " .-t 451 7th Street S.W., Washington, DC 20410
~
II II I Telephone: (202) 708-1112 TTY: (202) 708-1455
.., ,::;..r Find the adcfress of a HOO aflice !'!Q~
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Pagel
:ITATION TIlLE
;ONST Amend. V-Due Process Due Process ofLaw
CA § 541 Property of the estate
,1 vSCA § 542 Turnover of property to the estate
11 USCA§ 547 Preferences
II USCA§ 548 Fraudulent transfers and obligations
12 USCA § 1452 Federal Home Loan Mortgage Corporation
:2 USCA § 1454 Purchase and sale ofmortgages; residential mortgages; conventional mortgages; terms and conditions of
sale or other disposition; authority to enter into, perform, and carry out transactions
12 USCA § 1456 Immunity of Corporation; audits and reporting requirements; data collection; Housing Advisol)" Council
l2 USCA § 1707 Definitions
l2 USCA § 1709 Insurance of mortgages
12USCA§ 1710 Payment of insurance
~2 USCA § 17151 Housing for moderate income md displaced families
.2 USCA § 1715z Homeownership or membership in cooperative association for lower income families
12 USCA § 1718 Capitalization ofFederal National Mortgage Association
12 USCA § 1721 Management and liquidation functions of Government National Mortgage Association
[2 USCA § 1723a General powers of Government National Mortgage Association and Federal National Mortgage
Association
12 USCA § 1823 Corporation monies
12 USCA § 2605 Setvicing ofmortgage loans and administration ofescrow accounts
[2 USCA § 2609 Limitation on requirement of advance deposits in escrow accounts
12 USC4 § 2610 Prohibition offees for prepJJTation of troth-in-lending, unif01Dl settlement, and escrow account statements
12 USCA, 24 CFR § 3500.2 Definitions
l2 USCA, 24 CFR § 3500.8 Use ofHOD-I or HOD-IA settlement statements
12 USCA. 24 CFR § 3500.10 One-day advance inspection ofHUD-l or HUD-IA settlement statement; delivery; recordkeeping
12 USCA. 24 CFR § 3500.12 No fee
.- TTSCA, 24 CFR § 3500.17 Escrow accounts
,CA, 24 CFR§ 3500.21 Mortgage servicing transfers
1-' uSCA, 24 CFRPt. 3500 App. A APPENDIX A--INSTRUCTIONS FOR COMPLETING HOD-I AND HOD-IA SETTLEMENT
STATEMENTS; SAMPLE HOD 1 AND HOD IA STATEMENTS
[2 USCA, 24 CFRPt 3500 App. APPENDIX MS-I--to PART 3500
~\fS·l
12 USCA, 24 CFR Pt 3500 App. APPENDIX MS-2--to PART 3500
\tS-2
[2 USCA § 4901 Definitions
12 USCA § 4902 Termination ofprivate mortgage insurance
12 USCA § 4903 Disclosure requirements
[2 USCA § 4904 Notification upon cancellation or termination
12 USCA § 4905 Disclosure requirements for lender paid mortgage insurance
12 USCA § 4907 Civil liability
12 USCA § 4909 Enforcement
15 USCA § 2 Monopolizing trade a felony; penalty
15USCA § 15 Suits by persons injured
15 USCA § 1114 Remedies; infringement; innocent infringement by printers and publishers
15 USCA § 1116 Injunctive relief
15 USCA § 1125 False designations oforigin, false descriptions, and dilution forbidden
15 USCA § 1641 Liability of assignees
15 USCA § 1681b Permissible purposes ofconsumer reports
15 USCA § 6603 Application ofchapter
17USCA§ 410 Registration of claim and issuance of certificate
17 USCA § 502 Remedies for infringement: Injunctions
20 USCA § 1018 Performance-Based Organization for the delivCl)" of Federal student financial assistance
2f\ T TSCA § 101811 Administrative simplification of student aid delivery'
Page 2
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CITATION
20 USCA § 1018
TITLE
FederaI payments to reduce student interest costs
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).JSCA § 1078-9 Special insurance and reinsurance rules
~u USCA § 1082 Legal powers and responsibilities
20 USCA § 1085 Definitions for student loan insurance program
20 USCA § 1087cc Agreements with institutions of higher education
20USCA§ 1088 Definitions
20 USCA § lO89 Master calendar
20 USCA § 1090 Forms and regulations
20 USCA § 1092b National Student Loan Data System
20 USCA § lQ92c Simplification oflending process for borrowers
20 USCA § 1094 Program participation agreements
20 USCA § 1098a Regional meetings and negotiated rulemaking
20 USCA § 1099c Eligibilit.'f and certification procedures
21 USCA § 881 Forfeitures
23 USCA § 181 Definitions
23 USCA§ 1&2 Determination. ofeligibility and project selection
23 USCA § 185 Project servicing
26 USCA § 162 Trade or business expenses
)
12 USCA § 2605, Servicing of mortgage loans and administration ofescrow accounts Pagel
"93780 12 V.S.C.A. § 2605 proceedings
UNITED STATES CODE The notice required under

ANNOTATED paragraph (l) shall be made to the
TITLE 12. BANKS AND borrower not more than 30 days after the
BANKING effective date of assignment, sale, or
transfer of the servicing of the mortgage
CHAPTER 27--REAL ESTATE
loan (with respect to which such notice is
SETTLEMENT PROCEDURES made) in any case in which the
assignment, sale, or transfer of the
Current through P.L. J06-2 J3, approved servicing of the mortgage loan. is preceded
5-26-2000 by--
(i) termination of the contract for
§ 2605. Servicing of mortgage loans and servicing the loan for cause;
administration of escrow accounts (ii) commencement of proceedings
for bankruptcy of the servicer; or
(a) Disclosure to applicant relating to assignment, (iii) commencement of proceedings
sale, or transfer of loan servicing by the Federal Deposit Insurance Corporation or
the Resolution Trust Corporation for
Each person who makes a federally related conservatorship or receivership of the servicer (or
mortgage loan shall disclose to each person who an entity by which the servicer is owned or
applies for the loan., at the time of application for controlled).
the loan, whether the servicing of the loan may be
assigned, sold., or transferred to any other person
at any tinle while the loan is outstanding.
(b) Notice by transferor of loan servicing at time The provisions of

oftransfer subparagraphs (A) and (B) shall not apply
to any assignment, sale, or transfer of the
(1) Notice requirement servicing of any mortgage loan if the
person who makes the loan provides to the
Each servicer of any federally related borrower, at settlement (with respect to the
mortgage loan shall notify the borrower in property for which the mortgage loan is
writing of any assignment, sale, or transfer of made), written notice under paragraph (3)
the servicing ofthe loan to any other person. of such transfer.
(2) Time of notice *93781 (3) Contents of notice
(A) In general The notice required under paragraph

(1) shall include the following information:
Except as provided under (A) The effective date of
subparagraphs (B) and (C), the notice transfer of the servicing described in such
required under paragraph (1) shall be paragraph.
made to the borrower not less than 15 days (B) The name, address, and
before the effective date Of transfer of the toll-free or collect call telephone number
servicing of the mortgage loan (with ofthe transferee servicer.
respect to which such notice is made). (C) A toll-free or collect call
telephone number for (i) an individual
(B) Exception for certain employed by the transferor servicer, or (ii)
12 USCA § 2605, Servicing ofmortgage loans and administration ofescrow accounts Pagel
-
the department of the transferor servicer,
that can be contacted by the borrower to
answer inquiries relating to the transfer of
required under paragraph (1) shall be
made to the borrower not more than 15
days after the effective date of transfer of
-,
servicing. the servicing of the mortgage loan (with
(0) The name and toll-free or respect to which such notice is made).
collect call telephone number for (i) an
individual empJoyoo by the transferee (B) Exception for certain
servicer, or (ii) the department of the proceedings
transferee servicer, that can be contacted
by the borrower to answer inquiries The notice required under
relating to the transfer of servicing. paragraph (1) shall be made to the
(E) The date on which the borrower not more than 30 days after the
transferor servicer who is servicing the effective date of assignment, sale, or
mortgage loan before the assignment, sale, transfer of the servicing of the mortgage
or transfer will cease to accept payments loan (with respect to which such notice is
relating to the loan and the date on which made) in any case in which the
the transferee servicer will begin to accept assignment, sale, or transfer of the
such payments. servicing of the mortgage loan is preceded
(F) Any information concerning by-
the effect the transfer may have, if any, on *93782 (i) termination of the
the terms of or the continued avaiJability contract for servicing the Joan for cause;
of mortgage life or disability insurance or (ii) commencement of proceedings
any other type of optional insurance and for bankruptcy ofthe servicer; or
what action, if any, the borrower must take (iii) commencement of proceedings
to maintain coverage. by the Federal Deposit Insurance Corporation or
(G) A statement that the the Resolution Trust Corporation for
assignment, sale, or transfer of the conservatorship or receivership ofthe servicer (or
servicing of the mortgage loan does not an entity by which the servicer is owned or
affect any term or condition of the security controlled).
instruments other than terms directly
relatOO to the servicing of such loan. (C) Exception for notice provided
at closing
(c) Notice by transferee of loan servicing at time
oftransfer The prOVIsIons of
subparagraphs (A) and (B) shall not apply
(1) Notice requirement to any assignment, sale, or transfer of the
servicing of any mortgage loan if the
Each transferee servicer to whom the person who makes the loan provides to the
servicing of any fooerally relatOO mortgage borrower, at settlement (with respect to the
loan is assigned, sold, or transferred shall property for which the mortgage loan is
notifY the borrower of any such assignment, made), written notice under paragraph (3)
sale, or transfer. of such transfer.
(2) Time of notice (3) Contents ofnotice
(A) In general Any notice required under paragraph

(1) shall include the information described in
Except as provided in subsection (b)(3) of this section.
subparagraphs (B) and (C), the notice
12 USCA § 2605, Senricing ofmortgage loans and administration of escrow accounts Page 3
(d) Treatment of loan payments during transfer *93783 (2) Action with respect to
period inquiry
During the 60-day period beginning on the Not later than 60 days (excluding legal
effective date of transfer of the servicing of any public holidays, Saturdays. and Sundays) after
federally related mortgage loan, a late fee may not the receipt from any borrower of any qualified
be imposed on the borrower with respect to any written request under pm-agraph (1) and, if
payment on such loan and no such payment may applicable, before taking any action with
be treated as late for any other purposes. if the respect to the inquiry of the borrower. the
payment is received by the transferor serncer servicer shall--
(rather than the transferee servicer who should (A) make appropriate
properly receive payment) before the due date corrections in the account of the borrower,
applicable to such payment. including the crediting of any late charges
or penalties, and transmit to the borrower
(e) Duty of loan servicer to respond to borrower a written notification of such correction
inquiries (which shall include the name and
telephone number of a representative of
(1) Notice of receipt of inquiry the servicer who can provide assistance to
the borrower);
(A) In general (B) after conducting an
investigation. provide the borrower with a
If any servicer of a federally written explanation or clarification that
related mortgage loan receives a qualified includes--
written request from the borrower (or an (i) to the extent applicable, a
agent of the borrower) for information statement of the reasons for which the servicer
relating to the servicing of such loan. the believes the account of the borrower is correct as
servicer shall provide a written response determined by the servicer; and
acknowledging receipt of the (ii) the name and telephone number
correspondence within 20 days (excluding of an individual employed by. or the office or
legal public holidays, Saturdays, and department of. the servicer who can provide
Sundays) unless the action requested is assistance to the borrower; or
taken within such period. (C) after conducting an
investigation, provide the borrower with a
(B) Qualified written request written explanation or clarification that
includes--
For purposes of this subsection. (i) information requested by the
a qualified written request shall be a borrower or an explanation of why the
written correspondence, other than notice information requested is unavailable or cannot be
on a payment coupon or other payment obtained by the servicer; and
medium supplied by the servicer, that- (ii) the name and telephone number
(i) includes, or otherwise enables of an individual employed by, or the office or
the servicer to identify. the name and account of department of, the servicer who can provide
the borrower; and assistance to the borrower.
(ii) includes a statement of the
reasons for the belief of the borrower, to the (3) Protection of credit rating
extent applicable, that the account is in error or
·provides sufficient detail to the servicer regarding During the 60-day period beginning on
other information sought by the borrower. the date of the servicer's receipt from any
borrower of a qualified written request
Copyright (c) West Group 2000 Noclaim to original U.S. Govt. works
-
12 USCA § 2605, Servicing ofmortgage loans and administration ofescrow accounts Page 4
relating to a dispute regarding the borrower's paragraph (1) or (2), in the case of any .-.
payments, a servicer may not provide successful action under this section, the costs
infonnation regarding any overdue payment, of the action, together with any attorneys fees
owed by such borrower and relating to such incurred in connection with such action as the
period or qualified written request, to any court may determine to be reasonable. under
consumer reporting agency (as such term is the circumstances.
defined under section 168b of Title 15).
(4) Nonliability
(f) Damages and costs
A transferor or transferee semcer
Whoever fails to comply with any provision of shall not be liable under this subsection for
this section shall be liable to the borrower for any failure to comply with any requirement
each such failure in the following amounts: under this section if, within 60 days after
discovering an error (whether pursuant to a
(1) Individuals fmal written examination report or the
servicer's own procedures) and before the
In the case of any action by an commencement of an action under this
individual, an amount equal to the sum. of- subsection and the receipt of written notice of
(A) any actual damages to the the error from the borrower, the servicer
borrower as a result of the failure~ and notifies the person concerned of the error and
(B) any additional damages, as makes whatever adjustments are necessary in
the court may allow, in the case of a the appropriate .account to ensure that the
pattern or practice of noncompliance with person will not be required to pay an amount
the requirements of this section, in an in excess of any amount that the person
amount not to exceed $1,000. otherwise would have paid
*93784 (2) Class actions (g) Administration ofescrow accounts
In the case of a class action, an amount If the terms of any federally related mortgage
equal to the sum of- loan require the borrower to make payments to the
(A) any actual damages to each servicer of the loan for deposit into an escrow
of the borrowers in the class as a result of account for the purpose of assuring payment of
the failure~ and taxes, insurance premiums, and other charges
(B) any additional damages, as with respect to the property, the servicer shall
the court may allow, in the case of a make payments from the escrow account for such
pattern or practice of noncompliance with taxes, insurance premiums, and other charges in a
the requirements of this section, in an timely manner as such payments become due.
amount not greater than $1,000 for each
member of the class, except that the total (h) Preemption ofconflicting State laws
amount of damages under this
subparagraph in any class action may not Notwithstanding any provision of any law or
exceed the lesser of·· regulation of any State, a person who makes a
(i) $500,OOO~ or federally related mortgage loan or a servicer shall
(ii) 1 percent of the net worth of be considered to have complied with the
the servicer. provisions of any such State law or regulation
requiring notice to a borrower at the time of
(3) Costs application for a loan or transfer of the servicing
of a loan if such person or servicer complies with
In addition to the amounts under the requirements under this section regarding
12 USCA § 2605, Servicing ofmortgage loans and administration ofescrow accounts PageS
timing, content, and procedures for notification of controlled).

the borrower.
(3) Servicing
*93785 (i) Defmitions
The term "servicing" means receiving
For purposes of this section: any scheduled periodic payments from a
borrower pursuant to the terms of any loan,
(l) Effective date of transfer including amounts for escrow accounts
described in section 10. and making the
The term "effective date of transfer" payments of principal and interest and such
means the date on which the mortgage other payments with respect to the amounts
payment of a borrower is first due to the received from the borrower as may be required
transferee servicer of a mortgage loan pursuant to the terms of the loan.
pursuant to the assignment, sale. or transfer of
the servicing of the mortgage loan. (j) Transition
(2) Servicer (1) Originator liability

r
The term "servicer" means the person A person who makes a federally related
responsible for servicing of a loan (including mortgage loan shall not be liable to a borrower
the person who makes or holds a loan if such because of a failure of such person to comply
pel"SOIl also services the loan). The term does with subsection (n) of this section with respect
not include-- to an application for a loan made by the
(A) the Federal Deposit borrower before the regulations referred to in
Insurance Corporation or the Resolution paragraph (3) take effect.
Trust Corporation. in connection with
assets acquired, assigned. sold, or (2) Servicer liability
transferred pursuant to section 1823(c) of
this title or as receiver or conservator of an A servicer of a federally related
insured depository institution; and mortgage loan shall not be liable to a borrower
(B) the Government National because of a failure of the servicer to perform
Mortgage Association. the Federal any duty under subsection (b), (c). (d). or (e)
National Mortgage Association. the of this section that arises before the
Federal Home Loan Mortgage regulations referred to in paragraph (3) take
Corporation. the Resolution Trust effect.
Corporation, or the Federal Deposit
Insurance Corporation,. in any case in *93786 (3) Regulations and effective
which the assignment, sale, or transfer of date
the servicing of the mortgage loan is
preceded by-- The Secretary shall. by regulations that
(i) termination of the contract for shall take effect not later than April 20, 1991,
servicing the loan for cause; . establish any requirements necessary to carry
(ii) commencement of proceedings out this section. Such regulations shall
for bankruptcy ofthe servicer; or include the model disclosure statement
(iii) commencement of proceedings required under subsection (a)(2) of this
by the Federal Deposit Insurance Corporation or section.
the Resolution Trust Corporation for
conservatorship or receivership of the servicer (or CREDIT(S)
an entity by which the servicer is owned or
12 USCA § 2605, Servicing of mortgage loans and administration ofescrow accounts Page 6
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2000 Electronic Update
REFERENCES
(pub.L. 93-533. § 6. as added PubL. 101-625. Title IX, §
941. Nov. 28, 1990. 104 Stat. 4405. and amended PubL. CROSS REFERENCES
102-27. Title m, § 312(a), Apr. 10, 1991. 105 Stat. 154;
PubL. 103-325, Title m, § 345, Sept. 23, 1994, 108 Stat.
"Services" defined as in this section for purposes of treatment
2239; PubL. 104-208, Div. A, Tille II, § 2103(a). Sept. 30,
of services, see IS USCA § 1641.
1996. 110 Stat. 3009-399,)
<General Materials (GM) - References, ANNOTATIONS

Annotations, or Tables>
NOTES OF DECISIONS
HISTORICAL NOTES
Actual damages
Actual damages - Generally 1
mSTORICAL AND STATUTORY Actual damages - Economic loss 3
NOTES Actual damages - Personal injury or emotional distress
2
Revision Notes and Legislative Reports Economic loss, actual damages 3
1990 Acts. Senate Report No. 101-316 and House Emotional distress, actual damages 2
Conference Report No. 101-943, see 1990 U.S. Code Congo Personal injury or emotional distress, actual damages 2
and Adm.. News, p. 5763. QuaJified written request 4
1994 Acts. Senate Report No. 103-169 and House 1. Actual damages-Generally
Conf~ Report No. 1Q3-6S2, see 1994 U.S. Code Congo
and Adm.. News, p. 1881. "Actual damages" that mortgagor may recover as result of
mortgage servicer's failure to comply with Servicer Act do
Amendments not include nonpecuniary losses. Katz v. Dime Say. Bank,.
FSB, w'D.N.Y.l997, 992 F.Supp. 250.
1996 Amendments
Subsec. (a). PubL. 104-208, § 2103(a), substituted 2. - Personal injury or emotional distress
provisions requiring each lender of a federally related
mortgage loan to disclose to applicant whether servicing of Mortgagor was not entitled to recover damages for
such loan may be assigned, sold or transferred, for provisions emotional distress or personal injury as part of "actual
which required each lender of a federally related mortg88e damages" awardable for any vioJanon of Servker Act arisinB
loan to disclose to applicant whether servicing of such loan from servicing agent's alleged breach of workout 88feCIDent
may be assigned, sold, or transferred, required disclosure of Katz v. Dime Sav. Bank,. FSB, W.D.N.Y.l997, 992 F.Supp.
lender's histoIy of assigning, selling, or transfening such 250.
loans, directed Secretary to develop model disclosure
statement, and required signature of applicant on all such 3. - Economic loss
disclosure statements.
Mortgagor could not recover economic loss damages for
1994 Amendments. Subsec. (aXl)(B). Pub.L. 103-325, servicing agent's alleged breach of contract and violation of
§ 345(lX4), inserted introductory phrase "at the choice of the Servicer Act in failing to honor wmkout agreement in
person making a federally related mortgage loan-" and absence of proof of actual pecunimy loss, such as denial of
designated existing text as cl "(i) for each of the most credit based on inaccurate credit reports or inability to
recent"; redesignated as subeIs. (i)(l) and (ll) former cIs. (i) refinance or sell his home as a result of servicer's conduct;
and (ii), with appropriate indentation; substituted "or" for proof of economic loss that might have befallen mortgagor
"and" at end of subel (i)(ll); and cl. (n), respectively. because of agent's actions was insufficient. Katz v. Dime
Sav. Bank,. FSB, W.D.N.Y.l997, 992 F.Supp. 250.
1991 Amendments. Subsec. (j). PubL. 102-27 added
subsec. (j). 4. Qualified written request
Prior Provisions Buyer of carpeting secured by second mortgage on home

"93787 A prior section 2605, PubL. 93-533, § 6, Dec. failed to state claim under Real Estate Settlement Procedures
22, 1974, 88 Stat. 1726, which related to advanced itemized .Act (RESPA); buyer did not allege he made a "qualified
disclosure of settlement costs by the lender and liability ofthe written request" to seller, as required to trigger obligations
lender for failure to comply, was repealed by Pub.L. 94-205, under RESPA Walker v. Michael W. Colton Trust,
§ 5, Jan. 2, 1976, 89 Stat. 1158. ED.Mich.l999, 47 F.Supp2d 858.
)
12 USCA, 24 CFR § 3500.21, Mortgage servicing transfers Pagel
*93884 RESPA Reg. X. 24 CFR § 3500.21, 12 dealer on a first lien dealer toan, who transfers or
U.S.C.A. foIl. § 2617 will transfer the right to perform servicing
functions pursuant to an agreement or
UNITED STATES CODE understanding.
ANNOTATED (b) Servicing Disclosure Statement and
TITLE 12. BANKS AND Applicant Acknowledgement; requirements. (1)
BANKING At the time an application for a mortgage
servicing loan is submitted, or within 3 business
REGULATIONS FOR REAL
days after submission of the application, the
ESTATE SETTLEMENT lender, mortgage broker who anticipates using
PROCEDURES table funding, or dealer who anticipates a first lien
REGULATION X dealer loan shall provide to each person who
PART 3500--REAL ESTATE applies for such a loan a Servicing Disclosure
SETTLEMENT PROCEDURES Statement. This requirement shall not apply
ACT when the application for credit is turned down
within three business days after receipt of the
As amended to 6-16-2000 application. A format for the Servicing
Disclosure Statement appears as Appendix MS-l
§ 3500.21. Mortgage servicing transfers to this part. Except as provided in paragraph
(b)(2) of this section, the specillc language of the
Servicing Disclosure Statement is not required to
(a) Definitions. As used in this section:
be used, but the Servicing Disclosure Statement
Master servicer means the owner of the right
must include the information set out in paragraph
to perform servicing, which may actually perform
(b)(3) of this section, including the statement of
the servicing itself or may do so through a
the borrower's rights in connection with
subservicer.
complaint resolution. The information set forth in
Mortgage servicing loan means a federally
Instructions to Preparer on the Servicing
related mortgage loan, as that term is defined in §
Disclosure Statement need not be included on the
3500.2, subject to the exemptions in § 3500.5,
form given to applicants, and material in square
when the mortgage loan is secured by a fIrst lien.
brackets is optional or alternative language.
The definition does not include subordinate lien
*93885 (2) The Applicant's
loans or open-end lines of credit (home equity
Acknowledgement portion of the Servicing
plans) covered by the Truth in Lending Act [15
Disclosure Statement in the format stated is
U.S.C.A. § 1601 et seq.] and Regulation Z.
mandatory. Additional lines may be added to
including open-end lines of credit secured by a
accommodate more than two applicants.
first lien.
(3) The Servicing Disclosure Statement must
QualifIed written request means a written
contain the following information, except as
correspondence from the borrower to the servicer
provided in paragraph (b)(3)(ii) of this section:
prepared in accordance with paragraph (e)(2) of
(i) Whether the servicing of the loan may be
this section. assigned, sold or transferred to any other person
Subservicer means a servicer who does not at any time while the loan is outstanding. If the
own the right to perform servicing, but who does lender, table funding mortgage broker, or dealer in
so on behalf of the master servicer. a first lien dealer loan does not engage in the
Transferee servicer means a servicer who servicing of any mortgage servicing loans, the
obtains or who will obtain the right to perform disclosure may consist of a statement to the effect
servicing functions pursuant to an agreement or that there is a current intention to assign, sell, or
understanding. transfer servicing of the loan.
Transferor servicer means a servicer, (ii) The percentages (rounded to the nearest
including a table funding mortgage broker or quartile (25%)) of mortgage servicing loans
-
12 USCA, 24 CFR § 3500.21, Mortgage servicing transfers Pagel
originated by the lender in each calendar year for numerator the estimated number of mortgage
which servicing has been assigned, sol~ or servicing loans that will be originated for which
transferred for such calendar year. Compliance servicing may be transferred within the 12-month
with this paragraph (b)(3)(ii) is not required if the period and, as the denominator, the estimated total
lender, table funding mortgage broker, or dealer number of mortgage servicing loans that will be
on a first lien dealer loan chooses option B in the originated in the 12-month period.
model format in paragraph (b)(4) of this section, (A) If the lender, mortgage broker, or dealer
including in square brackets the language "[and anticipates that no loan servicing will be sold
have not serviced mortgage loans in the last three during the calendar year, the word "none" may be
years.]". The percentages shall be provided as substituted for "0 to 25 percent." If it is
follows: anticipated that all loan servicing will be sold
(A) This information shall be set out for the during the calendar year, the word "all" may be
most recent three calendar years completed, with substituted for "76 to 100 percent."
percentages as of the end of each year. This (B) This statistical information does not have
information shall be updated in the disclosure no to include the estimated assignment, sale, or
later than March 31 of the next calendar year. transfer of mortgage loan servicing to an affiliate
Each percentage should be obtained by using as or subsidiary of that person. However, this
the numerator the number of mortgage servicing information may be provided voluntarily. The
loans originated· during the calendar year for Servicing Disclosure Statements should indicate
which servicing is transferred within the calendar whether the percentages provided include
year and, as the denominator, the total number of assignments, sales or transfers to affiliates or
mortgage servicing loans originated in the subsidiaries.
calendar year. If the volume of transfers is less (iv) The information set out in paragraphs (d)
than 12.5 percent, the word "nominal" or the and (e) of this section.
actual percentage amount of servicing transfers (v) A written acknowledgement that the
may be used. applicant (and any co-applicant) has/have read
(B) This statistical information does not have and understood the disclosure, and understand
to include the assignment, sale, or transfer of that the disclosure is a required part of the
mortgage loan servicing by the lender to an mortgage application. This acknowledgement
affiliate or subsidiary of the lender. However, shall be evidenced by the signature of the
lenders may voluntarily include transfers to an applicant and any co-applicant.
affiliate or subsidiary. The lender should indicate (4) The following is a model format, which
whether the percentages provided include includes several options, for complying with the
assignments, sales, or transfers to affiliates or requirements of paragraph (b)(3) of this section.
subsidiaries. The model format may be annotated with
(C) In the alternative, if applicable, the additional information that clarifies or enhances
following statement may be substituted for the the model language. The lender or table funding
statistical information required to be provided in mortgage broker (or dealer) should use the
accordance with paragraph (b)(3)(ii) of this language that best describes the particular
section: "We have previously assigned, sol~ or circumstances.
transferred the servicing of federally related (i) Model Format: The following is the best
mortgage loans." estimate of what will happen to the servicing of
*93886 (iii) The best available estimate of the your mortgage loan:
percentage (0 to 25 percent, 26 to 50 percent, 51 (A) Option A. We may assign, sell, or
to 75 percent, or 76 to 100 percent) of all loans to transfer the servicing of your loan while the loan
be made during the 12-month period beginning on is outstanding. [We are able to service your
the date of origination for which the servicing loan[.][,] and we [will] [will not] [haven't decided
may be assigned, sold, or transferred. Each whether to] service your loan.]; or
percentage should be obtained by using as the (B) Option B. We do not service mortgage
)
12 USCA, 24 CFR § 3500.21, Mortgage servicing transfers Page 3
loans[.][,] [and have not serviced mortgage loans settled.

in the past three years.] We presendy intend to (d) Notices of Transfer; loan servicing. (1)
assign, sell, or transfer the servicing of your Requirement for notice. (i) Except as provided in
mortgage loan. You will be informed about your this paragraph (d)(1)(i) or paragraph (d)(1)(ii) of
servicer. this section, eac~ transferor servicer and
(C) As appropriate, the following paragraph transferee servicer of any mortgage servicing
DlJJy be used: Joan shall deliver to the borrower a written Notice
We assign, sell, or transfer the servicing of of Transfer, containing the information described
some of our loans while the loans are outstanding, in paragraph (d)(3) of this section, of any
depending on the type of loan and other factors. assignment, sale, or transfer of the servicing of
For the program for which you have applied, we the loan. The following transfers are not
expect to [assign, sell, or transfer all of the considered an assignment, sale, or transfer of
mortgage servicing] [retain all of the mortgage mortgage loan servicing for purposes of this
servicing] [assign, sell, or transfer _% of the requirement if there is no change in the payee,
mortgage servicing]. address to which payment must be delivered,
*93887 (ii) [Reserved] account number, or amount ofpayment due:
(c) Servicing Disclosure Statement and (A) Transfers between affiliates;
Applicant Acknowledgement; delivery. The (B) Transfers resulting from mergers or
lender, table funding mortgage broker, or dealer acquisitions of servicers or subservicers; and
that anticipates a first lien dealer loan shall deliver (C) Transfers between master servicers,
Servicing Disclosure Statements to each applicant where the subservicer remains the same.
for mortgage servicing loans. Each applicant or *93888 (ii) The Federal Housing
co-applicant must sign an Acknowledgement of Administration (FHA) is not required under
receipt of the Servicing Disclosure Statement paragraph (d) of this section to submit to the
before settlement borrower a Notice of Transfer in cases where a
(1) In the case of a face-to-face interview with mortgage insured under the National Housing Act
one or more applicants, the Servicing Disclosure [12 U.S.C.A. § 1701 et seq.} is assigned to FHA.
Statement shall be delivered at the time of (2) Time of notice. (i) Except as provided in
application. An applicant present at the interview paragraph (d)(2)(ii) of this section:
may sign the Acknowledgment on his or her own (A) The transferor servicer shall deliver the
behalf at that time. An applicant present at the Notice of Transfer to the borrower not less than
interview also may accept delivery of the 15 days before the effective date of the transfer of
Servicing Disclosure Statement on behalf of the the servicing ofthe mortgage servicing loan;
other applicants. (B) The transferee servicer shall deliver the
(2) If there is no face-to-face interview, the Notice of Transfer to the borrower not more than
Servicing Disclosure Statement shall be delivered 15 days after the effective date of the transfer;
by placing it in the mail, with prepaid first-class and
postage, within 3 business days from receipt of (C) The transferor and transferee servicers
the application. Ifco-applicants indicate the same may combine their notices into one notice, which
address on their application, one copy delivered to shall be delivered to the borrower not less than 15
that address is sufficient. If different addresses days before the effective date ofthe transfer ofthe
are shown by co-applicants on the application, a servicing of the mortgage servicing loan.
copy must be delivered to each of the co- (ii) The Notice of Transfer shall be delivered
applicants. to the borrower by the transferor servicer or the
(3) The signed Applicant Acknowledgment(s) transferee servicer not more than 30 days after
shall be retained for a period of 5 years after the the effective date of the transfer of the servicing
date of settlement as part of the loan flle for every of the mortgage servicing loan in any. case in
settled loan. There is no requirement for retention which the transfer ofservicing is preceded by:
of Applicant Acknowledgment(s) lithe loan is not (A) Termination of the contract for servicing
Copyright (0) West Group 2000 No claim to original U.S. Govt. works
-
the loan for cause; statement satisfactory to the Secretary.
(B) Commencement of proceedings for (4) Notices of Transfer; sample notice.
bankruptcy of the servicer; or Sample language that may be used to comply with
(C) Commencement of proceedings by the the requirements of paragraph (d) of this section
Federal Deposit Insurance Corporation (FDIC) or is set out in Appendix MS-2 of this part. Minor
the Resolution Trust Corporation (RTC) for modifications to the sample language may be
conservatorship or receivership of the servicer or made to meet the particular circumstances of the '
an entity that owns or controls the servicer. servicer, but the substance of the sample
(iii) Notices of Transfer delivered at settlement language shall not be omitted or substantially
by the transferor servicer and transferee servicer, altered.
whether as separate notices or as a combined (5) Consumer protection during transfer of
notice, will satisfy the timing requirements of servicing. During the 60-day period beginning
paragraph (d)(2) ofthis section. on the effective date oftransfer ofthe servicing of
(3) Notices of Transfer; contents. The any mortgage servicing loan, if the transferor
Notices of Transfer required under paragraph (d) servicer (rather than the transferee servicer that
of this section shall include the following should properly receive payment on the loan)
information: receives payment on or before the applicable due
(i) The effective date of the transfer of date (including any grace period allowed under
servicing; the loan documents), a late fee may not be
(ii) The name, consumer inquiry addresses imposed on the borrower with respect to that
(including, at the option of the servicer, a payment and the payment may not be treated as
separate address where qualified written requests late for any other purposes.
must be sent), and a toll-free or collect-call (e) Duty of loan servicer to respond to
telephone number for an employee or department barrower inquiries.
of the transferee servicer; (1) Notice of receipt of inquiry. Within 20
(iii) A toll-free or collect-call telephone business days of a servicer of a mortgage
number for an employee or department of the servicing loan receiving a qualified written
transferor servicer that can be contacted by the request from the borrower for information relating
borrower for answers to servicing transfer to the servicing of the loan, the servicer shall
inquiries; provide to the borrower a written response
(iv) The date on which the transferor servicer acknowledging receipt of the qualified written
will cease to accept payments relating to the loan response. This requirement shall not apply if the
and the date on which the transferee servicer will action requested by the borrower is taken within
begin to accept such payments. These dates shall that period and the borrower is notified of that
either be the same or consecutive days; action in accordance with the paragraph (£)(3) of
*93889 (v) Information concerning any effect this section. By notice either included in the
the transfer may have on the terms or the Notice of Transfer or separately delivered by first-
continued availability of mortgage life or class mail, postage prepaid, a servicer may
disability insurance, or any other type of optional establish a separate and exclusive office and
insurance, and any action the borrower must take address for the receipt and handling of qualified
to maintain coverage; written requests.
(vi) A statement that the transfer of servicing (2) Qualified written request; defined. (i) For
does not affect any other term or condition of the purposes of paragraph (e) of this section, a
mortgage documents, other than terms directly qualified written request means a written
related to the servicing of the loan; and correspondence (other than notice on a payment
(vii) A statement of the borrower's rights in coupon or other payment medium supplied by the
connection with complaint resolution, including servicer) that includes, or otherwise enables the
the information set forth in paragraph (e) of this servicer to identify, the name and account of the
section. Appendix MS-2 of this part illustrates a borrower, and includes a statement of the reasons
)
12 USCA, 24 CFR § 3500.21, Mortgage servicing transfers PageS
that the borrower believes the account is in error, provision of paragraph (e)(4)(i) of this section
if applicable, or that provides sufficient detail to does not impede a lender or servicer from
the servicer regarding information relating to the pursuing any of its remedies, including initiating
servicing of the loan sought by the borrower. foreclosure, allowed by the underlying mortgage
*93890 (ii) A written request does not loan instruments.
constitute a qualified written request if it is (0 Damages and costs. (1) Whoever fails to
delivered to a service,. more than 1 year after comply with any provision of this section shall be
either the date of transfer of servicing or the date liable to the borrower for each failure in the
that the mortgage servicing loan amount was paid following amounts:
in full. whichever date is applicable. (i) Individuals. In the case of any action by
(3) Action with respect to the inquiry. Not an individual, an amount equal to the sum of any
later than 60 business days after receiving a actual damages sustained by the individual as the
qualified written request from the borrower. and, result ofthe failure and, when there is a pattern or
if applicable. before taking any action with practice of noncompliance with the requirements
respect to the inquiry, the servicer shall: of this section, any additional damages in an
(i) Make appropriate corrections in the amount not to exceed $1,000.
account of the borrower, including the crediting of *93891 (ii) Class Actions. In the case of a
any late charges or penalties, and transmit to the class action, an amount equal to the sum of any
borrower a written notification of the correction. actual damages to each borrower in the class that
This written notification shall include the name result from the failure and, when there is a pattern
and telephone number of a representative of the or practice of noncompliance with the
servicer who can provide assistance to the requirements of this section, any additional
borrower; or damages in an amount not greater than $1,000 for
(ii) After conducting an investigation, provide each class member. However, the total amount of
the borrower with a written explanation or any additional damages in a class action may not
clarification that includes: exceed the lesser of $500,000 or 1 percent of the
(A) To the extent applicable, a statement of net worth of the semcer.
the servicer's reasons for concluding the account (iii) Costs. In addition. in the case of any
is correct and the name and telephone number of successful action under paragraph (f) of this
an employee, office, or department of the servicer section, the costs of the action and any reasonable
that can provide assistance to the borrower; or attorneys' fees incurred in connection with the
(B) Information requested by the borrower, or action.
an explanation of why the information requested (2) Nonliability. A transferor or transferee
is unavailable or cannot be obtained by the servicer shall not be liable for any failure to
servicer, and the name and telephone number of comply ""ith the requirements of this section, if
an employee. office, or department of the servicer within 60 days after discovering an error (whether
that can provide assistance to the borrower. pursuant to a final written examination report or
(4) Protection of credit rating. (i) During the the semcer's own procedures) and before
60-business day period beginning on the date of commencement of an action under this section
the servicer receiving from a borrower a qualified and the receipt of written notice of the error from
written request relating to a dispute on the the borrower, the servicer notifies the person
borrower's payments, a servicer may not provide concerned of the error and makes whatever
adverse information regarding any payment that is adjustments are necessary in the appropriate
the subject of the qualified written request to any account to ensure that the person will not be
consumer reporting agency (as that term is required to pay an amount in excess of any
defined in section 603 of the Fair Credit amount that the person otherwise would have
Reporting Act, 15 U.S.C. 1681a). paid
(ii) In accordance with section 17 of RESPA ( (g) Timely payments by servicer. If the
-
borrower to make payments to the servicer of the additional notices to insurance companies or
loan for deposit into an escrow account for the
purpose of assuring payment of taxes, insurance
premiums, and other charges with respect to the
taxing authorities, are not preempted by section 6
of RESPA [12 U.S.C.A. § 2605] or this section,
and this additional information may be added to a
-
mortgaged property, the servicer shall make notice prepared under this section, if the
payments from the escrow account in a timely procedure is allowable under State law.
manner for the taxes, insurance premiums, and
other charges as the payments become due, as CREDIT(S)
governed by the requirements in § 3500.17(k).
(h) Preemption of State laws. A lender who 2000 Electronic Update
makes a mortgage servicing loan or a servicer
shall be considered to have complied with the [61 FR 13248, Mar. 26, 1996J
provisions of any State law or regulation
requiring notice to a borrower at the time of *93892 <<PART 3500-REAL
application for a loan or transfer of servicing of a ESTATESETTLE~T
loan if the lender or servicer complies with the PROCEDURES ACT»
requirements of this section. Any State law
requiring notice to the borrower at the time of Authority
application or at the time of transfer of servicing 12 U.S.C. 2601 et seq.; 42 U.s.C. 3535(d.).
of the loan is preempted, and there shall be no
additional borrower disclosure requirements. <General Materials (GM) - References,
Provisions of State law, such as those requiring Annotations, or Tables>
)
FROM FAX NO. Nov. 13 2003 06:02AM P1
11 USCA § 541, Property of the estate Page 1
, . "8(J66() ~" poweri to a.void deeds CXl:CUted by 94.
-
debtor prior to filing bankruptcy petition was not
citclllIlSQibed by subllCC. (d) alibis section because the 404. ServiclDg of IIlOI1g1lge by debtor
debtor did not possess legal ti& to the JXOPel'lY at the
~ af~ benkroptc.y petition. In te Andetson, Mort@;!lgees whose accounts ti:btor.bad agn::ed to 8Cl"Vicc
MD.Tenn.1983, 30 B.R. 995. were not entitled to sectJred claims for shortages in 8CC0UIlts.,
as ftmds which debtor had ~ could not be
i rustee's lIlrong-mm lim avoirlanu powem ate n.Gt traced and mortgagees Vim l:lD8blc 10 identii)' any speci1ic
limited by provision of Bankruptcy Code stating that poperty property held by debtor . C . 1hst
in which dc:btor hoIds.. as of COIIIJllCllOCOl of case, ocly belonged. 10 any of In re Leedy Mortg. -, -,
legal btie JDld .not equitable intaest, becomes ~ of .-~__ ' 111 B.R. -~
estate ooly \0 exttnt of dc'orots legal tiI1e \0 property, but~t ~ ~
=
. ..' . .
to extent ofmy equitable interest in such property that de ~ Federal Home Loan Mortgage Corporation 'WllS' 0\\1lCt of
.does not bold N'11e Valley Federal Sav. &. Loan Ass v. ~. an~ mortg1IgeS being. serviced by deb~, .• and th118
·';~L:~':!;;;~ SemUitTitJe Guarantee CoIp. ofBaltimarc, Colo.App.l 91, =-~=~~c:~~=
""':;':' 813.P 849. . Corporation did not hold Original ~ in its
. in name,
that ~ was' holder of original no1cs.' :m ii'
483. Acceptance ofmortgage payments .\ ~Cambri.dgcMmtg_COrp.,BkrtcyD.S.C.198~,92B.R..14S:.
Even if wife had executed quitclaim deed to property, ~ . • .
'Wife had equiIabk immest in. property under Alabema law •
which would be ~ as property of wife's Chapter l3 Beeallse debtor docs not awn equitable interest in
est=, whetc wife had in recent }'=t'S made mortsase property he holds in tmst for another, lMt interest is not
payments to mortgagee and morIgagee had accepted "property of the estate.. nor is it "property of the deblorD for
~ and wife bad unbroken. occUpation of bmJse fur ~ of ~ IJlOvilIio:a. Be,;ia '\j'. I.R.S.,
several years. In Ie Thomas, Bk:rtcyND.Alal990, 121 B.R. U.SPa. I990, 110 S.Ct. 2258,496 U.S. 53, 11 0 L.Ed.2d 46.
. .
~~~.::~:-!
\~
Copyright (c) West Gronp 1999 No claim to original u.s. Govt. works
15 USCA § 1692e, False or misleading representations Pagel
*113931 General principle ofthe Fair Debt Collection which agent advised borrower that it had miscalculated
Practices Act (FOCPA), entitling a debt collector to assume
the validity ofa debt absent a written dispute, carries over to
the anti·fraud provision ofthe FDCPA Brady v. Credit
principal and interest payments needed to retire home
mortgage debt and that, to avoid balloon payment at
conclusion of loan's term, borrower would be required to pay
-,
Recovery Co., Inc., D.Mass.1998, 26 F.Supp.2d.201, negative suspense amount of $1,622.40, contained material
reversed 160 F.3d64. misrepresentations as to existence, character and legal status
of this alleged $1,62.40 debt in violation of the Fair Debt
Debt collector did not intentionally or knowingly make Collection Practices Act (FDCPA); letter falsely represented
any false, deceptive, or misleading representations to debtor, that the Federal National Mortgage Association (Fannie Mae),
or engage in any unfair or unconscionable debt collection as holder of borrower's note, had denied requests to modifY
practices, where debtor presented no evidence that debt current monthly principal and interest payments or to extend
collector mew or should have mown that collection of debt maturity date, and did not disclose that servicing agent bad
was time barred, debtor did not dispute debt or demand unilaterally elected to prepay principal in amount of
verification as contemplated by Fair Debt Collection PIactices $1,622.40. Inre Hart, BkrtcyD.Mass2000, 246 B.R 709.
Act, and debtor's failure to respond in timely fashion to debt
collector's first notice supported assumption that debt was 12. - Litigation representation
valid Lindbergh v. Transworld Systems, Inc., D.Conn.1994,
846 F.Supp. 175. Dunning letter, which referred to proceedings
!IIlpplementary to judgment available 10 enforce collection and
11A - Legal status of debt which advised debtor that her account was being reviewed by
debt collection agency to determine ftwhat direction must be
Debt oo]«.tars did not knowingly or intrntionally sef'k to taken to enforce collection,.ft violated Fair Debt Collection
misrepresent legal status ofunderlying debt by filing allegedly PIactices Acfs prohibition against threats to take action not
time barred suit in violation ofFair Debt Collection PIactices intended to be taken, since· letter conveyed to least
Act (FDCPA), where collectors believed that longer statute of sophisticated consumer that agency was authorized to make
limitations applied or that it was unsettled which statute of decision to institute legal action that could lead to
limitations applied, or had good faith belief that longer statute supplementary proceedings, when, in fact, creditor retained
of limitations should apply. Simmons v. Miller, authority to decide whether legal proceedings would be
S.D.Ind.1997, 970 F.Supp. 661. instituted sn.d likelihood ofproceedings on claim for $483.43
was almost nonexistent. Bentley v. Great Lakes Collection
--?> Letter from loan servicing agent to consumer borrower, in Bureau, CA2 (Conn.) 1993,6 F.3d 60.
)
)
I'II
12 USCA § 1717, Federal National Mortgage Association and Government National Mortgage Association Page 1
"'8447112 U.S.C,A, § 1717 this section. The Association shall have

UNITED STATES CODE succession until dissolved by Act of Congress.
ANNOTATED It shall maintain its principal office in the'
TlTLE 12. BANKS AND BANKING District of Columbia and shall be deemed, for
purposes of venue in civil actions, to be a
CHAPTER 13--NATIONAL
resident thereof. Agencies or offices may be
HOUSING
established by the Association in such other
':-,' ., " . ;,,:~PBC~TER ~II--NATIONAL I' place or places as it may deem necessary or
"' . '·,.,::,;.(.:/;:~i;.,· qRTg~G;g A~SOCIATIONS i', appropriate in the conduct of its business..
;;:~I~lJ~ftlt~I' ':\;~_~tf~~J&j~~,;
"1,ddk,~H-'"" ~~Wl~ll!~~'i"!:~O"i:;l";'WF~;H'
":1 h
I:: .
I "Ii,,,·>,:'
.:(B): The oth~r such separated portion shall be
ia,l R~::~otate' :tb; b~ "known as Federal
, ;N~qQ~.;,;lIpr,t-gag~,;i; AS~o¢iatiQQ. (hereinafter
referred to as the "corporation"), which shan
retain the assets and liabilities acquired and
, .' .,. ,_.:I. d....!i.;.;-..a· "17'18' '-'-~ '17. 'N° :.,'~ ' •.•", "".
, •
:.A.... meurrQl>;uo ~Ions·;·, , i:llAb·.l.,:w..Jh'!$',·· ..... .
title prior to such date. The corporation shall'
have succession until dissolved by Act of
Congress. It shall maintain its principal office in
the District of Columbia or the metropolitan area
thereof and shall be deemed, for purposes of
(1) There IS created a body corporate to be jurisdiction and venue in civil actions, to be a
known as the "Federal National Mortgage District of Columbia corporation.
Association", which shall be in the Department of *84472 (3) The partition transaction effected
HousiJig'arid' Ufban' Development: The pursuant to the foregoing paragraph' COhStitutes a
Association shall have succession until dissolved reorganization within the meaning of section
by Act of Congress. It shall maintain its principal 368(a)(1)(E) of Title 26; and forthe purposes of
office in the District of Columbia and shall be such Title 26, no gain or loss is recognized by the
deemed, for purposes of venue in civil actions, to previously existing body corporate by reason of
be a resident thereof. Agencies or offices ma~' be the partition, and the basis and holding period of
established by the Association in such other p ace the assets of the corporation immediately
or places as it may deem necessmy or approp 'ate following such partition are the same as the basis
in the conduct of its business. . .f and holding period of such assets immediately
(2) On September 1, 1968, the body corp late prior to such partition.
described in the foregoing paragraph shall cea to I
exist in that form and is hereby partitioned to (b) Purchase and sale of insured and conventional
two separate and distinct bodies corporate, eac of mortgages; transactions in loans and advances
which shall have continuity and co 'ate of credit
succession as a separated portion of the previo 'sly
existing body corporate, as follows: (1) For the purposes set forth in section 1716 of
(A) One of such separated portions shall be a this title and subject to the limitations and
body corporate without capital stock to be restrictions of this subchapter, each of the bodies
known as Government National Mortgage corporate named in subsection (a)(2) of this
Association (hereinafter referred to as the section is authorized pursuant to commitments or
"Association"), which shall be in the Department otherwise, to purchase, service, sell, or otherwise
or Housing and Urban Development and which deal in any mortgages which are insured under this
shall retain the assets and liabilities acquired' and chapter or Title V of the Housing Act of 1949 [42
incurred under sections 1720 and 1721 of this U.S.C.A. § 1471 et seq.], or which are insured or
title prior to such date, including any and all guaranteed under the Servicemen's Readjustment
liabilities incurred pursuant to subsection (c) of Act of 1944 or chapter 37 of Title 38; and to
Copyright (c) West Group 1998 No claim to original U.S. Govt, works
'I~ •
-
12 USCA § 1717, Federal National Mortgage As iation and Government National Mortgage Association Page 2
.,....
. .., .. -.... . .. - .
'---"--'-~' .,-.----
purchase, service, sell, or otherwise deal in \my 1715z-1 of this . title. For the purposes of this
) loans made or guaranteed under Part B ofTitl .VI subchapter, the terms "mortgages" and "home
of the Public Health Service Act [42 U.S.C. . § mortgages" shall be inclusive of any mortgages or
291j-l et seq.]; and the corporation is autho zed other loans insured under any of the provisions of
to lend on the security of any such mortgages and this chapter or Title V of the Housing Act. of 1949
to purchase, sell, or otherwise deal in ~ [42 U.S.C.A. § 1471 et seq.].
securities guaranteed by the Association untler *84473 (2) For the purposes set forth in section
section 1721 (g) of this title: Provided, That! (1) 1716(a) of this title, the corporation is authorized,
the Association may not purchase any mortgage at . pursuant to commitments or otherwise, to
a price exceeding 100 per centum of the unpaid purchase, service, sell, lend on the security of, or
principal amount thereof at the time of purchase, otherwise deal in mortgages which are not insured
with adjustments for interest and any comparable or guaranteed as provided in paragraph (1) (such
items; (2) the Association may not purchase any mortgages referred to hereinafter as "conventional
. ' .. mort~age~ except a m9t:tgage iIlsur¢ under Tiq.~ .; mortgages"). Nq such purchase of a conventional
...;~;.. ~'1 .. ::::';.·.~.:.YJ:~f.~~e: ~,~g.A.£Lg!J2~. ~·.JJ..SiC.A .. ~· . j,\j; m9Jjgag~.:secur~.by aprop~ ~~'pri~jIlgQ=ne- ._ .........
1471 et seq.], if it is offered by, or covers property to four-family dwelling units shall be made if the
held by, a State, territorial, or municipal outstanding principal balance of the mortgage at
instrumentality; and (3) the Association may not the time of purchase exceeds 80 per centum of the
purchase any mortgage under section 1720 of:this value of the property securing the mortgage,
title, except a mortgage insured under s 'on unless (A) the seller retains a participation of not
17l5k of this title or vm
subchapter of 1his leSs than 10 per centum in the mortgage; (8) for
chapter or section 1709(k) of this title, or 'der such period and under such circumstances as the
subchapter IX-A of this chapter with respect 0 a corporation may require, the seller agrees to
.. -_ new· communityapproved·under-sectiOD-H49~l-----repurchase or replace the mortgage upon demand--·_..··_··- .-..
of this title, or insured under section 1715e of this of the corporation in the event that the mortgage is
title and covering property located in an an in default; or (C) that portion of the unpaid
renewal area, or a mortgage covering pro~ principal balance of the mortgage whlch is in
located in Alaska, Guam, or Hawaii, if the original excess of such 80 per centum is guaranteed or
principal obligation thereof exceeds or exceeded insured by a qualified insurer as determined by the
$55,000 in the case of property upon which is corporation. The corporation shall not issue a
located a dwelling designed principally for a one- commitment to purchase a conventional mortgage
family residence; or $60,000 in the case of a two- prior to the date the mortgage is originated, if such
or three-family residence; or $68,750 in the case mortgage is. eligible for purchase under the
of a four-family residence; or, in the .case of a preceding sentence only by reason of compliance
property containing more than four dwelling units, with the requirements of clause (A). of such
$38,000 pet dwelling unit (or such higher amount sentence. The corporation may purchase a
not in excess of $45,000 per dwelling unit as the conventional mortgage which was originated more
Secretary may by regulation specify in any than one year prior to the purchase date only if the
geographical area where the Secretary fmds that seller is the Federal Deposit Insurance
cost levels so require) for that part of the pr ' Corporation, the Resolution Trust Corporation,
attributable to dwelling use. Notwithstandinthe the National Credit Union Administration, or any
provisions of clause (3) of the preceding sente ce, other seller currently engaged in mortgage lending
the Association may purchase a mortgageder or investing activities. For the purpose of this
section 1720 of this title with an original 1'00 .pal section, the term "conventional mortgages" shall
obligation which exceeds the otherwise applic b1e include a mortgage, lien, or other security interest
maximum amount per dwelling unit if the on the stock or membership certificate issued to a
mortgage is insured under section 1713(c ~3), tenant-stockholder or resident-member of a
l7l5e(b)(2), 1715k(d)(3)(B)(iii), 17151 (d)(3Xii), cooperative housing corporation, as defined in
17151 (d)(4)(ii), 1715v(c)(2), 1715y(e)(3), or section 216 of Title 26, and on the proprietary
12 USCA § 1717, Federal National Mortgage Ass iation and Government National Mortgage Association Page 3
lease, occupancy agreement, or right of tenan in systems described in the last paragraph of section
the dwelling unit of the tenant-stockhold or 1703(a) of this title and residential energy
resident-member in such cooperative hou ing conservation measures as described in section
corporation. The corporation shall esta lish 210(11) of the National Energy Conservation
limitations governing the maximum ori~al Policy Act [42 U.S.C.A. § 8211(11)] and financed
principal obligation of conventional mortgages by a public utility in accordance with the
that are purchased by it; in any case in which the requirements of Title II of such Act [42 U.S.C.A.
corporation purchases a participation interest in § 8211 et seq.]. To be eligible for purchase, any
such a mortgage, the limitation shall be calculated such loan or advance of credit (other than a loan
with respect to the total original principal or advance made with respect to energy
obligation of the mortgage and not merely with conserving improvements or solar energy systems,
respect to the interest purchased. by the or residential energy conservation measures) not
corporation. Such limitations shall not exceed insured under subchapter I of this chapter shall be
$93, 7~0 for a mortgage secured by a single"familr secured by a lien again:st the property to be
., ...',.-.;.:•.••~~·;.....:[eSidcfaice•. $120,DOO. for. a,mortgagchecur.ed b)4;>8 '~. '. imphilved. . .;i;r; ....--.. ...........__
two-family residence, $145,000 for a mortgage (4) The corporation is authorized to purchase,
secured by a three-family residence, and $180,000 service, sell, lend on the security of, and otherwise
for a mortgage secured by a four-family reside ce, deal in loans or advances of credit secured by
except that such maximum limitations shal. be mortgages or other liens against manufactured
adjusted effective January 1 of each ear homes.
beginning with 1981. Each such adjustment all (5)(A) The corporation is authorized to
be made by adding to each such amount (as it . ay purchase, service, sell, lend on the security of, and
have been previously adjusted) a percen age otherwise deal in (i) conventional mortgages that
thereof equal to the percentage increase' durin .the are secured by a subordinate lien' against a one" to
twelve-month period ending with the prev bus four-family residence that is the principal
October in the national average one-family h6hse residence of the mortgagor; and (ii) conventional
price in the monthly survey of all major lenders mortgages that are secured by a subordinate lien
conducted by the Federal Housing Finance Board. - against a property comprising five or more family
With respect to mortgages secured by property dwelling units. If the corporation, pursuant to
comprising five or more family dwelling units, paragraphs (1) through (4), shall have purchased,
such limitations shall not exceed 125 per centum serviced, sold, or otherwise dealt with any other
of the dollar amounts set forth in section outstanding mortgage secured by the same
I 7 J3(c)(3) of this title, except that such residence, the aggregate original amount of such
limitations may be increased by the corponltion other mortgage and the mortgage authorized to be
(taking into account construction costs) to [FN1] purchased, serviced, sold, or otherwise dealt with
not to exceed 240 per centum of such dollar under this paragraph shall not exceed the
amounts in any geographical area for which the applicable limitation determined under paragraph
Secretary of Housing and Urban Development (2).
determines under such section that cost Ie els (B) The corporation shall establish limitations
require any increase in the dollar am unt governing the maximum original principal
limitations under such section. The foreg ing obligation of conventional mortgages described in
limitations may be increased by not to ex . 50 subparagraph (A). In any case in which the
per centum with respect to properties locat in corporation purchases a participation interest in
Alaska, Guam, Hawaii, and the Virgin Islands.. such a mortgage, the limitation shall be calculated
(3) The corporation is authorized to purc e, with respect to the total original principal
service, sell, len~ on the security of, and othe ; I'se obligation of *84473 such mortgage described in
deal in loans or advances of credit for the purchase subparagraph (A) and not merely with respect to
and installation of horne improvements, including the interest purchased by the corporation. Such
cncrb'y conserving improvements or solar energy limitations shall not exceed (i) with respect to
-
12 USCA § 1717, Federal National Mortgage Ass .iation and Government National Mortgage Association Page 4
mortgages described in subparagraph (A)(i) . 50 may acquire, hold and manage, dispose of, and _.
) per centum of the single-family residnce otherwise deal in any mortgages or other types of
mortgage limitation determined under para aph obligations in which any department or .agency of
(2); and (ii) with respect to mortgages descdbed the United States listed in paragraph (2) of this
in subparagraph (A)(ii), the applicable limitakion subsection may have a fmancial interest The
determined under paragraph (2). I i Association may join in any such undertakings
*84474 (C) No subordinate mortgage against a and activities, hereinafter in this subsection called
one- to four-family residence shall be purchased "trusts"; notwithstanding that it is also serving in
by the corporation if the total outstanding a fiduciary or representative capacity; and is
indebtedness secured by the property as a result of authorized to guarantee any participations or other
such mortgage exceeds 80 per centum of the value instruments, whether evidence of property rights
of such property unless (i) that portion of such or debt, issued for such fmancing purposes.
lotal outstanding indebtedness that exceeds such Participations or other instruments issued by the
80 per centum. is guaranteed or insured by a Association pursuant to this subsection shall to
qualified insUrer as d~tenmne(t·by.the corporation; ,-' th~_same extent as securities which ar~ direct
(ii) the seller retains a participation of not less obligations of or obligations guaranteed as to
than 10 per centum in the mortgage; or (iii) for principal or interest by the United States be
such period and under such circumstances as the deemed to be exempt securities within the
corporation may require, the seller agree to meaning of laws administered by the Securities
repurchase or replace the mortgage upon d and and Exchange Commission. The amounts of any
of the corporation in the event that the mortga e is mortgages and other obligations acquired by the
in default. The corporation shall not iss e a Association under section 1721 of this title,
commitment to purchase a subordinate mort age pursuant to this subsection, shall not be included
prior to the date the mortgage is originated, if uch in the total amounts set forth in section 1721(c) of
mortgage is eligible for purchase under the this title.
preceding sentence only by reason of compli~ce (2) Subject to the limitations provided in
with the requirements of clause (li) of such paragraph (4) of this subsection, one or more
sentence. trusts may be established as provided in this
(6) The corporation may not implement any new subsection by each of the following departments
program (as such term is defined in section 4502 or agencies:
of this title) before obtaining the approval of the (A) The Farmers Home Administration of the
Secretary under section 4542 of this tide. Department of Agriculture, but only with respect
to operating loans, direct farm ownership loans,
(c) Administration of trusts; obligations of direct housing loans, and direct soil and water
departments and agencies of United States; loans. Such trusts may not be established with
exemption of interest income from taxation; respect to loans for housing for the elderly under
authorization of appropriations for differential sections 502 and 515(a) of the Housing Act of
reimbursements 1949 [42 U.S.c.A. §§ 1472 and 1485(a)], nor
with respect to loans for nonfarm recreational
(1) Notwithstanding any other provision of this development.
chapter or of any other law, the Associatio is *84475 (B) The Department of Education,
authorized under section 1721 of this titt· to but only with respect to loans made by the
create, accept, execute, and otherwise a ster Secretary of Education for construction of
in all respects such trusts, receivers'ps, academic facilities, and loans to help fmance
conservatorships, liquidating or other agencie : or student loan programs.
other fiduciary and representative undertak gs (C) The Department of Housing and Urban
and activities, hereinafter in this subsection cdled Development
"trusts", as might be appropriate for financing (D) The Department ofVeterans Affairs.
) purposes; and in relation thereto the Association (E) The Export-Import Bank.
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1
12 USCA § 1717. F<den>l National Mortgl'ge As :mtiOn and Government National Mortgage Association Page 5
(F) The Small Business Administratioo.1 the trustor's proper share of the costs and
expenses incurred by the Association as trustee
The head of each such department or agency, pursuant to the trust instrument.
hereinafter in this subsection called the "trustor", *84476 (3) When any trustor guarantees to the
is authorized to set aside a part or all of any trustee the timely payment of obligations the
obligations held by the trustor and subject them to trustor subjects to a trust pursuant to this
a trust or trusts and, incident thereto, shall subsection, and it becomes necessary for such'
gUilrantee to the trustee timely paymerit thet:eof. trustor to meet his responsibilities under such
The trust instrument may provide for the issuance guaranty, the trustor is authorized to fulfill such
and sale of beneficial interests or participations, guaranty.
by the trustee, in such obligations or in the right to (4) Beneficial interests or participations shall not
receive interest and principal collections be issued for the account of any trustor in an
therefrom; and may provide for the substi ~on aggregate principal amount greater than is
. or .\\i#ldrawalof such obligation~, or for tQp authorized with. respect to such trustor in an
,;: ,,,,.,~··..:,.),·.::j§.i}~~4tutloP.J!P.f~a$ fQTqpliMti<ws.£J'he.tw PI: :",,{ C\PPt.9"ppation A4*, . Any suc~ autborizaQon~::.lal~1 _ _ ...........-.._.
I
trusts shall be exempt from all taxation. The . st remain available only for the fiscal year for which
instrument may also contain other approp;ate it is granted and for the succeeding fiscal year.
provisions in keeping with the. purposes of this (5) The Association, as trustee, is authorized to
subsection. The Association shall be named and issue and sell beneficial interests or participations
shall act as trustee of any such trusts and, fo the under this subsection, notwithstanding that there
purposes thereof, the title to such obligations all
l I may be an insufficiency in aggregate receipts from
be deemed to have passed to the Association in obligations subject to the related trust to provide
trust. The trust instrument shall provide that for the payment by the trustee (on a timely basis
custody, control;·· and administration of the out of current receipts or otherwise) of all interest
obligations shall remain in the trustor subjecting or principal on such interests or participations
the obligations to the trust, subject to transfer to (after provision for all costs and expenses incurred
the trustee in event of default or probable default, by the trustee, fairly prorated among trustors).
as determined by the trustee, in the payment of There are authorized to be appropriated without
principal and interest of the beneficial interests or fiscal year limitation such sums as may be
participations. Collections from obligations necessary to enable any trustor to pay the trustee
subject to the trust shall be dealt with as provided such insufficiency as the trustee may require on
in the instrument creating the trust. The trust account of outstanding beneficial interests or
instrument shall provide that the trustee will participations authorized to be issued pursuant to
promptly pay to the trustor the full net proc s of paragraph (4) of this subsection. Such trustor
any sale of beneficial interests or participatio s to shall make timely payments to the trustee from
the extent they are based upon such obligatio or such appropriations, subject to and in accord with
collections. Such proceeds shall be dealt wi as the trust instrument. In the event that the
otherwise provided by law for sales or repa ent insufficiency required by the trustee is on account
of such obligations. The effect· of both past ~d of principal maturities of outstanding beneficial
future sales of any issue of beneficial interes or interests or participations authorized to be issued
participations shall be the same, to the exte ;of pursuant to paragraph (4) of this subsection, or
the principal of such issue, as the direct sale {Vjth pursuant hereto, the trustee is authorized to elect
recourse of the obligations subject to the trust to issue additional beneficial interests or
Any trustor creating a trust or trusts hereunder is participations for refmancing purposes in lieu of
authorized to purchase, through the facilities of requiring any trustor or trustors to make payments
the trustee, outstanding beneficial interests or to the trustee from appropriated funds or other
pmticipations to the extent of the amount of the sources. Each such issue of beneficial interests or
trustor's responsibility to the trustee on beneficial participations shall be in an amount determined by
interests or participations outstanding, and to. pay the trustee but not in excess of the aggregate
Copyright (c) West. Group 1998 No claim to original U.S. Govt. works
i
-
12 USCA § 1717, Federal National Mortgage Ass .iation and Government National Mortgage Association Page 6
amount which the trustee would otherwise re e 22, 1986, Pub.L. 99-514, § 2, 100 Stat. 2095; Sept. 30,
'1 the trustor or trustors to pay from appropri ted 1987. Pub.L. 100-122, § 2(b)(l), 101 Stat. 793; Nov. 5,
1987, PubL. 100-154, 101 Stat. 890, Nov. 17, 1987, Pub.L.
funds or other sources, and may be issued wi put 100-170,101 Stat. 914; Dec. 3, 1987, Pub.L. 100-179, 101
regard to the provisions of paragraph (4) of tjhis Stilt. 1018; Dec. 21, 1987, Pub.L. 100-200, 101 Stat. 1327;
subsection. All refmancing issues of bene ltial Feb. 5, 1988, PubL 100-242, Title W. § 443(0), 101 Stat.
interests or participations shall be deemed to have 1922; Nov. 7, 1988, PubL. 100-628, Title X, § 1068(0),
been issued pursuant to the authority contained in 102 Stat. 3276.)
the appropriation Act or Acts under which the 1998 Electronic Update
beneficial interests or participations were
originally issued. '84478 (As amended Aug. 9, 1989, Pub.L. 101-73, Title
VII, § 73 I (j) (1), 103 Stat. 433; June 13, 1991, PubL
CREDIT(S) 102-54, § 13(d)(2)(A), 105 Stat. 274; Oct. 28, 1992, Pub.L.
102-550, Title IX, § 912(i) (1), Title XIII, § 1381 (b), (c),
(s)(l), 106 Stat. 3876, 3995, 4001.)
1110
84477 1989 Main Volume ,
'.' "':;.~.::::: ·'~·'(jun~-,~·~,j93t·C.~47, titi~Jij:T'JiJ2,;4A~t:lj~4~ zJl
28.1935, c. 150, § 31, 49 Stilt. 300; Feb. 3, 1938, c. ~3, §
6. 52 Stat. 24; Mar. 28, 1941, c. 31, § 6, 55 Stilt. 62; July
<General Materials (GM) - References,·
I, 1948, c. 784, § 1,62 Stat. 1206; July 19,1949, c. 3 I, § Annotations, or Tables>
1. 63 Stat. 446; Oct. 25,1949, c. 729, § 1(3),63 Stat. ,05;
Apr. 20, 1950, c. 94, Title I, § 117, 64 Stat. 57; Jul. 14, HISTORICAL NOTES
1952, c. 723, § 3(b), 66 Stat. 602; June 30, 1953, c. 10, §
13(b), 67 Stat. 125; Aug. 2, 1954, c. 649, Title II, § 20 , 68 HISTORICAL AND STATIJTORY NOTES
Stat. 613; Aug. 7, 1956, c. 1029, Title II, § 201, 70 tat.
1096; Sept. 2, 1958, Pub. L. 85-857, § 13(g), 72 Stat. J?65;
Revision Notes and LegislatiYeReports
Sept. 23, 1959, Pub: L. 86-372, TitleIIT,§ 301, 73 Stat. 69;
1948 Act Senate Report No. 1701, see 1948 U.S.Code
June 30, 1961, Pub. L. 87-70, Title I, § 102(c), Title v ~ §§
Cong.Service, p. 2238.
602, 603(0), 75 Stat. 158, 176; Sept. 2, 1964, Pub: L.
88·560, Title VII, §§ 701 (a), 702, 78 Stat. 800, 802; A,ug.
1949 Acts. Senate Report No. 615, sec 1949 U.S.Code
10, 1965, Pub. L. 89-117, Title I, § 102(d), Title II, §
Cong.Service, p. 1600.
)0/ (b)(1), Title VIII, §§ 802(0), 803, 804, Title X; §
1004(0), 79 Slat. 454, 465, 493, 494, 501; May 24, 1966, House Report No. 1396, see 1949 U.S.Code Cong.Service,
PI/b. L. 89-429, § 2, 80 Stat. 164; Nov. 3, 1966, Pub.L. p.2216.
89·7.U, § 7,80 Stat. 1236; Nov. 3, 1966, Pub. L. 89-754,
fillt' 1)1, § 405, 80 Stat. 1273; May 25, 1967, Pub. L. 90-19, 1950 Act. Senate Report No. 1286 and Conference Report
§ 1(a)(2), (3), (j)(I), 81 Stat. 17,18; Aug. I, 1968, Pub. L. No. 1893, see 1950 U.S.Code Cong.Service, p. 2021.
90-448, Title VIII, §§ 802(C)-(g), 803, 82 Stat. 536, 537,
54~: Dec. 24, 1969, Pub. L. 91-152, Title I, § 114,83 Stat. 1952 Act. House Report No. 2424 and Conference Report
38.5; June 30, 1970, Pub. L. 91-296, Title II, § 202, 84 Stat. No. 2480, see 1952 U.S.Code Congo and Adm.News, p.
350: Jllly 24, 1970, Pub. L. 91-351, Title II, § 201(0), Title 2135.
IV, § 402, 84 Stat. 450, 458; Dec. 31, 1970, Pub., L.
91-609, Title IX, § 901(d), 84 Stat. 1807; Aug. 22, 1.974, 1953 Act. Senate Report No. 455 and Conference Report
Pub. L. 93-383, Title VIII, §§ 806(a)-(j), 807, 88 Stat. 727, No. 692, sec 1953 U.S.Code Congo and Adm.News, p. 1806.
728; Dec. 26, 1974, Pub. L. 93-541, § 2, 88 Stat. 1739;
OCI. 12, 1977, Pub. I.. 95-128, Title W. § 408(0),91 tat. 1954 Act. Senate Report No. 1472 and Conference Report
1138; Oct. 31, 1978, Pub. L. 95-557, Title I, § 101« (3), No. 2271, see 1954 U.S.Code Congo and Adm.News, p.
Title m, § 318(a), 92 Stat. 2083, 2100; Nov. 9, 1978, ub. 2723.
L. 95-619, Title II, § 246, 92 Stat. 3233; Dec. 21, 979,
1956 Act. House Report No. 2363 and Conference Report
Pub. L. 96-153, Title Ill, § 317, 93 Stat. 1119; Jun '30,
No. 2958, see 1956 U.S.Code Congo and Adm.News, p.
1980, Pub. I.. 96-294, Title V, § 534(b), 94 Stat. 741; Clct. ~~ .
8.1980. PubL. 96-399, Titlem, §§ 309, 313(a), 339(0 (l),
(b) (1), 94 Stat. 1641, 1644, 1657; Dec. 26, 1981, Pub.L. 1959 Act. Senate Report No. 924, see 1959 U.S.Code
97-ll0, Title II, § 202(c), 95 Stat. 1514; Oct. 3, 1984, Congo and Adm.News, p. 2844.
Pllb.I.. 98-440, Title n. §§ 201 (a), 203(0), 205(0), 2(J6(a),
98 Stat. 1692, 1693, 1695; Oct. 17, 1984, PubL. 98-479, 1961 Act. Senate Report No. 281 and Conference Report
) Tille f1, §§ 201(b), 204(0)(16), 98 Stat. 2227, 2232; Oct. No. 602, see 1961 U.S.Code Congo and Adm.News, p. 1923.
Page 1 of3
Page I
12 U.S.C.A. § 1719

CHAPTER 13--NATIONAL HOUSING
SUBCHAPTER III--NATIONAL MORTGAGE ASSOCIATIONS
..§ 1719. Secondary market operations
(a) Purchase and sale of mortgages; secondary market operations; advance of funds or origination of loans;
settlement or extinguishment of borrower's rights
(1) To carry out the purposes set forth in paragraph (a) of section 1716 of this title, the operations of the
corporation under this section shall be confmed, so far as practicable, to mortgages which are deemed by the
corporation to be of such quality, type, and class as to meet, generally, the purchase standards imposed by private
institutional mortgage investors. In the interest of assuring sound operation, the prices to be paid by the
corporation for mortgages purchased in its secondary market operations under this section, should be established,
from time to time, within the range of.market prices for the particular class of mortgages involved, as determined
by the corporation. The volume of the corporation's purchases and sales, and the establishment of the purchase
prices, sale prices, and charges or fees, in its secondary market operations under this section, should be determined
by the corporation from time to time, and such determinations should be consistent with the objectives that such
purchases and sales should be effected only at such prices and on such terms as will reasonably prevent excessive
use of the corporation's facilities, and that the operations of the corporation under this section should be within its
income derived from such operations and that such operations should be fully self-supporting. N,othing in this
subchapter shall prohibit the corporation from purchasing, and making commitments to purchase, any mortgage
with respect to which the Secretary of Housing and Urban Development has entered into a contract with the
corporation to make interest subsidy payments under section 1715z-8 of this title.
(2) The volume of the corporation's lending activities and the establishment of its loan ratios, interest rates,
maturities, and charges or fees, in its secondary market operations under this section, should be determined by the
corporation from time to time; and such determinations, in conjunction with determinations made under paragraph
(I), should be consistent with the objectives that the lending activities should be conducted on such terms as will
reasonably prevent excessive use of the corporation's facilities, and that the operations of the corporatiol1 under this
section should be within its income derived from such operations and that such operations should be fully
self-supporting. The corporation shall not be permitted to use its lending authority (A) to advance funds to a
mortgage seller on an interim basis, using mortgage loans as collateral, pending the sale of the mortgages in the
secondary market; or (B) to originate mortgage loans. Notwithstanding any Federal, State, or other law to the
contrary, the corporation is empowered, in connection with any loan under this section, whether before or after any
default, to provide by contract with the borrower for the settlement or extinguishment, upon default, of any
redemption, equitable, legal, or other right, title, or interest of the borrower in any mortgage or mortgages that
constitute the security for the loan; and with respect to any such loan, in the event of default and pursuant
otherwise to the terms of the contract, the mortgages that constitute such security shall become the absolute
property of the corporation.
(b) Obligations of the corporation
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Page 2 of3 -
Page 2
12 U.S.C.A. § 1719
For the purposes of this section, the corporation is authorized to issue, upon the approval of the Secretary of the
-
Treasury, and have outstanding at anyone time obligations having such maturities and bearing such rate or rates of
interest as may be determined by the corporation with the approval of the Secretary of the Treasury, to be
redeemable at the option of the corporation before maturity in such manner as may be stipulated in such
obligations. The corporation shall insert appropriate language in all of its obligations issued under this subsection
clearly indicating that such obligations, together with the interest thereon, are not guaranteed by the United States
and do not constitute a debt or obligation of the United States or any agency or instrumentality thereof other than
the corporation. The corporation is authorized to purchase in the open market any of its obligations outstanding
under this subsection at any time and at any price.
(c) Purchase of obligations by Treasury; conditions and restrictions
The Secretary of the Treasury is authorized in the Secretary's discretion to purchase any obligations issued pursuant
to subsection (b) of this section, as now or hereafter in force, and for such purpose the Secretary of the Treasury is
authorized to use as a public debt transaction the proceeds of the sale of any securities hereafter issued under
chapter 31 of Title 31, and the purposes for which securities may be issued under chapter 31 of Title ~ 1 are
extended to include such purchases. The Secretary of the Treasury shall not at any time purchase any obligations
under this subsection if such purchase would increase the aggregate principal amount of the Secretary's then
outstanding holdings of such obligations under this subsection to an amount greater than $2,250,000,000. Each
purchase of obligations by the Secretary of the Treasury under this subsection shall be upon such terms and
conditions as to yield a return at a rate determined by the Secretary of the Treasury, taking into consideration the
current average rate on outstanding marketable obligations of the United States as of the last day of the month
preceding the making of such purchase. The Secretary of the Treasury may, at any time, sell, upon such terms and
conditions and at such price or prices as the Secretary shall determine, any of the obligations acquired by the
Secretary under this subsection. All redemptions, purchases, and sales by the Secretary of the Treasury of such
obligations under this subsection shall be treated as public debt transactions of the United States.
(d) Mortgage-backed securities; issuance; maturities; rates of interest; exempt securities; adequacy of mortgages
to permit principal and interest payments; statement in securities
To provide a greater degree of liquidity to the mortgage investment market and an additional means of fmancing its
operations under this section, the corporation is authorized to set aside any mortgages held by it under this section,
and, upon approval of the Secretary of the Treasury, to issue and sell securities based upon the mortgages so set
aside. Securities issued under this subsection may be in the form of debt obligations or trust certificates of
beneficial interest, or both. Securities issued under this subsection shall have such maturities and bear such rate or
rates of interest as may be determined by the corporation with the approval of the Secretary of the Treasury.
Securities issued by the corporation under this subsection shall, to the same extent as securities which are direct
obligations of or obligations guaranteed as to principal and interest by the United States, be deemed to be exempt
securities within the meaning of laws administered by the Securities and Exchange Commission. Mortgages set
aside pursuant to this subsection shall at all times be adequate to enable the corporation to make timely principal
and interest payments on the securities issued and sold pursuant to this subsection. The corporation shall insert
appropriate language in all of the securities issued under this subsection clearly indicating that such securities,
together with the interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation
of the United States or any agency or instrumentality thereof other than the corporation.
Page 3 of3
Page 3
12 U.S.C.A. § 1719
(e) Subordinated or convertible obligations; issuance; maturities; rate of interest; redemption; exempt securities;
debt or obligation of United States; purchases in open market
For the purposes of this section, the corporation is authorized to issue, upon the approval of the Secretary of the
Treasury, obligations which are subordinated to any or all other obligations of the corporation, including
subsequent obligations. The obligations issued under this subsection shall have such maturities and bear such rate
or rates of interest as may be determined by the corporation with the approval of the Secretary of the Treasury and
may be made redeemable at the option of the corporation before maturity in such manner as may be stipulated in
such obligations. Any of such obligations may be made convertible into shares of common stock in such manner,
at such price or prices, and at such time or times as may be stipulated therein. Obligations issued by the
corporation under this subsection shall, to the same extent as securities which are direct obligations of or
obligations guaranteed as to principal or interest by the United States, be deemed to be exempt securities within the
meaning of laws administered by the Securities and Exchange Commission. The corporation shall insert
appropriate language in all of its obligations issued under this subsection clearly indicating that such obligations,
together with the interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation
of the United States or of any agency or instrumentality thereof other than the corporation. The corporation is
authorized to purchase in the open market any of its obligations outstanding under this subsection at any time and
at any price.
(t) Prohibition on assessment or collection of fee or charge by United States
Except for fees paid pursuant to section 1723a(g) of this title and assessments pursuant to section 4516 of this title,
no fee or charge may be assessed or collected by the United States (including any executive department, agency, or
independent establishment of the United States) on or with regard to the purchase, acquisition, sale, pledge,
issuance, guarantee, or redemption of any mortgage, asset, obligation, trust certificate of beneficial interest, or
other security by the corporation. No provision of this subsection shall affect the purchase of any obligation by the
Secretary of the Treasury pursuant to subsection (c) of this section.
END OF DOCUMENT
Copr. © West 2004 No Claim to Orig. U.s. Govt. Works
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12 U.S.C.A. § 1723a

CHAPTER 13-~NATIONALHOUSING
SUBCHAPTER III--NATIONAL MORTGAGE ASSOCIATIONS
.. § 1723a. General powers of Government National Mortgage Association and Federal National
Mortgage Association
(a) Seal, and other matters incident to operation
Each of the bodies corporate named in section 1717(a)(2) of this title shall have power to adopt, alter, and use a
corporate seal, which shall be judicially noticed; to enter into and perform contracts, leases, cooperative
agreements, or other transactions, on such terms as it may deem appropriate, with any agency or instrumentality of
the United States, or with any State, Territory, or possession, or the Commonwealth of Puerto Rico, or with any
political subdivision thereof, or with any person, fIrm, association, or corporation; to execute, in accordance with
its bylaws, all instruments necessary or appropriate in the exercise of any of its powers; in its corporate name, to
sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal, but no
attachment, injunction, or other similar process, mesne or fmal, shall be issued against the property of the
Association or against the Association with respect to its property; to conduct its business without regard to any
qualifIcation or similar statute in any State of the United States, including the District of Columbia, the
Commonwealth of Puerto Rico, and the Territories and possessions of the United States; to lease, purchase, or
acquire any property, real, personal, or mixed, or any interest therein, to hold, rent, maintain, modernize, renovate,
improve, use, and operate such property, and to sell, for cash or credit, lease, or otherwise dispose of the same, at
such time and in such manner as and to the extent that it maydeem necessary or appropriate; to prescribe, repeal,
and amend or modify, rules, regulations, or requirements governing the manner in which its general business may
be conducted; to accept gifts or donations of services, or of property, real, personal, or mixed, tangible, or
intangible, in aid of any of its purposes; and to do all things as are necessary or incidental to the proper
management of its affairs and the proper conduct of its business.
(b) Determination with respect to obligations and expenditures
Except as may be otherwise provided in this subchapter, in chapter 91 of Title 31, or in other laws specifIcally
applicable to Government corporations, the Association shall determine the necessity for and the character and
amount of its obligations and expenditures and the manner in which they shall be incurred, allowed, paid, and
accounted for.
(c) Exemption from taxation
(1) The Association, including its franchise, capital, reserves, surplus, mortgages or other security holdings, and
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

)
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12 U.S.C.A. § 1723a
real property of the Association 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.
(2) The corporation, including its franchise, capital, reserves, surplus, mortgages or other security holdings, and
income, shall be exempt from all taxation now or hereafter imposed by any State, territory, possession,
Commonwealth, or dependency of the United States, or by the District of Columbia, or by any county,
municipality, or local taxing authority, except that any real property of the corporation shall be subject to State,
territorial, county, municipal, or local taxation to the same extent as other real property is taxed.
(d) Appointment and compensation of personnel; use of services of other agencies
(1) Subject to the provisions of section 1723(a) of this title, the Secretary of Housing and Urban Development shall
have power to select and appoint or employ such officers, attorneys, employees, and agents of the Association, to
vest them with such powers and duties, and to fix and to cause the Association to pay such compensation to them
for their services, as he may determine, subject to the civil service and classification laws. With the consent of any
Government corporation or Federal Reserve bank, or of any board, commission, independent establishment, or
executive department of the Government, the Association may avail itself on a reimbursable basis of the use of
information, services, facilities, officers, and employees thereof, including any field service thereof, in carrying out
the provisions of the subchapter.
(2) The board of directors of the corporation shall have the power to select and appoint or employ such officers,
attorneys, employees, and agents, to vest them with such powers and duties, and to fix and to cause the corporation
to pay such compensation to them for their services, as the board of directors determines reasonable and
comparable with compensation for employment in other similar businesses (including other publicly held fmancial
institutions or major financial services companies) involving similar duties and responsibilities, except that a
significant portion of potential compensation of all executive officers (as such term is defmed in paragraph (3)(C»
of the corporation shall be based on the performance of the corporation; and any such action shall be without
regard to the Federal civil service and classification laws. Appointments, promotions, and separations so made
shall be based on merit and efficiency, and no political tests or qualifications shall be permitted or given
consideration. Each officer and employee of the corporation who is employed by the corporation prior to January
31, 1972, and who on the day previous to the beginning of such employment will have been subject to the civil
service retirement law (subch. III of ch. 83 of Title 5) shall, so long as the employment of such officer or employee
by the corporation continues without a break in continuity of service, continue to be subject to such law; and for the
purpose of such law the employment of such officer or employee by the corporation without a break in continuity
of service shall be deemed to be employment by the Government of the United States. The corporation shall
contribute to the Civil Service Retirement and Disability Fund a sum as provided by section 8334(a) of Title 5,
except that such sum shall be determined by applying to the total basic pay (as defmed in section 8331(3) of Title 5
and except as hereinafter provided) paid to the employees of the corporation who are covered by the civil service
retirement law, the per centum rate determined annually by the Director of the ,Office of Personnel Management to
be the excess of the total normal cost per centum rate of the civil service retirement system over the employee
deduction rate specified in section 8334(a) of Title 5. lbe corporation shall also pay into the Civil Service
Retirement and Disability Fund such portion of the cost of administration of the fund as is determined by the
Director of the Office of Personnel Management to be attributable to its employees. Notwithstanding the foregoing
provisions, there shall not be considered for the purposes of the civil service retirement law that portion of the
•
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12 U.S.C.A. § 1723a -
basic pay in anyone year of any officer or employee of the corporation which exceeds the basic pay provided for
positions listed in section 5312 of Title 5 on the last day of such year: Provided, That with respect to any person
whose employment is made subject to the civil service retirement law by section 806 of the Housing and
Community Development Act of 1974, there shall not be considered for the purposes of such law that portion of
the basic pay of such person in anyone year which exceeds the basic pay provided for positions listed in section
5316 of such Title 5 on the last day of such year. Except as provided in this subsection, the corporation shall not
be subject to the provisions of Title 5.
(3)(A) Not later than June 30, 1993, and annually thereafter, the corporation shall submit a report to the Committee
on Banking, Finance and Urban Affairs of the House of Representatives and the Committee on Banking, Housing,
and Urban Affairs of the Senate on (i) the comparability of the compensation policies of the corporation with the
compensation policies of other similar businesses, (ii) in the aggregate, the percentage of total cash compensation
and payments under employee benefit plans (which shall be defined in a manner consistent with the corporation's
proxy statement for the annual meeting of shareholders for the preceding year) earned by executive officers of the
corporation during the preceding year that was based on the corporation's performance, and Xiii) the comparability
of the corporation's fmancial performance with the performance of other similar businesses. The report shall
include a copy of the corporation's proxy statement for the annual meeting of shareholders for the preceding year.
(B) Notwithstanding the first sentence of paragraph (2), after October 28, 1992, the corporation may not enter into
any agreement or contract to provide any payment of money or other thing of current or potential value in
connection with the termination of employment of any executive officer of the corporation, unless such agreement
or contract is approved in advance by the Director of the Office of Federal Housing Enterprise Oversight of the
Department of Housing and Urban Development. The Director may not approve any such agreement or contract
unless the Director determines that the benefits provided under the agreement or contract are comparable to
benefits under such agreements for officers of other public and private entities involved in fmancial services and
housing interests who have comparable duties and responsibilities. For purposes of this subparagraph, any
renegotiation, amendment, or change after October 28, 1992, to any such agreement or contract entered into on or
before October 28, 1992, shall be considered entering into an agreement or contract.
(C) For purposes of this paragraph, the term "executive officer" has the meaning given the term in section 1303 of
the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 [12 U.S.C. 4502].
(e) Prohibition against use of names; injunction; damages
No individual, association, partnership, or corporation, except the bodies corporate named in section 1717(a)(2) of
this title, shall hereafter use the words "Federal National Mortgage Association," "Government National Mortgage
Association," or any combination of such words, as the name or a part thereof under which the individual,
association, partnership, or corporation shall do business. Violations of the foregoing sentence may be enjoined by
any court of general jurisdiction at the suit of the proper body corporate. In any such suit, the plaintiff may recover
any actual damages flowing from such violation, and, in addition, shall be entitled to punitive damages (regardless
of the existence or nonexistence of actual damages) of not exceeding $100 for each day during which such
violation is committed or repeated.

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12 U.S.C.A. § 1723a
(t) Preparation of forms of obligations and certificates
In order that the Association may be" supplied with such forms of obligations or certificates as it may need for
issuance under this subchapter, the Secretary of the Treasury is authorized, upon request of the Association, to
prepare such forms as shall be suitable and approved by the Association, to be held in the Treasury subject to
delivery, upon order of the Association. The engraved plates, dies, bed pieces, and other material executed in
connection therewith shall remain in the custody of the Secretary of the Treasury. The Association shall reimburse
the Secretary of the Treasury for any expenses incurred in the preparation, custody, and delivery of such forms.
(g) Depositaries, custodians, and fiscal agents
The Federal Reserve banks are authorized and directed to act as depositaries, custodians, and fiscal agents for each
ofthe bodies corporate named in section 1717(a)(2) of this title, for its own account or as fiduciary, and such banks
shall be reimbursed for such services in such manner as may be agreed upon; and each of such bodies corporate
may itself act in such capacities, for its own account or as fiduciary, and for the account of others.
(h), (i) Repealed. Pub.L. 102-550, Title XIII, § 1381(k), Oct. 28, 1992, 106 Stat. 3997
G) Audit; access to books, etc.; report of audit
(1) The programs, activities, receipts, expenditures, and financial transactions of the corporation shall be subject to
audit by the Comptroller General of the United States under such rules and regulations as may be prescribed by the
Comptroller General. The representatives of the General Accounting Office shall have access to such books,
accounts, financial records, reports, files, and such other papers, things, or property belonging to or in use by the
corporation and necessary to facilitate the audit, and they shall be afforded full facilities for verifying transactions
with the balances or securities held by depositories, fiscal agents, and custodians. A report on each such audit shall
be made by the Comptroller General to the Congress. The corporation shall reimburse the General Accounting
Office for the full cost of any such audit as billed therefor by the Comptroller General.
(2) To carry out this subsection, the representatives of the General Accounting Office shall have access, upon
request to the corporation or any auditor for an audit of the corporation under subsection (I) of this section, to any
books, accounts, financial records, reports, files, or other papers, things, or property belonging to or in use by the
corporation and used in any such audit and to any papers, records, files, and reports of the auditor used in such an
audit.
(k) Financial reports; submission to Director; contents
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12 U.S.c.A. § 1723a .-
(1) The corporation shall submit to the Director of the Office of Federal Housing Enterprise Oversight of the
Department of Housing and Urban Development annual and quarterly reports of the fmandal condition and
operations of the corporation which shall be in such fonn, contain such infonnation, and be submitted on such
dates as the Director shall require.
(2) Each such annual report shall include--
(A) fmancial statements prepared in accordance with generally accepted accounting principles;
(B) any supplemental infonnation or alternative presentation that the Director may require; and
(C) an assessment (as of the end of the corporation's most recent fiscal year), signed by the chief executive
officer and chief accounting or fmancial officer of the corporation, of--
(i) the effectiveness of the internal control structure and procedures ofthe corporation; and
(ii) the compliance of the corporation with designated safety and soundness laws.
(3) The corporation shall also submit to the Director any other reports required by the Director pursuant to section
1314 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 [12 U.S.C.A. § 4514].
(4) Each report of fmancial condition shall contain a declaration by the president, vice president, treasurer, or any
other officer designated by the board of directors of the corporation to make such declaration, that the report is true
and correct to the best of such officer's knowledge and belief.
(I) Independent audits of fmancial statements
(1) The corporation shall have an annual independent audit made of its fmancial statements by an independent
public accountant in accordance with generally accepted auditing standards.
(2) In conducting an audit under this subsection, the independent public accountant shall detennine and report on
whether the fmancial statements of the corporation (A) are presented fairly in accordance with generally accepted
accounting principles, and (m to the extent detennined necessary by the Director, comply with any disclosure
requirements imposed under subsection (k)(2)(B) of this section.
(m) Mortgage data collection and reporting requirements

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12 U.S.C.A. § 1723a
(1) The corporation shall collect, maintain, and provide to the Secretary, in a form determined by the Secretary,
data relating to its mortgages on housing consisting of 1 to 4 dwelling units. Such data shall include--
(A) the income, census tract location, race, and gender of mortgagors under such mortgages;
(B) the loan-to-value ratios of purchased mortgages at the time of origination;
(C) whether a particular mortgage purchased is newly originated or seasoned;
(0) the number of units in the housing subject to the mortgage and whether the units are owner-occupied; and
(E) any other characteristics that the Secretary considers appropriate, to the extent practicable.
(2) The corporation shall collect, maintain, and provide to the Secretary, in a form determined by the Secretary,
data relating to its mortgages on housing consisting of more than 4 dwelling units. Such data shall include..;-
(A) census tract location of the housing;
(B) income levels and characteristics of tenants of the housing (to the extent practicable);
(C) rent levels for units in the housing;
(0) mortgage characteristics (such as the number of units fmanced per mortgage and the amount ofloans);
(E) mortgagor characteristics (such as nonprofit, for-profit, limited equity cooperatives);
(F) use of funds (such as new construction, rehabilitation, refmancing);
(G) type of originating institution; and
(H) any other information that the Secretary considers appropriate, to the extent practicable.
(3)(A) Except as provided in subparagraph (B), this subsection shall apply only to mortgages purchased by the
corporation after December 31, 1992.
(B) This subsection shall apply to any mortgage purchased by the corporation after the date determined under
subparagraph (A) if the mortgage was originated before such date, but only to the extent that the data referred in
paragraph (1) or (2), as applicable, is available to the corporation.
(n) Report on housing activities; contents; public disclosure
(1) The corporation shall submit to the Committee on Banking, Finance and Urban Affairs of the House of
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Representatives, the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Secretary a report
on its activities under subpart B of part 2 of subtitle A of the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992 [12 U.S.C.A. § 4561 et seq.].
(2) The report under this subsection shall-
(A) include, in aggregate form and by appropriate category, statements of the dollar volume and number of
mortgages on owner-occupied and rental properties purchased which relate to each of the annual housing goals
established under such subpart;
(B) include, in aggregate form and by appropriate category, statements of the number of families served by the
corporation, the income class, race, and gender of homebuyers served, the income class of tenants of rental
housing (to the extent such information is available), the characteristics of the census tracts, and the geographic
distribution of the housing fmanced;
(C) include a statement of the extent to which the mortgages purchased by the corporation have been used in
conjunction with public subsidy programs under Federal law;
(D) include statements of the proportion of mortgages on housing consisting of 1 to 4 dwelling units purchased
by the corporation that have been made to fIrst-time homebuyers, as soon as providing such data is practicable,
and identifying any special programs (or revisions to conventional practices) facilitating homeownership
opportunities for fIrst-time homebuyers;
(E) include, in aggregate form and by appropriate category, the data provided to the Secretary under subsection
(m)(l)(B) of this section;
(F) compare the level of securitization versus portfolio activity;
(G) assess underwriting standards, business practices, repurchase requirements, pricing, fees, and procedures,
that affect the purchase of mortgages for low- and moderate-income families, or that may yield disparate results
based on the race of the borrower, including revisions thereto to promote affordable housing or fair lending;
(H) describe trends in both the primary and secondary multifamily housing mortgage markets, including a
description of the progress made, and any factors impeding progress toward standardization and securitization of
mortgage products for multifamily housing;
(I) describe trends in the delinquency and default rates of mortgages secured by housing for low- and
moderate-income families that have been purchased by the corporation, including a comparison of such trends
with delinquency and default information for mortgage products serving households with incomes above the
median level that have been purchased by the corporation, and evaluate the impact of such trends on the
standards and levels of risk of mortgage products serving low- and moderate-income families;
(J) describe in the aggregate the seller and servicer network of the corporation, including the volume of
mortgages purchased from minority-owned, women-owned, and community-oriented lenders, and any efforts to
facilitate relationships with such lenders;
(K) describe the activities undertaken by the corporation with nonprofIt and for-profit organizations and with
State and local governments and housing fmance agencies, including how the corporation's activities support the
objectives of comprehensive housing affordability strategies under section 12705 of Title 42; and
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12 U.S. CA. § 1723a
(L) include any other information that the Secretary considers appropriate.
(3)(A) The corporation shall make each report under this subsection available to the public al the principal and
regional offices of the corporation.
(B) Before making a report under this subsection available to the public, the corporation may exclude from the
report information that the Secretary has determined is proprietary information under section 1326 of the Federal
Housing Enterprises Financial Safety and Soundness Act of 1992 [12 U.S.C.A. § 4546].
(0) Affordable Housing Advisory Council
(1) Not later than 4 months after October 28, 1992, the corporation shall appoint an Affordable Housing Advisory
Council to advise the corporation regarding possible methods for promoting affordable housing for low- and
moderate-income families.
(2) The Affordable Housing Advisory Council shall consist of 15 individuals, who shall include representatives of
community-based and other nonprofit and for-profit organizations and State and local government agencies
actively engaged in the promotion, development, or financing of housing for low- and moderate-income families.
END OF DOCUMENT
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12 USCA § 4501, Congressional [mdings Page 1
, ~ I ,",." . __.._.- •.
*88153 12 U.S.C.A. § 4501 other internal controls, conduct examinations

~TEDSTATESCODE when necessary, and enforce compliance with the
ANNOTATED standards and rules that it establishes;
TITLE 12. BANKS AND BANKING (7) the Federal National Mortgage
CHAPTER 46--GOVERNMENT Association and the Federal Home Loan
Mortgage Corporation have an affirmative
SPONSORED ENTERPRISES
obligation to facilitate the fmancing of
i ,I
affordable housing for low- and moderate-
Current through P.L. 105-175, approved Ii' income families in a manner consistent with their
5-11-98 overall public purposes, while maintaining a
strong fmancialcondition and a reasonable
§ 4501'. Congressional findings economic return; and
(8) the Federal Home Loan Bank Act should
The Congress finds that-- be amended to emphasize that providing for
,..,.::·,...,.,~;,,~;).~;;:;:.itW;;:.Ji.:;·*el;.~~f~e.r1JtL.;;~:MatWm.i.;; ..L;.~_, ... ._, J, ',;f1U8llCial. safe~jand . sOlnldness.'iOf'1M...F.edetaJ· -'.,. .
Association and the Federal Home Dean Home Loan Banks is the primary mission of the
Mortgage Corporation (referred to in this sec~ion Federal Housing Finance Board. *88154·
collectively as the "enterprises"), and the Federal
Home Loan Banks (referred to in this section as CREDIT(S)
the "Banks"), have important public missions
that are reflected in the statutes and charter Acts 1998 Electronic Update
establishing the Banks and the enterprises;
(2)because the continued ability of the (pub.L. 102-550. Title XIll, § 1302, OcL 28, 1992, 106 StaL
Federal National Mortgage Association and the 3941.)
Federal Home Loan Mortgage Corporation to
accomplish their public missions is important to lllSTORICAL NOTES
providing housing in the United States and the
HISTORICAL AND STATUTORY NOTES
health of the Nation's economy, more effective
Federal regulation is needed to reduce the risk of Revision Notes and Legislative Reports
failure of the enterprises; 1992 Acts. House Report No. 102-760 and House
(3) considering the current Conference Report No. 102-1017, see 1992 U.S. Code Congo
procedures of the Federal National Mort ge and Adm. News, p. 3281.
Association, the Federal Home Loan Mort age
Effective Dates
Corporation, and the Federal Home Loan B . s, 1992 Acts. Except as, otherwise provided, section effective
the enterprises and the Banks currently pose low Oct. 2~, 1992, see section 2 ofPub.L. 102-550, set out as a
fmancial risk of insolvency; note under section 5301 of Title 42, The Public Health and
(4) neither the enterprises nor the Banks"nor Welfare.
any securities or obligations issued by the Short Title
enterprises, or the Banks, are backed by the' full Section 1301 of Pub.L. 102-550 provided that: "This title
faith and credit of the United States; [enacting this chapter, amending sections 1422a, 1430,
(5) an entity regulating the Federal National 1430b, 1451 to 1456, 1716 to 1719, 1723, 1723a, and
1723c of this title,sections 3132 and 5313 of Title 5,
Mortgage Association and the Federal Home
Government Organization and Employees, section 1905 of
Loan Mortgage Corporation should have Title 18, Crimes and Criminal Procedure, and section 3534 of
sufficient autonomy from the enterprises and Title 42, The Public Health and Welfare; and enacting
special interest groups; provisions set out as notes under sections 1451, 1452, 1723,
and 4562 of this title, and amending provisions set out as a
(6) an entity regulating such enterprises
note under section 1451 of this title] may be cited as the
should have the authority to establish capital 'Federal Housing Enterprises Financial Safety and Soundness
standards, require fmancial disclosure, prescribe Act of 1992'."
) adequate standards for books and records ,and
12 USCA § 4501, Congressional fmdings Page 2
REFERENCES Encyclopedias
" .. ··w·... . . . .......
,~, ~.,.-.., .,..:~ . -- .... ,.'-
LIBRARY REFERENCES Disbursement ofUnited States funds, see C.J.S. United States
§ 122.
I'
American Digest System
Law Review and Journal Commentaries
Housing and urban development; housing contracts, loans,
mortgages, and guarantees, see United States@;:::> Government-sponsored enterprises are "too big to fail":
82(3.3). Balancing public and private interests. Carrie Stradley
Lavargna,44 Hastings L.1. 991 (1993).
jI. .••. -, ...
-
f)
*88155 12 U.S.C.A. § 4502 as
substantially eqti!vaIeni plan, determined by
UNITED STATES CODE the Director, shall not be considered a capital
ANNOTATED distribution.
.TITLE 12. BANKS AND BANKING
CHAPTER 46--GOVERNMENT (3) Compensation
The term "compensation" means any payment
of money or the provision of any other thing of
Current through P.L. 105-175, approved current or potential value in connection with
5-11-98 employment.
§ 4502. Definitions (4) Core capital
F~rpurposes of this c~apter: , The term "core capital" means,wi,threspect

". :.;,..,. ~z.';;f~::.i:.i.:;' '~t.S:i;.~··::iL.:..o. :'\:
,! ;:~:;.:.'_ ;i~.:·C~.:.> ,I. t £. "';: J:o~an enterprise. the. sum of the foll~mng·.(M·
(1) A f f i l i a t e ' determined in accordance with generally
accepted accounting principles):
Except as provided by the Director, the 1X:rm (A) The par or stated value of outstanding
l
"affiliate" means any entity that controlsl is common Stock.
controlled by, or is under common control 'Yith, (B) The par or stated value of outstimding
an enterprise. perpetual, noncumulative preferred stock.
(C) Paid-in capital.
(2) Capital distribution (D) Retained earnings.
(A) In general The core capital of an enterprise shall not

include any amounts that the enterprise could
The term "capital distribution" means-- be required to pay, at the option of investors, to
(i) any dividend or other distribution in retire capital instruments.
cash or in kind made with respect to any
shares of, or other ownership interest in, an (5) Director
enterprise, except a dividend consisting .nly
of shares ofthe enterprise; The term "Director" means the Director of the
(ii) any payment made by an en Office of Federal Housing Enterprise Oversight
to repurchase, redeem, retire, or othe of the Department of Housing and Urban
acquire any of its shares, including any Development.
extension of credit made to finance an
acquisition by the enterprise of such sh . *88156 (6) Enterprise
and
(iii) any transaction that the Dir :tor The term "enterprise" means-
determines by regulation to be, in substance, (A) the Federal National Mortgage
the distribution of capital. Association and any affiliate thereof; and
(B) the Federal Home Loan Mortgage
(B) Exception Corporation and any affiliate thereof.
Ally payment made by an enterprise to (7) Executive officer

repurchase its shares for the purpose of
fulfilling an obligation of the enterprise under The term "executive officer" means, with
an employee stock ownership plan that is respect to an enterprise, the chairman of the
j qualified under section 401 of Title 26 or any board ofdirectors, chief executive officer, chief
Copyright (c) West Group .1998 No claim to original U.S. Govt. works
financial officer, president, vice chairman, any for the purchasing, servicing, selling, lending on
executive vice president, and any senior ice the security of, or otherwise dealing in,
president in charge of a principal business .t, conventional mortgages that--
division, or function. (A) is significantly different from
programs that have been approved under this
(8) Low-income chapter or that were approved or engaged in by
an enterprise before October 28, 1992; or
The term "low-income" means.,- (B) represents an expansion, in terms of
(A) in the case of owner-occupied units, the dollar volume or number of mortgages or
income not in excess of 80 percent of area securities involved, of programs above limits
median income; and expressly contained in any prior approval.
(B) in the case of rental units, income not
in excess of 80 percent of area median income, *88157 (14) Office
with adjustments for smaller and larger
fmp.ilies,Jl,~ determined by the S~retary. The . term .'~Office" means the .offi~ of
Federal Housing Enterprise Oversight of the
(9) Median income Department of Housing and Urban
Development.
The term "median income" means, . 'th
respect to an area, the unadjusted median £ 'ly (15) Secretary
income for the area, as determined and publi hed
annually by the Secretary, The term "Secretary" means the Secretary of
Housing and Urban Development.
(1 0)· Moderate~income
(16) Single family housing
The term "moderate-income" means-- I'
(A) in the case of owner-occupied units, The term "single family housing" means a
income not in excess of area median in~me; residence consisting of 1 to 4 dwelling units.
and
(B) in the case of rental units, income not (17) State
in excess of· area median income, with
adjustments for smaller and larger f~lies, as The term "State" means the States of the
determined by the Secretary. United States, the District of Columbia, the
Commonwealth of Puerto Rico, the
(11) Mortgage purchases Commonwealth of the Northern Mariana Islands,
Guam, the Virgin Islands, American Samoa, the
The term "mortgage purchases" includes Trust Territory of the Pacific Islands, and any
mortgages purchased for portfolio or other territory or possession of the United States.
securitization.
(18) Total capital
(12) Multifamily housing
The term "total capital" means, with respect
The term "multifamily housing" me a to an enterprise, the sum of the following:
residence consisting of more than 4 dwe ing (A) The core capital of the enterprise;
units. (B) A general allowance for foreclosure
losses, which~-
(13) New program (i) shall include an allowance for
portfolio mortgage losses, an allowance for
The term "new program" means any program nonreimbursable foreclosure costs on
12 USCA § 4502, DefInitions Page 3
-
government claims, and an allowance for
liabilities reflected on the balance sheet for
the enterprise for estimated foreclosure losses
3942.)
mSTORICAL NOTES
-"
on mortgage-backed securities; and
(ii) shall not include any reserves of the illSTORICAL AND STATUTORY NOTES
enterprise made or held against specific
Revision Notes and Legislative Reports
assets. 1992 Acts. House Report No. 102-760 and House
(C) Any other amounts from source' of Conference Report No. 102-1017, see 1992 U.S. CodeCong.
funds available to absorb losses incurred bthe and Adm. News, p. 3281.
enterprise, that the Director by regul ion
determines are appropriate to include in *88158 References in Text
This chapter, referred to in text preceding par. (1), was in
detennining total capital.
the original " this title", meaning Title xm of PubL.
102-550, Oct. 28, 1992, 106 Stat. 3941, knoWn as the
(19) Very low-income Federal Housing Enterprises Financial Safety and Soundness
. '
Act of 1992, whic~ is classified principally to this chapter.
The tenn "very low-income" means-· For complete classification of this Act to the Code, see Short
(A) in the case of owner-occupied units, Title note set out under section 4501 ofthis title and Tables.
income not in excess of 60 percent of area This chapter, referred to in par. (13), was in the original "
median income; and this Act", meaning Title xm of Pub.L. 102-550, Oct. 28,
(B) in the case of rental units, income not 1992, 106 Stat.' 3941, known as the Federal Housing
in excess of 60 percent of area mediap income, Enterprises Financial Safety and Soundness Act of 1992,
with adjustments for smaller and larger which is classified principally to this chapter. For complete
fam~lies, as determined by the Secretary.
classification of this Act to the Code, see Short Title note set
out under section 4501 ofthis title and Tables.
CREDIT(S) Effective Dates

1992· Acts. Except as otherwise provided, section effective
1998 Electronic Update Oct. 28, 1992, see section 2 of PubL. 102-550, set out as a
note under section 5301 of Title 42, The Public Health and
(Pub.L. 102-550, Tit/eXllI, § 1303, Oct. 28, 1992, 106 tat. Welfare.
FRCt1 : --_ _----_..__
.. ..
FAX NO. : JuI. 15 20B301:20PM P2
-• v
First American Loss Mitigation Services, Inc.
RE: FHLM.eNo. . . . .
- ....
Loan No. _
_ .H I1
I
Dear Borrower:
Fleet Mortgage Group, the present sneer for your mortgage loan, has reported "that you have
fallen bebiild your mortgage payments. TbC Federal HOme Loan Mortgage Corporatio;
OIl
commonly known as Freddie Mac, is the owner of the mortgage on your property. Freddie Mac
has engaged First American Loss Mitigation Services, Inc. in an attmlpt to resolve your
delinqucocy in a manner beneficial to all parties.
There are seveml options that may be available to help you reinstate your loan and retain the
ownership of your property. If you cannot afford to maintain ownership of your property, there
arc other options that will minimize the consequences of your present financial difficulties.
Because the loan is in delinquent status, the servicer wiD not delay any legal process. Your
cooperation can only serve to assist you in preventing the loss of your property and a negative
credit rating. .
S~ou1d .you be a debtor in a bankruptcy proceeding subject to provisionS of the United States
Bankruptcy Code, this letter is merely intended to advise you that Freddie Mac is owed a debt bv
you and wishes to negotiate the settlement of said debt You or your legal counsel shOuld ~
Fust American Loss Mitigation Services immediately to advise us oftbe status of any bankruptcy
proceedings.
This is an attempt to collect a debt. Any infonnatioa obtained will be used for that purpose.
Your prompt attention and cooperation is appreciated. Please contact First .American Loss
Mitigation Services at (504) 466-6644 or 1-800-511-1218 (ton free).
Sincerely, .
Nonnan Lloyd
Ou~ Loan Officer
to C"OIIIIIlCl'CC Court • Harahan, LA 70123

.8QO.Sll·1218 • !04-466-77S1 (fL'C) •.
11 USCA § 541, Property of the estate Page 1
-
~78203 Rights of bankruptcy trustee under Bankruptcy
Code, section, which grants trustee any real property that
bona fide purchaser from debtor could acquire on date of
bankruptcy petition, are separate from and equal to, not
Even if wife bad executed quitclaim deed to property,
wife had equitable interest in property under Alabama law
which would be recognized as property of wife's Chapter 13
.-
- IlUbordinate to, rights of trustee under section. which provides estate, where wife had in recent years made mortgage
that trustee succeeds to rights ofdebtor in any property of payments to mortgagee and mortgagee had accepted
debtor. In re Cascade Oil Co., Inc., BkrtcyD.Kan.1986, 65 payments, and wife had unbroken occupation of house for
B.R35. several years. Inrc Thomas, Bkrtcy.ND.Ala1990, 121 B.R.
94.
Trustee's powers to avoid deeds executed by debtor prior
to filing bankruptcy petition was not circumscnbed by subsec. 404. Servicing ofmortgage by debtor
(d) of this section because the debtor did not possess legal title
to the property at the commencement of the bankruptcy Mortgagees whose accounts debtor had agreed to service
were not entitled to secured claims for shortages in accounts,
petition. In re Anderson, MD.Tenn.1983, 30 B.R. 995.
as funds which debtor had misappropriated could not be
traced and mortgagees were unable to identifY any specific
Trustee's strong-arm lien avoidance powers are not property held by debtor at time of Chapter 7 filing that
limited by provision ofBankruptcy Code stating that property belonged to any of mortgagees. In re Leedy Mortg. Co" Inc.,
in which debtor holds, as of commencement of case, only Bkrtcy.E.D.Pa.1990, III B.R.4&8.
legal title and not equitable interest, becomes property of
estate only to extent of debtor's legal title to property, but not ~ Federal Home Loan Mortgage Corporation was owner of
to extent of any equitable interest in such property that debtor notes and mortgages being serviced by debtor, and thus
does not hold Nile Valley Federal Say. & Loan Assn v. principal, interest, and escrow payments on deposit in debtor's
Security Title Guarantee Corp. of Baltimore, Colo.App.1991, account were not property of debtor's estate though
813 P.2d 849. Corporation did not hold original mortgages in its name, in
!hat Cmponllion was holder of original notes. In
403. Acceptance ofmortgage payments Cambridge Mortg. Corp., BkrtcyD.S.C.1988, 92 B.R.
)
12 USCA § 1456, Immunity of Corporation; audits and reporting requirements; data collection; Housing Page 1
Advisory Council
files and all other papers, things, or property

belonging to or in use by the Corporation and
necessary to facilitate the audit, and they shall be
afforded full facilities for verifying transactions
with the balances or securities held by
depositaries, fiscal agents, and custodians. A
report on each such audit shall be made by the
Comptroller General to the Congress. The '
Corporation shall reimburse the .General
Accounting Office for the full cost of any such
audit as billed' therefor by the Comptroller
General.
(2) To carry out this subsection, the
....... ," "/--.-:i.,} rWt~~et1~tiv,~sQf the G~eral. A~qntiAg..Q1ti~._~ __.. __ ,
shall have access, upon request to the_Corporation
(a) Rights and remedies of Corporation; State or any auditor for an audit of the Corporation
qualifications or similar statutes under subsection (d) of this section, to any books,
accounts, fmancial records, reports, files, or other
All rights and remedies of the Corporation, papers, things, or property belonging to or in use
including without limitation on the generality of by the Corporation and used in any such audit and
the foregoing any rights and remedies of the to any papers, records, files, and reports of the
Corporation on, under, or with respect to any auditor used in such an audit.
mortgage or any obligation secured thereby, 'hall
be immune from impainnent, limitation,. or *83229 (c) Financial reports; submission to
restriction by or under (1) any law (except 'ws Director; contents
enacted by the Congress expressly in limitatio· of
this sentence) which becomes effective after the (1) The Corporation shall submit to the Director
acquisition by the Corporation .of the subj . or of the Office of Federal Housing Enterprise
property on, under, or with respect to which uch Oversight of the Department of Housing and
right or remedy arises or exists or would so'se Urban Development annual and quarterly reports
or exist in the absence of such law, or (2)iby of the fmancial condition and operations of the
administrative or other action which becomes Corporation which shall be in such form, contain
effective after such acquisition. The Corporation such infonnation, and be submitted on such dates
is authorized to conduct its business without as the Director shall require:
regard to any qualification or similar statute in any (2) Each such annual report shall include--
State. (A) financial statements prepared in
accordance with generally accepted accounting
(b) Government audits; procedure; ·access to principles;
records, etc.; reimbursement of costs (B) any supplemental infonnation or
alternative presentation that the Director may
(I) The programs, activities, receipts, require; and
expenditures, and fmancial transactions of the (C) an assessment (as of the end of the
Corporation shall be subject to audit by Corporation's most recent fiscal year), signed by
Comptroller General of the United States the chief executive officer and· chief accounting
such rules and regulations as may be prescrib or fmancial officer of the Corporation, of--
the Comptroller General. The representativ (i) the effectiveness of the internal control
the General Accounting Office shall have a ss structure and procedures of the Corporation;
to all books, accounts, fmancial. records, rep rts. and
Copyright (c) West Group 1,998 No claim to original U.S. Govt. works
-
12 USCA § 1456, ImnnnUly of COIJ>OfRtioo;
Advisory Council
.",J ~d reporting reqWr"""""'; datocollection; Housmg Pagel
(ii) the compliance of the Corporation with to the mortgage and whether the units are owner- .-
designated safety and soundness laws. occupied; and
(3) The Corporation shall also submit to the (E) any other characteristics that the
Director any other reports required by the Director Secretary considers appropriate, to the extent
pursuant to section 1314 of the Federal Housing practicable.
Enterprises Financial Safety and Soundness Act of (2) The Corporation shall collect, maintain, and
1992112 U.S.C,A. § 4514]. provide to the Secretary, in a form determined by
(4) Each report of financial condition shall the Secretary, data relating to its mortgages on
contain a declaration by the president, vice housing consisting of more than 4 dwelling units.
president, treasurer, or any other offiCer Such data shall include--
designated by the Board of Directors of the (A) census tract location of the housing;
Corporation to make such declaration, that :the (B) income levels and characteristics of
report is true and correct to the best of uch tenants of the housing (to the extent practicable);
.officer:s ~Qw1.ePge and belief. .1 . -:.~.;. .(C) ~ent lev~ls for units in the J.1ousing; . ._ ':-_'"
(0) mortgage characteristics (such as the
(d) Independent audits of financial statements number of units fmanced per mortgage and the
amount ofloans);
(1) The Corporation shall have an al (E) mortgagor characteristics (such as
independent audit made of its fmancial statemertts nonprofit, for-profit, limited equity
by an independent public accountant. in cooperatives);
accordance with generally accepted auditing (F) use of funds (such as new construction,
standards. rehabilitation, refmancing);
(2) In conducting an audit under this subsection, (G) type of originating institution; and
the independent public accountant shall determine (H) any other information that the Secretary
and report on whether the fmancial statements of considers appropriate, to the extent practicable.
the Corporation (A) are presented fairly in (3)(A) Except as provided in subparagraph (B),
acc.ordance with generally accepted accounting this subsection shall apply only to mortgages
principles, and (B) to the extent determined purchased by the Corporation after December 31,
necessary by the Director, comply with any 1992.
disclosure requirements imposed under subsection (B) This subsection shall apply to any mortgage
(c)(2)(B) of this section. purchased by the Corporation after the date
determined under subparagraph (A) if the
(e) Mortgage data collection and mortgage was originated before such date, but
requirements only to the extent that the data referred in
paragraph (1) or (2), as applicable, is available to
(I) The Corporation shall collect, maintain, and the Corporation.
provide to the Secretary, in a foim determin 'by
the Secretary, data relating to its mortgage .on (f) Report on housing activities; contents; public
housing consisting of 1 to 4 dwelling units. ~ch disclosure
data shall include-- ''
"83230 (A) the income, census tract location, (l) The Corporation shall submit to the
race, and gender of mortgagors under such Committee on Banking, Finance and Urban
mortgages; Affairs of the House of Representatives, the
(8) the loan-to-value ratios of purchased Committee on Banking, Housing, and Urban
mortgages at the time of origination; Affairs of the Senate, and the Secretary a report
(C) whether a particular mortgage purchased on its activities under subpart B of part 2 of
is newly originated or seasoned; subtitle A of the Federal Housing Enterprises
) (D) the number of units in the housing subject Financial Safety and Soundness Act of 1992 [12
12 UseA § 1456, Immunity of Corporatio~ audit:' ID1d reporting requirements~ data collection~ Housing Page 3
Advisory Council
U.S.C.A. § 4561 et seq.]. standardization' and securitization of mortgage

(2) The report under this subsection shall- products for multifamily housing;
(A) include. in aggrega~ form and by (1) describe trends in the delinquency and
appropriate category, statements of the d llar default rates of mortgages secured by housing
volwne and nwnber of mortgages on 0 er- for low- and moderate-income families that have
occupied and rental properties purchased w 'ch been purchased by the Corporation, including a
relate to each of the annual housing goals comparison of such trends with delinquency and
established under such subpart; default information for mortgage products
*83231 (B) include, in aggregate form and by serving households with incomes above the
appropriate category, statements of the nwnber median level that have been purchased by the
of families served by the Corporation, the Corporation, and evaluate the impact of such
income class, race, and gender of homebuyers trends on the standards and levels of risk of
served, the income class of t~nants. of rental mortgage products serving low- and moderate~
housing (to the extent ,~uch inform~tionis_ ~come ,families;. .,._
available), the characteristics of the census (1) describe in the aggregate the seller and
tracts, and the geographic distribution of the servicer network of the Corporation, including
housing fmanced; the volwne of mortgages purchased from
(C) include a statement of the extent to which minority-owned, women-owned, and
the mortgages purchased by the Corpor'on community-oriented lenders, and any efforts to
have been used in conjunction with p lie facilitate relationships with such lenders;
subsidy programs under Federallaw; (K) describe the activities undertaken by the
(D) include statements of the proportio . Corporation with nonprofIt and for-profIt
rnortgages on housing consisting of I' t organizations lind with State and local
dwelling units purchased by the Corporation governments and housing fInance agencies,
have been made to fIrst-time homebuyers as including how the Corporation's activities
soon as providing such data is practicable, lind support the objectives of comprehensive housing
identifying any special programs (or revisio to I affordability strategies under section 12705 of
conventional practices) facilitating Title 42; and
homcownership opportunities for fIrst-time *83232 (L) include any other information
homebuyers; that the Secretary considers appropriate.
(E) include. in aggregate form and by (3)(A) The Corporation shall make each report
appropriate category, the data provided to the under this subsection available to the public at the
Sccn~tary under subsection (e)(l)(B) of this principal and regional offices of the Corporation.
sl.".Ction; (B) Before making a report under this subsection
(F) compare the level of securitization versus available to the public, the Corporation may
portfolio activity; exclude from the report information that the
(0) assess underwriting standards, business Secretary has determined is proprietary
practices, repurchase requirements, pricing, fees, information under section 1326 of the Federal
and procedures, that affect the purchase' of Housing Enterprises Financial Safety and
mortgages for low- and moderate-inc me Soundness Act of 1992 [12 U.S.C.A. § 4546].
families, or that may yield disparate re ults
based on the race of the borrower, inclu ing (g) Affordable Housing Advisory Council
revisions thereto to promote affordable houing
or fair lending; (l) Not later than 4 months after October 28,
(H) describe trends in both the primary and 1992, the Corporation shall appoint an Affordable
secondary multifamily housing mort ~ge Housing Advisory Council to advise the
markets, including a description of the pro ess Corporation regarding possible methods for
made, and any factors impeding progress, to\~lu-d promoting affordable housing for low- and
-
12IJSCA § 1456, Immunity of Corporation; audits and reporting requirements; data collection; Housing Page 4
Advisory Council
.-.
moderate-income families. activities, receipts, expenditures, and financial transactions of
the Corporation being subject to governmental audit, for
(2) The Affordable Housing Advisory COl cil I
provisions relating to the financial transactions of the
shall consist of 15 individuals, who shall inc ude Corporation being subject to governmental audit.
representatives of community-based and er
nonprofit and for-profit organizations and 'ate Subsec. (bX2). Pub.L. 102-550, § 1382(nX2). added par.
and local government agencies actively engag in (2).
the promotion, development, or financin of Subsec. (c). PubL. 102-550, § 1382(P), added subsec. (c).
housing for low- and moderate-mcome famili
Subsec. (d). Puh.L. 102-550, § 1382(q), added subsec. (d).
CREDIT(S)
Subsec. (e). Pub.L. 102-550, § 1382(r), added subsec. (e).
1989 Main Volume Subsec. (f). Pub.L. 102-550, § 1382(s), added subsec. (f).
. (1)l/h./+ 91-351, Title III, § 307, July 24,1970. 84 StaL 456.) ~u~~.~} P.ub~"l 02-550, §.1382(t), ~ed s~bsec. (g)•. __.__
.". ~;:,.r 1.. __ ~ . . . .: ~'I~ .:~:n
.,. ".
1998 Electronic Update 1989 Amendment Subsec. (a). Pub:L.101-73 substituted

provisions relating to conduct of business·without regard to
(A.v am.mded PubL. 101-73, Title vn, § 73I(j)(I), Aug. 9, qualification or shnllar statute in. any State, for . provisions
19lJ9, 103 Stat. 435;PubL. 102-550, TitleXIIl, § 1382(0)- relating to entitlernentto immunities and priorities.
(0. O.:L 28. J992, 106 StaL 4005-4008.)
Effective Dates
1992 Acts. Except as otherwise provided, amendment by
HISTORICAL NOTES Pub.L. 102-550 effective Oct. 28, 1992, see section 2 of
Pub.L. 102-550, set out as a note under section 5301 of Title
-"~- ..Z~ The-Public HeaItff and Wclfan::'.----------·-."-."·-·~--··-- -
Revision Notes and Legislative Reports 1989 Act. Section 731CiX2) ofPub.L. 101-73 provided that:
1970 Act. Senate Report No. 91-761 and Confe nce "The amendment made by this subsection [amending subsec.
Report No. 91-1311, see 1970 U.S.Code Congo :and (a) of this section] shall not apply to any assertion of priority
Adm.News, p. 3488. by the Federal Home Loan Mortgage Corporation. with
respect to any cause of action or claim filed before the date of
1989 Act House Report No. 101-54 lind House Confe the enactment of this Act [Aug. 9, 1989]."
Report No. 101-209, see 1989 U.S.Code Congo
Adm.News, p. 86. Change ofName
I
Any reference in any provision of law enacted before Jan. 4,
,I 1995, to the Committee on Banking. Finance and Urban
1992 Acts. House Report No. 102-760 and House
COllfl."l'ence Report.No. 102-1017, see 1992 U.S. Code Gong: Affaira of the House ofRepresentatives treated as referring to
lind Adm. News, p. 3281. the Committee on Banking and Financial Services of the
House of Representatives, see section 1(aX2) of PubL.
Helcrences in Text 104-14, set out as a note preceding section 21 of Title 2, The
The Federal Housing Enterprises Financial Safety and Congress.
Soundness Act, referred to in subsecs. (cX3) and (£)(1),
(lXB), is Title XIll of Pub.L. 102-550, Oct. 28, 1992, 106 Separability ofProvisions
Sial. 3941, which is classified principally to chapter 46 If any provision of Pub.L. 101-73 or the application thereof
(section 4501 et seq.) of this title. Sections 1314 and 1326 of to any person or circumstance is held invalid, the remainder
IIl1ch Act are classified to sections 4514 and 4546, of Pub.L. 101-73 and the application ofthe provision to other
rt:sl'ectively, of this title. Subpart B of part 2 of subtitle A of persons not siinilar1y situated or to other circumstances not to
lIuch Act is classified to subpart 2 (section 4561 et seq.) of be affected thereby, see section 1221 of PubL. 101-73, set
part B of subchapter I of chapter 46 ofthis title. For complete out as a note under section 1811 of this title.
classitication of this Act to the Code see Short Title -note *83234
under section 4501 of this title and Tables.
REFERENCES
-83233 Amendments
1992 Amendments. Subsec. (bX1). Pub.L. 102-5 , §
1382(oXl), (2), designated existing text as par. (I), and, s so LIBRARY REFERENCES
designated, substituted provisions relating to the pro
Copyright (c) West Group 1,998 No claim to original U.S. Govt. works
nULl ;:) n.t:lYUldLlUII UI \.:JU V 1::1 I "'II::'IL-';:'!JUII;:)UII::U ~llll::llJll;:)l::;:) r- Ciyt:: I ur v
Housing HUO's Regulation of

About Housing
Contact us Government-Sponsored Enterprises
Keywords HUD regulates the two housing government-
~' local information
Single Family sponsored enterprises, Fannie Mae and Freddie Mac
Hospitals (the GSEs), which were chartered by Congress to ~ !;n e~pai'iol
Multifamily
OMHAR
create a secondary market for residential mortgage
loans.
a Print version
;:~ Email this to a friend
Reading room
Online forums
These GSEs are the largest source of housing finance
Work online
in the United States. They are considered to be
HUD news "government sponsored" because Congress authorized their creation and established tt
public purposes. Their Congressional charters require each corporation to achieve publi,
Homes purposes that include providing stability and liquidity in the secondary mortgage marke
providing secondary market assistance relating to mortgages for low-and moderate-inc
Communities families, and promoting access to mortgage credit throughout the Nation, including
underserved areas.
Working with HUD
Re!Ooun:es In exchange for carrying out these public purposes, the GSEs are accorded various
privileges that provide them with some advantages not available to other private
corporations, including an implicit benefit that allows them to borrow money at rates w
Let's talk are lower than rates competitors must pay.
Webcasts
Mailing lists Even though Fannie Mae and Freddie Mac are Congressionally chartered, they are also
Contact us private, shareholder owned corporations that have been regulated by HUD since 1968 (
Help 1989, respectively. Both GSEs fund residential mortgages by purchasing loans directly'
primary market mortgage originators, such as mortgage bankers and depository
institutions, and holding these loans in portfolio or by issuing mortgage-backed securiti
which are sold to a wide variety of investors in the capital markets.
The Secretary of HUD is the mission regulator for Fannie Mae and Freddie Mac, with
oversight authority to ensure that both GSEs comply with the public purposes set forth
their Charters. An independent office of HUD, the Office of Federal Housing Enterprise
Oversight (OFHEO), regulates both GSEs for safety and soundness, by ensuring that th
are adequately capitalized and operating their businesses in a financially sound manner
The GSE Act:
The Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (the GSE .
established the current regulatory structure for the GSEs. The legislation divided the Fe
government's regulatory responsibilities over Fannie Mae and Freddie Mac between the
Secretary of HUD and the Director of OFHEO. Under the GSE Act, the Secretary of HUD
charged with general regulatory authority over Fannie Mae and Freddie Mac in all areas
other than the GSEs' financial safety and soundness which is the responsibility of the
Director of OFHEO.
Specifically, the Secretary's authority includes setting and enforcing three affordable
housing goals, monitoring compliance with fair lending principles, collecting loan-level c
from the GSEs on their loan purchase activities, creating and distributing a public use d
base of non-proprietary GSE purchase data, and providing oversight for new program
nuu l:l "'~YUlaLiVII VI \:JUV~II IIIIt'lll-"fJVII:SVI t'U Clllt'1 fJI1:St':s
-
approval.
HUD has published two rules under the GSE Act, one in 1995 and the current rule in 20
Both rules established the percentage-of-business affordable housing goals Congress
required in the GSE Act.
MUD Increased the GSEs' Affordable Housing Goals for 2001-2003:
In October 2000, HUD published a new final rule which significantly increased the
percentage of business the GSEs are required to devote to specific affordable housing ~
These goals are:
.. Low-and Moderate-Income Goal. At least 50 percent cJ the dwelling units financed by each GSE's mortgage
purchases must be for families with incomes no greater than the area median income (AMI), defined as me
income for the metropolitan area or nonmetropolitan county. The corresponding goal was 42 percent for lS
2000.
.. Special Affordable Goal. At least 20 percent of the dwelling units financed by each GSE's mortgage purchas
must be for very low-income families (those with incomes no greater than 60 percent of AMI) or for low-inc
families (those with incomes no greater than 80 percent cJ AMI) living in low-income areas. The corresponc
goal was 14 percent for 1997-2000.
Special Affordable Multifamily Subgoal: HUD establishes a dollar-based multifamily subgoal which stipulate!
minimum volume of qualifying multifamily loan purchases each GSE must meet annually. In 2001 this subg
increased for Fannie Mae from $1.29 billion in 1997-2000 to $2.85 billion in 2001-2003. For Freddie Mac, tI
subgoal increased from $.99 billion to $2.11 billion, respectively.
.. Geographically Targeted (underserved areas) Goal. At least 31 percent of the dwelling units financed by ea·
GSE's mortgage purchases must be for units located in underserved areas, including central cities, rural all
and other areas as defined in HUO's rule. The corresponding goal was 24 percent for 1997-2000.
In addition to increasing the goals, HUD also implemented bonus point incentives to
encourage the GSEs to increase their purchases of certain types of rental housing, whic
disproportionately serve lower income families and underserved areas. Small multifaml
properties (5-50 units) receive double credit towards the housing goals, and small 2-4
family rental properties receive double credit when a GSE's purchases exceed 60 percel
the average of qualifying units from the preceding five years. Bonus points may be awe
through December 31,2003, after which they terminate.
HUD also implemented a temporary adjustment factor (TAF) for Freddie Mac which pen
additional goals credit for each Qualifying multifamily unit In projects with more than SC
units. Although HUD originally established the TAF as 1.2 units of credit, Freddie Mac w
able to obtain a legislative amendment in December 2000 which increased the TAF to 1
units of credit. HUD established the TAF in the hope that it would assist Freddie Mac in
overcoming any lingering effects of its decision to leave the multifamily market in the e
19905. The TAF expires in December 2003.
The GSEs Affordable Housing Performance under the GSE Act~
Each year HUD prepares and makes available a public use database which includes loar
level information on each GSE's loan purchases during the year. HUD also publishes re~
and various analyses on Fannie Mae's and Freddie Mac's performance in serving the
affordable housing marketplace. /
To find out more about HUD's regulation of the GSEs, including how the GSEs have
performed under the GSE Act, please go to our reports and data website.
'-
n uu::s "t::yUIi:tllUII UI ~UVt::1I11\It::IIl-":)JJUII~UIt::U CIIlt::1 JJ"~t::::S
Content updated March 4, 2002 o Backto
U.S. Department of Housing and Urban Development

rri'LqQ~
451 7th Street S.W., Washington, DC 20410
Home
Telephone: (202) 708-1112 TTY: (202) 708-1455
B-"14..!.1}!Lal:t4.l§~of a HVQ office near you
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GOVERNMENT-SPONSORED ENrERPRISES
This chapter contains descriptions of and data on the (]()v- The Student Loan Marketing Association (Sallie Mae) was
ernment-sponsored enterprises listed below. These enterprises created as a shareholder-owned government sponsored enter-
were established and chartered by the Federal Government prise (GSE) by the Education Amendments of 1972 to expand
for public policy purposes. They are not included in the Fed- funds available for student loans by providing liquidity to
eral budget because they are private companies. However, lenders engaged in the Federal Family Education Loan Pr0-
beJ:.aUl!e of the.ir public purpose, detailed stateme.nts of finan- gram (FFELP), formerly the guaranteed student loan program
cial operations and condition are presented, to the extent (GSLP). Sallie Mae was privatized in 1997 pursuant to the
such information is available, on a basis that is as consistent authority granted by the Student Loan Marketing Association
as practicable with the basis for the budget data of Govern- Reorganization Act of 1996. The GSE is a wholly owned sub-
ment agencies. These statements are not reviewed by the sidiary of SLM Corporation and must wind down and be
President; they are presented as submitted by the enterprises. liquidated by September 30, 2008. In January 2002, the GSE's
board of directors announced that it expects to complete the
-The Student Loan Marketing Association is a for-profit dissolution of the GSE by September 30, 2006. Under legisla-
financial cOT})OTstion chartered by Congress in 19'72. under tion passed in 1998, if USA Education, Inc. affiliates with
the Higher Education Act (HEA) to help increase the a depository institution, the GSE must wind down within
availability of student loans. Sallie Mae carries out sec- two years (unless such period is extended by the Department
ondary market and other functions. of the Treasury).
-The Federal National Mortgage Association and the Fed- The GSE provides liquidity through direct purchase of in-
eral Home Loan Mortgage Corporation provide assist- sured student loans from eligible lenders and through
ance to the secondary market for residential mortgages. warehousing advances, which are loans to lenders secured
Both are supervised by the Department of Housing and by insured student loans, Government or agency securities,
Urban Development for their roles in helping to fi- or other acceptable collateral. In capital shortage areas, the
nance low-, moderate-, and middle-income housing; both GSE is authorized, at the request of Federal officials, to make
are regulated for rmancial safety and soundness by the insured loans directly to students. The GSE is authorized
Office of Federal HOllsing Enterprise Oversight. to advance funds to State agencies that will provide loans
to students. The GSE is also authorized to provide a sec-
-Institutions of the Farm Credit System the Agricultural ondary market for noninsured loans; to serve as a guarantee
\) Credit Bank and Farm Credit Banks-provide financial agency in support of loan availability at the request of the
assistance to agriculture. They are supervised by the Secretary ~f Education; to purchase and underwrite student
Farm Credit Administration. loan revenue bonds; to provide certain additional services as
-The Federal Agricultural Mortgage Corporation, under determined by its board of directors to be supportive of the
the supervision of the Farm Credit Administration, pro- credit needs of students generally; and to provide financing
vides a secondary mortgage market for agricultural real for academic facilities and equipment. As described below,
estate and rural housing loans as well as for farm and however, many of these activities are limited or precluded
business loans guaranteed by the U.S. Department of under the privatization legislation.
Agriculture. The GSE is authorized by the Health Professions Edu-
cational Assistance Act of 1976 to provide a secondary market
-The Federal Home Loan Banks assist thrift institutions,
for federally insured loans to graduate health professions stu-
banks, insurance companies, and credit unions in pro- dents.
viding rmancing for housing and community development Generally, under the privatization legislation, the GSE can-
and are supervised by the Federal Housing Finance
not engage in any new business activities or acquire any
Board.
additional program assets other than purchasing student
loans and serving, at the request of the Secretary of Edu-
cation, as a lender-of-last-resort. The GSE can continue to
STUDENT LOAN MARKETING ASSOCIATION make warehousing advances under contractual commitments
existing on August 7, 1997.
STUDENT LoAN MARKETING AssocIATION Operations.-The forecast data with respect to operations
are based on certain general economic and specific FFELP
Status of Direct Loans (in millions of dollars) loan volume assumptions and should not be relied upon as
an official forecast of the corporation's future business.
Idenl~ication alde 99-150()...()...J-502 2002 actual 2003 est. 2004 est.
ANNUAL LOAII ACTIVITY
nn lJm.it'!.\iIm 'MIllirect \'3= .............................................
1131 Direct loan obligations .................................................. 13.245 15.272 17.230 [In millions of dllllal!J
Guaranteed student loans: 2002 actuat 2003 est. 2fXJ4 est.
1150 Total direct loan obligations ......................................... 13,245 15,272 17,230 Stafford:
Purchased 8.098 8,489 9.577
Cumulative balance af direct roans outstanding: Warehoused 670
1210 Outstanding, start af year ............................................. 41,032 41.932 27.965 PWSlSLS: Purchased 880 1,114 l.257
1231 Disbursements: Direct loan disbursements ................... 13,245 15.272 17.230
Repayments: Subltltal. Guaranteed student loans 9.648 9,603 10.834
1251 Repayments and prepayments .................................. Other 3,597 5.669 6.396
-1.921 -5,240 -3,657
1252 Proceeds from loan asset sales or discounted ........ -10,425 -24.000 -23.000
) Total .. 13.245 15,272 17,230
1264 Write-offs for default: Other adjustments, net .............
1290 Outstanding. end of year ..........................................
1 1 1
=
Financing.-The GSE is financed by borrowing in the pri-
41.932 27,965 18.539
vate debt markets and securitizing its assets. The GSE must
1123
1124 THE BUDGET FOR FISCAL YEAR 2004
STuDENT LoAN MARKJrnNG AssocIAnoN-Continued FEDERAL NATIONAL MORTGAGE

wind down and be liquidated by September 30, 2008 although ASSOCIATION
the GSE has announced that it expects to complete the wind- PORTFOUO PRoGRAMs
down and liquidation two years earlier. All obligations of the
USE remaining upon liquidation must be placed into a defea-
Statut of Direct lomt (in miUioos at dollars\
sance trust. The GSE's outstanding adjustable rate cumu- IdentifUtioll code ~5OG-0-3-3.71 2002 actual 2003 est. 2004 est.
lative preferred stock, which was required to be redeemed 1J31 Direct loan obligations _.................. 345.928 459,822 229,093
prior to such date was redeemed on December 10, 2ool.
The financial data contained in this material relating to 1150 Total direct loan oblilations _.................................. 345.928 459,822 229,093
future periods represents estimates that have been prepared
Cumulative balance of direct loans outstandina:
specifically for inclusion in the President's Budget. These data 1210 Outstanding. start of jUr _.._ .. 700,484 759,733 885,814
should not be viewed as official forecasts of the corporation's OisblllSllmetlts:
future position, nor should they be used as a basis for making 1231 Direct loan disbursements .. 294,678 439.638 229,961
1232 Purchase of loans assets .. 9,790 1,561 1,053
financial or investment decisions relating to the corporation. 1251 Repayments: Repayments and prepayments . -249,905 -315,118 -127,135
The data have been developed on the basis of certain economic 1264 Write-offs for dlrlautt: Other adjustments, net .. 4,686
assumptions that are subject to periodic review and revision. 1290 Outstandinl, end of year _.................... 759,733 885,814 989,693
Consequently, the estimates are subject to forecast error and
actual results from future business operations are likely to
differ from these data. The Federal National Mortgage Association (Fannie Mae)
is a fed.erally-ehartered, privately-owned. company with a pub-
lic mission to provide stability and to increase the liquidity
Stalllment of Operations (in millions of dollars) of the residential mortgage market and to help increase the
k1en1iflCllioll axle 99-15OO-lh3-502 2001 actl/lll 2002 actual 2003 est 2004 est. availability of mortgage credit to low- and moderate-income
families and in underserved areas. In carrying out its mission,
0101 Revel1ue ................................................... 2,952 2,527 Fannie Mae engages primarily in two forms of business: in-
0102 Expense .................................................... -2.850 -1,861
vesting in portfolios of residential mortgages and guaran-
0105 Net income or loss H ............................ 102 660 teeing residential mortgage securities. As of September 30,
2002, Fannie Mae held a net mortgage portfolio totaling $751
billion and had net outstanding guaranteed mortgage-backed
Balance Sheet (in millions of dollars) securities of $990 billion.
liJefliifitlltitJ,'~99-15()~ 2DIU JJdJJaI 2l1ll2at:1JJa1 2l1ll3e3t 20114es1. Through a federal charter, Congress has equipped Fannie
Mae with certain attributes to help it carry out its public
ASSETS: mission. These include an exemption from state and local
Investments in US securities: taxes (except real property taxes), and an exemption of its
1102 Treasury securities, par ...................... 1,597 1,727 1,624 1.543
debt and mortgage securities from Securities and Exchange
ntJ' ~gency securiTies, par ........................ Commission registration requirements. An additional advan-
1106 Receivables, net .................................. 1,207 953 658 605
1201 Investments in other securttles, net ....... 4,829 2,442 2,319 2,498 tage is that the Secretary of the Treasury may purchase and
1206 Receivables, net ...................................... 1,669 1,865 1,287 1,184 hold up to $2.25 billion of securities issued by Fannie Mae
J207 AdvanCl!$ ami prepayments .._~._ JJ 58 40 37 under terms and conditions and at prices determined by the
Net value of assets related to direct Secretary to be appropriate. Securities guaranteed by Fannie
loans receivable and acquired de-
fautted guaranteed loans receiv- Mae and debt issued by the company are solely the corpora-
able: tion's obligations and are not backed by the full faith and
l&ll tinea loans. gross .............................. 4!,las 42,~4 28,013 l!.oll credit of the U.S. Government. The common stocK. of the cor-
1603 Allowance for estimated uncollectible poration is owned by the public, is fully transferable, and
Iaans and interest H .................... -153 -162 -108 -72 trades on the New York., Midwest, and Pacific stock ex-
1699 Value of assets related to direct changes.
loans .................,.................._.... 41,032 41,932 27,965 18,539 Fannie Mae was established in 1938 to assist private mar-
1801 Cash and other monetary assets ............ 71 70 49 45 kets in providing a steady supply of funds for housing. Fannie
1803 Property, plant and equipment, net * Mae was originally a subsidiary of the Reconstruction Finance
1901 Other assets ......_.................................... 310 524 361 332 Corporation and was permitted to purchase only loans insured
1999 Total assets ........................................ 50,726 49,571 34,303 24,783 by the Federal Housing Administration (FHA). In 1954,
LIABILITIES: Fannie Mae was restructured as a mixed ownership (part
2202 Interest payable ....................................... 332 311 218 157 government, part private) corporation. Congress sold the gov-
2203 Debt ......................................................... 47,321 45,720 32,100 22.964 ernment's remaining interest in Fannie Mae in 1968 and
2207 Other ........................................................ 1,762 1,633 1,143 823 completed the transformation to private shareholder owner--
2999 Total liabilities .................................... 49,415 47,664 33,461 23,944 ship in 1970. Using the proceeds from the sale of subordinated
NET POSITION: debentures, Fannie Mae paid the Treasury $216 million for
lnvested C3QitaI _ _ _ _ _ _
3300 1,311 1,907 842 839 the government's preferred stock., which was retired, and for
Total net position ....._......................... 1,311 1,907 842 839
the Treasury's interest in the corporation's earned surplus.
3999
As a result, the corporation was taken off the federal budget.
4999 Total liabilities and net position ............ 50,726 49.571 34.303 24,783 In 1992, Congress reaffirmed and clarified Fannie Mae's
role in the housing finance system through charter act
0111 the first quarter 01 2001. in aa:ol1lance with the Privatizetioll Act. the GSE transfened substantiallj aD amendments included in the Federal Housing Enterprises Fi-
of its fixed assets and real estate III certaill private ooo-GSE entities in USA edl1C3liOn.
nancial Safety and Soundness Act of 1992 ("The Act"). Fannie
GOVERNMENT·SPONSORED ENTERPRISES 1125
-
Mae's charter purposes, as amended by the Act, are: "to pro- Exchange Commission under the Securities and Exchange Act
vide stability in the secondary market for residential mort- of 1934.
gages; respond appropriately to the private capital market; For the four quarters ending September 2002, Fannie Mae
provide ongoing assistance to the secondary market for resi- earned $6.2 billion. .
-
dential mortgages (including activities relating to mortgages The financial data contained in this material relating to
on housing for low· and moderate-income families involving future periods represent estimates that have been prepared
a reasonable economic return that may be less than the re- specifically for inclusion in the President's Budget. These data
turn eamed on other activities); and promote access to mort- should not be viewed as an official forecast of the corporation's
gage credit throughout the Nation (including central cities, future position, nor should they be used as a basis for making
rural areas, and underserved areas) by increasing the liquid- financial or investment decisions relating to the corporation.
ity of mortgage investments and improving the distribution The data have been developed on the basis of certain economic
of investment capital for residential mortgage financing." assumptions that are subject to periodic review and revision.
In December 1995, the U.S. Department of Housing and Consequently, the estimates are suqject to forecast error and
Urban Development (HUD) set affordable housing goals for actual results from future business operations are likely to
1996-1999 and established the requirements for counting differ from these data.
mortgage purchases to low- and moderate·income families and
Balance Sheet (in millions of dollars)
families living in undeTl!oeT'Ved areas with specific census tract
and minority concentration requirements. Under that regula- ldentffitatiOll code 99~500-0-3-371 2001 actual 2001 actual 2003 est 2004 est.
tions, the low- and moderate-income goal was 42 percent;
ASSETS,
the geographically targeted goal was 24 percent and the spe- 1101 Fund balances . 267 III
cial affordable housing goal was 14 percent. These goals were Investments in US securities:
also in effect for 2000. Fannie Mae exceeded all of the housing 1102 TreasulY securities, par . 1,325 1,600
goals in 2000 with low- and moderate-income purchases at 1104 otber . 58,342 51,758 56,255 71,067
Net value of assets related to direct
49 percent, geographically targeted purchases at 31 percent, loans receivable and acquired de-
and special affordable housing purchases at 19 percent. fau~ed guaranteed loans receiv-
In October 2000, HUD set new affordable housing goals able:
for the period covering 2001 to 2003. The goals are 50 percent 1601 Direct loans (net af discount) . 655,318 728,723 880,524 972,594
1602 Federal Agencies . 31,684 29,428 9,903 21,372
for the low- and moderate-income goal, 31 percent for the J603 AJJoWJlnce lor estjmated ~nrDJkctlbJe
geographically targeted goal, and 20 percent for the special loans and interest H . -201 -220 -260 -273
affordable housing goal.
Value af assets related to direct
In 2001, Fannie Mae dramatically expanded the financing 1699 loans . 686,801 757,931 890,167 993,693
it provided for low· and moderate- income households, and VlQ1 CMIl anti IltMc lWlRet:acy a.mtl . 19,68Ii 26,141 7,0\17 10,741
for minority households. In 2001, Fannie Mae financed over 1803 Properly, plant and equipment, nel . 229 271
$87 billion in loans to nearly 680,000 minority families. It 1999
) also financed over $132 billion in loans to over 1,500,000
Total assets
LIABILITIES:
.. 766,650 837,711 953,839 1,075,501
Jow- and moderate-income families. Fannie Mae eJrceedeti all 2JDJ Aa:Dunts pIlpbJe , m 702
of the housing goals in 2001. From 1996 to 2001, Fannie 2102 Accrued interest payable . 8,628 9,248 10,011 11,029
2105 Other _ 17 16
Mae increased its low· and moderate-income purchases from 2203 Debt . 726,992 800,255 909,686 1,023,547
45.4 percent to 52.0 percent, its underserved areas purchases 2204 Estimated liabili1y for loan guarantees 15,374 12,081 9,959 9,888
ITom 2.B.2. percent to 32..'5 pereent, and its purehase5 for the 12% P!iIl>ilm 'IIftII ~ at\ll'a1\a\ \\~b\\itiel. M}1
special afforable goal from 17.4 percent to 21.6 percent.
The Act also established the Office of Federal Housing En- 2999
2207 Subtotal, Federal taxes payable . 730 ""1
Total liabilITies .. 752,870 822,747 929,656 1,044,464
terprise Oversight (OFHEO), an independent office within NET POSITION:
HUD, headed by a Director who reports directly to the Con- Cumulative rerolts at orreratiam;:
gress. OFHEO has statutory responsibility for ensuring that 3300 3300 Cumulative results of operations . 24,541 28,779
Change in Stnckholder Equity .. -10,763 -13,815 24,183 31,037
Fannie Mae is adequately capitalized and operating in a safe
and sound manner. Included among the express statutory 3999 Total net position . 13,778 14,964 24,183 31,037
authorities of the Director is the authority to conduct exami- 4999 Total liabilities and nel position . 766,650 837,711 953,839 1,075,501
nations of the fmancial health of the company and to issue
minimum and risk-based capital standards. The minimum
capital requirements are computed from statutorily estab-
lished ratios that are applied to the assets and ofT-balance MORTGAGE-BACKED SECURITIES
sheet risks of Fannie Mae. The risk-based capital standard S1atus lIf Direct loans (in millions of dollars)
determines the amount of capital that Fannie Mae must hold
to withstand the impact of simultaneous adverse credit and 2002 actual 2003 est. 2004 est
interest rate stresses over a lO-year period, plus an additional
1131 Direct loan obligations 649,569 768,572 388,794
30 percent to cover management and operations risk. Total
capital (shareholder's equity plus allowance for loan losses) 1150 Total direct loan obligations 649,569 768,572 388,794
at the end of September 2002 was $27.278 billion. The com-
pany has continued to remain in compliance with applicable Cumulative balance af direct loans outstanding,
Outstanding, start of )1!lIr
capital standards and has been deemed adequately capitalized 1210 1231 Disbursements: Direelloan disbursements
1,228,131 1,458,945 1.637.638
623,991 768,572 388,794
by OFHEO since its first classification in June 1993. 1251 Repayments: Repayments and prepayments -393,177 -589,879 -259,625
On Se~mber 30, 2.002., OFHEO implemented its resk-
based capital stress test for the first time, fmding that as 1290 Out>tanding, end af year 1,458,945 1,637,638 1,766,807
of that date Fannie Mae's total capital of $27.278 billion ex-
ceeded the risk based capital requirement by $5.838 billion. According to accounting practices for private corporations,
) In addition, responding to the President's call for corporate the mortgages in the pools of loans supporting the mortgage-
leaders to provide the most accurate, timely, and useful infor- backed securities are considered to be owned by the holders
mation, Fannie Mae made a voluntary and irrevocable deci- of these securities. Consequently, on the books of the Federal
sion to register its common stock with the Securities and National Mortgage Association (Fannie Mae), these mortgages
1126 FEDWL IlAnOIlII. MORTGAGE ASSOCIATIOII--Canli.ued THE BUDGET FOR FISCAL YEAR 2004
PORTFOUO PRoGRAMS-Continued and guaranteeing residential mortgage securities. As of Sep-

MORTGAGE-BACKED BECURITIES-Continued tember 30, 2002, Freddie Mac held a net mortgage portfolio
totaling $531 billion and had net outstanding guaranteed
are not considered assets and the securities outstanding are mortgage-backed securities of $730 billion.
not considered liabilities. However, the concepts of the budget Through a federal charter, Congress has equipped Freddie
of the U.S. Government consider these mortgages and mort- Mac with certain advantages over wholly private firms in
gage-backed securities to be assets and liabilities, respec- carrying out these activities. These advantages include an
tively, of Fannie Mae. For the purposes of this document, exemption from state and local taxes (except real property
therefore, they are presented as assets and liabilities in the taxes), and an exemption for their debt and mortgage securi-
accompanying schedules. On the schedule of Status of direct ties from SEC filing registration requirements. An additional
loans for mortgage-backed securities, the items labeled "New advantage is that the Secretary of the Treasury may purchase
loans" and "Recoveries: Repayments and prepayments" are and hold up to $2.25 billion of securities issued by Freddie
budgetary terms. However. from the Corporation's per~ Mac unoor terms and conditions and at prices ootermined
tive, these items are "Amounts issued" and "Amounts passed by the Secretary to be appropriate. Securities guaranteed by
through to the holders of securities", respectively. Freddie Mac and debt issued by the company are explicitly
The financial data contained in this material relating to not backed by the full faith and credit of the U.S. Govern-
future periods represent estimates that have heen prepared ment The common stock of the corporation is owned by pri-
specifically for inclusion in the President's Budget. These data vate shareholders is fully transferable, and trades on the
should not be viewed as an official forecast of the corporation's New York and Pacific stock exchanges.
future position, nor should they be used as a basis for making Freddie Mac was established in 1970 under the Emergency
financial OT investment decisions Telating to the corporation. Home Finance Act. Congress chartered Freddie Mac to pro-
The data have been developed on the basis of certain economic vide mortgage lenders with an organized national secondary
assumptions that are subject to periodic review and revision. market enabling them to manage their conventional mortgage
Consequently, the estimates are subject to forecast error and portfolio more etTectively and gain indirect access to a ready
actual results from future business operations are likely to source of additional funds to meet new demands for mortr
ditTer from these data. gages. Freddie Mac serves as a conduit facilitating the flow
Balance Sheet (in millions of dollars) of investment dollars from the capital markets to mortgage
lenders, and ultimately, to homebuyers, increasing the
Idenl~icat~. code 99-2501-0-3-371 2001 actual 2002 actual 2003 est 2004 es!. amount of mortgage credit available and making it more af-
ASSETS, fordable.
Net value at assets related to direct The Financial Institutions Reform, Recovery, and Enforce-
loans receivable and aCQuired de- ment Act of 1989 (FJRREA) significantJy changed the cor-
faulted guaranteed Iaans receiv- porate governance of Freddie Mac. The company's three mem-
able,
1601 Direct loans, gross .............................. 1,228,734 1,459,533 1,638,221 1,767,397 ber Board of Directors, which had corresponded with the Fed-
1603 Allowance for estima1lld uncollectible eral Home Loan Bank Board, was replaced with an eighteen
w.uw. M'oIl iI'iW.!tS\. \-4 .................... ~3 -Sl\l\ -S@.'A -S9\\ member Board of Directors. Thirteen board members are
1699 Value of assets related to direct elected annually by shareholders and five are annually ap-
loans .......................................... 1,228,131 1,458,945 1,637,638 1,766,807 pointed by the President of the United States. In addition,
1999 Tofal assets ........................................
--- --- --- ---
1,228,131 1,458,945 1,637,638 1,766,807
FIRREA converted Freddie Mac's 60 million shares of non-
LIABILITIES:
voting, senior participating preferred stock into voting com-
2104 Resources payable ................................... 1,020,828 1,458,945 1,637,638 1,766,807 mon stock. As a result, the corporation was taken otT the
2999 Totalliabililies ....................................
--- --- --- ---
1,020,828 1,458,945 1,637,638 1,766,807
federal budget.
FIRREA also clarified Freddie Mac's role in the housing
finance delivery system through amendments to its charter
act. Specifically, FIRREA established Freddie Mac's public
FEDERAL HOME LOAN MORTGAGE mission: "to provide stability in the secondary market for
CORPORATION residential mortgages; respond appropriately to the private
capital market; and provide ongoing assistance to the sec-
PORTFOUO PRoGRAMS ondary market for residential mortgages (including activities
Status of Direct Loans (in millions of dollars)
relating to mortgages on housing for low- and moderate-in-
come families involving a reasonable economic retum that
Idenl~lcation code 99-4420-0-3-J71 2002 actual 2003 est. 2004 est may be less than the return earned on other activities." The
1131 Direct loan obligations .. 199,904 257,422 162,859
Federal Housing Enterprise Financial Safety and Soundness
Act of 1992 ("The Act") added to Freddie Mac's public mission
1150 Tota) iJiloct !Dan obligations 199,9D4 257,422 162,859 the promotion of "access to mortgage credit throughout the
Nation (including central cities, rural areas, and underserved
CumUlative balance at direct loans oulstanding: areas) by increasing the liquidity of mortgage investments
1210 Outstanding, start at year .. 470,850 530,694 586,800
1231 Disbursements, Direct loan disbursements .. 199,904 257,422 162,859 and improving the distribution of investment capital for resi-
12~1 f(epaymenls, f('llayments and prepayments .. -140,060 -201,31& -101.959 dential mortgage financing."
The Act also established affordable housing goals that are
1290 Outstanding, end at year 530,694 586,800 647,700 designed to improve the flow of mortgage fWlds to low- and
moderate-income families and families in central cities, rural
The Federal Home Loan Mortgage Corporation (Freddie areas, and other underserved areas. In December 1995, the
Mac), is a federally-charted, shareholder"lwned, private com- U.S. Department of Housing and Urban Development (HUD)
pany with a public mission to provide stability and increase affordable housing goals for 1996-1999 and established the
the liquidity of the residential mortgage market, and to help requirements for cOWlting mortgage purchases for meeting
increase the availability of mortgage credit to low- and mod- these goals. The goals provide that, of the total number of
erate-income families and in underserved areas. In carrying dwelling units financed by Freddie Mac's mortgage purchases,
out its mission, Freddie Mac engages primarily in two forms 42 percent meet the low- and moderate-income goal, 24 per-
of business: investing in portfolios of residential mortgages cent meet the geographically targeted goal, and 14 percent
-
GOVERNMENT-SPONSORED ENTERPRISES FARI CR£DIT SYSIEII 1127
meet the special affordable goal. Additionally, within the spe- etary terms. However, from Freddie Mac's perspective, these ...,-. .. \
cial affordable goal was a multifamily mortgage purchase tar- amounts represent "Sales of PCs" and "Amounts passed
get for Freddie Mac of $1.0 billion. In an October 2000 rule, through to PC holders," respectively.
HUll applied the 1996-1999 goals to 2000 and established Balance Sheet (in millions 01 dollars)
new goals for 2001-2003: 50 percent for the low- and mod-
erate-income goal, 31 percent for the geographically targeted Idenl~icalion code 99-442~71 2001 actual 2002 adual 2003 est 2004 est.
goal, 20 percent for the special affordable housing goal and ASSETS:
a multifamily target for Freddie Mac of $2.1 billion. 1201 Investments in ather securities, net ••.... 65,964 89,355 70,422 78,038
Freddie Mac exceeded all of the housing goals in 2001 with 1206 Receivables, net . 22,762 31,024 23,732 22.020
low- and moderate-income purchases of 53.4 percent, geo- Net value of assets related to direcl
graphically targeted purchases of 31.7 percent, special afford- loans receivable and acquired de-
faulted guala nteed loaDS receiv-
able purchases of 22.6 percent, and the multifamily portion able:
of the special affordable purchases of $4.7 billion in llualifying l.6O 1 lleWned Olort&ag,e iavllllinly _ _ 475,Zl3 542,564 595,562 655,901
multifamily mortgages. 1603 Allowances H . -327 -153 -168 -185
The Act also enhanced the regulatory oversight of Freddie 1699 Value of assets related to direct
Mac by establishing the Office of Federal Housing Enterprise loaDS . 474,886 542,415 595,394 655,716
Ol'ersight lOFHEO), an independent office within HUD, head- 1801 Cash and other monetllY assets .. 583 7,116 5,608 6,215
1803 Properly, plant and equipment, net .. 774 1,095 838 777
ed by a Director appointed by the President. OFHEO is re- 1901 otber assets . 6,938 10,975 8,396 7,790
sponsible for ensuring that Freddie Mae is adequately capital-
ized and operating in a safe and sound manner. Included 1999 Total assets .. 571,907 681,980 704,390 770,556
L1ABIUTIES:
among the expreSB statutory authoritieB of the Director iB 2101 Accounts payable .. 763 530 546 599
the authority to conduct examinations of the financial health 2202 Interest payable .. 4,452 5,243 5,403 5,925
of the company and to issue minimum and risk-based capital 2203 Debt . 531,312 618,651 637,561 699,126
standards. The minimum capital requirements are computed 2207 Other liabilities . 20,874 34,990 36,060 39.541
from statutorily established ratios that are applied to the 2999 Total liabilities .. 557,401 659,414 679,570 745,191
assets and off-balance sheet risks of Freddie Mac. The risk- MET POSITION:
based capital standard determines the amount of capital that 3100 Invested capital . 14,506 22,566 24,820 25,365
Freddie Mac must hold to withstand the impact of simulta- 3999 Total net position .. 14,506 22,566 24,820 25,365
neous adverse credit and interest rate stresses over a 10-
4999 TolalliabiJities and net position . 571,907 681,980 704,390 770,556
year period, plus an additional amount to cover management
and operations risk. OFHEO published risk-based capital
standards in September 2001 that became fully enforceable
in September 2002. MOR1GAGE-BACKED SECURITIES
On September 30, 2002, OFHEO implemented its risk-
based capital stress test for the first time. On December 30, Status of Direct Loans (in millions of dollars)
2002, OFREO announced that as of September 30, Freddie IdentiflCalion code 99-444o-lJ-3-371 2Il1l2 actual 2003 est. 2IlO4 1St
Mac's total capital of $23.101 billion exceeded its risk-based
capital requirement by $18.182 billion and that Freddie Mac's 1131 Direct loan obligations 342,244 431,996 209,536
core capital of $22.656 billion exceeded its minimum capital 1150 Total direclloan obligations 342,244 431,996 209,536
requirement by $2.118 billion. In addition, responding to the
President's call for the corporate leader to provide the most Cumulative balance of direclloans outstlnding:
accurate, timely, and useful information, Freddie Mac made 1210 Outstanding, start of year 635,844 730,341 853,209
1231 Disbursements: Direct loan disbursements 342,244 431,996 209,536
a voluntary and irrevocable decision to register its common 1251 Repayments: Repayments and prepayments -247,747 -309,128 -144,713
stock with the Securities and Exchange Commission under
the Securities and Exchange Act of 1934. . 1290 Outstanding, end of year 730,341 853,209 918,032
For the four quarters ending September 2002, Freddie Mae
recorded net income of $4.75 billion.
BaIaIlCII ShllIf lill millions of dollars)
The financial data contained in this material relating to
future periods represent estimates that have been prepared Idenl~icalion code 99-444Q-O-.3-.J71 2001 adual 2002 actual 2003 1St 2OD4esl.
specifically for inclusion in the President's budget. These data
ASSETS:
should not be viewed as an official forecast of the corporation's l'lQt UI\de.tl1Jl~& lIllrt&a&e& . l\l~,M4 71<\,34 t 8S3,'I.09 9t8,01'1.
future position, nor should they be used as a basis for making
financial or investment decisions relating to the corporation. 1999 Total assets . 635,844 730,341 853,209 918,032
L1ABIUTIES·.
The data have been developed on the basis of certain economic 2104 Resources payable . 635,844 730,341 853,209 918,032
assumptions that are subject to periodic review and revision.
Consequently, the estimates are subject to forecast error and 2999 Total liabilities . 635,844 730,341 853,209 918,032
actual results from future business operations are likely to
differ from these data.
According to generally accepted accounting principles uti- FARM CREDI'l' SYSTEM
lized by private corporations, the mortgages in the pools of
loans supporting PCs are considered to be owned by the hold- The Farm Credit System is a government sponsored enter-
er of these securities. Therefore, Freddie Mac does not show prise that provides privately ilnanced credit to agricultural
these mortgages as assets. However, the budget philosophy and rural communities. The major functional entities of the
of the United States Government includes these mortgages system are: (1) Agricultural Credit Bank (ACB), (2) Farm
and mortgages pass-through securities as assets and liabil- Credit Banks (FCB), and (3) direct lender associations. The
ities, respectively, of Freddie Mac. For the purpose of this history and specific functions of the bank entities are dis-
document, therefore, they are presented as assets and liabil- cussed after the presentation of financial schedules for each
) ities in the accompanying schedules. On the Status of Direct bank entity. As part of the Farm Credit System (FCS), these
Loans schedule for mortgage pass-through securities, the entities are regulated and examined by the Farm Credit Ad-
items labeled "Disbursements" and "Repayments" are budg- ministration (FCA), an independent Federal agency. The ad-
1128 FAIIIl CR£DIT SYSlEII--toniinuod THE BupGET FOR FISCAL YEAR 2004
ministrative costs of FCA are financed by assessments of sys- Net value of assets related to direct
/aans teC/ivall/e atrd acqaited de-
tem institutions. System banks finance loans from sales of faulted gual1lnteed loans receiv·
bonds to the public and their own capital funds. The system able:
bonds issued by the banks are not guaranteed by the U.S. 1601 Direct loans, gross , .. 20,466 23,878 24,833
Government either as to principal or interest. The bonds are 1603 Allowance for estimated uncnllectible
loans and ","lerest H .. -379 -411 ..-21
backed by an insurance fund, administered by the Farm Cred-
it System Insurance Corporation (FCSIC), an independent 1699 Value of assets related to direct
Federal agency that collects insurance premiums from mem- loans .. 19,264 20,087 23,467 24.412
1803 Properly, plant and equipment. net . 450 476 438 432
ber banks to pay its administrative expenses and fund insur-
ance reserves. All of the banks' current operating expenses 1999 Total assets .. 24,663 25,967 29.847 31,024
are paid from their own income and do not require budgetary UABIUTlES:
2104 Resources payable .. J6J 411 276 298
resources from the Federal Government. Accounts payable:
'mil tonso\i6a'red sys\emwille and o\:\1er
bank bands .. 21,275 22,513 26.199 27,247
2201 Notes payable and other interest-
AGRICULTURAL CREDIT BANK bearing liabilities .. 604 601 610 626
2202 Accrued interest payable .. 222 149 152 ISS
CoBank, ACB is headquartered in Denver, Colorado and
serves eligible cooperatives nationwide, and provides funding 2999 Total liabilities .. 22,464 23,680 27,237 28.326
to Agricultural Credit Associations (ACAs) in one of its re- NET POSITION,
3300 Cumulative results of operations .. 2,199 2.287 2,610 2,698
gions. CoBank, ACB is the only Agricultural Credit Bank
in the Farm Credit System. An ACB operates under statutory Ym 'Imal net JlIlsi\.inn .. U~ 2.2~7 1,m 1,69&
authority that combines the authorities of a FCB and a Bank 4999 Total liabilities and net position . 24,663 25,967 29,847 31,024
for Cooperatives (BC). In exercising its FCB authority,
CoBank ACB's charter limits its lending to ACAs located in Statement of CbaJlges In Het WllJ1b (in milliDns Df dollars)
the region previously served by the Farm Credit Bank of
Springfield. As an entity lending to Cooperatives, CoBank 99-4130 2lI01 actual 2002 aclllal 2003 est. 2004.st.
is independently chartered to provide credit and related serv- Begimint b111J1Cl1 of net wor1h .. 1,753 2,199 2,287 2,610
ices nationwide to eligible cooperatives primarily engaged in
farm supply, grain, marketing and processing (including sugar Capital stock and participations issued .. 300
= o 230
= 1
and dairy). CoBank also makes loans to rural utilities, includ- Capital stock and participations retired .. 58 72 75 82
ing telecommunications companies and it provides inter- Net income . 207 232 252 262
CashlDividendslPatmnage Distributions . (48) (79) (84) (93)
national loans for the financing of agricultural exports. atlrer, net .. 45 7 o o
StaIUS of Direct laans (in millions of dollars) Endlne ballnee of net wor1h . 2,199 2,287 2,610 2,698
~ent~lcation code 99-413()....(l...J-351 2002 actual 2003 est. 2004 est.

FinalU:inI ActlYities (in milliDns of dollarsl
113 I Direct loan obligations . 71,546 75,000 75.000
99-4130 2001 actual 2002 actual 2003 esl 2004 en
1150 Total direct loan obligations . 71,546 75,000 75,000
Begilnin( balence of outmndlne systell obli-
Cumulative balance of direct loans outstanding,
gations 20,971 21,275 22,513 26,199
1210 Outstanding, start of year . 19,588 20,466 23,878 =
1231 Disbursements: Direct loan disbursements .. 71,491 75,000 75,000 Consolidated systemwide and otl1er bank
1251 Repayments: Repayments and prepayments . -70,538 -71,646 -74,115 bonds issued 7,038 9,680 10,000 10,500
Write-offs for default: Consolidated systemwide and other bank
1263 Direct loans .. -75 oonds reflled 6,897 8,252 6,324 9,462
1264 Otl1er adjustments, net . 58 70 Consolidated systemwide notes, net 162 12 10 10
OtI1er (Net) D (201) o o
1290 Outstanding, end of year . 20,466 23,878 24,833
Endin( balance of outstendlng system oblip-
1ioIls .. 7,1,275 22.513 26,199 27,247
Statement of Operations (in millions of dollars)
~ent~icalian code 99-413()....(l...J-351 2lI01 actual 2002 actual 2003 est. 2004 est.
F A"RM. CRE.DIT BA'NKB
0101 Total interest income . 1,689 1,226 1,456 1.514
0102 Tota I interest expense .. -1,223 -672 -926 -963 Status of Direct laans (in millions of dollars)
0105 Net income or loss H .. 466 554 530 551
Idenl~itation code 99-4160+3-371 2lI02 actual 2003 est. 2004 esl
Olll Other income .. 41 52 42 43
oll2 Other expense . -301 -374 -320 -J33 1131 Direct loan obligations 65,1l4 60,122 59.567
0115 Net income or loss H .. -260 -J22 -278 -290 1150 Total direct loan obligations .. 65,114 60,122 59.567
0191 Total revenues . 1,730 1,278 1,498 1,557
Cumulalive balance 0\ direct \1llI1lS ou'tmnding:
0192 Total el:pense5 . -1,524 -1,Q46 -1,246 -1,296 1210 Outstanding, start of year .. 52,445 58.165 60,690
1231 Disbursements: Direct loan disbursements . 65,102 59,034 58,426
0195 Total income Or loss H .. 206 232 252 261 1251 Repayments: Repayments and prepayments .. -59,380 - 56,509 -56,259
1264 Write-offs for default: Other adjustments, net .. -2
0199 Tatal cam(Jf/llrensilil itreame . 206 232 252 261
1290 Outstanding, end of year .. 58,165 60,690 62,857
Balance Sheet (in millions of dollars) Nole.--lJIans outstanding at end of l"3r do not include nanaccruallllans and sales contracts.
~eRl~itatilln code 99-413()....(l...J-351 2001 actual 2002 actual 2lI03 esl 2004 est. The Agricultural Credit Act of 1987 (1987 Act) required
ASSETS: the Federal Land Banks (FLBs) and Federal Intermediate
1201 Cash and investment securities .. 4,775 5,269 5,805 6,037 Credit Banks (FICBs) to merge into a Farm Credit Bank
1206 Accrued interest receivable on loans . 174 135 137 143 (FCB) in each of the 12 Farm Credit districts. The FCBs
-
GOVERNMENT-SPONSORED ENTERPRISES FARII CREIIIT S\'SlEM---{;clllinued 1129
operate under statutory authority that combines the prior 2999 Tatal liabilities .. 59,260 65,044 69,650 73,437
NET POSITION: .-.
authorities of the FLB and the FlCB. No merger occurred 3300 Cumulative results of operations ... 4,437 4,428 4,699 4,917
in the Jackson district in 1988 because the FLB was in receiv-
ership. Pursuant to section 410(e) of the 1987 Act, as amend- 3999 Tatal net positilla _........•.
--- --- 4,437 4,428 4,699
--- 4,917
ed by the Farm Credit Banks Safety and Soundness Act of 4999 Total liabilities and mit. posilian _ _ 63,697 69,472. 74,349 78,35(
1992, the FICB of Jackson merged with the FCB of Columbia
on October 1, 1993. Mergers and consolidations of FCBs Statement of Changes In Net WGrth (in millions of dollars)
across district lines, that began in 1992 continued through
mid-1995. As a result of this restructuring activity, 6 FCBs 99-4160 2001 actual 2002 actual 2003 est. 2ilO4 est.
headquartered in the following cities, remain: AgFirst FCB, BeeimInr bd_ of IIIJl wri ......................... 4,m 4,437 4,428 4,699
Columbia, South Carolina; AgriBank FCB, St. Paul, Min-
nesota; FCB of Wichita, Wichita, Kansas; FCB of Texas, Aus-
--- --- --- ---
Capital stock and participations issued ......... 93 80 109 82
tin, Texas; and Western FGB, Sa~:;rame.nm, California. Ca',lltal stocl awl palti.cillati<m\ retUed ......... 14Z 260 29 H
The FCBs serve as discount banks and as of October 1, Surplus Retired ................................................. 9 2 16 0
Net income ....................................................... 409 516 375 384
2002 provided funds to 15 Federal Land Credit Associations CashlOividendsIPatronage Distributions .......... (289) (247) (222) (229)
(FLCA), 3 Production Credit Associations (PCAs), and 85 Ag- Other, net ......................................................... (l) (97) 5( 9
ricultural Credit Associations (ACAs). These direct lender as- EndIne bdaace of net worth .............................. 4,437 4,428 4,699 4,917
sociations, in tum, make short-term production loans (PCAs
and ACAs) and long-term real estate loans (FLCAs and ACAs)
Financing Activities (in millions of dollars)
to eligible farmers and ranchers. FCBs can also lend to local
fInancing institutions, including commercial banks, as author- 99-4160 2001 actual 2002 actual 2003 est. 2004 est.
ized by the Farm Credit Act of 1971, as amended.
All the capital stock of the FlCB's, from organization in BeaiMiII ba1IDce of otJIStandlnl
SJSl8lII obllptlons ...................... 52,115 58,010 64,029 70,071
1923 to December 31, 1956, was held by the U.S. Government.
The 1956 Act provided a long-range plan for the eventual Consolidated systemwide and other
ownership of the credit banks by the production credit asso- bank bonds issued ....................... 38,723 50,737 52,063 55,383
ciations and the gradual retirement of the Government's in- Consolidated systemwide and other
bank bonds retired ....................... 34,342 44,692 47,184 50,841
vestment in the banks. This retirement was accomplished Con!o1)\\Illl\flll s~ 110M, rnJ\ l,W. 116} l,lva I~}
in full on December 31, 1968. The last of the Government
capital that had been invested in the FLB's was repaid in Endllw baJlnce of outstand1nl syslera
1947. ob/iptionl ................................... 58,010 64,029 70,071 74,165
Statement of Operations (in millions of dollars)
Identffication a>de 99-416()...l)...J....J71 2001 actual 2002 actual 2003 est. 2004 est. FEDERAL AGRICULTURAL MORTGAGE CORPORATION
0101 Total interest income . 3,631 2,646 2,607 2,826 (FARMER MAc)
0102 Total interest expense .. -3,076 -2,093 -2,077 -2,285
0105 Net income or loss H . 555 553 530 541 Farmer Mac is authorized under the Farm Credit Act of
0111 Other income . 79 96 67 60 1971 (the Act), as amended by the Agricultural Credit Act
0112 Other expenses . -225 -133 -221 -211 of 1987, to create a secondary market for agricultural real
0115 Net income or loss H . -146 -37 -154 -157 estate and rural home mortgages. The Farmer Mac title of
the Act was amended by the 1990 farm bill to authorize
0191 Total revenues .. 3,710 2,742 2,674 2,886 Farmer Mac to purchase, pool, and securitize the guaranteed
Q1.!lZ tlllaler~ .. -.1,l1l1 -Z,226 -Z,29& -Z,SOZ portions of farmer program, rural business and community
development loans guaranteed by the United States Depart-
0195 Total income or loss H . 409 516 376 384 ment of Agriculture (USDA). The Farmer Mac title was fur-
0199 Total comprehensive income . 409 516 376 384 ther amended in 1991 to clarify Farmer Mac's authority to
issue debt obligations, provide for the establishment of min-
Balance Sheet (in millions of dollars) imum capital standards, establish the Office of Secondary
Market Oversight at the Farm Credit Administration (FCA),
Identification code 99-416()...l)...J....J1I 2001 actual 2002 actual 2ilQ3 est 2ilO4 est. and expand the agency's rulemaking authority. Most recently,
~'Srn, the Farm Credit System Refol"1l\ AJ:.t of 1996 (1996 Act)
1201 Cash and investment securities . 10,431 10,514 11,769 12,335 amended the Farmer Mac title to allow Farmer Mac to pur-
1206 Accrued Interest Receivable .. 677 530 511 535 chase loans directly from lenders and to issue and guarantee
Net value Ilf assets related to direct mortgage-backed securities without requiring that a minimum
loans receivable and acquired de-
fauited auaranteed loaos receiv- cash reserve or subordinated (first loss) interest be main-
able: tained by poolers as had been required under its original
1601 Direct loans, gross .. 52,446 58,169 61,873 65,281 authority. The 1996 Act expanded FCA's regulatory authority
1603 Allowance for estimated uncollectible to include provisions for establishing a conservatorship or
loans and interest (-) .. -252 -153 -153 -154
receivership, if necessary, and provided for increased core cap-
1699 Value of assets related to direct ital requirements at Farmer Mac phased in over three years.
loans .., . 52,194 58,016 61,720 65,127 Farmer Mac operates through two programs, "Farmer Mac
1803 Properly, plant and equipment, net .. 396 412 349 357
I," which involves mortgage loans secured by first liens on
1999 Total assets . 63,698 69,472 74,349 78,354 agricultural real estate or rural housing (qualified loans), and
LIABIUTIES: "Farmer Mac II," which involves the guaranteed portions of
2104 Resources payable . 443 513 517 517
Accounts payable: USDA guaranteed loans. Farmer Mac operates by: (i) pur-
220I Consolidated systemwide and other chasing, or committing to purchase, newly originated or exist-
) bank bonds . 58,010 63,794 68,438 72,203 ing qualified loans or guaranteed portions from lenders; (ii)
2201 Nates payable and other interest- purchasing "AgVantage" bonds backed by qualified loans or
OOarina liabilities . 360 370 297 301
2202 Accrued interest payable .. 447 367 398 416 guaranteed portions from lenders; and (iii) exchanging quali-
fied loans or guaranteed portions for guaranteed securities.
1130 THE BUDGET FOR FISCAL YEAR 2004
(FARMER MAcl-Continued Balance Sheet (in millions of dollars)
Loans purchased by Farmer Mac are aggregated into pools Ident~ication axle 99-418Q-ll--3--351 21101 actual 2002 actual 21103 est 21104 est.
that back Farmer Mac guaranteed securities which are held ASSETS:
by Farmer Mac or sold into the capital markets. Farmer 1201 Investment in securities .......................... 853 853 853 1.000
Mae is intended to attract new ca'Pital for financing qualified ~1% ~'/Ii,ti'f~.l\Ilt ...................................... 4 4 4 ~
loans and guaranteed portions, foster increased long-term, 1207 Advances and prepayments .................... 18 18 18 50
Net value of assets related to direct
fIxed-rate lending, and provide greater liquidity to agricul- loans receiva ble:
tural and rural lenders. 1401 Direct IQans receivable. gross ............ 1.998 2.198 2.198 2.000
Fanner Mac is governed by a 15 member Board of Direc- 140Z fnterest receivable .............................. 46 55 55 TS
tors. Ten Board members are elected by stockholders, includ- 1499 Net present value of assets related
ing fIve by the Farm Credit System and five by commercial tQ direct loans ........................... 2.044 2.253 2.253 2.075
lenders. Five are appointed by the President, subject to Sen- 1801 Cash and ather monetary assets ............ 89 100 100 500
ate confirmation. 1999 Total assets ........................................ 3.008 3.228 3.228 3.675
FINANCING LIABIUTlES:
2201 AccQunts payable .................................... 6 7 7 25
Financial support and funding for Farmer Mac's operations 2202 Interest payable ....................................... 18 21 21 75
come from se\-'eral sources: sale of common and preferred 2Zl11 Oebt ......................................................... 2.870 1.014 3.064 3,185
stock; issuance of debt obligations; and net income from oper- 2204 Liabilities fur loan guarantees ................ 9 1l 11 20
ations. Under procedures specified in the Act, Farmer Mac 2999 Total liabilities .................................... 2.903 3.113 3.103 3.505
may issue obligations to the U.S. Treasury in a cumulative NET POSITION:
amount not to exceed $1.5 billion to fulfill its guarantee obli- 3000 Invested capital ....................................... 105 ll!i m no
gations. 3999 TQtal net positiQn ................................ 105 115 125 170
As of September 30, 2002, Farmer Mac's core capital ex-
ceeded statutory requirements. Additionally, Farmer Mac's 4999 Total liabilities and net position ............ 3.008 3.228 3.228 3,675
regulatory capital (core capital plus the allowance for loan
loses) exceeded the amount of required regulatory capital as
determined by the risk-based capital rule, with which Farmer FEDERAL HOME LOAN BANK SYSTEM
Mac was required to be in compliance on May 23, 2002.
GUARANTEES FEDERAL HOME LOAN BANKS
Farmer Mac provides a guarantee of timely payment of Status of Direct Loans (in millions of dollars)
principal and interest on securities backed by qualified loans
ldentfficat~n axle 99-4200-4-3--371 2002 act:Jal 2003 est. 2004 est.
or pools of qualified loans. These securities are not guaran-
teed by the United States, and are not "government securi- 1111 Limitation on direct loans .......................
ties". 113J Direct loan Qbligations ............................ 3.684.259 3.684.259 3.684.259
Farmer Mac is subject to reporting requirements under se- 1150 Total direct loan obligations ...................
---
3,684,259 3.684,259 3.684,259
curities laws and its guaranteed mortgage-backed securities
are subject to registration with the Securities and Exchange Cumulative balance of direct IQans out-
Commission under the 1933 and 1934 Securities Acts. standing:
1210 Outstanding. start of year ...................... 489,413 537.812 537.812
REGULATION 1231 Diswlsemllflts: DllIid Joan disblllse-
ments .................................................. 3.684.259 3.684.386 3.684.386
Farmer Mac is federally regulated by the FCA's Office of 1251 Repayments: Repayments and prepay-
Secondary Market Oversight (OSMO). OSMO is responsible ments ..................................................
for the supervision, examination of and rulemaking for Farm- 3.644.317
erMac. :l.'O·M.:l~'O
3.684.386
Status of Guaranteed Loans (in millions of dollars) 1264 Write-offs for default: Other adjust-
ments. net ........................................... 8,457
ldent~ica1ion code 99-I180-ll-3-351 1002 actual 2003 ~. 2004 est. ---
1m autstanding. end of year .................... 537.8lZ 537.812 537.812
2131 Guaranteed loan cQmmitments . 2.306 1.000 1.000
2150 Total guaranteed loan commitments 2.306 1.000 1.000 The 12 Federal Home Loan Banks were chartered by the
Federal Home Loan Bank Board under the authority of the
Cumulative balance of guaranteed loans Qutsta nding: Federal Home Loan Bank Act of 1932 (the Act). The
2210 Outstanding. start of year ............................................. 4.894 6.000 6.000
2231 Disbursements of new guaranteed IQans ...................... 2.306 1,000 1.000
FHLBanks are under the supervision of the Federal Housing
2251 Repayments and prepayments ...................................... -1.200 -1.000 -1.000 Finance Board. The common mission of the FHLBanks is
to facilitate the extension of credit through their members.
2290 Outstanding. end of year .......................................... 6.000 6.000 6.000 To accomplish this mission, the FHLBanks make loans, called
MemQrandum: advances, and provide other credit products and services to
2299 Guaranteed amount of gual3nteed loans outstanding. their 7,992 member commercial banks, savings associations,
P.lId fli _._.____________
~(
6,000 6,000 6,000 insurance companies, and credit unions. Advances and letters
of credit must be fully secured by eligible collateral and long-
Statement of Operations (in millions of dollars) term advances may be made only for the purpose of providing
funds for residential housing finance. However, "community
J4entilitalitvl tnJe 99-4J8D-/}-3-35J 2001 actual 2002 actual 2003 est. 2004 est. financial institutions" may also use long-term advances to
Revenue: finance small businesses, small farms, and small agri-
0101 Net Interest Income ................................. 22 25 25 30 businesses. Additionally, specialized advance programs pro-
0101 Guarantee Fee Income ............................. 10 12 12 15 vide funds for community reinvestment and affordable hous-
0102 Expense .................................................... -23 -27 -27 -30
ing programs. All regulated financial depositories and insur-
0105 Net income Qr loss H ............................ 9 10 10 15 ance companies engaged in residential housing finance are
0199 Total comprehenSive incOille ................... 10 10 15
eligible for membership. Each FHLBank operates in a geo-
graphic district designated by the Board and together the
-
GOVERNMENT·SPONSORED ENTERPRISES FEIlERM. HOllE LOM BIIlI SYSIEM-Continued 1131
FHLBanks cover all of the United States as well as the Dis-

trict of Columbia, Puerto Rico, the VIrgin Islands, Guam,
American Samoa, and the Northern Mariana Islands.
The forecast data for 2003 and 2004 contained in this mate-
rial represents estimates and should not be construed as an
official forecast of the FHLBanks System's future position.
,-'
i
Advances outstanding on September 30, 2002 totaled ap- Statement of Operations (in millions of dollars)
lI'roximately $491 billion., a net increase of allll'roximately $24
billion from the September 30, 2001 level of $469 billion. Idenmcalian code 99-4200-0-3-371 2001 actual 2002 actual 2003 est 2004 est
The principal source of funds for the lending operation is 0101 Revenue ,.. ",.............. 36,404 26,247 26,247 26,247
the sale of consolidated obligations to the public. On Sep- 0102 Expense (exdudes payments to
tember 30, 2002, $611 billion of these obligations were out- REFCOm -34,312 -23.830 -23,830 -23,830
standing. The consolidated obligations are not guaranteed by 0105 Net income or loss H 2,092 2,417 2,417 2,417
the U.S. Government as to principal or interest. Other sources
of lendable funds include members' deposits and capital. De-
posits totaled $29 billion and total capital amounted to $36
billion as of September 30, 2002. Funds not immediately need- ldenlfflcatian code 99-4200-0-3-371 2001 actual 2002 actual 2003 est 2004 est
ed for advances to members are invested. ASSETS:
The capital stock of the Federal Home Loan Banks is owned Jn~estments in US securities:
entirely by the members. Initially the U.S. Government pur- 1102 TreasulY securities, net .. 206 206 206 206
1201 Inwstments in other securities, net . 193,470 215,261 215,261 215,261
chased stock of the banks in the amount of $125 million. 1206 Accounts receivable .. 3,248 3,014 3,014 3,014
The banks had repurchased the Government's investment in 1401 Net value III assets related to direct
full by mid-1951. loans receivable: Direct loans Il!l:eiv.
able, gross .. 489,413 537,&12 537,812 537,812
The operating expenses of the FHLBanks are paid from 1801 Cash and other monetalY assets .. 1,013 573 573 573
their own income and are not included in the Budget of the 1803 Properly, plant and equipment, net .. 126 140 140 140
United States. Included in these expenses are the assess- 1901 Other assets .. 3,712 4,223 4,223 4,223
ments by the Finance Board to cover its administrative and 1999 Total assets . 691,188 761,229 761,229 761,229
other costs. The Finance Board's budget and expenditures, LIABILITIES:
however, are included in the budget of the United States. 2101 REFCORP and Affordable Housing Pro-
gram .. 778 822 822 822
The Act, as amended in 1989, requires each FHLBank to 2202 Interest payable . 5,:>38 5,383 5,383 5,383
operate an Affordable Housing Program (AHP). Each 2203 Debt . 611,338 667,561 667,561 667,561
FHLBank provides subsidies in the form of direct grants or other:
below·market rate advances for members that use the funds 2207 Deposit funds and ather borrowings 29,571 30,197 30,197 30,197
2207 Other . 10,839 21,312 21,312 21,312
for qualifying affordable housing projects. The FHLBank Sys-
tem sets aside for its AHPs the greater of $100 million annu- 2999 Total liabilities .. 65&,064 725,275 725,275 725,275
NET POSITION:
ally or 10 percent of net income. The Act, as amended in 3100 Invesred capital . 33,124 35,954 35,954 35,954
1999, also requires that the FHLBanks contribute 20 percent
of net earnings annually to assist in the payment of interest 3999 Total net position .. 33,124 35,954 35,954 35,954
on bonds issued by the Resolution Funding Corporation. 4999 Total liabilities and net position . 691,188 761,229 761,229 761,229
r (fD(['/'l4G-C Y .R~C""7'"t:r()
fl'4~~<rG" ~(1AA/'
Page 1
:ITATION TITLE
~ONST Amend. V-Just Just Compensation for Property
ensation
12 USCA § 1463 Supervision of savings associations
12USCA § 1730f § 173Of. Repealed. Pub.L. 101-73, Title IV, § 407, Aug. 9, 1989, 103 Stat 363
12 USCA § 1735f-5 Prohibition against discrimination on account of sex in extension ofmortgage assistance; consideration of
combined income ofhusband and wife for pmpose ofextending mortgage credit; definitions
lZ USCA § 1735f-7 Exemption :from State usury laws; applicability
12USCA§ 1735f-7a State constitution or laws limiting mortgage interest, discount points, and finance or other charges;
exemption for obligations made after March 31, 1980
12 USCA § 1831b Disclosures with respect to certain federally related mortgage loans
12 USCA § 2602~~ Definitions
12 USCA § 2603 Uniform settlement statement
12 USCA § 2604 Special information booklets
12 USCA § 2605 Servicing of mortgage loans and administration ofescrow accounts
12 USCA § 2607 Prohibition against kickbacks and unearned fees
12 USCA § 260& Title companies; liability of seller
12 USCA § 2609 Limitation on requirement of advance deposits in escrow accounts
12 USCA § 2610 Prohibition offees for preparation oftruth-in-lending, uniform settlement, and escrow account statements
12 USCA § 2614 Jurisdiction of coorts; limitations
12 USCA § 2615 Contracts and liens; validity
12 USCA, 24 CFR § 3500.2-<:-- Definitions
12 USCA, 24 CFR § 3500.5 ~ Coverage ofRESPA
12 USCA, 24 CFR § 3500.6 Special information booklet at time of loan application
12 USCA, 24 CFR § 3500.7 Good faith estimate
]2 USCA, 24 CFR § 3500.8 Use ofHUD-] or HUD-]A settlement statements
12 USCA, 24 CFR § 3500.12 No fee
-TSCA, 24 CFR § 3500.14 Prohibition against kickbacks and unearned fees
.iCA,24 CFR § 3500.16 Title comI>anies
12 USCA, 24 CFR § 3500.17 Escrow accounts
12 USCA, 24 CFR § 3500.21 Mortgage servicing transfers
12 USCA, 24 CFR Pt. 3500 App. A APPENDIX A--INSTRUCTIONS FOR COMPLETING HUD-l AND HUD-IA SETTLEMENT
STATEMENTS; SAMPLE HUD 1 AND HUD IA STATEMENTS
12 USCA, 24 CFR Pt. 3500 App. B APPENDIX B--ILLUSTRATIONS OF REQUIREMENTS OF RESPA
12 USCA § 2802 ~ Definitions
15 USCA § 1631 Disclosure requirements
15USCA§ 1640 Civil liability
15 USCA § 6603 Application ofchapter
Copyright (c) West Group 2000 No claim to original U.S. <:Jovt. works
-
*93768 12 U.S.c.A. § 2602 Association, the Federal Home Loan
Mortgage Corporation, or a financial
UNITED STATES CODE institution from which it is to be
ANNOTATED purchased by the Federal Home Loan
TITLE 12. BANKS AND Mortgage Corporation; or
(iv) is made in whole or in part
BANKING
by any "creditor", as de.fined in section
CHAPTER 27--REAL ESTATE
1602(1) of Title 15, who makes or invests
SETTLEMENT PROCEDURES in residential real estate loans aggregating
more than $1,000,000 per year, except that
Current through P.L. 106-213, approved for the purpose of this chapter, the term
5-26-2000 "creditor" does not include any agency or
instrumentality ofany State;
§ 2602. Definitions (2) the term "thing of value" includes
any payment, advance, funds, loan, service, or
For purposes of this chapter-- other consideration;
(1) the term "federally related (3) the term "settlement services"
mortgage loan" includes 'any loan (other than includes any service provided in connection
temporary financing such as a construction with a real estate settlement including, but not
loan) which-- limited to, the following: title searches, title
(A) is secured by a first or examinations, the provision of title
subordinate lien on residential real certificates, title insurance, services rendered
property (including individual units of by an attorney, the preparation of documents,
condominiums and cooperatives) designed property surveys, the rendering of credit
principally for the occupancy of from one reports or appraisals, pest and fungus
to four families, including any such inspections, services rendered by a real estate
secured loan, the proceeds of which are agent or broker, the origination of a federally
used to prepay or payoff an existing loan related mortgage loan (including, but not
secured by the same property; and limited to, the taking of loan applications, loan
(B)(i) is made in whole or in processing, and the underwriting and funding
part by any lender the deposits or accounts of loans), and the handling of the processing,
of which are insured by any agency of the and closing or settlement;
Federal Government, or is made in whole *93769 (4) the term "title company"
or in part by any lender which is regulated means any institution which is qualified to
by any agency of the Federal Government; issue title insurance, directly or through its
or agents, and also refers to any duly authorized
(ii) is made in whole or in part, agent of a title company; .
or insured, guaranteed, supplemented, or (5) the term "person" includes
assisted in any way, by the Secretary or individuals, corporations, associations,
any other officer or agency of the Federal partnerships, and trusts;
Government or under or in connection (6) the term "Secretary" means the
with a housing or urban development Secretary of Housing and Urban
program administered by the Secretary or a Development;
housing or related program administered (7) the term "affiliated business
by any other such officer or agency; or arrangement" means an arrangement in which
(iii) is intended to be sold by (A) a person who is in a position to refer
the originating lender to the Federal business incident to or a part of a real estate
National Mortgage Association, the settlement service involving a federally
Government National Mortgage related mortgage Joan, or an associate of
)
such person, has either an affiliate relationship and Adm. News, p. 2448.
with or a direct or beneficial ownership
1983 Acts. Senate Report No. 98-275, House Conference
interest of more than 1 percent in a provider of Report No. 98-551, and Two Related Reports, see 1983 U.S.
settlement services; and (B) either of such Code Congo and Adm. News, p. 1768.
persons directly or indirectly refers such
business to that provider or affirmatively *93770 1992 Acts. House Report No. 102-760 and
House Conference Report No. 102-1017, see 1992 U.S.
influences the selection of that provider, and Code Congo and Adm.. News, p. 3281.
(8) the term "associate" means one
who has one or more of the following References in Text
relationships with a person in a position to This chapter, xefetted to in text, was in the original "this
Act", meaning the Real Estate Settlement Procedures Act of
refer settlement business: (A) a spouse,
1974. For classification of this Act to the Code, see Short
parent, or child of such person; (B) a Title note under § 2601 ofthis title.
corporation or business entity that controls, is
controlled by, or is under common control Amendments
with such person; (C) an employer, officer, 1996 Amendments. Par. (7). Pub.L. 104-208, §
2103(cXl), substituted "affiliated business arrangement" for
director, partner, franchisor, or franchisee of "controlled business arrangement".
such person; or (0) anyone who has an
agreement, arrangement, or understanding, 1992 Amendments. Par. (lXA). Pub.L. 102-550, §
with such person, the purpose or substantial 908(b), inserted "or subordinate" following "first" and
"including any such secured loan, the proceeds of which are
effect of which is to enable the person in a used to prepay or pay offan existing loan secured by the same
position to refer settlement business to benefit property" fonowing "families;.
fmancially from the referrals of such business.
Par. (3). Pub.L. 102-550, § 908(a), inserted "the
CREDIT(S} origination ofa federally Tl'Jatt"d mortgage Joan (including,
but not limited to, the taking of loan applications, loan
processing, and the underwriting and funding of loans),"
1989 Main Volume following "broker,".
(pub. L 93-533, § 3, Dec. 22, 1974,88 Stat. 1724; Pub. L 1983 Amendments. Pars. (7), (8). Pub.L. 98-181 added
94-205, § 2, Jan. 2, 1976, 89 StaL 1157; Pub. L. 98-181, pars. (7) and (8).
Title IV. § 461 (a), Nov. 30, 1983, 97 Stat. 1230.)
1976 Amendments. Par. (1). Pub.L. 94-205, § 2(1),
2000 Electronic Update inserted "(other than tempormy financing such as a
construction loan)" following "includes any loan" in the
(As amended Pub.L. 102-550, Title IX, § 908(a),(b), Oct. provision preceding subpar. (A).
28,1992,106 Stat. 3873; Pub.L. 104-208, Div. A, Title II, §
2103(c)(1), Sept. 30,1996, 110 Stat. 3009-400.) Par. (lXA). Pub.L. 94-205, § 2(2), inserted "a first lien
on" following "is secured by".
<General Materials (GM) • References, Par. (l)(BXiii). Pub.L. 94-205, § 2(3X5), substituted "is
Annotations, or Tables> intended to be sold by the originating lender to" for "is eligJ.ble
for purchase by" and "a" and "is to" for "from any" and
IllstORICAL NOTES "could", respectively, and deleted "or" following "the
Government National Mortgage Association".
IllSTORICAL AND STATUTORY
Par. (lKB)(iv). PubL. 94-205, S 2(6) inserted except If,
NOTES that for the purpose of this chapter the term 'creditor' does not
include any agency or instrumentality of any State" following
Revision Notes and Legislative Reports "more than $1 ,000,000 per year".
1974 Acts. Senate Report No. 93-866 and House
Conference Report No. 93-1526, see 1974 U.S. Code Congo Effective and Applicability Provisions
and Adm. News, p. 6546. 1992 Acts. Except as otherwise provided, amendment by
Pub.L. 102-550 effective Oct. 28, 1992, see section 2 of
1976 Acts. House Report No. 94-667 and House PubL. 102-550, set out as a note under section 5301 of Title
Conference Report No. 94-769, see 1975 U.S. Code Congo 42, The Public Health and Welfare.
Copyright (c) West Group 2000 No claim to original U.S. Govt works
12 USCA § 2602, Definitions PageJ
-
*93771 Section 908(d) of Pub.L. 102-550 provided that Trost Deeds §§ 179:1 et seq.
"This section (amending this sectionl sball take effect on the 8Am Jur Legal Forms 2d, Escrow § 100:12. .-
date of enactment of this Act [Oct. 28, 1992] and shall not
apply retroactively."
ANNOTATIONS
1983 Acts. Section 461(f) of Pub.L. 98-181 provided
that: "The amendments made by this section [amending this NOTES OF DECISIONS
section and sections 2607, 2614 and 2617 of this title] shal1
become etfectil'e on JIllllllll}' 1, 1984. " Federally' related mortgage loaJIS 1
Settlement services 2
1976 Acts. Section 12 of Pub.L. 94-205 provided that Thing of value 3
"The provisions of this Act and the amendments made hereby
[enacting section 2617 of this title, amending this section and 1. Federally related mortgage IollDS
sections 2601 note, 2603, 2604, 2607, 2609, and 2616 of
this title and section 1631 of Title 15, Commerce and Trade, Real Estate Settlement Procedures Act did not apply to
repea1ing sections 2605 and 2606 of this title, and ClUICting loan secured by second deed of trust; Act applied only to
provisions set out as a note under section 2601 of this title] residential loans secured by first liens. In re Davis,
shall become effective upon enactment [Jan. 2, 1976]. The Bkrtcy.D.Dist.Col.l994, 172 BR 437.
Secretary may suspend for up to one hundred and eighty days
from the date of enactment of this Act [Jan. 2, 1976] any Real Estate Settlement Procedures Act, application of
provision of section 4 and section 5 of the Real Estate which is confined to home-purchase transactions, was
Settlement Procedures Act of 1974 [sections 2603 and 2604 inapplicable to loan transactions under which debtors
of this title], as IllllCflded by this Act." financed establishment of tailor shop and executed mortgage
on jointly owned residential realty. In re DiPietro,
1974 Acts. Section effective 180 days after Dec. 22, Bkrtcy.ED.Pa.1992, 135 B.R. 773.
1974, see § 20 of Pub.L. 93-533, set out as a note under §
2601 ofthis title. Real Estate Settlement Procedures Act applied only to
those loans which were federally related mortgage IollDS
Regulations and was inapplicable to personal property transactions and
Section 908(c) of Pub.L. 102-550 pr0l7ded that: "TM loans. Peoples Nat. Bank ofUberal v. Molz, Kan. 1986, 718
Secretary of Housing and Urban Development shall issue P.2d 306, 239 Kan. 255.
regulations to implement the amendments made by this
section [amending this section] not later than the expiration of Although construction loan obtained by real estate
the 180-day period beginning on the date of the enactment of developer was exempt from impact of this chapter, loans
this Act [Oct. 28, 1992]. The regulations shall be issued which individual buyers obtained to finance purchase of their
after notice and opportunity for public comment pursuant to separate units qualified as a "federally related mortgage
the provisions of sec'tion 553 of 'title 5, United States Code loan" within meaning of this chapter where lending
[section 553 of Title 5, Government Organization and institutions were insured by the Federal government. Aiea
Employees] (notwithstanding subsections (aX2), (b)(B), and Lani Corp. v. Hawaii Escrow & Title, Inc., Hawai'i 1982,647
(dX3) ofsuch section)." P .2d 257,64 Haw. 63&.
REFERENCES 2. Settlement services
Antikickback provision of Federal Real Estate Settlement

LIBRARY REFERENCES Procedures Act did not apply to a lender's point system of
calculating mortgage origination fees; making of a mortgage
American Digest System klan is not a "settlement service" Vlithin meaning of the Act.
Eisenberg v. Comfed Mortg. Co., Inc., D.Mass.1986, 629
Consumer protection laws, see Consumer Protection ~8. F.Supp.1157.
Encyclopedias *93773 Where escrow and title company was to provide

real estate developer and buyers of individual units with title
Consumer protection laws, see C.J.S. Trade-Marks, Trade- insurance and process individual closings, and, in return,
Names and Unfair Competition § 237. developer would obtain construction loan title policy for ten
17 Am Jur 2d, Consumer and Borrower Protection § percent of the standard mte, the transaction involved
248. "settlement services" within meaning of this chapter, which
proluDits kickbacks and unearned fees. Aiea Lani Corp. v.
Forms Hawaii Escrow & Title, Inc., Hawai'i 1982, 647 P .2d 257, 64
Haw. 638.
*93772 13 Am Jur Legal Forms 2d, Mortgages and
)
3. Thing of value
Where under reimbursement scheme real estate developer

would in effect obtain its construction loan title insurance for
10 percent ofthe standard rate, the 90 percent discount was a
"fuing of value" within meaning of this chapter. Aiea Lam
Corp. v. Hawaii Escrow & Title, Inc., Hawai'i 1982,647 P.2d
257,64 Haw. 638.
12 USCA § 2802, Definitions Pagel
-
*93972 12 U.S.C.A. § 2802
1989 Main Volume
\f
UNITED STATES CODE
(pub. L. 94-200, Title m, § 303, Dec. 31, 1975, 89 Stat.
ANNOTATED 1125; PubL. 100-242, Title V, § 565(a)(1), Feb. 5, 1988,
TITLE 12. BANKS AND 101 Stat. 1945; PubL. 101-73, Tille XII, § 1211(d), (e),
BANKING Aug. 9, 1989,103 Stat. 525.)
CHAPTER 29--HO!\.1E <General Materials (GM) - References,
MORTGAGE DISCLOSURE Annotations, or Tables>
Current through P.L. 106-213, approved HISTORICAL NOTES

5-26-2000
HISTORICAL AND STATUTORY
§ 2802. Definitions NOTES
Revision Notes and Legislative Reports

For purposes of this chapter-- 1975 Act. House Report No. 94-561 and House
(1) the term "mortgage loan" means a Conference Report No. 94-726, see 1975 U.S. Code congo
loan which is secured by residential real andAdm. News, p. 2303.
property or a home improvement loan;
1988 Act. House Report No. 100-122 (I & II) and House
(2) the term "depository institution"--
Conference Report No. 100-426, see 1987 U.S. Code Congo
(A) means-- and Adm. News,p. 3317.
(i) any bank (as defmed in section
1813(a)(1) of this title); 1989 Act. House Report No. 101-54 and House
(ii) any savings association (as Conference Report No. 101-209, see 1989 U.S. Code Congo
and Adm. NelNS, p. 86.
defmed in section 1813(b)(1) of this title); and
(iii) any credit union, Amendments
"93973 1989 Amendment Par. (2). Pub.L. 101-73, §
which makes federally related mortgage loans 1211 (d), substituted provisions defining a "depository
institution" as any bank (as defined in section 1813(aX1) of
as determined by the Board; and this title), any savings association (as defined in section
(B) includes any other lending 1813(bXl) of this title, and any credit union which makes
institution (as defined in paragraph (4» federally related mortgage loans as determined by the
other than any institution described in Board plus any other lending institution (as defined in
subparagraph (A); " paragraph (4» for former provisions which had defined the
term "depository institution" as meaning any commercial
(3) the term "completed application" bank, savings bank, savings and loan association, building
means an application in which the creditor has and loan association, homestead association (including
received the information that is regularly cooperative banks) or credit union which made federally
obtained in evaluating applications for the related mortgage loans as determined by the Board,
mortgage banking subsidiary of a bank holding company or
amount and type of credit requested;
savings and loan holding company, or savings and loan
(4) the term "other lending service corporation that originated or purchased mortgage
institutions" means any person engaged for loans.
profit in the business of mortgage lending;
(5) the term "Board" means the Board Pars. (3), (4). Pub.L. 101-73, § 1211(eX2), added pars.
(3) and (4). Former pars. (3) and (4) were redesignated (5)
of Governors of the Federal Reserve System; and (6), respectively.
and
(6) the term "Secretary" means the Pars. (5), (6). Pub. L. 101-73, § 1211(eX1), redesignated
Secretary of Housing and Urban former pars. (3) and (4) as (5) and (6), respectively.
Development. 1988 Amendment. Par. (2). Pub.L. 100-242, struck "or"
preceding "homestead association" and extended the term
CREDIT(S) "depository institution" to include any mortgage banking
)
subsidiary of a bank holding company or savings and loan provision to other persons not similarly situated or to other
holding company, or savings and loan service corporation that circumstances not to be affected thereby, see section 1221 of
originates or purchases mortgage loans. PubL. 101-73, set out as a note under section 1811 of tbis
title.
Effective and Applicability Provisions
1989 Act Section 1211(k) of PubL. 101-73 provided REFERENCES
that "The amendments made by tbis section [amending tbis
section and sections 2803, 2804,2807, and 2810 oftbis title}
shall apply to each calendar year beginning after December LIBRARY REFERENCES
31,1989."
19&& A£t. Sectioo S6S(aX4) of Pub.L. 100-242, as
amended Pub.L. 100-628, Title X, § 1087(a), Nov. 7, 1988, Regulation of banks, see Banks andBankini ~16.
102 Stat. 3280, provided that: "The amencbnents made by
tbis subsection [amending tbis section and sections 2803 and Encyclopedias
2810 of this title} shall be applicable to the portion ofcalendar
year 1988 that begins August 19, 1988, and to each calendar Regulation of banks, see C.J.S. Banks and Banking § 36.
year beginning after December 31, 1988." Am Jur 2d New Topic Service, Consumer and
Borrower Protection § 181.
Separability ofProvisions
If any provision of Pub.L. 101-73 or the application "93974 Texts and Treatises
thereof to any person or circumstance is held invalid, the
remainder of Pub.L. 101-73 and the application of the 4 FedProc L Ed, Banking and Financing § 8:9,8:11.
12 USCA., 24 CFR § 3500.2, Definitions Page 1
-
*93828 RESPA Reg. X. 24 CFR § 3500.2, 12 Dealer loan or dealer consumer credit contract
....--.\
V.S.C.A. foil. § 2617 means, generally, any arrangement in which a
dealer assists the borrower in obtaining a
~TEDSTATESCODE federally related mortgage loan from the
ANNOTATED funding lender and then assigns the dealer's legal
TITLE 12. BANKS AND interests to the funding lender and receives the net
BANKING proceeds of the Joan. The funding lender is the
lender for the purposes of the disclosure
requirements of this part. If a dealer is a
ESTATE SETTLEMENT
"creditor" as defined under the definition of "
PROCEDURES federally related mortgage loan" in this part,
REGULATION X the dealer is the lender for purposes of this part.
PART 3500--REAL ESTATE Effective date of transfer is defined in section
SETTLEMENT PROCEDURES 6(i)(l) of RESPA (12 U.S.C. 2605(i)(I». In the
ACT case of a home equity conversion mortgage or
reverse mortgage as referenced in this section, the
As amended to 6-16-2000 effective date of transfer is the transfer date
agreed upon by the transferee servicer and the
§ 3500.2. Definitions transferor servicer.
*93829 Federally related mortgage loan or
(a) Statutory terms. All terms defined in mortgage loan means as follows:
(1) Any loan (other than temporary financing,
RESPA (12 U.S.C. 2602) are used in accordance
such as a construction loan):
with their statutory meaning unless otherwise
(i) That is secured by a first or subordinate
dermed in paragraph (b) of this section or
lien on residential real property, including a
elsewhere in this part.
refinancing of any secured loan on residential real
(b) Other terms. As used in this part:
property upon which there is either:
Application means the submission of a
(A) Located or, following settlement, will be
borrower's financial information in anticipation of
constructed using proceeds of the loan, a structure
a credit decision,. whether written or computer-
or structures designed principally for occupancy
generated, relating to a federally related
of from one to four families (including individual
mortgage loan. If the submission does not state
units of condominiums and cooperatives and
or identify a specific property, the submission is
including any related interests, such as a share in
an application for a prequalification and not an
the cooperative or right to occupancy of the unit);
application for a federally related mortgage
or
loan under this part. The subsequent addition of
(B) Located or, following settlement, will be
an identified property to the submission converts
placed using proceeds of the loan, a manufactured
the submission to an application for a federally
home; and
related mortgage loan. (ii) For which one of the following paragraphs
Business day means a day on which the applies. The loan:
offices of the business entity are open to the (A) Is made in whole or in part by any lender
public for carrying on substantially all of the that is either regulated by or whose deposits or
entity's business functions. accounts are insured by any agency of the Federal
Dealer means, in the case of property Government;
improvement loans, a seller, contractor, or (B) Is made in whole or in part, or is insured,
supplier of goods or services. In the case of guaranteed, supplemented, or assisted in any way:
manufactured home loans, "dealer" means one (1) By the Secretary or any other officer or
who engages in the business of manufactured agency of the Federal Government; or
home retail sales. (2) Under or in connection with a housing or
)
Copyright (c) West Group 2000 No claim to original u.s. Govt. works
12 USCA, 24 CFR § 3500.2, Definitions Page 2
urban development program administered by the HUD-l or HUD-IA) means the statement that is
Secretary or a housing or related program prescribed by the Secretary in this part for setting
administered by any other officer or agency of the forth settlement charges in connection with either
Federal Government; the purchase or the refinancing (or other
(C) Is intended to be sold by the originating subordinate lien transaction) of 1- to 4-family
lender to the Federal National Mortgage residential property.
Association, the Government National Mortgage Lender means, generally, the secured creditor
Association, the Federal Home Loan Mortgage or creditors named in the debt obligation and
Corporation (or its successors), or a financial document creating the lien. For loans originated
institution from which the loan is to be purchased by a mortgage broker that closes a federally
by the Federal Home Loan Mortgage Corporation related mortgage loan in its own name in a table
(or its successors); funding transaction, the lender is the person to
(D) Is made in whole or in part by a "creditor", whom the obligation is initially assigned at or
as defined in section 103(f) of the Consumer after settlement. A lender, in connection with
Credit Protection Act (15 U.S.C. 1602(f), that dealer loans, is the lender to whom the loan is
makes or invests in residential real estate loans assigned, unless the dealer meets the definition of
aggregating more than $1,000,000 per year. For creditor as defined under "federally related
purposes of this definition, the term "creditor" mortgage loan" in this section. See also §
does not include any agency or instrumentality of 3500.5(b)(7), secondary market transactions.
any State, and the term "residential real estate Managerial employee means an employee of a
loan" means any loan secured by residential real settlement service provider who does not routinely
property, including single-family and multifamily deal directly with consumers, and who either
residential property; hires, directs, assigns, promotes, or rewards other
(E) Is originated either by a dealer or, if the employees or independent contractors, or is in a
obligation is to be assigned to any maker of position to formulate, determine, or influence the
mortgage loans specified in paragraphs (1 )(ii)(A) policies of the employer. Neither the term
through (D) of this definition, by a mortgage "managerial employee" nor the term "employee"
broker; or includes independent contractors, but a
*93830 (F) Is the subject of a home equity managerial employee may hold a real estate
conversion mortgage, also frequently called a brokerage or agency license.
"reverse mortgage," issued by any maker of Manufactured home is defined in § 3280.2 of
mortgage loans specified in paragraphs (1)(ii)(A) this title.
through (D) of this definition. Mortgage broker means a person (not an
(2) Any installment sales contract, land employee or exclusive agent of a lender) who
contract, or contract for deed on otherwise brings a borrower and lender together to obtain a
qualifying residential property is a federally federally related mortgage loan, and who
related mortgage loan if the contract is funded renders services as described in the definition of
in whole or in part by proceeds of a loan made by "settlement services" in this section. A loan
any maker of mortgage loans specified in correspondent approved under § 202.8 of this title
paragraphs (l)(ii)(A) through (0) of this for Federal Housing Administration programs is a
de.finition. mortgage broker for purposes of this part.
(3) If the residential real property securing a *93831 Mortgaged property means the real
mortgage loan is not located in a State, the loan is property that is security for the federally related
not a federally related mortgage loan. mortgage loan.
Good faith estimate means an estimate, Person is defined in section 3(5) of RESPA (
prepared in accordance with section 5 of RESPA ( 12 U.S.C. 2602(5».
12 U.S.C. 2604), of charges that a borrower is Public Guidance Documents means
likely to incur in connection with a settlement. documents that HUD has published in the
HUD-I or HUD-IA settlement statement (also FEDERAL REGISTER, and that it may amend
12 USCA. 24 eFR § 3500.2, Definitions PageJ
-
from time-to-time by publication in the combination of settlement services) or the
~.\
FEDERAL REGISTER These documents are offering of discounts or rebates to consumers for
also available from HUD at the address indicated the purchase of multiple settlement services does
in 24 CFR 3500.3. not constitute a required use. Any package or
Refinancing means a transaction in which an discount must be optional to the purchaser. The
existing obligation that was subject to a secured discount must be a true discount below the prices
lien on residential real property is satisfied and that are otherwise generally available, and must
replaced by a new obligation undertaken by the not be made up by higher costs elsewhere in the
same borrower and with the same or a new lender. settlement process.
The following shall not be treated as a *93832 RESPA means the Real Estate
refinancing, even when the existing obligation is Settlement Procedures Act of 1974, 12 U.S.C.
satisfied and replaced by a new obligation with 2601 et seq.
the same lender (this definition of "refinancing" Servicer means the person responsible for the
as to transactions with the same lender is similar servicing of a mortgage loan (including the person
to Regulation Z, 12 CFR 226.20(a»: who makes or holds a mortgage loan if such
(1) A renewal of a single payment obligation person also services the mortgage loan). The term
with no change in the original terms; does not include:
(2) A reduction in the annual percentage rate (1) The Federal Deposit Insurance
as computed under the Truth in Lending Act [15 Corporation (FDIC) or the Resolution Trust
U.S.C.A. § 1601 et seq.] with a corresponding Corporation (RTC), in connection with assets
change in the payment schedule; acquired, assigned, sold, or transferred pursuant
(3) An agreement involving a court to section 13(c) of the Federal Deposit lnsurance
proceeding; Act [12 U.S.C.A. § 1823(c)) or as receiver or
(4) A workout agreement, in which a change conservator of an insured depository institution;
in the payment schedule or change in collateral and
requirements is agreed to as a result of the (2) The Federal National Mortgage
consumer's default or delinquency, unless the rate Corporation (FNMA); the Federal Home Loan
is increased or the new amount financed exceeds Mortgage Corporation (Freddie Mac); the RTC;
the unpaid balance plus earned finance charges the FDIC; HUD, including the Government
and premiums for continuation of allowable National Mortgage Association (GNMA) and the
insurance; and Federal Housing Administration (FHA)
(5) The renewal of optional insurance (including cases in which a mortgage insured
purchased by the consumer that is added to an under the National Housing Act (12 U.s.C. 1701
existing transaction, if disclosures relating to the et seq.) is assigned to HUD); the National Credit
initial purchase were provided. Union Administration (NCVA); the Farmers
Regulation Z means the regulations issued by Home Administration or its successor agency
the Board of Governors of the Federal Reserve under Public Law 103-354 (FmHA) [Oct. 13,
System (12 CFR part 226) to implement the 1994, 108 Stat. 3178; see Tables for
Federal Truth in Lending Act (15 U.S.C. 1601 et classification]; and the Department of Veterans
seq.), and includes the Commentary on Affairs (VA), in any case in which the
Regulation Z. assignment, sale, or transfer of the servicing of
Required use means a situation in which a the mortgage loan is preceded by termination of
person must use a particular provider ofa the contract for servicing the loan for cause,
settlement service in order to have access to some commencement of proceedings far bankruptcy of
distinct service or property, and the person will the servicer, or commencement of proceedings by
pay for the settlement service of the particular the FDIC or RTC for conservatorship or
provider or will pay a charge attributable, in receivership of the servicer (or an entity by which
whole or in part, to the settlement service. the servicer is owned or controlled).
However, the offering of a package (or Servicing means receiving any scheduled
)
12 USCA, 24 CFR § 3500.2, Definitions Page 4
periodic payments from a borrower pursuant to (10) Provision of services involving mortgage
the tenns of any mortgage loan, including insurance;
amounts for escrow accounts under section 10 of (11) Provision of services involving hazard,
RESPA (12 U.S.C. 2609), and making the flood, or other casualty insurance or homeowner's
payments to the owner of the loan or other third warranties;
parties of principal and interest and such other (12) Provision of services involving mortgage
payments with respect to the amounts received life, disability, or similar insurance designed to
from the borrower as may be required pursuant to pay a mortgage loan upon disability or death of a
the terms of the mortgage servicing loan borrower, but only if such insurance is required
documents or servicing contract In the case of a by the lender as a condition of the loan;
home equity conversion mortgage or reverse (13) Provision of services involving real
mortgage as referenced in this section, servicing property taxes or any other assessments or
includes making payments to the borrower. charges on the real property;
Settlement means the process of executing (14) Rendering of services by a real estate
legally binding documents regarding a lien on agent or real estate broker; and
property that is subject to a federally related (15) Provision of any other services for which
mortgage loan. This process may also be called a settlement service provider requires a borrower
"closing" or "escrow" in different jurisdictions. or seller to pay.
*93833 Settlement service means any service Special information booklet means the booklet
provided in connection with a prospective or prepared by the Secretary pursuant to section 5 of
actual settlement, including, but not limited to, RESPA (12 U.S.C. 2604) to help persons
any one or more of the following: understand the nature and costs of settlement
(1) Origination of a federally related services. The Secretary publishes the form of the
mortgage loan (including, but not limited to, the special information booklet in the FEDERAL
taking of loan applications, loan processing, and REGISTER The Secretary may issue or approve
the underwriting and funding of such loans); additional booklets or alternative booklets by
(2) Rendering of services by a mortgage publication of a Notice in the FEDERAL
broker (including counseling, taking of REGISTER
applications, obtaining verifications and *93834 State means any State of the United
appraisals, and other loan processing and States, the District of Columbia, the
origination services, and communicating with the Commonwealth of Puerto Rico, and any territory
borrower and lender); or possession ofthe United States.
(3) Provision of any services related to the Table funding means a settlement at which a
origination, processing or funding of a federally loan is funded by a contemporaneous advance of
related mortgage loan; loan funds and an assignment of the loan to the
(4) Provision of title services, including title person advancing the funds. A table-funded
searches, title examinations, abstract preparation, transaction is not a secondary market transaction
insurability determinations, and the issuance of (see § 3500.5(b)(7».
title commitments and title insurance policies; Title company means any institution, or its
(5) Rendering of services by an attorney; duly authorized agent, that is qualified to issue
(6) Preparation of documents, including title insurance.
notarization, delivery, and recordation;
(7) Rendering of credit reports and appraisals; < See also amendment set out after text >
(8) Rendering of inspections, including
inspections required by applicable law or any CREDIT(S)
inspections required by the sales contract or
mortgage documents prior to transfer of title;
(9) Conducting of settlement by a settlement [61 FR 13233, Mar. 26, 1996, as amended at 61 FR 29252,
agent and any related services; June 7,1996; 61 FR 58475, Nov. 15, 1996; 62 FR 20088,
Copyright (0) West Group 2000 No claim to original U.S. Govt works
-
12 USCA, 24 CFR § 3500.2, Defmitions PageS
Apr. 24, 1997J

AMENDMENT OF SUBSEC. (B)
«PART 3500--REAL ESTATE
SETTLEMENT PROCEDURES < 61 FR 29238, 29252,
ACT» June 7, 1996~ 61 FR 51782, Oct
4, 1996, provided in part that,
Authority
effective on a date to be
12 U.S.C. 2601 et seq.~ 42 U.S.C. 3535(d).
determined, subsec. (b) of this
<General Materials (GM) - References, section is amended by adding, in
Annotations, or Tables> alphabetical order, a definition of
"managerial employee", as set out
TEXT in the text. >
12 USCA, 24 CFR § 3500.5, Coverage ofRESPA Page 1
*93838 RESPA Reg. X, 24 CFR § 3500.5, 12 security interest in otherwise covered 1- to

U.S.C.A. foIl. § 2617 4-fami1y residential property is not covered by
RESPA and this part.
~TEDSTATESCODE (4) Vacant land Any loan secured by vacant
ANNOTATED or unimproved property, unless within two years
TITLE 12. BANKS AND from the date of the settlement of the loan, a
structure or a manufactured home will be
BANKING
constructed or placed on the real property using
the loan proceeds. If a loan for a structure or
ESTATE SETTLEMENT manufactured home to be placed on vacant or
PROCEDURES unimproved property will be secured by a lien on
REGULATION X that property, the transaction is covered by this
PART 3500--REAL ESTATE part.
SETTLEMrnNTPROCEDURES (5) Assumption without lender approval.
ACT Any assumption in which the lender does not
have the right expressly to approve a subsequent
As amended to 6-16-2000 person as the borrower on an existing federally
related mortgage loan. Any assumption in
§ 3500.5. Coverage ofRESPA which the lender's permission is both required and
obtained is covered by RESPA and this part,
whether or not the lender charges a fee for the
(a) Applicability. RESPA and this part apply
assumption.
to all federally related mortgage loans, except
*93839 (6) Loan conversions. Any
for the exemptions provided in paragraph (b) of
this section.
conversion of a federally related mortgage loan
to different terms that are consistent with
(b) Exemptions. (1) A loan on property of 25
provisions of the original mortgage instrument, as
acres or more.
long as a new note is not required, even if the
(2) Business purpose loans. An extension of
lender charges an additional fee for the
credit primarily for a business, commercial, or
conversion.
agricultural purpose, as defined by Regulation Z,
12 CFR 226.3(a)(1). Persons may rely on (7) Secondary market transactions. A bona
Regulation Z in determining whether the fide transfer of a loan obligation in the secondary
exemption applies. market is not covered by RESPA and this part,
(3) Temporary financing. Temporary except as set forth in section 6 of RESPA (12
fmancing, such as a construction loan. The U.S.c. 2605) and § 3500.21. In determining
exemption for temporary financing does not apply what constitutes a bona fide transfer, BUD will
to a loan made to finance construction of 1- to consider the real source of funding and the real
4-family residential property if the loan is used as, interest of the funding lender. Mortgage broker
or may be converted to, permanent financing by transactions that are table-funded are not
the same lender or is used to finance transfer of secondary market transactions. Neither the
title to the first user. If a lender issues a creation of a dealer loan or dealer consumer credit
commitment for pennanent financing, with or contract, nor the first assignment of such loan or
without conditions, the loan is covered by this contract to a lender, is a secondary market
part. Any construction loan for new or transaction (see § 3500.2.)
rehabilitated 1- to 4-family residential property,
other than a loan to a bona fide builder (a person CREDIT(S)
who regularly constructs 1- to 4-family residential
structures for sale or lease), is subject to this part 2000 Electronic Update
if its term is for two years or more. A ''bridge
loanll or II swing loanll in which a lender takes a {61 FR 13235, Mar. 26, 1996, as amended al61 FR 58475,
12 USCA. 24 CFR § 3500.5, Coverage ofRESPA Page 2
-
Nov. 15.1996]
............. "
Covered transactions 1
«PART 3500--REAL ESTATE
SETTLEMENT PROCEDURES 1. Covered transactions
ACT» Mortgage company did not table-fund borrowers'

mortgagc loan for bank which served as trustee for buyer that
Authority subsequently acquired loan pursuant to prior agreement, and
12 U.S.C. 2601 etseq.; 42 U.S.C. 3535(d). thus did not bring loan transaction within coveragc of Real
Estate Settlement Procedures Act (RESPA); loan was closed
in mortgagc company's name, using funds acquired
<General Materials (GM) - References, exclusively through company's credit arrangement with third
Annotations, or Tables> party, and independent of agreement pursuant to which buyer
subsequently acquired loan. Chandler v. Norwest Bank
Minnesota, Nat. Ass'n., CA8 (Mo.) 1998, 137 F.3d 1053,
ANNOTATIONS rehearing and suggestion for rehearing en banc denied,
certiorari denied 119 S.Ct. 278, 525 U.S. 922, 142 L.Ed.2d
NOTES OF DECISIONS 229.
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GOVERNMENT NAT.ONAL MORTGAGE ASSOCIATION
SERVICI.NG CONTRACT
"
SERVICER FNMA REGIONAL OFFICE

HAVING JURISDICTION OVER SERVICER J
NartarBtten & CO •• Inc. Northcaotcru Regional Offici
SERVICER'S PRINCIPAL PLACE OF BUSINESS ADDRESS OF FNMA RCGIONAL OFFiCE
260 HnplG ~t:reet 510 U~lnut Street /
perth /lmbOf, NJ 03061 rhiladolphia, PA 19106
THIS SERVICING CONTRACT (herein called "Contract") made and entered into by and between the above·identified and un·
dersigned MORTGAGE SERVICER (herein called "Servicer") and the GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(herein called "GNMA"), an agency of the Department of Housing and Urban Developmtlnt. ..
GENERAL PURPOSE OF THE CONTRACT
The purpose of this Contract is to establish Servicer as an approved servicer of mortgages owned by GNMA and to set forth the reo
quirements and procedures applying to the servicing of such mortgages and Servicer's duties and obligations, and the rights which Ser~icer
shall enjoy, as a mortgage servicer approved by GNMA.
NOW, THEREFORE, in consideration of the foregoing, the acceptance of Servicer by GNMA as an eligible and approved servicer of
mortgages of the type(s) specified in paragraph 15 of this Contract (herein called "mortgages"), as evidenced by GNMA's execution
hereof. the compensation to be paid to Servicer pursuant to this Contract, and the mutual agreements contained in this Contract, Serv-
icer and GNMA hereby agree as f o l l o w s : "
1. DEFINITIONS; INCORPORATION BY REFERENCE. The term "mortgage" as used in this Contract shall be construed to in·
c1ude a mortgage, deed of trust and any other security instrument, together with the obligation secured thereby, the title evidence, the
security agreement and financing statement, and all other documents. instruments and other papers pertaining thereto. The term "FHAI
VA mortgage" shall mean a mortgage insured or guaranteed in whole or in part by the Federal Housing Administration or Veterans Ad·
ministration. The term "conventional mortgage" shall mean a mortgage other than a FHAIVA mortgage which GNMA is authorized to
purchase lJursuant to 12 U.S.C. 1723e. Each of the following documents is hereby incorporated in and made part of this Contract, pro-
vided that Servicer is authorized by paragraph 15 of this Contract to service the type(s) of mortgages covered by such document: the
FNMA Home Mortgage Servicing Contract Supplement; and the FNMA Conventional Multifamily Servicing Contract Supplement. Such
supplements, as published and distributed by the Federal National Mortgage Association ("FNMA"), and as they shall exist and be
amended or supplemented from time to time by FNMA, including all amendments and supplements thereto and all instruments succeed-
ing or superseding the aforesaid supplements in whole or in part, in every form whatsoever, are collectively referred to in this Contract as
the "Servicing Supplement."
2. SEAVICER'S DUTIES. Servicer hereafter shall diligently perform for GNMA all services and duties incident to the servicing
of such mortgages as Servicer may be servicing for GNMA on the date this Contract takes effect and such other mortgages as hereafter
are agreed upon from time to time by GNMA and Servicer or which are required to be so serviced pursuant to any agreement between
GNMA and Servicer. In j'ts performance of such services and duties, Servicer shall comply with all of the provisions of the Servicing
Supplement, and with all other reasonable requirements and instructions of GNMA. Servicer shall perform such services at its sole ex-
pense except as otherwise expressly provided in the Servicing Supplement. \. .
Servicer agrees to service each of the mortgages continuously beginning with the date of commencement of the servicing duties until
the interest and principal have been paid in full, the mortgage has been liquidated in accordance with the provisions of the Servicing
Supplement, or such servicing duties are terminated pursuant to paragraph 8, 9 or 10 of this Contract.
3. COMPENSATION. Servicer's compensation for the services and duties performed by Servicer under this Contract shall be such
amount as is specified in the Servicing Supplement. GNMA, in its sole discretion, may from time to time change the amount of Servicer's
compensation by modifying the provisions of the Servicing Supplement; provided, however, that Servicer's compensation with respect to
any m.ortgage being s!!rvlced by Servicer for GNMA on the date of such change shall not be reduced, except as mutually agreed to bV
GNMA and Servicer. .
GNMA Form 302

Dec. 76
Addendum No. 2 to Government National
Mortgage Association Servicing Contract
(GNMA Form 302 - December, 1976) Between The
Undersigned Servicer and GNMA
Paragraph 15 of the above-titled Contract shall read:

Servicer is hereby authorized to service, pursuant
to this Contract, the type(s) of mortgages
specified opposite the name of each of the FNMA
regions, covering properties .1ocated in the states
or other jurisdictions included in such regions:
Type(s) of Mortgages
Northeastern: (FHA/VA Home) (Conventional Hane)
southeastern:
Midwestern:
Southwestern:
Western: (FHA/VA Home) (Conventional Home)
Seller:
By:
Rauchman, President
(Name and Title)
, Date: AprilS, 1977

Agreed to and accepted by the \
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
By:
~.
Date:
.,
Norlhl'ut R~()n.l OfflCt
2231 C:ry5t.1 Onve. Suitt gal
Arlington. Vir~nl. 2llO2-3741
-
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June 26, 1990

Freddie
Mac
/
Ma. Maureen Irwin
Margaretten , Company
105 Smith Street
Perth ~oy, NJ 08862
Del.\r Ms. Irwin:
This is to c:ertifr that Margaretten an~ Company is an approved

Fre~~i. Mac Seller Servieer.
Patrieia R. Tartaro
Customer Administration Assistant
)
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r ....'..>
~CHEMICAL
Chemical Residential Mortgsse Corporation

~80 Madison Avenue
New York. NY 10017-2591
September 29,1994
Mr. Kenneth J. Bacon

Senior Vice President
Federal National Mortgage Association
1900 Market Street, Suite 800
Philadelphia, PA 19103
Dear Ken:
On October 1, 1994, Chemical Residential Mortgage Corporation ('CCRMC''), your seller/servicer

#21601·000-0 will merge with Margaretten &. Company, Inc. (UMargaretten"), sellerlservicer
~1323S-000-0. Margaretten will be the surviving coxporation and will change it's name to
Chemical Residential Mortgage Corporation ("the new CRMC'') on October 1, 1994. The new
CRMC will deliver mortgages in accordance with its' existing contract Loans closed by the new
CRMC after October 1, 1994 will be sold to Fannie Mae under seller #13235-000-0 and sub-
serviced by Chemical Mortgage Company C'CMC''), located in Columbus, Ohio under servicer
#13235-001·9.
On August 31, 1994, Margaretten sold it's sexvicing center located in Richmond, Virginia to Bank
of America, FSB. Loans currently serviced by seller/servicer#13235·000-0 are sub-serviced by
Bank of America, FSB. The sub·servicing contract will tenninate not later than November 30,
1995. Prior to that time, the servicing activities will be moved from the Richmond, Virginia facility
to CMC's facility in Columbus, Ohio and will be administered under servicer #13235-001-9.
While there will be no change to CMC's operating platfonn or management stn1Cture, we expect
employees ofCMC to become employees of the new CRMC on or after January 1, 1995. At that
time, CMC's sub-servicing arrangement for the new CRMC will terminate and the new CRMC will
begin sub-servicing CMC's existing servicing portfolio currently administered under seller/servicer
#'5 13123-000-1,21601-000-0, 17555-000-3, 10647-000-6 and 21380-000-0. Additionally, the new
CRMC will service the remaining portfolios administered under servicer #' s 21601-000-0,
21601-301·8,21601·302-6 and 21601-001-9
Attached please find the following items:
1. A list of key executive officers for new CRMC

2. A list of branch locations
3. Copies of the merger agreement
4. Copies of the name change documentation (to follow)
. ..... _, ~'-----
1177 Avenue of the Americas
New York, NY 10036
Telephone 212 596 7000
Facsimile 2125968910
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~.\
Price "Waterhouse LLP
Report of Independent Accountants
March 28, 1996
To the Board of Directors and

Shareholder of Chemical Residential Mortgage Corporation
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of
operations and retained earnings and of cash flows present fairly, in all material respects, the financial
position of Chemical Residential Mortgage Corporation (the "Company") and its subsidiaries at December
31, 1995 and 1994, and the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for the opinion
expressed above.
As discussed in. Note 2 to the consolidated financial statements, the Company adopted Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights," on January 1, 1995.
Chapter 3 Securities and Financial Assets
Welcome to chapter three of The Bank Code Exposed Now that you have studied
the material in chapter one and have a better understanding of what a bank is or is not this
chapter will help you to better understand what the difference is between securities and
financial assets. More importantly, because there is a difference and there is even a larger
difference in what a bank can or can not do this chapter will bring you the official, written
intent of commercial law, right out of the official record books, showing what the major
difference is and the why of these topics.
Most people have a general idea about what money or accounts or even assets are,
however they generally know very little about the actual can or cannot do with these
instruments. For instance, while reading this chapter you will not only realize that a security
not only requires four things to make it a security but also explains why. This chapter will
not only cover the requirements but it will also show you where to look to find this
information and why it is put in certain sections.of certain codes, laws and bills.
This chapter took many years of personal study within the UCC to find the
transparency to come up with the true definitions and true powers and regulations behind
these instruments. Most believe they understand the UCC however most lawyers and judges
themselves have no clue to the true intent and purpose because of all the confusion between
the codes. For example, most folks believe that a promissory note (loan) is a negotiable
instrument, however, this chapter will explain how it is not, why it is not, and what it really
is.
Once one understands this information it makes it a great deal easier to understand
how one can deal with or how not to deal with the instruments. For example, some
instruments found in Article 3 of the UCC is governed by Article 4 and some of Article 4 is
governed by Article 8 and why. It will also show you why certain instruments cannot have a
holder in due course. We also hope to explain and show how Article 9 does NOT apply to
most of these instruments as long as one knows what to ask and why to ask it.
When you are done with this chapter you will understand what a security and a
financial asset is and why there is a difference. It will also show you what one can or cannot
do with these instruments and why.
-
\ SECTION THREE -
A. Uniform Commercial Code definitions of security; securities; financial

asset.
B. Definition of common stock.
C. Code of Federal Regulation on investment securities.
D. Information regarding warehouse lines of credit.
E. Information regarding table funding.
F. General information on lenders and line of credit.
G. Fraud in warehouse mortgage lending.
H. Example of a mortgage note which had been sold by loan originator.
)
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'.C. - ARTICLE 8 -INVESTMENT SECURITIES

ART 1. SHORT TITLE AND GENERAL MATTERS
§ 8-102. Definitions and Index of Definitions.
(1) In this Article, unless the context otherwise requires:
• (a) A "certificated security" is a share, participation, or other interest in property of or an enterprise of the
or an obligation of the issuer which is
o Q) represented by an instrument issued in bearer or ,
o Oil of a type commonly dealt in on securities exchanges or markets or commonly recognized in any area in
which it is issued or dea~ in as a medium for investment; and
o Qii) either one of a class or series or by its terms divisible into a class or series of shares, participations,
interests, or obligations.
• (b) An "uncertificated security" is a share, participation, or other interest in property or an enterprise ofthe •... - ..'
or an obligation of the issuer which is
o 0) not represented by an instrument and the transfer of which is registered upon books maintained for that
purpose by or on behalf ofthe/'< '0';
o Qi) of a type commonly dealt in on securities exchanges or markets; and
o Qii) either one of a class or series or by its terms divisible into a class or series of shares, participations,
interests, or obligations.
~ • (c) A "security" is either a certificated or an . If a is certificated, the terms "security"
and "certificated security" may mean either the intangible interest, the instrument representing that interest, or both,
as the context requires. A writing that is a . . . is governed by this Article and not by Article 3, even
though it also meets the requirements of that Article. This Article does not apply to money. If a certificated security
has been retained by or surrendered to the . or its transfer agent for reasons other than registration of
transfer, other temporary purpose, payment, exchange, or acquisition by the issuer, that security shall be treated as
an uncertificated security for purposes of this Article.
• (d) A· . ': is in "registered form" if
o 0) it specifies a person entitled to the;,:-, or the rights it represents; and
o Oi) its transfer may be registered upon books maintained for that purpose by or on behalf of the .' -', or the
so states.
• (e) A is in "bearer form" if it runs to bearer according to its terms and not by reason of any
indorsement.
(2) A "subsequent purchaser" is a person who takes other than by original issue.
(3) A "clearing corporation" is a corporation registered as a "clearing agency" under the federal securities laws or a
corporation:
• (a) at least 90 percent of whose capital stock is held by or for one or more organizations, none of which, other than
a national securities exchange or association, holds in excess of 20 percent of the capital stock of the corporation,
and each of which is
o 0) subject to supervision or regulation pursuant to the provisions of federal or state banking laws or state
insurance laws,
o Oi) a or dealer or investment company registered under the federal securities laws, or
o (iii) a national securities exchange or association registered under the federal securities laws; and
• (b) an'l remaining capital stOCK of which is held o'l individuals who have purchased it at or prior to the time of their
taking office as directors ofthe corporation and who have purchased only so rrllJcn.ofthe capital stock as is
necessary to permit them to qualify as directors.
,4) A "custodian bank" is a bank or trust company that is supervised and examined by state or federal authority having
/ supervision over banks and is acting as custodian for a
U.v.v. - J-\t'\ IlvLJ:: 0 - S O-IU".
\(5) Other definitions applying to this Article or to specified Parts thereof and the sections in which they appear are:
)
.-
~Adverse claim~.Section
"Bona fide purchaser".Section
"Broker".Section '
"Debtor".Section •
"Financial intermediary".Section :
"Guarantee of the signature".Section
"Initial transaction statement".Section
"lnstruction".Section'c
"Intermediary bank~.Section
~lssuer".Section
"Overissue".Section
,I "Secured Party".Section
"Security Agreement".Section
(6) In addition, Article 1 contains general definitions and principles of construction and interpretation applicable throughout
this Article.
As amended in 1962, 1973 and 1977.
See Appendix I for material relating to changes made in text in 1977.
)
V.V.V. -1"\" IlvLC 0 - 3 o-IU.:>. ,<;;Il::f..........
•I C.C. - ARTICLE 8 - INVESTMENT SECURITIES

ART 1. SHORT TITLE AND GENERAL MATTERS
§ 8-103. Issuer's Lien.
Alien upon a in favor of an thereof is valid against a purchaser only if:
• (a) the is certificated and the right of the to the lien is noted conspicuously thereon; or
• (b) the is uncertifieated and a notation ofthe right of the to the lien is contained in the initial
transaction statement sent to the purchaser or, if his interest is transferred to him other than by registration of
transfer, pledge, or release, the initial transaction statement sent to the registered owner or the registered pledgee.
As amended in 1977.
See Appendix I for material relating to changes made in text in 1977.
t,g. ..,J t.g. J

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"Security," except as otherwise provided in Section :~' ~ , means an obligation of an-' r'Y or a share, participation, or , _
i other interest in an issuer or in property or an enterprise of an issuer:
Q) which is represented by a r_ r', .'_..,,:; .-," in .-,,,,,,- or ..- ;;"._.~ -, :" .~- ,or the transfer of which may be registered
upon books maintained for that purpose by or on behalf of the issuer;
Qi) which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or
obligations; and
Oii) which:
(A) is, or is of a type, dealt in or traded on securities exchanges or securities markets; or
(6) is a medium for investment and by its terms expressly provides that it is a security governed by this Article.
)
UV\J ovuyrc::l~\j • -t::J- . - ••
(a) A share or similar equity interest issued by a corporation, business trust, joint stock company, or similar entity is a
-
)(9) "Financial asset," except as otherwise provided in Section , means: .-.
0) a security;
Oil an obligation of a person or a share, participation, or other interest in a person or in property or an enterprise of a
person, which is, or is of a type, dealt in or traded on financial markets, or which is recognized in any area in which it is
issued or dealt in as a medium for investment; or I
Oii) any property that is held by a for another person in a if the securities
intermediary has expressly agreed with the other person that the property is to be treated as a under this
Article.
As context requires, the term means either the interest itself or the means by which a person's claim to it is evidenced.
including a certificated or ,a , or a
)
UU\" t)uuyt"C:lY~
(a) A share or similar equity interest issued by a corporation, business trust, joint stock company, or similar entity is a
. . -0- .6. -- ...
-
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. 'legal infonnarion institute US CODE COLLECTION
TITLE 12 > CHAPTER 2 > SUBCHAPTER II> Sec. S1c.
Search this title:

se~..•~.~~. 7~~F9Jnmon stock··, ··capita''', and ··capital
stoc.~defined
The term "common stock" as used in sections Sla, Slb, Slc, ~
and Sid ill of this title means stock of national banking associations~
otl:left!laA~'Steek'issued under the provisions of said
sections. The term "capital" as used in provisions of law relating to
the capital of national banking associations shall mean the amount of
Notes
unimpaired common stock plus the amount~t,;o~f~re~f1~l:ell~DCI~--:---
Updates
outstandin a 1~ • d' and the ter capital stock", as used
in sections 101, 177, and 178 (FOOTNOTE 1) of this title, shall mean Parallel authorities
(CFR)
only the amount of common stock outstanding.
Topical references
ill See References in Text note below
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http://www4.law.comell.eduluscode/12/51c.html 12/31/02
PART l-INVESTMENT SECURITIES § 1.2 Definitions.
(a) Capital and surplus means:
Sec. (1) A bank's Tier 1 and Tier 2 capital
1.1 Authority, purpose, and scope. calculated under the OCC's risk-based
1.2 Definitions. capital standards set forth in appendix
1.3 Limitations on dealing in, under- A to 12 CFR part 3 (or comparable cap-
writing, and purchase and saJe of securi- ital guidelines of the appropriate Fed-
ties.
1.4. Calculation of limits.
eral banking agency) as reported in the
1.5 Safe and sound banking practices; cred- bank's. Consolidated Report of Condi-
it Information required. tion and Income filed under 12 U.S.C.
1.6 Convertible securities. 161 (or under 12 U.S.C. 1817 in the case
1.7 Securities held in satisfaction of debts of a state member bank); plus
previously contracted; bolding period; (2) The balance of a bank's allowance
disposaJ; accounting treatment; non- for loan and lease losses not included
speculative purpose. in the bank's Tier 2 capital, for pur-
1.8 Nonconforming investments. poses of the calculation of risk-based
capital described in paragraph (a)(l) of
INTERPRETATIONS
this section, as reported in the bank's
1.100 Indirect general obl1gations. Consolidated Report of Condition and
1.110 Taxing powers of a State or pol1ticaJ Income filed under 12 U.S.C. 161 (or
subdivision. under 12 U.S.C. 1817 in the case of a
1.120 Prerefunded or escrowed bonds and state member bank).
obl1gations secured by Type I securities. (b) General obligation of a State OT po-
1.130 Type II securities; guidel1nes for obl1-
gatlons issued for university and housing litical subdivision means:
purposes. (1) An obligation supported by the
full faith and credit of an obligor pos-
AUTHORITY: 12 U.S.C. 1 et seq., 24 (Seventh), sessing general powers of taxation, in-
and93a. cluding property taxation; or
SOURCE: 61 FR 63982, Dec. 2, 1996, unless (2) An obligation payable from a spe-
otherwise noted. cial fund or by an obligor not pos-
sessing general powers of taxation,
§ 1.1 Authority, purpose. and scope. when an obligor possessing general
(a) Authority. This part is issued pur- powers of taxation, including property
suant to 12 U.S.C. 1 et seq., 12 U.S.C. 24 taxation, has unconditionally promised
(Seventhl.. and 12 U.S.C. 93a... to make payments into the fund or
(b) Purpose This part prescribes otherwise provide funds to cover aU re-
standards under which national banks quired payments on the obligation.
ma-y purchase, sell, deal in, underwrite, (c) Investment company means an in-
and hold securities, consistent with the vestment company, including a mutual
authority contained in 12 U.S.C. 24 fund, registered under section 8 of the
(Seventh) and safe and sound banking Investment Company Act of 1940, 15
practices. U.S.C. 8Oarll.
(c) Scope. The standards set forth in (d) Investment grade means a security
this part apply to national banks, Dis- that is rated in one of the four highest
trict of Columbia banks, and federal rating categories by:
branches of foreign banks. Further, (1) Two or more NRSROs; or
pursuant to 12 U.S.C. 335. State banks (2) One NRSRO if the security has
that are .members of the Fe{l~ral R~ been rated by only one NRSRO.
§~!:ye SY§teJ!! atuubject to the saIIJe (e) Investment security means a mar-
!~~at!on.§., an.u~.!!1.I}s that apl!ly ketable debt obligation that is not pre-
to ;national banks in connection witli dominantly speCUlative in nature. A se-
·~b<i§1JJ'E~&i.Tn:aiid~ curity is not predominantly specula-
Q,\l.UY1.!!iJ;UL~~E!1rt.~ies al1iL~locit. til ad- tive in nature if it is rated investment
dition to actiVities authorizea under grade. When a security is not rated, the
t.his part, foreign branches of nat.ional E-ecurit-y mUl!.t be the credit equi'valent
banks are authorized to conduct inter- of a security rated investment grade.
national activities and invest in securi- (f) Marketable means that the secu-
ties pursuant to 12 CFR part 211. rity:
5
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-,
§1.2 12 CFR Ch. I (1-1-03 Edition)

(1) Is registered under the Securities if the national bank is well capitalized
Act of 1933, 15 U.S.C. 77a et seq.; as deimed in 12 CFR 6.4(b)(I);
(2) Is a municipal revenue bond ex- (5) Obligations authorized under 12
empt from registration under the Secu- U.S.C. 24 (Seventh) as permissible for a
rities Act of 1933,15 U.S.C. 77c(a)(2); nationa.l bank to deal in, underwrite,
(3) Is offered and sold pursuant to Se- purchase, and sell for the bank's own
curities and Exchange Commission account, including qualified Canadian
Rule 144A, 17 CFR 230.144A, and rated government obligations; and
investment grade or is the credit equiv- (6) Other securities the OCC deter-
alent of investment grade; or , mines to be eligible as Type I securi-
(4) C8.lI be sold with res.sonable ties under 12 U.S.C. 24 (Seventn).
promptness at a price that corresponds Ck) Type II security means an invest-
reasonably to its fair value. ment security that represents:
(g) Municipal bonds means obligations (1) Obligations issued by a State, or a
of a Staw or poltticalsubdivision other llOlitical subdivision or agency of a
than general obligations, and includes State, for housing, university, or dor-
limited obligation bonds, revenue mitory purposes that would not satisfy
bonds, and obligations that satisfy the the definition of Type I securities pur-
requirements of section 142(b)(I) of the suant to paragraph (j) of §1.2:
Internal Revenue Code of 1986 issued by (2) Obligations of international and
or on behalf of any State or political multilateral development banks and
subdivision of a State, including any organizations listed in 12 U.S.C. 24
municipal corporate instrumentality of (Seventh);
1 or more States, or any public agency (3) Other obligations listed in 12
or authority of any State or political U.S.C. 24 (Seventh) as permissible for a
subdivision of a State. bank to deal in, underwrite, purchase,
(h) NRSRO means a nationally recog- and sell for the bank's own account,
nized statistical rating organization. subject to a limitation per obligor of 10
(i) Political subdivision means a coun- percent of the bank's capital and sur-
ty, city, town, or other municipal cor- plus; and
poration, a public authority, and gen- (4) Other securities the OCC deter-
eral1~ any l'lublicly-owned ent.it~ that mines to be eligible as T"Ylle n seC'Url-
is an instrumentality of a State or of a ties under 12 U .S.C. 24 (Seventh).
municipal corporation. (1) Type III security means an invest-
(j) Type I security means: ment security that does not qualify as
(1) Obligations of tne United S1ia.tes; a Type I, IT, IV, or V securi ty. Exam-
(2) Obligations issued, insured, or ples of Type ill securities include cor-
guaranteed by a department or an porate bonds and municipal bonds that
agency of the United States Govern- do not satisfy the definition of Type I
ment, if the obligation, i.nsurance, or securities llursuant to paragrallh (i) of
guarantee commits the full faith and §1.2 or the definition of Type IT securi-
credit of the United States for the re- ties pursuant to paragraph (k) of §1.2.
payment of the obligation; (m) Type IV security means:
(3) Obligations issued by a depart- (1) A small business-related security
ment or agency of the United States, as defined in section 3(a)(53)(A) of the
or an agency or political subdivision of Securities Exchange Act of 1934, 15
a State of the United States, that rep- U.S.C. 78c(a)(53)(A), that is rated in-
resent an interest in a loan or a pool of vestment grade or is the credit equiva-
loans made to third parties, if the rull lent thereof, that is fully secured by in-
faith and credit of the United States terests in a pool of loans to numerous
has been validly pledged for the full obligors.
and timely payment of interest on, and (2) A commercial mortgage-related
princtpal of, t.he loans in t.he event. of security that is offered or sold pursu-
non-payment by the third party obli- ant to section 4(5) of the Securities Act
gorCs); of 1933, 15 U.S.C. 77d(5), that is rated in-
(4) General obligations of a State of vestment grade or is the credit equiva-
the United States or any political sub- lent tnereof, or a commercia,l mort-
division thereof; and municipal bonds gage-related security as described in
6
) ;-
Comptroller of the Currency. Treasury §1.3
section 3(80)(41) of the Securities Ex-
change Act of 1934. 15 U.S.C. 78c(a)(41).
that is rated investment grade in one
of the two highest investment grade
rating categories. and that represents
ownership of a promissory note or cer-
tificate of interest or 'Partictpation
that is directly secured by a first lien
on one or more parcels of real estate
upon which one or more commercial
struct.ures are located and t.bat is fully
secured by interests in a pool of loans
to numerous obligors.
(3) A residential mortgage-related se-
curity that is offered and sold pursuant
to section 4(5) of the Securities Act of
1933. 15 U.S.C. 77d(5), that is rated in-
vestment grade or is the credit equiva-
lent thereof. or a residential mortgage-
related security as described in section
3(80)(41) of the Securities Exchange Act
of 1934. 15 U.S.C. 78c(a)(41». that is
rated investment grade in one of the
two highest investment grade rating
categories, and that does not otherwise
qualify as a Type I security.
(n) Type V security means a security
that is:
(1) Rated investment grade;
(2) Marketable;
(3) Not a Type IV security; and
(4) Fully secured by interests in a
pool of loans to numerous obligors and
in which a national bank could invest
directly.
[61 FR 63982. Dec. 2. 1996, as amended at 66
FR 34791. July 2. 20011
7
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WAR£HOUSEUNE
• Get Started
Online
or call toll-free
(800) 5J8-OO99
Coolpany 1;f6rniation{
WarehouseUne, Ltd. is a Texas Limited Partnership formed in Services DUeled
April 1999 to provide funding, brokerage and consultation of
warehouse lending services to the mortgage banking industry. Our entire warehouse line program
managed by mortgage bankers, nc
The company either directly or through its syndicate and I or bankers.
participant banks provides temporary financing on certain one to
four single-family residential dwellings, which have been We warehouse and fund all A pape
originated. All of the loans are pre-sold in the secondary market products which include FHA, VA,
to large institutional investors, many of whom are New York conventional and jumbo loans.
Stock Exchange companies. The warehouse line funding covers Approvals for funding include direc
the approximately 15 to 30 day period between loan closing and endorsement (FHA), VA automatic
prior approved (yA), DU and LP.
the sa'e ofthe 'oan to an institutiona' investor. The company
administers the use of the warehouse Ones to its approved client There are no legal preparation fee
base. annual renewal fees or no non-usa
fees to pay with obtaining this
WarehouseUne, Ltd. has vast experience with soHciting and warehouse line.
maintaining warehouse lending correspondent relationships, with
The average time for approval alte
our primary objective to prOVide warehouse lending services to
receiving a complete package is
mortgage brokers, mortgage bankers, and financial services approximately two weeks or less.
companies. These companies need the training, assistance and
follow through that WarehouseUne, Ltd. can provide. We only require that you fax us thE
documents needed 24 hours prior I
The General Partner is Texcorp Mortgage Bankers, Incorporated funding. No need to overnight us a
which has been in the mortgage banking business since complete package. We also offer sc
day funding requests at no additlol
December 1986. Headquartered in Houston, Texas, Texcorp
charge.
owns and operates several branch offices and manages
VALoans.com and FHALoan.com. It has become one ofthe The amount of the line requested i:
largest VA online mortgage originators in the country. The determined by the performance of
company is approved as a national VA lender, is a VA automatic company. We do require a minimul
lender and is an active member of the National BBB Online. audited net worth of $250,000.
The funding percentage on each ..~

Over the past several years, the company's onHne ventures and
loan is up to 100% of the loan ame
their affiliates have funded over $2.75 billion in mortgage loans. There is no "haircut" in these insta
Texcorp's online mortgage partner is a Fortune 500 global
corporation that is nationally approved in all 50 states. There are no set net worth ratio's t
establish the warehouse line amou
President Bruce Reichstain This is a non-directed line, which n

you do not have to sell the loans te
Bruce Reichstein, Partner of WarehouseLine, Ltd., graduated investor. You can sell them to any
from the University of Texas at Austin with a Bachelor of of the investors on our approved
Business Administration in 1986. Mr. Reichstein has been in the in\lestor list. )-
V VdII::IIUU~1:: LII II:: vUllltJdl 'Y 1111 UlllldLlUI I
mortgage-banking arena for 17 years and has been responsible

for overseeing all aspects of mortgage retail and wholesale
originations including purchasing, funding and shipping. In 1992,
Mr. Reichstein purchased 100% of Texcorp Mortgage Bankers,
Incorporated and currently serves as Chairman of the Board,
Chief Executive Officer and President
Mr. Reichstein's emphasis on growth allowed Texcorp to be

ranked #21 in 1997 and #11 in 1998 in The Houston 100, a list of
the 100 fastest-growing private companies in Houston. He
continues to meet the chaUenges in the mortgage banking
industry.
WirehouseLine, Ltd. currently has dozens of active warehouse

line correspondents with cumulative mortgage commitments
exceeding $100 million. The company has developed a strategy
for expansion designed to broaden its financial institution bases
thus allowing the company to expand its growth.
Copyright © 2004 . WarehouseLine, Ltd •• All Rights Reserved

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WAREHOUSEUN:E
• Get Started
Online
or coli toll-kelt
(800) 5 J8·0099
Are Yeu R~~dvt

Warehouse Hnes of credit are real estate secured short-term Benefits and Aclvan,tages
Hnes of credit that allow mortgage bankers to fund loans into the
secondary market until the loans are purchased by the end Establishes a reputation for your
company with consumers, builders
institutional investors. brokers and real estate agents to c
and fund loans in your own name.
According to the Mortgage Bankers Association of America, fund within 24 hours of request an·
mortgage originations Oncluding refinances) for residential most cases, funds can be sent the
lenders produced $2.5 trillion in fiscal year 2002. The prediction day of receipt of your information.
for fiscal year 2003 has been forcast for approximately $3.0 method of funding helps keep both
trillion. Mortgage debt outstanding growth has grown rapidly customers and agents content by
paying for the entire transaction at
helped mainly by record strong home price gains, record horne clOSing.
sales and cash-out refinancing. Home ownership rates are
expected to increase in the next few years due to demographics. Correspondent and wholesale lendl
In particular, the aging baby boom generation is entering its peak typically pay more for closed loans
earnings period. Current home ownership rates are well as charging you less fees. The
approximately 67%. Increases in home ownership rates will brokers can earn are limited. This
method of funding increases
result in increases in mortgage loan originations. In addition,
profitability by utilizing available
decreases in interest rates could be expected to result in Warehouse Unes to fund your CUlT'
increases in mortgage loan originations as well as refinancings. production into the secondary marl
The regulatory marketplace is making it increasingly difficult for No more need for the Disclosure of
the traditional mortgage broker to remain in business. Regulators service Release Premiums on the ~
continue to pass legislation and place constraints on the broker 1 Settlement statement as reqUirE!!
RESPA. Since you are closing the Ie
in relation to the fees that are coUected versus the service that is in your own name, your company i
being prOVided. The regulatory bodies have interpreted the role exempted from RESPA to diSclose t
of a mortgage banker as being one that is at risk to the market SRP's, unlike table funded transact
because a loan is closed in the bankers name utilizing a
warehouse line. This is causing the more established brokers to Your company gets to earn the intE
seek a warehouse line facility and is the fastest growing segment of the note rate during the wareho
of the mortgage banking customer base. period, which makes up for most 0
of the interest that you are paying
the facility.
The two most common issues that make it difficult for the broker
to obtain warehousing through traditional sources is that 0) Your company gets to control the E
brokers do not maintain the minimum net worth requirement of settlement and funding date of the
large warehouse lenders, Oil brokers do not want to use a line closing. This eliminates the worry (
that requires them to sell exclusively to a certain investor. These promised wires from your table fur
brokers need the training, assistance and fonow through that we lenders, which rarely arrive on tim.
have been providing for years. Bank lending institutions famili~r Enables your company to grow at ;
) with mortgage lending discovered an opportunity to provide faster pace. Growth is limited witt
quality originators with credit facility secured by the underlying the use of a warehouse line.
Vval 01 IVU:JO LII It:::! IVIVI lye::tyt:::! Lt:=1 lUll Iy .-1 U~:s:s f"'age ~ or ~
mortgage with rates of returns that were attractive to the banks.
As state earlier, the traditional method of funding these loans is

the use of a mortgage warehouse line. The funding source, (the
'Warehouse Lender or Bankj, generally offers the necessary
funds through a revolving purchase agreement to a mortgage
banking company fo' funding mortgages at closing. All of the
loans are pre-sold in the secondary market to large institutional
investors, many of which are New York Stock Exchange listed
companies. The warehouse line funding covers approximately a .
15 to 30 day period between loan closing and the sale of the
loans to the end institutional investor.
Interest is paid on each transaction on the number of days the

warehouse lender holds the mortgage loan, from the original
funding date to the date the funds are received from the
mortgage purchaser. The rate charged is Wan Street Prime plus
a negotiated margin as well as a per transaction fee to cover
administrative and other related expenses including the wire fee,
ovemights, and the custodial fee.
Many recent changes concerning RESPA's disclosure of service

release premiums coupled with the additional earning power of
brokers has caused a great demand for warehouse lines. It is
extremely difficult to grow a business with limited warehousing
capabilities, and many smaller mortgage firms have expanded
and ultimately need these warehouse lines to enhance their
mortgage activities.
Copyright © 2004 • WarehouseLine, Ltd•• All Rights Reserved

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WAR£IOUSELINE
.. Get Started
Online
or call tott·free
(BOO) 5 lB·0099
Warehouse lll~~in~~rJri~s~<
The objective to both the warehouse lender and the mortgage Benefits and Advantages
company is to create a profitable business relationship. The
warehouse lender can make secure loans approved and Establishes a reputation for your
company with consumers, builders
underwritten according to various agency guidelines, and the brokers and real estate agents to c
mortgage company will be able to make a profitable spread on and fund loans in your own name.
each mortgage used by this warehouse line. fund within 24 hours of request an,
most cases, funds can be sent the
To make the warehouse lender secure, it must have three items: day of receipt of your information.
method of funding helps keep both
customers and agents content by
1. A marketable first lien mortgage in which it can obtain paying for the entire transaction at
unrestricted title. closing.
2. The mortgage to be pre-sold to a permanent mortgage Correspondent and wholesale lend.

investor limiting the time exposure to the lender. typically pay more for closed loans
well as charging you less fees. The
brokers can eam are limited. This
3. Complete control of the funds on the sale to the method of funding increases
permanent investor. profitability by utilizing available
Warehouse Unes to fund your curro
The loans are approved prior to funding and specific closing production into the secondary marl
instructions are given to the title companies instructing them to No more need for the Disclosure of
close the loan only when the mortgage is a first lien with a good Service Release Premiums on the ~
and marketable title. In addition, prior to closing, the mortgage 1 Settlement statement as requirec
will be pre-sold with a written commitment in possession from an RESPA. Since you are closing the Ie
approved third party investor. After closing, the mortgage is sold in your own name, your company i
to the permanent investor, and all monies from the sale will go exempted from RESPA to disclose t
directly to the warehouse lender for dispersal. SRP's, unlike table funded transact
Your company gets to earn the intE

Under our current program, the warehouse lender will advance of the note rate dUring the wareho
up to a maximum of 100% of the loan amounts which are to be period, which makes up for most 0
purchased by third party companies or Which are to be pooled. of the interest that you are paying
the facility.
The first stage of a mortgage loan is for the mortgage banker to
take a loan application from the hornebuyer. The mortgage Your company gets to control the l:
settlement and funding date of the
banker then secures an investor in the secondary market. The closing. This eliminates the worry (
loan is then processed and submitted to underwriting for promised wires from your table fur
approval. Once the loan is approved, it is then sent to closing. lenders, which rarely arrive on tim.
Copyright © 2004 . WarehouseLine, Ltd•. All Rights Reserved Enables your company to grow at;
faster pace. Growth is limited witt
the use of a warehouse line.
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WAREHOUSEUNE
• Get Started
Online
or coil lon-free
(800) 518-0099
Below is a brief explanation of the funding process between our Approved Mortgage loan
company and the mortgage correspondent. In order to start the
mortgage funding process with the mortgage company, proper Infle$fOr list
documentation must be sent to us prior to funding each individual
loan. Bank One NYSE: 01
Chase Mortgage NYSE: JF
CitiMortgage NYSE:C
Countrywide NYSE: CI
Funding Procedures for Mortgage loans Credit Suisse NYSE: C
First Horizon NYSE: F1
F1agstar Bank NYSE: FE
1. Request for purchase detailing summary of transaction Fannie Mae NYSE: FI'
from mortgage company. GMAC NYSE:G
Greenpoint Mortgage NYSE: GI
2. Required documents to fund: Indy Mac Bank NYSE: NI
Interfirst NYSE: AI
National Oty Mortgage NYSE: N(
A., Completed loan application (Form 1003) Ohio Savings Bank NYSE: 01
a. Appraisal - iirst two pages Principal Financial NYSE: Pf
C. Firm Commitment by D.E. Underwriter (FHA), VA PrOVident Financial NASD: PI
Loan Analysis by VA Automatic Underwriter 0/A), RBMG NASD:N
Investor Underwriter, LP or DU approvals from Regions Mortgage NYSE: RI
authorized channels (FNMA, FHLMC) SIB Mortgage NYSE: 51
D. Copy of Borrower's credit report Union Planters NYSE: UI
US Bank NYSE: U~
E. Insured closing letter in the name ofthe originator Wacnovia NYSE: W
from the title company Washington Mutual NYSE: W
F. ~ringinstructions Wells Fargo - NYSE: W
G. Copy of hazard insurance policy or binder of
coverage
H. Flood certification
I. Mortgage insurance or guaranty, certificate of
eligibility (if applicab\e)
J. Purchase commitment from investor - investor lock
3. Funds are wired directly to the closing agent along with

specific funding instructions.
4. Closing agent is to fax a copy of the signed note on the

date of the closing, and overnight the following documents
to us within 24 hours.
)
A. Original signed note
vvarenouse Line lVIortgage LenOlflY 1"\~4UH '='III'='IIL;:)
B. Certified copy of deed of trust

C. Copy of title commitment
D. Copy of HUD-1
E. Copy of Truth-In-Lending
Endorsement and flow of Documents
1. Original signed note is to be sent directly from the closing

agent back to the bank. The note is to be endorsed in
blank.
2. Original Assignment of Deed of Trust in blank, plus the

assignment to investor is sent with the note to us. We hold
the assignment until the note is paid and then returns it to
the mortgage company for recording the original
assignment to the investor.
Collection of tllEt Note
1. Upon receipt of note and assignment from the closing

agent, a bailee letter is prepared and is sent with the note
to the investor for payment.
2. We book the loan at the negotiated rate.
Payoff Procedures
1. Funds win be wired to us from the investor.
2. The investor is tQ send the purchase advice confirming the

borrower that is paying off.
3. Calculate the payoff from the date of closing to date of

receipt of wire.
4. Credit loan for payoff amount at the negotiated rate.
5. Credit the loan income account for the difference between

the negotiated rate and NYP plus the negotiated rate.
6. We deduct the appropriate fees from the wire and

deposits into the mortgage company loan income account.
7. Credit the mortgage company operating account for the

remainder of the wire.
8. Make a copy of the transaction and fax or e-mail it to the

mortgage company for their records.
vvarenouse Line IViongi::lgtJ LtJllUlIlY nt::\.lUII t::111t::1 Il~ . -;:,- - _. -
Copyright © 2004 . WarehouseLine, Ltd.. All Rights Reserved
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WAREIIOUSEUNE
.. Get Started
Online
or coli toll-free
(800) 518..Q099
;::-<;'.< :.:: ,:::.
SigftUPf~rthe<~~D~~in'
Approval Requirements h
Thank you for requesting more information about becoming part
of our mortgage warehouse funding program. In order to be
Wareh'ouse PrlJgram
contacted by one of our representatives, please complete the
Correspondent application
following basic information.
Copy of state licenses (if applicablE
1M! require correspondents to maintain a minimum audited net
worth of $250,000, have 2 years in the mortgage business, and a Resumes of principal officer,
monthly volume of $2,000,000 in production. underwriters, etc.
FNMA, GNMA, FHLMC, FHA or VA

approvals
* All information is required.
Background check authorizations 0
Company Name: .... I~, principals
Address: L (2 Years) Corporate audited & mos

Ir--,----- recent interims & personal financia
statements
City: (2 Years) Corporate federal tax ret

I
Ir--" ..;;;;..; .......
State:
Zip Code: Ir---------- Names of other warehouse lenders
Contact Person: I Copy of articles of incorporation an

bylaws
Audited Net Worth: $1 Quality control procedures and resl
Phone Number: ,-
......,;.;"..;;;;;;..;;,;;...;,;;".;;.;.'";;.;.";,;;"...;,;;,.'.......,
,;..;. ; ; ;, ,......;;.;.,,
.; ,; ...;,;;........;;;;.;;.. of last audit
Fax Number: L Copy of E & 0 and fidelity bond

Email Address: 1-.., ,-,- -------- insurance policy at $300,000 each
Banking references to included nar

and addresses
Ust of secondary market investors
Copyright © 2004 . WarehouseLine, Ltd.• All Rights Reserved 90-Day pipeline report for producti
Brief company history with list of a

loan officers
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Warehouse Lines
Existing
\lVhen a company's warehouse lines are maxed out, that
company can't grow. This problem has one of two origins:
either the company is experiencing poor warehouse utiflzation
(that is, not turning the line a sufficient number of times in a
'---- -----' month) or the company's leverage ratio has exceeded the
credit proVider's limits. MBSO is ti"equently called upon by
• mortgage lenders to overcome the origins of inefficient warehouse

utilization and
• warehouse lenders to assist their customers in improving loan sale
processes in order to improve warehouse utilization.
MBSO first reviews internal issues that may be inhibiting increased funding
capacity before pursuing additional warehouse lines. If it is determined that
additional lines are necessary, MBSO knows the major warehouse lenders and
can help negotiate favorable terms, usually better than if the company were to do
so directly.
For more mature companies, gestation andlor repe lines may be a solution.
MBSO can assist in finding and establishing these types of lines of credit.
New
The proposed HUO ruling will require mortgage brokers to fund loans on a
warehouse line in order to earn yield-spread premiums. MBSO can assist
qualified mortgage brokers in obtaining warehouse lines. MBSO realizes,
however, that such warehouse lines are like loaded guns: without the proper
systems and procedures for timely sale of loans, the company could easily shoot
itself in the foot. MBSO will work with the company to ensure implementation of
systems and procedures that ensure efficient utilization of the line and maximal
profit margins.
Secondary Marketing/Loan Trading
)
n ix
!.:J
Even the most well-run companies will be presented with
serious investor related issues. Investors have been known to
reneg on forward commitments or change the terms of a
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forward commitment. Mortgage companies, even the best of

them, have been known to make mistakes that can jeopardize their investor
relationships. MBSO can help. After 30 years of experience, there are few
investors MBSD doesn't know or hasn't interacted with extensively.
Beyond problem areas, MBSO specializes in the area of secondary marketing as

it relates to trading whole loans or poolsJbulks. This includes all residenflalloan
products-ItA" paper Agency, "0" credit, sUb-prime, scratch and dent, and non-
performing-in the first, second, and third lien positions.
A common frustration of many CEOs is not knowing if their loan trades are being
executed at the highest possible levels. A common frustration of many secondary
marketing executives is CEOs beating them up even when they know they have
executed the best possible levels. MBSD can assist the CEO and the secondary
executive by working constructively with both to ensure that the best is being
accomplished for the company. VVhafs "best" for a company is where MBSO can
bring value to almost any organization. The key is to gain maximum execution
without sacrificing the company's long-term well-being.
I MBSO can assist in gaining maximum execution by improving

a company's gain on sale through introducing new investors,
working with existing investors to negotiate better forward
commitments, or expanding/growing the company's
secondary marketing operation to new levels, which could go
L- ----' as far as moving the company towards securitizations.
I C:lUIt:# VI ,",VI Ilt:#1 Il;:) rCl~'C I VI V
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Table of Contents
1. ~. ~_~"9rt~~gk~Qg~~l
2. H9W~_W~~QQ~U~.wq~1
3. Can I become a Corr~ndent with my key Investors?
4. Wbat~ of Warehouse lines are ~ ?
5. lNhat does it take to get a Warehouse line ?
6. Wh~t areJb~ 1() ffiQ!it importantql.JestiQn~L~bQ.y.l~a$-'t'~
7. Is it really worth the all the trouble?
8. How do I get a Warehouse line?
Mortgage Banking is a process of originating and gathering loans, then selling them to large investors who wraps them together into
pools where they are reviewed, graded, insured, and securitized into Bonds. These Mortgage Backed Securities are sold to Institutional
and Individual Investors whose cash is traded for the security, which provides for the process to complete its drele and repeat itself.
The key to the Mortgage Banking process is cash flow. Cash flow is the lifeblood, which gives the Mortgage Banker the ability to
originate; process, package, and deliver dosed loans through Correspondent relationships to investors based on their underwriting
criteria
Back to TOD
)
I
How do Warehouse Lines work?
A Warehouse Line is a Credit Line used to fund loans at the closing table. The mortgage loan is originated and underwritten to investor
standards based on sound QC procedures, then it is delivered to the Warehouse Lender in exchange for funding the dosing of the
mortgage note. The note is carried or housed on the Warehouse Line for a period of time (usually 7 to 21 days) until it is called for
delivery to the investor. After the investor wires funds to the Warehouse Lender to purchase the loan, an accounting is done to
reconcile the cost and fees for the line, and !:hen the proceeds including the Service R.elease Premium are forwarded into the account of
the Mortgage Banker. The process of moving notes on &. off the line is called the monthly flow.
I\s a Mortgage Banker with a Warehouse nne you wi" be nwo\ved \n a dose re\at\onsh\p with the Warehouser and you wi" be
responsible for many closing & logistical functions. You must deliver dosed loans to your investor. Those loans must be funded and
shipped along with the dosing documents and delivered to Escrow and the Warehouser. The payoffs must be calculated, the wires or
checks must be made, and the exceptions and problems must be recondled in order to take the loan off the line and deliver the loan to
the investor
Back to Top
, L . I- - - -11.
Can I become a Correspondent with my key Investors?
As a Mortgage Banker you can take advantage of full Correspondent pricing with your most important investors. Since you are now
selling closed loans, you receive better pridng and services release premiums, as you are taking the responsibility of underwriting,
packaging, and delivering the notes to the Investor. You will need to complete a correspondent agreement You may be required to
have a Fidelity Bond and Errors &. Omisslons insurance to warrant your adherence to underwriting standards and QC procedures of the
I ClUII:' VI \,IVI IlI:'I Il~ J-Iage L aT ~
Tnvestors you sell to.
~ck to Top
What types of Warehouse Unes are there?
There are basically two types of Warehouse lines; Affinity lines &. Non directed Iines.Affinity lines are essentially Warehouse programs
that investors provide to their key originators. These Affinity lines provide for the funding of loans to that particular Investor and
generally only a handful of other Investors. Affinity lines may have slightly lower costs and provide ways to pass on rebates. However,
you may be limited to the product types allowed on the line and you may be required to place a certain percentage of business with
the provider of the line or be subject to additional fees. You may be charged a premium if you are allowed to place other loans on your
line to be sold to other Investors, which limits your flexibility. Most of these lines have a 1 to 5% haircut that requires you to have to
come up with some of your own funds in order to close each loan.
Non-directed lines are pure Warehouse credit facilities. These Non-directed lines tend to operate with greater flexibility. You generally
have more choices with the investors used, the time spent on the line and the number of product types available to fund on the line.
You may have the ability to do third party origination's (wholesale) and bulk loans on certain types of lines. This ability is very
important to originators of Sub Prime product. Non-elirected lines tend to operate more efficiently, although they may cost slightly
more.
\JVhat does it take to get a Warehouse line?
The requirements for securing a Warehouse line are getting easier. Your volume, reputation, QC procedures and packaging abilities
are becoming more important than your financia·1 statement and net worth. You need to find a Warehouse lender that gives you the
best mix of options, costs, and execution. Consideration must be made for the documentation required to fund, the execution you get,
and the product flexibility you receive, versus the line rates, transaction fees, wire fees, advance rates, the number of investors and
program types you am fund on your new line.
What are the 10 most important question I should ask?
1. Do I have to personally guarantee the line?
2. Do you have a haircut on fundings to the line?
3. Is this an Affinity or Non-directed line?
4. What is your minimum Net Worth requirements? Audited or Non-Audited?
5. What product types do you allow to be funded on the line? Any Investor limitations?
6. What documents do you require to fund a loan?
What are your line fees &. transaction costs? Are they negotiable?
I ClUIt:J UI vUlll~lll"
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') 8. Do you allow third party (wholesale) origination's to be funded on the line? .-.
9. What kind of training do you offer? How will you help me get started?
10. can I speak to someone currently using your Warehouse fadlity as a reference?
Is it really worth all the trouble?
There are many rewards for making this transition into Mortgage Banking with a Warehouse line. First of all you get the satisfaction
and esteem assodated with being a Mortgage Banker. You have greater flexibility and more choices of where and who to sell loans to.
You receive greater profits now that you get to keep all the administrative fees and service release premiums. Some Mortgage Brokers
specializing in SUb-prime paper have been able to add several points to their bottom line once they make the move to Morlqage Banker
using a Warehouse line. But the most important reason is control. You will control the dosing process and not be at the mercy of the
funding department of some large Investor.
How do I get a Warehouse line?
There are over 30 institutions offering Warehouse Unes of Credit for Mortgage Brokers and Bankers. You should ask your wholesale
) reps, read industry periodicals, consult with industry professionals and search the Internet for viable choices. The road to finding and
choosing the right Warehouse Lender has many twists and turns but if you are determined and prepared it has many benefits that can
make the journey well worthwhile.
To contact us call us at 714-854-0222 or email us [email protected] for further information or to fax you an
application.
Copyrlght@ 1999 National Mortgage capital COrporation. All rights reserved.

Revised: August 14, 2001 •
I
El FAQ
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UIILlUl:::U t"Clg6 I or L
Warehouse Lenders
As Production Booms, So Does Warehousing
But Some Are Leaving the Niche
As the primary market goes, so goes the warehouse lending business. In 2002 mortgage bankers wrote a record $2.7
trillion in residential loans, a 34% increase from the year before (also a record year.) Meanwhile, according to figures
compiled for this book warehouse lenders had $55.2 bilUon in commitments on their books at year-end, a 15% gain from
year-end 2001.
'Mty didn't the warehouse gains mirror the production gains? A
0 few reasons, actually. In the primary production market, mega-
banks and thrifts ike Wells Fargo, Washington Mutual,
Countrywide, Chase Home, and ABN Amro control so much of
the market that there's less opportunity for warehouse Ienders to
provide funding to non-depository mortgage bankers. In short,
banks and thrifts don't need warehouse lines because most of
them use deposits to fund mortgage production. (There are
exceptions to this rule.)
Then again, that doesn't explain why the warehouse rnarket
leader, RFC-GMAC of Bethesda, Md., had a record year in 2002.
Of course, mortgage banking can be tricky business, on e that is
not always so easy to understand and explain.
Yes,
EJ there are
less, non-
depositori,
around
than
there
were 10
years
ago. But
when it
comes to mortgage lenders (mortgage bankers, banks, S&Ls, credit unions) the number of institutions in operation hasn't
declined a whole lot over the past five years. For instance, 7,631 non-depositories were in existence at the beginning of
2002 compared to 7,837 five years ago, according to Home Mortgage Disclosure Act figures compiled by the Federal
Reserve. Thafs a difference of just 206 lenders.
The chief problem facing the warehouse lending s~ctor is the shrinking base of non-depositories. The nation's largest
non-depository of all time, Countrywide Home Loans, isn't even a true non-depository any more. Three years ago
Countrywide bought a small bank and at last check it had already racked up $7 billion in deposits. So much for being a
non-depository.
Warehouse providers also have been hurt by
the rise of the commercial paper market as a
funding alternative, and Wall Street, once again,
pushing hard in the "gestation repe" market.
(Most Wall Street firms declined to participate in
the survey for this book, not surprising
considering what Wall Street has been through
over the past two years.)
Despite these caveats, some warehouse
lenders had great years in 2002, including RFC-
GMAC (up 22% in commitments), First
Collateral of Concord, Calif., (up 61 % and now
owned by Citigroup), Comerica (up 45%), HSBC
Hordings (up 26%), and Washington Mutuar.
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untitled Page 2 of2
What's Ahead?
so, will the warehouse niche crash and burn in 2004? Not likely. 'Mil there be even less non-depositories to lend to?
Perhaps not. According to RFC-GMAC warehouse executive Larry Pendleton, there's still, "plenty of mortgage bankers
out there" who need warehouse credit.
Over the past few years a lot has been said - and written - about cons06dation in the mortgage banking sector and what
it means for lenders and servicers. Mr. Pendleton, for one, doesn't think, consolidation is a key issue and GMAC-RFC's
warehouse division (of which he's part) has plenty of cllenis. (See the company's profile In this chapter.)
For now, the company's warehouse unit is doing quite well with commitments totaling about $14 billion, ranking first in the
industry. Its outstandings (lines drawn upon) total $9.5 billion. "Our all time high was about $10.5 billion on outstandings,"
said Mr. PendJeton.
In total, GMAC-RFC has 160 or so single- and multi-family warehouse clients. Some are actually depositories. (It lends to
firms that have a minimum net worth of $1 million. Its minimum warehouse line is $10 million.)
The company's goal is to not only lend money to mortgage bankers but to partner with them by offering investment
banking-like services. Besides warehouse lines, GMAC-RFC will bUy the production it warehouses and acquire equity
stakes in certain mortgage banking clients. This is a model that other warehouse lenders might consider copying. But will
they? Ifs hard to say.
There has been a ton of consolidation in the warehouse niche over the past five years. Quite a few firms got burned
during the subprime meltdown of 1998-2000 and exited the business entirely. But now that the subprime sector appears
. to be healthier than ever will new warehouse lenders enter the market? Will warehousers begin to extend lines down the
} credit scale, including loan brokers in their customer base? Never say never.
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~ Free loan and credit adv.ce
[iJ Action canceled

Commercial Consumer Story Archive Disclaime
Warehouse lending and Mortgage Banking PAID UNKS
Definition of Warehouse lending and its role in the home

owning experience.
Business loans
articles
In the last couple of weeks, I have been fortunate or unfortunate (I am not sure yet) to be
exposed to warehouse line of credit lending. With the move from a big community bank to a really ~uccessful business (
big community bank on the brink of becoming a major regional force, I have been exposed to 6-'J§il'les~JlmLQf cr~di1
some types of credit that my prior employer was averse to taking. ~~?Jlc:Qn:l[~rsLQ!LC;Y~~
UCAJ~~sh.fl~w.J:!-Xplc
Before you go any further let me warn you that the reading will surely become boring. Unless you Traditional Cash Flow
are in the mortgage industry or somehow you are one ofthose people that is interested in .t:xpoJ:.tExpress SBA
knowing every single detail of the financial transaction that is the closing of a residential mortgage ~hanges
1an.
First lets start with a simple definition of warehouse lending:

Commercial real
Warehouse lending is a specialized type of lending that commercial banks and other finance
institutions provide to companies involved in the mortgage banking business. The loan that was
estate articles
closed with XYZ finance company or the small community bank will get funded with money
provided by this credit facility and the documentation will be sent to the institution that has the 6!!1Q.r:tl~tion loall
warehouse lending facility to act as collateral for the line of credit. 52alclJJ~lQ[
Financing real estate
basic§.
I am sure that by now you are very confused; after all if you go to say "Little Main Street Bank" in
rental financing exam
your neighborhood, you might think that as a home buyer you are only dealing with "Little Main
Street Bank" to get your loan. Well chances are that you are incorrect. That little bank might
provide you with good service and a competitive rate, but they are usually not that interested in
keeping your loan. Small and medium sized banks make more money in the origination fees and
selling your loan to an investor right away or they might work in coordination with a mortgage Consumer loans
banking company to sell the loan to them at the same time that it is being closed. The act of
buying the loan from the originator at the same time that the closing of the loan happens is called articles
''table buying" or ''table financing".
Personal cash flow
It works essentially the same way with the mortgage brokers. Usually mortgage brokers can not ~.xplaine...Q
afford to fund the loans themselves. A small one-man operation would be hard pressed to keep a ~on~Ym~r loans
old-archives
million dollars in order to fund six closings and wait for the investor to purchase the loans. A
mortgage broker simply can't operate that way. He needs financing and he needs it in place
before he can fund.
~ssentiai(y the funding of your mortgage ioan couid be accompiished with a iarge cast invoived.
rhe following is a hypothetical closing describing all of the financing players that could be
vvarenou:st:: It::rtU Illy i::Il IU IVIVI l~C1~l:: UCII 1f\.11 I~
-
involved:
1) Mortgage broker closes the loan.

--
2) Mortgage banking company buys the loan at the time of closing.
3) Bank funds Mortgage banking company using the warehousing line.
4) Investor Company buys the loan as part of a pool of loans sold by Mortgage banking company.
5) individual or corporate investor buys bonds sold by the investor companies in the secondary
market.
Con~nue reading more on the SUbject of Mortgage lending behind the scenes:
Go to Fraud in Warehouse lending

Go to The rol~ of Investors in mortgage lending.
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11- 1- 1- '-----r-U'-------l---------
o Products
o Traditional Approval Process

o Traditional Table Fund Approval Process
o Enhanced Table Fund Approval Process
o Home Equity Approval Process
The Table Funding Option allows Broker Originators approved for the Wholesale Traditional Option to originate, process, close and reex
loans in their name. As an added benefit, Wells Fargo Home Mortgage prepares the closing package in the name of the Broker Origina
Wells Fargo also allows the broker to use a previously approved third party document preparation company. The loan is underwritten b)
Wells Fargo, funded in the brokerJlender's name and assigned to Wells Fargo Home Mortgage at the closing table. This provides a smo
transition, while saving time and money. The Traditional Table Funding option is tailored to meet the needs of Broker Originators who v
to maintain strong customer reJationships by dosing loans in their own name.
Loan Program Approval Requirements
o Completed Standard Broker Approval Package

o Proof of Licensure
o For FHA Loan submission approval, FHA required documentation
o For VA Loan submission, VA required documentation
Head rtf€; [jiSCi8h'TJer

@2003Wells Fargo Wholesale Lending, Inc. and Wells Fargo Home Equity, a division of Wells Fargo Bank, NA,
Member FDIC
)
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o:,~~~~~, ~~~~~:~B;,~~ROMISSORY imultaneous Closings and Table Funding

I.-------------'By: Ed Willey. CMA
"Simultaneous closings" or "table funding" are terms to describe a transaction
where the property owner carries back or "finances" the purchaser with the
intention of selling the "financing" (usually a promissory note and deed of trust
or mortgage) for cash immediately upon closing. Using the term "Seller
Financing" gives your property extra appeal over other properties for sale. It
allows property owners to capitalize on the increased interest by selling to
buyers who normally would not qua\ify for traditional bank financing.
Professional real estate investors have long since learned that this is a hassle
free way to get their properties sold fast so that they can get to the next deal.
The costs are about the same as a regular bank loan closing without the red
tape of conventional loan qualifying. These costs can even be worked into your
deal by adjusting the terms of your mortgage note. Simultaneous closings are
not for everyone but more people will qualify for this type of program than with a
traditional bank loan. Although called a simultaneous closing the carry back
note is actually sold and transferred after the real estate closing and title has
transferred. This happens for all practical purposes as "simultaneous" but is in
reality a two step transaction.
There are a number of advantages to the seller of the property to have his carry
back note purchased at closing all of which include cash to the seller to use as
he/she desires and not have to worry about future collections. The technique is
a very effective way to generate funds for the purchase of the property and
reduce the need for institutional involvement and/or additional cash on the part
of the purchaser. Sellers have an additional tool to help sell their property and
buyers have an additional method of financing facilitating the transfer of the
property and enable both parties to come away as winners.
. Once a property seller and purchaser have negotiated terms and price a note
investor can provide a quote reflecting the amount they would be willing to
invest or pay for the note and lien SUbsequent to closing. An investor generally
does not get involved in the actual negotiations of terms, however, they may
provide guidelines of what they would be willing to invest under certain
circumstances. All parties must clearly recognize that the investor is purchasing
a note and not creating a loan.
There are many factors that go into establishing the value of the promissory
note. Keeping proper records of how the note was created is an essential one.
For other questions regarding promissory note valuations feel free to contact
me.
Ed is a Certified Mortgage Appraiser and has been appraising and purchasing

promissory notes and security interests for over 20 years.
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MAE Financial COrp

POBox 2211
835 2nd Ave., Suite 230
Durango, CO 81302 PhoneJfax: 970·247·1298
Email: m!Q@MAEFjr)-"!m<!....t.com
Website: WNW.maefinancial.com
C 2003 MAe Financial Corp., AU Rights Reserved

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~ ABC's of Real Estate
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- guide lor real estate and
Home I Buying I selling I Local Sites I Mortgage I Calculators I Ubrary I Top 100 I Agent Tools
Types of Mortgage Lenders
Porfolio lenders
An institution which is lending their own money and originating loans for itself is called a
"portfolio lender." This is because they are lending for their own portfolio of loans and not
worried about being able to immediately sell them on the secondary market Because of this,
they don't have to obey Fannie/Freddie guidelines and can create their own rules for
determining credit worthiness.. Usually these institutions are larger banks and savings &
loans.
Quite often only a portion of their loan programs are "portfolio" product If they are offering
fixed rate loans or government loans, they are certainly engaging in mortgage banking as well
as portfolio lending.
Once a borrower has made the payments on a portfolio loan for over a year without any late
payments, the loan is considered to be "seasoned." Once a loan has a track history of timely
payments it becomes marketable, even if it does not meet FreddielFannie guidelines.
Selling these "seasoned' loans frees up more money for the "portfolio" lender to make more
loans, which is another way that portfolio lenders engage in mortgage banking. If the loans are
sold, they are packaged into pools and sold on the secondary market You will probably not
even realize your loan is sold because, quite lil<ely, you wilt stilt mal<e your loan payments to
the same lender, which has now become your "servicer."
Direct Lenders
Lenders are considered to be direct lenders if they fund their own loans. A "direct lender" can
range anywhere from the biggest lender to a very tiny one. Banks and savings & loans
obViously have deposits they can use to fund loans with, but they usually use ''warehouse lines
of credle' from which they draw the money to fund the loans. Smaller institutions also have
warehouse lines of credit from which they draw money to fund loans.
Direct lenders usually fit into the category of mortgage bankers or portfolio lenders, but not
always.
One way you used to be able to distinguish a direct lender was from the fact that the loan
documents were drawn up in their name, but this is no longer the case. Even the tiniest
mortgage broker can make arrangements to fund loans in their own name.
Correspondents
Correspondent is usually a term that refers to a company which originates and closes home
loans in their own name, then instead of selling those loans in pools, they sell them indiVidually
to a larger lender, called a sponsor. The sponsor acts as the mortgage banker, re-selling the
loan to Ginnie Mae, Fannie Mae, or Freddie Mac as part of a pool.
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-
The correspondent may fund the loans themselves or funding may take place from the larger
company. Either way, the loan is usually underwritten by the sponsor. --
It is almost like being a mortgage broker, except that there is usually a very strong relationship
between the correspondent and their sponsor.
Banks and Savings & loans - Banks and Savings & loans - Banks and savings & loans
usually operate as portfolio lenders, mortgage bankers, or some combination of both.
Credit Unions - Credit Unions usually seem to operate as correspondents, although a large
one could act as a portfolio lender or a mortgage banker.
copyright 1999 by Terry Light and RealEstate ABC. modified 2002
Advantages and Disadvantages of the Different Lenders
Mortgage Articles" Advice
Contact Us
Last modified: June 18,2003

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Related Quote
Press Release
Fleetwood Enterprises Secures $75 Million Warehouse Line of

Source: Fleetwood Enterprises, Inc.
~~lf~r~ fl'Tl
l10n Tue bled Too Fr i
Credit 12.20
Monday January 5. 7:30 am ET
HomeOne Subsidiary to Increase Financing to Its Manufactured Housing Retail Delayed 20 mins
Quote data provided by Reuters
Customers
Related News Stories
RIVERSIDE, Calif., Jan. 5/PRNewswire-FirstCaU/- Fleetwood Enterprises, Inc. (NYSE: ), the
nation's leader in recreational vehicle sales and a leading producer and retailer of manufactured housing,
- PR
announced today that its HomeOne Credit Corp. subsidiary has secured a new $75 million warehouse line of Newswire (Frl Jan 30)
credit with Greenwich Capital Financial Products, Inc. Through this facility, Greenwich will advance funding to
HomeOne based on the value of the manufactured housing loans that HomeOne contributes into the facility.
- Reuters (TlIu Jan 29)
HomeOne offers loans to customers of both Company-owned and selected independent manufactured
housing retail stores.
.Joyd R. Plowman, executive vice president and chief financial oflicer of Fleetwood, said, "Closely following - PR Newswlre (TlIu Jan 29)
the recent highly successful $100 million offering of our 5% convertible senior subordinated debentures, this
new facility with Greenwich Capital will provide further liquidity, and will greatly enhance HomeOne's ability to -Dow
provide financing solutions to the retail customers of our Fleetwood Housing Group.- Jones Business News (Frl Jan 23)
This press release contains certain forward-looking statements and information based on the beliefs of
Fleetwood's management as well as assumptions made by, and information currently available to,
Fleetwood's management. Such statements reflect the current views of Fleetwood with respect to future • By industry:
events and are SUbject to certain risks, uncertainties, and assumptions, including risk factors identified in
Fleetwood's 1C-K and other SEC filings. These risk factors include, without limitation, the cyclical nature of
both the manufactured housing and recreational vehicle industries; ongoing weakness in the manufactured Top Stories
housing market; the potential impact on demand for our products as a result of changes in consumer
confidence levels; continued acceptance of the Company's products; expenses and uncertainties associated
with the introduction and manufacturing of new products; the availabillty of manufactured housing wholesale - Reuters (8:24 pm)
and retail financing in the future; changes in retail inventory levels in the manufactured housing and
recreational vehicle industries; competitive pricing pressures; the ability to attract and retain quality dealers, _Reuters (5:12 pm)
executive officers and other personnel; and the ability to obtain the financing we need in order to execute our
business strategy. Actual results, events and performance may differ materially. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as of the date hereof. - Reuters (8:12 pm)
Fleetwood undertakes no obligation to release publicly the result of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date hereof or to reflect the - Reuters (8:53 am)
occurrence of unanticipated events.
Contact: Lyle Larkin, vice president, Treasurer, +1-909-351-3535, or

Kathy A. Munson, Director-Investor Relations, +1-909-351-3650,
both of Fleetwood Enterprises, Inc.
Source: Fleetwood Enterprises, Inc.

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Copyright C 2004 . All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of
PRNewswire. PRNewswire shaD not be liable for any errors or delays in the content, or for any actions taken in re6ance thereon.
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Type: Bookletter
BL-D19
Farm Credit System Mortgage Loan Transactions
Old/AdditionallD: (Original # 403-0E)
December 23, 1994
To: Chainnan, Board of Directors

The Chief Executive Officer
All Farm Credit Institutions
From: Marsha P. Martin, Chairman

Farm Credit Administration Board
Subject: F arm Credit Sy!>1em Mortgage Loan Transactions.
The Farm Credit Administration (FCA) has recently received several questions from Farm Credit System (FCS or System) banks and
associations about the scope of their authority to originate and sell loans into various secondary markets. Farm Credit banks and
associations have specifically inquired about whether the Farm Credit Act of 1971, as amended, (Act) authorizes them to: (1) "table
fund" loans as closing and/or servicing agents for any non-System institution that is a certified agricultural mortgage marketing
)ility (certified pooler) for the Federal Agricultural Mortgage Corporation (Farmer Mac); (2) act as closing agents for non-System
...:nders outside ()fthe FarmerMac·context; and(3)~sell their non-farmmral homeloans to· the FederalNationaLMortgage Association
(FNMA or Fannie Mae) or the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). Related questions have also
arisen regarding when statutory and regulatory provisions governing stock purchases, borrower rights, and loan disclosures apply to
loans that System lenders originate for sale to established secondary markets. This bookletter is intended to provide guidance to the
FCS and convey the FCA's expectations for compliance with applicable statutory and regulatory requirements.
Sale of FCS Loans to Certified Farmer Mac Poolers
Farm Credit Banks (FCBs), agricultural credit banks (ACBs), and their affiliated associations (collectively referred to as FCSIs)l are
authorized by sections 1.5(24), 2.2(21), and 2.12(22) of the Act to operate as originators and become certified facilities under title
VIII. The legislative history to these provisions states that Congress granted FCBs, ACBs, and their affiliated associations the powers
to: (1) sell their own loans to a certified Farmer Mac pooler; (2) become certified Farmer Mac poolers, and (3) contract with non-
FCSls to originate and/or pool qualified agricultural and rnral home loans for the Farmer Mac secondary market.
An FCSI must adhere to statutory and regulatory requirements pertaining to borrower stock, borrower rights, and disclosures when it
is actually the lender for a loan that is destined for the Farmer Mac secondary market. Loans that qualify for pooling are dermed under
section 8.0 of the Act. Section 4.3A of the Act and 12 CFR § 614.4335(a) require each borrower to purchase a specified amount of
stock as a condition of obtaining a loan from or through2 an FCSI. According to § 614.4335, the borrower stock requirements apply to
loans that an FCSl intends to sen to a certifled Farmer Mac pooler. Furthermore, § 614.4335(b) permits an FCSl to retire borrower
stock when a loan is sold. However, in no event may the borrower's stock be retired below the institution's minimum stock
requirement on any loan interest that is retained. Although FCA regulations do not defme the exact time that a loan is considered
"sold," the preamble to § 614.4335 supports the conclusion that a loan remains an FCSI asset until the sales transaction is complete
and the asset is no longer on the institution's books. (See 57 Fed. Reg. 38237,38245 (Aug. 24, 1992).) Consequently, loans booked by
an FCSI for sale through a commitment or agreement with a certified Farmer Mac pooler still require stock to be issued in an amount
consistent with its bylaws.
'ection 8.9(b) of the Act and § 614.4367(b) address the treatment of borrower rights for loans that FCSIs originate and subsequently
Jell to a Farmer Mac pooler. These statutory and regulatory provisions require every FCSI to inform each borrower in writing that: (1)
different terms and conditions apply to pooled loans and loans that are not pooled; (2) the borrower's loan may be pooled; (3) statutory
rvJ"\ ni::f1IUUUU,," - S DL-U I::J reI! III vi C:Ull ";'y'::'1OIII IVIVll~a~G l-VQII • I QI ."''''VUVI ,..,
-
iborrower rights do not apply to pooled loans; and (4) he or she has the right not to have the loan pooled. Within 3 days after the loan
commitment is issued, the borrower may exercise his or her right to refuse to have the loan pooled, thereby retaining statutory
borrower rights.
FCSI Closing and Servicing Agent Arrangements with Non-System Entities that are Certified Farmer Mac Poolers
As addressed earlier, the legislative history to sections 1.5(24),2.2(21) and 2.12(22) of the Act states that these provisions enable
FCSIs to contract freely with non-FCS entities for the purpose of originating and pooling loans for the Farmer Mac secondlUY marKet.
For this reason, the FCA determines that the Act authorizes an FCSI to act as a closing andlor servicing agent for a non-FCS certified
pooler that originates qualified agricultural and rnral home loans for the Farmer Mac secondary market. Under these circumstances, an
FCB, ACB, or association is exercising its contractual authority under section 1.5(3), 2.2(3), or 2.12(3), and its incidental powers
under section 1.5(21), 2.2(20), or 2.12(20) to effectuate its express powers under section 1.5(24),2.2(21), or 2.12(22) to originate and
paolloans for Farmer Mac.
In this context, an FCSI can "table fund" loans as a closing agent3 and/or servicing agent for a non-System lender that is a certified
Farmer Mac pooler. In a "table funding" arrangement, the non-System certified pooler, not the FCSI, is the originator of the loan.
Accordingly, the non-FCS pooler funds the loan, makes all credit decisions, and assumes the credit risk on the loan (except to the
extent that the loan is guaranteed by an agency of the United States Government). In these situations, the FCSI performs perfunctory
duties of a closing agent, but does not have a direct relationship with or liability to the borrower. Statutory and regulatory borrower
rights and stock requirements do not apply to loans that FCSls "table fund" because a non-FCS institution is the lender. 4
Specific criteria must be observed to ensure that a credit relationship andlor liability to the borrower does not exist. FCBs, ACBs, and
their affiliated associations may act as closing agents on "table funded" loans for any certified Farmer Mac pooler if: (1) the pooler is
the lender of record on aU loan and title documents; (2) the pooler funds the loan; (3) the pooler makes aU credit decisions; (4) the
pooler, not the FeSI, assumes all risk of loss on that portion of the loan that is not guaranteed by a Federal Government agency; (5)
the pooler holds the subordinated interest on the loan pursuant to title VIII of the Act; (6) the pooler has no contractual right to compel
the FCSI to purchase a loan that fails to meet Farmer Mac underwriting standards;5 (7) the borrower is notified in writing that the
)pooler is the lender and the FCSI is only the closing agent on the loan; (8) the borrower is notified in writing who holds the loan
- servicing rights; and (9) the borrower is-notified in writing who has loan collection responsibilities._Again, since the FCSI actsonlyas
a closing agent in a "table funding" arrangement for a non-FCS certified pooler and never books or owns the loan, statutory and
regulato1)' borrower rights, as weD as any loan repurchase requirements, are not applicable.
Sale of Non-Farm Rural Home Loans by FCSls to Other Secondary Markets
Section 1.5(16) of the Act allows FCBs to sell their loans to non-FCS lenders. Three FCA regulations, §§ 614.4010(f)(1)(ii), 614.4030
(c)(1)(ii), and 614.4050(d)(1)(i)(B), reconcile the authorities of ACBs, Federal land credit associations (FLCAs), and agricultural
credit associations (ACAs), respectively, to sell long-term real estate loans that are made under section 1.7(a) of the Act to non-FCS
lenders. Short- and intermediate-term loans that ACAs and production "n:dit associations (PeAs) make pursuant to section l.lO(b) of
the Act can be sold indirectly to other lenders through the auspices of their funding bank.
The FCA has previously determined that non-FCS lenders include: (1) any party that extends credit in the ordinary course of its
business; and (2) Fannie Mae and Freddie Mac. (See 57 Fed. Reg. 38237,38240 (Aug. 24, 1992).) In this context, FCSls may sell
their non-farm rnral home loans6 directly or indirectly to the FNMA or the FHLMC. The borrower is required by section 4.3A of the
Act to putChase participation certificates in the FCSI at the time that the rnral home loan is made. Once the loan is actually sold., the
FCSI may retire the participation certificates so long as it remains in compliance with its permanent capital requirements. Although
section 4.14A(a)(5) exempts non-farm rural home loans from the borrower rights provisions in title IV of the Act, such loans are
subject to the requirements of the Truth-In-Lending Act, 15 U.S.C. 1601 ~. ~.
FCSI Closing Agent Arrangements Outside of the Farmer Mac Context with Non-FCS Lenders
The next question is whether FCSIs are authorized to provide closing agent services outside of the Farmer Mac context to a non-FCS
lender. FCSls do not have express authority to act as closing agents for non-FCSI lenders. Whereas FCSIs may perform closing
services for their own loans, an FCSI cannot use its incidental powers and/or contracting authority to expand its express authorities to
provide these services to other lenders fur agricultural or rural home loans.
) Some FCS banks and associations may question whether they can use their fmancially related service (FRS) authorities under section~
1.12,2.5, or 2.12(15) of the Act to offer closing agent services to uon-FCS lenders that are not certified Farmer Mac poolers. These
FeA HandbooK - 9 l::SL-U1 ~ rarm t;reolt ~ystem MOrtgage Loan Ile:UI::;acuur I::;
wisions of the Act would not enable FCSls to act as closing agents for any other lenders on non-farm rural home loans because an
.s must be directly related to the on-farm or aquatic operations of the borrower. Insofar as agricultural or aquatic loans are
concerned, the FCA is currently considering whether the FRS provisions of the Act would anthorize FCSls to offer closing agent
services to non-FCS lenders that are not Farmer Mac poolers.
If you have additional questions regardingmortgage loan transaction authorities, please contact Robert Coleman at (703) 883-4498.
1 For the purpose of this bookletter only, the term "Farm Credit System Institution" or "FCSI" does not refer to Farmer Mac, the
Federal Farm Credit Banks Funding Corporation, any service corporation that is chartered under section 4.25 of the Act, or any
afftliate established under section 8.5(e) of the Act.
2 The legislative history of the Act seems to indicate that borrowers obtain their loans either: (1) from Farm Credit banks or direct
lender associations; or (2) through Federal land bank associations (FLBAs).
3 For the purpose of this bookletter only, "closing agent" refers to one who acts under the direction of a principal for the principal's
benefit in a legal relationship. More specifically, this would include one who performs, on behalf of the lender, certain perfunctory,
mechanical, or nondiscretionary tasks related to the closing of the borrower's loan. A "closing agent" generally has no contractual
relationship with, or liability to, the borrower.
4 Borrower rights and borrower stock requirements apply in situations where an FCSI "table funds" loans for another FCSI that is also
a certified pooler. In such cases, the loan originator is subject to section 4.3A of the Act and 12 CFR § 614.4335, which governs
borrower stock, and section 8.9(b) of the Act and § 614.4367, which addresses the treatment of borrower rights for loans that are
destined for the Farmer Mac market.
5 The pooler may, however, have other legal remedies if the loan fails to meet Farmer Mac underwriting standards because of
:'ltentionaI or negligent acts or omissions by the Fesr.
"For the purpose of this booklettef, the term "non-farm rural home loan" refers to a loan: (1) that is made to a borrower who is nota
bona fide farmer, rancher, or aqnatic producerlharvester within the meaning of the Act and regulations in part 613, subpart B; and (2)
on property that is not capable of producing agricultural products on a sustained basis, or is not nsed for such purpose.
]
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Home! !_ogin i News! Caree!'s ! Eirenls ! Site Map! Contact I
ODUCTS AND SERViCES: C '"
Warehouse Line of Credit
The Warehouse Line of Credit (\MiS) offers the abiUty to fund loan
originations through a warehouse facility.
Terms and Conditions
• Maturities: The WHS is approved for 12 months. Draws may

be taken for a maximum of 30 days with no prepayment fees.
• Pricing: The rate of interest is established daily at a spread
over the rate the FHLBA pays on overnight deposit accounts.
• Collateral Requirements: Collateral must be held either with
the FHLBA or a third party custodian approved by the FHLBA.
Collateral held by the FHLBA will be assigned a 95 percent
Lendable Collateral Value while loans held by a custodian will
be assigned a 90 percent Lendable Collateral Value. All loans
used as collateral must have a forward commitment to be sold
in the secondary market. Loans may be originated by the
borrower or purchased from third party originators.
• Funding: For same-day funding, draw requests should be
received at the FHLBA by 3 p.m. EST. Repayments will be
debited based on the availability of funds in the borrower's
warehouse sub-account at3 p.m. EST.
)
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© 2003, Federal Home Loan Bank of Atlanta. All Rights Reserved.
FHLBA, Atlanta, GA, 30309; 1.800.536.9650.
. -.. -
\jommerClal LOC:lrl 1'\JJJJII(.;dUUII VVCtI t1J IUU.:JO LillO VI VI gUll . -:::/-
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Page 1
Commercial Loan Applicati

Warehouse Line of C
The undersigned Applicant(s) hereby request(s) Flagsar Bank, FSB ("Lenderj to grant a
commercial loan in the form of a mortgage warehouse line of credit.
A•. Amount Requested

$
B. Applicant
1) Company Name:
2)·Doing Business As (if applicable):
3) Address:
City: State: ZIP:
4) Tax 10 #: State of Incorporation:
5} Phone Number:
6) Fax Number:
1) Contact Name:
8) Years in Business with this name:
9) Last year's first mortgage business ($$ of loans closed) $
10) This year's first mortgage business (thru end of last month) $
11) Name of your Flagstar Account Executive:

12) E-mail address:
13) Name and home address of all shareholders, partners, or members owning 10% or more
of Applicant:
Name:
)
Home Address:
t,;ommercl81 Loan ApplicatIon vvarenouse LIne ot t,;reClt t-'age ;;s ot 1;:S
Home Address:
City: State: ZIP:
Home Phone:
Social Security #: - -
15) Does the Applicant of any affiliate or parent subsidiary of the Applicant have a
warehousing line of credit for mortgages (either for first or second liens) or a business
Une of credit with any other financial institution: YES NO
If"YES", please complete the following:
Name of Financial Institution:

City: State: ZIP:
Name of Financial Institution Loan Officer:
Phone Number of Financial Institution: - -
Warehouse L.ine of Credit Addition Business line of Credit
Amount: $
Date This Line Approved:

City: State: ZIP:
Name of Financial Institution loan Officer:
Phone Number of Financiallnstitution: --
Warehouse Line of Credit Addition Business Line of Credit
Amount: $
Date This line Approved:
If "NO", are there any immediate plans to acquire another warehouse line of credit over
and above the request at Flagstar Bank: YES NO
For the purposes of ucc mings, the undersigned acknowledges this infonnation to be true and correct
Signature:
Name: Senior Officer Title:
Page 3
c..;ommerClal Loan Application warenouse une OT t;reolt I"'age 4 OT l;j
-
C. Legal Form of Applicant
-
COI'pOfation
Partnership
Limited Liability Corporation
Limited Liability Partnership
Sole Proprietor
O1her:
Applicant shall provide the Lender simultaneously with the submission of this Application a
Standby Deposit of $500 for new application and $200 for renewal. Said Deposit shall be
applied to the Applicant's Origination Processing Fee. If this Application is denied or the terms
of the Lender's Commitment Letter are not acceptab\e to the Applicant, the Standby Deposit
shall immediately be retumed to the Applicant, less Lender's costs incurred in processing the
Application, including but not limited to credit reports, appraisals, and legal expenses. If
Applicant withdraws this Application, then the Standby Deposit shall be retained by the Lender
as liquidated damages.
The undersigned specifically acknowledge and agree that (1) the loan requested by this
Application will be secured by first security interest in the collateral; (2) all statements made in
this Application, any attachmenm or supplements to this Application (collectively the Application)
are made for the purpose of obtaining the loan indicated herein and that the Application will be
retained by Flagstar Bank even if the loan is denied; (3) verification or reverification of the
information contained in the Application may be obtained from any source including but not
limited to a credit reporting agency and any party named in the Application; (4) Flagstar and its
agents, successors and assigns wiJl rely on the information contained in the Application, and the
undersigned have a continuing obligation to amend and/or supplement the information provided
in this Application if any of the material facts which the undersigned have represented herein
should change prior to closing; (5) the person signing this Application on behalf of the Applicant
has full authority to make this Appli~tion and to sign this Application on behalf of the Applicant;
(6) none of the undersigned or any company in which the undersigned have had an equity
interest of 10% or more have ever been de-barred or suspended from doing business by any
federal agency or mortgage insurance company.
certification: The undersigned certify that the information provided in this Application is·true
and correct as of the date set forth below and acknowledge the undersigned's understanding
that any intentional or negligent misrepresentation(s) of the information contained in this
Application may result in the civil liability and/or criminal penalties inclUding, but not limited to,
fine and/or imprisonment or both under the provisions of Title XVIII, United States Code, Section
1001 et. seq. And liability for monetary damages to Flagstar Bank it agents, successors and
)
assigns, insurers, or any other person who may suffer any loss due to the reliance upon any
Commercial Loan Application warenouse Line OT L;reOlt I"'age I OT 1 a
Most recent interim financial statements signed by Chief Executive Officer.
Two most recent corporate or partnership tax returns (include all schedules).
A signed persona/financial statement of each of the equity owners as identified in B-13.
Two most recent years personal tax returns of the equity owners as identified in B-13.
If Applicant is a Corporation, please include:

*Articles of Incorporation *Certificate of Incorporation
*Certiticate of Good Standing *Corporate By-laws
If applicant is a Partnership, please include:

*Partnership Agreement *Certificate of Co-partnership of Limited Partnership
If Applicant is a limited liability Company, please include:

*Articles of Organization *Operating Agreement
*Certificate of Good Standing
Copy of State License.
Assumed Name Certificate if closing laons in a name other than the Applicant's.
Resumes of the three most senior Company Officers as identified in B-13.
Board Resolution, if corporation, signed by Corporate Secretary authorizing this

application for the above amount with Flagstar Bank, FSB.
Please mail the above items along with this Application to:
Flagstar Bank, FSB

301 W. Michigan Ave.
Jackson, MI 49201
ATTN: Joseph Lathrop
Commercial Lending (4-314)
,-,UII 111I1:'1 \.ildl LUdl1 /",\fJJJIIl,;dUOrJ vvarenouse Line OT \."reolt I-'age 8 of 13 -
Page 6

Warehouse Line of C
2 NO MORTGAGES·
The undersigned applicant(s) hereby request(s) Flagstar Bank, FSB (lender), to grant a
commercial loan in the form of a mortgage warehouse line of credit to fund 2 lid mort
sold to Flagstar Bank, FSB.
Date:
Amount Requested ($250,000-$500,000):$
APPLICANT:
1) Name
2) Address
3) City State Zip
4) Phone number Area code --
5) Contact name
6) Name of your Flagstar Account Executive
7) E-mail address
8) Does the applicant or any affiliate or parent SUbsidiary of applicant have a warehousing
line of credit for mortgages (either first or second) with any other financial institution?:
YES NO
If "YES", please complete the following:

City: State: ZIP:
Name of Financial Institution Loan Officer.
CommerCial Loan Application vvarenouse LIne or \"reun:
Phone Number of Financial Institution: - -
Warehouse Line of Credit Addition Business Line of Credit

Pvnount $
Date This Line Approved:
If "NO·, are there any immediate plans to acquire another warehouse line of credit over
and above the request at Flagstar Bank: YES NO
For the purposes of uee filings, the undersigned acknowledges this information to be
true and correct:
Signature:
Name: Senior Officer Title:
Page 7
LEGAL FORM OF APPLICANT
Corporation
Partnership
Limited Liability Corporation
Limited Liability Partnership
Sole Proprietor
Other:
Applicant shall provide the Lender simultaneously with the submission of this application a non-
refundable processing fee of $100.
The undersigned specifically acknowledge and agree that {1) the loan requested by this
application will be secured by a second security interest in the collateral; (2) all statements
made in this application, any attachments or supplements to this application (collectively the
application) are made for the purpose of obtaining the loan indicated herein; (3) verification or
reverification of the information contained in the application may be obtained from any source
including but not limited to a credit reporting agency and any party named in the application and
the application will be retained by Flagstar Bank even if the loan is denied; (4) Flagstar and its
agents, successors and assigns will rely on the information contained in the application and the
l;ommerClal Loan ApplicatiOn vvarenouse Line aT t;reOlt t'age "I U aT "'"
-
undersigned have a continuing obligation to amend and/or supplement the information provided
in this application if any of the material facts which the undersigned have represented herein
should change prior to closing; (5) the person signing this application on behalf of the applicant
has full authority to make this application and to sign this application on behalf of the applicant;
(6) none of the undersigned or any company in which the undersigned have had and equity
interest of 10% or more have ever been debarred or suspended from doing business by any
federal agency or mortgage insurance company.
Certification: The undersigned certify that the information provided in this application is true
and correct as of the date set forth below and acknowledge the undersigned's understanding
that any intentional or negJigent misrepresentation(s} of the information contained in this
application may result in civil liability and/or criminal penalties inclUding, but not limited to fine or
imprisonment or both under the provisions of Title 18, United States Code, Section 1001 et. seq.
and liability for monetary damages to Flagstar Bank its agents, successors and assigns,
insurers or any other person who may suffer any loss due to reliance upon any
misrepresentation which the undersigned has/have made on this appUcation.
Name of Applicant:
Name of Senior Officer:
Signature of Senior Officer:
Title of Senior Officer:
Date:
Page 8
APPLICATION CHECKLIST
WARHOUSE LINE OF CREDIT
2 NO MORTGAGES
)
\"urrUIIl:'Il,;IC::I1 LUC::lrJ /'\pplICcUlon vvarenouse LIne or \"reolt t'age 11 OT 1 ~
The following must be included in all Application Packages:
Completed Commercial Loan Application signed by required parties.
Application Fee of $100.
Most recent interim financial statements signed by Chief Executive Officer.
Board Resolution, if corporation,signed by Corporate Secretary authorizing this

application for the above amount with Flagstar Bank, FSB.
Please mail the above items along with this Application to:
Flagstar Bank., FSB

301 W. Michigan Ave.
Jackson, MI 49201
ATTN: Joseph Lathrop
Commercial Lending (4-314)
(.;ommerclal Loan Application warenouse Line or t;redlt Page 12 of 13
-
I-I
Page 9
PROGRAM FOR WAREHOUSE LINES OF CREDIT
FOR 2 NO MORTGAGES
1) Lines of credit available from $250,000 to $500,000.
2} This line will be in addition to the correspondent's current warehouse line for 1
3) This line will have a 5% haircut.
) 4) Interest rates to be prime plus 1% for 30 days, then going to prime plus 3% for loans on the
line 31 to 60 days, then going to prime plus 7% with a $250 delinquent fee on the 61
5) Draw fees to be $40 per loan request.
6) This line will be for 2 rod mortgages being sold only to Flagstar Bank, due to the additional
collateral risk involved. These mortgages must be approved by the Consumer Loan
Department prior to funding.
7) These lines will be offered only to correspondents that have an existing warehouse line with
Flagstar Bank. If a correspondent has a warehouse line with another bank, they need to get
a traditional warehouse line with Flagstar and also apply for the 2 rod mortgage ware
line.
8) All underwriting guidelines associated with warehouse lending will apply to these lines of
credit.
9) These lines will be governed by loan documents signed by both the borrower and Flagstar
Bank.
) 10) All lines will be approved according to policy lending authorities.

vommerClal Loan /'\PJJIIL;CtUUII VVi:l1 t:n IUU~~ 1-1/ I~ VI '-'I \:NIL I g~Q I VI Iv
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These search terms have been highlighted: commercial loans warehouse line credit
Page 1

Warehouse Line of C
The undersigned Applicant(s) hereby request(s) Flagsar Bank, FSB ("Lenderj to grant a
commercial loan in the form of a mortgage warehouse line of credit.
A•.Amount Requested
$
B. Applicant
1) Company Name:
2) -Doing Business As (if applicable):
3) Address:
City: State: ZIP:
4) Tax 10 #: State of Incorporation:
5) Phone Number:
6) Fax Number:
7) Contact Name:
8) Years in Business with this name:
9) Last year's first mortgage business ($$ of loans closed) $
10) This year's first mortgage business (thru end of last month) $
11) Name of your Flagstar Account Executive:
12) E-mail address:
13) Name and home address of all shareholders, partners, or members owning 10% or more
of Applicant:
Name:
Home Address:
\",ommerclal Loan f\ppllcauon vvarenouse Line OT \"realt
-
city: State: ZIP:
Home Phone:
.-
Percent Ownership: %
Name:
Home Address:
City: State: ZiP:
Home Phone:
Sodal Security #: - -
Name:
Home Address:
City: State: ZIP:
Home Phone:
(attach additional pages If necessatY.l
Page 2
14) Names and home address of the three most Senior Company Officers (mandatory):
Name:
Home Address:
City: State: ZlP:
Home Phone:
Name:
Home Address:
City: State: ZIP:
Home Phone:
) ,
Name:
r l dUU II I V Vdl t::!IIUU;:)t::! IVIVllye::tyt::! 1t::!IIUllly I""age 1 or L
~ Free loan and credit advice

[iJ Action canceled
Commercial Consumer Story Archive Disclaime
IE]
Fraud in Warehouse Mortgage lending Paid links
Get cash out when yo

Things to watch out when underwriting a warehouse refinance your home
mortgage ..
lending facility. ConsoliQ.m~ your debt
Apply now for a home
loanL
Warehouse lending can be very profitable to a commercial bank. Your lending committee will love Get...advicl;l on the bas
the idea that the line is secured by very marketable securities and that the closing documentation loan for YOJ.lJ.
acting as collateral will be kept in a very safe place "Your bank vaulf'.
However, warehouse lending is subject to some specific perils due mostly to the difference
between "wet funding" and "dry funding". These terms are related to the type of settlements that
can occur at the time the real estate transaction takes place. Business loans
articles
Vet Settlement is when the seller gets his funds right away. The closing agent is there at the
ame the loan is closed with a cashier check or will wire the money into the account at practically $!Jc!;:.E:l~~ful R.y'§in~$Ju
the same time that the buy/sell transaction of the real estate is .happening. This is before the loan f3JJsilJ.~§§lin.e of cr~gj1
documentation is sent to the bank for its review. Cash conversion eyell
!JCJ\ Cas!:LEIQ.w ex..m~
Dry Settlement is when the seller has to wait until the funding institution receives the Ir~itiO..n~G.(:!$llE1Q~
documentation and reviews it before seeing the money. ExportExPI~SS SBA
changes
As you can see the warehouse lender loves dry settlement, and the property seller loves wet
settlement.
The following are some measure that a lender can take to I\mit fraud on warehouse lending: Commercial real
estate articles
1) Strong screening process for mortgage brokers and mortgage banking companies.
2) If you are financing a mortgage banking company, make sure that they have a strong Amortization loan
screening process of their own. £~J~_YL~t91
3) Fund only those loans for which you have the documentation in your bank and it has been FinC!.ncing real estate
reviewed. This might be a bit difficult to accomplish since the company will be most in need of basic.§
"wet funds" financing. However, put some controls on the length of wet fund financing and the @JJJ~Lfi.nancing exam
amount available under this category. Also don't forget to price that portion accordingly.
4) Keep control of the money coming in from investors. The money should go into a separate
account that only you control.
Continue reading more on the subject of Mortgage lending behind the scenes: Consumer loans
articles
Go to IbE:l_ W'~r.§.bQl,l~HU~Ddi[1gj2.~e..
':;0 to The role of Investors in mortgage lending. Personal cash flow
\,)t1\AJ1 IUC:lI Y IVIC:lII'\.t1UI I~ !-At1\1UUVC;; '-'I 1111 10 I CI~g I VI v
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-
Home
conferences
Fraud Becomes A Problem For Warehouse Lenders As Business Dwindles
As borrowers become more desperate, pressure builds to exploit perceived weaknesses in
lenders' processes.
-
Resource
-6rrecto ry By Neil J. Morse
Editorial
Hot-oft-The press Most of Paul Eilbacher's colleagues know he works in mortgage banking, but few probably know
Story Index he also toils in law enforcement. Although he does not wield a nightstick or cruise a beat,
Reprints Eilbacher's work in warehouse lending does require him to act "like a benign cop," he says.
Back Issues As first vice president in the warehouse lending department of China Trust Bank USA, Eilbacher
~u:;SJeli!1es-
says he sees a growing amount of fraud that requires him to be vigilant in transactions with
calendar brokers and bankers.
Industry Events
.Editor1a,} The root problem appears to be thinning originations. With volumes off as much as 40%,
subscriptions warehouse lenders are fishing deeper depths for loans and, as a result, they are drawing some
R~.lJ~~ undesirable catches to their nets.
Address chJ!.!1M
sample Issue That means warehouse lenders must be more careful. "Our customers have to know that we're
Advertisin9 always there watching," says Eilbacher.
SQ.E!£i£i..f~t.1J>ns China Trust's 30 customers maintain an average warehouse line of $5 million to $7 million. The
Qm:1ortunl t1 es company, which operates from offices in New York City and Torrance, Calif., has commitments
Reader survey totalling $150 million from its bi-coastallocations.
Reader~jQ
g>nt1!.<;:t us \MIat the company watches for are unscrupulous or desperate borrowers willing to exploit "a
perceiVed weakness in a lenders' processes."
S e ry..i£ing That might include double warehousing without a single collateral agent or diversion of retainment
_'1i1I1jJ.JLe.l7J.e lJ':£ funds from the investor, says Eilbacher, listing just two nefarious activities.
) J;ommereiEl
. ---..!1Qrt:9Cfg/? Gaining more control
_I-,]~jghr Warehouse lending involves interim, short-term funding that allows a mortgage banker to create a
funded loan asset meeting the criteria ofthe secondary market as a closed loan asset. In this way,
a bank can sell the loan in the secondary market as opposed to brokering it. Bottom line is control,
since it frees a broker from being at the mercy ofthe funding department.
For the most part, there are two types of warehouse lines: affinity and non-directed. The former
are primarily warehouse programs that investors provide to their key originators. The latter are
pure warehouse credit facilities which tend to offer more flexibility. Non-directed lines also tend to
be more efficient, though they may cost a bit more.
Talk of fraud has spread lately because it is starting to affect more, and more prominent, players,
says Mike McAuley, managing director, mortgage banker finance at Bank United in Houston.
McAuley says problems experienced by top players like Bank of America and First Union are
reverberating lOUdly throughout the industry.
It is a stark contrast with traditional encounters. McAuley says warehousing has been viewed as a
"sleepy part of the credit portfolio at banks," one without huge returns, featuring relatively low risk
secured by mortgage loans.
In this low return and low margin cycle, says McAuley, banks are "taking hits on principal-
something they never expected."
It is a "rude awakening" for them.
Bank United has $2.5 billion in warehouse commitments, $1.3 billion outstanding, McAuley tells
SME. The company maintains business relationships with 125 customers, and 115 are direct
borrowers.
)
"We're also one of only two or three banks directly handling collateral and back-office funding," he
.;>t::'-'UIIUClI Y IVld' l'\t::lll'Y CXt::(.;UlIVt:: urmne page 2 of 3
says, adding that Bank United ranks "about fourth - although we're probably closer to second in
size for such transactions."
A warehouse line of credit can be an attractive option for brokers because they don't have to
disclose back-end points, they can receive better pricing and they gain the label of lender. It adds
up to greater business control.
It also means more profit per loan and a ticket into the secondary market.
Warehouse funds typically flow from:
• commercial banks,
• speciaHzed non-banks,
• investors, and
• IMitt Street sources.
Exposure to smaller players

Current problems with fraud and losses in the warehouse lending marketplace come as no
surprise to Jim Croft, executive director of the Mortgage Asset Research Institute (MARl), Reston,
Va.
"There are some players in the industry faced with pressure to try and push loans through the
pipeline that under ordinary circumstances wouldn't be acceptable," he says.
As warehouse lenders try to expand their markets, Croft: suggests, they are forced to do business
with "smaller players in the lending food chain who are 'less well capitalized'."
That means exposure to "fraud, material misrepresentation or serious misconduct," according to

Croft, whose organization specializes in developing and sharing information through cooperative
databases within the mortgage industry.
One ofthe databases is MIDEX, the Mortgage Industry Data Exchange, which gathers public and
non-public information on fraudulent and other less serious misconduct.
According to Croft, 12-15% of the inquiries to MIDEX result in associating a company name with a
problem. In half of those cases, there is a public record - a fine, action, etc.
That number is "a lot higher than I ever thought it would be,· Croff: remarks, and he levels a
serious charge of complicity against mortgage industry participants. In today's complex mortgage
system, he argues, "there has to be complicity by a professional for (fraud) to occur. With most
fraud, we see someone looking the other way or actively participating. People can do a significant
amount of rationalization in a market like this," Croft maintains.
Trying to determine the extent ofthese problems draws one into a deep gray area. There are no
reliable figures, according to MARl. "The FBI tried a couple of years ago (to quantify it) and threw
up their hands,· says Croft, who describes the figure as "unknowable" and offers an explanation.
Many firms "do not know how much mortgage fraud they have in their own portfolio, and others
are not willing to comment on it because they don't want to pUblicize the fact that they are
victimized by fraud."
If you're looking for safer, "plain vanilla" investments in the warehouse lending arena, you will not
find much business - or profit, says China Trust's Eilbacher.
The company does get requests for subprime, second mortgages, and similar non-conforming
products which offer "some margin, but some of the product characteristics are not as desirable,"
says Eilbacher, noting that "there is an issue of the general quality of borrowers."
~t:I,.;UIIUi:l1 Y IVICII "t:lllly i::.Xt1\,;UlIVt: UI llll I'=' t'age ;:s or ;:s
-
As the number of warehouse lenders has dwindled, there remains significant opportunity, he
-
notes, spelling out the necessary qualifications.
-You need to have prudently administered controls in place: says Eilbacher. lI.The whole objective
is to totally control the collateral process and avoid back office slippage."
No white knight
Losses stemming from fraud have "sucked up a lot of liquidity in terms of warehousing facilities:
says Bank United's McAuley, noting that this time the usual white knight did not come to the
rescue.
"Traditionally Wall Street would step in but even those guys got exposed," to losses.
Problems in warehousing also are coming from a change in the overall customer base, says Paul
Eilbacher of China Trust Bank.
-You're not really dealing with full service mortgage bankers (anymore) as much as brokers who
are trying to emerge as banKers."
Eilbacher says this proliferation of broker/bankers is further complicated by too many companies
lI.carrying multiple warehouse lines.' Then there are all the new lenders coming into the market
while others disappear.
The net result is "inadvertent and intentional manipulation with multiple facilities, different funding
sources, different documentation standards, and the fact that individual lenders don't talk to each
other," says Eilbacher.
This article was previously pUblished in the November 2000 Issue ofSecpndary Marketing
Executive.
Copyright @2000-2003 Zackin Publications Inc. All rights reserved.
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,. ... ... NOTE
..brulrr It 188. IELLEVUE
IDalII
8Bal Nt 11DTI IT. BOTBi"L. IA D8011

I1'npoar "'*-J
L BOBROWEIl'S PBOMISB TO ~AY

111 IIllIal far I IDa lIIIII I Iaave teCCiYtd. I pnJIIIi& fa ,., U.s••
"piacipIllj, pIIII ilIaIIaIt, ID dIoorcler oCilla 1.caIb. TIIc: JAJdctil
FIRIT UlION NOITBA8! CORPORATION
.1 ............
... • LeudIr ilia)' ll'8Ifer 1IIiI NoID. TIIc: JAIId« CIt ayoao who ... lba NoC 'by lI88ttr 11II1 wbo II CIIIi1Ir.d to recdvo
paymaIlIllIIdIr 1bII Noll k calIIld Ibe "Nola lJolder.·
1.1NTEUS'l'
IIIIIIaIt will be cbIIpcl C111111)l1id. pdncipal1llllil tIKI fDll_ of pdacIpal_ becD paid. I will IllY iIRrcIt at. yearff
....ot 7.1210 ".
The inlllnIlIt JlIRl requlrld by dUs5ectiaa 2 ill tho raIO I wilt pay both before _ after aII1 defaWt c1eaW • Sec::lbI
6(Il) at thls Nolo.
3.,PAYMBNTI
(A)".. ..... PIult oI1"a1-__
I will pay prmc:pt IIIJd iqbnIl by IlllIIdq pqllIalII OVCI)' IIIOIIlIL.
I will m, IIUIl1lbly ~ on .. f I rat day of.JlIOlIlb ~ OIl April t . •
111' • I c-.~ ..,.,IIIOIIIla lIIIIill ..... plIi4 all of tho pdncialIIlDtI iIdIinIt IIIIIlD'l ather ch8ql:s
dcIabd billow . . I may owe IIlIdcr lIIla NDlc. My.1I1OIdbq ~ wiq.1!o.lIppJhld to ~ bd'cre pr:iQdpaI. If. 011
~.rcb 1. 2 0 l l .
o:D lbIt. . "'** pay-.
. ' I lli1lowe 1IIDOIlDfII~ dUs Note. I will PIIf ~ II1IOallI:tm iull
1I1:111111l.... "MaIIIrll,y _ _
I wI1 make IIU' IlIOIIIIdJ
11DO Carparat. C.nt.r Or •• B_I8Igb. ~ Z7107~S061
or Il a d1trerent pice ifrequiralby tbo N* Holder. t
(I) AIIuJImt otMmdIIIJ...,....
My _1hIy paJ1IIIIIt will
4. BODOWU'S BIGHT TO PREPAY
be.
!he lIMOUlIl of U.s. $2. Oil. 11
i
I have lbe ri&bt 10 make IJlIYIIIlIIlII of priDclpalllllll}' tIJu btfoIe !bey lie dDa. A payment of pdaclDIl 0GI:f ill Jmawu...
a "prepayGIeIIl'. Whlallllllte a pepIfIII8lU, 1 wiIlllllllbe NOI8 HoldIr ill WliIIDa lbat I . . ckJing ID.
1 lIllY make • full PI'PlYment CIt panIal. prepaymeaII wiIboul PlIYiPIIDY JRPllJlDCll1 c:baJ:'&e.. The NIlle HoJdcr Will use
an of my JnPI.)IIIIllIIlIlD rednos !he IIDOUIIt of prInclpIlllllt I owe 1JIJdIlr IhiI N-. If I IIIIb I PIrtiaI prepaymeIlt. lh«n will
be DO cllllDplla &be cIae cI-. or la rbll 8IlIQIlIlt ot my IIlOIIlbly paymem IIIIlaI& Ibe NoID BokIar llIIQllI in 1I1iIiDI1D IhoIID
~CHA&GES ~
If a Jaw. wI*II applieIlD dlillIIlIa IDd wbilh lSI IIIIllllmum loaD cbIraea. iI fil'lIIly mlllqatlld_~ ...... Ibc iDtas Ill'
o1lIer 10m cbqtI co1IIlclId CIt ID be col1eclld JD lDIIIIlClioB wJ1ll ddlloID llICCOd lbe plIIIIiDlld limils, 1IJlD;(ij
dwp IbaII be lllCIDeed by die 1IIIOIIIIt. ~ to reduce the . . to the pclIIIIitlIlclliaiit IIICl CIi) 11I1 - - lI!reBdJ ~
III'
IlICh - 1-'-..I_.
!iii
ClllIald fmD 11IO wbillII UllOIldDd pIIIIIilII;d.liIIIIII will 110 rtI1Illde4 10 ... l1It NeIlD HiJIIIm 11III1 abooIo to mab lhit RJfuad
by 18dUclaI1IIe priDc/pIl I owe aadeI' IIIiI Note f1I by II1lItiDI a dinlct JllIJIIIllIIlID IIIe. If a !IfulI4 reduceI pdadpIL lbe ::g
~ will be lIeIfId. a]llltW. prepI)'IlICIIL
"BORROWll:R.'S PAILVU TO P4Y AS UQVlRED

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(A) LMe CIIarp filii' <mrd1Ie
, If Ibc NOlO Holder b88 not
fa,....
rccdved Iha fuIlllDOllDt of aD)' IIIOIIIhIY IllI)'IIIllIIt by Ibe eud of 11 eaIendat
!!!
==s
"-1'. . lbo . , ~ Ie clue, 1 will PlY • laic cbqt CO the NIlle HoJdar. Tho lDQUIItof \be cbqe willI» DI "
of my lmIdue pa}'IIIIIIt of pdDcipaIlIJd.illtllrelt. I will pay IhillaID cbup proIIIplIy bat onJy 0IICll 011 eadI-1J&7IIIa't.
(D)Delaull
If I do IIat PlY Ibe fu.D III1IIIIIIt of eacIIllIOIIIhly PIY/IlCIIt ClII the ebbs it is due, I will be in default.
(C) NoIk:e of DtI...
If I am in dBfauII, IlJe NoIII Holder may IlClIId me a 'IrrltIalft noIice IdIiIlc DIIllbat IE I do DOt 1JI1lbo cmrzdoe lIIJJOlIIIl by •
ewin daII, die Note Hlllder may IeqUinl me 10 pay imIIlcdIaIcIy Ihl: fun IIIIOIIIIt of pdDcipll wIICII hal not _ pald anc1 aD
tho iDlInSl lbIt I owe on 1bal1lDOunt. That dIIIc mUlt be lit ICIIl 30 dIJI afilr Ibe dlIlB OIl wbidI the llOlice ia delivered or
malkdlOmc.
(D) No WIinr 8)' Note HoJdao
EVrII if, 11 a lime when I am in defaull, lhe Note H'older dos not RlqUire me to pay ~ in fun as described
abow, the NolD Haldar wll1l1i1I have the J'lghll.O do 10 if IIl1J in delIuI1l1t. Jaw IImc,
lEY Pa1meJlt 01 Hale HollIer.. ClI!Ib lIIIII EJpl!IIIeI
It 1110 NOlO Holder II-. recpdtcd me 10 pay inuncldiaIdy JD full • dacribed above, Ibe NOlD HoIdcr will have tho ri&bt to
he pUd bIck by DIll far all of lis COIlS aad expeueIlIl eaforcm, lhis Nolo fD Iba exIriDt DIll probibiIed by app!k:lIbJIllaw,
11101O ClliJcaa iDcIlIdc, Cclr CllIllIJ*, JQlIIIIIhk: 1IIDI:1Ic7S' feeL .
1. QIVlNG OF NO'nCRS
Uoka ~ law lIllIuin:l1 diffauJt medJod. any notice Ihat IIIIISl be ~ 10 q UJId« dill NOlD will bill glvea by
dclivcdn& .It. or by .mac It by 1Inl cIaJa man 10 me Illhc Pro!,lc:rty Addna1; alxne or at a di1I'erllDt addrelt if I give the NOle
HoJder a IIlIIiaD of lIlY cliffmmt.....
ADy lllltlallha IIIlIIt 111I sma II) Iha NC* Rokkr IIlldcr lbiI NoID will 110 Pm by IIIlIiIiDI it by fila
NOIe Holder It IIIe addrllU Ibi!Id ill SecIiDn 3(.4) above or at. dilIelent addreIIl if I 11III givm • oorice of that di
ela8sitho
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. ,:OBUGA'lIoNS o,rvsor HeR TJIIS NOD
7111404-00
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rf _Iba OlIO ~ lip lhIa Note, . . *'"
pcuaD. ill £ally ob.IiII*d
~1IJ or
10 bcp II dlo promiIeIlIIlIdo in
lhia iIIcIudIDIlhc prolDbo 10
Note, IIIC I'aIIIlIlWl1 owed. /mJ .... wbo II a
pay pmuIlIr. IURl.)' or CIIIlomcr of ddJ Na1c
it • obIipIed 10 do II.- lhinp. Any pImWI who IIIas 09W 0 - obIip6oI... iDcIucIiDs 0. ohIipIioaa of • 1\lII'llftlOr.
iunty or _ _ ollhia NolIIl, ia 8bo obIiplIld to keep .n of lbo ~ ftlIIdo ill lbiI Noto. Tbe Nolie Holder RJay lllJIorw
lis r1gh1l uDder Ibis Hoe apiQst CICIl pcaoa ilKIivJduIlly or IIIiIIIt III of OJ fO&elbcr. 'IbiI JDeIIIllIIIat IIIJ' one of WI may be
-
~ 10 1MY III ollbe - u owed under lhiII Nola.
,.WAIVEIlS
I IlIIIlIIII}' odIcr pcnan who his obflptioos under lhia NOle WIRe tile rIgIUI of IRICIIImclIt IIIId notice of dishoDor.
~. IlleIIlI Il1o riPllO ~ . - NoIll HoIckr 10 ~ PIJII*¢ of llIIIOUDtI clue. "Noliee of dishonor' mew
tho ~ 10 NqlIlrt . . Noll HDIdar III gift DDlb 10 DIk JlIIDIIlbIt _ _ due IJaq IKIl bem paid.
10. UNIfORM SBCUUD NOTE
nua Note i•• IIDltlllDl inIIrumclIIl with IhnitI:d YlIriadoaa ill IlIIIID judldicliaa. lD lIddiIioD III cho ~ Pvcn III the
NOlo IIoldar IIIICIIr' lblt Noel, • Monpae. Deed or-na. or S8ClllitJ Deed (the "Sec:w:II.y ~" d.-d . . . . . d8Ie •
lhiI NoIc, prolIlClI _ NaIc Ho* frol8 ~ IoIIeI whidt mipl raa Ifl do 1IOl~ die JlIOIIliIIS wIdda I IlItb ill lhiI
Hole. 1bal Sec:udI,y 1DIlmmcII1 daK:ribeI how . . . . . . wha CllIJICIitiuAI I mar be tapJiral til ma1:o inauDdiato IJKYIDClDl in
fiIIl of all amoanlI I owe IIIIdllr thII Note. SlIIIIlI of tbaIe coadIIioIII8Rl daIcdbed .loIknva:
Tru.rtr ol * I'npertr or alleMlldal bttrat ill Barrowa'. Ie II or DJ pi. of lhc I'ropcrly or . ,
bua_ in It Is lOW or tnIDII'cmd (or If. bcndciaI hIIrmIt in B _ l s dllIl' IIlmli:mId and BoIIlJwI:iI'la DOt a
II8IIIrIl pllIUl) wIIbaut ~'. prior wriuaI QlIllClll, l4Ic1cr . , . It ill . . . . mqllil:o inuDc:dlIda paymallla
full of allIU1IlI .cured by lbII Sa:urIlJ 1nIlmmcDL ~, dda qJIba IbID DDt be r.u:rciIcd by Lcodllr JC
c:mcIII: iI probibiIl:d by federal law • aldie dills of Ibis 8claIIiIJ 1JIsIruoaIL
If Lender =erciIa IhiI optkru, LcDdcr IhaU Pw Bam!wllr IIlIIka of IOCllkulion. 1bD nolito sbaIt pnrrido •
pedod or IIOl . . lbaD 30 clays fitJm die darIlI tile IIlIli:e II; dI:Imml. or mailed wiIhiD whidl BClmJWa: II1UIl pay all
SUIllI _mat by thiI Stpd&y InsD.1ImaIL Ie & n - railllO pay dICIe II111II pIior III die CIpiradon of thiI pc:dod,
LaJdcr may
Borrower.
in" till, rcmcdi::I pmn1Ucd by ibis SecurII1 In&lrunJlIU wilboat furdn:r lICIlicc or dcmaIId 011
~~~~~:+:"-'d..a£.Zi=If:~_- ,{Sc8I)
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_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _,(Seal)
.Borrower
SSN:
r...... ro TrU: ORDI:.R OF

Ji'orweat J(or~ bo. t
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• california Corporation
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WllItOU1' IICOUIIII
MY TO .'''-OF
FIRSr UNIOl'f tMoIw. BMK AS nwsr ADMlfflSTRAJOR
NORWEST 0 GAGEw INC•
..U: • • c.~ ....
\:>'0n0·d t£:8t £00e-t£~

Chapter 4
Loans & Agreements
Welcome to chapter four of The Bank Code Exposed. Now that you have began
your endeavor and have a much better understanding of what banks, lenders, securities and
assets are from the prior chapters this chapter hopefully will help you better understand what
a loan really is and is not and which of these companies can or can not do with them. More
importantly, because there is a difference and there is even a larger difference in what a bank
can or can not do, this chapter will bring you the official, written intent of banking rules,
regulations and codes for the different types of loans and securities there are and why a
company/bank can deal with and more importantly what they can not do with them.
I remember listening to the Creature from Jeckyl Island by G Edward Griffin and he
spoke at one point about a man that described what appearances were. In the short version
this man said that appearances are four kinds: 1) Things either are and appear to be. 2)
Things are and do not appear to be. 3) Things are notand do not appear to be. 4) Things are
not yet appear to be. This description must be understood to really have a good grasp on this
chapter.
Most people that go into a bank to get a loan believe they are actually taking the
banks money and will be obligated to payit back through a payment schedule. However they
were never told where the money really came from and whose money it really was. One
rumor is the bank uses the depositor's money. Well if this is true how can they loan out
som\ "~'1g that the bank already owes to someone else, let alone was you told that your
mone~ las to be used for the bank to loan to others? The other rumor is they loaned you
there ~ m money. How would you feel if you were to find out that "No association shall
make any loan or discount using the shares of its own capital stock?" How would you feel if
you went into the bank where your life savings account was and the bank told you "I'm sorry
Mr. Thomas was loaned your money yesterday so you will have to wait until he pays us back
in order for us to release your money to you? Something doesn't make sense in these two
rumors.
This chapter, we hope will greatly help you to find out from law, codes, rules, and
regulations what really took place, why and if it was proper or not. In chapter three you
found out was securities and assets were so this chapter will bring to light what a
company/bank calls a loan, discount, extension of credit, is and specifically why the laws and
codes say SPECIFICALLY what they are and why.
Once you understand this information it makes it a great deal easier to understand that
fourth kind of appearance from above and in the G Edward Griffin example. "Things that are
not yet appear to be". Once you know this it makes it very difficult to get confused yourself
as long as you know it and know what kinds of questions to ask and why and when.
-
SECTION FOUR -
A. United States Code pertaining to federal reserve notes; loans by banks;

bank debt cancellation; investment securities; etc.
B. Federal Home Loan Bank of Dallas regarding collateral.
C. Dept. of Treasury regarding disclosing information.
D. H.U.D.'s Regulation X.
E. Office of Comptroller of Currency stance regarding state banking laws.

111L.h US, PAKI 1, C.tlAl'I.ill<. 11 , ::sec. jj4. page 1 of 1
LIT
kgal infonnarion institute US CODE COLLECTION
collection home
TITLE 18 > PART I > CHAPTER 17 > Sec. 334.
LJJC Search this title:

SC!e~ -334. - Issuance- of Federal Reserve or- national
batnf(llbtes , L .
Whoever, being a Federal Reserve Agent, or an agent or
employee of such Federal Reserve Agent, or of the Board of
Governors of the Federal Reserve System, issues or puts in
circulation any Federal.Reserv.e notes, without complying with or in
violation of the provisions of law regulating the issuance and
circulation of such Federal Reserve notes; or Notes
Updates
Whoever, being an officer acting under the provisions of chapter Parallel authorities
2. of TItle 12, countersigns or delivers to any natio . fCFfli
soci . , or to any other company or person an circulatin Topical references
notes co mplated by that chapter except in strict accor ance with
s provisions -.
Shall be fined under this title or imprisoned not more than five
~h
1w;{,1
- - -
http://www4.law.cornell.edu/uscode/18/334 .html 12/31/02

-
http://www4.law.comell.edu/uscode/12/ch2schIV.html
-
TITLE 12 CHAPTER 2 SUBCHAPTER IV
TITLE 12 > CHAPTER 2 > SUBCHAPTER IV > Sec. 83.
Sec. 83. - Loans by bank on its own stock

(a) General prohibition
No national bank shall make any loan or discount on the security ofthe shares
of its own capital stock.
Sec. 91. - Transfers by bank and other acts in contemplation of insolvency

All transfers ofthe notes, bonds, bills of exchange, or other evidences of debt owing to
any national banking association, or of deposits to its credit; all assignments of
mortgages, sureties on real estate, or ofjudgments or decrees in its favor; all deposits
of money, bullion, or other valuable thing for its use, or for the use of any of its
shareholders or creditors; and all payments ofmoney to either, made after the
commission of an act of insolvency, or in contemplation thereot: made with a view to
prevent the application of its assets in the manner prescribed by chapter 4 oftitle 62 of
the Revised Statutes, or with a view to the preference of one creditor to another, except
in payment of its circulating notes, shall be utterly null and void; and no attachment,
injunction, or execution, shall be issued against such association or its properly before
:final judgment in any suit, action, or proceeding, in any State, county, or municipal
court
Sec. 93. - Violation ofprovisions of chapter
(a) Forfeiture offranchise; personal liability of directors
If the directors of any national banking association shall knowingly violate, or knowingly permit
any ofthe officers, agents, or servants ofthe association to violate any ofthe provisions oftitle 62
ofthe Revised Statutes, all the rights, privileges, and franchises ofthe association shall be thereby
forfeited. Such violation shall, however, be determined and adjudged by a proper district or
Territorial court ofthe United States in a suit brought for that purpose by the Comptroller ofthe
Currency, in his own name, before the association shall be declared dissolved. And in cases of
such violation, every director who participated in or assented to the same shall be held liable in
his personal and individual capacity for all damages which the association, its shareholders, or
any other person, shall have sustained in consequence of such violation.
(b) Civil money penalty
(1) First tier
Any national banking association which, and any institution-affiliated party (within the meaning
of section 18 13(u) of this title) with respect to such association who, violates any provision of
title 62 ofthe Revised Statutes or any ofthe provisions of section 92a ofthis title, or any
regulation issued pursuant thereto, shall forfeit and pay a civil penalty ofnot more than $5,000 for
each day during which such violation continues.
(2) Second tier
Notwithstanding paragraph (1), any national banking association which, and any institution-
affiliated party (within the meaning of section 1813(u) of this title) with re~ect to such
association who, commits any violation described in paragraph (1) which - appear.
..:>'='lillUII I £\Jr r'\.vt • I
.ode of Federal Regulations]

[Title 12, volume 1]
[Revised as of January I, 2003]
[CITE: 12CFR37.1]
[page 332]
CHAPTER I--COMPTROLLER OF THE CURRENCY, DEPARlMENT OF THE TREASURY
PART 37--0EBT CANCELLATION CONTRACTS AND DEBT SUSPENSION AGREEMENTS--Table of contents
sec. 37.1 Authority, purpose, and scope.
~(a) Authority. A national bank is authorized to enter into debt
cancellation contracts and debt suspension agreements and charge a fee
therefor, in connection with extensions of credit that it makes,
pursuant to 12 U.S.C. 24(Seventh).
~ (b) purpose. This part sets forth the standards that apply to debt
cancellation contracts and debt suspension agreements entered into by
national banks. The purpose of these standards is to ensure that
national banks offer and implement such contracts and agreements
consistent with safe and sound banking practices, and subject to
appropriate consumer protections.
~ (c) scope. This part applies to debt cancellation contracts and debt
suspension agreements entered into by national banks in connection with
extensions of credit they make. National banks' debt cancellation
contracts and debt suspension agreements are governed by this part and
applicable Federal law and regulations, and not by part ,14 of this
chapter or by State law. '.
SectIon 1LvI-Kl.-I
-
I
Lcode of Federal Regulations]
[Title 12, volume 1]
[Revised as of January 1, 2002]
-
[CITE: 12CFRl.l]
[page S]
CHAPTER I--COMPTROLLER OF THE CURRENCY, DEPARTMENT OF THE TREASURY
PART 1--INVESTMENT SECURITIES--Table of Contents
sec. 1.1 Authority, purpose, and scope.
~(a) Authority. This part is issued pursuant to 12 U.S.C. 1 et seq.,
12 U.S.C. 24 (seventh), and 12 U.S.C. 93a.
~ (b) purpose This part prescribes standards under which national
banks may purchase, sell, deal in, underwrite, and hold securities,
consistent with the authorit~ contained in 12 U.S.C. 24 (seventh) and
safe and sound banking practlces.
~ (c) scope. The standards set forth in this cart apply to national
banks, District of columbia banks, and federal ranches of foreign
banks. Further, pursuant to 12 U.S.C. 335, State banks that are members
of the Federal Reserve system are subject to the same limitations and
conditions that a~ply to national banks in connection with purchasin~,
sellin~, dealing ln, and underwriting securities and stock. In addit10n
to actlvities au!horized under t~is part l foreign.bra~ches of.nation~l
banks are authonzed to conduct lnternatlonal actlv1tles and lnvest 1n
securities pursuant to 12 CFR part 211.
)
L)
"
)
'-.;../'
;,~ «
12 USC 1 et seq., 24 (Seventh)

Seventh. To exercise by its board of directors or duly authorized
officers or agents, subject to law all such incidental powers as
J
shall be necessary to carry on the business of banking; by

discounting and negotiating promissory notes, drafts, bills of
exchange, and other evidences of debt; by receiving deposits;
by buying and selling exchange, coin, and bullion; by loaning
money on personal security; and by obtaining, issuing, and
circulating notes according to the provisions of title 62 of the
Revised Statutes. The business of dealing in securities and
stock by the association shall be limited to purchasing and
selling such securities and stock without recourse, solely upon
the order, and for the account of, customers, and in no case for
its own account, and the association shall not underwrite any
issue of securities or stock;
I
<'''i I
\ ./'
1
TITLE 12 > CHAPTER 5 > SUBCHAPT~R I > Sec. 582.

Receipt of United States or bank notes as collateral
No national banking association shall hereafter offer or receive
United States notes or national-bank notes as security or as
collateral security for any loan of money or for a consideration
J
agree to withhold the same from use, or offer or receive the

custody or promise of custody of such notes as security, or as
collateral security, or consideration for any loan of money. Any
association offending against the provisions of this section shall
be deemed guilty of a misdemeanor and.shall be fined not more
than $1 ,000 and a further sum equal to one-third of the money
so loaned., The officer or officers of any association who shall
make any such loan shall be liable for a further sum equal to
one-quarter of the money loaned; and any fine or penalty
incurred by a, violation of this section shall be recoverable for the
benefit of thepany bringing such suit
V'-/\\''-\;'. roc COin
J J
Comptroller of the Currency, Treasury § 1.3
section 3(a)(41) of the Securities Ex- bank is legally committed to purchase

change Act of 1934, 15 U.S.C. 78c(aX41), or to sell in addition to the bank's ex-
that is rated investment grade in one isting holdings.
of the two highest investment grade (c) Type III securities. A national bank
rating categories, and that represents may purchase and sell Type m securi-
ownership of a promissory note or cer- ties for its own account, provided the
tificate or interest 01' participation aggregate par value of Type ill securi-
that is directly secured by a first lien ties issued by anyone obligor held by
on one or more parcels of real estate the bank does not exceed 10 percent of
upon which one or more commercial the bank's capital and surplus. In ap-
£ltrnct.urflS BJ'fl loea.ted and t.bat is fU]]y
plying this limitation, a national bank
secured by interests in a pool of loans
to numerous obligors. shall take account of Type m securi-
(3) A residential mortgage-related se- ties that the bank is legally committed
curity that is offered and sold pursuant to purchase or to sell in addition to the
to section 4(5) of the Securities Act of bank's existing holdmgs.
1933, 15 U.S.C. 77d(5), that is rated in- (d) Type 11 and 111 securities; other in-
vestment grade or is the credit equiva- vestment securities limitations. A na-
lent thereof, or a residential mortgage- tional bank may not hold Type II and
related security as described in section m securities issued by anyone obligor
3(a)(41) of the Securities Exchange Act with an aggregate par value exceeding
of 1934, 15 U.S.C. 78c(a)(41», that is 10 percent of the bank's capital and
rated investment grade in one of the surplus. However, if the proceeds of
two highest investment grade rating each issue are to be used to acquire and
categories, and that does not otherwise lease real estate and related facilities
qualify as a Type I security. to economically and legally separate
(n) Type V security means a security industrial tenants, and if each issue is
that is: payable solely from a.nd secured by a
(1) Rated investment grade; first lien on the revenues to be derived
(2) Marketable; from rentals paid by the lessee under
(3) Not a Type IV security; and
net noncancellable leases, the bank
(4) Fully secured by interests in a
pool of loans to numerous obligors and may apply the 10 :Percent investment
in which a national bank could invest limitation separately to each issue of a
directly. single obligor.
(e) Type IV securities-(l) General. A
[61 FR 63982, Dec. 2, 1996, as amended at 66 nationa.l bank may purchase and sell
FR 34791, July 2, 2001)
Type IV securities for its own account.
§ 1.3 Limitations on dealing in, under- Except as described in paragraph (e)(2)
writing, and purchase and sale of of this section, the amount of the Type
securities. IV securities that a bank may purchase
(a) Type 1 securities. A national bank and sell is not limited to a specified
may deal in, underwrite, purchase, and percentage of the bank's capital and
sell Type I securities for its own ac- surplus.
count. The amount of Type I securities (2) Limitation on small business-related
that the bank may deal in, underwrite, securities rated in the third and fourth
purchase, and sell is not limited to a highest rating categories by an NRSRO. A
specified percentage of the bank's cap- national bank may hold small busi-
ital and surplus. ness-related securitJes. as defined in
(b) Type 11 securities. A national bank section 3(a)(53)(A) of the Securities Ex-
may deal in, underwrite, purchase, and change Act of 1934, 15 U.S.C.
sell Type II securities for its own ac- 78c(a)(53)(A), of anyone issuer with an
count, provided the aggregate par aggregate par value not exceeding 25
value of Type II securities issued by percent of the bank's capital and sur-
anyone obligor held by the bank does
plus if those securities are rated in-
not exceed 10 percent of the bank's cap-
ital and surplus. In applying this limi- vestment grade in the third or fourth
tation, a national bank shall take ac- highest investment grade rating cat-
count of Type II securities that the egories. In applying this limitation, a
7
-
§1.4 12 CFR Ch. I (1-1-Q3 Edition)

national bank shall take account of se- gations under that security. and the
curities that the bank is legally com- bank believes that the security may be
mitted to purchase or to sell in addi- sold with reasonable promptness at a.
tion to the bank's existing holdings. No price that corresponds reasonably to
percentage of capital and surplus limit its fair value.
applies to small business related secu- (2) The aggregate par value of S6CUri-
rities ra.ted investment grade in the tiel? treated as invel?tment I?ecurttiel?
highest two investment grade rating under paragraph (i)(l) of this section
categories. may not exceed 5 percent of the bank's
(f) Type V securities. A national bank capital and surplus.
ma.y porcha,se and sell Type V secD.I1- [61 FR. 69982. Dec. Z. 1996, as amended ae 64
ties for its own account provided that FR 60098. Nov. 4, 1999J
the aggregate par value of Type V secu-
rities issued by anyone issuer held by § 1.4 Calculation of limits.
the bank does not exceed 25 percent of (a) Calculation date. For purposes or
the bank's capital and surplus. In ap- determining compliance with 12 U.S.C.
plying this limitation, a national bank 24 (Seventh) and this part, a bank shall
shall take account of Type V securities determine its investment limitations
that the bank is legally committed to as of the most recent of the following
purchase or to sell in addition to the dates:
bank's existing holdings. (1) The last day of the preceding cal-
(g) Securitization. A national bank endar quarter; or
may securitize and sell assets that it (2) The date on which there is a
hold!!., as a -pa;rt of itll banking bUlIine'3s. change in the bank's capital category
The amount of seCUritized loans and for purposes of 12 U.S.C. 18310 and 12
obligations that a bank may sell is not CFR 6.3.
limited to a specified percentage of the (b) Effective date. (1) A bank's invest-
bank's capita,l and surplus. ment limit calculated in accordance
(h) Investment company shares--(l) with paragraph (a)(1) of this section
General. A national bank may purchase will be effective on the earlier of the
and sell for its own account investment following dates:
company shares provided that: (1) The date on which the bank's Con-
(i) The portfolio of the investment solidated Report of Condition and In-
company consists exclusively of assets come (Call Report) is submitted; or
that the national bank may purchase (11) The date on which the bank's
and sell for its own account under this Consolidated Report of Condition and
part; and Income is required to be submitted.
(it) The bank's holdings of invest- (2) A bank's investment limit cal-
ment company shares do not exceed culated in accordance with paragra.ph
the limitations in § 1.4(e). (a)(2) of this section will be effective on
(2.) Other u:meTS. The OCC ma'Y deter- the date that the limit is to be cal-
mine that a national bank may invest culated.
in an entity that is exempt from reg- (c) Authority of Dec to require more
istration as an investment company frequent calculations. If the DeC deter-
under sect-ion 3(c){1) of t.he Investment mines for safety and soundness reasons
Company Act of 1940, provided that the that a bank should calculate its invest-
portfolio of the entity consists exclu- ment limits more frequently than re-
sively of assets that a national bank quired by paragraph (a) of this section.
may purchase and sell for its own ac- the DCC may provide written notice to
count under this part. the bank directing the bank to cal-
(i) Securities held based on estimates of culate its investment limitations at a
obligor's performance. (1) Notwith- more frequent interval. The bank shall
standing §§ 1.2(d) and (e), a national thereafter calculate its investment
bank may ereae a debe securiey as an limits ae ehae incerval aneil fareher no-
investment security for purposes of tice.
this part if the bank concludes. on the (d) Calculation of Type III and Type V
basis of estimates that the bank rea- securities holdings--(l) General. In calcu-
sonably believes a.re reliable. that the lating the amount of its investment in
obligor will be able to satisfy its obli- Type m or Type V securities issued by
) 8
:ode of Federal Regulations]
~ritle 12, volume 3]
[CITE: 12CFR225.28]
[page 119-117]
CHAPTER II--FEDERAL RESERVE SYSTEM
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y)--Table of contents
subpart c--Nonbanking Activities and Acquisitions by Bank Holding
companies
Sec. 225.28 List of permissible nonbanking activities.
(a) closely related nonbanking activities. The activities listed in
paragraph (b) of this section are so closely related to banking or
managing or controlling banks as to be a proper incident thereto, and
may be engaged in by a bank holding company or its subsidiary in
[[page 111]]
accordance with the requirements of this regulation.
~ (b) Activities determined by regulation to be permissible--(l)
Extending credit and servicing loans. Makin~, acquiring, brokering, or
servicing loans or other extensions of cred,t (including factoring,
issuing letters of credit and accepting drafts) for the company's
account or for the account of others.
~ (2) Activities related to extending credit. Any activity usual in
'onnection with making, acquiring, brokering or servicing loans or other
(tensions of credit, as determined by the Board. The Board has
~etermined that the following activitles are usual in connection with
making, acquiring, brokering or servicing loans or other extensions of
credit:
~ (i) Real estate and personal property appraising. performing
appraisals of real estate and tangible and intangible personal property,
including securities.
~ (ii) Arranging commercial real estate equity financing. Acting as
intermediary for the financing of commercial or industrial income-
producing real estate by arranging for the transfer of the title,
control, and risk of such a real estate project to one or more
investors, if the bank holding company and lts affiliates do not have an
interest in, or participate in managin~ or developing, a real estate
project for which it arranges equity flnancing, and do not promote or
sponsor the development of the property.
(iii) check-guaranty services. Authorizing a subscribing merchant to
accept personal checks tendered by the merchant's customers in payment
for goods and services, and purchasing from the merchant validly
authorized checks that are subsequently dishonored.
(iv) collection agency services. collecting overdue accounts
receivable, either retail or commercial.
(v) Credit bureau services. Maintaining information related to the
credit history of consumers and providing the information to a credit
grantor who is considering a borrower's application for credit or who
has extended credit to the borrower.
(vi) Asset management, servicing, and collection activities.
Enga9ing under contract with a third party in asset management,
serv1cing, and collection \2\ of assets of a type that an insured
depository institution may originate and own, if the company does not
engage in real property management or real estate brokerage services as
part of these services.
\2\ Asset management services include acting as agent in the

iquidation or sale of loans and collateral for loans, including real
estate and other assets acquired through foreclosure or in satisfaction
of debts previously contracted.
-
TITLE 15 > CHAPTER 1
/
:> Sec. 18.
-
Sec. 18. - Acq.uisition by one corporation of stock
of another
No person engaged in commerce or in any activity

affecting commerce shall acquire-, directly or indirectly, the
whole or any part of the stock or other share capital and no
person subject to the jurisdiction of the Federal Trade
Commission shall acquire the whole or any part of the assets
of another person engaged also in commerce or in any
activity affecting commerce, where in any line of commerce
or in any activity affecting commerce in any section of the
country, the effect of such acquisition may be supstantially
to lessen competition, or to tend to create a monopoly.
No person shall acquire, directly or indirectly, the whole

or any part of the stock or other share capital and no person
subject to the jurisdiction of the Federal Trade Commission
shall acquire the whole or any part of the assets of one or Search this
more persons engaged in commerce or in any activity title:
affecting commerce, where in any line of commerce or in
any activity affecting commerce in any section of the I " .
country, the effect of such acquisition, of such stocks or ." §e~ch llIe" 151
assets, or of the use of such stock by the voting or granting
of proxies or otherwise, may be substantially to lessen
~otes
competition, or to tend to create a monopoly. .Updc;Lte~
Parallel
This section shall not apply to persons purchasing such authorities
stock solely for investment and not using the same by voting ~£8J.
or otherwise to bring about, or in attempting to bring about, Topical
the substantial lessening of competition. Nor shall anything references
contained in this section prevent a corporation engaged in
commerce or in any activity affecting commerce from
causing the formation of subsidiary corporations for the
actual carrying on of their immediate lawful business, or the
natural and legitimate branches or extensions thereof, or
from owning and holding all or a part of the stock of such
subsidiary corporations, when the effect of such formation is
not to substantially lessen competition.
Nor shall anything herein contained be construed to

prohibit any common carrier subject to the laws to regulate
commerce from aiding in the construction of branches or
short lines so located as to become feeders to the main line
of the company so aiding in such construction or from
acquiring or owning all or any part of the stock of such
branch lines, nor to prevent any such common carrier from
acquiring and owning all or any part of the stock of a branch
, . I • •
there is no substantial competition between the company
owning the branch line so constructed and the company
owning the main line acquiring the property or an interest
therein, nor to prevent such common carrier from extending
any of its lines through the medium of the acquisition of
stock or otherwise of any other common carrier where there
is no substantial competition between the company
extending its lines and the company whose stock, property,
or an interest therein is so acquired.
Nothing contained in this section shall be held to affect

or impair any right heretofore legally acquired: Provided,
That nothing in this section shall be held or construed to
authorize or make lawful anything heretofore prohibited or
made illegal by the antitrust law~'1 nor to exempt any person
from the penal provisions thereofor the civil remedies
therein provided.
Nothing contained in this section shall apply to

transactions duly consummated pursuant to authority given
by the Secretary of Transportation, Federal Power
Commission, Surface Transportation Board, the Securities
and Exchange Commission in the exercise of its jurisdiction
under section 79j of this title, the United States Maritime
Commission, or the Secretary of Agriculture under any
statutory provision vesting such power in such Commission,
Board, or Secretary
AMENDMENTS
1996 - Pub. L. 104-104, in sixth par., struck out "Federal

Communications Commission," after "Secretary of
Transportation,". 1995 - Pub. L. 104-88, in sixth par., substituted
"Surface Transportation Board" for "Interstate Commerce
Commission" and inserted ", Board," after "vesting such power in
such Commission". 1984 - Pub. L. 98-443 substituted "Secretary
of Transportation" for "Civil Aeronautics Board" and "Commission
or Secretary" for "Commission, Secretary, or Board" in sixth par.
1980-Pub;L.96-349, substituted"person" forUcorporation"
wherever appearing in first and second pars.; substituted
I.
persons" for "corporations" in second par. and first sentence of
third par.; and inserted "orinany activity affecting comme~e"
after "commerce" wherever appearing in first, second, and third
pars. 1950- Act Dec. 29, 1950, amended section generally so as
to prohibit the acquisition of the whole or any part of the assets of
another corporation when the effect of the acquisition may
substantially lessen competition or tend to create a monopoly.
EFFECTIVE DATE OF 1995 AMENDMENT

-
Amendment by Pub. L. 104-88 effective Jan. 1, 1996,
see section 2 of Pub. L. 104-88, set out as an Effective Date
note under section 701 of Title ~ Transportation
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-443 effective Jan. 1, 1985,

see section 9(v) of Pub. L. 98-443, set out as a note under
section 5314 of Title 2, Government Organization and
Employees
~\
TITLE 12 > CHAPTER 3 > SUBCHAPTER VIII > Sec. 324.

Sec. 324. - Laws applicable on becoming members
All banks admitted to membership under authority.ofthissection shall be required to

comply with the reserve and capital requirements ofthis chapter, to conformto thpse. ,
provisions oflaw imposed on national banks ,,!mch prohibit sucb bSllksfromlenoinl
;4>, ()rpurchasingtheir ownstockand which relate to the Withdrawal Off
.impairment of tbeirca pitaI stock.jJ~d to conform to the provisions of sections 56 and
60(b) of this title with'respect to the payment of dividends; except that any reference in
any such provision to the Comptroller of the Currency shall be deemed for the purposes
ofthis sentence to be a reference to the Board ofGovernors onne Federal Reserv,e
System._.Such.. b.anksan.·.d ..alla.'ls.~'.
. . •·th.eom.eers, .a. gents,a.nd em."·ployeelJthereolsh
"subject to the provi~ionll"orandtotile penalties prescribed·by seetiodlm~f&r
;a.~ld l005.oftitie It4and shall be required to makereports ofcondition and ofthe ..
'payment of dividends to the Federal Reserve bank of which they become a member. Not
less than three of such reports shall be made annually on call of the Federal Reserve
bank on dates to be fixed by the Board of Governors of the Federal Reserve System.
Any bank which
(A)
maintains procedures reasonably adapted to avoid any inadvertent error and,

unintentionally and as a result ofsuch an error, fails to make or publish any report
required under this paragraph, within the period of time specified by the Board, or
submits or publishes any false or misleading report or information, or
ill So in original. Probably should be followed by
TITLE 12 > CHAPTER 2 > SUBCHAPTER II > Sec. 56.

Sec. 56. - Prohibition on withdrawal of capital; unearned dividends
.N() association, .or any member: thereof,.shan.duringJhetiOte it shallcontinueits~,l\

banking operations" withdraw~,qrpermit to.be withdrawll;:eithel'·'in4b~;fOI1lfl,M fi;.
divideoosor otherwise.,callJ:'pol!tioD of its capital' If losses have at any time been
sustained by any such association, equal to or exceeding its undivided profits then on
hand, no dividend shall be made; and no dividend shall ever be made by any
association, while it continues its banking operations, to an amount greater than its
undivided profits, subject to other applicable provisions of law. But nothing in this
section shall prevent the reduction ofthe capital stock ofthe association under section
59 of this title
TITLE 12 > CHAPTER 2 > SUBCHAPTER X > Sec. 161.
-
Sec. 161. - Reports to Comptroller of the Currency -
(a) Reports of condition; form; contents; date of making; publication
",Every association' shaUmakereports ,of..condition.tothe ComptroUer oftlle,f

.Currency in accordance with the Federal Deposit Insurance Act ill U.S.C.1811 et
seq.). The Comptroller of the Currency may call for additional reports of condition, in
such form and containing such information as he may prescribe, on dates to be fixed by
him, and may call for special reports from any particular association whenever in his
judgment the same are necessary for his use in the performance of his supervisory
duties. Each report of condition shall contain a declaration by the president, a vice
president, the cashier, or by any other officer designated by the board of directors of the
bank to make such declaration, that the report is true and correct to the best of his
knowledge and belief. The c~rrectnes~ of the report of 'condition shall beattestedby;~;
th~signatur~of at least three of the directors of the bank Clther than th~ officer~,t
making suc~dedarationJwiththe declaration that the rep()rthas;been examinetL~
:bytbem andfo the best of their knowledge and belief is true and ,correc-..r.Each
report shall exhibit in detail and under appropriate heads the resources and liabilities of
the association at the close ofbusiness on any past day specified by the Comptroller,
and shall be transmitted to the Comptroller within the period of time specified by the
Comptroller. Special reports called for by the Comptroller need contain only such
information as is specified by the Comptroller in his request therefor, and publication of
such reports need be made only if directed by the Comptroller.
(b) Payment of dividends
Every association shall make to the Comptroller reports ofthe payment of dividends,
including advance reports of dividends proposed to be declared or paid in such cases
and under such conditions as the Comptroller deems necessary to carry out the purposes
of the laws relating to national banking associations in such form and at such times as he
may require.
(c) Reports ofaffiliates; form; contents; date of making; publication; penalties
Each national banking association shall obtain from each ofits affiliates other than
member banks and furnish to the Comptroller ofthe Currency not less than four reports
during each year, in such form as the Comptroller may prescribe, verified by the oath or
affirmation of the president or such other officer as may be designated by the board of
directors of such affiliate to verify such reports, disclosing the information hereinafter
provided for as ofdates identical with those for which the Comptroller shall during such
year require the reports ofthe condition of the association. Each such report of an
affiliate shall be transmitted to the Comptroller at the same time as the corresponding
report of the association, except that the Comptroller may, in his discretion, extend such
time for good cause shown. Each such report shall contain such information as in the
judgment of the Comptroller ofthe Currency shall be necessary to disclose fully the
relations between such affiliate and such bank and to enable the Comptroller to inform
l
himself as to the effect of such relations upon the affairs of such bank. The Comptroller
shall also have power to call for additional reports with respect to any such affiliate
whenever in his judgment the same are necessary in order to obtain a full and complete
knowledge ofthe conditions ofthe association with which it is affiliated. Such
additional reports shall be transmitted to the Comptroller ofthe Currency in such form
as he may prescribe
TITLE 18 > PART I > CHAPTER 17 > Sec. 334.

rnLO Ui:llli:ll~ - vUIIC::ll~1 C::l1 "~I VI(.;t:~ ~age', Of::>
-
( -
• Overview
• CoHat..ral Verificat;on
• CoUateraI Status
• f:;~gtQJ~LGQH~~f
• CO)j;a;tE!raj0a~f':1~-r; GlJ~Hnes ~am1;a;f
o Products
•
•
CoHatera! Fees
Agr.~dJ.lPQ!tP1Qc:;~gYr~~
uverview
The primary goal of the Bank is to provide credit programs designed to meet the
f-----------tfu,wnding needs of members, while maintaining the financial integrity of the Bank. To
o '.~".,.,.,t>".r'S~!p participate in the credit programs of the Bank, members must have sufficient
qualifying collateral in place. Members'are categorized by collateral status as either
f-- rBlanket Lien or Custody. '
Collateral Verification
n order to protect the investment of members, the Bank is required to periodically

verify the collateral securing advances. Collateral verifications are required for
members under the blanket lien status with advances that exceed the collateral
maintenance value of securities and other collateral held at the Bank. Collateral
verifications are not required for members who:
1) have not borrowed from the Bank in the current fiscal year; 2) are on custody
'-----------status; 3) are on blanket lien status but whose securities and deposits with the
Bank have had collateral maintenance levels in excess of their advances balances
at aU times.
Collateral verifications are required annually utilizing ,.a,greed Upon Procedures,

Members may elect to have this annual collateral verification performed by the
Bank or may elect to have this annual verification performed by their CPA/auditor.
For further information regarding collateral services please call 1-800-541-0597.
Collateral verifications are performed by the Bank on a first-come, first-

served basis. Unfortunately, our Collateral Department has already received
the maximum number of requests for this year; therefore, the Bank will not
be able to accommodate additional review requests in 2003. You must
contact your CPA or external Auditor instead to schedule completion of your
collateral verification. Please remember that all collateral verification reports
must be received by the Bank no later than December 31. 2003.
I-HLts uallas - (,;Ollateral ~ervlces page:2 of 5
Collateral Status
Blanket Lien
• Borrower meets all statutory and regulatory capital standards and

• Borrower meets all Bank credit underwriting standards as determined by the
Bank.
Custody Status
• Borrower is an insurance company; or

• Borrower does not meet all statutory and regulatory capital standards; or
• The financial condition or controls (based on credit standards in the Bank's
Credit Policy) of the borrower or any commonly controlled insured
depository institution(s) are such that the Bank. would be secure only if
collateral is in the possession of the Bank and the interests of the Bank are
fully perfected; or
• Borrower otherwise fails to meet the Bank's underwriting standards for the
blanket lien.
Eligible Collateral
The Bank may accept the following types of collateral for securing advances:
1. First Mortgage Collateral, which consists of whole, fully disbursed, residential

O.e., one- to four-family and multifamily) first-mortgage loans (excluding
partidpations and other fractional interests or mortgage warehouse lines) that are
owned by the member free and clear of any "ens and encumbrances and are not
past due more than 90 days. Additionally, any home mortgage loan made to any
director, officer, employee, attorney, or agent of the borrowing member cannot be
considered eligible collateral securing advances.
2. U.S. Government and federal agency securities including:

\. mortgage back.ed securities issued or guaranteed by a federal agency; and
ii. mortgages or other loans Qncluding securities backed by, orrepresenting
an equity interest in, such mortgages or loans) that are insured or guaranteed
by the U.S. Government or a federaJ agency where the insurance or
guarantee is for the direct benefit of the holder of the mortgage or loan.
3. Term deposits from the Bank
4. Other non-securitized real estate-related collateral including commerdal real

estate, home equity loans, junior liens, participations and mortgage warehouse
lines, as well as commercial and multifamily real estate construction. For other real
estate related-collateral to be acceptable it must have a readily ascertainable
value, be capable of being reliably discounted and liquidated in due course, and
the Bank must be able to perfect a security interest in such collateral.
5. Securities representing undivided equity interests (e.g., shares of certain types

of mutual funds) in the collateral described above.
t-HLt:S U8118S - \.;Oll8teral :::>ervlces ~age" aT 0
-
6. For CFl's, fully secured loans to small businesses, small farms, and small agri-
businesses, or securities representing whole interests in such secured loans.
.-
Collateral Delivery Guidelines Manual
Members may increase their borrowing capacity by delivering loans to the Bank
which may receive a higher value than what they receive under Blanket Status.
Members may also be required to deliver collateral ifthe Credit Review Committee
at the Bank determines a collateral status of Custody after reviewing their financial
condition.
The steps to deliver loans include:
1. Submitting the required documentation to the Bank for each delivered loan.
2. Submitting an electronic tile containing descriptive information of the loans

being delivered.
3. Provide updated information for each delivered loan at the end of each quarter.
Detailed information for each step is included in the Collateral Delivery Guidelines
Manual. The manual can be viewed and downloaded using Adobe Acrobat
Reader. If you do not have Adobe Acrobat Reader, you may download a free
copy.
conater~l DeUveiy· GuideHnes rv~anua: -

J,:.Q_~n!?
Collateral Fees
Vault Processing Fees

as of January, 2004
IType IIAdd Price IIReturn Price I

ISingle-family 11$4 per item 11$8 per item I
) IMultifamily 11$4 per item 11$8 per item 1
I
/
ICommercial 11$10 per item 11$8 per item
I Ii II I
rnL.O Ui:illd~ - \",Ulldl'='l ell .::>ervlces Page 4of5
hnterim Construction 11$10 per item 11$8 per item

===========:::::;1/$10
ISmail Business/Small Farm
;========~~==:====~I
per item 11$8 per item
l~u=sti=ng=========::::;I1~$3::::p=e=r
i=te=m==::::;11$2 per item
Other Collateral Service Fees

as of January, 2004
!Type IIPrice I
Collateral ,
Verifications
I
1$30 per hour, plus expenses
$30 per hour, plus expenses for commercial, multifamily, or

I
(InSpectiOns interim construction with unpaid balances of $500,000 or more
IResearch 11$25 per hour, requested in writing I
Release of
Uens/RBO
1$100 per lien with copy of proof of lien
I
Forms and Templates
The following forms and templates mentioned in the Collateral Delivery Guidelines
Manual are made available for your convenience. You can fax or e-mail the
completed forms and templates to the Collateral Department as required.
Adding Collateral
To deliverllist collateral members must submit:
1. Required documents for each loan as specified in the Collateral Delivery

Guidelines Manual.
2. An Add Tamp!<'i<te containing descriptive information for each loan and,
3. A signed Assignment and Certification of Collateral Security for Advances Form.
Assignrnant and Certification of CoHateral Secur~ty for Advances
Releasing Collateral
To request a release is only necessary to provide a Request for Release of

Collateral form or an electronic file. The loan number must match exactly the loan
number originally assigned by the member institution when the note was delivered.
R~I?§:;!9T€:mpl",~;; (ReqUired when requesting more than ten notes)

FHLB Dallas - Collateral Services ....age 0 OJ 0
-
_.
Agreed Upon Procedures
These schedules are viewed using Adobe Acrobat Reader. If you do not have
AdobeAcrobat Reader, you may download a free copy.
Please download the Agreed Upon Procedures appropriate to your institution and
the Trial Balance Temp:ate used to gather the data from which the sample to
complete your collateral verification will be selected.
SGhedute Aln~titut:ons - Bank - Community Financial Institutions

Schedule B Institutions - Bank - Large Financial Institutions
Schedule C institutions - Thrift - Community Financial Institutions
e.<;I]t;ql-,l.~~_PJlJ~ti~;.,l.~iQn
.;!. - Thrift - Large Financial Institutions
Schedule E Institutions - Credit Unions
© 1998 Federal Home Loan Bank of Dallas. All Rights Reserved.
)
[CITE: 31CFR103.87)
[Page 384-385]
nTLE 31-MONEY AND FINANCE: TREASURY
DEPARTMENT OF THE TREASURY
PART 103---F1NANC1Al RECORDKEEPtNGAND REPORT1NG,OFCURRENCY AND FOREIGN

TRANSACTIONS-Table of Contents
Subpart G-Administrative Rulings
Sec. 103.87 Disclosing information.
(a) Any part of any administrative ruling. including names,

addresses, or information.related to the business transactions of
. If the request for an

administrative ruling contains information which the requestor wishes to
be considered for exemption from disclosure under the Freedom of
Information Act, the requestor should clearly identify such portions of
the requeSt and the reasons Why such information should be exempt from
disclosure.
TITLE 31 > SUBTITLE IV > CHAPTER 53 > SUBCHAPTER II > Sec. 5313.
Sec. 5313. - Reports on domestic coins and currency

transactions
(f) Provisions Applicable to Mandatory and Discretionary Exemptions. -
(1) Limitation on liability of depository institutions. -
No depository institution shall be subject to any penalty which may

be imposed under this subchapter for the failure of the institution to file
a report with respect to a transaction with a customer for whom an
.~.;m
.. .. ~
. .has been granted under subsection (d) or (e) _
1 .
(A)
knowingly files false or incomplete information to the

Secretary with respect to the transaction or the customer engaging
in the transaction; or
(8)
has reason to believe at the time the exemption is granted or

the transaction is entered into that the customer or the transaction
does not meet the criteria established for granting such
exemption.
(2) Coordination with other provisions. -
Any exemption granted by the Secretary of the Treasury under

section 5318(a) in accordance with this section, and any transaction
which is subject to such exemption, shall be subject to any other
provision of law applicable to such exemption, including -
(A)
the authority of the Secretary, under section 5318(a)(6), to

revoke such exemption at any time; and
(8)
any requirement to report, or any authority to require a report

on, any possible violation of any law or regulation or any
suspected criminal activity.
CITE: 31CFR103.33
PART 103-FINANCIAL RECORDKEEPING AND REPORTING OF CURRENCY AND FOREIGN

TRANSACTIONS-Table of Contents
Subpart C-Records Required To Be Maintained
Sec. 103.33 Records to be made and retained by financial institutions.
Each financial institution shall retain either the onginal or a

microfilm or other copy or reproduction of each of the following:
(a) A record of each extension of credit in an amount in excess of
$10.000. except an extension of credit secured by an interest in real
property, which record shall contain the name and address of the person
to whom the extension of credit is made, the amount thereof, the nature
or purpose thereof. and the date thereof;
(b) A record of each advice, request, or instruction received or
given regarding any transaction resulting (or intended to result and
later canceled if such a record is normally made) in the transfer of
currency or other monetary instruments. funds. checks, investment
securities, or credit, of more than $10,000 to or from any person,
account. or place outside the United States.
(c) A record of each advice, request, or instruction given to
another financial institution or other person located within or without
the United States, regarding a transac~on intended to result in the
transfer of funds, or of currency, other monetary instruments, checks,
investment securities, or credit, of more than $10,000 to a person,
account or place outside th.e United States.
[[Page 360]]
(d) A record of such information for such period of time as the

Secretary may require in an order issued under Sec. 103.26(a), not to
exceed five years.
(e) Banks. Each agent, agency. branch, or office located within the
United States of a bank is subject to the requirements of this paragraph
(e) with respect to a funds transfer in the amount of $3,000 or more:
(1) Recordkeeping requirements. (i) it ..•.'
a£9. a bank shall obtain and retain either

the original or a microfilm, other copy, or electronic record of the
following information relating to the payment order.
(A) The name and address of the originator;
(B) The amount of the payment order;
(C) The execution date of the payment order,
(D) Any payment instructions received from the originator with the
payment order,
(E) The identity of the beneficiary's bank; and
) (F) As many of the following items as are received with the payment
,
,,",
order. \1\
\ 1\ For funds transfers effected through the Federal Reserve's

Fedwire funds transfer system, only one of the items is required to be
retained, if received with the payment order, until such time as the
bank that sends the order to the Federal Reserve Bank completes its
conversion to the expanded Fedwire message format.
(1) The name and address of the beneficiary;

(2) The account number of the beneficiary; and
(3) Any other specific identifier of the beneficiary.
(ii) For each payment order that it accepts as an intermediary bank,
a bank shall retain either the original or a microfilm, other copy, or
electronic record of the payment order.
(iii) F'l'
f'~.,
""""'"
em ,
a bank shall retain either the original or a microfilm, other
copy, or electronic record of the payment order.
'1'"
(4) Retrievability. The information that an gn
r under paragraphs (e)(1)(i) and (e)(2) of this section shall be
retrievable by the originator's bank by reference to the name of the
originator. If the originator is an established customer of the
originator's bank and has an account used for funds transfers, then the
information also shall be retrievable by account number. The information
that a beneficiary's bank must retain under paragraphs (e)(1)(Iii) and
(e)(3) of this section shall be retrievable by the beneficiary's bank by
reference to the name of the beneficiary. If the beneficiary is an
established customer of the beneficiary's bank and has an account used
for funds transfers, then the information also shall be retrievable by
account number. This information need not be retained in any particular
manner, so long as the bank is able to retrieve the information required
by this paragraph, either by accessing funds transfer records direct1y
or through reference to some other record maintained by the bank.
}"
(5) Verification. Where verification is required under paragraphs
-""
I
(e)(2) arid (e)(3) of this section, a bank shall verify a person's
identity by examination of a document (other than a bank signature
card), preferably one that contains the person's name, address, and
photograph, that is normally acceptable by financial institutions as a
means of identification when cashing checks for persons other than
established customers. Verification of the identity of an individual who
indicates that he or she is an alien or is not a resident of the United
States may be made by passport, alien identification card, or other
official document evidencing nationality or residence (e.g., a foreign
driver's license with indication of home address).
(6) Exceptions. The following funds transfers are not subject to the
requirements of this section:
(i) Funds transfers where the originator and beneficiary are any of
the following:
(A) A bank;
(B) A wholly-owned domestic subsidiary of a bank chartered in the
United States;
~ .~~....- ;£_.~i) ~"J.1"i ,-:if£~"",~,. "I!.~Db
~C} If. tirbket,. 'j~arer;jA'securifii~ ; [[[ dealerlbrokers have no entitlement rightslll]
(0) A wholly-owned domestic subsidiary of a broker or dealer in
securities;
(E) The United States;
(F) A state or local government; or
(G) A federal, state or local government agency or instrumentality;
and
(ii) Funds transfers where both the originator and the beneficiary
are the same person and the originator's bank and the beneficiary's bank
are the same bank.
(f) Nonbank financial institutions. Each agent, agency, branch, or
office located within the United States of a
[[Page 362]]
financial institution other than a bank is subject to the requirements

of this paragraph (f) with respect to a transmittal of funds in the
amount of $3,000 or more:
(1) Recordkeeping requirements. (i) For each transmittal order that
it accepts as a transmittor's financial institution, a financial
institution shall obtain and retain either the original or a microfilm,
-
other copy, or electronic record of the following information relating
-
to the transmittal order:
(A) The name and address of the transmitter;
(B) The amount of the transmittal order;
(e) The execution date of the transmittal order;
(D) Any payment instructions received from the transmitter with the
transmittal order;
(E) The identity of the recipient's financial institution;
(F) As many of the following items as are received with the
transmittal order: \2\
\2\ For transmittals of funds effected through the Federal Reserve's

Fedwire funds transfer system by a domestic broker or dealers in
securities, only one of the items is required to be retained, if
received with the transmittal order, until such time as the bank that
sends the order to the Federal Reserve Bank completes its conversion to
the expanded Fedwire message format.
(1) The name and address of the recipient;

(2) The account number of the recipient; and
(3) Any other specific identifier of the recipient; and
(G) Any form relating to the transmittal of funds that is completed
or signed by the person placing the transmittal order.
(ii) For each transmittal order that it accepts as an intermediary
financial institution, a financial institution shall retain either the
original or a microfilm, other copy, or electronic record of the
transmittal order.
(iii) for each transmittal order that it accepts as a recipient's
financial institution, a financial institution shall retain either the
original or a microfilm, other copy, or electronic record of the
transmittal order.
(2) Transmittors other than established customers. In the case of a
transmittal order from a transmittor that is not an established
customer, in addition to obtaining and retaining the information
required in paragraph (f)(1)(i) of this section:
TITLE 17-eOMMODITY AND SECURITIES EXCHANGES
CHAPTER II-SECURITIES AND EXCHANGE COMMISSION (CONTINUED)
PART 24O-GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934-

Table of Contents
Subpart A-Rules and Regulations Under the Securities Exchange Act of

1934
sec. 240.17a-3 Records to be made by certain exchange members, brokers and dealers.
(a) Every member of a national securities exchange who transacts a

business in securities directly with others than members of a national
securities exchange, and every broker or dealer who transacts a business
in securities through the medium of any such member, and every broker or
dealer registered pursuant to section 15 of the
[[Page 390]]
Securities Exchange Act of 1934, as amended, (48 Stat. 895, 49 Stat.

1377,52 Stat. 1075; 15 U.S.C. 780) shall make and keep current the
following books and records relating to his business:
(1) Blotters (or other records of original entry) containing an
itemized daily record of all purchases and sales of securities, all
receipts and deliveries of securities (including certificate numbers),
all receipts and disbursements of cash and all other debits and credits.
Such records shall show the account for which each such transaction was
effected, the name and amount of securities, the unit and aggregate
purchase or sale price (if any), the trade date, and the name or other
designation of the person from whom purchased or received or to whom
sold or delivered.
(2) Ledgers (or other records) reflecting all assets and
liabilities, income and expense and capital accounts.
(3) Ledger accounts (or other records) itemizing separately as to
-
. '
each cash and margin account of every customer and of such member,
broker or dealer and partners thereof, all purchases, sales, receipts
and deliveries of securities and commodities for such account and all
other debits and credits to such account.
(4) Ledgers (or other records) reflecting the following:
(i) Securities in transfer;
(ii) Dividends and interest received;
(iii) Securities borrowed and securities loaned;
(iv) Moneys borrowed and moneys loaned (together with a record of
the collateral therefor and any substitutions in such collateral);
(v) Securities failed to receive and failed to deliver;
(vi) All long and all short securities record differences arising
from the examination, count, verification and comparison pursuant to
Sec. 24O.17a-5, Sec. 240.17a-12, and Sec. 24O.17a-13 (by date of
examination, count, verification and comparison showing for each
security the number of long or short count differences);
(vii) Repurchase and reverse repurchase agreements;
(5) A securities record or ledger reflecting separately for each
security as of the clearance dates all "long" or "short" positions
(including securities in safekeeping and securities that are the
subjects of repurchase or reverse repurchase agreements) carried by such
member, broker or dealer for his account of for the account of his
customers or partners or others and showing the location of all
securities long and the offsetting position to all securities short,
including long security count differences and short security count'
differences classified by the date of the physical count and
verification in which they were discovered, and in all cases the name or
designation of the account in which each position is carried.
(6) A memorandum of each brokerage order, and of any other
instruction, given or received for the purchase or sale of securities,
whether executed or unexecuted. Such memorandum shall show the terms and
conditions of the order or instructions and of any modification or
cancellation thereof, the account for which entered, the time of entry,
the price at which executed and, to the extent feasible, the time of
execution or cancellation. Orders entered pursuant to the exercise of
discretionary power by such member, broker or dealer, or any employee
thereof, shall be so designated. The term "instruction" shall be
" •
deemed to include instructions between partners and employees of a

member, broker or dealer. The term "time of entry" shall be deemed to
mean the time when such member, broker or dealer transmits the order or
instruction for execution or, if it is not so transmitted, the time when
it is received.
(7) A memorandum of each purchase and sale for the account of such
member, broker, or dealer showing the price and, to the extent feasible,
the time of execution; and, in addition, where such purchase or sale is '
with a customer other than a broker or dealer, a memorandum of each
order received, showing the time of receipt, the terms and conditions of
the order, and the account in which it was entered.
(8) Copies of confirmations of all purchases and sales of
securities, including all repurchase and reverse repurchase agreements,
and copies of notices of all other debits and credits for securities,
cash and other items for the account of
[[Page 391]]
customers and partners of such member, broker or dealer.

(9) A record in respect of each cash and margin account with such
member, broker or dealer indicating (i) the name and address of the
beneficial owner of such account, and
(ii) Except with respect to exempt employee benefit plan securities
as defined in Sec. 240. 14a-1 (d), but only to the extent such securities
are held by employee benefit plans established by the issuer of the
securities, whether or not the beneficial owner of securities registered
in the name of such members, brokers or dealers, or a registered
clearing agency or its nominee objects to disclosure of his or her
identity, address and securities positions to issuers, and (iii) in the
case of a margin account, the signature of such owner; Provided, That,
in the case of a joint account or an account of a corporation, such
records are required only in respect of the person or persons authorized
to transact business for such account.
rCll::l~ I VI U
-
Suction JI S onsorg'
Hud's Reg X
Sec. 3500.21 Mortgage servicing transfers.
(a) Definitions. As used in this section:
BOt
1.t.aItbft00dioo.aw
Master servicer means the owner of the right to
perform servicing, which may actually perform the
servicing itself or may do so through a subservicer.
Mortgage servicing loan means a federally related
Flw;)M~. mortgage loan, as that term is defined in Sec.
FOR SANl<I(RS. 3500.2, subject to the exemptions in Sec. 3500.5, ... ,_. ....•...,. -
_~ - .. ~
JiIi:· when the mortgage loan is secured by a first lien.

The definition does not include subordinate lien
. ~~j_~c.:.:
loans or open-end lines of credit (home equity
plans) covered by the Truth in Lending Act and
Regulation Z, including open-end lines of crecfrt
if11Rt:,:'P;;1
secured by a first lien. .·M:i!~MII!~······
Qualified written request means a written
correspondence from the borrower to the servicer
prepared in accordance with paragraph (e)(2) of
•. ,~,~ • •flj~~~:'"
...... '"
this section. ~.~.;

Subservicermeans a servicer who does not own
the right to perform servicing, but Who does so on
behalf of the master servicer.
Transferee servicer means a servicer who obtains
or who will obtain the right to perform servicing
functions pursuant to an agreement or
understanding.
QurSponsors Transferor servicer means a servicer, including a
table funding mortgage broker or dealer on a first
Home lien dealer loan, who transfers or Will transfer the
right to perform servicing functions pursuant to an
agreement or understanding.
(b) servicing Disclosure Statement and

Applicant Acknowledgement; requirements. (1)
At the time an application for a mortgage servicing
loan is SUbmitted, or within 3 business days after
submission of the application, the lender, mortgage
broker who anticipates using table funding, or
dealer who anticipates a first lien dealer loan shall .
prOVide to each person who applies for such a loan
a Servicing Disclosure Statement This
requirement shall not apply when the application
for credit is turned down within three business days
after receipt of the application. A format for the
Servicing Disclosure Statement appears as
appendix MS-1 to this part. Except as prOVided in
paragraph (b)(2) of this section, the specific
language of the Servicing Disclosure Statement is
not required to be used, but the Servicing
) Disclosure Statement must include the information
set out in paragraph (b)(3) of this section, including
....ctyt:l ~ UJ 0
the statement of the borrower's rights in connection

with complaint resolution. The information set forth
in Instructions to Preparer on the Servicing
Disclosure Statement need not be included on the
form given to applicants, and material in square
brackets is optional or alternative language.
(2) The Applicant's Acknowledgement portion
of the Servicing Disclosure Statement in the format
stated is mandatory. Additional lines may be added
to accommodate more than two applicants.
(3) The Servicing Disclosure Statement must
contain the following information, except as
prOVided in paragraph (b)(3)(ii) of this section:
(i) VVhether the servicing of the loan may be
assigned, sold or transferred to any other person at
any time while the loan is outstanding. If the
lender, table funding mortgage broker, or dealer in
a first lien dealer loan does not engage in the
servicing of any mortgage servicing loans, the
disclosure may consist of a statement to the effect
that there is a current intention to assign, sell, or
transfer servicing of the loan.
(ii) The percentages (rounded to the nearest
quartile (25%» of mortgage servicing loans
originated by the lender in each calendar year for
which servicing has been assigned, sold, or
transferred for such calendar year. Compliance
with this paragraph (b)(3)(ii) is not required if the
lender, table funding mortgage broker, or dealer on
a first lien dealer loan chooses option B in the
model format in paragraph (b)(4) of this section,
inclUding in square brackets the language "[and
have not serviced mortgage loans in the last three
years.]". The percentages shall be provided as
follows:
(A) This information shall be set out for the
most recent three calendar years completed, with
percentages as of the end of each year. This
information shall be updated in the disclosure no
later than March 31 of the next calendar year.
Each percentage should be obtained by using as
the numerator the number of mortgage servicing
loans originated during the calendar year for which
servicing is transferred within the calendar year
and, as the denominator, the total number of
mortgage servicing loans originated in the calendar
year. If the volume of transfers is less than 12.5
percent, the word "nominal" or the actual
percentage amount of servicing transfers may be
used.
(B) This statistical information does not have to
include the assignment, sale, or transfer of
mortgage loan servicing by the lender to an affiliate
or subsidiary of the lender. However, lenders may
voluntarily include transfers to an affiliate or
subsidiary. The lender should in'dicate whether the
percentages provided include assignments, sales,
or transfers to affiliates or subsidiaries.
(C) In the alternative, if applicable, the following
statement may be substituted for the statistical
information required to be prOVided in accordance
with paragraph (b)(3)(ii) ofthis section: "We have
preViously assigned, sold, or transferred the
servicing offederally related mortgage loans."
IIUU ;:) "t:#~ A. - n.t:#ClI l::;:)lClLt:# vt:#UIt:#IIIt:#11L r I VI.A:::UUI t:#;:) I'\\,;l .- etyt# " ur 0
-
(iii) The best available estimate of the
percentage (0 to 25 percent, 26 to 50 percent, 51
-
to 75 percent, or 76 to 100 percent) of all loans to
be made during the 12-month period beginning on
the date of origination for which the servicing may
be assigned, sold, or transferred. Each percentage
should be obtained by usi ng as the numerator the
estimated number of mortgage servicing loans that
will be originated for which servicing may be
transferred within the 12-month period and, as the
denominator, the estimated total number of
mortgage servicing loans that will be originated in
the 12-month period.
(A) If the lender, mortgage broker, or dealer
anticipates that no loan servicing will be sold
during the calendar year, the word" none" may be
substituted for"O to 25 percent." If it is anticipated
that all loan servicing will be sold during the
calendar year, the word ,. all" may be substituted
for '76 to 100 percent."
(B) This statistical information does not have to
include the estimated assignment, sale, or transfer
of mortgage loan servicing to an affiliate or
subsidiary of that person. However, this
information may be provided voluntarily. The
Servicing Disclosure Statements should indicate
whether the percentages provided include
assignments, sales or transfers to affiliates or
subsidiaries.
(iv) The information set out in paragraphs (d)
and (e) ofthis section.
(v) A written acknowledgement that the
applicant (and any co- applicant) has/have read
and understood the disclosure, and understand
that the disclosure is a required part of the
mortgage application. This acknowledgement shall
be evidenced by the signature of the applicant and
any co-applicant.
(4) The following is a model format, which
includes several options, for complying with the
requirements of paragraph (b)(3) of this section.
The model format may be annotated with
additional information that clarifies or enhances the
model language. The lender or table funding
mortgage broker (or dealer) should use the
language that best describes the particular
circumstances.
(i) Model format: The following is the best
estimate of what will happen to the servicing of
your mortgage loan:
(A) Option A.. We may assign, sell, or transfer
the servicing of your loan while the loan is
outstanding. [We are able to service your loan[.][,]
and we [will] [will not] [haven't decided whether to]
service your 10an.J; or
(B) Option B. We do not service mortgage
loans[.][,] [and have not serviced mortgage loans in
the past three years.] We presently intend to
assign, sell, or transfer the servicing of your
mortgage loan. You will be informed about your
servicer.
(C) As appropriate, the follow\ng paragraph
may be used:
We assign, sell, or transfer the servicing of some of
t"age 4 OT fj
our loans while the loans are outstanding,

depending on the type of loan and other factors.
For the program for which you have applied, we
expect to (assign, sell, or transfer all of the
mortgage servicing)[retain all of the mortgage
servicing] [assign, sell, or transfer 0,"" of
the mortgage servicing].
(ii) [Reserved]
(c) servicing Disclosure statement and

Applicant AcknoWledgement; delivery. The
lender, table funding mortgage broker, or dealer
that anticipates a first lien dealer loan shall deliver
Servicing Disclosure Statements to each applicant
for mortgage servicing loans. Each applicant or 00-
applicant must sign an Acknowledgement of
receipt of the Servicing Disclosure Statement
before settlement
(1) In the case of a face-to-face interview with
one or more applicants, the Servicing Disclosure
Statement shall be delivered at the time of
application. An applicant present at the interview
may sign the Acknowledgment on his or her own
behalf at that time. An applicant present at the
interview also may accept delivery of the Servicing
Disclosure Statement on behalf of the other
applicants.
(2) If there is no face-to-face interview, the
Servicing Disclosure Statement shall be delivered
by placing it in the mail, with prepaid first-class
postage, within 3 business days from receipt of the
application. If co-applicants indicate the same
address on their application, one copy delivered to
that address is sufficient. If different addresses are
shown by co-applicants on the application, a copy
must be delivered to each of the co-applicants.
(3) The signed Applicant Acknowledgment(s)
shall be retained for a period of 5 years after the
date of settlement as part of the loan file for every
settled Joan. There is no requirement for retention
of Applicant Acknowledgment(s) if the loan is not
settled.
(d) Notices of Transfer; loan servicing-(1)

Requirement for notice. (i) Except as prOVided in
this paragraph (d)(1)(i) or paragraph (d)(1)(ii) of
this section, each transferor servicer and .
transferee servicer of any mortgage servicing loan
shall deliver to the borrower a written Notice of
Transfer, containing the information described in
paragraph (d)(3) of this section, of any assignment,
sale, or transfer of the servicing of the loan. The
following transfers are not considered an
assignment, sale; or transfer of mortgage loan
servicing for purposes ofthis requirement if there is
no change in the payee, address to which payment
must be delivered, account number, or amount of
payment due:
(A) Transfers between affiliates;
(B) Transfers resulting from mergers or
acquisitions of servicers or subservicers; and
(e, Transfers between master servicers, where
the subservicer remains the same.
(ii) The Federal Housing Administration (FHA)
I IUU .; I"'\t::y J'\. - "t::cu ~;:)LC:Ut:: .;Jt::UIt::IIIt::1 Il r I VI",t::UUI t::;:) M\"l
-
is not required under paragraph (d) of this section
to submit to the borrower a Notice of Transfer in
-
cases where a mortgage insured under the
National Housing Ad. is assigned to FHA.
(2) TIme of notice. (i) Except as provided in
paragraph (d)(2)(ii) of this section:
(A) The transferor servicer shall deliver the
Notice of Transfer to the borrower not less than 15
days before the effective date of the transfer of the
servidng of the mortgage servicing loan;
(B) The transferee servicer shall deliver the
Notice of Transfer to the borrower not more than
15 days after the effective date of the transfer; and
(C) The transferor and transferee servicers
may combine their notices into one notice, which
shall be delivered to the borrower not less than 15
days before the effective date of the transfer of the
servidng of the mortgage servicing loan.
(il) The Notice of Transfer shall be delivered to
the borrower by the transferor servicer or the
transferee servicer not more than 30 days after the
effective date of the transfer of the servicing of the
mortgage servidng loan in any case in which the
transfer of servicing is preceded by:
(A) Termination of the contract for servicing the
loan for cause;
(B) Commencement of proceedings for
bankruptcy of the servicer; or
(C) Commencement of proceedings by the
Federal Deposit Insurance Corporation (FDIC) or
the Resolution Trust Corporation (RTC) for
conservatorship or receivership of the servicer or
an entity that owns or controls the servicer.
(iii) Notices of Transfer delivered at settlement
by the transferor servicer and transferee servicer,
whether as separate notices or as a combined
notice, will satisfy the timing requirements of
paragraph (d)(2) of this section.
(3) Notices of Transfer; contents. The Notices
of Transfer required under paragraph (d) of this
section shall include the following information:
(I) The effective date of the transfer of
servidng;
(ii) The name, consumer inquiry addresses
(including, at the option of the servicer, a separate
address where qualified written requests must be
sent), and a toll-free or collect-call telephone
number for an employee or department of the
transferee servicer;
(iii) A toll-free or collect-call telephone number
for an employee or department of the transferor
servicer that can be contacted by the borrower for
answers to servicing transfer inquiries;
(iv) The date on which the transferor servicer
will cease to accept payments relating to the loan
and the date on which the transferee servicer will
begin to accept such payments. These dates shall
either be the same or consecutive days;
(v) Information concerning any effect the
transfer may have on the terms or the continued
availability of mortgage life or disability insurance,
or any other type of oplional insurance, and any
) action the borrower must take to maintain
coverage;
flUU ~ ,,~~ A - r\~ClI I::~LCll~ Q~UIl::III~11l r I V\"CUUIl:::J I"\vL rCl~t# 0 UI 0
(vi) A statement that the transfer of servicing

does not affect any other term or condition of the
mortgage documents, other than terms directly
related to the sef\'icing of the loan; and
(vii) A statement of the borrower's rights in
connection with complaint resolution, including the
information set forth in paragraph (e) of this
section. Appendix MS-2 of this part illustrates a
statement satisfactory to the Secretary.
(4) Notices of Transfer; sample notice. Sample
language that may be used to comply with the
requirements of paragraph (d) of this section is set
out in appendix M8-2 of this part. Minor
modifications to the sample language may be
made to meet the particular circumstances of the
servicer, but the substance of the sample language
shall not be omitted or SUbstantially altered.
(5) Consumer protection during transfer of
sef\'icing. During the 60- day period beginning on
the effective date of transfer of the servicing of any
mortgage servicing loan, if the transferor servicer
(rather than the transferee sef\'icer that should
properly receive payment on the loan) receives
payment on or before the applicable due date
(including any grace period allowed under the loan
documen1s), a late fee may not be imposed on the
borrower with respect to that payment and the
payment may not be treated as late for any other
purposes.
(e) Duty of loan servicer to respond to borrower

inquiries- (1) Notice of receipt of inquiry. Within
20 business days of a servicer of a mortgage
servicing loan receiving a qualified written request
from the borrower for information relating to the
servicing of the loan, the servicer shall prOVide to
the borrower a written response acknowledging
receipt of the qualified written response. This
requirement shall not apply if the action requested
by the borrower is taken within that period and the
borrower is notified of that action in accordance
with the paragraph (f)(3) of this section. By notice
either included in the Notice of Transfer or
separately delivered by first-class mail, postage
prepaid, a servicer may establish a separate and
exclusive office and address for the receipt and
handling of qualified written requests.
(2) Qualified written request; defined. (i) For
purposes of paragraph (e) of this section, a
qualified written request means a written
correspondence (ather than notice on a payment
coupon or other payment medium supplied by the
servicer) that includes, or otherwise enables the
servicer to identify, the name and account of the
borrower, and includes a statement of the reasons
that the borrower believes the account is in error, if
applicable, or that provides sufficient detail to the
sef\'icer regarding information relating to the
servicing of the loan sought by the borrower.
(ii) A written request does not constitute a
qualified written request if it is delivered to a
servicer more than 1 year after either the date of
transfer of servicing or the date that the mortgage
servicing loan amount was paid in full, whichever
nuu ~ n.t::y A. - "t::dl t=~ldlt:: ..:>t::lllt::IIIt::11l rl U~t::UUI t::~ I'\~l
date is applicable.
(3) Action with respect to the inquiry. Not later
than 60 business days after receiving a qualified
-
written request from the borrower, and, if
applicable, before taking any action with respect to
the inquiry, the servicer shall:
(i) Make appropriate corrections in the account
of the borrower, including the crediting of any late
charges or penalties, and transmit to the borrower
a written notification of the correction. This written
notification shall include the name and telephone
number of a representative of the servicer who can
provide assistance to the borrower; or
(ii) After conducting an investigation, provide
the borrower w\th a wntten explanation or
clarification that includes:
(A) To the extent applicable, a statement of the
servicer's reasons for concluding the account is
correct and the name and telephone number of an
employee, office, or department of the servicer that
can provide assistance to the borrower; or
(B) Information requested by the borrower, or
an explanation of why the information requested is
unavailable or cannot be obtained by the servicer,
and the name and telephone number of an
employee, office, or department of the servicer that
can prOVide assistance to the borrower.
(4) Protection of credit rating. (i) During the 60-
business day period beginning on the date of the
servicer receiving from a borrower a qualified
written request relating to a dispute on the
borrower's payments, a servicer may not provide
adverse information regarding any payment that is
the sUbject of the qualified written request to any
consumer reporting agency (as that term is defined
in section 603 of the Fair Credit Reporting Act, 15
U.S.C.1681a).
(ii) In accordance with section 17 of RESPA
(12 U.S.C. 2615), the protection of credit rating
provision of paragraph (e)(4)(i) of this section does
not impede a lender or servicer from pursuing any
of its remedies, including initiating foreclosure,
allowed by the underlying mortgage loan
instruments.
(f) Damages and costs. (1) Whoever fails to

comply with any provision of this section shall be
liable to the borrower for each failure in the
following amounts:
(i) Individuals. In the case of any action by an
individual, an amount equal to the sum of any
actual damages sustained by the individual as the
result of the failure and, when there is a pattern or
practice of noncompliance with the requirements of
this section, any additional damages in an amount
not to exceed $1,000.
(ii) Class actions. In the case of a class action,
an amount equal to the sum of any actual
damages to each borrower in the class that result
from the failure and, when there is a pattern or
practice of noncompliance with the requirements of
this secnon, any additional damages in an amount
) not greater than $1,000 for each class member.
However, the total amount of any adcfrtiona!
11UU ;:) r'\l::Y A - r'\l::al C;;;:'LaLl:: "'l::LLll::III~IIL r I UIJI:'UUI l::;:) I"\IJL ray'=' 0 VI 0
damages in a class action may not exceed the

lesser of Sec. 500,000 or 1 percent of the net
worth of the servicer.
(iii) Costs. In addition, in the case of any
successful action under paragraph (f) of this
section, the costs of the action and any reasonable
attorneys' fees incurred in connection with the
action.
(2) Nonliability. A transferor or transferee
servicer shall not be liable for any failure to comply
with the requirements of this section, if within 60
days after discovering an error (whether pursuant
to a final written examination report or the
servicer's own procedures) and before
commencement of an action under this section and
the receipt of written notice of the error from the
borrower, the servicer notifies the person .
concerned of the error and makes whatever
adjustments are necessary in the appropriate
account to ensure that the person will not be
required to pay an amount in excess of any
amount that the person otherwise would have paid.
(g) Timely payments by servicer. If the terms of

any mortgage servicing loan require the borrower
to make payments to the servicer of the loan for
deposit into an escrow account for the purpose of
assuring payment of taxes, insurance premiums,
and other charges with respect to the mortgaged
property, the servicer shall make payments from
the escrow account in a timely manner for the
taxes, insurance premiums, and other charges as
the payments become due, as governed by the
requirements in Sec. 3500.17(k).
(h) Preemption of State laws. A lender who

makes a mortgage servicing loan or a servicer
shall be considered to have complied with the
provisions of any State law or regulation requiring
notice to a borrower at the lime of application for a
loan or transfer of servicing of a loan if the lender
or servicer complies with the requirements of this
section. Any State law requiring notice to the
borrower at the time of application or at the time of
transfer of servicing of the loan is preempted, and
there shall be no additional borrower disclosure
requirements. Provisions of State law, such as
those requiring additional notices to insurance
companies or taxing authorities, are not preempted
by section 6 of RESPA or this section, and this
additional information may be added to a notice
prepared under this section, if the procedure is
allowable under State law.
&.: Print Friendly Versicml

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L:J Future
~ Deposit Insurance I§ Consumer Protection Ij~ Industry Analysis pc) ~eg~la.ti?~~~d

Financial Institution Letters
Real Estate Settlement Procedures Act

FIL-21-99
March 12, 1999
TO: CHIEF EXECUTIVE OFFICER

SUBJECT: HUD Po/icy Statement on Lender Payments to Mortgage Brokers
The Department of Housing and Urban Development (HUD) has issued the attached policy statement interpreting
the level of services that mortgage brokers must perform in order to receive compensation from mortgage lenders.
HUD's Statement of Policy 1999-1 took effect March 1, 1999.
Compensation paid to mortgage brokers can be paid directly or indirectly by applicants, or received indirectly from
lenders who fund the transaction through a table-funding process. These indirect fees received from funding parties
are commonly referred to as "yield-spread premiums," "servicing-release premiums," and "back-funded payments. II
) Section 8 of the Real Estate Settlement Procedures Act (RESPA) prohibits the payment of fees or any other "thing
.' of value" for the referral of real estate settlement services. The origination of a mortgage loan is a settlement
service, and the referral of a loan to another party in exchange for fees or other payments may violate Section 8.
Violations of Section 8 are subject to both civil and criminal penaJties. The policy statement notes that a number of
laVIISuits have been FILed contending that yield-spread premiums and similar fees are automatically a violation of
Section 8 and lenders should be held liable for the violations.
The policy statement indicates that payment of these fees is not illegal per se; however, payment may violate
Section 8 of RESPA in some cases. For payment of these fees to be permissible under RESPA, sufficient goods or
facilities must be provided or services performed to permit payment of compensation; and the amount of the total
compensation paid to the mortgage broker must be reasonable in relation to comparable transactions within the
same market The policy statement also notes that while a broker may be compensated for goods or facilities
actually furnished or services performed, the loan itself cannot be regarded as a "good" that the broker may sell to
the funding party based upon the loan's yield in relation to market value (reasonable or otherwise).
The policy statement has incorporated a prior informal position that HUD provided to the Independent Bankers
Association of America (IBM) by letter dated February 14, 1995. In the letter, HUD identified types of activities and
services that are generally performed in the origination of a mortgage loan and provided guidance on the level of
activities and services required in order to receive compensation for work performed as a mortgage broker.
This policy statement is important to FDIC~supervised institutions when acting in the capacity of a mortgage broker
as defined by the RESPA regUlations. Institutions need to review their practices in accordance with the policy
statementto ensure their procedures are in compliance with RESPA requirements. Institutions that do not review
their procedures and arrangements with funding lenders may be exposing themselves to unnecessary liability.
FDIC examiners will be reviewing table-funding arrangements during the course of future regular compliance
examinations to ensure that institutions are comp/ying with the requirements of the policy statement and RESPA
HUD staff members who can provide additional information are:
) • Rebecca J. Holtz, Director RESPAIILS Division, (202) 708-4560

• Kenneth A. Markison, Assistant General Counsel for GSElRESPA, (202) 708-3137
rUI\.J: rlL.-L·I-~::1: rlnanClal IrlSUlUUUn L.eUers: t\eClI CSlClle \:>ememern r-ruceuures I"\Cl r-Clge L or L.
• Rodrigo Alba, Attorney, (202) 708-3137
FDIC staff members who can provide additional information are:
• Ken Baebel, Senior Review Examiner in the Division of Compliance and Consumer Affairs, (202) 942-3086,
e-mail [email protected]
• Rex Taylor, Counsel in the Legal Division, (202) 898-3733, e-mail [email protected]
• Susan VanDenToorn, Counsel in the Legal Division, (202) 898-8707, e-mail mailto:[email protected]
Ronald F. Bieker
Acting Director
Attachments: March 1, 1999, Federal Register, Vol. 64, No. 39, pages 10080-10087
HTI'Y-t!:£orrnat PDF Format (66 Kb - PDF help or !'lard~)
NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information
Center, 801 17th Street NW, Room 100, Washington, DC 20434 (800-276-6003 or 202-416-6940).
Last Updated 0711711:999
Home C_cmtact Us ~.M_ch f:tem SiteMilP fQf.1!lli

Er~ed9m of Inf9rmliiljon Act W~~tlLE'olicieJ>_ Ejl§lG..9:L9.Qy.
rn:;uI I 1\;:' V I I Ul UYI VII, r .n. - VVV r I ~fJV~CU I'~UlaLlV' I~ I ,c~al UIII~ -..JlalC; l-aVY I a~g I VI L
ace Proposed Regulations Regarding State Law
By: ~_ ~.._Th~y"t~, ~~1;_~J':~I19~_ GrQ\.!!!'

Phone: (e12}4S2·7187
E-maH: ~f@fredf::tw.cqm
September 2003
Th has just proposed new regulations that are

i'li1llll• •ICIII..,iI!Iili1lJiajlt1ililiilii. . .~,.,_ _Iii:IIIIiIII_._1n the pastYe2T, p;articularly as states
have enacted predalnrylending and other consumer-friendly laws, the oce tlas received lJUmerous
inquiries for clarification of whether such state -laws apply In national banks. ~
regulations governing national bank deposit-taking and lending apply equally to national bank
operating subsidiaries, so long a5 such activities are permissible for a national bank.
an ,,,- _of, fCf ~l!I-.!1!~-IijiftIts.~
sla~~!alf.'!!f~_ ~_ .. ~~~~~re
in~&l9.~~~ . ~",ro~~.
'r ~~i"-"
( )
sti!.~n!ti9.~PIIUoI'Because
even these categories can lead to confusion, the oee has
proposed new regulations in an attempt to clarify which state lalM> will apply to national banks and their
subsidiaries.
The oee proposed regulations sp~ify that sla-te IaIM> concerning the fonowing topics do nat apply -to
deposits Iaken by national banks:
IIf abandoned and dormant accounts,
• checking accounts, 0 mandated statements and -aJScIosure requirements, 0 funds availability,
:lI savings aecountorden; of withdrawal,
ill state licensing or registration requirements, and
• special purpose savings selVices.
In addition, the proposed regUlations specify that slate lalM> on the following topics do not apply to
lending by national banks:
iii licensing, registration. filings or repcrts by creditors;
~ the ability of a cred~or to obtain insurance on collateral or other credit enhancements;
lJ loan-to-value ratios;
) II terms of credit, including repayment schedules, amortization, payments due, minimum payments, and
t-reCriKSan c:5t oyran, t" .1'\. - Uvv .... , ufJu~~u ,",l:'YUIc:allUII~ f'\t::~c::ll UIIIY vlOlt:: Lc::lVY
term to maturity, including the circumstances under which a loan can be accelerated;
f( escrow, impound Dr similar accounts;
11 property that may be used as security;
!11 access to and use of credit reports;
If mandated statements, disclosures and advertising, inc!ud"mg lavy's requiring specfficstatements or

information in application forms, solicitations, biUing statements, notes or other credit-related documents;
.I disbursements and repayments; and
1II interest rates.
The ace clarified that a national bank may not make real estate loans based predominantly on the
foreclosure value of the OOI'l'OW'er's coDa:leral without regard to the borrower's repayment ability.
The propO$ed regulations are intended to clarify the applicability of stale laws to national banks. and
are not intended to change existing law.
/
(:) 2003 Fredrikson & Bvron P.A.
SECTION FIVE
This section pertains to mortgage foreclosure:
A. United States Code Annotated [Federal statutes] pertaining to foreclosure.
B. Federal Home Loan Mortgage Corporation [Freddie Mac] servicer bulletins

regarding mortgage foreclosure.
C. General information from private business' and mortgage foreclosure.
D. General information from private business expert regarding same.

of/ .,qtrt. CF /",Aro// ~ '1'
,l'»dtI'l!../C:-A (it.. d' ;:-fi.n ~ c: &. t?.,/ t/J'l q-
-
Pagel
CITATION
''''USCA§ 3704
VSCA§ 3706
TITLE
Foreclosure commissioner; designation, duties, etc
Notice ofdefault and foreclosure sale; condition and term of sale
-
12 USCA § 3707 Commencement offoreclosure; powers and duties offoreclosure commissioner or substitute
12 USCA § 3708 Service of notice of default and foreclosure sale
12 USCA § 3709 Presale reinstatement
12 USCA § 3710 Foreclosure sale
12 USCA § 3711 Foreclosure costs
12 USCA § 3712 Disposition ofsale proceeds
12 USCA § 3713 Transfer of title and possession
12 USCA § 3714 Record offoreclosore and sale
12 USCA § 3754 Designation offoreclosure commissioner
12 USCA § 3756 Commencement offoreclosure
12 USCA § 3751 Notice ofdefault and foreclosure sale
12 USCA § 3758 Service of notice of foreclosure sale
12 USCA § 3759 Presale reinstatement
12 USCA§ :)760 Conduct of sale; adjournment
12 USCA § 3761 Foreclosure costs
12 USCA § 3762 Disposition of sale proceeds
12 USCA § 3763 Transfer oftit1e ann possession
12 USCA § 3764 Record offoreclosure and sale
12 USCA § 3751, Findings and purpose Pagel
*94426 12 U.S.C.A. § 3751 authority;

(4) the availability of uniform and
UNITED STATES CODE more expeditious procedures, with no right of
ANNOTATED redemption in the mortgagor or others, for the
TITLE 12. BANKS AND foreclosure of these mortgages by the
BANKING Secretary will tend to ameliorate these
conditionS; and
CHAPTER 38A--SINGLE
(5) providing the Secretary with a
FAMILY MORTGAGE nonjudicial foreclosure procedure will reduce
FORECLOSURE unnecessary litigation by removing many
foreclosures from the courts if they contribute
Current through P.L. 106-213. approved to overcrowded calendars.
f-26-2(){){)
(b) Purpose
§ 3751. Findings and purpose
The purpose of this chapter is to create a
(a) Findings uniform Federal foreclosure remedy for single
family mortgages that--
The Congress fmds that-- (I) are held by the Secretary pursuant
(1) the disparate State laws under to title I or title II of the National Housing Act
which mortgages are foreclosed on behalf of [12 U.S.C.A. § 1702 et seq. or § 1707 et seq.];
the Secretary covering 1- to 4-family or
residential properties-- (2) secure loans obligated by the
(A) burden certain programs Secretaty under section J452b of Title 42~
administered by the Secretary;
(B) increase the costs of CREDIT(S)
collecting obligations; and
(C) generally are a detriment to 2000 Electronic Update
the community in which the properties are
(P«bL.103-327, Tit/eD,Sepf. 28, 1994, l08Staf. 2316.)
located;
(2) the long periods required to
complete the foreclosure of such mortgages HISTORICAL NOTES
under certain State laws--
*94427 HISTORICAL AND
(A) lead to deterioration in the
STATUTORY NOTES
condition of the properties involved;
(B) necessitate substantial References in Text
Federal holding expenditures; The National Housing Act. referred to in subsec. (bXl), is
(C) increase the risk of Act June 27, 1934, c. 847,48 Stat. 1246, as amended, which
vandalism, fire loss, depreciation, damage, is classified principally to chapter 13 (section 1701 et seq.) of
this title. Title I and Title II of the National Housing Act are
and waste with respect to the properties; classified to subchapters I and II (sections 1702 et seq. and
and 1707 et seq.), respectively, of chapter 13 of this utfe. For
(0) adversely affect the complete classification of this Act to the Code, see section
. neighborhoods in which the properties are 1701 ofthis title and Tabies.
located; Section 1452b of Title 42, referred to in subsec. (bX2),

(3) these conditions seriously impair was repealed, except with respect to certain single room
the ability of the Secretary to protect the occupancy dwellings, by PubL. 101-625, Title II, §
289(aX2), (b), Nov. 28, 1990,104 Stat. 4128, effective Oct
Federal financial interest in the affected
1, 1991, and except with respect to projects and programs for
properties and frustrate attainment of the which binding commitments have been entered into prior to
objectives of the underlying Federal program Oct 1, 1991, IW new grants or loans to 00 made after Oct. 1,
-
12 USCA § 3751, Findings and purpose Page 2
1991, under such section. See section 12839(aX2) and (b)

of Title 42, The Public Health and Welfure. REFERENCES -i
Codifications
Section is based on Senate No. 2281, Title VIII, § 802, LffiRARY REFERENCES
One-hundred third Congress, agreed to on July 13, 1994,
which was enacted into permanent law by PubL. 103-327. American Digest System
Effective Date Mortgages; foreclosure by exercise of power of safe, see

Title II ofPub.L. 103-327 provided in part that Title VIII Mortgages <!?329 et seq.
of S. 2281, One-hundred third Congress, reported July 13, Right to redeem in general, see Mortgages <!?591(1 to 3).
1994, which is classified to this chapter, is inooIpotated into
PubL. 103-327 and deemed enacted into law upon *94428 Encyclopedias
enactment of Pub.L. 103-327, which was approved Sept. 28,
1994. Existence and nature of right of redemption, see C.J.S.
Mortgages §§ 813 to 821.
Short Title Foreclosure of mortgage by exercise of power of sale, see
Section 801 of S. 2281, Title VIII, One-hundred third C.J.S. Mortgages § 544 et seq.
Co~, repc:>rted July 13, 1994, as inCOIpOtated into Foreclosure ofmortgages, see C.J.S. Mortgages § 482 et seq.
pennanent law by PubL. 103-327, Title II, Sept. 28, 1994, Parties to trust deeds; succession and substitution of trustees,
108 Stat. 2316 in part, provided that "This title [enacting see C.J.S. Mortgages § 85.
this chapter] may be cited as the 'Single Family Mortgage Reinstatement of right; waiver of foreclosure, see C.J.S.
Foreclosure Act of 1994'." Mortgages § 846.
12 USCA § 3752, Definitions Pagel
*94429 12 U.S.C.A. § 3752 The term "mortgage agreement" means

the note or debt instrument and the mortgage
UNITED STATES CODE instrument, deed of trust instrument, trust
ANNOTATED deed, or instrument or instruments creating the
TITLE 12. BANKS AND mortgage, including any instrument
BANKING incorporated by reference therein and any
instrument or agreement amending or
CHAPTER 38A--SINGLE
modifying any of the foregoing.
FAMILY MORTGAGE
FORECLOSURE (5) Mortgagor
Current through P.L. 106-213, approved The term "mortgagor" means the
5-26-2000 obligor, grantor, or trustee named in the
mortgage agreement and, unless the context
§ 3752. Definitions otherwise indicates, includes the current
owner of record of the security property
For purposes of this chapter, the following whether or not such owner is personally liable
definitions shall apply: on the mortgage debt.
(l) Bona fide purchaser (6) Owner
The term "bona fide purchaser" means The term "owner" means any person
a purchaser for value in good faith and who has an ownership interest in property and
without notice of any adverse claim, and who includes heirs, devises, executors,
acquires the security property free of any administrators, and other personal
adverse claim. representatives, and trustees of testamentary
trusts ifthe owner of record is deceased.
(2) County
(7) Person
The term "county" has the same
meaning as in section 2 of Title 1. The term "person" includes any
individual, group of individuals, association,
(3) Mortgage partnership, corporation, or organization.
The term "mortgage" means a deed of (8) Record; recorded

trust, mortgage, deed to secure debt, security
agreement, or any other form of instrument The terms "record" and "recorded"
under which any property (real, personal or include "register" and "registered" in the
mixed), or any interest in property (including instance of registered land.
leaseholds, life estates, reversionmy interests,
and any other estates under applicable State *94430 (9) Security property
law), is conveyed in trust, mortgaged,
encumbered, pledged, or otherwise rendered The term "security property" means the
subject to a lien for the purpose of securing property (real, personal or mixed) or an
the payment of money or the performance of interest in property (including leaseholds, life
an obligation. estates, reversionary interests, and any other
estates under applicable State law), together
(4) Mortgage agreement with fixtures and other interests subject to the
lien of the mortgage under applicable State
-
law.
(l0) Single family mortgage

(pub.L.103-327. Title II. Sept. 28, 1994, lOB Stat. 2316.)
mSTORICAL NOTES
--
The term "single family mortgage" mSTORICAL AND STATUTORY
means a mortgage that covers property on NOTES
which there is located a 1- to 4-family
References in Text
residence, and that- The National Housfug Act, referred to in par. (IOKA), is
(A) is held by the Secretary Act June 27,1934, c. 847,48 Stat. 1246, as amended, which
pursuant to title I or title II of the National is classified principally to chapter 13 (section 1701 et seq.) of
Housing Act [12 U.S.C.A. § 1702 et seq. this title. Title I and Title II of the National Housing Act are
classified to subchapters I and II (sections 1702 et seq. and
or § 1707 et seq.]; or 1707 et seq.), respectively, of chapter 13 of this title. For
(B) secures a loan obligated by complete classification of this Act to the Code, see section
the Secretary under section 1452b of Title 1701 ofthis title and Tables.
42, as it existed before the repeal of that
section by section 12839 of Title 42 Codifications
Section is based on Senatt No. 2281, Title vm, § 803,
(except that a mortgage securing such a One-hundred third Congress, agreed to on July 13, 1994,
loan that covers property containing which was enacted into permanent law by Pub.L. 103-327.
nonresidential space and a 1- to 4-family
dwelling shall not be subject to this *94431 Effective Date
Title II ofPubL. 103-327 provided in part that Title VIII
chapter). of S. 2281, One-hundred third Congress, reported July 13,
1994, which is classified to this chapter, is incorporated into
(11) State Pub.L. 103-327 and deemed enacted into law upon
enactment ofPub.L. 103-327, which was approved Sept. 28,
The tenn "State" means-- 1994.
(A) the several States;
(B) the District of Columbia; REFERENCES
(C) the Commonwealth of
LffiRARY REFERENCES
Puerto Rico;
(D) the United States Virgin American Digest System
Islands;
(E) Guam; Foreclosure by exercise of power of sale; title and rights of
(F) American Samoa; purchaser, see Mortgages ~372(1 to 5).
Right to redeem; provisions of mortgage and agreements
(G) the Northern Mariana affecting right, see Mortgages ~591(3).
Islands;
(H) the Trust Territory of the Encyclopedias
Pacific Islands; and
Existence and nature of right of redemption, see C.J.S.
(I) Indian tribes, as defined by Mortgages § 814.
the Secretary. Foreclosure by exercise of power of sale; title, rights, and
liabilities of purchaser, see C.J.S. Mortgages §§
586 to 594.
CREDIT(S)
Redemption:, mode offorecloSUIe as affecting statutory right,
see C.J.S. Mortgages § 820.
2000 Electronic Update Redemption:, waiver or release of equitable right, see C.J.S.
Mortgages § 818.
12 USCA § 3753, Applicability Pagel
*94432 12 U.S.C.A. § 3753 mSTORICAL NOTES
UNITED STATES CODE mSTORICAL AND STATUTORY

NOTES
ANNOTATED
TITLE 12. BANKS AND Codifications
BANKING Section is based on Senate No. 2281, Title VIII, § 804,
CHAPTER 38A--SINGLE One-hundred third Congress, agreed to on July 13, 1994,
which was e118Cted into pe111lIJ11Cl1t Jaw by Pub.L. 103-327.
FAMILY MORTGAGE
FORECLOSURE Effective Date
Title II of Pub.L. 103-327 provided in part that Title VIII
of S. 2281, One-hundred third Congress, reported July 13,
Current through P.L. 106-213, approved 1994, which is classified to this chapter, is incorporated into
5-26-2000 Pub.L. 103-327 and deemed enacted into law upon
§ 3753. Applicability 1994.
REFERENCES
Single family mortgages encumbering real
estate located in any State may be foreclosed by LffiRARY REFERENCES
the Secretaty in accordance with this chapter, or
pursuant to other foreclosure procedures American Digest System
available, at the option of the Secretary.
Foreclosure by exercise of power of sale~ nature of remedy,
see Mortgages <P329.
CREDIT(S)
Encyclopedias
Foreclosure by exercise of power of sale~ nature of remedy
(pubL. 103-327, Title II, Sept 28, 1994,108 Stat. 2316.) and power of sale, see C.J.S. Mortgages § 544 et
seq.
-
12 USCA § 3754, Designation offoreclosme commissioner Pagel
*9443312 US.C.A. § 3754 business or residential address of the

commissioner, except that if a person is
designated in his or her capacity as an official
-
UNITED STATES CODE
ANNOTATED or employee of a government or corporate
TITLE 12. BANKS AND entity, such person may be designated by his
or her unique title or position instead of by
BANKING
D8Dle.
CHAPTER 38A--SINGLE
F AMll.Y MORTGAGE (2) Substitute commissioners
FORECLOSURE
The Secretary may, with or without
Current through P.L. 106-213, approved cause, designate a substitute foreclosure
5-26-2000 commissioner to replace a previously
designated foreclosure commissioner.
§ 3754. Designation of foreclosure
commissioner (3) Number
(a) In general More than 1 foreclosure commissioner

may be designated at any time.
The SecretaIy may designate a person or
persons to serve as a foreclosure commissioner or CREDIT(S)
commissioners for the purpose of foreclosing
upon a single family mortgage. 2000 Electronic Update
(pubL 103-327, TitleD, Sept. 28.1994, 1OBStat. 2316.)

(b) Power of sale
mSTORICAL NOTES
A foreclosure commissioner designated under
this section shall have a nonjudicial power of sale. mSTORICALAND STATUTORY
NOTES
(c) Qualifications
Codifications
The foreclosure COIDIlliSSlOner, if a natural Section is based on Senate No. 2281, Title vrrr, § 805,
person, shall be a resident of the State in which One-hundred third Congress, agreed to on July 13, 1994,
which was enacted into permanent law by Pub.L. 103-327.
the security property is located and, if not a
natural person, the foreclosure commissioner Effective Date
must be duly authorized to transact business Title II ofPub.L. 103-327 provided in part that Title VIII
under laws of the State in which the security of S. 2281, One-hundred third Congress, reported July 13,
property is located. No person shall be designated
PubL. 103-327 and deemed enacted into law upon
as a foreclosure commissioner unless that person enactment ofPub.L. 103-327, which was approved Sept. 28,
is responsible, financially sound., and competent 1994.
to conduct a foreclosure. *94434
(d) Designation proced~ REFERENCES
(1) Written designation LIDRARY REFERENCES

The Secretary may designate a
foreclosure commissioner by executing a Persons under mortgage entitled to foreclosure by exercise of
) written designation stating the name and power ofsale, sre Mortgages ~340.
12 USCA § 3754, Designation offoreclosure commissioner Page 2
Encyclopedias
Persons entitled to foreclose, see C.J.S. Mortgages § 513.

Persons who may foreclose under mortgage by exercise of
power ofsale, see C.J.S. Mortgages § 554.
12 USCA § 3755, Prerequisites to foreclosure Pagel
-
-
*94435 12 V.S.C.A. § 3755
UNITED STATES CODE

(b) Other rights unaffected
Nothing in this chapter shall preclude the

-
ANNOTATED Secretary from--
TITLE 12. BANKS AND (1) enforcing any right, other than
foreclosure, under applicable Federal or State
BANKING
law, including any right to obtain a monetary
CHAPTER 38A--SINGLE
judgment; or
FAMILY MORTGAGE (2) foreclosing under this chapter if the
FORECLOSURE Secretary has obtained or is seeking any other .
remedy available pursuant to Federal or State
Currentthrough P.L. 106-213, approved law, or under the mortgage agreement,
5-26-2000 including the appointment of a receiver,
mortgagee-in-possession status, or reIiefunder
§ 3755. Prerequisites to foreclosure an assignment ofrents.
(a) In general CREDIT(S)
(l) Vpon breach of covenant or 2000 Electronic Update

condition
(PubL.I03-327, Title II, Sept. 28, 1994, 108 Stat. 2316.)
The Secretary is authorized to
foreclose a mortgage under this chapter upon mSTORICAL NOTES
the breach of a covenant or condition in the
mSTORICAL AND STATUTORY
mortgage agreement. NOTES
(2) No other pending proceedings Codifications

Section is based on Senate No. 2281, Title VIII, § 806,
(A) Prior to commencement One-hundred third Congress, agreed to on July 13, 1994,
which was enacted into pen:nanent law by PubL. 103-327.
No foreclosure may be Effective Date
commenced under this chapter unless any Title II ofPub.L. 103-327 provided in part that Title VIII
previously pending judicial or nonjudicial of S. 2281, One-hundred third Congress, reported July 13,
proceeding that has been separately 1994, which is classified to this chapter, is incorporated into
Pub.L. 103-327 and deemed enacted into law upon
instituted by the Secretary to foreclose the enactment ofPub.L. 103-327, which was approved Sept. 28,
mortgage (other than under this chapter), 1994.
has been withdrawn, dismissed, or *94436
otherwise terminated.
REFERENCES
(B) After commencement
LffiRARY REFERENCES
No separately instituted
foreclosure proceeding on a mortgage American Digest System
which is the subject of a foreclosure Right to foreclosure by exercise af power af sale, see
proceeding under this chapter shall be Mortgages ~335.
instituted by the Secretary during the
Encyclopedias
pendency of foreclosure pursuant to this
chapter. Right to foreclosure by exercise of power of sale, see C.J.S.
Mortgages § 549.
12 USCA § 3755, Prerequisites to foreclosure Page 2
Right to foreclosure in general, see C.J.S. Mortgages § 492 et

seq.
12 USCA § 3756, Commencement offoreclosure Pagel
-
*94437 12 U.S.C.A. § 3756
UNITED STATES CODE

Upon designation of a substitute foreclosure
commissioner, a copy of the written notice of such
-
ANNOTATED designation described in section 3754 of this title
TITLE 12. BANKS AND shall be served--
(I) by mail, as provided in section
BANKING
3758 of this title (except that the minimum .
CHAPTER 38A--SINGLE
time periods between mailing and the date of
FAMILY MORTGAGE foreclosure sale prescribed in such section
FORECLOSURE shall not apply); or
(2) in any other manner which, in the
Current through P.L. 106-213, approved substitute commissioner's sole discretion, is
5-26-2000 conducive to achieving timely notice of such
substitution.
§ 3756. Commencement offoreclosure
CREDIT(S)
(a) Request to foreclosure commissioner
If the Secretary, as holder of a single family
(PubL.l03-327, Title II, Sept. 28, 1994, 108 Stal. 2316.)
mortgage, determines that the prerequisites to
foreclosure set forth in section 3755 of this title
are satisfied, the Secretary may request the HISTORICAL NOTES
foreclosure commissioner to commence
foreclosure of a single family mortgage. Upon NOTES
such request, the foreclosure commissioner shall
commence foreclosure of the mortgage, by Codifications
commencing service of a notice of default and Section is based on Senate No. 2281, Title VIII. § 807,
foreclosure sale in accordance with sections 3757 One-hundred third Congress: agreed to on July 13, 1994,
and 3758 of this title. which was enacted into permanent Jaw by PubL. 103-327.
*94438 Effective Date

(b) Designation of substitute foreclosure Title IT of PubL. 103-327 provided in part that Title vm
commissioner of S. 2281, One-hundred third Congress, reported July 13,
1994, "Which is classified mthis cbBpter, is in~ into
After commencement of a foreclosure under
enacbnent ofPubL. 103-327, which was approved Sept. 28,
this chapter, the Secretary may designate a 1994.
substitute foreclosure commissioner at any time
before the time of the foreclosure sale, and. the REFERENCES
foreclosure shall continue without prejudice,
unless the substitute commissioner, in that LffiRARY REFERENCES
commissioner's sole discretion, finds that
continuation of the foreclosure sale will unfairly American Digest System
affect the interests of the mortgagor. If the
substitute commissioner makes such a finding, the Foreclosure by exercise of power of sale~ preliminmy
substitute commissioner shall cancel the proceedings, see Mortgages ~346.
foreclosure sale, or adjourn such sale m
Encyclopedias
accordance with section 3760(c) of this title.
Foreclosure by exercise of power of sale; judicial
(c) Written notice proceedings, see C.J.S. Mortgages § 562.
)
12 USCA § 3757, Notice ofdefault and foreclosure sale Pagel
*94439 12 U.S.C.A. § 3757 being conducted pursuant to this chapter;

(9) a description of the types of costs,
UNITED STATES CODE if any, to be paid by the purchaser upon
ANNOTATED transfer of title;
TITLE 12. BANKS AND (10) the amount and method of deposit
to be required at the foreclosure sale (except
BANKING
that no deposit shall be required of the
CHAPTER 38A--SINGLE
Secretary) and the time and method of
FAMILY MORTGAGE payment of the balance of the foreclosure
FORECLOSURE purchase price; and
(11) any other appropriate terms of
Current through P.L. 106-213, approved sale or information, as the Secretary may
5-26-2{)(J{) determine.
§ 3757. Notice of default and foreclosure CREDIT(S)

sale
The notice of default and for~Josure sale to
(PubL 103-327, Title II, Sept. 28, 1994, 108 Stat. 2316.)
be served in accordance with this chapter shall set
forth--
HISTORICAL NOTES
(1) the name and address of the
for~losure commissioner;
(2) the date on which the notice is NOTES
issued;
(3) the names of-- Codifications
(A) the S~retary; Section is based on Senate No. 2281, Title vm, § 808,
(B) the original mortgagee (if One-hundred third Congress, agreed to on July 13, 1994,
other than the S~retary); and
(C) the original mortgagor; "94440 Effective Date
(4) the street address or a description Title II ofPub.L. 103-327 provided in part that Title vm
of the location of the security property, and a of S. 2281, One-hundred third Congress, reported July 13,
description of the security property, sufficient 1994, which is classified to this chapter, is incorporated into
to identify the property to be sold; enactment ofPubL. 103-327, which was approved Sept. 28,
(5) the date of the mortgage, the office 1994.
in which the mortgage is recorded, and the
liber number and folio or other appropriate REFERENCES
description of the location of recordation of
the mortgage; LffiRARY REFERENCES
(6) identification of the failure to make
payment, including the due date of the earliest American Digest System
installment payment remaining wholly unpaid Foreclosure by exercise of power of sale; notice of sale, see
as of the date on which the notice is issued Mortgages ~352.l to 356.
upon which the for~losure is based, or a Right to foreclosure by exercise of power of sale, see
description of any other default or defaults Mortgages ~335.
upon which foreclosure is based, and the
Encyclopedias
acceleration ofthe secured indebtedness;
(7) the date, time, and location of the Foreclosure by exercise of power of sale; notice of sale, see
foreclosure sale; C.J.S. Mortgages§§ 563 to 567.
(&) a statement that the foreclosure is Right to foreclosure by exercise of power of sale, see C.J.S.
-
12 USCA § 3757) Notice ofdefault and foreclosure sale Page 2
Mortgages § 549.
Right to foreclosure in general, see C.J.S. Mortgages § 492 et
") seq.
)
12 USCA § 3758, Service ofnotice offoreclosure sale Pagel
*94441 12 U.S.C.A. § 3758 sale (whether or not the notice descnoes a sale
adjourned).
UNITED STATES CODE
ANNOTATED (ii) Mortgagors
TITLE 12. BANKS AND
BANKING All mortgagors of record or other
persons who appear on the basis of the record to
CHAPTER 38A--SINGLE
be liable for part or all of the mortgage debt, as
FAMILY MORTGAGE the record existed 45 days before the date
FORECLOSURE originally set for the foreclosure sale (whether or
not the notice descn1Jes a sale adjourned).
Current through P.L. 106-213, approved
5-26-2000 (iii) Dwelling units
§ 3758. Service of notice offoreclosure sale All dwelling units in the security
property (whether or not the notice describes a
The foreclosure commissioner shall serve the sale adjourned).
notice of default and foreclosure sale described in
section 3757 of this title upon the following (iv) Other lienholders
persons and in the following manner, and no
additional notice shall be required to be served, All persons holding liens of record
notwithstanding any notice requirements of any upon the security property, as the record existed
State or local law: 45 days before the date originally set for the
foreclosure sale (whether or not the DOtice
(1) Timing describes a sale adjourned).
Not less than 21 days before the date (B}Timing

of the foreclosure sale, the notice of default
and foreclosure sale shall be filed in the (i) Notice under clauses (i) and
manner authorized for filing a notice of an (ii)
action concerning real property according to
the law of the State in which the security Notice under clauses (i) and (ii) of
property is located or, if none, in the manner subparagraph (A) shall be mailed not less than 21
authorized by section 3201 of Title 28. days before the date of the foreclosure sale, and
shall be mailed to the current owner and
(2) Notice by mail mortgagor at the last known address ofthe current
owner and mortgagor, or, if none, to the address
(A) In general ofthe security property, or, at the discretion ofthe
foreclosure commissioner, to any other address
The notice of foreclosure sale believed to be that of such current owner and
shalJ be sent by certified or registered mail, mortgagor.
postage prepaid and return receipt
requested, to the following: *94442 (ii) Notice under clause
(iii)
(i) Current owner
Notice under clause (iii) of
The current security property subparagraph (A) shall be mailed not less than 21
owner of record, as the record existed 45 days days before the date of the foreclosure sale. If the
before the date originally set for the foreclosure names of the occupants of the security property
-
12 USCA § 3758, Service ofnotice offoreclosure sale Pagel
are not known to the Secretary, or the security

property has more than 1 dwelling, the notice
shall be posted at the security property not less
If there is no newspaper
published at least weekly which has a
--
than 21 days before the foreclosure sale. general circulation in one of the counties
in which the security property being sold
(iii) Notice under clause (iv) is located, copies of the notice of default
and foreclosure sale shall be posted not
Notice under clause (iv) of less than 21 days before the date of the
subparagraph (A) shall be mailed not less than 21 foreclosure sale--
days before the date of the foreclosure sale, and (i) at the courthouse of any county
shall be mailed to each such lienholder's address or counties in which the security property is
of record or, at the discretion· of the foreclosure located; and
commissioner, to any other address believed to be (ii) at the place where the sale is to
that of such lienholder. be held
(C) Effectiveness ofnotice CREDIT(S)
Notice by mail pursuant to this 2000 Electronic Update

section or section 3756(c) of this title shall
be deemed duly given upon mailing. (PubL. 103-327, Title II, Sept. 28, 1994, 108 Stat. 2316.)
whether or not received by the addressee
and whether or not a return receipt is *94443 mSTORICAL NOTES
received or the notice is returned.
NOTES
(3) Publication
Codifications
(A) In general Section is based on Senate No. 2281, Title vm, § 809,
A copy of the notice of default which was enacted into pennanent law by PubL 103-327.
and foreclosure sale shall be published Effective Date
once a week during 3 successive calendar Title II of Pub.L. 103-327 provided in part that Title VIII
weeks before the date of the foreclosure of S. 2281, One-hundred third Congress, reported July 13,
sale. Such publication shall be in a 1994, which is classified to this chapter, is incorporated into
newspaper or newspapers having general Pub.L. 103-327 and deemed enacted into law upon
circulation in the county or counties in
1994.
which the security property being sold is
located. To the extent practicable, the
REFERENCES
newspaper or newspapers chosen shall be
a newspaper or newspapers having LffiRARY REFERENCES
circulation conducive to achieving notice
of foreclosure by publication. A legal American Digest System
newspaper that is accepted as a newspaper
of legal record in the county or counties in Foreclosure by exercise ofpower of sale; form and requisites
which the security property being sold is ofnotice of sale, see Mortgages ~354 to 356.
located shall be considered a newspaper
Encyclopedias
having general circulation for the purposes
ofthis paragraph. Foreclosure by exercise of power of sale; form and requisites
of notice of sale, see C.J.S. Mortgages §§ 565 to
(B) Exception 567.
12 USCA § 3759, Presll1e reinstatement Pagel
*94444 12 U.S.C.A. § 3759 default is cured; and

(iii) there is tendered to the
UNITED STATES CODE foreclosure commissioner before public
ANNOTATED auction is completed--
TITLE 12. BANKS AND (I) all amounts due under the
BANKING mortgage agreement (excluding additional
amounts which would have been due if mortgage
CHAPTER 38A--SINGLE
payments had been accelerated);
FAMILY MORTGAGE (ll) all amounts of expenditures
FORECLOSIJRE secured by the mortgage; and
(III) all costs of foreclosure
Current through P.L. 106-213, approved incurred for which payment from the proceeds of
J-26-2()(J() foreclosure is provided in section 3761 of this
title.
§ 3759. Presale reinstatement
(2) Discretionmy noncancellation
(a) Withdrawal and cancellation
The SecretaI)' may refuse to cancel a
( I) In general foreclosure sale pursuant to paragraph (I)(C)
if the current mortgagor or owner of record
Except as provided in sections 3756(b) has, on one or more previous occasions,
and 3760(e) of this title, the foreclosure caused a foreclosure of the mortgage,
commissioner shall withdraw the security commenced pursuant to this chapter or
property from foreclosure and cancel the otherwise, to be canceled by curing a default.
foreclosure sale only if--
(A) the Secretary directs the (b) Opportunity of Secretary to dispute
foreclosure commissioner to do so before withdrawal
or at the time of the sale;
(B) the foreclosure Before withdrawing the security property from
commissioner fmds, upon application of foreclosure under subparagraph (B) or (C) of
the mortgagor not less than 3 days before subsection (a)(I) of this section, the foreclosure
the date of the sale, that the default or commissioner shall afford the Secretmy a
defaults upon which the foreclosure is reasonable opportunity to demonstrate why the
based did not exist at the time of service of security property should not be so withdrawn.
the notice of default and foreclosure sale;
or *94445 ( c) Effect of cancellation
(C)(i) in the case of a
foreclosure involving a monetary default, (I) Mortgage unaffected
there is tendered to the foreclosure
commissioner before public auction is In any case in which a foreclosure
completed the entire amount of principal commenced under this chapter is canceled, the
and interest which would be due if mortgage shall continue in effect as though
payments under the mortgage had not been acceleration had not occurred.
accelerated;
(ii) in the case of a foreclosure (2) Commencement of new foreclosure
involving a nonmonetmy default, the sale
foreclosure commissioner, upon
application of the mortgagor before the Cancellation of a foreclosure sale
date of foreclosure sale.. finds that such under this chapter shall have no effect on the
-
12 USCA § 3759, Presale reinstatement Pagel
commencement of a subsequent foreclosure

proceeding under this chapter. mSTORICAL NOTES -'
(d) Notice ofcancelIation mSTORICAL AND STATUTORY
NOTES
The foreclosure commissioner shall file a Codifications
notice of cancel1ation in the same place and Section is based on Senate No. 2281, Title vm, § 810,
manner provided for filing the notice of default One-hundred third Congress, agreed to on July 13, 1994,
and foreclosure sale in section 3758 ofthis title.
Effective Date
CREDIT(S) Title II ofPubL. 103-327 provided in part that Title VIII
1994, which is classified to this chapter, is incoIJlOrated into
PubL. 103-327 and deemed enacted into Jaw upon
enactment of PubL. 103-327, which was approved Sept. 28,
(pub.L.103-327. Title II. Sept. 28,1994.108 Stat. 2316.) 1994.
12 USCA § 3760, Conduct of sale; adjournment Pagel
*94446 12 U.S.C.A. § 3760

(A) In general
UNITED STATES CODE
ANNOTATED The foreclosure COJlllll1SSlOner
TITLE 12. BANKS AND shall conduct the foreclosure sale in
BANKING accordance with the provisions of this
chapter and in a manner fair to both the
CHAPTER 38A--SINGLE
mortgagor and the Secretary.
FAMILY MORTGAGE
FORECLOSURE (B) Written bids
Current through P.L. 106-213. approved Written one-price sealed bids

5-26-2000 shall be accepted by the foreclosure
commissioner from the Secretary and other
§ 3760. Conduct of sale; adjournment persons for entry by announcement by the
foreclosure commissioner at the sale.
(a) In general
(C) Auctioneer
(1) Manner and time
The foreclosure commissioner
A foreclosure sale pursuant to this may serve as auctioneer, or, in accordance
chapter shall be held at public auction and with regulations of the Secretary, may
shall be scheduled to begin between the hours employ an auctioneer to be paid from the
of 9 o'clock ante meridian and 4 o'clock post commission provided for in section
meridian local time. 3761(5) of this title.
(2) Location (2) Eligible participants
The foreclosure sale shall be held at a (A) In general

location specified in the notice of default and
foreclosure sale and such location shall be at a The Secretary, and any other
place where foreclosure real estate auctions person who has submitted a written one-
are customarily held in the county or counties price bid, may bid at the foreclosure sale.
in which the property to be sold is located, or
at a courthouse therein, or at or on the (B) Prohibited participants
property to be sold Sale of security property
situated in two or more counties may be held The foreclosure commissioner
in any 1 of the counties in which any part of or any relative, related business entity, or
the security property is situated. employee of the foreclosure commissioner
or a related business entity shall not be
(3) Sale ofmultiple properties permitted to bid in any manner on the
security property subject to foreclosure
The foreclosure commissioner may sale, except that the foreclosure
designate the order in which multiple security commissioner or an auctioneer may be
properties are sold directed by the Secretary to enter a bid on
the Secretary's behalf.
(b) Duties of foreclosure commissioner
*94447 (c) Adjournment or cancellation of sale
(1) Conduct of sale
Copyright (c) West Group 2000 No claim to original u.s. Gov!. works
12 USCA § 3760, Conduct of sale; adjournment Pagel
-
(I) General authority
The foreclosure commissioner may,

Secretary, shall be liable to the Secretary for any
costs incurred as a result of such failure. -
before or at the time of the foreclosure sale, (e) Presumption ofvalidity of sale
adjourn or cancel the foreclosure sale if the
commissioner determines, in the Any foreclosure sale held in accordance with
commissioner's discretion, that-- this chapter shall be conclusively presumed to
(A) circumstances are not have been conducted in a leg~ fair, and
conducive to a sale which is fair to the reasonable manner. The sale price shall be
mortgagor and the Secretary; or conclusively presumed to be reasonable and equal
(B) additional time is necessary to the fair market value ofthe property.
to determine whether the security property
should be withdrawn from foreclosure, as CREDIT(S)
provided in section 3759 of this title.
(2) Adjournment to same or later day
(pubL 103-317, Title II, Sept. 28, 1994,108 Stat. 1316.)
The foreclosure commissioner may
acljourn a foreclosure sale to a later hour the mSTORICAL NOTES
same day by announcing or posting the new
*94448 HISTORICAL AND
time and place of the foreclosure sale, or may
STATUTORY NOTES
adjourn the foreclosure sale for not less than 9
and not more than 31 days, in which case the Codifications
commissioner shall serve a notice of default Section is based on Senate No. 2281, Title VIII, § 811,
and foreclosure sale revised to recite the fact One-hundred third Congress, agreed to on July 13, 1994,
that the foreclosure sale has been adjourned to which was enacted into pennanent law by PubL. 103-327.
a specified date, as well as any other Effective Date
information the foreclosure commissioner Title n ofPub.L. 103-327 provided in part that Title VIII
deems appropriate. Such notice shall be of S. 2281, One-hundred third Congress, reported July 13,
served by publication and mailing in 1994, which is classified to this chapter, is incorporated into
accordance with section 3758 of this title,
except that publication may be made on any of 1994.
3 separate days before the revised date of
foreclosure sale, and mailing may be made at REFERENCES
any time not less than 7 days before the date
to which the foreclosure sale has been LIBRARY REFERENCES
adjourned.
(d) Cash deposits
Foreclosure by exercise of power of sale; bids, see Mortgages
@:::>363.
The foreclosure commissioner may require a Foreclosure by exercise of power of sale; execution of power
bidder to make a cash deposit in an amount or and conduct of sale in general, see Mortgages~
percentage set by the foreclosure commissioner 360.
and stated in the notice of foreclosure sale before Encyclopedias
the bid is accepted. A successful bidder at the
foreclosure sale who fails to comply with the Foreclosure by exercise of power of sale; amount of property
terms of the sale may be required to forfeit the to be sold., see CJ.S. Mmtgages § 573.
Foreclosure by exercise of power of sale; bids in general, see
cash deposit or, at the election of the foreclosure C.J.S. Mortgages § 578.
commissioner after consultation with the Foreclosure by exercise of power of sale; mode and conduct
12 USCA § 3760, Conduct of sale; adjournment Page 3
of sale, see C.J.S. Mortgages § 572.
12 USCA § 3761, Foreclosure costs Pagel
-
*94449 12 U.S.C.A. § 3761
UNITED STATES CODE

(5) Commission -
ANNOTATED A commission for the foreclosure
TITLE 12. BANKS AND comnussioner (if the foreclosure
BANKING commissioner is not an employee of the
United States) for the conduct of the
CHAPTER 38A--SlNGLE
foreclosure, to the extent such a commission is
FAMILY MORTGAGE authorized by the Secretary.
FORECLOSURE
CREDIT(S)
Current through P.L. J06-213. approved
5-26-2000 2000 Electronic Update
§ 3761. Foreclosure costs (pubL. 103-327. Tit/ell, Sept. 28. 1994. 108 Stat. 2316.)
The following foreclosure costs shall be paid mSTORICAL NOTES

from the sale proceeds before satisfaction of any
other claim to such sale proceeds: NOTES
(1) Advertising and postage Codifications

Necessary advertising costs and One-hundred third Congress, agreed to on July 13, 1994,
postage incurred in giving notice pursuant to which was enacted into permanent law by Pub.L. 103-327.
sections 3758 and 3760 of this title. Effective Date
Title II o[Pub.L. 103-327 piolidcd in part that Title VIII
(2) Mileage of S. 2281, One-hundred third Congress, reported July 13,
Mileage (determined by. the most Pub.L. 103-327 and deemed enacted into law upon
reasonable road distance) for posting notices 1994.
and for the foreclosure commissioner's or
auctioneer's attendance at the sale, as provided REFERENCES
in section 1821 of Title 28.
LIBRARY REFERENCES
(3) Title and lien search
Reasonable and necessary costs
incurred in connection with any search of title Foreclosure by exercise of power of sale; fees and costs, see
and lien records. Mortgages ~377.
Encyclopedias
(4) Recordation fees
Foreclosure by exercise of power of sale; fees and costs, see
Costs incurred to record documents. C.J.S. Mortgages§ 598.
Copyright (e) West Group 2000 No claim to original U.S. Govt. works
12 USCA § 3762, Disposition ofsale proceeds Pagel
*94450 12 U.S.C.A. § 3762 To pay any outstanding interest
UNITED STATES CODE (6) Principal

ANNOTATED
TITLE 12. BANKS AND To pay the <principal outstanding
BANKING balance secured by the mortgage (including
CHAPTER 38A-SINGLE expenditures for the necessary protection,
preservation, and repair of the security
FAMILY MORTGAGE property as authorized under the mortgage
FORECLOSURE agreement and interest thereon if provided for
in the mortgage agreement).
Current through P.L. 106-213. approved
5-26-2000 (7) Late charges or fees
§ 3762. Disposition ofsale proceeds To pay any late charges or fees.
(a) Priority 'Payments (b) Other payments
Money realized from a foreclosure sale shall (I) Other lienholders and the
be made available for obligation and expenditure mortgagor
in the following order:
Any surplus of proceeds from a
(1) Costs of foreclosure foreclosure sale, after payment of the items
, described in subsection (a) of this section shall
To cover the costs of the foreclosure be paid in the following order:
proceeding described in section 3761 of this (A) First, to holders of liens
title. recorded after the mortgage in the order of
priority under Federal law or the law of the
(2) Tax liens State in which the security property is
located.
To pay valid tax liens or assessments if (B) Second, to the appropriate
required by the notice of default and mortgagor.
foreclosure sale.
(2) Disputed claims
(3) Prior liens
If the person to whom such surplus is
To pay any liens recorded before the to be paid cannot be located, or if the surplus
recording of the mortgage which are required available is insufficient to pay all claimants
to be paid in conformity with the terms of sale and the claimants cannot agree on the
in the notice of default and foreclosure sale. allocation of the surplus, or if any person
claiming an interest in the mortgage proceeds
(4) Service charges and advances does not agree that some or all of the sale
proceeds should be paid to a claimant as
To pay service charges and advances provided in this section, that part of the sale
for taxes, assessments, and property insurance proceeds in question may be deposited by the
premiums. foreclosure commissioner with an appropriate
official or court authorized under law to
(5) Interest' receive disputed funds in such circumstances.
If a procedure for the deposit of disputed
Page 2
-
12 USCA § 3762, Disposition of sale proceeds
funds is not available, and the foreclosure One-hundred third Congress, agreed to on July 13, 1994,
wbicb was enacted into permanent law by Pub.L. 103-327. .-.
commissioner files a bill of interpleader or is
sued as a stakeholder to determine entitlement Effective Date
to such funds, the foreclosure commissioner's Title II of Pub.L. 103-327 provided in part that Title VIII
necessary costs incurred in taking or of S. 2281, One-hundred third Congress, reported July 13,
defending such action shall be deductible from 1994, which is classified to this chapter, is incorporated into
the disputed funds. *94451 enactment ofPub.L. 103-327, which was approved Sept. 28,
1994.
CREDIT(S)
REFERENCES
LIDRARY REFERENCES
(PuDL. lUi-32?, Title II. Sept. 28, 1994, 108 Stat. 2316.)
f·
rnSTORICAL NOTES
Foreclosure by exercise of power of sale-, proceeds and
smplus, see Mortgages ~374.
NOTES Encyclopedias
Codifications Foreclosure by exercise of power of sale; proceeds and

Section is based on Senate No. 2281, Title VIII, § 813, smplus, see C.J.S. Mortgages §§ 595 to 597.
12 USCA § 3763, Transfer oftitle and possession Pagel
*94452 12 U.S.C.A. § 3763 If a purchaser dies before execution and

delivery of the deed conveying the property to the
UNITED STATES CODE purchaser, the foreclosure commissioner shall
ANNOTATED execute and deliver the deed to a representative of
TITLE 12. BANKS AND the decedent purchaser's estate upon payment of
BANKING the purchase price in accordance with the terms of
sale. Such delivery to the representative of the
CHAPTER 38A--SINGLE
purchaser's estate shall have the same effect as if
FAMILY MORTGAGE accomplished during the lifetime of the purchaser.
FORECLOSURE
(d) Bona fide purchaser
Current through P.L. 106-213. approved
5-26-2000 The purchaser of property under this chapter
shall be presumed to be a bona fide purchaser.
§ 3763. Transfer oftide and possession
(e) No right ofredemption
(a) Delivery of deeds
(1) In general
The foreclosure comnussloner shall, upon
delivery of a deed or deeds to the purchaser or There shall be no right of redemption,
purchasers (which shall be without warranty or or right of possession based upon a right of
covenants to the purchaser or purchasers) obtain redemption, in the mortgagor or others
the balance of the purchase price in accordance subsequent to a foreclosure completed
with the terms of sale provided in the notice of pursuant to this chapter.
default and foreclosure sale. Notwithstanding any
State law to the contrary, delivery of a deed by the (2) Certain provisions
foreclosure commissioner shall be a conveyance
of the property, and constitute passage of title to Section 1710(1) of this title and section
the mortgaged property, and no judicial 1452c of Title 42 shall not apply to mortgages
proceedings shall be required ancillary or foreclosed under this chapter.
supplementary to the procedures provided in this
chapter to assure the validity of the conveyance or *94453 (f) Taxes
confirmation of such conveyance.
When a mortgage foreclosed pursuant to this
(b) Right of possession chapter is conveyed to the Secretary, no tax shall
be imposed or collected with respect to the
A purchaser at a foreclosure sale held foreclosure commissioner's deed (including any
pursuant to this chapter shall be entitled to tax customarily imposed upon the deed
possession upon passage of title under subsection instrument or upon the conveyance or transfer of
(a) of this section to the mortgaged property, title to the property). Failure to collect or pay a
subject to any interest or interests not barred tax of the type and under the circumstances stated
under section 3765 of this title. Any person in the preceding sentence shall not be grounds for
remaining in possession of the mortgaged refusing to record such a deed, for failing to
property after the passage of title shall be deemed recognize such recordation as imparting notice, or
a tenant at sufferance subject to eviction under for denying the enforcement of such a deed and its
local law. provisions in any State or Federal court.
(c) Death of purchaser CREDIT(S)
12 USCA § 3764, Record offoreclosure and sale Pagel
*94454 12 U.S.c.A. § 3764
UNITED STATES CODE

of such facts in any Federal or State court;
and
(2) evidence a conclusive presumption
-
ANNOTATED in favor of bona fide purchasers and
TITLE 12. BANKS AND encumbrancers for value without notice.
BANKING
Encumbrancers for value include liens placed by
CHAPTER 38A--SINGLE
lenders who provide the purchaser with purchase
FAMILY MORTGAGE money in exchange for a security interest in the
FORECLOSURE newly-conveyed property.
Current through P.L. 106-213, approved (c) Recordation ofinstruments

5-26-2000
The deed executed by the foreclosure
§ 3764. Record offoreclosure and sale commissioner, the foreclosure commissiona's
affidavit (if prepared) and any other instruments
(a) Statements included submitted for recordation in relation to the
foreclosure of the security property under this
To establish a sufficient record of foreclosure chapter shall be accepted for recordation by the
and sale, the foreclosure commissioner shall registrar of deeds or other appropriate official of
include in the recitals of the deed to the purchaser, the county or counties in which the security
or prepare as an affidavit or addendum to the property is located upon tendering of payment of
deed, a statement setting forth-- the usual recording fees for such instruments, and
(l) the date, time, and place of the without regard to the compliance of those
foreclosure sale; instruments with any other local filing
(2) that the mortgage was held by the requirements.
Secretary, the date of the mortgage, the office
in which the mortgage was recorded, and the *94455 CREDIT(S)
~an~baand~ooc~a~~~~
description of the recordation of the mortgage; 2000 Electronic Update
(3) the particulars of the foreclosure
(pubL.103-327, Title n, Sept. 28, 1994,108 Stat. 2316.)
commissioner's service of the notice of default
and foreclosure sale in accordance with
sections 3758 and 3760 of this title; mSTORICAL NOTES
(4) the date and place of filing the
notice of default and foreclosure sale; NOTES
(5) that the foreclosure was conducted
in accordance with the provisions of this Codifications
chapter and with the terms of the notice of Section is based on Senate No. 2281, Title vm, § 815,
default and foreclosure sale; and One-hundred third Congress, agreed to on July 13, 1994,
(6) the sale amount.
Effective Date
(b) Effect of statements Title IT ofPub.L. 103-327 provided in part that Title VITI
of S. 2281, One-hundred third Congress, reported July 13.
The items set forth in subsection (a) of this
section shall- enactment of Pub.L. 103-327, which was approved Sept. 28,
(1) be prima facie evidence of the truth 1994.
12 USCA § 3763, Transfer oftitle and possession Page 2

LffiRARY REFERENCES
(pubL.103-327. TitleIl, Sept. 28. 1994,108 Stat. 2316.)
mSTORICAL NOTES
Foreclosure by exercise of power of sale; conveyance to
purchase, see Mortgages ~374.
mSTORICAL AND STATUTORY Provisions of mortgage and agreements affecting right to
NOTES redeem, see Mortgages ~59l (3).
Right to redeem as affected by method of foreclosun:, see
Codifications Mortgages ~59l(2).
Section is based on Senate No. 22~1, litle VIII, § ~14,
One-hundred third Congress, agreed to on July 13, 1994, Encyclopedias
which was enacted into permanent law by PubL. 103-327.
Existence and nature of right of redemption. see C.l.S.
Effective Date Mortgages § 814.
Title II of Pub.L. 103-327 provided in part that Title VIII Foreclosun: by exercise of power of sale; conveyance to
of S. 2281, One-hundred third Congress, reported July 13, purchaser, see C.l.S. Mortgages §§ 584,585.
1994, which is classified to this chapter, is incorporated into Mode of foreclosun: as affecting statutory right of
PubL. 103-327 and deemed enacted into law upon redemption. see C.l.S. Mortgages § 820.
enac1ment ofPub.L. 103-327, which was approved Sept. 28, Redemption; waiver or release of equitable rights, see C.l.S.
J994. Mortgages § 818.
Waiver of statutory right ofredemption, see C.l.S. Mortgages
REFERENCES § 821.
12 USCA § 3765, Effect of sale Page 1
-
*94456 12 U.S.C.A. § 3765
UNITED STATES CODE

other conveyance was not duly recorded or
filed in the proper place for recording or filing,
or whose judgment or decree was not duly
-
ANNOTATED docketed or filed in the proper place for
TITLE 12. BANKS AND docketing or filing, before the date on which
BANKING the notice of the foreclosure sale was first
served by publication, as required by section
CHAPTER 38A--SINGLE
3758(3) of this title, and the executor,
FAMILY MORTGAGE administrator, or assignee of such a person.
FORECLOSURE
(4) Other persons
5-26-2000 Any person claiming an interest in the
property under a statutory lien or
§ 3765. Effect of sale encumbrance created subsequent to the
recording or filing of the mortgage being
A sale, made and conducted as prescribed in foreclosed, and attaching to the title or interest
this chapter to a bona fide purchaser, shall bar all of any person designated in any of the
claims upon, or with respect to, the property sold, foregoing paragraphs.
for each of the following persons:
CREDIT(S)
(1) Notice recipients
Any person to whom the notice of
default and foreclosure sale was mailed as (pubL. 103-327, Title lI, Sept. 28, 1994, 108 Stat. 2316.)
provided in this chapter, and the heir, devisee,
executor, administrator, successor, or assignee IllSTORICAL NOTES
claiming under any such person.
IllSTORICALAND STATUTORY
(2) Subordinate claimants with NOTES
knowledge
Codifications
Any person claiming any interest in the One-hundred third Congress, agreed to on July 13, 1994,
property subordinate to that of the mortgage, which was enacted into permanent law by Pub.L. 103-327.
if such person had actual knowledge of the
foreclosure sale. Effective Date
Title IT of Pub.L. 103-327 provided in part that Title VIll
(3) Nonrecorded claimants
PubL. 103-327 and dt:emed enactOO into law upon
Any person claiming any interest in the enactment ofPub.L. 103-327, which was approved Sept. 28,
property, whose assignment, mortgage, or 1994.
12 USCA § 3766, Computation oftime Pagel
*94457 12 U.S.C.A. § 3766 the period is to be calculated.
UNITED STATES CODE CREDIT(S)

ANNOTATED
TITLE 12. BANKS AND
BANKING (PubL.103-327, Title H, Sept. 28, 1994, 108 Stat. 2316.)
CHAPTER 38A--SINGLE
FAMILY MORTGAGE mSTORICAL NOTES
FORECLOSURE
NOTES
5-26-2000
Codifications
Section is based on Senate No. 2281, Title vm, § 817.
§ 3766. Computation oftime One-hundred third Congress. agreed to on July 13. 1994,
which was enacted into permanent law by PubL. 103·327.
Periods of time provided for in this chapter Effective Date

shall be calculated in consecutive calendar days, Title n of Pub.L. 103-327 provided in part that Title vm
including the day or days on which the actions or of S. 2281. One-hundred third Congress. reported July 13,
events occur or are to occur for which the period
of time is provided and including the day on enactment ofPub.L. 103-327, which was approved Sept 28.
which an event occurs or is to occur from. which 1994.
12 USCA § 3767, Severability Pagel
-
*94458 12 U.S.C.A. § 3767
UNITED STATES CODE

(pubL.I03-327, Tit/ell, Sept. 28,1994,108 Stat 2316.)
mSTORICAL NOTES
-
ANNOTATED
mSTORICAL AND STATIJTORY
TITLE 12. BANKS AND
NOTES
BANKING
CHAPTER 38A--SINGLE Codifications
FAMILY MORTGAGE Section is based on Senate No. 2281, Title VIII. § 818,
FORECLOSURE which was enacted into permanent law by PubL. 103-327.
Current through P.L 106-213, approved Effective Date

5-26-2000 Title n of Pub.L. 103-327 provided in part that Title vm
1994, umch is c1assi1i<:d to this chnpter, is incorporotcd intD
§ 3767. Severability PubL. 103-327 and deemed enacted into law upon
enactment ofPubL. 103-327, which was approved Sept. 28,
1994.
If any part of this chapter shall, for any
reason, be adjudged by a court of competent
REFERENCES
jurisdiction to be invalid, or invalid as applied to a
class of cases, such judgment shall not affect, LIBRARY REFERENCES
impair, or invalidate the remainder thereof, and (
shall be confined in its operation to the part American Digest System

thereof directly involved in the controversy in
which such judgment shall have been rendered. Effect of partial invalidity of statutes in general, see Statutes
~64(1).
CREDIT(S) Encyclopedias
2000 Electronic Update Effect of partial invalidity of statutes in general, see C.J.S.
Statutes § 92.
12 USCA § 3768, Deficiencyjudgment Pagel
*94459 12 U.S.C.A. § 3768 (b) Limitation
UNITED STATES CODE Any action commenced to recover a deficien~

ANNOTATED under this section must be brought not later than
TITLE 12. BANKS AND 6 years after the date of the last sale of the
BANKING security property.
CHAPTER 38A--SINGLE
CREDIT(S)
FAMILY MORTGAGE
FORECLOSURE 2000 Electronic Update
Current through P.L. 106-213, approved (pubL 103-327, Title II, Sept. 28, 1994, 108 Stat. 2316.)
5-26-2000
mSTORICAL NOTES
§ 3768. Deficiency judgment
NOTES
(a) In general
Codifications
(1) Referral to Attorney General Section is based on Senate No. 2281, Title VIII, § 819,
Ot:w-hundred third Congress, agreed to on July 13, 1994,
If after deducting the payments which was enacted into permanent law by Pub.L. 103-327.
provided for in section 3762 of this title, the Effective Date
price at which the security property is sold at a Title II ofPub.L. 103-327 provided in part that Title VIII
foreclosure sale is less than the unpaid balance of S. 2281, One-hundred third Congress, reported July 13,
of the debt secured by the security property, 1994, which is classified to this chapter, is incorporated into
res~inginadeooen~,~S~eWym~
refer the matter to the Attorney General who 1994.
may commence an action or actions against
any or all debtors to recover the deficien~, REFERENCES
unless such an action is specifically prohibited
by the mortgage. LIBRARY REFERENCES
(2) Other recoveries American Digest System
In any action instituted pursuant to this Foreclosure by exercise of power of sale; deficiency and
section the United States may recover-- personal liability, see Mortgages ~375.
(A) any amount authorized by
Encydopedias
section 3011 of Title 28; and
(B) the costs of the action. Foreclosure by exercise of power of sale; deficiency and
personal liability, see C.J.S. Mortgages § 599.
12 USCA § 4511, Establishment of Office ofFerle Housing Enterprise Oversight Page 2
-
*8816012 U.S.c.A. § 4511
UNITED STATES CODE (Pub.L.102-550, Tit/eX/II, § 1311, Oct. 28,1992, 106Stat.
3944.)
-,
ANNOTATED
HISTORICAL NOTES
CHAPTER 46--GOVERNMENT
SPONSORED ENTERPRISES lllSTORICAL AND STATUTORY NOTES
SUBCHAPTER I--SUPERVISION
AND REGULATION OF Revision Notes and Legislative Reports
1992 Acts. House Report No. 102,760 and House
ENTERPRISES Conference Report No. 102-1017, see 1992 U.S. Code Congo
PART A--FINANCIAL SAFETY AND and Adm. News, p. 3281.
SOUNDNESS REGULATOR
Effective Dates
1992 Acts. Except as otherwise provided, section effective
Current through P.L. 105-175, approved Oct. 28, 1992, see section 2 ofPub.L. 102-550, set out as a
. .... ':;;;:.. _~ -,' ..s...U -98 - . -'~' . "<: note.unde!...section ?,;391ofTitJe 47.)T)1e Publicl:l~!h._'!!1~
Welfare.
§ 4511. Establishment of Office of Fed ral REFERENCES

Housing Enterprise Oversight
LIBRARY REFERENCES
There is hereby est.ablished an office within! the
Department of Housmg and Urban Developnient,
which shall be known as the Office of Federal Housing and urban development in general, see United States
Housing Enterprise Oversight. . ~82(3.1).
Encyclopedias
CREDIT(S)
Disbursement ofUnited States funds, see C.J.S. United States
1998 Electronic Update § 122.
I"
12USCA § 4513, Duty and authority ofDirector PageS
*8816312 U.S.C.A. § 4513 soundness;

UNITED STATES CODE (6) approval of payments of capital~
ANNOTATED distributions by the enterprises under section
TITLE 12. BANKS AND BANKIN l7l8(c)(2) of this title and section 1452(b)(2) of
CHAPTER 46--GOVERNMENT this title;
(7) requiring the enterprises to submit reports
under sections 4514, 1723a(k), and 1456(c) of
SUBCHAPTER I--SUPERVISION this title;
AND REGULATION OF (8) prohibiting the payment of excessive
ENTERPRISES compensation by the enterprises to any executive
PART A--FINANCIAL SAFETY AND officer of the enterprises under section 4518 of
SOUNDNESS REGULATOR this title;
(9) the management of the Office, including
Current through P.L. 105-175, approved the establishment and implementation of annual
_, ..._ 5-11-98 bu~get~, the hiJ:ip.g of, and compensation levels
for, personnel of the Office, and ~ucii
§ 4513. Duty and authority of Director assessments for the costs of the Office;
(10) conducting research and financial
(a) Duty analysis; and
(11) the submission of reports required by the
The duty of the Director shall be to ensure' at Director under this chapter. '
the enterprises are adequately capitalized {Uld
operating safely in accordance with this chapte . *88164 (c) Authority subject to approval of
Secretary
(b) Authority exclusive of Secretary
Any determinations, actions, and functions of the
The Director is authorized, without the review or Director not referred to in subsection (b) of this
approval of the Secretary, to make such section shall be subject to the review and approval
determinations, take such actions, and perform of the Secretary.
such functions as the Director determines
necessary regarding-- (d) Delegation of authority
(1) the issuance of regulations to" carry out
this part, subchapter II of this chapter, "and The Director may delegate to officers and
subchapter III of this chapter (including the employees of the Office any of the functions,
establishment of capital standards pursuant to powers, and duties of the Director, as the Director
subchapter II of this chapter); considers appropriate.
(2) examinations of the enterprises under
section 4517 of this title; (e) Independence in providing information to
(3) determining the capital levels of the Congress
enterprises and classification of the enterp 'ses
within capital classifications establishedder The Director shall not be required to obtain the
subchapter II of this chapter; prior approval, comment, 'or review of any officer
(4) decisions to appoint conservators for the or agency of the United States before submitting
enterprises; to the Congress, or any committee or
(5) administrative and enforcement act ons subcommittee thereof, any "reports,
under subchapter II of this chapter, actions utken recommendations, testimony, or comments if such
under subchapter III of this chapter with respect submissions include a statement indicating that
to enforcement of subchapter II of this chapter, the views expressed therein are those of the
and other matters relating to safety and Director" and do not necessarily represent the
-
12 USCA § 4513, Duty and authority ofDirector Page 6
views of the Secretary or the President. Conference Report No. 102-1017, see 1992 U.S. Code Congo
and Adm. News, p. 3281. .-.
CREDIT(S) References in Text
This chapter, referred to in subsecs. (a) and (b), was in the
1998 Electronic Update original "this title", meaning Title xm of Pub.L. 102-550,
Oct. 28,1992,106 Stat. 3941, known as the Federal Housing
(pub.L. 102-550, Title XlII, § 1313, Oct. 28, 1992, 106 i tat. Enterprises Financial Safety and Soundness Act of 1992,
which is classified principally to this chapter. For complete
3945.)
classification of this Act to the Code, see Short Title note set
out under section 4501 of this title and Tables.
HISTORICAL NOTES
Effective Dates
HISTORICAL AND STATUTORY NOTES 1992 Acts. Except as otherwise provided, section effective
I Oct. 28, 1992, see section 2 of Pub.L. 102-550, set out as a
Revision Notes and Legislative Reports I! note under sectionS301 of Title 42, The Public Health and
1992 Acts. House Report No. 102-760 and House Welfare. /
. !.
,.I
I II:1UUII:1 IVIQ\J \J<:11 VlvOI UUIIOLIII;:) ''''~ ,v, ....
:~~~'~ ::~~~;;-..-:;,~~~.uZ.h~#_
, Jireddie,:Mac:-
"~y-~~~~=~:..~~....:;.~~:;~-
Servicer Bulletin Number 97-6

- -.. .._--_.--_._--
_-~ ---_._---
Sln91e family Home
---_._-----------------------------------....;..-
10: All Freddie Mac Sellers and Servicers June 30. 1997
Underwrite and Process

SUBJECT
Loans
We're announcing revisions to our existing foreclosure time line management process and related requirements These reVisions include the elimination
sell and Deliver Loans of our maximum time lines in every Slate, changes to our penalty calculation and an explanation of the days we'll add to each State's foreclosure time
line to allow you time to manage Chapter 7 and 13 bankruptcies.
Mortgage Products
Mortgage servicing Programs

-------------_._------_., .. ..--- ..,._----
~--_ EFFECTIVE DATE
Access Capital Markets
Revisions to our foreclosure time line requirements are effective January 1, 1998.
Account Management
FOfTIlS and the Guida WHY WE'RE MAKING THESE CHANGES

~ Guide BuMetlns and IndUStry
In the past few years, we've worked with you to develop and implement policies aimed at improving foreclosure management to reduce credIT losses.
Letters The extent of losses associated WITh defaults is a continual concern for us because throughout much of the country property values have declined or
appreciated minimally. Therefore, we must continue to strengthen and refine the focus of default management and loss mitigation efforts to increase
~ Guide Subscriptions effectiveness.
~ Forms and Electronic
Documents The foreclosure requirements that we announced last year in Bulletin 96-1, dated April 29, 1996, provided you WITh specific guidelines to help you work
------~ more effectively wrth delinquent Borrowers to mITigate losses. As promised, we are continuing to revise our requirements based on the information we
ling and Education gather from you on the foreclosures you complete. Based on our analysis of this information and in an effort to simplify our foreclosure time line
requiremenls, we are eliminating the State maximum time line and revising the foreclosure time line penalty calculation. During 1997 we will analyze our
foreclosure data to determine new foreclosure time lines in each State. We plan to announce these revisions to you next year.
We believe that eliminating the State maximum simplifIeS the foreclosure time line management process. Freddie Mac's new foreclosure time line penalty
calculation will cred·1t you tor tne number ot days that you managed below our time line and debits you tor the number ot days you exceeded our time
line.
In addition, to support our assertion that bankruptcy management is a vital part of the overall foreclosure management process, we are adjusting
forecltcJsu·...e time Unes to .'neJude an add.'tioi1sJ l7umber of daY'S for fOu' ro abtal'n (eNef from the automatic stay' af Chapter "1 and 13 bankruptcies.
HOW THESE CHANGES AFFECT YOU

We have eliminated the maximum foreclosure lime line for ali States. Effective with this change we will have only one foreclosure time line. At this time
we have elected not to change the number of days to our current time line for any State. However, we will analyze our foreclosure data dUring 1997 so
that we can determine new time lines for each State.
INrle.... a BOH<)'Her me" for bankruptoy "rotectioo "~ie '"i\1 add the lesser of ttle tctal amoont cl time in ttle bankruptcy cr 00 days to the fmeclollUre time line
established for each Slate for a Chapter 7 bankruptcy and 125 days for a Chapter 13 bankruptcy. This represents a reasonable number of days for you
to obtain relief from the automatic stay of bankruptcy in order to proceed wITh the foreclosure. We will add these days to the time line if the bankruptcy
delayed the foreclosure initiation or the foreclosure process.
We will not assess a penalty if you successfully manage your foreclosures in aggregate wIThin our foreclosure time line on Mortgages you serviced for
Freddie Mac, in the aggregate, during a calendar year.
We will assess a penalty of $30 per day for the net number of days that your foreclosures on Mortgages serviced for Freddie Mac, in the aggregate,
exceed the foreclosure time line during a calendar year that resulted in a foreclosure sale. see Single-Famify SellerJServicer Guide (the Guide) Exhibrt 83
for an explanation of how we will calculate the penalty.
We will not penalize you for exceeding the number of days in our foreciosure time lines in states where we require you to use our designated counsel if
You use our designated counsel

The delay was not caused by your inaction
REVISIONS TO TH E SINGLE-FAMILY SELLERISERVICER GUIDE

We have revised parts of Guide Chapter 66 to incorporate the changes announced in this bUlletin. In addition, we have modified ExhibIT B3 to reflect the
new penalty calculation and our time line in each state,
rreaale Mac ::>ervIGt::1 OUII~lIIl::>
-
You'll find replacement pages for the Guide included with this package. we've highlighted the changes on each page by placing an arrow in the margin l _
and double underscoring the revised text
Ptea.~e follow
the (n.~tructlon5 on the page before the replacement pages 50 that you update your Guide correc;tly. Once you have inserted the
replacement pages, you'll no longer need to keep this bulletin unless you want a summary of the changes.
CONCLUSION
If you have any questions about the changes contained in this bulletin, please call (800) FREDDIE.
Cordially,
Paul T. Peterson
Servicer Division
> Seller Bulletins
© 2004 Fr€:ddj,;:., t..,~ac
)
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Page 1
Aboul Single-Family
Servicer Bulletin I
MoflgageProducts
Secondary Marketing
TO: All Freddie Mac Sellers and Servicers
Mo}.t9,ags,,53:eM;;il')g
fJLQ9l!!I!l~
SellerlServicer
SUBJECTS
~Jllit~
<3uide Bulletins & We are announcing the following changes to our Servicing requirements and processes:
Revisions to our repayment plan requirements

Revisions to our foreclosure time lines in 9 States and Exhibit 83, Determining Your Foreclosure Time Line
Performance
Addition of Maryland and Texas to our designated counselltrustee program, the removal of county
restrictions on use of designated counselltrustee in New Jersey and revisions to Exhibit 79, Designated
QglIJ9 ~J!.§i-"-!".§s with
Litigation CounsellTrustee
fr~~19Et~9
Changes to reimbursable expense amounts for foreclosure and bankruptcy expenses and revisions to
Forms & Electronic Exhibit 57, 1-4 Unit Property Approved Expense Amounts
Requirements for Servicing Mortgages registered with Mortgage Electronic Registration Systems Inc.
(MERS) and an addition to Form 1034, Fixed-Rate Custodial Certification Schedule and Form 1034A,
Loan Prospector ARM Custodial Certification Schedule
SM
Learning Center Addition of Investor Accounting Manager to GoldWorks4!>
Transfer of 2-4 Unit Real Estate Owned (REO) responsibilities to our CaDas office and revisions to
Directories 17 and 18
.- 0- _ _ Q .......
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-
We are also announcing that we wiD purchase Mortgages originated with MERS as the original mortgagee of
record.
EFFECTIVE OATES
April 1 , 1998 Revisions to our repayment plan requirements

Requiremen1& for Servicing Mortgages registered with MERS
Removal of county restridions on designated coun~lItrusteein New
Jersey
Transfer of 2-4 Unit REO to our Dallas offICe
Purchase requirements for Mortgages originated with MERS as original
mortgagee of record
May1,1998 Availability of Investor Accounting Manger on GoldWorka
July 1,1998 Addition of Maryland and Texas to the designated counselltru5tee

program
Changes to reimbursable expense amounts for foreclosure and
bankruptcy expenses
Page 2
Revisions to foreclosure time lines in 9 States
January 1, 1999
WHY we'RE MAK.ING THESE CHANGES AND HOW THEY AFFECT

YOU
We have heard your suggestions about how our existing repayment plan requirements may inhibit your arranging
repayment plans. You have told us that because in our definition of a repayment plan we require that a Borrower
have an involuntary inability to pay we have limited your ability to offer repayment plansto some Borrowers. We
strongly feel that repayment plans are the most effective way to cure delinquencies and for our Borrowers to retain
ownership of their homes.
)
We are revising our repayment plan requirements by immediately implementing the following:
• r I t::UUIt:J IVldv v~1 V 'vI::I UUIIc;UI I" . -0- - _. -
A Borrower does not need to have an involuntary inability to pay to be eligible for any repayment plan.
You may approve a repayment plan for de&nquencles ranging from 1 to 12 months.
Vllhen we require a written repayment plan, you must include specific information regarding the terms of
the agreement in the written plan.
We do not require you to secure a signed copy of the repayment plan from the Borrower unless the
repayment plan is in conjunction with a partial reinstatement from foreclosure. In that case, you must
include a stipulation in the agreement the borrower(s) must execute that you may recommence foreclosure
if the Borrower defaults on the repayment plan.
Revisions to our foreclosure time lines in 9 States
A foreclosure time line represents the amount of time it should take to complete a foreclosure. We calCUlate the
foreclosure time lines from the Due Date of Last Paid Installment (DOLPI) to the foreclosure sale date. We are
updating our foreclosure time lines based on a comparison of our current time lines to actual performance data
from the previous 12 months and other industry statistics.
The changes in the time lines are effective January 1, 1999, for foreclosures initiated with a OOLPI on or after
August 1. 1998. The time line changes affect foreclosures in the fonowing Stales: California, Connecticut. Florida,
Maryland, Massachusetts, Michigan, New York, Pennsylvania and Texas.
In each of these States, except for Michigan, we have decreased the number of days within which we expect you
to complete a foreclosure. In Michigan we have added 5 days to the time line. Please note that the time line for
foreclosures in the New York City area remains unchanged. Our foreclosure time lines take into account additional
time you may need to respond to ordinary delays such as service of process delays, court delays or delays in
obtaining a judgment
If you have met an requirements to initiate foreclosure, we do not require you to wait until the 120th day of
delinquency to initiate foreclosure. When you have determined that foreclosure is the only or best resolution to a
delinquency, initiating foreclosure prior to the 120th day of delinquency may help you reduce your time lines.
Addition of Maryland and Texas to the Designated CounsellTrustee Program and removal
of county restrictions in New Jersey
In BuHetin 96-7, dated December 23, 1996, we announced our designated counselltrustee program for
foreclosures and bankruptcies in several Slates or jurisdictions. You must use designated counselltruslee
according to the requirements of Section 66.15 of the Single-Family SeflerlServlcer Guide (the Guide). We
initiated this program to:
Improve foreclosure time line performance

Provide expertise in the foreclosure process
Reduce overall foreclosure fees and costs
Page 3
We have identified two additional States where we believe that the use of designated counselltrustee will benefit .
• rl e:uure: IVlc::I\j ..:>e:1 vrl.-e:r CUIle:lIIl~ rdY~'" UI 0
-
.-.
both you and us. Therefore, effective for foreclosures initiated on or after July 1, 1998, and aU bankruptcies filed
on or after that date, you must use designated counselltrustee to conduct a foreclosure on all Mortgages
originated as cash-out refinance transactions in the State of Texas. We may also require you by a written
notification to use designated counselltrustee in Maryland and Texas based upon our evaluation of your
performance and in accordance with Section 66.15 ofthe Guide. You may voluntarily choose to use designated
counselJtrustee at any time.
In addition, we no longer require you ID use a specific designated counsel/trustee assigned by county in New
Jersey. Effective April 1, 1998, you may use any designated counseVtruslee in New Jersey for a foreclosure or
bankruptcy anywhere in that State. We have updated Seelion 66.15 and Exhibit 79, Designated litigation
CounselfTrustee, ID reflect these changes.
Changes to reimbursable amounts for foreclosure and bankruptcy expenses
We have completed a State-byoState review of our aHowable foreclosure and bankruptcy costs and the
reimbursement amounts for title services for non-designated counsel. Our review showed that we needed ID
update our expense limits in several States ID make our reimbursements more equitable. The updating of these
expense amounts vvill reduce the extra \l\IOrk you perform ID secure our approval for amounts in excess of our
current expense limits. In some cases, this will result in the reduction of the time it actually takes you to complete
a foreclosure.
All of the foUovving changes are effective for foreclosures initiated on or after July 1, 1998, and bankruptcies filed
on or after that date. We have updated Chapters 66 and 71 and Exhibit 57, 1·4 Unit Property Approved Expense
Amounts, to reflect the changes referenced below.
Foreclosure expenses
In reviewing reimbursable expenses, we have considered industry costs and our own experience. We have made
adjustments in 29 States that include increases in reimbursable costs in 20 States. These changes will result in
more eqUitable reimbursement for you, attomeys and trustees and reduced costs for us.
To further reduce costs, you must direct your attorney or trustee to use the non-judicial foreclosure process
whenever possible. If you recommend a jUdicial foreclosure to preserve the right to pursue a defICiency judgment,
you must secure our approval prior to initiating the judicial foreclosure. You must request our approval by
submitting a completed Form 105, Multipurpose Loan Servicing Transmitlal, to us with any supporting
documentation and an explanation of your request
If you initiate a judicial foreclosure and the Borrower files an answer that requires the filing of a summary judgment
to foreclose, we will reimburse you up to $250 to pay the attomey for obtaining the summary judgment. This
amount is in addition ID the approved attorney fees listed in Exhibit 57.
In addition, in the States 6sted below, if you have to restart a new foreclosure proceeding due to a delay in the
process, such as bankruptcy or a delay for which you have secured our written prior approval, we will reimburse
you as follows:
All of the actual costs of each foreclosure in accordance with the requirements of the Guide
)
Up to 100% of the approved attomey or trustee's fees for the flJ'llt foreclosure attempt
Uo to 70% of the aDDroved attorneY or trustee's fees for the subseouent foreclosure
· rI ~UUI~ IVld\,; vt::11 VI\';~I DUII~llll~
<,r)
In Exhibit 57 we have noted the States affectBd by this change with a double asterisk. Those States are:
Alabama Indiana Missouri T
Alaska Maryland New Hampshire V
Georgia Michigan Oregon

'" II
Idaho Minnesota Rhode Island II
In an other States, we will reimburse you for only one foreclosure attorney or trustee fee and costs in accordance
Page 4
with the Guide.
Bankruptcy expenses
Currently we reimburse you the same amount regardless of the bankruptcy chapter involved. Our current
reimbursement amounts vary from State-to-State, rather than according 10 the amount of work involved with the
particular bankruptcy chapter. To make our reimbursements more equitable, we are changing our reimbursement
amounts to pay a maximum of $400 for a Chapter 7 bankruptcy and $450 for Chapter 12 and Chapter 13
bankruptcies through the date of the confirmation of the plan. We will reimburse at the higher amount for Chapter
12 and 13 bankruptcies if there is a conversion to a Chapter 7 bankruptcy. We will also pay up to $250 for the
attorney or trustee to handle a post-eonfirmation plan default in Chapter 12 or 13 bankruptcies.
Title expenses
We have eliminated the categorization of reimbursable title fees based on whether the expense was for an
abstract, a commitment or a policy. Instead, we have established a single reimbursable amount for title expense
by State. If you must get an update 10 the title because the original is stale due to bankruptcy or aome other
approved delay, we WIll reimburse you up 10 $75 for the additional update. We have included the reimbursable title
expense amounts by State in Exhibit 57. We will reimburse you for the actual full or limited Trustee's Sale
Guaranty (TSG) if the Mortgaged Premises go to foreclosure sale. Exhibit 57 lists those States for which we wBl
reimburse a TSG.
We will not reimburse you for the following:
Additional expense for an attomeyltrustee to review a title abstract since our attorney fee in every State
already includes that co$!:
A title commitment unless the court requires it 10 complete a foreclosure
ReqUirements for Servicing Mortgages registered with MERS Inc.

·rl~UUI~ IVle"" O~I V I \"l:' I OUII~LIII"
-
In our March 1997 Update to the Guide, 1M! announced our initial requirements under which we would purchase
MERS registered Mortgages so that you may take advantage of the efficiencies the system offers.
With this; bUlletin, 1M! are announcing additional policies that address some of the processes that occur when
Servicing a Mortgage registered with MERS. The following policy changes are all effective on April 1, 1998.
Foreclosing on a Mortgage registered with MERS
You may not register a Mortgage with MERS that is already in foreclosure. However, when you initiate foreclosure
on a MERS registered Mortgage, you must follow the requirements of Chapter 66 of the Guide. We have revised
Section 66.17 to include the following requirements. You must either
Instruct the foreclosure counselor trustee to process the foreclosure in the name of Ml:RS; or
Record an assignment of the Security Instrument from Ml:RS to your institution and instruct the
foreclosure counselor trustee to foreclose in your name
In either of the above cases, you must ensure that title to the foreclosed property is taken in our name if not
purchased by a third party. You must do this in a manner that does not result in an obligation to pay transfer
taxes.
Identifying MERS registered Mortgages
You must be able to identify each Mortgage registered with MERS so that you can;
Receive legal notices from concerned parties sent to you via MERS and can respond In them within the
required time fram.
Determine if additional assignments are needed for a Mortgage newly registered with MERS, a Transfer of
Servicing or foreclosure
Fulfill your normal Servicing functions and protect our rights and interest in the Mortgage
Page 5
You must provide your Custodian with any documentation necessary for the Custodian to determine if they need a
recorded assignment to MERS, or if the Mortgage was closed using a Security Instrument naming MERS as
original mortgagee of record as discussed later in this bulletin.
We now require you In supply the Mortgage Identification Number (MIN) on a MERS registered Mortgage on Form
11, Mortgage Submission Schedule and Form 13SF, Mortgage Submission Voucher. As a result, our MIDANETll!>
software win automatically generate a MERS indicator on Form 1034. Fixed-Rate Custodial Certification Schedule
and Form 1034A, ARM Custodial Certification Schedule. On the forms, the acronym "MERS· will appear directly
belowlhe "FHLMC loan number".
Availability of Investor Accounting Manager on GoldWorks

• rl ~I.:lUI~ IVla\" \.J~I v IIJO'I UUIlO'L1IIi:J I Q\:1'"' I VI V
Effective for your use as of May 1, 1998, we have added a new appRcation to GoldWorks as a tool for proactive
management of your investor reporting and accounting proce&&ell. This application, Investor Accounting Manager,
provides you with quick and easy access to our data on the portfoRo you service for us. In addition to the reports
now available on GoldWorks, such as the Monthly Account Statement, Loan Reconcirlation Difference Report and
edit reports, you will be able to access the foUowing new reports and features:
Special request reports

ARM notification report
Capability to download data
Global Payment Systems (GPS) interface
Investor Accounting Manager features a request "button" or speed key that reduces the time it takes to receive
special request reports from several days to less than 24 hours. These special reports include:
Loan-Level Trial Balance Report

Remittance Detail Report
ARM Detail Report
The capability of downloading data gives you the f1exibUity to readily compare your data with ours. This makes it
quicker and easier for you to correct and reduce reporting errors and synchronize both sets of data. Call (800)
FREDDIE for further information on how to acquire Go/dWorks and Investor Accounting Manager.
Transfer of 2-4 unit REO responsibilities to our Dallas office
Effective April 1, 1998, we are transferring our 2-4 Unit REO responsibilities to our operations office in Dallas. We
are making this change to centraUy locate REO functions, make our REO processes more efficient and reduce
costs. We have updated Directories 17 and 18 to reflect this change.
Purchase of Mortgages with MERS as original mortgagee of record
We have agreed to purchase Mortgages registered with MERS that you have closed using a Security Instrument
naming MERS as the original mortgagee of record where ME RS is named as nominee for the originating lender.
The most immediate benefit you will enjoy in using MERS as original mortgagee of record is that you do not have
to complete assignments as long as the Mortgage is registered with MERS. We will continue to also purchase
Mortgages registered with MERS where a Mortgage was not closed using a Security Instrument naming MERS as
the original mortgagee of record, but was assigned to MERS per the reqUirements of Section 22.14.
REVISiONS TO THE SINGLE~FAMILY SELLERISERVICER GUIDE
Updates to the Guide included with this Bulletin are:
Revised Chapters 16, 18,22,39,47,52,56,58,65, A65, B65, 66, 67,71,77,78, SO and 82

Revised Exhibits 5, 57, 79 and 83
Revised Directories 7, 10, 17 and 18
We have highlighted the changes on each page by placing arrows in the margin and double underlining the
revised text Please fonow the instructions on the page preceding the replacement pages so that you may
•.... reOOle /VIac "ervlcer t:Sulleuns
-
correctly update your Guide.
Page 6
We are also deleting the following exhibit and forms from the Guide. You must continue to submit to us any Form
104DC you receive from designated counselltrustee.
Exhibit 70, Remittance Reconciliation Report (M1DANETISl Worksheet)

Form 103A, L.oans Delayed in Delinquent Status
Form 103B, L.oans Delayed In Foreclosure Status
Form 103F, Foreclosures Not Reported
Form 104DC, Designated CounsellTrustee
Form 713, Second Mortgage Submission Voucher
Form 1092A, Freddie Mac Property Inspection Report
Form 1098, Worksheet for Notification of Mortgages Approved for Foreclosure
For your reference, attached at the back of this letter is a log of all the bulletins (and their corresponding
replacement pages) that we issued in 1997. If you encounter a problem while updating your Guide, please refer to
this log to see if you have missed any bulletins. If you are missing a bulletin, please call (800) FREDDIE to
req uest a copy.
CONCLUSION
We believe that the changes in our policies and processes contained in this bulletin contribute to our continuing
commitment to partner with you and to make Servicing Mortgages for us more effICient and cost effective. If you
have any questions about the changes contained in this bulletin, please call (800) FREDDIE.
Cordially,
Paul T. Peterson
Senio; Vice President
Servlcer Division
§~Her BulletilJS
""reaole Mac \:)t:nVIl;t:l1 CUIlt::lImS I a~~ I VI U
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Page 1
Numt
=~==:.;=
==~
~~:'~~'#~
l::.~:=~:,=:::=
SellerlServicer
SUBJECTS
Guide Bulletins & We are announcing the following changes to our Servicing requirements and processes:
IndUstry Letters

Guide Forms
Revisions to our foreclosure time lines in 9 States and Exhibit 83, Determining Your Foreclosure Time Line
Oblalning a Guide Performance

Addition of Maryland and Texas to our designated counselltrustee program, the removal of county
restrictions on use of designated counsel/trustee in New Jersey and revisions to Exhibit 79, Designated
Doing Business with
Litigation Counsel/Trustee
Freddie Mac
Changes to reimbursable expense amounts for foreclosure and bankruptcy expenses and revisions to
Forms & Electronic Exhibit 57, 1-4 Unit Property Approved Expense Amounts
Requirements for Servicing Mortgages registered with Mortgage Electronic Registration Systems Inc.
Documents
(MERS) and an addition to Form 1034, Fixed-Rate Custodial Certification Sched.ile and Form 1034A,
Loan Prospector ARM Custodial Certification Schedule
8M
Learning Center Addition of Investor Accounting Manager to GoldWorksllP
Transfer of 2-4 Unit Real Estate Owned (REO) responsibilities to our Dallas office and revisions to
Directories 17 and 18
http://216.239.57.104/search?q=cache:akrD30GK4fOJ:www.mortgagebankers.org/residentl1998/fr... 2/4/04
I I CUUR:: IVICl\,; ':>1::1 VI\,,;I::I OU"l::lIIl~ I-'age z at ~
we are also announcing that we will purchase Mortgages originated with MERS as the original mortgagee of
record.
EFFECTIVE DATES
April 1, 1998 Revisions to our repayment plan requirements

Requirements for Servicing Mortgages registered with MERS
Removal of county restrictions on designated counselltrustee in New
Jersey
Transfer of 2-4 Unit REO to our Dallas office
Purchase requirements for Mortgages originated with MERS as original
mortgagee of record
May 1,1998 , Availability of Investor Accounting Manger on GoldWorks
July 1,1998 Addition of Maryland and Texas to the designated counseVtrustee

program
Changes to reimbursable expense amounts for foreclosure and
bankruptcy expenses
Page 2
Revisions to foreclosure time lines in 9 States
January 1, 1999
WHY WE'RE MAKING THESE CHANGES AND HOW THEY AFFECT

YOU
We have heard your suggestions about how our existing repayment plan requirements may inhibit your arranging
repayment plans. You have told us that because in our definition of a repayment plan we require that a Borrower
have an involuntary inability to pay we have limited your ability to offer repayment plans to some Borrowers. We
strongly feel that repayment plans are the most effective way to cure delinquencies and for our Borrowers to retain
ownership of their homes.
)
We are revising our repayment plan requirements by immediately implementing the following:
http://216.239.57. 104/search?q=cache:akrD30GK4fOJ:www.mortgagebankers.org/resident/1998/fr... 214/04

r l'l::UUI'I:: IVIC1\., ";''1::1 V 11,,'1::1 OUlI'l::m I;:) r al:;l'l:: oJ VI V
A Borrower does not need to have an involuntary inability to pay to be eligible for any repayment plan.
You may approve a repayment plan for delinquencies ranging from 1 to 12 months.
When we require a written repayment plan. you must include specific information regarding the terms of
the agreement In the written plan.
We do not require you to secure a signed copy of the repayment plan from the Borrower unless the
repayment plan is in conjunction with a partial reinstatement from foreclosure. In that case. you must
include a stipulation in the agreement the borrower(s) must execute that you may recommence foreclosure
if the Borrower defaUlts on the repayment plan.
Revisions to our foreclosure time lines in 9 States
A foreclosure time line represents the amount of time it should take to complete a foreclosure. Welcalculate the
foreclosure time lines from the Due Date of Last Paid Installment (DDLPI) to the foreclosure sale date. We are
updating our foreclosure time lines based on a comparison of our current time lines to actual performance data
from the previous 12 months and other industry statistics.
The changes in the time lines are effective January 1, 1999, for foreclosures initiated with a DDLPI on or after
August 1, 1998. The time line changes affect foreclosures in the following States: Califomia, Connecticut, Florida,
Maryland, Massachusetts. Michigan, New York, Pennsylvania and Texas.
In each of these States, except for Michigan, we have decreased the number of days within which we expect you
to complete a foreclosure. In Michigan we have added 5 days to the time line. Please note that the time line for
foreclosures in the New York City area remains unchanged. Our foreclosure time lines take into account additional
time you may need to respond to ordinary delays such as service of process delays, court delays or delays in
obtaining a judgment
If you have met all requirements to initiate foreclosure, we do not require you to wait until the 120th day of
delinquency to initiate foreclosure. When you have determined that foreclosure is the only or best resolution to a
delinquency, initiating foreclosure prior to the 120th day of delinquency may help you reduce your time lines.
Addition of Maryland and Texas to the Designated CounselJTrustee Program and removal
of county restrictions in New Jersey
In Bul/etin 96-7, dated December 23,1996, we announced our designated counselltrustee program for
foreclosures and bankruptcies in several States or jurisdictions. You must use designated counselltrustee
according to the requirements of Section 66.15 of the Single-Family Sel/eriSeNlcer Guide (the Guide). We
initiated this program to:
Improve foreclosure time line performance

Provide expertise in the foreclosure process
Reduce overall foreclosure fees and costs
Page 3
We have identified two additional States where we believe that the use of designated counsel/trustee will benefit
http://216.239.57.104/search?q=cache:akrD30GK4fOJ:www.mortgagebankers.org/resident/1998/fr... 2/4/04
• I vUU'v 'V'Qv ,""v, V,''''"', UUllv\II • .;> I ... ~v ..... VI " ' _
.-.
both you and us. Therefore. effective for foreclosures initialed on or after July 1. 1998, and all bankruptcies filed
on or after that date, you must use designated counselltrustee to conduct a foreclosure on all Mortgages
originated as cash-out refinance transactions in the State of Texas. We may also require you by a written
notification to use designated counsel1trustee in Maryland and Texas based upon our evaluation of your
performance and in accordance with Section 66.15 ofthe Guide. You may voluntanly choose to use designated
counselJtrustee at any time.
In addition, we no longer require you to use a specific designated counselJtrustee assigned by county in New
Jersey. Effective April 1, 1998, you may use any designated counseVtrustee in New Jersey for a foreclosure or
bankruptcy anywhere in that State. We have updated Section 66.15 and Exhibit 79, Designated Litigation
CounsellTrustee, to reflect these changes.
Changes to reimbursable amounts for foreclosure and bankruptcy expenses
We have completed a State-by-State review of our allowable foreclosure and bankruptcy costs and the
reimbursement amounts for title services for non-designated counsel. Our review showed that we needed to
update OUr expense limits in several States to make our reimbursements more equitable. The updating of these
expense amounts will reduce the extra work you perform to secure our approval for amounts in excess of our
current expense limits. In so~e cases, this wal result in the reduction of the time it actually takes you to complete
a foreclosure.
AU of the following changes are effective for foreclosures initiated on or after July 1, 1998, and bankruptcies filed
on or after that date. We have updated Chapters 66 and 71 and Exhibit 57. 1-4 Unit Property Approved Expense
Amounts, to reflect the changes referenced below.
Foreclosure expenses
In reviewing reimbursable expenses, we have considered industry costs and our own experience. We have made
adjustments in 29 States that include increases in reimbursable costs in 20 States. These changes will result in
more equitable reimbursement for you, attomeys and trustees and reduced costs for us.
To further reduce costs. you must direct your attomey or trustee to use the non-judicial foreclosure process
whenever possible. If you recommend a judicial foreclosure to preserve the right to pursue a deficiency jUdgment,
you must secure our approval prior to initiating the judicial foreclosure. You must request our approval by
submitting a completed Form 105, Multipurpose loan Servicing Transmittal. to us with any supporting
documentation and an explanation of your request
If you Initiate a judicial foreclosure and the Borrower files an answer that requires the filing of a summary judgment
to foreclose, we will reimburse you up to $250 to pay the attorney for obtaining the summary judgment This
amount is in addition to the approved attorney fees listed in Exhibit 57.
In addition, in the States listed below, if you have to restart a new foreclosure proceeding due to a delay in the
process, such as bankruptcy or a delay for which you have secured our written prior approval, we will reimburse
you as follows:
AU of the actual costs of each foreclosure in accordance with the requirements of the Guide
Up to 100% of the approved attorney or trustee's fees for the first foreclosure attempt
UD to 70% of the aDoroved attornev or trustee's fees for the subseouent foreclosure
http://216.239.57.104/search?q=cache:akrD30GK4fOJ:www.mortgagebankers.org/resident/1998/fr... 2/4/04
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expense amounts by State in Exhibit 57. We wiD reimburse you for the actual full or limited Truste~'~ ~"'~
Guaranty (TSG) if the Mortgaged Premises go to foreclosure sale. Exhibit 57 lists those States f~: ~~~~~: ;"~ ~~~~
reimburse a TSG.
We will not reimburse you for the following:
:'::::;:: :::::::::::::::: ::::::::::':::':::::: :: :.-:~::: :.: :: :;: ;"';:.• :: ;:.: ::: :::::-!::::::.:';;:"::==
Requirements for Servicing Mortgages registered with MERSlnc.
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- -::1- - - - -- . .
In our March 1997 Update to the Guide, we announced our initial requirements under which we would purchase
-
MERS registered Mortgages so that you may take advantage of the efficiencies the system offers.
VVlth this bulletin, we are announcing additional policies that address some of the processes that occur when
Servicing a Mortgage registered with MERS. The following policy changes are an effective on April 1. 1998..
Foreclosing on a Mortgage registered with MERS
You may not register a Mortgage with MERS that is already in foreclosure. However, when you initiate foreclosure
on a MERS registered Mortgage, you must follow the requirements of Chapter 66 of the Guide. We have revised
Section 66.17 to include the following requirements. You must either
Instruct the foreclosure counselor trustee to process the foreclosure in the name of MERS; or
Record an assignment of the Security Instrument from MERS to your institution and instruct the
foreclosure counselor trustee to foreclose in your name
In either of the above cases, you must ensure that title to the foreclosed property is taken in our name if not
purchased by a third party. You must do this in a manner that does not result in an obligation to pay transfer
taxes.
Identifying MERS registered Mortgages
You must be able to identify each Mortgage registered with MERS so that you can:
Receive legal notices from concerned parties sent to you via MERS and can respond to them within the
required time frames
Determine if additional assignments are needed for a Mortgage neWly registered with MERS, a Transfer of
Servicing or foreclosure
Fulfill your normal Servicing functions and protect our rights and interest in the Mortgage
PageS
You must provide your Custodian with any documentation necessary for the Custodian to determine if they need a
recorded assignment to MERS, or if the Mortgage was closed using a Security Instrument naming MERS as
original mortgagee of record as discussed later in this bulletin.
We now require you to supply the Mortgage Identification Number (MIN) on a MERS registered Mortgage on Form
11, Mortgage Submission Schedule and Form 13SF, Mortgage Submission Voucher. As a result, our MIDANET~
software will automatically generate a MERS indicator on Form 1034. Fixed-Rate Custodial Certification Schedule
and Form 1034A, ARM Custodial Certification Schedule. On the forms, the acronym "MERS" will appear directly
below the "FHLMC loan number".
Availability of Investor Accounting Manager on GOldWorks
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Effective for your use as of May 1, 1998, we have added a new application to GoldWorks as a tool for proactive
management of your investor reporting and accounting processes. This application, Investor Accounting Manager,
provides you with qUick and easy access to our data on the portfolio you service for us. In addition to the reports
now avaHable on GoidWorks, such as the Monthly Account Statement, Loan Reconcirlation Difference Report and
edit reports, you will be able to access the following new reports and features:
Special request reports

ARM notification report
Capability to download data
Global Payment Systems (GPS) interface
Investor Accounting Manager features a request "button" or speed key that reduces the time it takes to receive
special request reports from several days to less than 24 hours. These special reports include:
Loan-Level Trial Balance Report

Remittance Detail Report
ARM Detail Report
The capability of downloading data gives you the flexibility to readHy compare your data with ours. This makes it
quicker and easier for you to correct and reduce reporting errors and synchronize both sets of data. Call (800)
FREDDIE for further information on how to acquire GoldWorks and Investor Accounting Manager.
Transfer of 2-4 unit REO responsibilities to our Dallas office
Effective April 1, 1998, we are transferring our 2-4 Unit REO responsibilities to our operations office in Dallas. We
are making this change to centrally locate REO functions, make our REO processes more efficient and reduce
costs. We have updated Directories 17 and 18 to reflect this change.
Purchase of Mortgages with MERS as original mortgagee of record
We have agreed to purchase Mortgages registered with MERS that you have closed using a SecuritY Instrument
naming MERS as the original mortgagee of record where MERS is named as nominee for the originating lender.
The most immediate benefit you will enjoy in using MERS as original mortgagee of record is that you do not have
to complete assignments as long as the Mortgage is registered with MERS. We will continue to also purchase
Mortgages registered with MERS where a Mortgage was not closed using a Security Instrument naming MERS as
the original mortgagee of record, but was assigned to MERS per the requirements of Section 22.14.
REVISIONS TO THE SINGLE-FAMILY SELLERISERVICER GUIDE
Updates to the Guide included with this Bulletin are:
Revised Chapters 16,18, 22, 39, 47,52,56,58, 65,A65, B65, 66, 67, 71, n, 78, 80 and 82
Revised Exhibits 5, 57, 79 and 83
Revised Directories 7,10,17 and 18
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-
correctly update your Guide.
Page 6 -
We are also deleting the following exhibit and forms from the Guide. You must continue to submit to us any Form
104DC you receive from designated counselltrustee.
Exhibit 70, Remittance ReconcHiation Report (MIDANET4P Worksheet)

Form 103A, Loans Delayed in Delinquent Status
Form 1038, Loans Delayed in Foreclosure Status
Form 103F, Foredosures Not Reported
Form 104DC, Designated Counselrrrustee
Form 713, Second Mortgage Submission Voucher
Form 1092A, Freddie Mac Property Inspection Report
Form 1098, Worksheet for Notification of Mortgages Approved for Foreclosure
For your reference, attached at the back of this letter is a log of all the bulletins (and their corresponding
replacement pages) that we issued in 1997. If you encounter a problem while updating your GUide, please refer to
this log to see if you have missed any bulletins. If you are missing a bulletin, please call (800) FREDDIE to
request a copy.
CONCLUSION
We believe that the changes in our policies and processes contained in this bulletin contribute to our continuing
commitment to partner with you and to make Servicing Mortgages for us more effICient and cost effective. If you
have any questions about the changes contained in this bulletin, please call (800) FREDDIE.
Cordially,
Paul T. Peterson
Servicer Division
Return to Servicer Bulletins
Seller BUlletins
) C 1997 Fntddle ,-
Terms & CondItiQ'ls I Pnvacv Pc!!cy 1ca
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, Broker Solutions Enterprise Solutions About Us Support Contact Us User lng~lll fast Easy. Accurate,
. . ~ ~.. . - - "
Compliance Info> Jan 04
I '.
At Entyre, we have an excellent team of compliance professionals that stay constantly updated and informed on
~ if
any issues that impact mortgage closing documents requirements, by state. We incorporate these changes into
our processes and document packages, so you can rest assured we have taken into account these compliance
updates. For your convenience, we have provided a brief synopsis of about the last 90 days of compliance -~.
updates below, along with the links that can lead you to additional information. Please see our archive filell for
earlier compliance updates;
Mchives
QUestionS] pi.eAs5 Hem f[,~t thl3se we~ PIlIlI3$ are pfQvideei ~y Eiityre ;1$ it r~U~ Qi' ~~~f irifQ!milii"o wti«;~ Ii c.ikii<: on apil~opr~ fofder
r..!~l
intended, butnotpromilled or guaranteed to be correct,. complete and up to date. NOTe THAT IT IS NOT OUR
INTeNTION TO PROVIDE LEGAL ADVICE AND NOTHING HEREIN SHOUl.D BE USED AS A SUBSTITUTE below to view prior releases.
[ FOR THE ADVICE OF COMPETENT COUNSEl..
8J HlQC·flltr
Bulletins from July 2003 to Current
Jan toJun
January 2004
• Massachusetts Executive Order 455, signed by Massachusetts' Govemor Romney on December 19, 2003 •
has established new rules of conduct for Notaries PUblic, effective February 17, 2004 . These rules require
changes to the notary acknowledgments for MA. The changes to the acknowledgments include requiring ·proof of
satisfactory evidence of identification· and a notary seal. The Executive Order can be downloaded at
htto:lfw.Nw.state.ma.uslseclpre/prepdflexecorder445pdf.pdf •
• Michigan Public Act 238.2003 , created the Notary Public Act and repeals aU prior acts, effective April 1,
2004 . Starting on April 1,2004 , Section 27 of the Public Act 238 requires notaries to include the statement:
·Acting in the County of_." on any record they notarize. This statement may be printed, typed stamped or
imprinted immediately near the notary public's signature.
• VA As part of the Veterans Benefits Act of 2002 (Section 307), the Department of Veterans Affairs changed the
VA Assumption Funding Fee (the fee for assuming the loan of a veteran) from .5% to 1%. On September 30,
2003, the change expired. This required VA to issue a proposed rule in the Federal REgister dated October 9,
2003, Volume 68, No. 196, to make the 1% fee permanent. Comments were due November 10, 2003.
Irregardless of the percentage indicated on the assumption rider, it is VA's position that whatever policy is
currently in affect at the time of the loan closing, it is the policy that takes precedence. In the same proposed rule,
VA proposes to amend its loan guaranty regUlations by incorporating the new hybrid adjustable rate mortgage
provisions, as previously announced in Circular 26-03-4, dated September 5, 2003. A revision of the requirement
that loan instruments used in connection with VA guaranteed loans contain a statement that loans are not
assumable vvithoutthe prior approval of VA was included in the Veterans Education and Benefits Expansion Act
of 2001, Public Law 107-103, and enables lenders to use standard loan instruments.
X4 VA LOANS WILL USE THE CONVENTIONAL MORTGAGES AND CONVENTIONAL MERS MORTGAGES
RA THER THAN THE DISCONTINUED VA VERSIONS OF THE MORTGAGESIDEEDS OF TRUST. VA NOTES
AND VA ASSUMPTION RIDERS WILL REMAIN IN USE.
• On January 9, 2004, the Michigan Attorney General issued a significant opinion regarding the practice of
commencing foreclosures without a completed record chain of title, In Opinion No. 7147, the Attomey General
interpreted MCLA 600.3204(1 )(c) to require that all assignments of a mortgage must be recorded prior to
commencing a foreclosure by advertisement. The Attorney General noted both the treatment given the issue by
the Michigan Land iltle Standards and the long-held fact that foreclosure by advertisement is a purely statutory
remedy. He then went on to opine that a publication that either fails to name an assignee or names an assignee
that is not of record cannot satisfy the statute's requirements. Further, he reasoned, such omissions cannot be
cured in later publication. '
In concluding, the Attomey General reached the core issue and found: • It is my opinion. therefore, that a
mortgagee cannot validly foreclose a mortgage by advertisement unless the mortgage and all
assignments of that mortgage (except those assignments effected by operation of law) are entitled to be,
and have been, recorded.• (emphasis added). He went on to note that, where a foreclosing mortgagee or
assignee does not have a recorded interest on the date the foreclosure by advertisement commences, any notice
given does not satisfy the statutory requirements for publication and may be the basis for asserting that the
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foreclosure was invalid.
A copy of lite opinion can be found at http://W\I\IW.ag.slate.mi.uslopjnionldatafl!esf2000sfop10223.htm . Please

review and discuss with your legal staff or legal counsel.
December 2003
Eight federal regulators announced an advance notice of proposed rulemaking in the Federal Register dated
December 30,2003, Volume 68, Number 249, pages 75164-75174, which requested public comment on ways to
improve the privacy notices financial institutions prov ide to consumers under the Gramm-Leach-Bliley Act (GLB
Act). The notice described various approaches that the agencies could pursue to allow or require financial
institutions to provide altemative types of privacy notices that would be more readable and useful to consumers.
It also seeks comment on whether differences between federal and state laws pose any special issues for
developing a short privacy notice. Comments must be received by March 29, 2004. The entire notice can be
viewed at: !It!R1/a257.g.akamaitech.netl7/25712422114mar20010800/edocket.access.gpo.govl2003lpdff03-
31992.pdf
Freddie Mac issued Bulletin 2003-7, dated December 5,2003, which increased the maximum original loan
amounts for home mortgages eligible for sale to Freddie Mac starting January 1, 2004, and revised the
documentation delivery requirements for Mortgages secured -by property located in New York State originated
using a New York Consolidation, Extension and Modification Agreement (NY CEMA) and incorporated those
revised requirements into the Single-Family Seller/Servicer Guide (Guide). The bulletin also makes
enhancements related to the delivery and certification of four data elements for adjustable-rate Mortgages
(ARMs) announced in Bulletin 2003-4 (June 6, 2003) and Bulletin 2003-5 (August 7, 2003). Seller/Servicers are
reminded that delivery and certification of these data elements is required beginning January 1, 2004 and that
lite changes announced in Bulletin 2003-4 (June 6, 2003) and Bulletin 2003-5 (August 7, 2003) to accommodate
the Home Mortgage Disclosure Act (HMDA) and the USA Patriot Act become effective January 1, 2004. The
entire Bulletin can be viewed at: http://www.freddiemac.com/selllselbuitnfbIl037.html
The Veterans Benefits Act of 2003 was signed by President Bush on December 16, 2003 . This public law
makes adjustments to several loan guaranty funding fees. There is no change in the funding fee amounts for
IRRRL loans, Native American Direct Loans, or Loan Assumptions. Lenders should continue to reflect the one-
half of one percent (0.5%) loan assumption funding fee in the VA Loan and Assumption Policy Rider. These
Loan Guaranty Program benefit change. and other revisions to the program can be found in Veterans Benefits
Administration Circular 26-03-09 .
November 2003
The VA has revised VA Form 26-0286, Loan Summary Sheet to incorporate the two part ethnicity and race
questions. These changes reflect similar changes made to the Uniform Residential Loan Application for purposes
of HMDA (Home Mortgage Disclosure Act.) Generally, the form should be used for loans made in 2004'. The
Federal Reserve has issued transition instructions for loans in process prior to January 2004, and lenders should
follow those procedures. If there are questions, lenders can contact William White of the Loan Policy & Valuation
staff at [email protected] . The form can be downloaded on VA's site at
http://W\I\IW.vba.va.gov/pubslhomeloanforms.htm .
Fannie Mae issued Announcement 03-13, dated November 25, 2003 , which announced changes to the
Conventional Loan Limits for 2004, Maximum Daily Mortgage Commitment Limit, and Non-reimbursed Business
Expense Policy. The Announcement can be viewed at http://W\I\IW.efanniemae.comfsinglefamily/pdff03-13.pdf
Freddie Mac issued an Industry Letter, dated November 26, 2003 , which announced Freddie Mac is revising
requirements for the purchase of mortgages secured by mortgaged premises located in New Jersey, New
Mexico, Illinois, Oklahoma, Maine or Nevada, in response to the recent enactment of anti-predatory lending
statutes. Mortgages in New Jersey, New Mexico, Illinois, Oklahoma, Maine or Nevada that are considered high.
cost home loans as defined by the anti-predatory lending laws in their respective states are not eligible for
delivery to Freddie Mac. The Letter can be viewed at: http://W\I\IW.freddiemac.comiselllselbuitn/112603indltr.html
The State Bar of Georgia issued UPL Opinion 2003·2 on November 10, 2003 regarding the preparation of legal
documents in a real estate transaction. It stated: "The preparation of a document that serves to secure a legal
right is considered the practice of law. The execution of a deed of conveyance, because it is an integral part of
the real estate closing process, is also the practice of law. As a general rule it would, therefore, be the unlicensed
practice of law for a non-lawyer to prepare or facilitate the execution of such deeds." A deed of conveyance is
understood to include, but not be limited to, a warranty deed, limited warranty deed, quitclaim deed, security
deed, and deecl to secure debt. It can be viewed at: htto:l/www.gabar.org/UPL opinions.asp .
) October 2003
The Federal Reserve pUblished its annual adjustment of the dollar amount that triggers additional disclosure
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requirements under the Truth in Lending Act for home mortgage loans with rate1> or fees above a certain amount.
Beginning Jan. 1, 2004 , the doRar amount of the fee-based trigger has been adjusted to $499 based on the
annual percentage change in the Consumer Price Index that was in effect on June 1. The Home Ownership and
Equity Protection Act of 1994 bars credit terms such as balloon payments and requires additional disclosures
when total points and fees payable by the consumer exceed the fee-based trigger (iniliaRy set at $400 and
adjusted annually) or 8 percent of the total loan amount, whichever is larger.
Fannie Mae and Freddie Mac have released the revisions to the Home Equity line r:/ products for first lien
transactions in connection with the recent changes to the Texas Constitution. The agencies have indicated that
lenders are encouraged to use the revised forms immediately, since the amendments have already taken effect.
However, they are implementing a mandatory use date of January 15,2004.
September 2003
VA Issued Circular 26-03-4, dated September 5,2003, which addressed the authorization for VA to carry out a
demonstration project to guarantee Hybrid Adjustable Rate Mortgages (Hybrid ARMS) in 2004 and 2005. The
Circular prOVides information about implementing the program. VA is authorized to guarantee Hybrid ARM loans
that close on or after October 1, 2003 . The initial interest rate must be fixed for a period of at least 3 years. VA
has added the options of 3/1,5/1,7/1 and 1011 to the Loan Summary Sheet, Form 26-0286 (V1iIIP-381). The
index must be based on the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of
1 year, as pUblished in the Federal Reserve Statistical Release H.15. Mer the initial fIXed-period, the interest
rate can adjust on an annual basis, with a 1% annual cap, and a 5% lifetime cap. Margin percentages and
discount points are to be decided by the lender. The pre-loan disclosure must contain several components.
including a hypothetical example of a monthly payment schedUle, and must comply with federal RegUlation Z.
Temporary buy downs are not allowed..
August 2003
Section 326 of the USA PATRIOT ACT and its RegUlations, effective October 1,2003, requires financial
institutions to create and implement a customer identification program that includes procedures for identifying
and verifying the identity of all customers. The RegUlations also require the lender to give the applicant adequate
notice that they are requesting information to verify the customer's identity. The financial institution may ask for a
driver's license, passport or other government issued form of identification which includes a picture. Just an fyi:
USA Patriot Act stands for: " Uniting and Strengthening America, Provide Appropriate Tools Required to
Intercept and Obstruct Terrorism.
The City of Toledo passed Ordinance 271-03 which makes revisions to the Toledo Municipal Code Section
795.20 through 795.22 relative to prohibiting Predatory Lending. This enacted legislation was pUblished in
August 2, 2003, The Toledo City Journal, Volume 88 Issue No. 31, pages 1058 though 1061 and was effective
August 23, 2003. Ordinance 271-03 has been enjoined in the pending case against the City of Toledo. The OH
State Attorney General has joined the case as a second defendant. The injunction against Ordinance 291-02 and
the enjoined Ordinance 271-03 has been extended. The Case No. is G-4801-e1-200301547 and can be
accessed through the Clerk of the Courts Dockets web site at http://www.co.lucas.oh.us/Clerkldockets.asp .
July 2003
Pennsylvania The Notary Public Law of 1953 (NPL) was recently amended by Act 151 of2002 (HB 851, P.M.
4679) and was effective July 1, 2003. A notary public's rubber seal is still required but the embosser is no longer
required. The seal must now contain the name of the municipality where the notary maintains an office instead of
the political subdivision.
Arkansas Home Loan Protection Act (Act 1320 of 2003 ), if the lender chooses not to include attorneys' fees
in the "points and fees" test, the borrower must be given the right to select an attorney to conduct the title search
and closing from an approved list, or otherwise be given a choice to select an attorney acceptable to the lender.
Hud has developed a new Spanish-language web site for those seeking to find information about HUO's housing
programs. The web site address is: www.espnaol.hudJlQ.'{, and includes information about home buying. rental
information, available HUD homes, loan counseling and other financial resources.
North Dakota passed HB 1092, effective December 1,2003, which amended the North Dakota Century Code
relating to the confidentiality of social security numbers. Chapter 11-18 indicates that documents containing a
social security number may not be recorded unless a law require1> the social security number to be in the
document.
Texas- Texas House Bill 2930 was signed into law on June 20,2003 and is effective January 1,2004. This bill
relates to the confidentiality of certain personal information in real property records filed with the county clerk.
The bill indicates an instrument may not be recorded unless it includes a confidentiality notice in 12-point bold
face or 12-pint uppercase letters on the first page of deeds, deeds r:/ trust and/or mortgages to give notice that
the borrower may cross out their social security number andlor drivers license number. The notice reads:
"NOTICE OF CONFIDENTIALITY RIGHTS: If you are natural person, you may remove or strike any of the
following information from this instrument before it is filed for record in the public records: Your social security
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Support I compliance Into
number or your driver's license number:

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A. Problem With V;ourNiortgage*

by Bruce J. Bergman**
Ves, of course, closing the loan is the raison d'etre ofyourbusiness.:A,.,

subsequent defaultby the 'borrower is unfortunate and unwelcome, but is
simply inherent in the process some percentage of the time. Nonetheless,
lenderS should not shoot themselves in the foot with mortgage provisions
, containing the potential to.impede or torpedo a foreclosure action should
that eventuate.
,j, iV\lhat mortgage provision could be so odious? It is the requirement to send

.' a 30-day cure letter before a foreclosure can be pursued - .an obligation
I:.
!.'
"'Which is a source of more than just mischief. It is genuinely costing f .. "', .
servi~rs many thous~nds of dollars in the increasing number of cases
where it is raised as an issue, leading to the salutary urging that the clause
shou\d be. removed from the standard mortgage form - or at 'east modified.
To explain, the law In most jurisdictions (and certainly New York, for
example) does not require that any special kind of notice be given to a
defaulting mortgagor before a foreclosure action can be begun. (So, adding
thirty days to every mortgage defautt situation is not a legal obligation.) The
mortgage contract, however, can impose this and, indeed, the standard
Fannie MaelFreddie Mac (ann does just that. Because so much mortgage
paper is sold on the secondary market, the Fannie MaelFreddie Mac form
has become ubiquitous. Even if yours is a different document, a significant
percentage of mortgages are derivatives of the Fannie Mae/Freddie Mac
version so that the offending clause may yet be lurking there.
The essence of this mortgage provision creates as a prerequisite to

acceleration and foreclosure the sending of a care~lly wQrde<:J letter
Certi\man Balin: Reference: Articles
-
) advising
.,','
the borrower
'
of the nature i ofthe default, how it can be cured, a
delineation of borrowers' rights and providing thirty days to effectuate the
.-
cure - during which period the mortgage senricer is powerless to go
forward. This is imposed no matter how often the borrower defautls, "
regardJess of how much time has otherwise gone by, or what other and"'"
additional efforts to notify or deal with the borrower have previously been
made. NotabtY,both Fannie MaeaJid Freddie Mae already mandate other
ii'
steps and correspondences even before the 30-day letter itself must be
generated, which other and prior requirements atthe very least "
considerably reduce whatever need there may have been for the 30-day
letter. (For servicers independent of the GSEs, most will havetheit'6wn loss'
Ii' . ,
mitigation efforts in place vyhich already consume time.)
";'
All that time and effort aside, here is the real problem. TO,create an issue In
a foreclosure case, all borrowers need do is say they did not receive the
cu re letter. While the core question is not whether the borrower received the'
-~ ,
letter - rather the issue is whether it was sent - the servicer still must prove
'that ttleletterwas sent and that isthe ultimate source of the difficulty. The
subject mortgage form requires that notices be transmitted by regular mait.
(Certified mail return receipt requested can be used, but only in addition.
• But iftheborrower does not sign for the receipt -and many are sharp
:~
, enough not to do so - the certified path provides no relief. In any event,
some servicers do not employ the certified mail as an addition.)
. ,~
1. ,Assuming the 30-day letter was both correctly worded and sent, how to '
prove that it really was mailed? The only sure way - and its not an absolute
, even then - is for there to be a person at the servicer whO can personally
J e:
~;~ "swear in an affidavit that he or she deposited that specific letter in a
- ':t ~
repository maintained by the United States Postal Service. As a practical:
'j. • ;l· matter, and given the volume of these letters, there is not lik.ely to be a
person at the servicer who can so swear. Such letters usually go into a bin
./ "~i •
~ .
and
,\..
are tak.en to a mailroom by various unnamed persons so that the best
' ;
that can be done is to aver that these letters are typically mailed in the
Y·;<t,'{j;;,: :
",' normal course. Such a presentation may not be .:... and sometimes simply is .
, '~,; !i
'I .. t not -·;a sufficient level of proof for the courts.
J. ~ ;;. .;;.JJJ§, g~~gnh;m ~n~equ~nce of. all this is that,borrowelS a.re

.;j. . -, , c. .
" ;.
more
,
frequently
"" ,'.- .' - ~
than ever interposing answers claiming non-receipt of the 30-day cure

\
) ,,; ,,";Jetter, then forcing the servicer tp a motioo for summary judgment which, if
.... .. j . ( . ' .•
/ ; ;1
Certilmal'i'l3alin: Reference: Articles t"age -'or q.
defeated, then leads to a trial. And proving the mailing of the 30-day cure
letter has been a rocky and uncertain path for servicers. Although an
a"'ernative is to discontinue the foreclosure action, start again and be sure
that the 30-day cure letter for this particular borrower is personally mailed
by someone who could swear to it, such is hardly a welcome alternative.
Unfortunately, for every case in which the borrower argues non-receipt,
countless months of interest accrual are consumed by the litigation process
(at least in judicial foreclosure states) and considerable legal fees are
added to the mix - all this because of the obligation not otherwise required
by law to send a 30-day cure letter!
So, the suggestion is that mortgage servicers who have the power to draft
their own mortgages remove this dangerous mandate themselves. Those
servicers who may be bound by GSE requirements would wish to lobby to
have this clause excised. Let it be an option on the part oUhe servicer. Or,
if there is some fear that servicers would not avail themselves ofthe option,
let the mortgage provide that failure to send the letter shall not be a defense
to any mortgage foreclosure action. Yet another, albeit less acceptable,
modiiication would be to require the 30-day cure letter, but not beyond
occurrence of a second default. That helps a bit, but does not really address
the underlying dilemma.
Because it is reasonable to assume that lenders and servicers are very

vigorous in their attempts to notify borrowers of defaults and to find any way
to settle these accounts and avoid foreclosure, the 30-day cure provision
seems to serve only as a safe harbor for litigious borrowers to tie up
servicers in court. It shouldn't be so.
*Copyright 2000 by Bruce J. Bergman, all rights reserved
**Mr. Bergman, author of the three-volume treatise, Bergman on New York

Mortgage Foreclosures, MattheW..Bender & Co., Inc. (rev. 2000), is a
partner with CertUman Balin Adler & Hyman in East Meadow, New York,
outside counsel to many major tenders and servicers and an Adjunct
Associate Professor of Real Estate with New York University's Real Estate
Institute where he teaches themortgagef'oreclosure course. He is also a
member of the USFN. the American College of Real Estate Lawyers and on
the faculty of the Mortgage Bankers Association of America School of
Title Bulletin ...age 1 aT ~
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f'!'
Title @ Bulletin
O1icago litle Insurance Company
6303 Blue Lagoon Drive, #100, Miami, Rorida 33126 * 305-265-7000 * FAX 305-265-7022
Floyd E. Krause, Vice President/Senior Regional Counsel
DATE: January 30, 1996
TO: All Chicago Title Insurance Company Offices and Agents in Florida
SUBJECT: Federal Foreclosure Acts - Power of Sale Foreclosure - Multi Family Structure - Single Family Structure
In 1981 Congress passed the multi family foreclosure act of 1981. In 1994 Congress passed the single family foreclosure act of
1994. Both Acts created power of sale foreclosure procedures on mortgages that would be subject to certain federal standards
and statutes.
)believe that the Department of Housing and Urban Development will be utilizing the procedures provided for in both Act
foreclosing mortgages throughout the United States. Chicago Title Insurance Company has been asked to insure SOl. _
foreclosures under the multi family foreclosure act and has done so.
With the passage of the single family foreclosure act of 1994 and the approval of final rules relating to it by HUD last fall, we feel
that it is important to alert our agents and employees to these provisions so that you would be prepared to respond to questions of
title insurance regarding titles coming through these types of foreclosures. We anticipate questions from you and our customers
as these statutes introduce new procedures in foreclosing mortgages in Florida.
Further, if you happen to be appointed as a foreclosure commissioners and wish to discuss insuring titles coming through
foreclosures that you would be doing under these Acts, I would be more than happy to meet with you to discuss them more fully.
Attached is Chicago Title Insurance Company's interpretation of both of these Acts and requirements to insure titles coming
through foreclosure brought under either Act. We have made an effort to combine both Acts for discussion purposes as many of
the provisions are similar. Where we befieve they differ, we have pointed out the differences.
FEKlvs
Attachment
FEDERAL FORECLOSURE ACTS
The Multi-Family Foreclosure Act of 1981 (an "Acti, PL. 97-35, Section 361 et. seg., 12 U.S.CA. S. 3701 to 3715, effective
October 1, 1981 is applicable to "multi-family mortgages." That term is defined as a mortgage or deed of trust held by the
Secretary of Housing and Urban Development ("the Secretary'1 "pursuant to Title II ofthe National Housing Action or Section 312
)e Housing Act of 1964 covering any property except a property at which there is located a 1-4 unit family residence."
Title Bulletin t"'age L. Of ~
''1gle Family Foreclosure Act of 1994 (an "Act'), PL. 103-327, 12 USCA §3751 et.seq. effective September 28,1994, applies
igages or deeds of trust on lands on which there is located a 1-4 family residence where the mortgage is held by the
-ecretary pursuant to Title lor II of the National Housing Act or secures a loan obligated by the Secretary under Section 312 of
Ie Housing Act of 1964 as it existed before the repeal of that section by Section 289 of Cranston-Gonzalez National Affordable
Mousing Act (except that a mortgage securing such a loan that covers mixed use property containing non-residential space and a
1-4 family dwelling is not included).
_oth Acts state that a uniform federal mortgage foreclosure procedure will eliminate the impact on HUD of disparate state
foreclosure laws and will reduce HUD's collection costs. Eliminating judicial proceedings and redemption periods (faster turn-
'ound time) will, according to the Acts: reduce congestion on court calendars, reduce HUD's carrying costs, reduce the risk of
mdalism to or deterioration of the property (and, thereof, also reduce the impact of multiple foreclosures on a neighborhood),
and reduce burdens on numerous HUD programs.
oth Acts create a federal non-judicial foreclosure procedure pursuant to a power of sale created by each Act, with no redemption
..Jhts following the foreclosure sale. The Secretary has instituted and completed foreclosures under the Multi-Family Act since its
inception. Chicago Title Insurance Company has been willing to insure titles coming through the Multi-Family Act SUbject to the
lquirements and discussion as set forth below. Further, Chicago Title Insurance Company is willing to insure foreclosures
ursuant to the Single Family Act, also subject to the procedures and discussions as set forth below.
"I either case, subject to the discussion herein, Chicago Title Insurance Company will rely upon proper foreclosures conducted
ursuant to either Act, regardless of whether the mortgage was executed before the effective date of either Act.
SUMMARY OF THE PROVISIONS OF THE ACTS
_lIhile both Acts are essentially the same, there are some additions that the Single Family Act incorporates. Below is a general
summary of both Acts which has been prepared for your general information. You are advised to review each Act should you have
..,ecific questions on a specific point After the summary, commencing on page 4, are the requirements of the Chicago Title
.nce Company to insure title coming through a non-judicial foreclosure sale conducted pursuant to either Act.
FORECLOSURE COMMISSIONER
ooth Acts provide that a foreclosure commissioner or commissioners shall institute foreclosures under either Act. The General
Counsel of the Department of Housing and Urban Development, pursuant to authority delegated to him by the Secretary will
esignate a foreclosure commissioner by means of a written designation executed and acknowledged by him (you may not see
1e document acknowledged under the Single-Family Act), stating the name and business or residential address of that
foreclosure commissioner. The foreclosure commissioner, if a natural person, shall be a resident of the state in which the property
i,,> located. If not a natural person, the foreclosure commissioner must be authorized to do business in the state where the property
• located. The foreclosure commissioner may also be an official or employee of the state government or the subclivision thereof in
.Jhich the property is located; and in such case, the designation may be according to the unique title or position and not by name.
The Single Family Act allows for the appointment of a commissioner who is an official or an employee of a corporate entity as well
,s a government entity.
PREREQUISITES 10 FORECLOSURE
~efore a foreclosure may be brought under either Act there must be a breach of a covenant or condition in the mortgage for which
TOreclosure is authorized under the mortgage. Any pending foreclosure of the mortgage by the Secretary, either judicial or
nonjudicial, must be dismissed or otherwise terminated before a foreclosure is commenced under either Act.
;OMMENCEMENTOFFORECLOSURE
~ foreclosure under either Act is initiated by a request from the General Counsel of the _Secretary, after he has determined that the
lrerequisites have been satisfied, to the foreclosure commissioner to commence the foreclosure.
liCE OF DEFAULT AND FORECLOSURE SALE

Title Bulletin t"age" Of ~
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,. "l"marizing the Acts, the Notice must set forth the name, address and telephone number of the Commissioner, the date,- ,
,ch the Notice was issued, and the following: I
1. Names of the Secretary, the original mortgagee and the original mortgagor.
2. The street address or other description of the location of the property, and a legal description of the property
sufficient to identify the property to be sold.
3. The date of the mortgage, the office where recorded and recording information of the mortgage.
4. The failure to make payment, including the due date of the earliest installment which is wholly unpaid, or a
description of other default, and the acceleration of the indebtedness.
5. The date, time and place ofthe foreclosure sale.
6. A statement that the foreclosure is being conducted pursuant to the appropriate Act.
7. ihe costs, if any, to be paid by the purchaser.
6. The amount and method of the deposit to be paid at the foreclosure sale and the time and method of paying the
balance of the purchase price, and other appropriate terms of sale; including rules for payment of deposits and final
balances on bids, the requirement of cashier's or certified checks in all cases and "no cash" bids by the Secretary of
HUD or his designee; and
9. Any other appropriate terms of sale or information, as the Secretary may determine.
RECORDING OF THE NOTICE OF DEFAULT AND FORECLOSURE SALE
The Single Family Act requires that this Notice be recorded in the pUblic records of the county where the land is located. The
MUltifamily Act makes no such requirement.
SERVICE OF NOTICE OF DEFAULT AND FORECLOSURE SALE
The Acts require service of Notice of Default and Foreclosure Sale, together with a copy of the Designation of the Foreclosure
Commissioner, upon the current record owner, the original mortgagor and all subsequent mortgagors, and all persons holding
liens of record upon the property. In addition, under the Single-Family Act, notice is also to be sent to all dwelling units in the
security property.
The names of parties with recorded interests in the land shall be ascertained as of a date 45 days prior to the date originally set
forth the foreclosure sale, even if the sale is subsequently postponed to a later date. Note that the Acts create a "gap." The names
of parties entitled to notice must be ascertained no later than 45 days prior to sale, but the Notice need not be placed of record
until some 24 days later. Thus, persons who acqUire an interest in the land and record notice thereof between the 45-day mark
and the recording of the Notice will not have constructive notice of the foreclosure sale.
NQtice to the current owner and mortgagor(s) and, under the Single-Family Act, notice to the dwelling unit is to be mailed at least
21 days prior to the foreclosure sale. Notice to lienholders shall be mailed at least 10 days prior to the foreclosure sale under the
Multi-Family Act, and 21 days for properties SUbject to the Single-Family Ad. Notices are to be mailed to owners and mortgagors
at the address stated in the mortgage, or if none, to the address of the property, or, at the discretion of the foreclosure
commissioner, to any other address believed to be that of the owner or mortgagor. Mailing shall be by certified or registered mail,
postage prepaid and return receipt requested. This notice is deemed effective as of date of mailing and the receipt of the prepaid
...tage may seNe as proof of the mailing date. Similar provisions govern mailing to lienors which shall be to the address on +"'~
J as shown of record, or at the discretion of the commissioner to any other address believed to be thatofsuch lien holder.
\
Title Bulletin ...age4 or l::1
''l,.Ution to mailing of notice, for foreclosures involving the Multi-Family Act, a copy of the Notice of Default and Foreclosure
lall be published once a week for three successive calendar weeks, with the date of the last publication not less than four
:>r ,lIore than 12 days prior to the sale date. If the property is sUbject to the Single-Family Act, the publication must be once a
eek for three consecutive weeks before the date of the foreclosure sale. Publication shall be in a newspaper of general
CIrculation in the county where the land is located. Both Acts provide an exception where there is no newspaper pUblished at least
weekly which has a general circulation in the county where the security is located. In this event, copies of the notice of default and
lreclosure sale shall be posted in at least 3 pUblic places in each such county at least 21 da)'s prior to the foreclosure sale where
Ie foreclosure sale is being conducted pursuant to the Multi-Family Act. 'M1ere the sale is being conducted pursuant to the
Single-Family Act, copies of the Notice of Default and Foreclosure Sale shall be posted not less than 21 days before the date of
-'ile at the courthouse in the county where the property is located and at the place where the sale is to be held.
In addition to the foregoing, in a Multi-Family Act Sale, a copy of the Notice of"Oefault and Foreclosure Sale shall be posted in a
Drominent place at or on the real property to be sold at least seven days prior to the foreclosure sale. Posting is excused at the
lreclosure commissioner's discretion if he determines that posting will cause a breach of the peace or increase the risk of
andalism.
:ONDUCT OF SALE
The date of the foreclosure sale shall be not prior to thirty days after the due date of the earliest installment wholly unpaid or the
"'arliest occurrence of any uncured nonmonetary default. The foreclosure sale shall be at pUblic auction. The place of sale shall be
pecified in the Notice of Default and Foreclosure Sale. The sale shall be held at a location where foreclosure real estate auctions
..re customarily held in the county where the land is located, at the courthouse therein or at or on the property. The foreclosure
commissioner shall attend the sale; in case the commissioner is not a natural person, an authorized employee shall attend, The
ale may be adjourned to another hour on the same day without giving further notice, underlhe Multi-Family Act, However, under
1e Single-Family Act , the commissioner must announce or post the new time and place of the sale. The sale may also be
adjourned to another day, which is not less than 9 days nor more than 24 days, under the Multi-Family Act and 31 days under the
Sil'lgle-Family Act, but then new notices must be served.
l'l~ •..• dr
the foreclosure commissioner or any relative, related business entity, or employee of the foreclosure commissioner, or a
related business entity shall be permitted to bid in any manner on the properties subject to the foreclosure sale except that the
:>reclosure commissioner or an auctioneer may be directed by the Secretary to enter a bid on the Secretary's behalf.
TRANSFER OF TITLE AND POSSESSION
'he foreclosure commissioner shall deliver a deed to the purchaser and obtain the balance of the foreclosure price in accordance
with the terms of sale provided for in the Notice of Default and Foreclosure Sale. The deed form prOVided for in the Multi-Family
statute is a quit-claim deed. In the Single Family Act the deed form shall be a deed without warranty or covenants to the purchaser
Ir purchasers.
Both Acts prOVide that no tax shall be imposed or collected with respect to the foreclosure commissioner's deed when the property
-:> conveyed to the Secretary,
RECORD OF FORECLOSURE AND SALE
rhe Acts direct the foreclosure commissioner to include in the recitals of the deed or in an affidavit or addendllm to the deed,
statements that the mortgage was held by the Secretary the date and recording data of the mortgage; the particulars of the
service of notice; recording date of the Notice of Default and Foreclosure Sale (Single Family Act); that the foreclosure was
:onducted in accordance with the Act and with the terms of the notice; a statement of the costs of foreclosure; the name of the
;uccessfu\ bidder and the amount of the successful bid. Under the Single-Family Act the recitals in the deed or affidavit shall
include when the sale took place and a description of the mortgage foreclosed.
JEFfCfENCY
.r the Single-Family Act, if the sale price is less than the outstanding balance of the loan at the time of the sale, a deficiency
ntle Bulletin
-
-\JIts. The Secretary may refer this matter to the A.ttomey General for action. Such action must be taken not later than 6 yef-.- .
Jr the date of the last sale of the security properly. I
~EQUIREMENTS TO INSURE TITLE COMING THROUGH A FORECLOSURE HELD UNDER THE PROVISIONS OF ElntER
'CT
'"he following section lists the requirements to be met and exceptions to be shown when examining and underwriting a title which
las come through a foreclosure under either Act. Some of the requirements may be satisfied from information contained in the
acitals in the deed or in the affidavit or the addendum to the deed. We are hopefUl that these instruments will follow the statutory
nandate "to establish a sufficient record of foreclosure and sale." If this source in inadequate, you will need to obtain the -
nformation elsewhere to record, otherwise title will not be insurable.
. Some Preliminary Thoughts
1. Do not insure title in an amount in excess of the sale price until the grantee of the foreclosure commissioner's
deed has conveyed title to a bona fide purchaser or mortgagee;
2. Consult with an underwriter if (a) the record former owner of the property (or the beneficiary of a title-holding land
trust) has filed a petition in bankruptcy or (b) has otlnerwise challenged the foreclosure by commencing an action or
recording an instrument or giving notice in writing or (c) it appears that the former record owner has a significant
amount of equity in the properly.
I. Applicability of the Act
:'xamine the mortgage and various assignments to determine that the mortgage is presently held by the Secretary and either is a
l'V'lulti,-family mortgage" as defined in the Multi-Family Act or is a "single-family mortgage" as defined in the Single-Family Act.
)
II. Default
(a) Check the Notice of Default and Foreclosure Sale to ascertain that the default recited therein was also a default
under tine mortgage.
(b) Require evidence that this default in fact existed and was not cured. Recitals in the foreclosure commissioner's
deed or supplemental affidavit will be sufficient for our purposes unless you have information to the contrary.
'J. Designation of Foreclosure Commissioner
Jnless you have information to the contrary, rely on the recitals in the deed, or in the affidavit or addendum to the deed, that the
)reclosure commissioner was duly designated by the General Counsel of the Department of Housing and Urban Development
HUD) and that the foreclosure commissioner was qualified under either Act.
~equire that the Designation of Foreclosure Commissioner be recorded.
,. Dismissal of Prior Foreclosure
Inless you have information to the contrary, rely on the recitals in the deed, or in the affidavit or addendum to the deed. that any
lrior foreclosure proceedings, either judicial or non-judicial, have been dismissed or terminated prior to service of the Notice of
)efault and Foreclosure Sale.
rI. Notice of Foreclosure Sale
lou can require that the Notice of Default and Foreclosure Sale be recorded. Remember it must be recorded not less th;;
Title Bulletin t-'age 0 or ~
" "lefore the date ofthe foreclosure sale under the Single-Family Act.
ince neither statute really tell us what happens to Dens or conveyances recorded within the 45-day period, whether or not the
esignation of commissioner and notice of default have been recorded, the Company does not authorize your disregarding any
such matters without the written approval of the Company.
II. Service of Notice and Designation
(a) Ascertain that the Notice of Default and Foreclosure Sale and the Designation of Foreclosure Commissioner
were served by registered or certified mail, postage prepaid, with return receipt requested, upon the proper parties
shown of record and within the app6cable time periods.
Further discussion is necessary as to certain particular situations that we have encountered or anticipate
encountering, especially in the Single-Family Foreclosure situations. They are:
0) If the foreclosure commissioner will agree to do it, require that the foreclosure commissioner in
addition to {Tlailing by certified or registered mail as discussed, also mail by regular mail the same
documentation to the ·same parties. This would allow the foreclosure commissioner in the recitals in his
deed or the supplemental affidavit to recite both mailings. This would be especially helpful if the
certified or registered mail was returned undelivered.
00 Regarding the mailing by certified or registered mail with return receipt requested, the Company will
require that the foreclosure commissioner's statement in the deed or supplemental affidavit identify
whether that mailing was accepted (by attaching the executed return receipt) or if not accepted but
returned, that the notice by mailing by regular mail was or was not returned.
Oii) Especially when dealing with the Single-Family Residential property, when the mailing is to the
current record title holder and prior mortgagors, if the record title discloses that a single individual is in
title or was the original or a subsequent mortgagor, mailing should be made to that party by specific
name and by separate mamng to the spouse by specific name or by a clear reference to the spouse of
the named title holder.
Ov) It would be too numerous here to set forth all of the title issues that arise when commencing a
foreclosure. Examples of such issues are the inability to locate record title holders or lien holders;
possible judgments against record title holders; possible estates involving record title holders or lien
holders. Until the Company comes out with further instructions in Florida, we will treat all of these as
extra hazardous risks, and ask that you consult with the Company on these issues. Consider what we
are doing in judicial foreclosures in similar situations. We will discuss with you whether the answer
should be the same in power of sale foreclosures.
(b) Ascertain that, in addition to service by mail as noted above, the Notice of Default and Foreclosure Sale has
been published and posted in the manner required by either Act.
(c) Either Act fixes a date 45 days prior to the date originally set for the foreclosure sale as the date for determining
the parties entitled to notice. Raise an exception as to the rights of parties whose interest arose of record during that
period and who were not served.
\1111. Conduct of Sale
Unless you have information to the contrary, rely on the recitals in the deed, or in the affidavit or addendum to the deed, that the
statutory provisions regarding the conduct of sale have been followed .
.>reclosure Commissioner's Deed

Title Bulletin
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r ''T rmine whether the foreclosure commissioner's deed was properly executed, acknowledged and recorded, and whether t!:-
o als therein, or in the affidavit or addendum to the deed, set forth the matters required by either Act.
X. Matters which Survive the Foreclosure Sale
(a) The foreclosure sale is subject to all liens and encumbrances prior to the mortgage foreclosed thereby. For Multi-
Family property, this would involVe management of the building and collection of rents either personally or through
an agent or an employee.
In the case of the Multi-Family building, obtain a written statement from the property manager if there is one, as to
whether the property manager has terminated his contract with the former owners and now recognizes the
purchaser at the foreclosure sale as the "party in possession". Do not waive an exception for rights of parties in
possession or rights of the former record title holder if you are given any information from any source that would
indicate that the prior title holder did not receive Notice of the Foreclosure Sale and its supplemental proceedings or
intends to contest the Default and Foreclosure Sale.
(b) Any provisions contained in the Notice of Default and Foreclosure Sale which are stated to survive the
foreclosure commissioner's deed should be shown as an exception to title. In particular, look out for provisions which
require that the purchaser continue to operate the property in accordance with any federal housing program.
XI. Evidence of Possession in Grantee
(a) Require evidence that the grantee in the foreclosure commissioner's deed is in possession of the property. For
this type of property this would involve management of the building and collection of rents, either personally or
through an agent or employee.
(b) If the grantee is not in possession, raise an exception as to the rights of the party (naming it) in possession, other
than tenants of residential units (Who should be identified by separate exceptions).
XII. Attacks on Title ofPurchaser
(a) Raise the following exception in any title insurance policy issued to the Secretary, if the Secretary is the
successful bidder at the foreclosure sale. In addition, the following exception should be raised in any commitment to
insure title in favor of a bona fide purchaser either at the foreclosure sale or a bona fide purchaser from the
Secretary, if the Secretary was the successful bidder at the foreclosure sale. In the later situation, if your title search
does not reflect any action brought by any party contesting the foreclosure process, you may delete this exception in
the final policy to be issued to the bona fide purchaser:
Right of any party interested to sue or petition to have set aside, modified or contest the foreclosure
sale had on (show date) or the deed pursuant thereto through which title to the land insured in derived.
(b) Raise an exception if any judicial proceeding is filed seeking to modify or set aside the foreclosure sale and or
the title coming through such sale.
XIII. Status of Title
The Acts contains a broad statement of the effect on title of the foreclosure commissioner's deed. It could be argued that the Acts
permit the deed to terminate the rights of lienholders whose recorded interests have priority over the foreclosed mortgage. The
Company will not adopt such a broad interpretation. It is prOVided that sale proceeds can be used to pay real estate taxes, special
assessments, and any other liens that have priority over the foreclosed mortgage.
) 1. Waive the following exceptions to title after deed:

Title Bulletin retyt:1 0 VI "
a. The foreclosed mortgage, together with any related security documents, such as an assignment of
rents;
b. Mortgages, trust deeds, judgments, and other recorded encumbrances and matters when (1) such
items were subordinate to the foreclosed mortgage, and (2) the lienholder or other interested party was
served with mailed notice by the foreclosure commissioner; and
c. Real estate taxes, special assessments, and liens that have priority over the foreclosed mortgage
when standard evidence of proof of payment (or of payment to be made through an escrow closing) is
furnished.
2. Do not waive the following exceptions to title after deed:
a. Real estate taxes, special assessments, and liens that have priority over the foreclosed mortgage,
unless proof of payment is furnished;
b. Liens, encumbrances, or other matters of record that are subordinate to the foreclosed mortgage
when the lienholder or other interested party was not served with mailed notice by the foreclosure
commissioner;
c. Any federal revenue nen that is junior to the foreclosed mortgage, unless (1) the United States was
given timely notice of the foreclosure sale under the Federal Tax Lien Act (not less than 25 days prior
to sale), and (2) the federal right of redemption under the Federal Tax Lien Act has expired without a
redemption by the United States (120 days from the date of sale);
d. Liens or interests appearing of record during the "gap" period, that is appearing of record less than
45 days prior to the foreclosure sale but prior to the recordation of the Notice of Default and
Foreclosure Sale; discuss the problem with the Company. These exceptions may be waiVed, however,
ifthe lienholders are served with mailed notice by the foreclosure commissioner in a timely manner;
e. Any matters which, as stated in the Notice of Default and Foreclosure Sale, are intended to survive
the foreclosure commissioner's deed; and
CIV. Right of First Refusal- MUlti-Family Foreclosure Act
In 1983 Congress passed the FEDERAL FORECLOSURE ACT, which statute permits the Department of Housing and Urban
)evelopment (HUD) to foreclose mUlti-family residential property of more than four dwelling units by a nonjUdicial foreclosure
)rocedure. Amendments to the Federal Banking laws create a new right of first refusal as to multi-family property acquired by
HUD through foreclosure or by deed in lieu of foreclosure. Unlike the right of first refusal in the former owner of farm property that
;as been foreclosed, the right of first refusal under this Act runs in favor of "the local government and the State housing finance
1gency" for a period of 90 days after being notified by HUD that it has received a bona fide offer to purchase the mUlti-family
tlroject owned by HUe.
::>n any commitment issued to insure a multi-family property of more than four residential units that is owned by HUO, whether
3cquired through foreclosure or py a deed in lieu of foreclosure, an exception in the following form should be raised:
Rights of the Florida Housing Finance Authority, the municipality, if any, and the County to purchase the land within
90 days after proper notice has been given to each by the Secretary of Housing and Urban Development that he has
received a bona fide offer to purchase the land.
For purposes of implementing this requirement in Florida, we have interpreted the State housing finance agency as meaning the
J:'--ida Housing Finance Authority (FDA), and we have determined the local government to be the municipality in which the
~rty lies, if any, otherwise the county. Therefore, notice should be served on FHOA in all cases and if the property lies within a
..,\icipality which has a municipal housing authority, the appropriate notice should be ~iven to that authority; ifthe property lies
Title Bulletin fJage ~ or ~
-
,~.:+I:tin
a municipality that does not have a housing authority but the county has a housing authority, the notice should be given tC'_
'county housing authority; if the county does not have a housing authority, the notice should be given both to the municipal I
clerk and the county clerk. If the property lies in an unincorporated part of the county, the notice should be given to the county
housing authority, if it has one, and if not, it should be given to the county clerk.
The exception may be waived upon our being furnished satisfactory affidavits of compliance with these requirements executed by
duly authorized officers of HUe and expiration of the appropriate 90-day period, or by satisfactory releases of the right of first
refusal by the appropriate officers of FHDA and the local government or governments affected.
SECTION SIX
This section pertains to general and various violations of banking; securities; loans:
A. Code of Federal Regulations on fraud and misrepresentation.
B. United States Code on banking entries, reports and transactions; theft,
embezzlement; trafficking in counterfeit goods or services; transfers by
banks.
C. Two federal court cases involving bank violations.
D. Office of Comptroller of Currency regarding abusive lending practices.
E. Information that an attorney can be held responsible for false debt
collection claims.
F. General information on loan fraud.

-
[Code of Federal Regulations]
-
[Title 17, Volume 3)
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 17CFR240.15c1-2)
[Page 280-281]
TITLE 17-GOMMODITY AND SECURITIES EXCHANGES
CHAPTER II-SECURITIES AND EXCHANGE COMMISSION (CONTINUED)
PART 24Q-GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934-

Table of Contents
Subpart A-Rules and Regulations Under the Securities Excharlge Act of

1934
Sec. 240.15c1-2 Fraud and misrepresentation.
(a) The term manipulative, deceptive, or other fraudulent device or

contrivance, as used in section 15(c)(1) of the Act (section 2,52 Stat.
1075; 15 U.S.C. 780(c)(1), is hereby defined to include any act,
practice, or course of business which operates or would· operate as a
fraud or deceit upon any person.
(b) The term manipulative, deceptive, or other fraudulent device or
contrivance, as used in section 15(c)(1) of the Act, is hereby defined
to include any untrue statement of a material fact and any omission to
state a material fact necessary in order to make the statements made, in
the light of the circumstances under which they are made, not
misleading, which statement or omission is made with knowledge or
reasonable grounds to believe that it is untrue or misleading.
(c) The scope of this section shall not be limited by any specific
definitions of the term "manipulative, deceptive, or
[[Page 281]]
)
other fraudulent device or contrivance" contained in other rules
adopted pursuant to section 15(c)(1) of the act.
(Sec. 2,52 Stat. 1075; 15 U.S.C. 780)
Cross Reference: For regulation prohibiting employment of

manipulative and deceptive devices as such term is used in section 15 of
the Act, by any broker or dealer, see Sec. 240.10b-3.
[13 FR 8205, Dec. 22, 1948]

. .
.J...1. L.1.J.&..,;, 1. U , ..1. L""'1.L"-.L .L , '-'.L.Ll~ ....L d..: \" "'T I , 1..•n"",\oI • .I. VV-/.
-
LIT -
legal information institute US CODE COLLECTION
collection rlOme
TITLE 18 > PART I > CHAPTER 47 > sec. 1005.
Search this title:

sec~ 1005~ - Bank entries, reports and transactions
Whoever, being an officer, director, agent or employee of any
Federal Reserve bank, member bank, depository institution holding
company, national bank, insured bank, branch or agency of a foreign
bank, or organization operating under section 25 or section 25(a) ill
of the Federal R~serve Act" (FOOTNOTE 2) without authority from
the directors of such bank, branch, agency, or organization or
company, issues or puts in circulation any notes of such bank, ~otes
Updates
branch, agency, or organization or company; or ill So in original.
Parallel authorities
Whoever, without such authority, makes, draws, issues, puts (CFR)
forth, or assigns any certificate of deposit, draft, order, bill of Topical references
exchange, acceptance, note, debenture, bond, or other obligation, or
mortgage, judgment or decree; or
Whoever makes any false entry in any book, report, or
statement of such bank, company, branch, agency, or organization
with intent to injure or defraud such bank, company, branch,
agency, or organization, or any other company, body politic or
corporate, or any individual person, or to deceive any officer of such
bank, company, branch, agency, or organization, or the Comptroller
of the Currency, or the Federal Deposit Insurance Corporation, or
any agent or examiner appointed to examine the affairs of such
bank, company, branch, agency, or organization, or the Board of
Governors of the Federal Reserve System; ill "or".
Whoever with intent to defraud the United States or any agency
thereof, or any financial institution referred to in this section,
participates or shares in or receives (directly or indirectly) any
money, profit, property, or benefits through any transaction, loan,
commission, contract, or any other act of any such financial
institution - Shall be fined not more than $1,000,000 or imprisoned
not more than 30 years, or both.
As used in this section, the term "national bank" is synonymous
with "national banking association"; "member bank" means and
includes any national bank, state bank, or bank or trust company,
which has become a member of one of the Federal Reserve banks;
"insured bank" includes any state bank, banking association, trust
company, savings bank, or other banking institution, the deposits of
which are insured by the Federal Deposit Insurance Corporation; and
the term "branch or agency of a foreign bank" means a branch or
agency described in section 20(9) of this title. For purposes of this
http://www4.law.comell.edu/uscode/l8/1 005.html 12/31/02

ri:1~C; 1 Ul 1
LIT
legal information institute US CODE COLLECTION
coll~ction home
TITLE 18 > PART I> CHAPTER 31> Sec. 656.
Search this title:

Sec. 656. - Theft, embezzlement, or misapplication by
bank officer or employee
"
Whoever, being an officer, director, agent or employee of, or
connected in any capacity with any Federal Reserve bank, member
bank, depository institution holding company, national bank, insured
bank, branch or agency of a foreign bank, or organization operating
under section 2S or section 2S(a) ill of the Federal Reserve Act, or a
receiver of a national bank, insured bank, branch, agency, or Notes
Updates
organization or any agent or employee of the receiver, or a Federal
Reserve Agent, or an agent or employee of a Federal Reserve Agent Parallel authorities
(CFR)
or of the Board of Governors of the Federal Reserve System,
Topical references
embezzles, abstracts, purloins or willfully misapplies anyoftheJt
moneys, funds or credits ofsucb bank, branch, agenqr, or+
orqaniZatfo~ or holding company or any moneyS', funds, assetsoaf~
securitiesintrusteq to the custody or care of such bank, branctl)·;
agencY, or organization, or holding company or to the custody or;
care of any such agent., officer, dIrector, employee or receiver, shaU'!,
be fined not more than $1,000,000 or imprisoned not more'than'3Qi,i
'years'lorboth} but if the amount embezzled, abstracted, purloined
or misapplied does not exceed $1,000, he shall be fined under this
title or imprisoned not more than one year, or both.
As used in this section, the term "national bank" is synonymous
with "national banking association"; "member bank" means and
includes any national bank, state bank, or bank and trust company
which has become a member of one of the Federal Reserve banks;
"insured bank" includes any bank, banking association, trust
company, savings bank, or other banking institution, the deposits of
which are insured by the Federal Deposit Insurance Corporation; and
the term "branch or agency of a foreign bank" means a branch or
agencY described in section 20(9) of this title. For purposes of this
section, the term "depository institution holding company" has the
meaning given such term in section 3 of the Federal Deposit
Insurance Act
ill See References in Text note below.
-- -
http://www4.law.comell.edu/uscode/18/656.html - 12/31/02
-
USCA-1 (U.S. Code Ann. Titles 1-26) Date of Printing: Apr 19, 1998
1B USCA § 2320, Trafficking in counterfeit goods or services
18 U.S.C.A. § 2320
-
TITLE 18. CRIMES AND CRIl\1INAL PROCEDURE
PART I··CRIMES
CHAPTER 113··STOLEN PROPERTY
Current through PL 105-220, approved 8-7·98
§ 2320. Trafficking in counterfeit goods or services
(a) Whoever intentionally traffics or attempts to traffic in goods or services and knowingly uses a
counterfeit mark on or in connection with such goods or services shall, if an individual, be fined not
more than $2,000,000 or imprisoned not more than 10 years, or both, and, if a person other than an
individual, be fined not more than $5,000,000. In the case of an offense by a person under this
section that occurs after that person is convicted of another offense under this section, the person
convicted, if an individual, shall be fined not more than $5,000,000 or imprisoned not more than 20
years, or both, and if other than an individual, shall be fined not more than $15,000,000.
(b) Upon a detennination by a preponderance of the evidence that any articles in the possession
of a defendant in a prosecution under this section bear counterfeit marks, the United States may
obtain an order for the destruction of such articles.
(c) All defenses, affirmative defenses, and limitations on remedies that would be applicable in an
action under the Lanham Act shall be applicable in a prosecution under this section. In a prosecution
under this section, the defendant shall have the burden of proof, by a preponderance of the evidence,
of any such affirmative defense. .
(d)(l) During preparation of the presentence report pursuant to Rule 32(c) of the Federal Rules
of Criminal Procedure, victims of the offense shall be permitted to submit, and the probation officer
shall receive, a victim impact statement that identifies the victim of the offense and the extent and
scope of the injury and loss suffered by the victim, including the estimated economic impact of the
offense on that victim.
(2) Persons permitted to submit victim impact statements shall include--
(A) producers and sellers of legitimate goods or services affected by conduct involved in the
offense;
(B) holders of intellectual property rights in such goods or services; and
Excerpt from page 134892 follows
(C) the legal representatives of such producers, sellers, and holders.
(e) For the purposes of this section--
(I) the term "counterfeit mark" means-
(A) a spurious mark--
(i) that is used in connection with trafficking in goods or services;

(ii) that is identical with, or substantially indistinguishable from, a mark registered
for those goods or services on the principal register in the United States Patent and
Trademark Offi-ce and in use, whether or not the defendant knew such mark was so
registered; and
(iii) the use of which is likely to cause confusion, to cause mistake, or to deceive;
or
Copyright (c) West Group 1998 No claim to original U.S. Govt. works Page 1{1;;)
USCA-1 (U.S. Code Ann. Titles 1-26) Date of Printing: Apr 19. 1998
18 USCA § 2320, Trafficking in counterfeit goods or services
(B) a spurious designation that is identical with, or substantially indistinguishable from,

a designation as to which the remedies of the Lanham Act are made available by reason of
section 110 of the Olympic Charter Act;
but such term does not include any mark or designation used in connection with goods or
services of which the manufacturer or producer was, at the time of the manufacture or
production in question authorized to use the mark or designation for the type of goods or
services so manufactured or produced, by the holder of the right to use such mark or
designation;
(2) the term "traffic" means transport, transfer, or otherwise dispose of, to another, as
consideration for anything of value, or make or obtain control of with intent so to transport,
transfer, or dispose of;
(3) the term "Lanham Act" means the Act entitled "An Act to provide for the registration
and protection of trademarks used in commerce, to carry out the provisions of certain
international conventions, and for other purposes", approved July 5, 1946 (J 5 U.S.C. 1051 et
seq.): and
(4) the tenn "Olympic Charter Act" means the Act entitled "An Act to incorporate the
United States Olympic Association", approved September 21, 1950 (36 U.S.C. 371 et seq.).
(f) Beginning with the first year after the date of enactment of this subsection, the Attorney
General shall include in the report of the Attorney General to Congress on the business of the
Department of Justice prepared pursuant to section 522 of title 28, an accounting, on a district by
district basis, of the following with respect to all actions taken by the Department of Justice that
involve trafficking in counterfeit labels for phonorecords, copies of computer programs or computer
program documentation or packaging, copies of motion pictures or other audiovisual works (as
defined in section 2318 of title 18), criminal infringement of copyrights (as defined in section 2319
of title 18), unauthorized fixation of and trafficking in sound recordings and music videos of live
musical perfonnances (as defined in section 2319A of title 18), or trafficking in goods or services
bearing counterfeit marks (as defined in section 2320 of title 18): .
Excerpt from page 134893 follows
(I) The number of open investigations.

(2) The number of cases referred by the United States Customs Service.
(3) The number of cases referred by other agencies or sources.
(4) The number and outcome, including settlements, sentences, recoveries, and penalties, of
all prosecutions brought under sections 2318, 2319, 2319A, and 2320 of title 18.
CREDIT(S)
(Added Pub.L 98-473. Title 11. § 1502(a). Oct. 12. 1984. 98 Stat. 2178. and amended PubL J03-322, Title XXXI1. § 320104(a).
Title XXXll/. § 330016(l)(U), Sept. 13. J994, J08 Stat. 2JJO. 2148; PubL 104-153, § 5. July 2.1996, lJO Stat. 1387; Pub.L
105·147, § 2(j), Dec. 16. 1997, I I I Stat, 2679.)
Copyright (c) West Group 1998 No claim to original U.S. Govt. works Page 2 ~
~;--
:, ;
\
4·
http://www4.law.comell.edu/uscode/12/ch2schIV.html
\,
TITLE 12 CHAPTER 2 SUBCHAPTER IV
TITLE 12 > CHAPTER 2> SUBCHAPTER IV> Sec. 83.
Sec. 83. - Loans by bank on its own stock
(a) General prohibition
Sec. 91. - Transfers by bank and other acts in

contemplation of insolvency
~u.~rc~1i~f~r,sijl;f.tf]ti!n~k~~,bonds, bills of exchange, or other

evidences of debt owing to any national banking i:.issociation, or of
deposits to its credit; all assignments of mortgages, sureties on real
'~ estate, or of judgments or decrees in its favor; all deposits of money,
.t':.; .\1
bullion, or other valuable thing for its use, or for the use of any of its
) , shareholders or creditors; and all payments of money to either, made
after the commission of an act of insolvency, or in contemplation
thereof, made with a view to prevent the application of its assets in
the manner prescribed by chapter 4 of title 62 of the Revised
Statutes, or with a view to the preference of one creditor to another,
except in payment of its circulatin notes gnal"\Dk'iJ'tt~r,ty ,nulfa.-nlt
yoid"·t<a" .",:", m ,,~~:,j"~7aJi:'b~~Jssu~d
:~~'~i{1' >, ~j :;,~Q ro~~t~lf'Q~~~B'¥
,sltilt'i~
H. .,. "-, ~'t1
"" iii'!'.C'l p'::i\:diu'"
.." - ,J ~
Sec. 93. - Violation of provisions of chapter
(a) Forfeiture of franchise; personal liability of directors
If the directors of any national banking association shall knowingly Violate,

or knowingly permit any of the officers, agents, or servants of the association
to violate any of the provisions of title 62 of the Revised Statutes, all the
rights, privileges, and franchises of the association shall be thereby forfeited.
Such violation shall, however, be determined and adjudged by a proper district
or Territorial court of the United States in a suit brought for that purpose by
-= .;.-.
the Comptroller of the Currency, in his own name, before the association shall
be declared dissolved. And in ca~es of such violation, every director who
", )
" ...,
Ie usc
participated in or assented to the same shall be held liable in his personal and
individual capacity for all damages which the association, its shareholders, or
any other person, shall have sustained in consequence of such violation.
(b) Civil money penalty
(l) First tier
Any national banking association which, and any institution-affiliated

party (within the meaning of section 1813(u) of this title) with respect to
such association who, violates any provision of title 62 of the Revised
Statutes or any of the provisions of section 92a of this title, or any
regulation issued pursuant thereto, shall forfeit and pay a civil penalty of
not more than $5,000 for each day during which such violation
continues.
(2) Second tier
Notwithstanding paragraph (1), any national banking association

which, and any institution-affiliated party (within the meaning of section
1813(u) of this title) with respect to such association who, commits any
violation described in paragraph (1) which - ill appear.
(A)
(i)
commits any violation described in any ill paragraph (1);
(ii)
recklessly engages in an unsafe or unsound practice in

conducting the affairs of such association; or
(iii)
breaches any fiduciary duty;
(B)
which violation, practice, or breach -
(i)
is part of a pattern of misconduct;
(ii)
causes or is likely to cause more than a minimal loss to such

association; or
,/
-
(iii)
results in pecuniary gain or other benefit to such party, shall

-
forfeit and pay a civil penalty of not more than $25,000 for
each day during which such violation, practice, or breach
continues.
(3) Third tier
Notwithstanding paragraphs (1) and (2), any national banking

association which, and any institution-affiliated party (Within the
meaning of section 1813(u) of this title) with respect to such association
who -
(A)
knowingly -
(i)
commits any violation described in paragraph (1);
(ii)
engages in any unsafe or unsound practice in conducting the

affairs of such association; or
(iii)
breaches any fiduciary duty; and
(B)
knowingly or recklessly causes a substantial loss to such

association or a substantial pecuniary gain or other benefit to such
party by reason of such violation, practice, or breach,
shall forfeit and pay a civil penalty in an amount not to exceed the
applicable maximum amount determined under paragraph (4) for each
day during which such violation, practice, or breach continues.
(4) Maximum amounts of penalties for any violation described in paragraph

(3)
The maximum daily amount of any civil penalty which may be

assessed pursuant to paragraph (3) for any violation, practice, or breach
described in such paragraph is -
(A)
)
in the case of any person other than a national banking
association, an amount to not Ul exceed $1,000,000; and
(B)
in the case of a national banking association, an amount not

to exceed the lesser of -
(i)
$1,000,000; or
(ii)
1 percent of the total assets of such association.
(5) Assessment; etc.
Any penalty imposed under paragraph (1), (2), or (3) shall be

assessed and collected by the Comptroller of the Currency in the manner
provided in subparagraphs (E), (F), (G), and (I) of section 1818(i)(2) of
this title for penalties imposed (under such section) and any such
assessment shall be subject to the provisions of such section.
(6) Hearing
The association or other person against whom any penalty is

assessed under this subsection shall be afforded an agency hearing if
such association or person submits a request for such hearing within 20
days after the issuance of the notice of assessment. Section 1818(h) of
this title shall apply to any proceeding under this subsection.
(7) Disbursement
All penalties collected under authority of this subsection shall be

deposited into the Treasury.
(8) "Violate" defined
For purposes of this section, the term "violate" includes any action
(alone or with another or others) for or toward causing, bringing about,
participating in, counseling, or aiding or abetting a violation.
(12)
I1l Regulations
The Comptroller shall prescribe regulations establishing such

procedures as may be necessary to carry out this subsection.
-
{e} Notice under this section after separation from service
The resignation, termination of employment or participation, or separation

-
of an institution-affiliated party (Within the meaning of section 1813(u) of this
title) with respect to such an association (including a separation caused by the
closing of such an association) shall not affect the jurisdiction and authority of
the Comptroller of the Currency to issue any notice and proceed under this
section against any such party, if such notice is served before the end of the 6-
year period beginning on the date such party ceased to be such a party with
respect to such association (whether such date occurs before, on, or after
August 9, 1989).
Cd} Forfeiture of franchise for money laundering or cash transaction reporting

offenses
{I} In general
{A} Conviction of title 18 offenses
{i} Duty to notify
If a national bank, a Federal branch, or Federal agency has

been convicted of any criminal offense under section 1956 or
1957 of title 18, the Attorney General shall provide to the
Comptroller of the Currency a written notification of the
conviction and shall include a certified copy of the order of
conViction from the court rendering the decision.
{ii} Notice of termination; pretermination hearing
After receiving written notification from the Attorney General

of such a conviction, the Comptroller of the Currency shall
issue to the national bank, Federal branch, or Federal agency
a notice of the Comptroller's intention to terminate all rights,
privileges, and franchises of the bank, Federal branch, or
Federal agency and schedule a pretermination hearing.
{B} Conviction of title 31 offenses
If a national bank, a Federal branch, or a Federal agency is

convicted of any criminal offense under section 5322 or 5324 of
title J1, after receiving written notification from the Attorney
General, the Comptroller of the Currency may issue to the national
bank, Federal branch, or Federal agency a notice of the
Comptroller's intention to terminate all rights, privileges, and
franchises of the bank, Federal branch, or Federal agency and
schedule a pretermination hearing.
{e} Judicial review

Section 1818(h) of this title shall apply to any proceeding
(
under this subsection.
(2) Factors to be considered
In determining whether a franchise shall be forfeited under

paragraph (1), the Comptroller of the Currency shall take into account
the following factors:
(A)
The extent to which directors or senior executive officers of

the national bank, Federal branch, or Federal agency knew of, or
were involved in, the commission of the money laundering offense
of which the bank, Federal branch, or Federal agency was found
guilty.
(B)
The extent to which the offense occurred despite the

existence of policies and procedures within the national bank,
Federal branch, or Federal agency which were designed to prevent
the occurrence of any such offense.
(e)
The extent to which the national bank, Federal branch, or

Federal agency has fully cooperated with law enforcement
authorities with respect to the investigation of the money
laundering offense of which the bank, Federal branch, or Federal
agency was found gUilty.
(D)
The extent to which the national bank, Federal branch, or

Federal agency has implemented additional internal controls (since
the commission of the offense of which the bank, Federal branch,
or Federal agency was found guilty) to prevent the occurrence of
any other money laundering offense.
(E)
The extent to which the interest of the local community in

having adequate deposit and credit services available would be
threatened by the forfeiture of the franchise.
(3) Successor liability
This subsection shall not apply to a successor to the interests of, or

a person who acquires, a bank, a Federal branch, or a Federal agency
that violated a provision of law described in paragraph (1), if the
-
successor succeeds to the interests of the violator, or the acquisition is
made, in good faith and not for purposes of evading this subsection or
regulations prescribed under this subsection.
(4) "Senior executive officer" defined
The term "senior executive officer" has the same meaning as in

regulations prescribed under section 1831i(f) of this title.
(d)
ill Authority
The Comptroller of the Currency may act in the Comptroller's own name
and through the Comptroller's own attorneys in enforcing any provision of title
62 of the Revised Statutes, regulations thereunder, or any other law or
regulation, or in any action, suit, or proceeding to which the Comptroller of the
Currency is a party
ill So in original. The words ", commits any violation described in paragraph (1)
which" probably should not
m So in original. The word "any" probably should not appear.

ill So in original. Probably should be "not to".
)
ill So in original. No pars. (9) to (11) have been enacted.
ill So in original. Probably should be "(e)".
As used in this chapter - Search this

title:
(1) Bank. -
The term "bank" - Notes

Updates
(A) Parallel
authorities
means any national bank, State bank, and iCEBl
District bank, and any Federal branch and Topical
insured branch; references
(8)
)
includes any former savings association that
(i)
has converted from a savings association

charter; and
(ii)
is a Savings Association Insurance Fund

member.
(2) State bank. -
The term "State bank" means any bank, banking

association, trust company, savings bank, industrial
bank (or similar depository institution which the Board
of Directors finds to be operating substantially in the
same manner as an industrial bank), or other banking
institution which -
(A)
is engaged in the business of receiving

deposits, other than trust funds (as defined in
this section); and
(8)
is incorporated under the laws of any State

or which is operating under the Code of Law for
the District of Columbia (except a national
bank), including any cooperative bank or other
unincorporated bank the deposits of which were
insured by the Corporation on the day before
August 9, 1989.
(3) State. -
The term "State" means any State of the United

States, the District of Columbia, any territory of the
United States, Puerto Rico, Guam, American Samoa,
the Trust Territory of the Pacific Islands, the Virgin
Islands, and the Northern Mariana Islands.
(4) District bank. -

-
The term "District bank" means any State bank
operating under the Code of Law of the District of
-
Columbia.
(b) Definition of Savings Associations and Related Terms. -
(1) Savings association. -
The term "savings association" means -
(A)
any Federal savings association;
(8)
any State savings association; and
(e)
any corporation (other than a bank) that

the Board of Directors and the Director of the
Office of Thrift Supervision jointly determine to
be operating in sUbstantially the same manner
as a savings association.
(2) Federal savings association. -
The term "Federal savings association" means

any Federal savings association or Federal savings
bank which is chartered under section 1464 of this
title.
(3) State savings association. -
The term "State savings association" means -
(A)
any building and loan association, savings

and loan association, or homestead association;
or
(8)
any cooperative bank (other than a

defined in subsection (a)(2) of this section),
which is organized and operating according to the

laws of the State (as defined in subsection (a)(3) of
this section) in which it is chartered or organized.
(e) Definitions Relating to Depository Institutions. -
(1) Depository institution. -
The term "depository institution" means any bank

or savings association.
(2) Insured depository institution. -
The term "insured depository institution" means

any bank or savings association the deposits of which
are insured by the Corporation pursuant to this
chapter.
(3) Institutions included for certain purposes. -
The term "insured depository institution" includes

any uninsured branch or agency of a foreign bank or a
commercial lending company owned or controlled by a
foreign bank for purposes of section 1818 of this title.
(4) Federal depository institution. -
The term "Federal depository institution" means

any national bank, any Federal savings association,
and any Federal branch.
(5) State depository institution. -
The term "State depository institution" means

any State bank, any State savings association, and
any insured branch which is not a Federal branch.
(d) Definitions Relating to Member Banks. -
(1) National member bank. -
The term "national member bank" means any

national bank which is a member of the Federal
Reserve System.
(2) State member bank. -

-
-
The term "State member bank" means any State
bank which is a member of the Federal Reserve
-
System.
(e) Definitions Relating to Nonmember Banks. -
(1) National nonmember bank. -
The term "national nonmember bank" means any

national bank which -
(A)
is located in any territory of the United

States, Puerto Rico, Guam, American Samoa,
the Virgin Islands, or the Northern Mariana
Islands; and
(8)
is not a member of the Federal Reserve

System.
(2) State nonmember bank. -
The term "State nonmember bank" means any

State bank which is not a member of the Federal
Reserve System.
(f)
The term "mutual savings bank" means a bank without

capital stock transacting a savings bank business, the net
earnings of which inure wholly to the benefit of its depositors
after payment of obligations for any advances by its
organizers.
(9) Savings Bank. -
The term "savings bank" means a bank (including a

mutual savings bank) which transacts its ordinary banking
business strictly as a savings bank under State laws
imposing special requirements on such banks governing the
manner of investing their funds and of conducting their
business.
(h)
)
The term "insured bank" means any bank (including a
foreign bank having an insured branch) the deposits of which
are insured in accordance with the provisions of this chapter;
and the term "noninsured bank" means any bank the
deposits of which are not so insured.
(i) New Bank and Bridge Bank Defined. -
(1) New bank. -
The term "new bank" means a new national bank,

other than a bridge bank, organized by the
Corporation in accordance with section 1821(m) of this
title.
(2) Bridge bank. -
The term "bridge bank" means a new national

bank organized by the Corporation in accordance with
section 1821(n) of this title.
(j)
The term "receiver" includes a receiver, liquidating

agent, conservator, commission, person, or other agency
charged by law with the duty of winding up the affairs of a
bank or savings association or of a branch of a foreign bank.
(k)
The term "Board of Directors" means the Board of

Directors of the Corporation.
(I)
The term "deposit" means -
(1)
the unpaid balance of money or its equivalent

received or held by a bank or savings association in
the usual course of business and for which it has given
or is obligated to give credit, either conditionally or
unconditionally, to a commercial, checking, savings,
time, or thrift account, or which is evidenced by its
certificate of deposit, thrift certificate, investment
certificate, certificate of indebtedness, or other similar
-
account and certified by the bank or savings
association, or a letter of credit or a traveler's check
on which the bank or savings association is primarily
liable: Provided, That, without limiting the generality
of the term "money or its equivalent", any such
account or instrument must be regarded as evidencing
the receipt of the equivalent of money when credited
or issued in exchange for checks or drafts or for a
promissory note upon which the person obtaining any
such credit or instrument is primarily or secondarily
liable, or for a charge against a deposit account, or in
settlement of checks, drafts, or other instruments
forwarded to such bank or savings association for
collection.
(2)
trust funds as defined in this chapter received or

held by such bank or savings association, whether held
in the trust department or held or deposited in any
other department of such bank or savings association.
(3)
money received or held by a bank or savings

association, or the credit given for money or its
equivalent received or held by a bank or savings
association, in the usual course of business for a
special or specific purpose, regardless of the legal
relationship thereby established, including without
being limited to, escrow funds, funds held as security
for an obligation due to the bank or savings
association or others (including funds held as dealers
reserves) or for securities loaned by the bank or
savings association, funds deposited by a debtor to
meet maturing obligations, funds deposited as
advance payment on subscriptions to United States
Government securities, funds held for distribution or
purchase of securities, funds held to meet its
acceptances or letters of credit, and withheld taxes:
PrOVided, That there shall not be included funds which
are received by the bank or savings association for
immediate application to the reduction of an
indebtedness to the receiving bank or savings
association, or under condition that the receipt thereof
immediately reduces or extinguishes such an
indebtedness.
(4)
f~JrlJ'J'~>\<
! )
outstanding draft (including advice or
authorization to charge a bank's or a savings
association's balance in another bank or savings
association), cashier's check, money order, or other
officer's check issued in the usual course of business
for any purpose, including without being limited to
those issued in payment for services, dividends, or
purchases, and
(S)
such other obligations of a bank or savings

association as the Board of Directors, after
consultation with the Comptroller of the Currency,
Director of the Office of Thrift Supervision, and the
Board of Governors of the Federal Reserve System,
shall find and prescribe by regulation to be deposit
liabilities by general usage, except that the following
shall not be a deposit for any of the purposes of this
chapter or be included as part of the total deposits or
of an insured deposit:
(A)
any obligation of a depository institution

which is carried on the books and records of an
office of such bank or savings associ2'tion
located outside of any State, unless -
(i)
such obligation would be a deposit if it

were carried on the books and records of
the depository institution, and would be
payable at, an office located in any State;
and
(ii)
the contract evidencing the obligation

prOVides by express terms, and not by
implication, for payment at an office of the
depository institution located in any State;
(B)
any international banking facility deposit,

including an international banking facility time
-
defined by the Board of Governors of the Federal
Reserve System in regulation D or any successor
regulation issued by the Board of Governors of
the Federal Reserve System; and
(e)
any liability of an insured depository

institution that arises under an annuity contract,
the income of which is tax deferred under
section 72 of title 26.
(m) Insured Deposit. -
(1) In general. -
Subject to paragraph (2), the term "insured

deposit" means the net amount due to any depositor
for deposits in an insured depository institution as
determined under sections 1817(i) and 1821(a) of this
title.
(2)
In the case of any deposit in a branch of a foreign

bank, the term "insured deposit" means an insured
deposit as defined in paragraph (1) of this subsection
which -
(A)
is payable in the United States to -
(i)
an individual who is a citizen or resident of

the United States,
(ii)
a partnership, corporation, trust, or other

legally cognizable entity created under the
laws of the United States or any State and
having its principal place of business
within the United States or any State, or
(iii)
an individual, partnership, corporation,

trust, or other legally cognizable entity
which is determined by the Board of
Directors in accordance with its regulations
to have such business or financial
relationships in the United States as to
make the insurance of such deposit
consistent with the purposes of this
chapter; and
(B)
meets any other criteria prescribed by the

Board of Directors by regulation as necessary or
appropriate in its judgment to carry out the
purposes of this chapter or to facilitate the
administration thereof.
(3) Uninsured deposits. -
The term "uninsured deposit" means the amount

of any deposit of any depositor at any insured
depository institution in excess of the amount of the
insured deposits of such depositor (if any) at such
depository institution.
(4) Preferred deposits. -
The term "preferred deposits" means deposits of

any public unit (as defined in paragraph (1)) at any
insured depository institution which are secured or
collateralized as required under State law.
(n)
The term "transferred deposit" means a deposit in a

new bank or other insured depository institution made
available to a depositor by the Corporation as payment of
the insured deposit of such depositor in a closed bank, and
assumed by such new bank or other insured depository
institution.
Co)
The term "domestic branch" includes any branch bank,

branch office, branch agency, additional office, or any branch
place of business located in any State of the United States or
in any Territory of the United States, Puerto Rico, Guam,
American Samoa, the Trust Territory of the Pacific Islands,
or the Virgin Islands at which deposits are received or'
checks paid or money lent. The term "domestic branch"
-
/
'~
)
does not include an automated teller machine or a remote
service unit. The term "foreign branch" means any office or -
place of business located outside the United States, its /
territories, Puerto Rico, Guam, American Samoa, the Trust
Territory of the Pacific Islands, or the Virgin Islands, at
which banking operations are conducted.
(p)
The term "trust funds" means funds held by an insured

depository institution in a fiduciary capacity and includes,
without being limited to, funds held as trustee, executor,
administrator, guardian, or agent.
(q) Appropriate Federal Banking Agency. -
The term "appropriate Federal banking agency" means
(1)
the Comptroller of the Currency, in the case of

any national banking association, any District bank, or
any Federal branch or agency of a foreign bank;
(2)
~
the Board of Governors of the Federal Reserve

System, in the case of -
(A)
any State member insured bank (except a

District bank),
(8)
any branch or agency of a foreign bank with

respect to any provision of the Federal Reserve
Act (12 U.S.C. 221 et seq.) which is made
applicable under the International Banking Act of
1978 (12 U.S.C. 3101 et seq.),
(e)
any foreign bank which doe.s not operate an

insured branch,
(D)
)
any agency or commercial lending company
other than a Federal agency,
(E)
supervisory or regulatory proceedings

arising from the authority given to the Board of
Governors under section 7(c)(1) of the
International Banking Act of 1978 (12 U.S.C.
3105(c)(1», including such proceedings under
the Financial Institutions Supervisory Act of
1966, and
(F)
any bank holding company and any

subsidiary of a bank holding company (other
than a bank);
(3)
the Federal Deposit Insurance Corporation in the

case of a State nonmember insured bank (except a
District bank), or a foreign bank having an insured
branch; and
(4)
the Director of the Office of Thrift Supervision in

the case of any savings association or any savings and
loan holding company.
Under the rule set forth in this subsection, more than

one agency may be an appropriate Federal banking agency
with respect to any given institution.
(r) State Bank Supervisor. -
(1) In general. -
The term "State bank supervisor" means any

officer, agency, or other entity of any State which has
primary regulatory authority over State banks or State
savings associations in such State.
(2) Interstate application. -
The State bank supervisors of more than 1 State

-
may be the appropriate State bank supervisor for any
insured depository institution. -
(5) Definitions Relating to Foreign Banks and Branches. -
(1) Foreign bank. -
The term "foreign bank" has the meaning given

to such term by section 1(b)(7) of the International
Banking Act of 1978 (12 U.S.C. 3101(b)(7)).
(2) Federal branch. -
The term "Federal branch" has the meaning given

to such term by section l(b)(6) of the International
Banking Act of 1978 (12 U.S.C. 3101(b)(6)).
(3) Insured branch. -
The term "insured branch" means any branch (as

defined in section l(b)(3) of the International Banking
Act of 1978 (12 U.S.C. 3101(b)(3))) of a foreign bank
any deposits in which are insured pursuant to this
chapter.
(t) Includes, Including.-
(1) In general. -
The terms "includes" and "including" shall not be

construed more restrictively than the ordinary usage of
such terms so as to exclude any other thing not
referred to or described.
(2) Rule of construction. -
Paragraph (1) shall not be construed as creating

any inference that the term "includes" or "including"
in any other provision of Federal law may be deemed
to exclude any other thing not referred to or
described.
(u) Institution-Affiliated Party. -
The term "institution-affiliated party" means -
(1)
any director, officer, employee, or controlling

stockholder (other than a bank holding company) of,
or agent for, an insured depository institution;
(2)
any other person who has filed or is required to

file a change-in-control notice with the appropriate
Federal banking agency under section 1817(j) of this
title;
(3)
any shareholder (other than a bank holding

company), consultant, joint venture partner, and any
other person as determined by the appropriate Federal
banking agency (by regulation or case-by-case) who
participates in the conduct of the affairs of an insured
depository institution; and
(4)
any independent contractor (including any

attorney, appraiser, or accountant) who knowingly or
recklessly participates in -
(A)
any violation of any law or regulation;
(B)
any breach of fiduciary duty; or
(e)
any unsafe or unsound practice,
which caused or is likely to cause more than a

minimal financial loss to, or a significant adverse effect
on, the insured depository institution.
(v) Violation. -
The term "violation" includes any action (alone or with

another or others) for or toward causing, bringing about,
participating in, counseling, or aiding or abetting a violation.
(w) Definitions Relating to Affiliates of Depository Institutions. -

, \ ' -
(1) Depository institution holding company. - -
The term "depository institution holding
company" means a bank holding company or a savings
and loan holding company.
(2) Bank holding company. -
The term "bank holding company" has the

meaning given to such term in section 1841 of this
title.
(3) Savings and loan holding company. -
The term "savings and loan holding company" has

the meaning given to such term in section 1467a of
this title.
(4) Subsidiary. -
The term "subsidiary" -
(A)
means any company which is owned or

controlled directly or indirectly by another
company; and
(8)
includes any service corporation owned in

whole or in part by an insured depository
institution or any subsidiary of such a service
corporation.
(5) Control. -
The term "control" has the meaning given to such

term in section 1841 of this title.
(6) Affiliate. -
The term "affiliate" has the meaning given to

such term in section 1841(k) of this title.
(7) Company. -
)
I I l".1
The term "company" has the same meaning as in

section 1841(b) of this title.
(x) Definitions Relating to Default. -
(1) Default. -
The term "default" means, with respect to an

insured depository institution, any adjudication or
other official determination by any court of competent
jurisdiction, the appropriate Federal banking agency,
or other public authority pursuant to which a
conservator, receiver, or other legal custodian is
appointed for an insured depository institution or, in
the case of a foreign bank haVing an insured branch,
for such branch.
(2) In danger of default. -
The term "in danger of default" means an insured

depository institution with respect to which (or in the
case of a foreign bank haVing an insured branch, with
respect to such insured branch) the appropriate
Federal banking agency or State chartering authority
has advised the Corporation (or, if the appropriate
Federal banking agency is the Corporation, the
Corporation has determined) that -
(Al
in the opinion of such agency or authority -
(i)
the depository institution or insured

branch is not likely to be able to meet the
demands of the institution's or branch's
depositors or pay the institution's or
branch's obligations in the normal course
of business; and
(ii)
there is no reasonable prospect that the

depository institution or insured branch
will be able to meet such demands or pay
such obligations without Federal
assistance; or
.J )
(8)
in the opinion of such agency or authority -
(i)
the depository institution or insured

branch has incurred or is likely to incur
losses that will deplete all or substantially
all of its capital; and
(ii)
there is no reasonable prospect that the

capital of the depository institution or
insured branch will be replenished without
Federal assistance.
(y)
The term "deposit insurance fund" means the Bank

Insurance Fund or the Savings Association Insurance Fund,
as appropriate.
(z) Federal Banking Agency. -
The term "Federal banking agency" means the

Comptroller of the Currency, the Director of the Office of
Thrift Supervision, the Board of Governors of the Federal
Reserve System, or the Federal Deposit Insurance
Corporation.
)
1"I"ClIft:W\IlCI_ t"1IlC .,{lIUJI'l!f-<4'" 10:
"1-"----'" ..
95] F.2d 348, Bank One of Columbus, NA v, Butts, (CA6 (Ohio) 1991) Pagel
*348 951 F.2d348

I
NOTICE: THIS IS AN UNPUBLISHED OPINION.
ButtB bas beea employed since 1976 by Iotcrstate
(The Court's decision is referenced in a "Table ofDecisiODB Brands Corporation (Butternut Bread) where she currently
WJlhout Reported Opinions" appearing in the Federal works as a baker. In June 1983, Butts purchased a two-
Reporter. Use Fl CTA6 Rule 10, Fl CTA6 Rule 24 and Fl family home. She took out a mortgage. financed by the
CTA6 App. III, lOP 22 for rules regmd:ing the pubJication Chemical Mortgage Company, in the amount of $45,100.
and citation of unpublished opinions.) (FN1 ) Butts's income remained fairly steady from 1984
until 1986. In] 984, she earned a bit over $19,000; by
BANK ONE OF COLUMBus. M.A., PIaintiff- 1986, her income was somewhat over $22,000. Dming the
Appellee. first several years of her mortgage, she made her payments
v. in a generally prompt and timely fashion.
Theresa BUITS, Def.endarrt., Third~Party
Plaintiff-Appellant, In 1986, however, Butts missed lIOIlle payments. Sho
v. claims that she missed some work during this period due to
UNITED STATES DEPARlMENT OF her asthma problem. This, according to Butts, set her
HOUSING AND URBAN DEVELOPMENT, behind. Her payments during the year 1986 could not be
Third Party Defendant-Appellee. cbaracterized as regular; it is obvious that she teetered
somewhat financially during this period. Nonetheless,
Mo. 89-3703. Batts did manage to catch up after fillliD8 behind. After
missing some woric early in 1986, she gradually paid IIlOIe
United States Court of Appeals, Sixth Circuit. during the last several months of 1986 and first several
months of 1987. Tn late April and early May 1987, Butts
Dec. 11, 1991. made two large paymenis. With those payments, she was
caught up to May 31, 1987. However, she missed the
On Appeal from the United States Distrit:t. Court for payment due June 1, 1987.
the Southem District of Ohio, No. 88-00273; Carl B.
Rubin, DJ. During the month ofJlJIle, Butb's asthma became much
worse. She missed seven noIICOnsecutive days of work in
S.D.Ohio June, resulting in a 3~18 reduction in her income for that
month. She was unable to work at. all in the month of
REVERSED AND REMANDED. July, and, accordingly, bad no income for that month. She
was hcspitaliz.ed for asthma at the end of the month. Her
Before: BOGGS, Circuit Judge, LIVELY, Senior Circuit sick leave benefilll, however, did not begin until November.
Judge, and CLELAND, District Judge. (FN*) After taxes, her sick leave benefits were about $470.00 per
month. Her mortgage payments alone were $507 per!
PER CURIAM month. Her total income for the year ] 987 was reduced
about in half; to $11,564.62.
This action began as a foreclosure action by Bank: One
of Columbus ~, Theresa Butts, the mortgagor of a In addition 10 the mortgage expenses, Butl3 had a
mortgage held by Bank One. The mortgage was number of other expenses. She had taken out a number of
guaranteed by the Federal Housing Administration loans. Her monthly payments included $] 00 per month
("FHA"). &e]2 U.S.C. § 1707 et set. Pummnt to 12 for carpets,. (FN2) $123.54 for kitcllen remodelling, and
US,C. § 1715u, the Department of Housing and Urban, $10 per month for her Visa card (FN3) In addition, on
Development has the authority to !!'Suire m~ in June S, 1987, Butts purchased a Chevrolet Nova for
order to avoid foreclosure. Essentially the st.alute allows $9,000. The montblypayment for the car was $190.78 per
HUD to give breathing room to people suffering teJnP<>T!llY month. IA at 162.
setbacks. Butb requested this relief from mID, claiming
that she ddiiU1ted on her m~beCause ~was sick. Butts missed both the Jtme and July payments, and she
but MUD refused Therefore, after 1he piing Of the was considered to be in default after July. Because ofher
foreclosure action by Bank One, Butts filed a third party reduced income, she was unable to make up the paymeuta
complaint against HUD, alleea
that itS-aeciSion was as she had done in the past In August, Butts began the
arbitrnly and capricious. The district court upheld HUD's process of asking BUD to take her mortgage. The bank
¥ermmatJon, and en""fere(f~i!§f~~ We" recommended against it, and, subsequently, HUD turned
believe that the record admits of only one conclusion, that her downHUD's stated rationale was that she bad begun
HOD acted arbitrarilX' Acco~we'-reverse- th~ to miss payments prior to losing income because she was
decision of the district court. out of work. Further, HUn maintained that she had
Copyright (c) West Group 1999 No claim to original U. S. Govt. works

H'Ol'Ir. _ _
. ' -
951 F.2d 348, Bank: One of Columbus, N.A v. Butts, (C.A6 (Ohio) 1991) Page 1
*348_ With HlJD and Butts tmable to como to an

acoommodat:iou, Bank ODe filed a fureclosure actioa in
:issue with the other fivo.. HUD claims that it was Butts's
profligate spending that caused her defimlt, not her illness.
We review the decision of HIJD UDder 5 U.S.C. §

--
state court. ButU filed a third-party complaint against 706(2Xa), which give us the power to reverse only if the
HUD. HUn then removed the matter to federal court decision is "arbitrary, capricious, an abuse of discretion, or
(FN4) A magistrate recommended in filvor of IDJD, and otherwise not in accordance with law." Western &: S. Life
the district court, after • IIOW) revicw, adopted the Ins. Co. v. Smith. 859 F.2d 407,410 (6th Cir.l988). We
conclusion of the m.agistmte. This appeal fullowed. cannot reverse unless we believe that HUn has committed
"a clear error in judgment." Ibid. We muat presume that
n the agency acted correctly, especially wi1hin its sphere of
expertise. Ibid. The statute gives HUn broad discretion to
mID has promulgated regulations governing the implement federal housing policy. Ibid.
m.ort.gage msigument progmm. The regulatioos provide, in
relevant part: Nonetheless, we believe that HUD has made a clear
error in its judgment In Smith. the mort.gagor claimed that
(a) The Secretmy will ac::cept assigDmeats of he missed his payments because of illDess. Yet, that record
mortpges insured under this part in order to avoid was devoid of any evidence of real illness. All he had was
fureclosure when the following conditions are met: a note from his doctDr saying that he had a bistmy of "not
feeling well." Id. at 409. The mortgagor alluded to
(1) The DJDJtgagee has informed the mortgagor that it eertain "mental problems stemmiog from his childhood,."
intend& to forecIoso the mortgage.; but. he did not elaborate on or document them. Ibid.
Here, by contrast, the record contaios ample evidence that
(2) At. least dJree full monthly installments due QD the Butts was genuinely ill, includmg her m.edU:al recorrls.
mortgage are unpaid after application of any partial
payments which may have been accepted but not yet HUD does not seriously dispute that she was ill during
applied to the mortga.ge ac<:ount. the relevant time period. HUD begins by attempting to
shorten the relevant time span. HUD invokes the
(3) The property is the mortgagor's principal place of definition of "defimlt" from 24 C.F.R. § 203.331:
residence. This criterion may be waived by the Secretary if
the property bas been leased or rented and the rental For purposes oj this subpart, the date of default shall
income bas been applied to the mortgage delinquency or to be considered as 30 days after-
effect repairs necessary to maintain the property in a safe
and habitable coorlition or if such waiver is detenuined to (a) The first UIJCOIreCted fBil.ure to perfunn any
be in the best interest of the Department. obligation under the mortgage; or
(4) The mortgagor does not own other property subject (b) The first muure to make a monthly payment which
to a mortgage insured or held by the Secretary. This subsequent payments by the mortgagor are insufficient to
criterion may be waived by the Secretary if the income cover when applied to the overdue monthly payments in
fum such other property is the mortgagor's principaJ. the order in which they become due.
soun:e ofincome.
(emphasis added). Thus, according to HUD, Butts
(5) The mortgagor's default has been caused by demulted on July 1, thirty days after her missed payment.
circumstances beyond th4 mortgagor's control which (FN5) BUD therefore maintaimJ that all evidence
render th4 mortgagor unable to correct tM delinquency regarding events taking place after July 1 is irrelevant to
within a reasonable time or make full mortgage ascertaining the real cause of her defBult The problem
payme1Jt8. with using this particular T"~nlation, however, is that. it, by
its very terms, applies only "[f)or pmposes of this subpmt."
(6) There is B reasonable prospect that the mortgagor Section 203.331 is in subpart B, relating to the contract
will be able to resume full m~ payments after lit between FHA and the bank, while § 203.650 is in subpart
period of reduced or suspended payments not exceeding C, relating to debt servicing. Ac<:ordingly, ~ 203.331 does
36 months and will be able to pay the mortgage in full by not define "default" for purposes of § 203.650. (F.N6) 24
its matwity date extended, if necessary, by up to ten yeazs. C.F.R § 203.650(aX2) requires that the debtor have
';:;;;. missed at least three monthly payments before HUD is
24 C.F.R. § 203.650(8) (emphasis added). These even allowed to assume the mortgage. We believe that it
regulations are mandatoty in nature; if Butts meets their would be anomalous to require that the mortgagor be three
requirements, HUD must assume~ mortgage. HUD only months in -arrears to be eligible for the program, but. then
claims that Butts fuib to meet~. It does not take not consider any reasons that ocCUITed after the first mon~
)
Copyrigbl (c) West Group 1999 No claim to original u.s. Gavt.. wl."Jlb
To:
951 F.2d 348, Bank One of Columbus, N.A v. Butts, (C.A6 (Ohio) 1991) Pagel
pf arrearage., Accordingly, we betievc that HUD's time modest and utilitarian vehicle. Her paynlflIlts were only
frame is too naJIOW, and that it should have considered $190.78 per month. Her total expenses-including the
whether Butts's failure to pay over the entire tbree-montb loans discussed above, utilities, food, telephone bills. Visa
period W3S her fiwlt. bills. (FN8) etc., as reflected on the iofunmrtioa given to
HUD, total close to $900 per month. Together with the
*348_ HUD grudgingly concedes that Butts did, in lllOItgage, this is almost exactly equal to her income.
tBct., become ill It abo concedes that 6nancialloss due to Although she would have been on a very tight budget.
illness would constitute a circumstance beyond her Butts bad previously demonstmted an ability to &<:rape by
control It argues, however, that her illness was not the on barely enough. 'I'hus, we are fumIy convinced that but
proximate cause ofher defimlt. In essence (although HUD for her illness. she would not have defaulted on the
does not put it this way) HUD 'is mguing that her defimlt mortgage payments.
was causally overdetermined. That is, HlJD seems to be
arguing that although her illness could have caused the ill
default, abe would have def.,ulted even bad she net
become ill. The decision of the district court is REVERSED. The
case is REMANDED to the district court, with instructions
HlID initially maintains that the defimIt (miss.ing the to enterjudgment in Butts's £avO!'. .
June payment, as mID would have it) 0CCUlI"Cd prior to
the illness. It certainly is true that she missed a payment CLELAND, District Judge, dissenting.
prior to becoming ill. Her initial delinquency may indeed
have been her fault. Default, however, is 8 continuing The Secretary of Housing and Urban Development
condition. Butts's firilure to CW1l the delinquency is what (HUD) determined that an assignment of appellant's
allowed the delinquency to mature into defimlt. She mortgage should not be accepted, and the only issue
missed the Iune I payment /.Or wha.t.lwer ~ and then hem this Court on appeal is wfW:btIr that detemtioation
she was uuable to make that payment-or the July or was arbitrary. capricious, or an abuse of discretion and
August payments-because she was sick. There is simply thus-or for other reasons-contra: to law. After reciting
no caolroversy that she suffered a 33% reduction in. the factual history of the case. with most of which I agree,
inCOlIUt in June, lIDd that she had no income whatsoever in the majority concludes that the record "admits of only one
July. decision"-that the SecretaJy made a clear error in
judgment. I must disstmt.
IRJD also argues that Butts's profligate spending, not
her illness, caused her to defimlt We do not believe that The Secretary relied on 24 C.F.R. § 230.650(a)(5) in
t:.his is an accurate characterization. Based on the determining to not accept assignment of appellant Butts's
SOIDllWbat fragmemtary financial infunnation we can glean mortgage. SuMectian (aX5) providet. that the Secretary
from the record, we conclude that Butts had a monthly will accept an assignment "when the mortgagor's default
after-tax disposable income of $1435 ($1127 in take-home has been caused by circumstances. beyond the mortgagor's
pay (FN7), $108 in savings not included in her net pay and control which render the mortgagor uuable to correct the
$200 per month in rent from leasing part of the home) JA delinquency within a reasonable time or mako full
at 161. Her monthly expenses include payments of mortgage payments," In order to detennine when default
$123.54 per month to pay for a loan for kitchen occurred, tho Secretary refer.red to §§ 230.330 and
remodelJing. and $100.00 per month far carpetin& JA at 230.331 and concluded that, because ButB did nat make
162. These loans were incurred in 1985, long before the her June 1, 1987 payment, she was in defimlt as of 30 days
default here. later: July 1.
What seems to bother HUD the most, however, is the The gravamen ofthe Secretary's mgument'is that, under
car. The timing of the car purchase-JlIDe 5, 1987-was the Regulations, it was required to consider only those
somewhat unforttmate. HUD contends that she, in effect,· circumstances that led to appellant's default and not those
decided to purehase a car rather than pay her znorI"88ge. conditions that kept her in default. Although the Secretary
HUD believes that she could have purchased a cheaper ear, admits that Butts's illness caused a loss of income in Juno,
or tabm public transportation. There is no indication, the Secretary d.etennined that the Jtme illness was not the
however, that public transportation was available (or safely salient circumstance causing default since she had missed
available) to get her to and from her workplace, where she her payment before she missed her work Rather. the
works the night shill The district court held that HUD Secretary concluded that default was due to her poor
bad not been made aware that she needed a car to go to financial management-purchasing an autODlobile, thereby
work. at night, but that there is at least one reference in the adding 10 an already high debt load-and 1hus was nat
administrative record that belies this contention. caused "by circumstances beyond the mortgagots control.·
Tn any event, the car that she purohased W8B a relatively "348_ The majority takes the Secretary 00 task for
Copyright (c) West Group 1999 No claim to original u.s. Govt worla
10:
951 F.2d348, Bank One of Columbus, N.A v. Butts, (C.A.6(Ohio) 1991)

PIIge 4 of 6 fftlnClaY, M _ 3U, 2000 821 PM
Page ..
-
attempting to shorten the time span appropriate to the gene:raJ sense, but in which I cmmot join :in order to fiDd an
determination of when defimlt occurred. The majority abuse of ageooy discretion.
opinion correctly notes that 24 C.F.R § 203.331 applies
to subpmt B of the R.egulatioos, and takes gnoat pain to Nor can I ~ with the majority's analysis to the
point out that subpart B relates to the contra« between extent it is built on a foundation that "[i]t makes just as
FHA and the lending bank, distinguishing § 203.650. in much sense to say that the defiwlt is a continuing
subpart C. which relates to debt. servicing. The condition-and that the relevant causal question is why it
significance or necessity of this subpart distinction to the continues rather than why it began in the first place."
majority reasoning is not entirely clear to me. (Majority Opinion-Fn 6) (emphasis added).
Nonetheless, I cmmot understand how the Secretmy can
be said to 1llm "abused Iris discretion" or to have been The -issue is not what a judge later betiews tM agency
"clearly in error" to rely on such a subpart B definition in "should" Juwe doM, or whether an alternate interpretation
view of the absence of a definition in subpart C. This is makes 'just as mJlCh sense" as the one reached by the
especially so in light Df several :re~ in subpart B that agency. Indeed. with the same stroke used to note that. the
requirtl an analysis under subpart C. (See, e.g. §§ the majority's interpretation "makes just as much sense" 81
203.340,342, 350. 355. 402(a), and 438(c).) the Secretary'l. there is an equation of these alternate
views, necessarily saying that. the Secretary's irtterpretation
In any event, the subpart B/subpart C distinction is is as good as the mqjority's. This does not appear to be a
unnecessary in view of subpart. B § 203.330, from which sturdy platfonn from which to locate an abuse of agency
the SecretaIy detmoioed the time ofdefilult and the text of discretion.
which challenges the majority's observation 1hat "defirolt ...
is a continuing condition." Section 203.330 states, albeit From this record I cannot say that the agency's
more generally than other provisions, that "if the mortgagor determination under subsection 65O(aX5) was either
W1s to mab any payment. oc to perfunn any other arbitImy. capcicious, an abuse of discretion or contmIy to
obligation under the mortgage. and such fBilure continues law. 'The record indicates that Butts's monthly after tax
for a period of 30 days, the mortgage shall be considered income was approximately $1240.00. (JA-161). Her
in de6mlt. for the purposes of this part" (emphasis listed monthly expenses before she committed to purchase
added). Defimlt need not be construed 81 a continlJinB the ear totaled $1217.00. (JA-162). With a margin of
condition. From this section, the Secretary was free to only about $23 a month, the record supports a conclusion
determine that. while the delinqueIWY which tmderpiDs that Butts was perched unsteadily at a financial precipice.
default must be "continuing", once default arrives it is When she added a $190.00 car payment to her monthly
the:re to stay. outflow, she took Il voluntary leap into this chasm. of debt.
While it is true that on the way down she became ill. this
"This part" of course refers to Pari 203-Mntnal later illness in no way equates with fuetors ~beyond. her
Mortgllge Insurance and Rehabilitation Loans, which control" conspiring to push her over the edge to begin.
encompasses subparts A, B and C. A plain reading of this with.
section easily allows an agency conclusion that the date of
default arrived on July 1at, 30 days after Butts firiled to *348_ Accordingly, the Secretary's detennination that
make her June payment. In my judgment, it cannot be said the defilult here was caused by unwise personal financial
that the SearetaIy was "clearly in error" to have come to management was not clearly in error. and from the
this datCKrl'-default conclusion. conb:aIy intelpretation reached by the majority I
respectfully dissent.
The standard of review, correctly illuminated in the
majority opinion, is a deD::rential one which presumes the FN* The Honolable Robert H. Cleland, United States
validity of the agency's decision within its sphere of District Judge for the Eastern District of Michigan,
expertise. Western & Southern Life Insurance Co. v. sitting by designation.
Smith. 859 F.2d 407, 410 (6th Cir.1988). Broad
discretion is due the agency as it implements federal FNI. The mortgage ultimately was assigned to Bank One.
housing policy. Ibid. In view of this standard, I cannot
conclude that the Secretary abused his discretion in FN2. HUD repeatedly implies that these carpets were 8
reviewing only 100se ciroumBtlmces which preceded the horo:ry item.. But:ts claiIIm, however. that she needed to
default, and not those which sustained it. Stated another buy the carpets because a water pipe burst, destroying
way, the majority's "belie [f] that HUD's time frame is too the old carpets. There is nothing on the record to
narrow, and that. [HUD} sJwu1d Juwe considerstl whether contradict bee version,. and the record does indica1&
Butts's fiUlure to pay over the entire three-month period that she made this information available to HUD. JA
was her fimlt" (Majority Opinion at 6) (emphasis added) is at 162.
merely its expression of a regulatoty interpretation
preference, the wisdom of which I might agree with in a FN3. In addition, she listed on the form given to HUD $50
)
Copyrigbt. (0) West Group 1999 No claim to original U.S. Govt. works
.'"
951 F.2d 348, Bank One ofColmnbus, NA v. Butts. (C.A.6 (Ohio) 1991) PageS
per month fur dental bills. Her total balance, however, supplied by HUD to th:ia court) reveal that she was paid
was listed at $11 O. Unless her dentist is also a loan up through the end of May. JA at 177. In oral
shade, she would have had that paid off in a few argument, ffiJD agreed that she was paid up through
installments A.ccordingly, we do not list the paymed the llIId ofMay.
for the dental bill in her regular payments.
FN6. Even if the c1efinition did apply, we are not sure that
FN4. This case was filed in state cowt after June 19, 1986, HUIYs ~ resuJt would follow. 24 C.F.R. §
and, accordiogly, tho district court bad jurisdiction 203.333 allows the mortgagor to cure a defilult prior to
pursuant to 28 U.S.C. § 144) (e). Prior to that date, the completion of foreclosure proceedings. It would
there would have been a jurisdictional problem. See malre just 88 much sense to say that the default is 8
Fed..,.aI Nat1 Mortgage AD'» v. LeCrone, 868 F.2d contim.J:iog c:anditioo-and that the YellmlDt causal
190 (6th Cir.), cert. denied, 493 U.S. 938 (1989). question is why it continues rather than why it began in
the first place.
FN5. HUD asserts that the admir:listnItiv m:on:f
demonstrates that her delinquency began in May, not FN7. This figtn-e differs from the Dissent's figure of $1240
June. HUD's reference to the record refers us to a form (Dissent, p. 4), because we consider that a person paid
that contains a blank labelled RPaid through _ _" weekly rooeives 4 )/3, rather than 4, paychecks
The date, handwritten on the line, is May 1, 1987. monthly. Butts reported take-home pay of $260
This could conceivably mean that Butts was paid weekly.
through the end of April, up tmtil the May 1 payment.
The more likely interpretation, however, seems to 1lS to FN8. Botts bad only one credit card on which she owed
be that she was paid through the May 1 paymeut. ThiJ money at the time of her application far a mortgage
would put the next (unpaid) payment on June 1. In assignment, and her monthly payments on that card
any case, regaroless of what the fann says, the financial wem only $10. The balance, at the tiJue of tho
roooros (insofar as they are legible in the copies application, WBS $190.
Copyright (c) West Group 1999 No claim to original U.S. Govt. wOIks
'?,". _iM'llCI_
"4,~. ~-i--"!,, -
273 N. w.:u 456, 404 Mich. 661, Federal Nat. Mortg. Assn v. wingate. (Mich. 1979) Pagel
that ofIIp'JMl&I bond toprotect appellee dur.ing~of
_.'
"456 273 N.W.2d 456
appeal \
404 Mieb. 661

2 APPEAL AND ERROR P382
FEDERAL NATIONAL MORTGAGE ASSOCIA.TION, 30 -
Plaintiff-Appellee, 30W Transfer of Cause
v. 3OW(C) Payment of Fees or Costs, and Bonds or
Carolyn WINGATE and Mary Brown, DefendanIB- Other Securitie&
Appellants. 30082 Amount or penalty of bond or
undertBlciog.
Docket. No. 60121. Mich.1979
Calendar No. S. Appeal bond set on "reasonable conditions,· as
Supreme Court ofMicbigan. required in case of appellants who cannot obtain surety,
Argued June 6, 1978. can only include aIDOUIlD due after time of appeal, in line
Decided Jan. 8, 1979. with case law holding that scope of appeal bond must
logically relate to purpose or right which bond is meant to
MOIfBa8ee was gnmted !lUIDlll8IY judgment.in SUIIIIll8JY protect. Detroit Common Pleas Court Rules, role
proceedings f(r possession of premises. and mortgagoIs' 46.l1(c!, OCR 1963, 754.9~ OCR 1963, 705.9(a)
appeals were consolidated. The Circuit Court. Wayne (Repealed!, OCR 754.10(3).
Coun.1¥; Joseph A Moynihan. Jr., J., denied motions to
IIJntll1d bonds. The Court of Appeals denied leave to 3. APPEAL AND ERROR ¢:::'382
appeal. ami the mortgagon' application foe leave to appeal 30 -
was granted The Supreme Court, Williams. 1., held that 30vn Transfer ofCause
under ooiimton pleas eourt mle requiring tbat hood be set 3OVH(C) Payment ofFees or Costs, and Boodlr or
on "reasonable conditiODl," "reasonable conditiona" oply Other Securities
include amounts that become due after time ofappeal, and 30k382 AmolDJt or penalty of bond or
thus. since ~ra' bonds included amounts that undertaking.
bec:anm due prior to time of appeal and penaltie. without MiclL 1979
statemmJt of reasons therefor, bonds were not set on By setting appeal bonds upon reasonable conditions to
"reasonable conditions. I prevent 10Sl to lIpptlllee during pendency of appeal,
Common Pleas Comt ClIO. comply with both spirit and
Revemed and remanded with directions. letter of the law but to go further and require payments
which became due before appeal was sought is not within
Fitzgerald. J., filed a dissenting opinion in which Ryan. proper objective of such a bond. Detroit Common Pleas
I., joined CourtRules, rule 46Jl(c); OCR 754.10(3).
1. APPEAL AND ERROR ~l 4. APPEAL AND ERROR P382

30 -- 30 -
301 Nature and Fonn ofRemedy 30VII Transfer of Cause
30kl Origin. nature, and scope of remedies in 30VlI(C) Payment ofFees or Costs, lIO.d Bonds or
general Other Securities
30k382 Amounl or penalty of bond or
[See headnote text below] undertaking.
1. APPEAL AND ERROR -«:=373(1) {See headnote text below]

30 -
30VII Transfer of Cause 4. APPEAL AND ERROR ~383
30Vll(C) Payment oUees or Coats, and Bonds 0[ 30 -
Other Securities 30vn Transfer of Cause
30k372 Necessity ofSecurity to Perfect Appeal 30Vll(C) Payment ofFees or Costs, and:Bonds or
or Other Proceeding Other Securities
30k373 In General 30k383 Conditions ofbond or undertaking.
30k373(1) In general. Mich. 1979
Mich. 1979 Under rule concerning bond on appeal, which treated
Right to appeal is not required under common-law -BIIlOtIIlt" and ·conditions· ofbond as separate, conditions
principles or general notiOns of due process but: is under which bond was to be giVen were promises or
generally legislatively granted and can be conditioned 00 assurances made by appellant in conjunction with bond to
auy reasonable basis~ one condition normally imposed la stay ~ which conditions could not logically
)
Copyright (c) West Group 1999 No claim to original. U.S. Govt. works
''Q; " . . . . . . _ •. ... - •• _"., "'_1 --r ---- .. -~
273 N.W.2d 456,404 Mich- 661, Federal Nat. Mortg. Ass'n v. Wingate, (Mich. 1979) Page:!
affect -amount" of bond since payment of bond must. be lII011:gagee's foreclosure on BUD l1llJ1'tgages. Detroit
secured before stay, and thus role's separate treatment of Common Pleas Court Rules, role 46.11; OCR 754.1 0(3);
amount and conditions provided no authority for extending National Housing Act, Sec. 235 et seq.. 12 U.S.C.A. Sec.
appeal bonds required of moctgagoa to iDclude past due 1715% et seq.
mortgage payments in bond. Detroit Common Pleas Court
Rules, role 46.1 1(c); DCR 754.10(3); OCR 1963, -458 [404 Mich. 667] David R. Haarz, Hoops &.
701.8(a)(2); GCRI963, 701.7(3) (Repealed). Hudson, Detroit, for pl.aint.iff,.appellee.
5. APPEAL AND ERROR ~383 Conrad W. Smith, LandlOJd.Tenant Clinic. Detroit, for
30 - defendants-appellants.
30VlI Tnmsfer of Cause
30VII(C) Payment ofFees or Costs, and Bonds or wn..uAMS, Justice.
Other Securities
30k3S3 Conditions ofbood or ~ The underlying import of our decision today is to
Mich. 1979 detennine whether wodcing. people with few asse1ll are to
When appeIlanl: is unable to obtain surety and bond have access to the appellate process, or are to be precluded
must thereby be set on wreasonable condit:ions," "penalty" from appeal by requiring excessive appeal bands. These
provision of bond must be examined within context of cases, consolidated on appeal from the Landlord-Tenant
reasonability, this involves analysis of how much of a Division of the Common Pleas Court of Detroit
penalty is reasonable in light of appellaot's financial (hereinafter Landlord-Tenant Court), involve the attempts
circtmllltaDceS. Detroit Common Pleas Court Rules, role of two working mothers to remain in homes they were
46.1 1(c). purchasing pending appeal ofwhat they claim were invalid
foreclosures of their federally insured mortgages. This
6. MORTGAGES 48='574 Court granted leave to conaide:r whether- the detendants'
266 - appeal bonds, imposed to accomplish a stay in execution
266X Foreclosure by Action of writs of restitution, were properly set under the
266X(P) Review applicable court role. We find that they were not.
2661674 Taking and perfecting appeal or other
proceeding. The Commcn Pleas Court Rule 46.11 requires a bond
Mich. 1979 set on -reasonable conditions". While that term is not
In determining proper penalty to be assessed 83 part of defined in CPR 46.11, other sections ultimately lead as to
appeal bond for m~ors who were unable to obtain DCR 754.10(3), the only available source defining
surety, and whose financial circums1aDces were such that "reasonable conditions". DCR. 754.10(3) states in relevant
bonds sct. too far beyond requiremmt. equal to momhly part:
mortgage paymenlll as they became due during pendency
of appeal woutil preclude exercise of their right to appeal, "The reasonable condition (or a defendant-appellant
reasons for court's dete:rmination had to be given so that if shall be that he shall pay into the trial court within five
there was a fuIther appeal, proper decision could be made days of the date rent or payments are due under [404
in light of the whole record. Detroit Couunon Pleas Court Mich. 668) the lease or contract, a sum equal to the
Rules, role 46.1 1(c). reasonable rental value of the premises, as determined
by the court, as It becomes due after the time the
7. MORTGAGES ~574 appeal is tiled and clurin8 the pendency oftbe appeal. w
266 - (Emphasis added.)
266X Fareclosure by Action
266X(P) Review Became "reasonable conditions" only include amounts
2661674 Taking and perfecting appeal or other that become due After the time of the appeal, and because
proceeding appellants' bonds were set so as to include amoUD1s that
Moh. 1979 became due Prior to the time of the appeal, the bonds in
Although mortgagee's need for protection in case of this case were clearly not set on wreasonable conditions".
stay pending appeal was not questioned, appeal bonds, We therefore reveISe and remand to the trial court to set
which were set by the Landlord-Tenant Court after it bond in accordance with 1his opinion.
granted summa:ty judgment for possession to mortgagor,
and which were prohibitive considering mortgagors' I FACTS
financial circumstances, were excessive and unreasonable
under applicable court role in that they included amounts Defendant Carolyn Wingate, a working mother
owing prior to appeal and penalties unsupported by supporting her three children, bought her home in the city
statement of reasons, and precluded appeal of of Detroit an February' 2S, 1974. Absent a special
jurisprudentially significant issue concerning validity of program. Mrs. Wingate could not have made such a
--- 1«
273 N.W.2d456, 404 Mich. 661, Federa1Nat. MOltg- Ass'n v. Wmgate, (Mich. 1979) Pagel
-
purchase because she bad neither sufficimJt income nor fur a 38-moJJth period COIDlIl.eDCing December, 1973. She
asselll to ~ for a conventional mortgage. She was
able to effectuate the purchase of her own home
)brougb fedeal proems established by the Dqmtment 0
ODli
did not retum to work until February, 1977.
MIs. Brown's last mortgage payment wa made in

-
Housing and Urban DeveIEI (hereinafter HUD). See
section 235 Et seq. oiL ~ Housing A~ 12 U.S.C.
Febroary, 1976 and in June of that year, Continental
contacted a1tomeyI rocthe purpose of foreclosing on the
s 1715zEtseq. Brown m<:ll'tg88e. CD September 2, 1976, the Brown home
was sold at public sale. Again, FNMA was the highest
Punuant to these programs, Mn. Wingate executed a bidder and acquired a sheriffs deed to the property.
gwrteae= to ~ Mor1gage Corpomtion. which
m~'WlD8JSigned to Continental ~ On February 2, 1977, Continental, as servicing agent
C~ (liereiD8fter COIltiOO11t8l), ana
theI'e8flfIf for FNMA, caused a 30 day notice to be sent to Mrs.
assigned to Fedmd National Marte Asscciatioo Brown, and on March 15, 1977, summary proceedings
(hereir:raller FNMA). Under a caotmct with FNMA., ~ COLDIDenced. As in the casct of MIs. WiDgate, Mm.
Cont:iMntaI acted 81 the servicing agent for the Wmgatc Brown's affirmative defenses were disallowed and on April
mortgage. 29, 1977, a summary judgment was granted by the
LandlOId-TenaIJ1 Court in fuvor of plaintifl: FNMA..
MIs. Wingate was laid offby her employer November[
404 Mich. 669] 26, 1974, and was not oalled back to When :Mrs. Wmgate and Mrs. Brown both sought
woIi: UlItil June, 1976. She was, therefore, uoemployed appeal to the circuit court based on a disallowam:e of the
for a period of 18 months. Presumably as a result of 'this. same affirmative defenses, 1heir claims were consolidated
she fell slightly behind in her mortgage payments but was for purposes of judicial economy. Appellants sought to
able to become cummt as of April, 1975. However, her have their appeal bonds set at the amount of the monthly
ncca paymmL was not fortbcoming:until July 2. 19'75, and mortgage paymeot for eadl month beginning with May 2.
her last payment was made October 22, 1975. 1977, the date of the claim of appeal. However, on June
27, 1977, the Common Pleas judge denied their motion
*459 :Mrs. Wingate and Continental entered into a and ordered the bonds set as follows:
"forbearance agreement" which required the mortgagor to
make double payments for a period of three months. ~ 8) for Carolyn Wingate, 108 percent of the monthly
fu.ilure of the mortgagor to make further payments, FNMA, mortgage payment of $232, for each month since the
on March IS, 1976, hired a law firm to COIDIIIeDCe claim of appeal, pm six nwnths of back paynumt:&, to
foreclosure proceedings. be paid by the 5th of each month. The [404 Mieh. 671
] first payment due July 5 tlms included the nino
Pursuant to futec!.osulz, a public sale of the ~ months of November through July at $250.56 pee
was held on April 29. 1976, at which FNMA was the month, or $2,255.04 to be paid within a week.
hiaheat melder and acWred a sheriffs deed to the
L property.' b) for Mary Brown. 110 percent of the mon1:hly
mortgage payment of $194, for each month since the
On September 29, 1976, Continental, still 8cting as claim of appeal, plus two months of back payments, to
servicing agent for FNMA, caused a 30 day notice to quit be paid by the 5th of each:mooth. The first payment
to be sent to Mrs. Wingate. and on JlIIlUaIY 5, 1977, due July 5 1hus included 1he nine months of March
summary proceedIDgs were commenced in Landlord- July at $213.40 per month, or $1,067 to be paid within
Tenant Court. Mrs. Wmgat.e attempted to present a week (FN2) (Appellant's Appendix, pp. 8a-98)
affirmative defenses to the summary pr~ (PMl)
but these were ultimately disallowed and on April 21, *460 On July 1, 1977, defendants moved to reduce
1977 a summary judgment was granted in favor ofplaintiff the appeal bonds in the Wayne Cotmty Circuit Court on
FNMA. the grotmds that they were set in violation of com1 rules,
were clearly excessive, would deprive them of their right to
On November 31, 1973, M8Iy Jo Brown, a working an appeal, and would provide appellee with an
mother supporting two children, executed a mortgage unwanauted windfiill. (Appellants' Appendix, p. 52a) On
pursuant to the same HUD program involved in the Iuly 15, the W~ County circuit judge denied their
Wingate mortgage and was thereby able to purchase a motion.
home in the city ofDetroit. The mortgage was executed to
Centwy Mortgage Corporntion, subsequently assigned to On July 25, defeadaots filed an applix:ation for leaw to
Continental [404 Mich. 670] and finally assigned to appeal to the Court of Appeals which was denied on
FNMA. Mrs. Brown commenced mortgage payments on August I, 1977. (Appellant's Appendix, pp. 118, 15a)
January 24. 1974 and was cummt. on her mortgage as of
October, 1975, despite the iBct that she was laid off'work On August 8, 1977, application for leave to appeal was
Copyright (c) West Group 1999 No claim to original U. S. Govt. worb

FBlC +'\1177)897-4111 T1:I: Fa:: +1(877)897--4tH
273 N.W.2d 456,404 Mieh. 661, Federal Nat. Mortg. Ass'n v. Wingate, (Mich. 1979) Page 4
filed before this Comt. Application was gnmted October they are not mak:iDg it at all. Cases involve housing
25. 1977. with a subsequent clarification of the issue conditions that are not the most desirable. Consequently,
granted on January 19, 1978. In this final order, pursuant relations are often strained and not infrequently beyond
to appellees motion [404 :Mich. 6721 fur- oroer setting the breaking point. Many of the tenants do not tmdemand
bond pending appeal. the following order as to bond was their rights at all although some understand them too well.
handed down by this Court Sometimes landlords are in the same posture. It would be
difficult *461 to handle these cases with justice in the
•Appellant Wingate sball pay into the Common Pleas best of circumstances. But circumstances are far from the
Court. a sum. equal to the total of the fanner monthly best. The case load is incredible. The court facilities are
mortgage payments which would have been due on the just a little better than tolerable. Matters that can be
property since October 25, 1977. or $232.00, within avoided are avoided. This may be what generated "this case
seven days of the ent:ty of this order, plus $232.00 to but is not in issue here. Operation under such conditions
be paid by the 25th of eaclJ. subsequent month. until. obviously causes need for appeal from time to time.
the disposition of this appeal before this Court.
The underlying and real issue in this case. altbough not
•Appellant Brown shall pay into the Common Pleas directly before us, involves the Availability of invalidity of
Court. a sum equal to the total of the fOrxner montbly foreclosure as a defense .in Landlord-Tenant Court.
mortgage payments which would have been due on the Appellants' claim of invalidity is based upon plaintifl's
property since October 25,1977, or $194.00, within alleged noncompliance with rules promulgated by HUD,
5evaJ. days of the ent:ty of this order. plus $194.00 to which deal [404 Mich. 674] with the procedures a
be paid by the 25th of each subsequent month. until mortgagee should follow to avoid foreclOSl.l.re.
the disposition ofthis appeal before this Court.
The mortgages ~ appellee by these women are
"If either appe1larJt mils to make any timely bond fully insured by HOD. The "price" the ~ is
payments, the stay of proceedings shall be dissolved as supposed to pay for this 1000Al HOD guarnnty against loss
to that particular defendant only. However, if said of money is to seek flexIble means of assisting the
appellant shall pay the required bond payment late, but mortgagors to avoid. the loss of their homes. This is
before the execution of the writ of restitution, the stay pursuant to the purpose of s 235 of the National Housing
of proceedings shall be reimposed as to that: particular Act which is to provide a means through which the
appellant." 402 Mich. 854 (1978). purchase of a home would be possible for persons of low
to moderate income such as these defendants.
According to the records in this Court, neither ~----:>7>
appellant bas failed to comply with the order. To further the basic goals ofHUD, that agency issued
the HUn Thmdbook 4191.1, Admioimatioo. of Insured
n. ISSUE Homo Mortgages (April 1&, 1974), (FN3) subsequent
mortgagee letters, and [404 Mich. 675] recent federal
1.'he issue on which leave to appeal was granted is regulations. OJapter 8 of the Handbook deals with
limited to whether the appeal bonds, as set by the approved relief ~visions.
Common Pleas Court and affinned by the Wayne Circuit
Court, are reasonable within the meaning ofthe applicable ---;>jIo- "121. FORBEARANCE RELIEF. Mortgagees are
court roles, when they were set to include amoonts owing expected to make a concerted effort to avoid the
prior to the appeal and penalties. foreclosure or assignment of BUD insured mortgages,
and to utilize acceptable methods of forbearance relief:
[404 Mich. 6731 ill. BACKGROUND whereve£ feaiible. Forbearance is available in several
forms where it is reasonable for the mortgagee to
It is difficult to understand the full import of this case believe that the mortgagor can and will reStmle the
without a discussion of the cirCUl.lllltances which comprise mo~ payments. Any of the relief measures
both the background of this litigation and the affinnative discussed in this Chapter may be used and Mortgagees
defense sought to be presented by defendant» at the are expected to refrain from foceclosure where it is
Landlord-Ttmant Comt. detemrined that the case may be salvaged through the
use of one or more of these procedures.· (Emphasis
1.'he atmosphere of the Detroit Landlord-Tenant: Court added.)
where these cases originated does not encourage
deliberate, reasoned snd compassionate justice, although it. Specifi.cally, in the case of the borrowers
deals with one of the basic material essentials of life, a roof unemployment or lay-off which are situations in which the
over one's head Judges, litigants and court personnel are mortgagee could be reasonably certain that payments
harassed and depressed. In many cases both the landlords would resume .in the future, Chapter 8 of the BUD
and tenants are barely making it financially, and oftentimes Handbook 4191.1 provides for forebearanoe (s 123 of the
~(c) West Group 1999 No claim to original U.S. Govt. works

r.: +1{lIff,w1-4111
273 N.W.2d 456, 404Micb. 661, Federal Nat. Mortg. Asm v. Wingate, (Mich. 1979) Page 5
-
precluded their [404 Mich. 678) of a
-
Handbook), recasting (5 125 ofllie Handbook) or appeal
assignment of the mortgage to HUD (5 126 of the jurisprodentially significant issue. We agree under the
) Handbook). (FN4) filets of this case.
*462 Although appeUees assert that a "fUlebeanmce N. APPEAL BOND MONEY REQUIREMENTS
agreement" was unsuccessfully attempted in the Wmgate UNREASONABLE
case, as discussed in part I, that agreement required Mrs.
W1nga1e to make Double payments fix a tbreo-month [1] The right to appeal is not Iequired undeir common
period to bring her mortgage to a current status. Chapter g law principles or general notions of due process. It is
of the handbook clearly demonstrates that this is not generally legislatively granted and can be conditioned on
forebearance under mID standards. Sectiem 123 of tha! any reasonable bases. See, Note, The Right. to AppeaL 44
chapter states that forebearance aweements can last up to J Urban L 505-506 (1967). One of the conditions
18 months without pria HUn approval, and that ~ normally imposed is that: of an appeal bond to protect the
this period the regular mortpge [404 Mich. 676] payment . appellee during the pendency of the appeal. Note. Supra,
should be Reduced or Suspended. That section goes on to p. 509 citing Hanawv. Bailey, 83 Mich. 24, 46 N. W. 1039
assure th~ .mortgagee WhO enters into a forebearance (1890). However, to avoid the harsh effect the bond
agreement that "it will receive, as part of its insurance requirement can have em the poor, the majority of states
settIemeot, unpaid ~ interest, including all amouDts have enacted statutes wi1i.ch permit waiwr of the bead
accruod prior to the execution of the forebearance requirement in the case of indigency. Note, Supra, p. 510;
agreement * * * ". The flexibili1y demonstrated in the see OCR 1963, 701.8 and GCR 1963,120.
Hsndbook is apparently intended to avoid si.tuations such
as exist in the city of Detroit which bas an abundance of While in the instant case there is no contention that the
both boarded-up BUD houses and poor people who bond requirement should be fully waived (Appellant's
cannot find places to live. Brief; p. 19), appellants specifically assert that the appeal
bondB, under the m.cts of 1his C85e, were nat "reascmably
I Certain recent cases have held that failure to comply conditioned" as required by the court rule because they
with these rules could invalidate a foreclosure of a HUD- contained penalties and were set at amounts so as to
insunld 1IIDrtgag.e. Brown v. Lynn, 385 F.Supp. 986 include sums which became due prior to the appeal.
(N.D.ill., 1974), Reh. den. 392 F.Supp. 559 (N.D.m.,
1975); Federal National M~e Ass'n v. Ricks., 83 Appeals from the Landlord-Tenant Court in summary
Misc.2d 814, 372 N. Y.S.2d 485 (1975); and Government proceedings far possession are governed by MGt: s
National Mortgage Assln v. Screen. 85 Misc.2d 86, 379 600.5753; MSA s 27A.5753:
N.Y.S.2d 327 (1976). See, Contra, Roberts v. Cameron-
Brown Co., 556 F.2d 356 (CA 5, 1977); Hernandez v. "Any party aggrieved by the determination or judgment
Prudential Mortgage COIp., 553 F.2d 241 (CA 1, 1977). of the court under this cbaptm may appeal to the
;;- circuit court of the same county. The appeal shall be
While the availability of invalidity of foreclosure as 8 made in the same manner as an appeal in Other civil [
defense to SUllI111l1lY proceediIJ&v is DOt presently at issue 404 Mich. 679] actions from the same court, With
before this Court, and we do not conjecture as to what we bond and procedure as provided by court rules.'
would hold if it were at issue, we do note that defendanlB' (Emphasis added.)
present. posltion has some precedential support in this
state. (FN5) This [404 Mich. 677] is the precise issue "Other civil actions.. (and therefore this action) are
these defendants sought to raise in the fonn of an governed by CPR 46.11 (c), which reads.
affinnative defense to plaintifl'a claim for possession.
However, the Landlord-Tenant Court held that the •An appeal shall not stay the -issuance of 11 Writ of
invalidity of foreciooure could not be raised as 8 defense in Restitution and proceedings pursuant thereto. If a stay
sumnuuy proceedings for possession under MC.L. s ofproceedings is desired, a bond shall be filed with the
600.5714; MS.A. s 271\.5714, (FN6) the statute under Claim of Appeal. Said bond shall contain a penalty to
which this action W8ll brought (Appellant's Appendix, 7a), be fixed by the Judge who rendered the decision. If the
and a SU1l1IDllIY judgment was granted plaintiff Defendants trial judge has not determined a bond and is not serving
sought appeal to the circuit court and *463 sooght a stay at the time of the appeal, another judge of the
pending appeal to avoid eviction during the appellate Landlord-Tenant Division shall determine the
process. (FN7) Under these circumstances, plaintiff- reasonable bond. If the appellant is unable to obtain
appellee rightfully requested an appeal bond However, sureties or a cash deposit in lieu thereot;. he may have
appellants allege as the basis of this appeal that the bonds the bond withord mret:ies or cash deposit upon such
subsequently set by the Landlord-Tenant Comt were reasonable conditions as the cmut may determine. The
prohibitive considering appellants' financial circmnstances, band shall be conditioned that the defendant will
were exressiw and unroasonable under the court rule and forthwith pay all rent due or to become duo the
Copyright (c) West Group 1999 No claim to original U.S. Govt WmKs
[0: Fa: +1{811}1I97-4111
273 N.W.2d 456,404 Mich. 661, Federal Nat. Mortg. Ass'n v. Wingate, (Mich. 1979) Page 6
plaintiff fur the premises described in the complaint, or fur a defendant-appellcmt shall be that he shall pay into
the rental value thereof together with costB, if the the trial court within five days of tbb date rent or
plaintiffprevails.' (Emphasis added) payments are due Wlder the lease or contract:, a sum
equal to 1:lJa, reasonable rmtal value ofthe premises, as
[2) In the instant case, appellants filed affidavits stating determined by the court, as it becomes due after the
that they were unable to obtain sureties or make a cash time the appeal is filed and during the pendency of the
deposit in lieu thereof (FN8) These affidavim were appeal." (Emphasis added.)
accepted by the Landlord-Tenant Court, and the bonds
were set without sureties which, WIder the above court This definition of "reasonable conditions" makes clear
rule, requires bond *464 upon "reasonable couditions w• that a bond set on "Reasonable conditions", as required in
As stated Supnl, "the bond set by the court in each case WlIB the case of defendants who carmot obtain surety, Can only
as follows: appellant Wingate was to pay 108% Of the [ include amounts due after the time of appeal.
404 Mich. 680] monthly mortgage payment of$232.00 or
$250.56 foe each month. since the end of the redempI:iau This Jimitaticm in the court rule is supported by case
period ($2,255.04 through July of 1977), and appellaut law which holds that the scope of an appeal bond must
Brown was to pay 110% Of the monthly mortgage logically relate to its purpose or the right which the bond
payment of$194 or $213.40 for each month since the end is meant to protect This Court set forth the COlTeCt law in
of her redemption period ($1,067 through July, 1977). KeIUledy v. Nims, 52 Mich. 153, 156, 17 NW. 735, 736
Each was given five days to pay these sums into the court. (1883):
There is nothing in the Common Pleas Court Rules "The object of the bond is to save all the rights of the
which de/i:ne$ "reasonable conditions" but CPR. 39 directs appellee, without prejudice or diminution During the
that pendency of the appeal, and at the same time to
prevent frivolous, vex:arious and unnecessary appeals.
"m all matters not herein provided for, or not expressly It is not intended as an additional security for "the
prohibited or specified by statute, the Michigan Court original indebtedness of the delinquent party. but As
Rules shall govern." an indemnity to the appellee agaiDst further trouble.
expense and costs while the case is undergoing a review
However, the General Court Rules also fail to specifY in this Comt to ascertain whether or not error bas been
what "reasonable conditions" shall be. Instead. OCR committed or injustice done the appellant by the
1963, 754.9 requires the application of the District Court decree of "the court below. I do nat think that under
Rules. the findings in this case the surety in the appeal bond is
liable for any portion of the deficit in the mortgage
"In {Xoceedinw' under RJA Chapter 57, The ~ indebtedness.· (Emphasis added.)
in the district, municipal, and Common pleas courts
shall be governed by District Court Ru1e 754 together [404 Mich. 682] While in Kennedy the question being
with the applicable statutOI}' practice provisions and considered was Dot precisely that which we consider in the
applicable local court rules. Appeals to the circuit instant case, (FN9) this does not *465 alter the validity of
courts shall be governed by Rule 705. II this Court's clear statement regarding the scope of
protection of an appeal bond We fuWId the object to be
General Com1 Rule 705.9(a) did not define the saving of "all the rights ofthe appellee • • • during the
"reasonable conditions" but District Court Rule 754.10(3) pendency of the appeal '" * * as an indemnity 01< '" '" against
does: Furthertrouble -.
'Bond on Appeal. If the plaintiff appeals, the bond [3] In the instant ClIlle the only further trmIble which
shall be conditioned that, if defendant prevails, plaintiff might accrue to the appellee during the pendency of this
will pay the costs of the action. If the defendant appeal is the loss of payments which would become due
appeals, the bond shall be con.ditioned that, if plaintiff during that period. By setting bonds upon reasonable
prevails, defendant will pay the costs of the action and, conditions to prevent this loss, the lower court could have
if the suit is for possession fur non-payment of a sum of complied with both the spirit and letter of the law. To go
maney, that the defendant will pay the rental or further and require payments which became due Before an
contract[404 Mich. 681) amount found due. When it appeal was sought is not within the proper objective of
shall appear by affidavit· that appellant is W18ble to such a bond KeIUledy, supra. See also 4A C.J.S. Appeal
obtain sureties or make a cash deposit in lieu thereof, and Error s 500, p. 203.
appellant may have the bond without sureties or cash
deposit upon such reasonable condit.i.ons as may be V. APPELLEE'S CONTENTIONS
determined by the court.. If B judgment for possession
hall been entered tor ~ the Reasonable oondition [41 Appellees, however, cite this Court to fanner GCR
10:
273 N.W.2d 456,404 Mich. 661, Federal Nat. Mortg. Ass'n v. Wingate, (Mich. 1979)
Page 7 gf 13 Stiftdlly, JlInU8IY 38. 2000 8:.48 PM
Page'
-
1963, 701.7(3), in fine when this action was instituted,
and its amended version, 701.8(a)(2), effective July 25.
1fJ77. as authority for the inclusion of the past due amount
wJtbin the appeal bond The fiumcr rule provides in
secured prior to stay. so the third condition that "in cases
involving tho possession of land. be will pay damages from
the time of * * * demand for possession", cannot be so
iuterpn:ted. ~ the only logical interpmation is that
-
relevant part all three are to be *466 "promised" prior to the granting
ofa stay. (FNlO) Further, although the amended rule was
"Bond on Appeal; Stay of Proceed. Unless
exempted by law, the appellant shall file a bond with
not effective at the time the instant appeal bond was set,
we note it retains the same distinctions. (FNlI)
his claim of appeal, cross appeal. or order allowing
appeal. The bond on appeal [404 MiclL 685] Therefore, we find no authority in
these roles for extending the appeal bond 'in the instant
"(1 ) shall be in a penalty not less than $200 and except case beyond the limitations of its purpose, see Kennedy,
for appeals from probate court, if the appeal is [404 supra, and beyond an amount required as a "reasonable
Mich. 6831 by a person against wham a claim bas been condition". See CPR 46..11(c)andDCR 754.10(3).
asserted, it shall be not less than one and one-quarter
the amount of the judgment or claim allowed. • •• In VI. PENALTIES
judgments for possession of land, the bond shall be in
the amount and on the conditions provided for by [5] FiDally, appellants challenge the addition of a
statute. penalty in a case such as this where sureties cannot be
obtained. The penalty provision under CPR 46.11 (c) is
"(3) Shall contain a condition that "the appellant will additional protection against frivolous appeal and this is
prosecute his appeal with all due diligence. to a within the valid pmpose of an appeal bond under
decision in the circuit court, and that if a judgment is Kennedy, supra. The court rule states that a bond "Sba1I
~ ~ him in such court, he will pay the contain a penalty" (emphasis added). The same rule
amount of such jurlgment., including all costs, with subsequently states that if "the appellant is I.Ul8ble to
interest thereon, md if his appeal is discontinued or obtain sureties • * * he may have the bond * * * upon such
dismissed that he will pay the amount of the judgment reasonable conditions as the court may determine". The
rendered against him, if any. in the lower court use of the word "shall" in regard to the penalty provision
including all costs, with interest thereon and In cases leaves no option other than to find a penalty mandatoxy.
involving the possession of land, he will pay damages However, the subsequent "reasonable condition"
from the time of1he forcible entry, or detainer, or "the requirement must also be given effect
notice to quit. or demand for possession as the case
may be, and do any other act which shall be expressly [404 Mich. 686] Therefore, when the appellant is
named in th8 staI:ll1e authorizing appeal as a condition unable to obtain a surety and the bond must thereby be set
ofthe appeal bond;w (Emphasis added.) on "reasonable conditions", tho "penalty" provision must
be examined within the context of reasonability. This
It is apparent that this court rule treats "amount" and involves an analysis of how much of a penalty is
"conditions" as separate. Specifically, in relation to reasonable in light of appellants' financial circumstances.
"judgments for possession of land", the rule states "the
bond shall be In the amount and On the conditions [6] Because of the availability of a complete record in
provided for by statlII:e". The "amount" ofthe bond is fully the instant case. we Dote the fufiowing evidence of
covered in subrule (1). Supra. The "conditions" are fully relevance to this determination. The appellants' financial
covered in subrule (3). While in the instant case only the circumsta:nces are such that bonds set too far beyond a
"amount" of the bond is at issue, plaintiff-appeUee asserts requirement equal to the monthly mortgage payment as it
that one of the "conditions" authorizes setting the bond at becomes due during the pendency of the appeal would
a greater "amount". We do not see the logic of this literally preclude exercise of the right to appeal in the
assertion. instant case. From appeUant Wingate's *467 affidavit
that she was unable to obtain surety or make cash deposit,
In subrule (3). Supra. the "conditions" under which the it was evident that she had three children. a take-home pay
bond is to be given are by their very language meant to be of$169.67 per week, child support totaling $37 per week,
promises or assurances to be made by appellant 'in personal savings and belongings totaling approximately
conjunction with a bond to stay proceeding1l. The fitst $125. medical debts of approximately $2,000 and a family
requirement is that [404 Mich. 684] "appellant will who was unable to assist her financially.
prosecute his appeal with all due diligence • • • " and the
second is that "if a judgment is rendered against him * * * Appellant Brown's affidavit evidenced that she had two
he will pay the amount of such judgment". Just as these children, a take-home pay of $220 per week, had no debts
cannot possibly be inteJpreted to impact the "amount" of but also had no additional sources of income sucll as child
the bond under subrule (l), the payment of which must be support, had personal belongings and savings totaling less
Fax: .,(V( fJllli'f.....ll 1 To: Fmc: .1{811jW7.....1" Page 8 of 13 SUndtlY. JwtUery 3lJ. 2OIJO 8:<Ill PM
273 N.W.2d 456, 4{)4 Micb. 661, Federal Nat. Mortg. Ass'n v. Wingate, (Mich. 1979) Page 8
than $100 and a fimIily who was unable to assist her Association (FNMA) on :March 28. 1974. Pursuant to its
financially. agreement with plaintifl; Continenta1a.cted as the servicing
agent for the mortgage.
This ana1y.;is does not disclose to us any no.ason fur the
amount of the penalty and the court. in assessing it, gave Defendant Wingate made her first payment on the
none. Therefore, on remand, when the trial court mortgage on April 5, 1974, and remained current until
determines the proper penalty to be assessed, the reasons September 4. 1974, when she was notified by Continental
for doing so should be given so if there is further appeal, a that her September mortgage check had been returned by
proper decision can be made in light ofthe whole record. the bank for insufficient fimds. Mrs. Wingate remained
between two and four months in defuult until April 1975,
[404 Mich. 687} vrr. CONCLUSION when she again became current. However. MIs. Wingate
made only two more payments on the mortgage. one in
[7] We do not question the need to protect the rights of July 1975 and another in October 1975. During this
an appellee in the caae of a stay pending appeal. period Continental made D1lIIlerOUS attempts to contact
Appellee's rights and interests are considerable and are Mrs. Wingate regarding the arrearage in mortgage
recognized in both the cotnt rules and case law of this payments. The parties eventually entered into a
jurisdiction. At the same time, thme is no authority far farebearance *468 agreement, but Mrs. Wingate failed to
going further and hindering the right to stay pending follow the liquidation plan in the agreement which would
appeal by forcing appellant to give more than is required to have brought her up to date in her mortgage payments.
protect appellee's rights.
On Aprill, 1976, at which time she was more than
Reverse and remand for entry of an appeal bond nine months in defimlt in her mortgage payments. Mrs.
consistent with the finding! in this opinion. Wmgate was sent a certified letter advising her of the
commencement of foreclosure proceedings. On April 29,
KAVANAGH. c. J., and WlLLIAMS, MOODY, 1976. a public foreclosure[ 404 Mich. 689] sale by
LEVIN and COLEMAN, JI, concur. advertisement was held, and plaintifJ;, being the highest
bidder, received a sherifrs deed. Mrs. Wingate was sent a .
FITZGERALD, Justice (dissenting). 3O-day notice to quit on September 29,1976. and shortly
thereafter she applied to HUD for an acceptance of
These cases, which were consolidated far ptuposes of assignment of a mortgage in defimlt. On January 5. 1977,
appeal to Wayne Circuit Court, involve the foreclosure of having received notification that Mrs. Wingate's
two mortgages subsidized and insured by the Department application for acceptance of assigmnent had been
of Housing and Urban Development. Swmnmy rejected, plaintiff commenced summary proceedings for
proceedings for possession of premises were commenced posses$ion of premises. On April 21, 1977, the common
by plaintiff against both defendants in the Landlord- pleas court granted plaintiffs motion far summary
Tenant Division of the Common Pleas Court of Detroit at judgment
separate dates, and in each case plaintiff was granted its
motion for summary judgment. Defendants both filed a Defendant M:ary Brown entered into a mortgage
claim of appeal in common pleas court. Defendants also agreement with CentUIy on November 30, 1973. This
moved to have the bond on appeal set in order to stay the mortgage was also insured and subsidized by HUD and,
execution of writs of restitution. The issue before this like the Wingate mortgage, the Brown mortgage was
Court has been limited to the question of whether the recorded and assigned to Continental and thereafter
appeal bond, as set in each case by the common pleas assigned to plaintiff FNMA, with Continental acting as
court and affirmed by the circuit cotut, was "reasonable" servicing agent
within the meaning of the applicable court rules. We
affirm the bonds as set. Defendant Brown made her first mortgage payment on
January 24, 1974. During the next two years she was in
[404 Mich. 688] 1 FACTS default on her mortgage payments not less than five times.
In Februmy 1976, defendant Brown made her last
On Februmy 28, 1974, defendant Carolyn Wingate payment, which brought her up to date through October
entered -into a mortgage agreement with Centmy Mortgage 1975. Mn. Brown and Continental entered a forebearnnce
Corporation (Century), The mortgage was subsidized and agreement on March IS, 1976, but no further mortgage
insured by the Department of Housing and Urban payments were made.
Development. (BUD) pursuant to the national housing act.
12 U.S.C. s 1715z Et seq. After the mortgage was On .hme 17, 1976, a certified letter was sent to
recorded, it was assigned to Continental Acceptance defendant Brown advising her of the commencement of
Corporation (Continental) on Februmy 28. 1974, and foreclosure proceeding<t_ A public foreclosure sale by
thereafter assigned to plaintiff Federal National Mortgage advertisement was held on September 2, 1976, and
To: 'Fill(: +1{811l8S1-4111
273 N.W.2d 456,404 Mich. 661, Federal Nat. Mortg. Ass'n v. Wingate, (Mich. 1979)
Page 9 of 13S1.tnfty. JanUIllY 30. 2OGIHI:46 PM
Page 9
-
circuit court of the same county. The appeal shall be
-
plaintiff; beiog the highest bidder, teeeived a sherifl's deed.
On Februmy 1, 1977, defendant Brown was sent a 3Q-day made in the same manner as an appeal in other civil
notice to quit by certified mail Summary proceeding! for actions from the same court, with bond and procedure
possession of premises wenl commenced on MaIrll 15, [ as provided by court rules. "
404 Mich. 690] 1977. The common pleas court granted
plaint:ifrs motion for surnrtI81Y judgment on April 29, The applicable court role to summmy proceedings in
1977. common pleas coUItis CPR 46. CPR 46.11(c) pertains to
the filing of an appeal bond to stay the issuance of a writ
Both defendants Wingate and Brown filed claims of ofrestitution:
appeal, at which time their cases were consolidated.
Defendants then moved to set the appeal bond in order to •An appeal shall not stay the issuance of a Writ of
stay the issuance of writs of restitution and filed affidavits Restitution and proceedings pursuant thereto. If a stay
that they were unable to obtain Sl.U"eties or make a cash of proceedings is desired, a bond shall be filed with the
deposit in lieu thereof On June 2'7, 1977, the common Claim of Appeal Said bond shall con1ain a pewiliy to
pleas court set bond on appeal. Defendant Wingate was be fixed by the judge who rendered the decision. Ifthe
ordered to pay 108% Of the monthly mortgage payment of trial judge has not determined a bond and is not serving
$232 for each month since the expiration of the at the time of the appeal, another judge of the
redemption period (October 29, 1976) to be paid as Landlord-Tenant Division shall detennine the
follows: $2,255.04 to be paid by July 5, 1977 (the reasonable bond. If the appellant is unable to obtain
payments for November 1976 through July 1977 at Sl.U"eties or [404 Mien 692] make a cash deposit in lieu
$250.56 per month), ptos $250.56 to be paid by 1be first thereat: he may have 1be bond without: sureties or cash
day of each subsequent month. Defendant Brown was deposit upon such reasonable conditions as the court
ordered to pay 110% Of the monthly mortgage payment of may determine. The bond shall be conditioned that the
$194 ror each month sm the expimtion of the defundant will furthwith pay all nmt due or to become
redemption period (March 2, 1977) to be paid as follows: due the plaintiff for the premises described in the
$1,067 to be paid by July 5, 1977 (the payments for March complaint, or the rental value thereof together with
1977 through July 1977 at $213.40 per month), plus costs, if the plaintiff prevails."
$213.40 to be paid by the first day of each subsequent
month. Defendants contend that the sentence in CPR 46.11 (c)
in regard to penalties cannot apply to appeal bonds
On July I, 1977, defendants tiled a motion in circuit without sureties because such bonds must be set upon
court to amend the order of the common pleas court "reasonable conditions" and it would be patently
setting bond on appeal, on the basis that the appeal bond unreasonable for such a bond to contain a penalty. Hence,
was set in violation of the court rules and was excessive. argue defendants, the 1ria1 court was in violation of CPR
On July 22, the circuit court denied defendanlll' motion to 46.11(c) in fixing a penalty ofSO,4 In the Wmgate case and
amend the order setting bond on appeal. On August I, fixing a penalty of! oe;. In the Brown case.
1977, the Court of Appeals denied defendants' application
for leave to appeal the circuit com order ofJuly 22, 1977. Defenebmts cite no authority to support this
This Court granted defendants' application for leave to interpretation of CPR 46.11 (c), nor do we find support for
appeal and defendants' motion for stay of proceedings on such an interpretation in the language of the rule itself.
October 25, [404 Mich. 691] 1977. 401 Mich. 83Q (1977). The sentence in CPR 46.11 (c) in regard to penalties speaks
On January 19, 1978, this Comt granted plaintiffs motion of bonds in general and makes no reference as to whether
for clarification of the order granting leave to appeal and such bonds are with or without sureties or a cash deposit.
limited the issue on appeal to the question of the Indeed, the court rule clearly leaves it to the trial court's
reasonableness ofthe appeal bond. 402 Mich. 854 (1978). discretion to detennme the "reasonable conditions" upon
which an appeal bond without sureties or cash deposit may
* 469 II. ISSUE be set.
Defendants argue that the appeal bond set by the Defendants also assert that the trial court violated CPR
conunon pleas court in each case was excessive and in 46.11 (c) by requiring defendants to make back payments
clear violation ofapplicable ooort roles. back to the date of the expiration of the Tedemption period
when plaintiff' had the right to possession of premises.
Appeals from common pleas com in summary Defendants argue that the trial court should have set the
proeeedingos for possession of plemDes are governed by appeal bonds at the amount of the monthly mortgage
M.C.L. s 600.5753; MS.A. S 27A5753, which provides: payments for each month, beginning May 2, 19"/7, when
each defendant filed claim of appeal. Defendants rely on
"Any par1y apgiwed by the determination or judgment Kennedyv. Nims, 52 Mien 153, [404Mich 693J I1N.W.
of the court under this chapter may appeal to the 735 (1883), for the proposition that the purpose of an
Copyright (c) West Group 1999 No claim to original U.S. Govt. wolks
't'1IlC ""\0" 1'R'1"" , 1 10:
273 N.W.2d 456,404 Mich. 661, Federal Nat. Mortg. Ass'n v. Wingate. (Mich. 1979) Page 10
appeal bond is to protect the appellee only against those amoUllt of such judgment, including all costs, with
losses which might accrue during the pendency of appeal interest thereon, and if his appeal. is discontinued or
In Kennedy, this court said: dismissed that he will pay the amomrt of the judgment
rendered against him, if any, in 1M lower court
"The object of the bond is to save all the rights of the including all costs, with interest thereon and In cases
appellee, without prejudice or diminution dwing the involving the possession of land, he will pay damages
pendency of the appeal, and at the same time to from. the time of the forcible entry, or detainer, or the
prevent frivolous, vexatious, and lUWecessmy appeals. notice to quit, or demand for possession as the case
It is not intended as an additional security for the may be, and do any other act which shall be expressly
original indebtedness of the delinquent party, but as an named in the statute authorizing appeal as a condition
indenmi.ty to the appellee against further trouble, ofthe appeal bond;· (emphasis added).
expense and com while the case is undergoing a review
. in this court to ascertain whether or not error has been GCR 1963, 7OJ has been amended, and, effective July
connnitted or injustice done the appellant by the 25, 1977, 701.7(3) was replaced by 701.&(aX2) which
decree of the court below. I do not think that under provides in pertinent part as follows:
the findings in this case the surety in the appeal bond is
liable for any portion of the deficit *470 in the [404 Mich. 695] "Unless a bond is waived under OCR
mortgage indebtedness." 52 Mien 153, 156, 17 NW. 1963, 120 or the appellant is exempted by law from
735,736. filing a bond, the appellant shall file a bond with the
claim of appeal, claim of cross appeal, or order
While the purpose of an appeal bond was weD stated granting leave to appeal. The appeal bond most:
by the Kennedy court, we find that the filcts in that case
are clearly distinguishable from those in the instant case. "(C) contain a condition that
In Kennedy, pla:int.ift; upon prevailing on appeal from a
decree in a foreclosure suit, sought to satisfy and "(iii) in a case involving the possession of land, he will
deficiency of the mortgage sale by bringing an action on pay damages from the time of forcible entry, the
the appeal bond. This Court. held that the sureties were detainer~ the notice to quit, or the demand for
liable only for the costs on appeal and not to make up the possession * * *."
deficiency of the mortgage sale. In the instant case, the
only issue was whether plaintiffhad the right to possession Defendants also maintain that "reasonable conditions"
ofpremises at the expiration ofthe redemption period. are not adequately de£ned by CPR 46.11 (c) and urge this
Court to cODllult DCR 754 pertaining to summary
Defendants misinterpret Kennedy when they argue that proceedings to recover possession of premises. Appeal
that case requires only the protection of those rights which bonds in summary proceedings are governed by OCR
might accrue during the pendency of the appeal. The 754.1 0(3), which provides in pertinent part as follows:
Kennedy case speaks of saving "all the rights of the
appellee" whenever [404 Mieb. 694} those rights were "When it shall appear by affidavit that appellant is
acquired. In the instant case, plaintiff acquired the right of tmable to obtain sureties or make a cash deposit in lieu
possession of premises, or the fair rental value thereot: at thereat appellant may have the bond without sureties
the expiration of the redemption period. Hence, the or cash deposit upon such reasonable conditions as
common pleas court fixed the appeal bond in each case at may be determined by the court. If a judgment for
the amount of the monthly mortgage payments for each possession has been entered for plaintif( the
month beginning at the end ofredemption period. reasonable condition for a defendant-appellant shall be
that be shall pay into the trial court within five days of
Further support for the propriety of setting defendants' the date rent or payments *471. are due under the
appeal bonds to include back payments to the expiration lease or contract, a sum equal to the reasonable rental
of the redemption period. may be fotmd in. OCR 1963, 70t, value of the premises, as determined by the court, as it
which pertains to appeals to circuit comt. Fonner OCR becomes due after the time the appeal is filed and
1963, 701.7(3) provided in pertinent part as follows: during the pendency ofthe appeal."
"Unless exempted by law, the appellant shall file a Defendants rely on the last sentence ofDCR 754.10(3)
bond with his claim of appeal, cross appeal, or order as authority for their argument that their appeal bonds
allowing appeal. The bond on appeal should have only included payments "due after the time
ilia appeal is tiled". We find def.en.dants' argument with
(3) shall contain a condition that the appellant will regard to the applicability£404 Mich. 696] of OCR
prosecute his appeal with all due diligence, to a 754.10(3) unpersuasive. Each court is obligated to follow
decision in the circuit coutt, and that if a judgment is its own court rules, and the procedure in COIll111OO pleas
rendered against him in such court, he will pay the court for fixing bond in summary proceedings for
1"0: r.: +1{t1f1}W7--41H
273 N.W. 2d 456, 404 Mich. 661, Federal Nat Mortg. Ass'n v. Wingate, (Mich. 1979) Page 11
-
possession of premises is governed by CPR 46.11 {C).
Defendants. in their Motion to Stay All Proceedings
Since we find that the appeal bonds were set in Pending Decision on Applicatioo for Leave to Appeal
accordance with the applicable court rules, we ~ fdced to this Court, do not dispute this fuct, but state,
with the question of whether or not the trial com abused
its discretion in setting defendants' appeal bonds. "(T)hese time periods are equivalent to the length of
Appel1JJte review of a trial court's exercise of judicial time it has taken these proceedingfl to reach the present
discretion has been narrowly limited by this Court In stage, and do not reflect any willful or negligent refusal
Spalding v. Spalding, 355 Mich. 382, 94 N.W.2d 8]0 by the Defendants to make payments. Indeed, during
(1959), we said: the bulk of these time periods, Plaintiff would not
accept any payment less than the complete outstanding
"The term discretion itself involves the idea of choice, mortgage value, in violation of the HOD regulations
of an ex:ercise of the will, of a determination made which form the basis for Defendants' affinnative
between competing considca:a1ions. In ord=" to have an defimses.."
'abuse' in reaching such detennination, the result must
be so palpably and grossly violative of fact and logic FN3. Chapter 9 of the Handbook, wbich deals with
that it evidences not the exercise of will but perversity acquisition of the property by the mortgagee, states:
of will, not the exercise of judgment but defiance
thereot: not the exercise of reason but rather of passion "14]. ACQUISlTION-GENERAL. When the
or bias." 355 Mich. 382, 384-385, 94 N.W.2d 8] 0, 81] mortgagor either cannot or will not resume and
complete the mortgage payments, the mortgagee shall
take steps to acquire the property. In cases where the
In the instant case, there were a number of factors to be default is caused by a hardship beyond the mortgagor's
taken into acoouot by the trial court in setting the appeal control, this decision shall be made only after aU of the
bond According to the affidavits filed in the common relief measures descnbed in Chapter 8 have been
pleas court, defendant Wingate had an after-tax income of considered, and the mortgagee has determined that
$8,822.84 per year arn:l received $1,924 in child support IlOJle of them is likely to be effective in making it
per year. Defendant Brown had an after-tax income of possible for the mortgagor to retain the property. Once
$11,440 per year. At the time the trial court fixed the the decision has been made, however, such action shall
appeal bands, defendant Wingate had not made a mortgage not be delayed." (Emphasis added)
payment in more than 21 months and defendant Brown
had not made a mortgage payment in more than 17 See also Ch. 7, s 110 of the Handbook:
months. F~, one of the primaIy objects of an appeal
bond is to prevem frivolous appeals. We cannot believe "REVIEW PRIOR TO BEGINNING FORECLOSURE
that that end [404 Mich. 697J would be well served by ACTION. Foreclosure of a mortgage shall be
merely requiring defendants to resume making their Wldertaken only after the mortgagee or servic:er has
monthly mortgage payments as of the date they filed claim assured itself that the case has been handled in full
of appeal, after having lived rent free for 21 and 17 months accordance with the servicing practices outlined herein.
respectively. When foreclosure is unavoidable, it shall be started
promptly and pursued diligently in order to minimize
Based on the standard set forth in Spalding, we the eventual loss."
perceive no abuse of discretion by the trial court in setting
defendants' appeal bond. andCh.9,sI44,
Affinned. "FORECLOSURE. Foreclosure is a last resort and

shall not be initiated until all other servicing actions
RYAN 1., concurs. have been exhausted !IUD does not prescribe the
method of foreclosure to be used by the mortgagee.
FNI. See part III, Infra, for a discussion of defendants' The mortgagee is responsible for conveying good
affirmative defenses. merchantable title to the property and for furnishing
satisfactmy title evidence when the property is
FN2. In concluding his opinion in the instant case, Justice conveyed to the Secretary, and the method of
F~era1d points out, foreclosure is a concomitant to meeting this
responsibility. Foreclosures shall be completed in
"At the time the trial court fixed the appeal bonds, accordance with local sl:atlltes and prevailing practices
defendant Wmgate had not made a mortgage payment in the area in which the property is located.•
in more than 21 months and defendant Brown had not
made a mortgage payment in more than 17 months."
Cop)Tigbt (c) West Group 1999 No claim to original U.S. Govt. works
t"BlC +1{tlffjWf--4111 to: fmc: +1l.U11)891-4t11 Page 120f 13 Sl.tftay, JtlnulllY 30, 2lJOO 8l<48 PM
273 N.W.2d 456,404 Mieb. 661, Federal Nat. Mortg. Ass'n v. Wingate, (Mich. 1979) FageU
by aHUD directive of October 14,1916, subsequent to

the public sales of these defendants' homes. The newer FN7. Appeal is useless to these defendants. without a stay
directive elaborates upon the assignment procedure. because all incentive to appeal would be gone if they
See lIM Mortgagee Lettec 76-9, Acceptaw.::e of ~ fDrced to weare their horntls.
Assignment of Home Mortgages in Defiwlt (No
N-76-653, May 17,1976). FN8. During oral arguments in the instant case, defendants'
attorney was questioned about why bonds were not
FN5. The proper issue in Landlord-Tenant Court is right to available to these women, both of whom were
possession and the few Michigan cases on point employed at the time. The attorney stated that in his
support the position that validity of foreclosure is to be experience, "(s)urety companies will not insure bonds
considered. In Gage v. Sanborn, 106 Micb. 269, 279, for people coming out of S1.DlIII1lIIY proceedings on
64 NW. 32, 35 (1895), this Court held: appeal·. He explained that generally the defendants
represented by the Landlord-Tenant Clinic of which he
"The questions to be tried befin the ~ is dir~ have no assets and that these defendanD do
under this statute (for summary proceedings) in a not even own automobiles.
foreclosure case are: (1) the faet of the mortgage sale
and Its validity ; (2) the holding over after expiration of FN9. The issue in Kmmedy was whether the sureties on an
the period of redemption. If these questions cannot be appeal bond were liable for anything beyond the costs
tried by the commissioner the statute is farcical, as ofthe appeal.
jurisdiction would always be lost as soon as a plausible
claim of invalidity ofthe sale should be raised Hence FN10. Because appeliatml were apparently not asked to
a mortgagor is permitted to question the validity of the comply with the "conditions" aspect of the court role,
sale in this proceeding • * *." (Emphasis added.) the propriety of requiring as a prerequisite to appeal
bond. a promise that appellants will pay a prior sum of
The language of the statute in Gage is very similar to money which was not requested in plaintiffs suit (this
RJA, s 5714(lXe) quoted in part in footnote 6, Infra. suit under M.C.t. s 6OO.5714(1)(e); MSA s
See also Reid v. Rylander, 270 Mich. 263,267,258 27A.5714(1)(e), is solely for possession) and for which
N.W. 630, 631 (1935) ("We again hold that validity of there is, therefore, no judgment against appellants, is
the (foreclosure) sale may be tested in a summmy not before this Court. We again note the limitations set
proceeding based thereon, in so fiIr as invalidity thereof forth in Kennedy that the appeal bond is "an indenmity
appears in the procedure * * * .). See E. g., Guardian * * * against Further trouble". (Emphasis added.)
Depositors Cotp. v. Keller, 286 Mich. 403, 409, 282
N.W. 194 (1938). FNH. The amended court rule, GCR 1963, 701.8,
effective July 25, 1977, states:
This is not to say that noncompliance with mID rules
would necessarily be a sufficient basis for a finding of "Stay ofProceedi:ngs.
invalid foreclosure .in this state. This issue has not yet
received appellate review in Michigan. "(a) Civil Cases.
FN6. The st.a1:ut& reads in part relevant to these "(2) Unless a bond is waived under OCR 1963, 120 or
proceedings: the appellant is exempted by law from filing a bond,
the appellant shall file B. bond with the claim of appeal,
"(1) The person entitled to any premises may recover claim of cross appeal, or order granting leave to appeal.
possession thereof by Sl.IIlU1llDY proceedings in the The appeal bond I11USt
following cases:
"(A) be at least $200, and
"(e) When. a person continues in possession of any
premises wId by virtue of any mortgage or execution, "(i) except for an appeal from probate court, if the
after the time limited by law for redemption of the appeal is by a person against whom a money judgment
premises." has been entered, it must be not less than one and one--
quarter times the amotmt ofthe judgment; or
Although there is no specific mention of affinnative
defense within this statute, appellants assert part (e) "(ii) If the appeal is from a judgment for possession of
should properly be read as follO'Wll: land. it must be in the amount and on the conditions
provided by rule ;
"(e) When a person continues in possession of any
premises (validly) sold by virtue of any mortgage or "(B) recite the judgment so as to exbibit the names of
execution • ...... ". the parties and the judge, the character in which the
273 NW.2d 456,404 Mien 661, Federal Nat. Mortg. Ass'n v. Wmgate, (Mich. 1979) Page 13
parties prosecuted or defended befme the trial court. pay damages from the time of furcible entry, the
-
and the amount recovered; detainer, the notice to quit. or the demand for
possession; and
"(iv) he will perform any other act expressly named in

"(i) the appellant will diligently prosecute his appeal to the statute authorizing appeal; and
a decision, and if a judgment is rendered against: him,
he will pay the amount of the judgmeot, including costa
"(D) be executed by the appellant with one or more
and interest;
sufficient sureties as required by OCR 1963, 763."
"(li) if his appeal is discontinued or dismisw\, be will (Emphasis added.)
pay tho amount of the judgment, if any, rendered
against him in the trial court, including costs and As is apparent, (A). Supra, is the portion dealing with
interest; the "amount" of tho bond Part (C). Supra. deals with
conditions or promises and can only logically be
"(iii) In a case involving tho possession of land, he will interpreted in the same maIII1er as its predecessor.
Copyrigbt(c) West Group 1999 No claimto original u.s. Govt. works

--CC ADVISORY LETTER
. 2000-7
Jate: July 25, 2000
subject: Abusive Lendin9 practices
TO: chief Executive off,cers and compliance officers
of All National Banks, Department and Division Heads,
nd All Examining personnel
PURPOSE
This advisory is to alert you to abusive lending practices
that may involve violations of fair lending and other
consumer protection laws and regulations.
DISCUSSION
objective, fairly-applied subprime and risk-based lending
have been important tools in expanding access to credit.
by non-bank entities -- have come under intense scrutiny
recently. Most of these practices involve the setting of
prices, fees, and other terms and conditions in a manner
that drastically departs from those used by more
traditional and responsible prime and subprime lenders.
These practices may involve violations of fair lending
statutes and other consumer protection provisions. They
may also lead to increased credit, legal, and reputation
risk. For this reason, national banks and their direct
subsidiaries should review their direct and indirect
in activities that may be considered abusive or predatory,
and should take corrective action where needed.
~is advisory does not attempt to define what constitutes
busive or predatory lending, and many of the indicators
Jf such lending may not be readily available to examiners.
However, examiners should be alert for the following
indicatl0ns that an institution may be engaging in
abusive lending practices:
collateral or Equity "stripping" - loans made in reliance
on the liquidatlon value of the borrower's home or other
collateral, rather than the borrower's independent ability
to repay, with the possible or even intended result of
foreclosure or the need to refinance under duress;
pricing and terms, whether interest rates or fees, that
far exceed the true risk and cost of making the loan;
Targeting persons, such as the elderly, women, minorities,
and persons living in low- or moderate-income areas,
who are perceived to be less financially sophisticated or
otherwise vulnerable to abusive loan practices;
Inadequate disclosure of the true costs and risks of
loan transactions;
Lending practices that are fraudulent; coercive,
unfair, deceptive or otherwise illega ;
Loan terms and structures, such as negative
amortization, when designed to make it more difficult
or impossible for borrowers to reduce their indebtedness;
Aggressive marketing tactics that amount to deceptive
or coercive conduct;
padding/packing - charging customers unearned,
concealed or unwarranted fees;
"Balloon" payment loans that may conceal the true burden
of the loan financing and ma¥ force borrowers into costly
refinancing or foreclosure s1tuations;
Flipping - frequent and multiple refinancings, usually
of mortgage loans, requiring additional fees which strip
equity from the borrowerj and/or
collection of up-front s1ngle-premium credit insurance -
life, disability, or unemployment, when the consumer does
) not receive a net tangible financial benefit.
Repeated violations of certain consumer protection laws may
also be indications of abusive lending practices. These include
patterns of violations of the Truth in Lending Act. Real Estate
settlement procedures Act. the Home ownership and Equity
protection Act. the Federal Trade commission Act. and state
consumer protection laws.
In addition. the follo~ng practices may suggest the
potential for fair lending violations:
one-way referrals. i.e., a prime lender refers subprime
applicants to its subprime sUbsidiarY but the subprime
subsidiary does not refer prime appllcants to the prime lender;
significant differences in the proportion of minority or
female applicants between a prime lender and its
subprime subsidiary; or
significant differences in the proportion of loans
made in predominantly minority geographic areas between
a prime lender and its subprime subsidiary.
when examiners identify circumstances that may lead to a
conclusion that a bank is engaged in predatory lending.
they should inform both the supervisory office deputy
comptroller and the deputy comptroller for compliance
operations, who will determine the appropriate course
of action.
Information developed by examiners suggesting the possibility
of fair lending violations or other abusive lending practices
will be used to identify institutions presenting a higher
than normal risk of illegal discrimination. where appropriate.
these institutions will be targeted for examinations that
)will focus on the specific high risk activity .
. For further information. contact:
Ralph E. sharpe, Deputy comptroller for community and
consumer policy. at (202) 874-5216.
John D. Hawke, Jr.

comptroller of the currency
*For Release: *November 12,2003
*Fairbanks Capital Settles FTC and HUD Charges*
*/Agencies Allege Fairbanks Engaged in Illegal Practices in Servicing Subprime Loans; Defendants Will Pay
Over $40 Million for Consumer Refunds/*
The Federal Trade Commission today announced settlements with Fairbanks Capital Holding Corp., its
wholly-owned subsidiary Fairbanks Capital Corp., and their founder and former CEO, Thomas D. Basmajian
(collectively, Fairbanks). In separate settlements, the corporate defendants will pay $40 million in redress to
consumers, and defendant Basmajian will pay $400,000 in redress. In a complaint filed in federal district
court, the FTC charges Fairbanks with engaging in a variety of unfair, deceptive, and illegal practices in the
servicing of subprime mortgage loans. According to the FTC, the defendants, among other things, failed to
post consumers' mortgage payments \n a t\mely manner and charged consumers \llegallate fees and
other unauthorized fees. The settlements are contingent on approval by a federal district court in
Massachusetts, and the settlement with the corporate defendants will be coordinated with a related
settlement in a class action lawsuit. The case was jointly filed with the U. S. Department of Housing and
Urban Development (HUD).
"Consumers should be treated fairly and honestly in the servicing of their loans," said Timothy J. Muris,
Chairman of the FTC. "It is partiCUlarly important that the Commission stop unfair or deceptive practices in
this industry, because consumers have no choice about who services their home loans - and it can be
extremely difficult for subprime borrowers to avoid an abusive servicer by refinancing or paying off their
loans."
HUD Secretary Mel Martinez said, "Today's settlement makes clear that HUD and FTC are serious about
protecting consumers from those who would try to steal their American Dream.
The message we are sending is clear - those who seek to take advantage of unsuspecting homeowners will
be tracked down and /leld accountable.•
Subprime lending refers to the extension of credit to persons who are considered to be higher risk
oorrowers. Fa\rbanKS \S a 'fil'\al'\c\a\ services company spec\81\z\1'\g in the seN\C\ng 81'\d resolut\on of subplime
mortgage loans. Fairbanks does not originate loans, but collects and processes loan payments from
borrowers on behalf of the owner of the mortgage notes. Headquartered in Salt Lake City, Utah, Fairbanks is
one of the country's largest sesvicers of subprime mortgage loans. The FTC alleges that Fairbanks
engaged in a myriad of unfair, deceptive, and illegal practices in collecting and processing consumers' loan
payments.
*ALLEGED LAW VIOLATIONS·
The complaint charges Fairbanks with violating several federal laws, including the FTC Act, the Fair Debt
Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Real Estate Settlement
Procedures Act (RESPA) enforced by HUD.
*F1'C Act Violations*
The FTC alleges that, in servicing loans, Fairbanks frequently:
* failed to post consumers' mortgage payments in a timely and proper manner, and then charged consumers
late fees or additional interest for failing to make their payments "on time";
'to charged consumers for placing casualty insurance on their loans when insurance was already in place;
* assessed and collected improper or unwarranted fees, such as late fees, delinquency fees, attorneys' fees,
and other fees; and * misrepresented the amounts consumers owed.
-
*Fair Debt Collection Practices Act*
The complaint also alleges that Fairbanks violated several provisions of the FDCPA, in connection with
collecting loans that were in default when Fairbanks obtained them. Specifically, the FTC alleges that the
defendants falsely represented the character, amount, or legal status of consumers' debts; communicated or
threatened to communicate credit information which was known or which should have been known to be
ia\se, inc\uding the ia\\ure to communicate that a debt was disputed; used ia\se representations Of
deceptive means to collect or attempt to collect a debt, or to obtain information concerning a consumer;
collected amounts not authorized by the agreement or permitted by law; and failed to validate debts.
*Fair Credit Reporting Act *
The FTC alleges that the defendants furnished information about consumers' payment status to consumer
report"mg agencies when they knew or consc'lously avoided knowing that the information was inaccurate-.
Also, when consumers informed the defendants that they disputed the reported information, the
defendants did not report the dispute to the consumer reporting agencies.
*Real Estate Settlement Procedures Act*
RESPA is a federal statute that requires loan selVicers to respond to borrowers' written requests about their
loans and to make timely insurance and property tax payments on behalf of borrowers and otherwise
properly administer their escrow accounts. In the complaint, HUD alleges that the defendants failed to timely
and adequately acknowledge, investigate, and respond to borrowers' written requests for information about
the servicing of their loans and escrow accounts. HUD also alleges that the defendants failed to make timely
payments of escrow funds for insurance premiums and property taxes.
*"THE SETILEMENTS*
The settlements announced today resolve the Commission's and HUD's allegations. If approved, the
settlements will require the Fairbanks corporations to pay $40 million, and Basmajian to pay $400,000, to
the FTC to be used to compensate consumers who suffered harm from: (1) unauthorized late fees, (2) other
fees Fairbanks imposed on consumers it deemed in default, (3) unauthorized prepayment penalties, or (4)
other improper practices by Fairbanks related to consumer defaults.
The settlements also enjoin the defendants from future law violations and impose new restrictions on their
business practices. The settlements:
* require the defendants to accept partial payments from most consumers and to apply most consumers'
mortgage payments first to interest and principal;
* prohibit the defendants from force placing insurance when they know the consumer has insurance or fail to
take reasonable actions to determine whether the consumer has insurance;
... enjoin the defendants from charging unauthorized fees, and place limits on specific fees
* require the defendants to acknowledge, investigate, and resolve consumer disputes in a timely manner;
* require the defendants to provide timely billing information, including an itemization of fees charged;
* prohibit the defendants from taking any action toward foreclosure unless they have reviewed the
consumer's loan records to verify that the consumer failed to make three fun monthly payments, confirmed
that the consumer has not been the subject of any illegal practices, and investigated and resolved any
consumer disputes;
)
* prohibit the defendants from piling on tate fees in certain situations;
• prohibit the defendants from enforchig certain waiver provisions in forbearance agreements that
consumers had to sign to prevent foreclosure; and
.. prohibit ttle defendants from viorating ttle.FDCPA, ttle FCRA, and the RESPA.
To provide further remedial relietto consumers harmed by its practices, Fairbanks will correct certain open
accounts that may have been classified wrongly as delinquent, re-c1assify these accounts as current, and
report to any consumer reporting agency previously provided with information about the consumer's account
that the account is current and that the prior record at delinquency should be removed from the consumer's
report.
Today, the Commission filed the two settlements in U.S. District Court for the District of Massachusetts in
Boston for approvaL,The settlement with the corpQrate defendants wilt not become final untU the related
class action settlement is approved in final form by the Boston court. This process may take several months.
If the court approves it, affected consumers should receive a notice of the settlement in the mail that will
explain how they can participate in the redress program. The Commission's toll-free consumer hotline
regarding the settlement is 1-877-862-0886. Consumers who have changed their address recently may
provide updated contact information by calling the hotline. Consumers also can find information about the
settlement on the FTC's Web site at www.ftc.gov <http://www.ftc.gov>.Atthistime.itis not necessary for
consumers to take any action other than watching their mail for notice of the settlement.
"CONSUMER EDUCATfOW
Today, the Commission also has issued a consumer brochure, "Mortgage Servicing: Making Sure Your
Payments Count," to help consumers understand their rights. The brochure explains mortgage selVicers'
responsibilities, in particular under the RESPA enforced by HUD. The brochure urges consumers to
keep records of their payments, insurance coverage, and other information, and explains how consumers
can file disputes with their loan servicer. The brochure also includes sample letters that consumers may use
when filing a dispute with their lender/servicer or with a credit bureau. The brochure can be found at:
http://www.ftc.govlbcp/conline/pubs/homes/mortgserv.htm
The Commission vote authorizing the staff to file the complaint and two separate consent orders as to the
corporate defendants and Thomas Basmajian was 5-0. They were filed in the U.S. District Court for the
District of Massachusetts on November 12, 2003. The settlements require the court's approval.
·NOTE:* These consent orders are for settlement purposes only and do not constitute an admission by the
defendants of a law violation. Stipulated final jUdgments have the force of law when signed by the judge.
"'Copies" http://w........... ftc.gov/os/2003/11/index.htm#12

http://Tti'd'~l.ftc.gov/os/ 2 003/111 index. htm#12 of the complaint and the Consent Orders are
available from the FTC's Web site at http://wvJW . ftc. gov and also from the FTC's Consumer
Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works
for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to
provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free
information on any of 150 consumer topics, call toff-free, 1-877-FTC-HELP (1 877-382-4357), or use ttle
complaint form at http://www.ftc.gov The FTC enters Internet, telemarketing, identity theft, and other fraud-
related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil
and crimina\ law enforcement agencies in the U.S. and abroad.
*MEDIA CONTACT:·
Brenda Mack
/ Office of Public Affairsl
202-326-2182
-
*STAFF CONTACT:*
-
Joel Winston or Lucy Morris
/Bureau of Consumer Protectionl
202-326-3224
*HUD STAFF CONTACT:*
Brian Sullivan
I HUO Office of Public Affairsl
202-708-0685
(FTC File No. 032 3014)

(Civil Action No. not available at press time (Defendants Fairbanks Capital»
(Civil Action No. not available at press time (Defendant Basmajian»
http://www.ftc.gov/opa/2003/11/fairbanks.htm
This page is located on the U.S. Department of Housing and Urban Development's Homes and
Communities Web site at http://www.hud.gov:80/newslrelease.cfm?content=pr03-127.cfm.
News Release
*HUD No. 03-127

(202) 708~0685 x 7527
- www.hud.gov/news <http://www.hud.gov/news> *
*For Release
Wednesday
November 12, 2003*
HUD AND FTC ANNOUNCE RECORD RESPA SETILEMENT WITH FAIRBANKS CAPITAL FOR
ALLEGED ABUSES OF BORROWERS /$40 million fund will help compensate victims and prevent future
abuse/
WASHINGTON - Housing and Urban Development Secretary Mel Martinez and Federal Trade Commission
Chairman Timothy Muris today announced settlements with Utah-based Fairbanks Capital Corporation and
a former top executive of the Company for alleged violations of several federal laws that protect
consumers from unfair and deceptive trade practices as welf as illegal loan servicing activity.
Under the terms of the agreement, Fairbanks will establish a $40 million fund to compensate credit-impaired
vicUms, many of them low-income families, allegedly injured 'rJy Fairbanks' loan servicing practices. In
addition, former Fairbanks' Chief Executive Officer Thomas Basmajian will pay $400,000 into the victim
compensation fund.
A joint HUD-FTC investigation found Fairbanks violated the Real Estate Settlement Procedures Act
(RESPA), the Federal Trade Commission Act (FTCA), the Fair Credit Reporting Act (FCRA) and the Fair
Debt Collection Practice Act (FDCPA). Both agencies claim Fairbanks, under Basmajian's leadership,
engaged in a laundry nst of predatory loan servicing practices involving many of the Company's
approximately 500,000 customers nationwide.
"FairbanKs and its top executive engaged in a litany of practices that violated their obligation to adequately
serve hundreds of thousands of borrowers, many of them lower income families who were pushed to the
brink of foreclosure," said Martinez. "These settlements will go a long way toward compensating these
\/ic\\ms and prQtect.if\g others from beif\g preyoo upon in the future."
The Fairbanks' agreement announced today represents the largest civil money payment involving
allegations of RESPA violations. RESPA is a federal statute designed to prohibit kickbacks, referral fees and
other uneamed charges that artificially drive up the price consumers pay to buy or refinance their homes.
RESPA also protects consumers in the servicing of their loans and the administration oftfleir escrow
accounts.
HUD determined that FairbanKs and Basmajian violated RESPA in the following ways:
* Imposed late fees during the SO-day period from the effective date of the transfer of the mortgage loan;
* Failed to respond in a timely manner to consumer complaints;
* Failed to make timely written notification of any assignment, sale or transfer of servicing;
* Failed to protect consumers' credit ratings;
* Failed to mal<.e Umely payments from borrowers' escrow accounts which, in certain situaUons, caused
home insurance policies to lapse forcing new higher priced policies on the borrower; and,
* Failed to provide required annual itemized escrow statements to consumers.
Beyond the record $40 million compensation fund established by Fairbanks, HUD and FTC are requiring the
Company to adhere to stringent servicing and reporting standards that will protect current and future sub-
prime borrowers. These standards include requiring Fairbanks to promptly post borrowers' loan payments
and prohibit the Company from imposing ',mproper late fees and other charges. In addmon, Fairbanks is
required to comply with all statutory and regUlatory provisions of RESPA, FTCA, FCRA and FDCPA.
A federal district court in Massachusetts must approve the settlements.
For a more detailed description of the settlement agreements announced today, visit
bud. go,,! offices/h:o:q/ sIn/ res/ resetagr. cfro
Vl'N'N.
www.hud.gov/officeslhsg/sfh/res/resetagr.cfm
HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities,
creating affordable housing opportunities for low-income Americans, supporting the homeless, elderly,
people with disabilities and people living with AIDS. The Department also promotes economic and
community development as wen as enforces the nation's fair housing laws. More information about HUD and'
its programs is available on the Internet at www.hud.gov <http://www.hud.gov> .
*U.S. Department of Housing and Urban Development*

451 7th Street, S.W., Washington, DC 20410
Telephone: (202) 708-1112 TTY: (202) 708-1455
*$55 Million FTC And HUD Settlement With Fairbanks Capital Reported By PMI Group*
Iby Kenneth R. Harneyl
In what could be one of the largest and most complex legal settlements in h',story with an American
mortgage company, two federal agencies reportedly have reached an agreement with Fairbanks Capital
Corp. requiring at least $55 million in payouts and fines by the Utah-based servicer.
According to disclosures to shareholders by Fairbanks' majority owner, PMI Group Inc., the company has
agreed to settle complaints made by thousands of its loan servicing customers with the U.S. Department of
Housing and Urban Development and the Federal Trade Commission. Neither HUD nor the FTC would
provide details of the agreement when requested by Realty Times last Friday, but one source indicated a
formal federal announcement on the case may come by the middle of this week.
Sources familiar with the negotiations also suggested that in addition to a $40 million payout fund for
Fairbanks customers and $15 million to settle outstanding class action suits, the company would have to
follow a strict new set of guidelines on handling borrowers' loan accounts in the future.
-
Fairbanks is the country's largest servicer of subprime mortgages - home loans made to homebuyers with
imperfect credit. As detailed in Realty Times earlier this year (May 19
-
http://realtytimes.com/rtcpages/20030519_fairbankscapital.htm
http://realtytimes.com/rtcpages/20030519_fairbankscapital.htm, thousands of Fairbanks loan clients
nationwide have complained to federal and state authorities that the company:
# Routlnely falled to credit on-time payments, and treated them instead as late payments, producing rolling
delinquencies. # Pressured many borrowers into new, high-cost "force-placed" hazard insurance policies on
their properties even though the borrowers could document the existence of valid insurance coverage
already in place. # Squeezed legal and other fees out of borrowers threatened with needless
foreclosures caused by Fairbanks' own servicing policies.
The Federal Trade Commission and HUD both pursued investigaUons of the claims, urged in part by
complaints from congressional representatives. Hundreds of borrowers also filed class action suits, charging
"predatory" servicing practices. One class action in California alleged that customers often were forced to
pay thousands of dollars of extra money to Fairbanks as the only way to stop groundless foreclosure
proceedings.
After initially dismissing or belittling the claims against it, Fairbanks executives began to cooperate with
investigators. Ultimately the top leadership of the company was fired or replaced. Former president Bill
Garland said borrower complaints and lawsuits "come with the territory" - a reference to Fairbanks' position
as servicer of nearly 600,000 subprime home loans.
"We have litigation in this business," Garland said. "It is part of the business."
Garland noted that his portfolio contained an unusually high percentage of problem loans - 30% of his
borrowers were two or more monthly payments behind schedule, he said, and 45,000 were in the
foreclosure pipeline.
Sources familiar with the Fairbanks case say the federal agencies hope to make an example of the
company, and use the settlement as a model for "best practices" guidelines for the subprime servicing
industry as a whole. For example, the best practices guidelines might specify precisely how a company
shou\d handle borrowers when acquiring a loan servicing portfolio from another mortgage company. Many of
the complaints against Fairbanks appear to have arisen at the "hand-off" stage - after the firm acquired
large portfolios of mortgages from other companies, and apparently had difficulties communicating with and
jntegratjng the new borrowers jnto Fairbanks' own seIYjcing procedures.
/Published: November 10, 20031
<http://realtytimes.com/rtcpages/emailtofriend.htm?opendocument&ID=2003111 0_
settlement.htm>
<http://realtytimes.com/rtcpages/emailtofriend.htm?opendocument&ID=2003111 0_
settlement.htm>
<http://realtytimes.com/printrtpages/20031110_settlement.htm>
<http://realtytimes.com/printrtpages/20031110_settlement.htm>
<mallto:[email protected]?sub}ect=$55%20Ml\lion%2OFTC%20And%20H
UD%20Settlement%20With%20Fairbanks%20Capital%20Reported%2OBy%20PMI%20Group>
<mailto:[email protected]?subject=$55%20Million%20FTC%20And%20H
UD%20Settlement%20With%20Fairbanks%2OCapital%20Reported%20By%20PMI%20Group>
*fRelated Articles:{*
# Federal Government, States Investigate Fairbanks Capital's Treatment of Homeowers

<http://realtytimes.com/rtcpages/20030519_fairbankscapital.htm>
<http://realtytimes.com/rtcpages/20030519_fairbankscapital.htm>
# Boulware vs. Crossland Mortgage Corp.
<http://realtytimes.comlrtcpages/20020415_markups.htm>
</lttp:llrealtytimes.com/rtcpagesI20020415_markups./ltm>
# First Alliance Mortgage Settles "Predatory Lending" Charges For Up To $60
Million <http://realtytimes.comlrtcpages/20020322_firstalliance.htm>
<ht\p·.IJrealtytlmes.comJrtcpagesJ20020322_TIrsta\\iance.htm>
# Court Refuses to Throw Out National Consumer Class Action Suit Against
Freddie Mac <http://realtytimes.com/rtcpages/20030324_classaction.htm>
<http://realtytimes.com/Ttcpages/2003D324_classaction.htm>
# Class Action Suit Charges Freddie Mac Violated "Hundreds Of Thousands"
Fair Credit Rights
<http://realtytlmes.com/rtcpagest20021028_freddiesuit.htm>
<http://realtytimes.comlrtcpages/20021028_freddiesuit.htm>
# Justice Dept. and HUD In Three Private Suits Involving Settlement-Cost
"Markups" <http://realtytimes.com/rtcpages/20020916_markups.htm>
<http://realtytimes.com/rtcpages/20020916_markups.htm>
Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from
Washington, D.C. He is also managing director of the National Real Estate Development Center, a
professional education company. He is a past member of the Federal Reserve Board's Consumer
Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer
credit and banking industry regulation.
He served as a member of the U.S. Department of Housing and Urban Development's Working Group on
Computerized loan Origination (ClO) systems, and is a member of \l1e Editorial Board of \l1e Fannie Mae
Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real
estate.
Also see... www.msfraud.org http://www.msfraud.org

L.C1wyer rte~ponslDle ror raise uem l;OlleCtiOn l;lalm Page 1 of2
-
..,--. \
From the 'lectric law library's stacks

Lawyer Responsible For False
Debt Collection Claim
A unanimous u.s. Supreme Court [1995] upheld the plain language of the
Fai r Debt collection practices Act (FDCPA) and applied its proscriptions
to the litigation activities· of a collection lawyer. Heintz v. Jenkins,
_ U.. S. _ , 131 L. Ed. 2d 395, 63 U.. S .L.W. 4266 (April 18, 1995), The
staff of the Federal Trade commission and some trade groups had argued
that the Fair Debt collection practices Act applied to a lawyer's
dunning letters and phone calls but not to legal notices sent by a
lawyer or activities of a lawyer in connection with a collection
suit.see National consumer Law center, Fair Debt collection § 4.6.2
(Boston: 2d ed. 1991 & '94 sup-p.). [Note:
The FDCFA makes lawyers personally liable for FOCPA violations for the
consumer's actual damages, attorney's fees, and up to $1000 statutory
damages
Attorney Heintz had brought suit for a bank on the deficiency balance
remaining on a car loan after the car had been repossessed and sold.
That balance included a $4,173 charge allegedly for collateral
insurance. The bank's claim was alleged to violate the FDCPA by
including a charge for unauthorized loan default insurance rather than
the authorized collateral insurance. This would be a mi srepresentation
) of the amount of the debt violating the FDCPA, 15 U.S.C. § 1692e(2)(A).
Because the misrepresentation was made by the bank's lawyer. he could be
held personally liable.
Lawyers Regularly collecting consumer Debts Are subject To All of the
FDCPA'S provisions
The Heintz decision also makes it clear that lawyers who are covered by
the FOCPA are covered by all of its provisions prohibiti 0'9 not only
abusive but also deceptive and unfair debt collection actlvities. The
prohibition against deception requires more than liter-al truthfulness in
collection. I t prohibits lawyers from using truthful statements which
have a. capacity to misl ead an unsophi s1::i cated consumer. Nat; anal
consumer Law center, Fair Debt collection § 5.7.1 (Boston: 2d ed. 1991 &
1994 supp.) .. The detailed requirements of the FDCPA are dearly set out
in the statute for the most part, making: the statutory language an
excellent starting place for preparing for compliance. The more
general, broad standards prohibiting abuse, deception and unfair
practices require judicial gloss and some familiarity with the case law.
NCLC'S 987 page treatise on the FDCPA is the primary compilation of
FDCPA case law in an accessible form.
Other requi rements of the FDCFA apply to· lawyers who regularly collect
consumer debts. F()r example;.
it collection suits must be filed in the court in the county where the
consumer resides or si gned the contract or where real estate that is the
subject of the suit is located. 15 U.S.c. § 1692I.
* A collection suit may be threatened only when suit is authorized by
the creditor, and the attorney fully intends to file suit promptly. 15
U.S.C. § 1692e(lO). (unless another course of conduct is made clear in
any lawyer's collection letter, a lawyer's letter implicitly threatens
suit.)
* Telephone contacts to collect a consumer debt must be made between
8:00 a.m. and 9:00 p.m. 15 U.S.C. § 1692c(1).
Lawyer l"'(eSpOnSIOle Tor r-cmse ueo( vUIlt:l;UUII vlcum
* contacts with a consumer's employer are strictly limited to obtaining

the consumer's address. 15 U.S.C. §§ 1692b, 1692c(a)(1) , 1692c(c).
FDCPA Covers Regular collection of consumer Debts, Excludes creditors'
Inhouse counsel
Lawyers who re9ularly collect consumer debts for others must comply with
all the provislons of the FDCPA. 15 U.S.C. §§ 1692-16920. conversely,
collection of commercial or business debts are not covered by the FDCPA
and are not affected by this new ruling. while there is no bright line
test for when a lawyer is "regularly" collecting a consumer debts, the
threshold is passed when the collector is engaged in collection
activities on an occasional basis. see 131 congo Rec. H10534-H10S36
(daily ed .• Dec. 2, 1985) (remarks of Reps .. Annunzio and Hiler). See
also, National consumer· law center. Fair oebt collection §§. 4.2.2,.
4.2.6.3. (Boston: 2d ed 1991 & 1994 sUPP.).
Inhouse counsel of creditors are excluded from FOCPA coverage as long as
they make clear their corporate affiliation, e.g. using corporate
letterhead. 15 U.S.c. § 1692a(6)(A.). National Consumer Law center,
Fair Debt co,llection at §§ 4.2.3, 4.2.6.3, 4.3.L Corporate counsel who
use letterhead which creates the false impression that they are
independent of their employer violate the FDCPA by doing so. IS U.S.C.
§ 1692e(14). see rd. §§ 5.7.16, 5.7.5.
The supreme court's decision upheld the decision. of the court of Appeals
for the seventh Circuit and overruled the contrary decision Green v.
Hocking, 9 F.3d 18 (6th cir. 1993). Most courts that had considered the
issue' had rejected Green v. Hocking. see National Consumer law center,
Fair Debt collection Appdx § H.1.2.1.1 (Boston: 2d ed. 1991 & '94 supp.)
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-
SILVERGATE BANK
MoRTGAGE BANKING GROUP -
SILVERGATE BANK LOAN FRAUD
ZERO TOLERANCE STATEMENT
All approved Broker/Correspondents must be aware that they bear the responsibility for all
incidents of fraud for loans originated by their employees. The Broker/Correspondent Is
responsible for the content and quality of each application taken and each loan submitted to
Silvergate Banlc.
THE SUBMISSION OF A LOAN APPLICATION CONTAINING

FALSE INFORMATION IS A CRIMEI
Types of Loan Fraud
1. Submission of inaccurate information, including false statements on loan application(s) and

falsification of documents purporting to substantiate credit, employment, deposit and asset
information, personal information Including identity, ownership/non-ownership of real
property, etc.
2. Forgery of partially or predominantly accurate information.
3. Incorrect statements regarding current occupancy or intent to maintain minimum continuing

occupancy as stated in the security instrument
4. Lack of due diligence by Broker/Correspondent/loan officer/interviewer/processor, including

failure to obtain all information required by the application and failure to request further
information as dictated by Borrower's responses to other questions.
5. Unquestioned acceptance of information or documentation which is known, should be known,

or should be suspected to be inaccurate.
• Simultaneous or consecutive processing of multiple owner-occupied loans from one

applicant supplying different information on each application.
• Allowing an applicant or interested third-party to "assist with the processing of the loan."
6. Broker/Correspondent's non-disclosure of relevant information.
Consequences
The effects of Loan Fraud are costly to all parties involved. Silvergate Bank stands behind the
quality of its loan production. Fraudulent loans cannot be sold into the secondary market and, if
sold, will require repurchase by Silvergate Bank. Fraudulent loans damage our reputation with our
investors and mortgage insurance providers.
The price paid by those who participate in Loan Fraud is even more costly. The following is a list
of a few of the potential consequences that may be incurred:
Consequences to Broker/Correspondent
1. Criminal Prosecution.
2. Loss of Mortgage Broker/Correspondent/Real Estate/Mortgage Banker's License.
)
Page 1 of2
Si1vergate Bank 311512002
3. Loss of lender access due to exchange of information between lenders and mortgage
insurance companies including submission of information to investors (FHLMC, FNMA,
police agencies, and the Department of Banking and Finance).
4. Civil action by Silvergate Bank.
5. Civil action by applicant/borrower or other parties to the transaction
6. Loss of approval status with Silvergate Bank.
Consequences to Borrower
1. Acceleration of debt (FNMAlFHLMC Mortgage/Deed of Trust,). Item #6 states: "Borrower

shall also be in default if Borrower, during the loan application process, gave materially
false or inaccurate information or statements to lender (or failed to provide lender with
any material information) in connection with the loan evidenced by the Note, including,
but not limited to, representations concerning Borrower's occupancy of the Property as a
principal residence. II
Note: Foreclosure action wiD not aDow the BoITOW8r the benefit of reinstatement In order to cure the
default. The Borrower must payoff the loan In full prior to the sale date of the property.
2. Criminal prosecution.
3. Civil action by Silvergate Bank.
4. Civil action by other parties to the transaction, such as Seller or Real Estate Agent I
Broker I Correspondent
5. Employment termination.
6. Loss of professional license, if any.
7. Adverse effect on credit history.
I have read the follOWing and understand SlIvergate Bank's position on Loan Fraud.
BROKER/CORRESPONDENT
By: _
Date: _
Printed Name: _
Its:
Page 2 of2
Slivergate Bank 3/1512002
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I~l Two Bad Loans Don't Equal One Good
rv1 Loan
Bank Appeals $3 Million JUdgment
@J
ivl by BOl Guru Ott
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The United States Court of Appeals for the 6th Circuit on
April 15. 2002 decided the case of :,i;:;;!C,', .". c.:,;", :<nc~.:
~
~
!'J8,i<j-, 31.8ank by holding that the bank was liable to a loan
1';';'-1
customer for failing to reveal a negative appraisal and
rvl inducing the execution of a release of all claims against the
bank. The original judgment of $3,009,998.25 was reduced
I rvl but the Court upheld the award of punitive damages
against the holding company of the bank.
ivl
Ivl The Court was very graphic in its assessment of the
actions of the bank and its customers. It described the
EJ o case as the "unhappy collision between the bank's bad
banking practices and the debtors' business naivete and
incompetence".
Site Map The bank was painted as displaying the "go-go" mentality
that infected banking in the mid-1980's. The loan officers
Our Sponsors were identified as possessing a dangerous combination of
inexperience and incompetence. The bank was severely
Home criticized for poorly documenting the loans, loosely
collateralizing the loans and making loans with little
financial information.
The bank's appraiser was assailed as the author of the

worst prepared appraisal the court had reviewed in the last
10 yea". It was noted the appraisals disingenuously found
real estate had the exact value needed to support
whatever loan amount that the loan officer wanted.
Keep in mind these are the comments of a Federal Judge

in a legal opinion - not a Regulator in an examination.
IIvl The Facts

The debtors were approached by another customer ofthe
bank who wanted to sell the debtors a laundromat from
which the debto" had previously purchase an adjacent
convenience store. The bank that had previously financed
) the purchase of the convenience store for the debtors was
contacted regarding the financing of the second
I VYV Dc:lU L.Veli I::> UVI I l C\.lUC::U VI It:: UVUU Loan page ~ ot b
transaction. The bank had financed both the convenience

store and the laundromat originally and the loans were in
default at the time of each sale.
The bank actively encouraged the sale and provided the

buyers (the debtors) a pro-forma and site survey that
suggested the laundromat would gross between $150,000
and $200,000 per year. In adcJmon, the bank told the
debtors it had a current appraisal of the property for
$750,000.
The bank did not disclose two ear1ier appraisals conducted

within a 1 and % year period showing that the appraised
value rose from $469,000 to $647,000 to $726,000 (the
actual final appraisal amount). The same appraiser
prepared all three appraisals. The bankruptcy court later
said it was the worst prepared appraisal that it has had the
opportunity to review in its past ten years and the appraisal
amount found the real estate In question to have the exact
value needed to support whatever loan amount the bank's
loan officer wanted. The increases in appraised value
occurred even though no improvements were made on the
launderomat and the funds generated by the business
could not service the debt.
\J\Jhen the debtors were unable to SeNtee their loans to the

bank, they sought an extension and expressed a desire to
refinance their entire loan package. The bank agreed to
the extension and implied that a "package loan" would be
forthcoming. The extension agreement, which was
prepared by the bank, released the bank from "any and all
rights, claims or causes of action with respect to the Loan
Documents and Collateral."
During the time the debtors were involved in extension

discussions with their loan officer, the bank's holding
company, upon review of the loan portfolio, stopped all
commercial lending by the bank. The loan officer continued
with the discussions without informing the debtors of the
change in the bank's lending policy. The debtors, in part on
the belief that the bank would provide them a "package
loan", executed the extension agreement
The loans went into default and the bank initiated a

foreclosure suit regarding the real and personal property
including ESOP stock of the debtor that had also been
pledged as collateral. The debtors filed a counterclaim
against the bank alleging fraud in the inducement relative
to the purchase of the laundromat and breach of contract
for the financing of the purchase. The debtors then filed a
petition for bankruptcy and the court action was removed
to the bankruptcy court as an adversary action.
The bank filed a motion for summary jUdgment alleging

that the extension agreement released the bank form
liability for all claims. The bankruptcy court disagreed and
entered judgment for the debtors. The bankruptcy court
held the bank owed the debtors a fiduciary duty and
breached that duty by failing to reveal material facts
concerning the loan. In addition, the bank defrauded the
debtors by misrepresenting the value of the laundromat.
The debtors were awarded compensatory damages and
punitive damages in the total amount of $3,009,998.25.
I YYV Uc:lU LUc:l1 I;:) UUII l t::4Uc:l1 VI It:: uuuu L.Ui:l1 I t"age ,j OT ::>
-
The bank appealed to the district court who reversed the
measure of damages, ordered a reduction in punrnve
-
damages and affirmed the remainder of the bankrUptcy
court judgment
Discussion
The bank argued that the courts made five errors:
1. In holding the release in the extension agreement

did not preclude the debtors' claims
2. In concluding the bank owed a fiduciary duty to the
debtors
3. The bank is not liable for fraud because the debtors
could not prove reasonable reliance
4. In calculating damages
5. In awarding punitive damages.
Fiduciary Relationship
After reviEm of the facts and listening to the arguments of
the parties, the Court held that the debtors had failed to
show a fiduciary relationship existed with the bank.
The Court noted a fiduciary relationship creates the highest

order of duty imposed by law. If a fiduciary relationship
exists, the fiduciary cannot profit from the relationship
without the knowledge and permission of the principal. A
fiduciary relationship requires more than the generalized
business obligation of good faith and fair dealing.
The Court stated "except in special circumstances, a bank

does not have a fiduciary relationship with its borrowers."
Courts traditionally view a relationship between a bank and
a depositor to be one of debtor-creditor and do not
ordinarily impose a fiduciary duty of disclosure upon the
bank. As a matter of business, banks seek to maximize
their earnings by charging interest rates or fees as high as
the market will allow.
Banks seek as much security for their loans as they can

obtain. In contrast, debtors hope to pay the lowest possible
interest rate and fee charges and give as little as security
as possible. Without a great deal more, a mere confidence
that a bank will act fairly does not create a fiduciary
relationship ojjigating the bank to act in the borrower's
interest ahead of its own interest
Fraud Claims
The Court then considered the fraud claims. The
bankruptcy court found the bank defrauded the debtors
when the bank gave them the misleading pro-forma, site
survey and appraisals that the bank officers knew or
should have known were inflated. The Court referenced a
passage from an English case regarding a banker who
received an inquiry about the credit-worthiness of a
customer that indicated the banker has three options:
• The banker can decline to give the information;

• he can gi'lle an answer with a clear qualification that
it is given and accepted without any responsibility
or is given without reflection or research; or
• the banker can give an answer without
qualification.
1 VVU Cc:lU LUc:l1 I;:) UUII l c;yUc:l1 VI It: UUUU LUdl1
If the banker adopts the third alternative he can be held to

have accepted some responsibility for answering carefully
or to have accepted a relationship with the inquirer which
requires him to exercise such care as circumstance$
require.
The Court held the record supported the finding of the

bankruptcy court. It reasoned that the bank having shown
the pro forma, the site survey and one appraisal, could not
avoid revealing the other appraisals without making its
earlier representations fraudulent.
Extension Agreement Waiver

The bankruptcy court rejected the bank's argument that the
debtors had released their fraud c1a\ms when they
executed the extension agreements due to the finding that
the agreement was not broad enough to release or
discharge the claims. The waiver language only mentioned
daims regarding the loan documents or the collateral. The
district court held that the extension agreement was
unenforceable because it was obtained through fraudulent
misrepresentation and the promise of the "pack.age" loan
had fraudulently caused the debtors to execute the
extension.
After a review of the actions of the lower courts, the Court

found that the bank obtained the extension agreement
through fraud and therefore rejected the bank's argument
that the extension agreement language prevents the
debtors' claims.
Compensatory damages
The bankruptcy court awarded damages to the debtors for
the misrepresented value of the laundromat and the lost
value for the sale of ESOP stock that was also pledged as
collateral and punitive damages. The district court found
that the bankruptcy court erred in the calculation of the
value of the laundromat and adjusted the amount of
damages.
The bank argued that the debtor was not entitled under
state law to recover for both fraudulent misrepresentation
and fraudulent inducement. The Court held that the
debtors made an election to affirm the laundromat loan
transaction that allowed them to sue for fraudulent
misrepresentation but not for fraudulent inducement. The
debtors were therefore precluded from receiving damages
regarding the inducement claim.
In addition the Court determined the calculation by the

district court was correct and the proper damage award
was the difference between the final appraised value of the
laundromat and what it was actually worth on the day the
debtors purchased it
Punitive Damages
The bank argued that the punitive award against it should
be set aside due to the fact the original bank no longer
existed. The original bank was sold by its holding company
to a third party. The Court noted that there was a provision
in the bank sale contract in which the holding company
agreed to pay any damages arising from this case. The
bank argued that the bankruptcy court held that the holding
-
,'"
I
company was absolved of all liability in the case. The
district court specifically rejected this argument. The Court
also agreed that punitive damages should be awarded but
the amount should be remanded to the district court for
-
recalculation.
Summary
The Court held that a lender absent special circumstances
is not in a fiduciary relationship with its borrowers. A lender
however does have any obligation to disclose known facts
regarding the appraisal value of real property and may be
liable for fraudulent misrepresentation if such disclosures
are not made. In addition the existence in an extension
agreement of a blanket waiver of all claims against the
barrk may be held unenforceable if the bank induces the
debtor to execute the agreement with the promise of future
financing.
First pUblished on BankersOnline.com 4116102
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Sanktl'fSOnt'lne i:i a tree :service nldtlt'! possiblB ~)'f Me generous ~u!JfJCrt-o(

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Chapter 7
Miscellaneous
Welcome to chapter seven of The Bank Code Exposed. Now that you have
absorbed a great amount of information already, we decided to put this section in the book to
allow you to begin your endeavor and have a much better source of reading and verification
and cross examination (Transparency) of the information you are educating yourself on.
There is a ton of information to be found and this chapter also will hopefully show you this
and give you a heads up on some other places of possible interest to better enhance your
educational course.
This chapter, we hope will greatly increase your awareness to the vast amount of
verification that is out there regarding the educational information you have received from
this book already. We also included this section to amplify how most information is right
under our noses yet we are not looking at the information in the right manner so we miss it
completely.
-
SECTION SEVEN ,- -
This section pertains to reference sources:
A. Federal Deposit Insurance Corp. [FDIC]
B. Lenderlnsider Industry Internet Directory
C. U. S. Securities and Exchange Commission
D. Mortgage Bankers Association
E. Mortgage Electronic Registration Systems [MERS]
F. Housing and Urban Development [HUD]
G. Ely & Company -Financial Institutions & Monetary Policy Consulting
H. Federal National Mortgage Association [Fannie Mae] [FNMA]
I. Office of Federal Housing Enterprise Oversight [OFHEO]
J. Contacting the Congress
K Connecticut Bill concerning mortgage loan originators
L. Legal Information Institute - Mortgage Law: An Overview
M. ProU.net - Real Estate Glossary
N. Special study staff report on Enhancing Disclosure in the Mortgage-
Backed Securities
O. Example of number of mortgage foreclosures
)
. . . . ~ .... IV' •
alnstitution Directory
• ,~ndAi!-.'
Whafs New
A:tif'U'ir:e~
Features
Olsc1a..imer 2nd
Notes
I
The FDIC Institution Directory (10) provides the latest comprehensive financial and demographic data for every
FDIC-insured institution, including the most recent quarterly financial statements, with performance and condition
ratios.
Data Availability Key Statistics
Currently Next Update FDIC-Insured Institutions
as of:
As of: Scheduled: Number as of 112212004 9,212
t() Financial 9/3012003 1213112003 March 2004 Assets as of 9/3012003 $8,955,635
lfP Demographic 112212004 Updated weekly Deposits as of 913012003 $5,856,260
112212004
Data for records processed through:
Press to find mote information about data availability and updates Dollars in miNions; iJdiusted for memers
Ie welcome any comments or suggestions. Please send to Questions. Suagestions & Requests
Use the FDIC Institution Directory to:

Find Bank Holding Companies
• Identify all institutions owned by a bank holding company
• Look up summary financial information of the instiMions owned by a bank holding company
Find Institutions
• Look up demographic and financial information on any bank or thrift insured by the FDIC
• Ut.t FDIC insured bankt. and thrifls by loca1ion, size or other charactenstiC$
• Trace inactive (closed) banks to their successor institutions
• Download Institution Usts and Summary Financial Reports displayed on a screen
find Office~
• Look up the locations of all offices (branches) of banks or thrifts insured by the FDIC Download lists of
offices.
Advanced Features
• Compare any combination of individual insured institutions, peer groups, and bank holding companies
• Create, save, and retrieve custom peer groups of insured institutions and bank holding companies
• Download large amounts (up to 2.5 megabytes) of information on insured institutions.
Viewing TiDS
t10111~ !:&nJactUJ! S~rch HW SjteM.slQ EQrms

Freedom of Information Act Website Policies FirstGov.gov
. -1'- . _.. -
f_ttifiI ~ ~ S)t.l'.~
OfIIr:.cfllth C~".,~"
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otfke ofTltrift S1f~"
. ,parts of Condftion ud lncome
, .. ~ Fmanoa
Thnn. • and.. t. Report
Please select the 'Report Date' and either 'FDIC Certificate Number' or 'OTS Doc!cet Number'
or one or more of the fonowlng~ 'Institution Name', 'City', or 'State' '
Financial data is posted periodically to this site to publish current CallrrFR data and to update previously available data with
amendments. Reports containing current quarter data, for which the responsible agencies' review processes have been completed, wi»
be available on Friday beginning approximately 40 days after each Call1TFR report date and additional reports will be added weekly
thereafter. Final versions of all CallrrFR reports will be published approximately 60 days after the report date.The data for the current
quarter is considered PREUMINARY DATA and is subject to change until the final posting at approximately 60 days after the report
date. Data for prior quarters win be updated twice each quarter, approximately 35 and 60 days after each report date. For example for
the March 2003 Call Report date, data for December 2002 and prior quarters will be updated approximately May 2 and May 30.
,nSlitutiOnNa : Report Date: FDIC Certificate Number:

me I I
lOTS Docket Number:
r-:
ICity":
I[A~Y]
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For questions or suggestions
concerning the Call Reports or this For questions regarding the Thrift
web site, Financial Reports, please contact
pease contactltl$J![ftD~-= Offj£~QfJl!Iift.§lJRt~IVj§iQIJ
[email protected]_<~Q.Y
* Please enter the word "City" when it is a part of the city's name.
For example: Kansas City, New York City, Salt Lake City.
Disdaimer
The financial information appearing in this publication was obtained from Federal Financial Institution Examination Council (FFIEC) Reports of Condition and Income, and
OfIlce of Thrift Supervision(OTS) Thrift Financial Reports submitted by all FDIC-insured depositDry institutions. While this information is presumed to be conect, inaccuracies
may exist. Neither the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Office of the Comptroller of the Currency, nor the OffICe of Thrift Supervision
assumes responsibUity for the accuracy of the reported eIata.
rt.-9me ~pnti;l!!LU~ S~r.cJl !:!elp S.!t~Map For.mJi

Freedom of Information Act Website Policies FirstGov, gov
I
i
• ....,1"". I ""'IIII.",;J • W~\"i# • VI .,.
·. __
FDI
• . FEDERAL OE:POSIT
II lN$URANCE COP.PORUION
. INSURINQ AMERICA'S FUTURe
Forms
The FDIC uses the forms below for applications, reports, and other administrative matters.
• Forms are listed alphabetically by agency: [DIC I FFIEC I .lntera~1lQY I Other

• Downloadable forms have numbers with links.
- Click to download, print and use form.
- The forms are Adobe(@) PDF files or Microsoft(@) Word files.
• Other forms are available in hardcopy.

._ _of~~c:ll'~ "9'9 ~~.o.n.l.9.ffic • ..!'::..EQ!f eu..b1ic Injo[l1),a.1ion. 9a.'!ffl!."'. o.!!'a.in"jC:O~"'N~:: .
RE*.!m l'!LtQI!. :
Federal Deposit Insurance Corporation (FDIC) Forms

Appellate Budget Form (56 Kb Word file) FDI C 5000127
6.ppellate Budget Form, Amended (59 Kb Word file) FDIC 5000124

••
Applicant Background Questionnaire (45 Kb Word file) FDIC 2100/14
Applicant Certification Statement (74 Kb Word file) FDIC 2120116
Application for Consent to Exercise Trust Powers (60 Kb Word file) FDI C 6200/09
Application for Student Educational Employment Program (92 Kb Word file) FDIC 2109/08B
Application Pursuant to Section 19 of the Federal Deposit Insurance Act FDIC 6710107
Background Investigation Questionnaire for Contractor Personnel and Management FDI C 1600/04
Officials (54 Kb Word file)
FDIC 1600/07
Background Investigation Questionnaire for Contractors (39 Kb Word file)
Bankruptcy Budget Form (59 Kb Word file) FDIC 5000/)4
Bankruptcy Budget Form, Amended (64 Kb Word file) FDIC 5000/25
Bankruptcy Budget Worksheet (1 09 Kb Word file) FDIC 5000128
Bankruptcy BUdget Worksheet, Amended (119 Kb Word file) FDIC 5000129
Beneficial Ownership:
• Form F- 7: Initial Statement of Beneficial • FDIC 6§9QL03

Ownership of Securities • Instructions
I L.lIV. I Villi';' - --...,- - -~ .
-
~
i •
(84 and 46 Kb Word files)
Form F- 8: Statement of Changes in • FDIC 6800104
,
-
Bene1\cial Ownership • Instructions
(52 and 102 Kb Word files)
· • Form F- SA: Annual Statement of Changes • FDIC 6800105
in Beneficial Ownership • Instructions
, (106 & 48 Kb Word files)
· Certified Statement for Deposit Insurance FDIC 6420/07
Contractor Application (268 Kb Ward file) FDIC 3700113 ~

:
Contractor Application Revision Request FDIC 3700/33
(268 Kb Word nle)
,
Contractor Past Performance RFP Reference Check Questionnaire (47 Kb Word file) FDIC 3700129
:
,
Contractor Representations and Certifications FDIC 3700/04A ;
(62 Kb Word file) ~
·
;
Integrity and Fitness Representations and Certifications (57 Kb Word file) FDIC 3700/12
[
: Leasing Representations and Certifications FDIC 3700144 ,[

(90 Kb Word file)
·
Legal Services Agreement (LSA) Amendment (55 and 69 Kb Word files)

• FDIC 5210106 ,
• Cont sheet
FDIC 500Ql35.
-:
Utigation IPLS Adversary Budget Form (73 Kb Word file)
•
Utigation PLS Adversary Budget Form, Amended (80 Kb Word file) FDIC 5000/31 ;
: Utigation 1 PLS 1 Adversary Budget Worksheet (163 Kb Word file) FDIC 5000/36
: Utigation 1 PLS 1 Adversary Budget Worksheet, Amended (176 Kb Word file) FDI C 5000/32
• Loan 1 Application Register FDIC 6440/12

• PDF (24 Kb)
• Word (35 Kb) ;
Non-Utigation J Transactional BUdget Form (59 Kb Word file) FDIC 5000126
:
: Non-Utigation 1 Transactional BUdget Form, Amended (64 Kb Word file) FDIC 5000/33
;
· FDIC 1600110
Notice and Authorization Pertaining to Consumer Reports (26 Kb Word file)
Notification of Performance of Bank Services (46 Kb Word file) FDIC 6120/06
Payee Information for Automatic Deposit of Payment (47 Kb Word file) FDIC 4531/09
•
FDIC 6342/12
Request for Deregistration, Registered Transfer Agent ,
,
FDIC 4531/10
Request for Taxpayer Identification Number and Certification; Substitute Form W9 (71 Kb
: Word file) t
· Summary of Deposits collection forms FDIC 8020/05 ;
) -,
Suspicious Activity Report FDIC 6710/06
• ..., • ..., • • VIIII~ • Q~g..,.v • ..,.
'urchaser Eligibility Certification No number cell
Las! ~ tOlt5l2003 R.~rds@FP!C GOY
Home Contact Us Search Help SiteMap Forms

Freedom of Information Act Website Policies FirstGov.gov
FDIC: Forms • -g- - -.
-
(153 Kb & 171 Kbfiles) -E..DF
-Word
Transfer A,gent Registration and Amendment Form (18 Kb PDF file) TA-1
Retumllltop ;
Federal Financial Institutions Examination Council (FFIEC) Forms
FFIEC forms are listed on the FFIEC website
Interagency Forms
L!lterag 3
Biographical and Financial Report -Interagency (89 Kb PDF file)
;
Certification of Income Eligibility for the Affordable Housing Program No number
Charter and for Federal Deposit Insurance Application, Interagency FDIC 6200105
- PDF (231 Kb)
- Word (260Kb)
Disdosure Form for Person Associated With a Financial Institution Government Securities GFIN-4
Broker or Dealer
BMAA
Interagency Bank Merger Act Application (74 Kb MS Word file)
form G-FINW
Notice by Financial Institutions of Termination of Activities as a Government Securities
Broker or Government Securities Dealer
(21 Kb PDF file)
Notice of Change in Control -Interagency IntEK.~

(60 Kb PDF) vacant cell
LrTIercm.1
Notice of Change in Director or Senior Executive Officer - Interagency (33 Kb PDF file)
;
Form G-FIN
Notice of Government Securities Broker or Government Securities Dealer Activities to be
Filed by a Financial Institution Under Section 15C(a)(1 )(B) (29 Kb PDF file)
MSD4
Uniform Application for Municipal Securities Principal or Municipal Securities
Representative Associated \Nith a Bank Municipal Securities Dealer (14 Kb PDF file)
:
Uniform Termination Notice for Municipal Securities Principal or Municipal Securities MSD5
Representative Associated With a Bank Municipal Securities Dealer
Uniform Termination Notice for Person Associated IMttl a Financial Institution Government GFIt/:;i and
instruction§.
Securities Broker or Dealer
.
)
Other Forms
, ,.. M,
11
12 USCA § 1708, Federal Housing Aciminlstration operations Page 1
*83869 12 U.S.C.A. § 1708 (A) 9 shall be appointed by the Secretary;

U}ITTEDSTATESCODE (B) 3 shall be appointed by the Chairman
ANNOTATED and Ranking Minority Member of. the
.TITLE 12. BANKS AND BANKING Subcommittee on Housing and Urban Affairs
CHAPTER 13--NATIONAL of the Committee on Banking, Housing, and
Urban Affairs of the Senate; and
HOUSING
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'. (2) Membership on the Advisory Board shall
§ 1708. Federal Housing Administra on include--
.' ..•. ".' ~o' i f,hl;,>< ,". ,,' '.,' :";';~C!':i(', " '. ,.~;." , ; " ; ' / ' " . . . '. ; ( ~\ ,'" '''l'S .,+t. ';f t
• '.".-.;..aJ ::'l>RSi~t!;g~."_ .....~ ;.......~ ~;;,:;J .••~,.;, . ..:llA.,:. • . 11.... -.~, •••• ;;o,.•..t-...\:r.loJ ~·~.!e..["'.\I!."atl ....., 4...•.R~J.$.QjJ$,·:.....Flth ' ... , 'cit,,, ".'~
"'" '0 ' , . " . : ''',
distinguished private sector careers in housing

(a) Mutual Mortgage Insurance FUnd [mance, lending, management, development or
msurance;
There is created a Mutual Mortgage Insur ce I
(B) not less than 4 persons with
Fund (hereinafter referredto as the "Fund"), wlllch outstanding reputations as licensed actuaries,
shall be used by the Secretary as a revolving fund experts in actuarial science, or economics
for carrying out the provisions of this subchapter related to housing;
with respect to mortgages insured under section (C) not less than 4 persons with
1709 of this title as hereinafter provided, and there backgrounds of leadership in representing the
shall be allocated immediately to such Fund the interests of housing consumers;
sum of $10,000,000 out of funds made available *83870 (D) not less than 1 person with
to the Secretary for the purposes of .this significant experience and a distinguished
subchapter. reputation for work in the enforcement,
advocacy, or development of fair housing or
(b) Advisory Board civil rights legislation; and
(E) not less than 1 person with a
There is created a Federal Houing background of leadership. representing rural
Administration Advisory Board ("Board")' :hat housing interests,
shall review operation of the Federal Hou "ng (3) Members of the Advisory Board shall be
Administration, including the activities of I the selected to .ensure, to the greatest extent
Mortgagee Review Board, and shall pro ide practicable, g~()graphical representation or every
advice to the Federal Housing Commissioner ·th region of the country.
respect to the formulation of general policie. of (4) Not more than 8 members of the Advisory
the Federal Housing Administration and ':~ch Board may be from anyone political party..
other matters as the Federal Housmg (5) Membership of the Advisory Board shall
Commissioner may deem appropriate. The not include any person who, during the previous
Advisory Board shall, in all other respects, be 24-month period, was required to register with
subject to the provisions of the Federal Advisory the Secretary under section 3537b(c) of Title 42
Committee Act. or employed a person for purposes that required
(1) The Advisory Board shall be composed of such person to so register.
15 members to be appointed from among (6) Of the members of the Advisory Board
individuals who have substantial expertise and first appointed, 5 shall have terms of 1 year, and
broad experience in housing and" mortgage 5 shall have terms of 2 years. Their successors
lending of whom-- and all other appointees shall have terms of 3
-
12 USCA § 1708, Federal Housing Administration loperations Page 2
years. .
(7) The Advisory Board is empowete to'
probation, suspension or withdrawal of any
mortgagee found to be engaging in activities in
-
confer with, request information of, and ake violation of Federal Housing Administration
recommendations to the Federal Hou ling requirements or the nondiscrimination
Commissioner. The Commissioner hall requirements of the Equal Credit Opportunity
promptly provide the Advisory Board with ~ch Act [15 U.S.C.A. § 1691 et seq.], the Fair
information as the Board determines to~' be Housing Act [42 U.S.c.A. § 3601 et seq.], or
necessary to carry out its review of the activities Executive Order 11063.
and policies of the Federal Housing
Administration. (2) Composition
(8) The Board shall, not later than December
31 of each year, submit to the Secretary and the The Board shall consist of--
Congress a report of its assessment of the (A) the Assistant Secretary of Housing!
activities of the Federal Housing Federal Housing Commissioner;
Administration,..'. including the soundness of . ,.. (B) the"" General Counsel of the.
underwriting procedures, the adequacy of Department;
information systems, the appropriateness of (C) the President of the Government
staffing patterns, the effectiveness of the National Mortgage Association;
Mortgagee Review Board, and other matters (D) the Assistant Secretary for
related to the Federal Hou'ing Administration;
Administration's ability to serve the naf' n's (E) the Assistant Secretary for Fair
homebuyers and renters. Such report . all Housing Enforcement (in cases.~involving
~ontain the B~ard's reco~en.dati~ns Ifor violations of nondiscrimination requirements);
lD1provement and mclude any mmonty VIews i I
and "'.-
(9) The Board shall meet in Washin on, (F) the Chief Financial Officer of the
D.C., not less than twice annually, or rAore Department;
frequently if requested by the Federal H01.i~ing
Commissioner or a majority of the members. or their designees.
The Board shall elect a chair, vice-chair and
secretary and adopt methods of procedure. The (3) Actions authorized
Board may establish committees and
subcommittees as needed. When any report, audit, investigation, or
(10) Subject to the provisions of Section 7 of other information before the Board discloses that
the Federal Advisory Committee Act, all a basis for an administrative action against a
members of the Board may be compensated' and mortgagee exists, the Board shall take one of the
shall be entitled to reimbursement from the following administrative actions:
Department for traveling expenses incurred in
attendance at meetings of the Board. (A) Letter of reprimand
*83871 (11) The Board shall terminate on
January 1, 1995. The Board may issue a letter of reprimand
only once to a mortgagee without taking action
(c) Mortgagee Review Board under subparagraphs (B), (C), or (D) of this
section. A letter of reprimand shall explain the
(1) Establishment '[ violation and describe actions the mortgagee
should take to correct the violation.
There is established within the Fedhal
Housing Administration the Mortgagee ReJiew (B) Probation
Board ("Board"); The Board is empowerea' to
initiate the issuance of a letter of reprimand, the The Board may place a mortgagee on
Copyright (c) West Group 1998 No daimto original U.S. Govt. works
12 USCA § 1708, Federal Bousing Administration operations Pagel
probation for a specified period of time not to (0) Withdrawal

exceed 6 months for the purpose of evaluating
the mortgagee's compliance with Federal The Board may issue an order
Housing Administration requirements, the withdrawing a mortgagee if the Board has
Equal Credit Opportunity Act [15 U.S.c.A. § made a determination of a serious violation or
1691 et seq.], the Fair Housing Act [42 repeated violations by the mortgagee. The
US.C.A. § 3601 et seq.], Executive Order Board shall determine the terms of such
11063, or orders of the Board. During: the withdrawal, but the term shall be not less than
probation period, the Board may im "ose I
1 year. Where the Board has determined that
reasonable additional requirements 0 a the violation is egregious or willful, the
mortgagee including supervision of the withdrawal shall be permanent.
mortgagee's activities by the Federal Hou ,jng
Administration, periodic reporting to i the (E) Settlements
Federal Housing Commissioner, or submis I ion
to Federal Housing Administration andiis of • The Board may at any time enter into a
internal [mancial statements, audits by an settlement agreement with a mortgagee to
independent certified public accountant' or resolve any outstanding grounds for an action.
other audits. Agreements may include provisions such as--
(i) cessation of any violation;
*83872 (C) Suspension (ii) correction or mitigation of the
effects of any violation;
The Board may issue an order temporarily (iii) repayment of any sums of money
suspending a mortgagee's approval for doing wrongfully or incorrectly paid to the
business with the Federal Housing mortgagee by a mortgagor, by a seller or by
Administration if (i) there exists adequate the Federal Housing Administration;
evidence of a violation or violations and (ii) (iv) actions to collect sums of money
continuation of the mortgagee's a.pproval, wrongfully or incorrectly paid by the
pending or at the completion of any a dit, mortgagee to a third party;
investigation, or other review, or ch (v) indemnification of the Federal
administrative or other legal proceeding Housing Administration for mortgage
may ensue, would not be in the public int insurance claims on mortgages originated in
or in the best interests of the Dep nt. violation of Federal Housing
Notwithstanding paragraph (4)(A),!' a Administration requirements;
suspension shall be effective upon issuanc by
I (vi) modification of the length of the
the Board if the Board determines that there penalty imposed; or
exists adequate evidence that immediate action *83873 (vii) implementation of other
is required to protect the [mancial interest of corrective measures acceptable to the
the Department or the public. A suspension Secretary.
shall last for not less than 6 months, and for
not longer than 1 year. The Board may extend Material failure to comply with the
the suspension for an additional 6 months if it provisions of a settlement agreement shall
determines the extension is in the public be sufficient cause for suspension or
interest. If the Board and the mortgagee agree, withdrawal.
these time limits may be extended. During the
period of suspension, the Federal Housing (4) Notice and hearing
I
Administration shall not commit to insure any
.
mortgage originated by the suspended (A) The Board shall issue a written notice to
mortgagee. i the mortgagee at least 30 days prior to taking
any action against the mortgagee under
Copyright (c) West Group ,1998 No claim to original U,S. Govt. works
i
~ .
!
I
12 USCA § 1708, Federal Housing Administration bperations Page 4
subparagraph (B), (C), or (D) of paragraph 1(3).

The notice shall state the specific violatfons'
proceedings of the Board with respect. to such
violation. Such order shall include a notice of
-
which have been alleged, and shall direct the charges in respect thereof and shall become
mortgagee to reply in writing to the Board within effective upon service to the mortgagee. Such
30 days. If the mortgagee fails to reply during order shall remain effective and enforceable for a
such period, the Board may make a period not to exceed 30 days pending the
determination without considering any comments completion of proceedings of the Board with
of the mortgagee. respect to such violation, unless such order is set
(B) If the Board takes action against a aside, limited, or suspended by a court in
mortgagee under subparagraph (B), (C), or. (D) proceedings authorized by subparagraph (B) of
of paragraph (3), the Board shall promptly notify this paragraph. The Board shall provide the
the mortgagee in writing of the nature, duration, mortgagee an opportunity for a hearing on the
and specific reasons for the action. If, within 30 record, as soon as practicable but not later than
days of receiving the notice, the mortgagee 20 days after the temporary cease-and-desist
requests a hearing, the Board. shall hoi a OI:der has been served.
hearing on the record regarding the violat ons *83874 (B) Within 10 days after the
within 30 days of receiving the request. f a mortgagee has been served with a temporary
mortgagee fails to request a hearing within ch cease-and-desist order, the mortgagee may apply
30-day period, the right of the mortgagee to the United States district court for the judicial
.• ",hearing shall be considered waived. , district in which the home office of the
\~.) (C) In any case in which the notificatio ,. of mortgagee is located, or the United States
\ .: the Board does not result in a hearing (inc1u' 'ng District Court for the District of Columbia, for
any settlement by the Board and a mortgag¢e), an injunction setting aside, limiting of
" .any information regarding the nature of' the suspending the enforcement, operation, or
violation and the resolution of the action shall be effectiveness of such order pending the
available to the public. completion of the administrative proceedings
pursuant to the notice of charges served upon the
(5) Publication mortgagee, and such court shall have jurisdiction
to issue such injunction.
The Secretary shall establish and publish in (C) In the case of violation or threatened
the Federal Register a description of and, the violation of, or failure to obey, a temporary
cause for administrative action against a cease-and-desist order issued pursuant to this
mortgagee. paragraph, the Secretary may apply to the United
States district court, or the United States court of
(6) Cease-and-desist orders any territory, within the jurisdiction of which the
home office of the mortgagee is located, for an
(A) Whenever the Secretary, upon reque t of injunction to enforce such order, and, if the court
the Mortgagee Review Board, determines . at shall determine that there has been such violation
there is reasonable cause to believe th a or threatened violation or failure to obey, it shall
mortgagee is violating, has violated, or is a out be the duty of the court to issue such injunction.
to violate, a law, rule or regulation or iany
condition imposed in writing by the Secret . or (7) Defmition of "mortgagee"
the Board, and that such violation could resu. t in
significant cost to the Federal Government theot For purposes of this subsection, the term
public, the Secretary may issue a temporary "mortgagee" means--
order requiring the mortgagee to cease and desist (A) a mortgagee approved under this
from any such violation and to take affirmative chapter;
) . action to prevent such violation or a continuation (B) a lender or a loan correspondent
of such violation pending completion of approved under subchapter I of this chapter;
Copypght (c) West Group 1998 No claim to original U. S. Govt. works

12 USCA § 1708, Federal Housing Administration operations PageS
(C) a branch office or subsidiary of th~ the appraisal of all property to be insured by the
mortgagee, lender, or loan correspondent; Qr Federal Housing Administration. Such
(D) a director, officer, employee, agen, or appraisals shall be performed in accordance with
other person participating in the conduct 0 ,the uniform standards, by individuals who have
affairs of the mortgagee, lender, or an demonstrated competence and whose professional
correspondent. conduct is subject to effective supervision. These
standards shall require at a minimum--
(8) Report required ; (A) that the appraisals of properties to be
insured by the Federal Housing
The Board, in consultation with the Fed Iral Administration shall be performed in
Housing Administration Advisory Board, hall accordance with generally accepted appraisal
annually recommend to the Secretary such standards, such as the appraisal standards
amendments to statute or regulation as the Board promulgated by the Appraisal Foundation a not-
determines to be appropriate to ensure the long for-profit corporation established on November
term fmancial strength of the Federal Housing 3Q,19~7 under,the laws of Illinois; and
Administration fund and the adequate support (B) that each appraisal be a written statement
for the home mortgage credit. . used in connection with a real estate transaction
that is independently an impartially prepared by
(d) Coordination of GNMA and FHA withdrawal a licensed or certified appraiser setting forth an
action opinion of defmed value of an adequately
described property as of a specific date,
. (1) Whenever the Federal Housing supported by presentation and analysis of
Administration or Government Natibnal relevant market information.
Mortgage Association initiates proceedings at (2) The Appraisal Subcommittee of the Federal
could lead to withdrawing the mortgagee i om Financial Institutions Examination Council shall
participating in the program, the initiating ag f ncy include the Secretary or his designee.
shall-- (3) Direct endorsement program
(A) within 24 hours notify the other agen (A) Any mortgagee that is authorized by the
writing of the action taken; Secretary to process mortgages as a direct
(B) provide to the other agency the fa. al endorsement mortgagee (pursuant to the single-
basis for the action taken; and I' : family home mortgage direct endorsement
(C) if a mortgagee is withdrawn, publish its program established by the Secretary) may
decision in the Federal Register. contract with an appraiser chosen at the discretion
(2) Within 60 days of receipt of a notification of of the mortgagee for the performance of
action that could lead to withdrawal under appraisals in connection with such mortgages.
subsection (1) [FNl], the Federal Housing Such appraisers may include appraisal companies
Administration or the Government National organized as corporations, partnerships, or sole
Mortgage Association shall-- proprietorships.
(A) conduct and complete its own (B) Any appraisal conducted pursuant to
investigation; subparagraph (A) shall be conducted by an
(B) provide written notification to the other individual who complies with the qualifications or
agency of its decision, including the factual basis standards for appraisers established by the
for its decision; and I Secretary pursuant to this subsection.
*83875 (C) if a mortgagee is withdr Iwn, (C) In conducting an appraisal, such individual
publish its decision in the Federal Register. I may utilize the assistance of others, who shall be
under the direct supervision of the individual
(e) Appraisal standards responsible for the appraisal. The individual
responsible for the appraisal shall personally
(1) The Secretary ShalrP~eSCribe standards II for .approv~ .and sign any appraisal report.
Copynght (c) West Group'i1998 No c1alffito ongmal U.S. Govt. workS

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12 USCA § 1708, Federal Housing Administration.operations Page 6
(4) Fee panel appraisers

(A) Any individual who is an employee of an
1990 Act. Senate Report No. 101-316 and House
Conference Report No. 101-943, see 1990 U.S.Code Congo
-
and Adm. News, p. 5763.
appraisal company (including any company
organized as a corporation, partnership, or sole 1992 Acts. House Report No. 102-760 and House
proprietorship) and who meets the qualifications Conference Report No. 102-1017, see 1992 U.S. Code Congo
or standards for appraisers and inclusion on and Adm. News, p. 3281.
appraiser fee panels established by the Secretary, 1997 Acts. House Conference Report No. 105-927, see
shall be eligible for assignment to conduct 1997 U.S. Code Congo and Adm. News, p. 1929.
appraisals for mortgages under this subchapter in
the same manner and on the same basis as other References in Text
The Federal Advisory Committee Act, referred to in subsec.
approved appraisers. (b), is Pub.L. 92-463, Oct. 6, 1972, 86 Stat. 770, as
*83876 (B) With respect to any employee 0 an amended, which is classified generally to Appendix 2 of Title
appraisal company described in subparagraph 'eA) 5, Government Organization and Employees. Section 7 of
who is offered an appraisal assignment in such Act, referred to in subsec. (b)(1 0), is classified to section
7 ofAppendix 2 of Title 5. For complete classification of this
connection with a mortgage under this subyha ter,
Act to'the Code, see-'section 1 of Appendix 2 of Title 5 and
the person utilizing the appraiser may con I 'act Tables.
directly with the appraisal company employin I the
appraiser for the furnishing of the appr )sal The Equal Credit Opportunity Act, referred to in subsec.
servIces. (c)(1), (3)(B), is Pub.L. 93-495, Title V, Oct. 28, 1974, 88
Stat. 1521, as amended, which is classified generally to
subchapter IV (section 1691 et seq.) of chapter 41 of Title 15,
CREDIT(S) Commerce and Trade. For complete classification of this Act
to the Code, see Short Title note set out under section 1601
1989 Main Volwne ofTitle 15 and Tables.
(June 27, 1934, c. 847, Title II, § 202, 48 Stat. 1248; Feb. The Fair Housing Act, referred to in subsec.' (c)(1), (3)(B),
3,1938, c. 13, § 3,52 Stat. 9; Jund, 1939, c. 175, § 5,53 is Pub.L. 90-284, Title VIll, Apr. 11, 1968,82 Stat. 81, as
Stat. 805; Apr. 20, 1950, c. 94, Title I, § 122, 64 Stat. 59; amended, which is classified principally to subchapter I
May 25,1967, Pub, L. 90-19, § 1 (a}(3), 81 Stat. 17.) (section 3601 et seq.) of chapter 45 of Title 42, The Public
Health and Welfare. For complete classification of this Act to
the Code, see Short Title note set out under section 3601 of
Title 42 and Tables. ."il'•
. f;]
(As amended Dec. 15, 1989,Pub.L.I01-235, Title I, §'142, A83877 Executive Order 11063, referred to in subsec.
103 Stat. 2031; Nov. 28, 1990, Pub.L. 101-625, Title fI, § (cXl), (3)(B), is classified as a note under section 1982 of
322, 104 Stat. 4134; Oct. 28, 1992, Pub.L. 102-550, ritle Title 42.
V; §§ 502, 518, 519, 106 Stat. 3778, 3792; Oct. 27, 1997,
Pub.L. 105-65, Title V, § 551,111 Stat. 1412.) I' Amendments
[FNl] So in original. Probably should be "paragraph ( r. 1997 Amendments. Subsec. (c)(3XC). Pub.L. 105-65, §
551, added the second sentence.
<General Materials (GM) - Refere .' bes, 1992 Amendments. Subsec. (bXll). Pub.L. 102-550, §
Annotations, or Tables> 'i 502, added par. (11).
Subsec. (c)(3)(C). Pub.L. 102-550, § 518, inserted

HISTORICAL NOTES "temporarily" following "order", "(i)" following
"Administration if', "(ii)" following "violations and", and ",
HISTORICAL AND STATUTORY NOTES and for not longer than 1 year. The Board may extend the
suspension for an additional 6 months if it determines the
Revision Notes and Legislative Reports extension is in the public interest. If the Board and the
1950 Act. Senate Report No. 1286 and Conference Report mortgagee agree, these time limits may be extended"
No. 1893, see 1950 U.S.Code Cong.Service, p. 2021. following "6 months".
1967 Act. House Report No. 214, see 1967 U.S.Code Subsec. (c)(6)(D). Pub.L. 102-550, § 519(1), struck out
Congo and Adm.News, p. 1194. subpar, (D), which defined "mOrtgagee" for purposes of par.
as
(6) mortgagee or branch office, subsidiary, director, officer,
Copyright (c) West Group ,1998 No claim to original U.S. Govt. works
I
12 USCA § 1708, Federal Housing Administration pperations Page 7
I
employee or agent of mortgagee, or other person participting
in conduct of affairs of mortgagee. ~83878 Implementation ofRegulations
. Requirement that the Secretary of Housing and Urban
Subsec. (c)(7). Pub.L. 102-550, § 519(2), redesig I~ted Development issue regulations necessary to implement the
former par. (7) as (8) and added par. (7). .
., I
amendments made by Pub.L. 105-65, Title V, Subtitle C
[sections 541 to 564 of Pub.L. 105-65, amending this
Subsec. (c)(8). Pub.L. 102-550, § 519(2), redesign~ted section], see Pub.L. 105-65, § 541, set out as a note under
former par. (7) as (8). section 1735f-14 ofthis title.
1990 Amendment. Subset. (e)(3), (4). Pub.L. 101-625

REFERENCES
added pars. (3) and (4).
1989 Amendment. Heading. Pub.L. 101-235, § 142(1), CROSS REFERENCES

substituted "Federal Housing Administration operations"
for "Mutual Mortgage Insurance Fund". Payment of certain funds to Treasury, see 12 USCA § 1735.
Subsec. (a). Pub.L. 101-235, § 142(2), designated existing LIBRARY REFERENCES

provisions as subsec. (a) and added subsec. (a.) heading.
Ameri~an Digest System
Subsecs. (b) to (e). Pub.L. 101-235, § 142(3), added
subsecs. (b) to (e). Disbursements for housing, see United States ~82(3 to
3.5,7).
1967 Amendment. Pub.L. 90-19 substituted "Secre r' for Instrumentalities of United States for housing, see United
"Commissioner" wherever appearing. S~tes ~53(9).
1950 AIDendmenf. Act Apr. 20, 1950 substl ted Encyclopedias

"Commissioner" for "Administrator" wherever appearing
Federal loans, grants and insurance of loans for housing, see
J939 Amendment. Act June 3, 1939 substituted "ere. ted" C.J.S. United States § 70,
for "create". I
I·
Texts and Treatises
1938 Amendment. Act Feb. 3, 1938 inserted "with re 'pect
to mortgages insured under section 1709 of this title" . 4A Fed Proc L Ed, Banking and Financing §§
8:1437-1440.
Effective Dates
1992 Acts. Except as otherwise provided, amendment by
Pub.L. 102-550 effective Oct. 28, 1992, see section 2 of ANNOTATIONS
Pub.L. 102-550, set out as a note under section 5301 of Title
42, The Public Health and Welfare.. NOTES OF DECISIONS
Change of Name
Any reference in any provision oflaw enacted before Jan. 4, Debentures 1
1995, to the Committee on Banking, Finance and Urban
Affairs of the House ofRepresentatives treated as referring to 1, Debentures
the Committee on Banking and Financial Services' of the
House of Representatives, see section 1(a)(2) of Pub.L. Debentures properly issued under this subchapter are valid
104~14, set out as a note preceding section 21 of Title 2,The obligations enforcible against the mutual mortgage insurance
Congress. fund. 1935,38 OpAtty.Gen. 258.
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12 V.S.C.A. § 1709 -
CHAPTER 13--NATIONAL HOUSING
SUBCHAPTER II--MORTGAGE INSURANCE
... § 1709. Insurance of mortgages
(a) Authorization
The Secretary is authorized, upon application by the mortgagee, to insure as hereinafter provided any mortgage
offered to him which is eligible for insurance as hereinafter provided, and, upon such terms as the Secretary may
prescribe, to make commitments for the insuring of such mortgages prior to the date of their execution or
disbursement thereon.
(b) Eligibility for insurance; mortgage limits
To be eligible for insurance under this section a mortgage shall comply with the following:
(1) Have been made to, and be held by, a mortgagee approved by the Secretary as responsible and able to service
the mortgage properly.
(2) Involve a principal obligation (including such initial service charges, appraisal, inspection, and other fees as
the Secretary shall approve) in an amount--
(A) not to exceed the lesser of--
(i) in the case of a I-family residence, 95 percent of the median I-family house price in the area, as
determined by the Secretary; in the case of a 2- family residence, 107 percent of such median price; in the
case of a 3-family residence, 130 percent of such median price; or in the case of a 4-family residence, 150
percent of such median price; or
(ii) 87 percent of the dollar amount limitation determined under section 1454(a)(2) of this title for a
residence of the applicable size; except that the dollar amount limitation in effect for any area under this
subparagraph may not be less than the greater of the dollar amount limitation in effect under this section for
the area on October 21, 1998, or 48 percent of the dollar limitation determined under section 1454(a)(2) of
this title for a residence of the applicable size; and
(B) not to exceed an amount equal to the sum of--
(i) the amount of the mortgage insurance premium paid at the time the mortgage is insured; and
(ii) in the case of--
(I) a mortgage for a property with an appraised value equal to or less than $50,000, 98.75 percent of the

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12 U.S.c.A. § 1709
appraised value of the property;
(II) a mortgage for a property with an appraised value in excess of $50,000 but not in excess of $125,000,
97.65 percent of the appraised value of the property;
(III) a mortgage for a property with an appraised value in excess of $125,000, 97.15 percent of the
appraised value of the property; or
(IV) notwithstanding subclauses (II) and (III), a mortgage for a property with an appraised value in excess
of $50,000 that is located in an area of the State for which the average closing cost exceeds 2.10 percent
of the average, for the State, of the sale price of properties located in the State for which mortgages have
been executed, 97.75 percent of the appraised value of the property.
For purposes of the preceding sentence, the term "area" means a metropolitan statistical area as established by
the Office of Management and Budget; and the median I-family house price for an area shall be equal to the
median 1- family house price of the county within the area that has the highest such median price. For
purposes of this paragraph, the term "average closing cost" means, with respect to a State, the average, for
mortgages executed for properties that are located within the State, of the total amounts (as determined by the
Secretary) of initial service charges, appraisal, inspection, and other fees (as the Secretary shall approve) that
are paid in connection with such mortgages. Notwithstanding any other provision of this section, in any case
where the dwelling is not approved for mortgage insurance prior to the beginning of construction, such
mortgage shall not exceed 90 per centum of the entire appraised value of the property as of the date the
mortgage is accepted for insurance, unless (i) the dwelling was completed more than one year prior to the
application for mortgage insurance, or (ii) the dwelling was approved for guaranty, insurance, or a direct loan
under chapter 37 of Title 38 prior to the beginning of construction, or (iii) the dwelling is covered by a
consumer protection or warranty plan acceptable to the Secretary and satisfies all requirements which would
have been applicable if such dwelling had been approved for mortgage insurance prior to the beginning of
construction. As used herein, the term "veteran" means any person who served on active duty in the armed
forces of the United States for a period of not less than ninety days (or is certified by the Secretary of Defense
as having performed extra- hazardous service), and who was discharged or released therefrom under
conditions other than dishonorable, except that persons enlisting in the armed forces after September 7, 1980,
or entering active duty after October 16, 1981, shall have their eligibility determined in accordance with
section 5303A(d) of Title 38. Notwithstanding any other provision of this paragraph, the amount which may
be insured under this section may be increased by up to 20 percent if such increase is necessary to account for
the increased cost of the residence due to the installation of a solar energy system (as defmed in subparagraph
(3) of the last paragraph of section 1703(a) of this title) therein.
For purposes of the preceding sentence, the term "appraised value" means the amount set forth in the written
statement required under section 1715q of this title, or a similar amount determined by the Secretary if section
1715q of this title does not apply. Notwithstanding the authority of the Secretary to establish the terms of
insurance under this section and approve the initial service charges, appraisal, inspection, and other fees (and
subject to any other limitations under this section on the amount of a principal obligation), the Secretary may
not (by regulation or otherwise) limit the percentage or amount of any such approved charges and fees that
may be included in the principal obligation of a mortgage.
Notwithstanding any other prOVISIon of this paragraph, the Secretary may not insure, or enter into a
commitment to insure, a mortgage under this section that is executed by a first-time homebuyer and that
involves a principal obligation (including such initial service charges, appraisal, inspection, and other fees as
the Secretary shall approve) in excess of 97 percent of the appraised value of the property unless the
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12 U.S.C.A. § 1709
mortgagor has completed a program of counseling with respect to the responsibilities and fmancial
management involved in homeownership that is approved by the Secretary; except that the Secretary may, in
the discretion of the Secretary, waive the applicability of this requirement.
(3) Have a maturity satisfactory to the Secretary, but not to exceed, in any event, thirty-five years (or thirty years
if such mortgage is not approved for insurance prior to construction) from the date of the beginning of
amortization of the mortgage.
(4) Contain complete amortization provisions satisfactory to the Secretary requiring periodic payments by the
mortgagor not in excess of his reasonable ability to pay as detennined by the Secretary.
(5) Bear interest at such rate as may be agreed upon by the mortgagor and the mortgagee.
(6) Provide, in a manner satisfactory to the Secretary, for the application of the mortgagor's periodic payments
(exclusive of the amount allocated to interest and to the premium charge which is required for mortgage
insurance as hereinafter provided) to amortization of the principal of the mortgage.
(7) Contain such tenns and provisions with respect to insurance, repairs, alterations, payment of taxes, default,
reserves, delinquency charges, foreclosure proceedings, anticipation of maturity, additional and secondary liens,
and other matters as the Secretary may in his discretion prescribe.
(8) Repealed. Pub.L. 100-242, Title IV, § 406(b)(2), Feb. 5, 1988, 101 Stat. 1900
(9) Be executed by a mortgagor who shall have paid on account of the property (except with respect to a
mortgage executed by a mortgagor who is a veteran) at least 3 per centum, or such larger amount as the Secretary
may detennine, of the Secretary's estimate of the cost of acquisition (excluding the mortgage insurance premium
paid at the time the mortgage is insured) in cash or its equivalent: Provided, That with respect to a mortgage
executed by a mortgagor who is sixty years of age or older as of the date the mortgage is endorsed for insurance
.or with respect to a mortgage meeting the requirements of subsection (i) of this section, or with respect to a
mortgage covering a single-family home being purchased under the low-income housing demonstration project
assisted pursuant to section 1436 of Title 42, or with respect to a mortgage covering a housing unit in connection
with a homeownership program under the Homeownership and Opportunity Through HOPE Act, the mortgagor's
payment required by this subsection may be paid by a corporation or person other than the mortgagor under such
tenns and conditions as the Secretary may prescribe: Provided further, That for purposes of this paragraph, the
Secretary shall consider as cash or its equivalent any amounts borrowed from a family member (as such tenn is
defined in section 1707 of this title), subject only to the requirements that, in any case in which the repayment of
such borrowed amounts is secured by a lien against the property, such lien shall be subordinate to the mortgage
and the sum of the principal obligation of the mortgage and the obligation secured by such lien may not exceed
100 percent of the appraised value of the property plus any initial service charges, appraisal, inspection, and
other fees in connection with the mortgage.
(c) Premium charges
(1) The Secretary is authorized to fix premium charges for the insurance of mortgages under the separate sections
of this subchapter but in the case of any mortgage such charge shall be not less than an amount equivalent to
one-fourth of 1 per centum per annum nor more than an amount equivalent to 1 per centum per annum of the
amount of the principal obligation of the mortgage outstanding at any time, without taking into account delinquent
payments or prepayments: Provided, That premium charges fixed for insurance (1) under section 1715z- 10,
1715z-l2, l7l5z-16, l715z-17, or l715z-18 of this title, or any other financing mechanism providing alternative

)
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12 U.S.CA. § 1709
methods for repayment of a mortgage that is determined by the Secretary to involve additional risk, or (2) under
subsections [FNI] (n) or (k) of this section are not required to be the same as the premium charges for mortgages
insured under the other provisions of this section, but in no case shall premium charges under subsection (n) or (k)
of this section exceed I per centum per annum: Provided, That any reduced premium charge so fIxed and
computed may, in the discretion of the Secretary, also be made applicable in such manner as the Secretary shall
prescribe to each insured mortgage outstanding under the section or sections involved at the time the reduced
premium charge is fIxed. Such premium charges shall be payable by the mortgagee, either in cash, or in debentures
issued by the Secretary under this subchapter at par plus accrued interest, in such manner as may be prescribed by
the Secretary: Provided, That debentures presented in payment of premium charges shall represent obligations of
the particular insurance fund or account to which such premium charges are to be credited: Provided further, That
the Secretary may require the payment of one or more such premium charges at the time the mortgage is insured, at
such discount rate as he may prescribe not in excess of the interest rate specifIed in the mortgage. If the Secretary
frods upon the presentation of a mortgage for insurance and the tender of the initial premium charge or charges so
required that the mortgage complies with the provisions of this section, such mortgage may be accepted for
insurance by endorsement or otherwise as the Secretary may prescribe; but no mortgage shall be accepted for
insurance under this section unless the Secretary fInds that the project with respect to which the mortgage is
executed is economically sound. In the event that the principal obligation of any mortgage accepted for insurance
is paid in full prior to the maturity date, the Secretary is further authorized in his discretion to require the payment
by the mortgagee of an adjusted premium charge in such amount as the Secretary determines to be equitable, but
not in excess of the aggregate amount of the premium charges that the mortgagee would otherwise have been
required to pay if the mortgage had continued to be insured under this section until such maturity date; and in the
event that the principal obligation is paid in full as herein set forth the Secretary is authorized to refund to the
mortgagee for the account of the mortgagor all, or such portion as he shall determine to be equitable, of the current
unearned premium charges theretofore paid: Provided, That with respect to mortgages (1) for which the Secretary
requires, at the time the mortgage is insured, the payment of a single premium charge to cover the total premium
obligation for the insurance of the mortgage, and (2) on which the principal obligation is paid before the number of
years on which the premium with respect to a particular mortgage was based, or the property is sold subject to the
mortgage or is sold and the mortgage is assumed prior to such time, the Secretary shall provide for refunds, where
appropriate, of a portion of the premium paid and shall provide for appropriate allocation of the premium cost
among the mortgagors over the term of the mortgage, in accordance with procedures established by the Secretary
which take into account sound fInancial and actuarial considerations.
(2) Notwithstanding any other provision of this section, each mortgage secured by a 1- to 4-family dwelling that is
an obligation of the Mutual Mortgage Insurance Fund or of the General Insurance Fund pursuant to subsection (v)
of this section and each mortgage that is insured under subsection (k) of this section or section l7l5y(c) of this
title" [FN2] shall be subject to the following requirements:
(A) The Secretary shall establish and collect, at the time of insurance, a single premium payment in an amount
not exceeding 2.25 percent of the amount of the original insured principal obligation of the mortgage. In the
case of a mortgage for which the mortgagor is a fIrst-time homebuyer who completes a program of counseling
with respect to the responsibilities and fInancial management involved in homeownership that is approved by the
Secretary, the premium payment under this subparagraph shall not exceed 2.0 percent of the amount of the
original insured principal obligation of the mortgage. Upon payment in full of the principal obligation of a
mortgage prior to the maturity date of the mortgage, the Secretary shall refund all of the unearned premium
charges paid on the mortgage pursuant to this subparagraph.
(B) In addition to the premium under subparagraph (A), the Secretary shall establish and collect annual premium
payments in an amount not exceeding 0.50 percent of the remaining insured principal balance (excluding the
portion of the remaining balance attributable to the premium collected under subparagraph (A) and without
Page 5 of 16 -
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12 U.S.C.A. § 1709
taking into account delinquent payments or prepayments) for the following periods:
-
(i) For any mortgage involving an original principal obligation (excluding any premium collected under
subparagraph (A» that is less than 90 percent of the appraised value of the property (as of the date the
mortgage is accepted for insurance), for the fIrst 11 years of the mortgage term.
(ii) For any mortgage involving an original principal obligation (excluding any premium collected under
subparagraph (A» that is greater than or equal to 90 percent of such value, for the fIrst 30 years of the
mortgage term; except that notwithstanding the matter preceding clause (i), for any mortgage involving an
original principal obligation (excluding any premium collected under subparagraph (A» that is greater than 95
percent of such value, the annual premium collected during the 30-year period under this clause shall be in an
amount not exceeding 0.55 percent of the remaining insured principal balance (excluding the portion of the
remaining balance attributable to the premium collected under subparagraph (A) and without taking into
account delinquent payments or prepayments).
(d) Increase in maximum amount of mortgage
Notwithstanding any provision of this subchapter governing maximum mortgage amounts for insuring a mortgage
secured by a one- to four-family dwelling, the maximum amount of the mortgage determined under any such
provision may be increased by the amount of the mortgage insurance premium paid at the time the mortgage is
insured.
(e) Contract of insurance as evidence of eligibility
Any contract of insurance heretofore or hereafter executed by the Secretary under this subchapter shall be
conclusive evidence of the eligibility of the loan or mortgage for insurance, and the validity of any contract of
insurance so executed shall be incontestable in the hands of an approved fmancial institution or approved
mortgagee from the date of the execution of such contract, except for fraud or misrepresentation on the part of such
approved fmancial institution or approved mortgagee.
(t) Disclosure of other mortgage products
(1) In general
In conjunction with any loan insured under this section, an original lender shall provide to each prospective
borrower a disclosure notice that provides a I-page analysis of mortgage products offered by that lender and for
which the borrower would qualify.
(2) Notice
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12 U.S.C.A. § 1709
The notice required under paragraph (1) shall include--
(A) a generic analysis comparing the note rate (and associated interest payments), insurance premiums, and
other costs and fees that would be due over the life of the loan for a loan insured by the Secretary under
subsection (b) of this section with the note rates, insurance premiums (if applicable), and other costs and fees
that would be expected to be due if the mortgagor obtained instead other mortgage products offered by the
lender and for which the borrower would qualify with a similar loan-to-value ratio in connection with a
conventional mortgage (as that term is used in section 1454(a)(2) of this title or section 1717(b)(2) of this title,
as applicable), assuming prevailing interest rates; and
(B) a statement regarding when the requirement of the mortgagor to pay the mortgage insurance premiums for
a mortgage insured under this section would terminate, or a statement that the requirement shall terminate only
if the mortgage is refmanced., paid off, or otherwise terminated.
(g) Limitation on use of single family mortgage insurance by investors
(1) The Secretary may insure a mortgage under this subchapter that is secured by a 1- to 4-family dwelling, or
approve a substitute mortgagor with respect to any such mortgage, only if the mortgagor is to occupy the dwelling
. as his or her principal residence or as a secondary residence, as determined by the Secretary. In making this
determination with respect to the occupancy of secondary residences, the Secretary may not insure mortgages with
respect to such residences unless the Secretary determines that it is necessary to avoid undue hardship to the
mortgagor. In no event may a secondary residence under this subsection include a vacation home, as determined
by the Secretary.
(2) The occupancy requirement established in paragraph (1) shall not apply to any mortgagor (or co-mortgagor, as
appropriate) that is--
(A) a public entity, as provided in section 1715d or 1715z-12 of this title, or any other State or local government
or an agency thereof;
(B) a private nonprofit or public entity, as provided in section 17151(h) or 1715zG) of this title, or other private
nonprofit organization that is exempt from taxation under section 501(c)(3) of Title 26 and intends to sell or
lease the mortgaged property to low or moderate-income persons, as determined by the Secretary;
(C) an Indian tribe, as provided in section 1715z-13 of this title;
(D) a serviceperson who is unable to meet such requirement because of his or her duty assignment, as provided
in section 1715g of this title or subsection (b)(4) or (1) of section 1715m of this title;
(E) a mortgagor or co-mortgagor under subsection (k) of this section; or
(F) a mortgagor that, pursuant to section 1715n(a)(7) of this title, is refmancing an existing mortgage insured
under this chapter for not more than the outstanding balance of the existing mortgage, if the amount of the
monthly payment due under the refmancing mortgage is less than the amount due under the existing mortgage for
the month in which the refmancing mortgage is executed.
Copr. © West 2004 No Claim to Orig. u.S. Govt. Works
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12 U.S.C.A. § 1709 -
(3) For purposes of this subsection, the term "substitute mortgagor" means a person who, upon the release by a
mortgagee of a previous mortgagor from personal liability on the mortgage note, assumes such liability and agrees
to pay the mortgage debt.
(h) Disaster housing
Notwithstanding any other provision of this section, the Secretary is authorized to insure any mortgage which
involves a principal obligation not in excess of the applicable maximum dollar limit under subsection (b) of this
section and not in excess of 100 per centum of the appraised value of a property upon which there is located a
dwelling designed principally for a single-family residence, where the mortgagor establishes (to the satisfaction of
the Secretary) that his home which he occupied as an owner or as a tenant was destroyed or damaged to such an
extent that reconstruction is required as a result of a flood, fIre, hurricane, earthquake, storm, or other catastrophe
which the President, pursuant to sections 5122(2) and 5170 of Title 42, has determined to be a major disaster.
(i) Single-family housing in outlying areas
The Secretary is authorized to insure under this section any mortgage meeting the requirements of subsection (b) of
this section, except as modifIed by this subsection, which involves a principal obligation not in excess of 75 per
centum of the limit on the principal obligation applicable to a one-family residence under subsection (b) of this
section and not in excess of 97 per centum (or, in any case where the dwelling is not approved for mortgage
insurance prior to the beginning of construction, unless the construction of the dwelling was completed more than
one year prior to the applica.tion for mortgage insurance or the dwelling was approved for guaranty, insurance, or
direct loan under chapter 37 of Title 38 prior to the beginning of construction, 90 per centum) of the appraised
value of a property located in an area where the Secretary frods it is not practicable to obtain conformity with many
of the requirements essential to the insurance of mortgages on housing in built-up urban areas, upon which there is
located a dwelling designed principally for a single-family residence: Provided, That the Secretary frods that the
property with respect to which the mortgage is executed is an acceptable risk, giving consideration to the need for
providing adequate housing for families of low and moderate income particularly in suburban and outlying areas or
small communities: Provided further, That under the foregoing provisions of this subsection the Secretary is
authorized to insure any mortgage issued with respect to a farm home on a plot of land two and one- half or more
acres in size adjacent to an all-weather public road.
(j) Real estate loans by national banks
Loans secured by mortgages insured under this section shall not be taken into account in determining the amount of
real estate loans which a national bank may make in relation to its capital and surplus or its time and savings
deposits.

)
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12 V.S.C.A. § 1709
(k) Rehabilitation of one- to four-family structures; definitions; eligibility; refmancing and extension; General
Insurance Fund
(1) The Secretary may, in order to assist in the rehabilitation of one- to four-family structures used primarily for
residential purposes, insure and make commitments to insure rehabilitation loans (including advances made during
rehabilitation) made by fmancial institutions on and after 180 days following October 31, 1978. Such
commitments to insure and such insurance shall be made upon such terms and conditions which the Secretary may
prescribe and which are consistent with the provisions of subsections (b), (c), (e), (i), and G) of this section, except
as modified by the provisions of this subsection.
(2) For the purpose of this subsection--
(A) the term "rehabilitation loan" means a loan, advance of credit, or purchase of an obligation representing a
loan or advance of credit, made for the purpose of fmancing--
(i) the rehabilitation of an existing one- to four-unit structure which will be used primarily for residential
purposes;
(ii) the rehabilitation of such a structure and the refmancing of the outstanding indebtedness on such structure
and the real property on which the structure is located; or
(iii) the rehabilitation of such a structure and the purchase of the structure and the real property on which it is
located; and
(B) the term "rehabilitation" means the improvement (including improvements designed to meet cost-effective
energy conservation standards prescribed by the Secretary) or repair of a structure, or facilities in connection
with a structure, and may include the provision of such sanitary or other facilities as are required by applicable
codes, a community development plan, or a statewide property insurance plan to be provided by the owner or
tenant of the project. The term "rehabilitation" may also include measures to evaluate and reduce lead-based
paint hazards, as such terms are defined in section 4851 b of Title 42.
(3) To be eligible for insurance under this subsection, a rehabilitation loan shall--
(A) involve a principal obligation (including such initial service charges, appraisal, inspection, and other fees as
the Secretary shall approve) in an amount which does not exceed, when added to any outstanding indebtedness
of the borrower which is secured by the structure and the property on which it is located, the amount specified in
subsection (b)(2) of this section; except that, in determining the amount of the principal obligation for purposes
of this subsection, the Secretary shall establish as the appraised value of the property an amount not to exceed
the sum of the estimated cost of rehabilitation and the Secretary's estimate of the value of the property before
rehabilitation;
(B) bear interest at such rate as may be agreed upon by the borrower and the fmancial institution;
(C) be an acceptable risk, as determined by the Secretary; and
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12 U.S.C.A. § 1709
(D) comply with such other terms, conditions, and restrictions as the Secretary may prescribe.
(4) Any rehabilitation loan insured under this subsection may be refmanced and extended in accordance with such
terms and conditions as the Secretary may prescribe, but in no event for an additional amount or term which
exceeds the maximum provided for in this subsection.
(5) All funds received and all disbursements made pursuant to the authority established by this subsection shall be
credited or charged, as appropriate, to the General Insurance Fund, and insurance benefits shall be paid in cash out
of such Fund or in debentures executed in the name of such Fund. Insurance benefits paid with respect to loans
secured by a first mortgage and insured under this subsection shall be paid in accordance with section 1710 of this
title, except that all references in section 1710 of this title to the Mutual Mortgage Insurance Fund shall be
construed as referring to the General Insurance Fund. Insurance benefits paid with respect to loans secured by a
mortgage other than a first mortgage and insured under this subsection shall be paid in accordance with paragraphs
(6) and (7) of section 1715k(h) of this title, except that reference to "this subsection" in such paragraphs shall be
construed as referring to this subsection.
(1) Repealed. Pub.L. 90-448, Title I, § 103(b), Aug. 1, 1968,82 Stat. 486
(m) Repealed. Pub.L. 100-242, Title IV, § 406(c), Feb. 5, 1988, 101 Stat. 1902
(n) Cooperative housing projects; defmitions
(1) The Secretary is authorized to insure under this section any mortgage meeting the requirements of subsection
(b) of this section, except as modified by this subsection. To be eligible, the mortgage shall involve a dwelling unit
in a cooperative housing project which is covered by a blanket mortgage insured under this chapter or the
construction of which was completed more than a year prior to the application for the mortgage insurance. The
mortgage amount as determined under the other provisions of subsection (b) of this section shall be reduced by an
amount equal to the portion of the unpaid balance of the blanket mortgage covering the project which is
attributable (as of the date the mortgage is accepted for insurance) to such unit.
(2) For the purposes of this subsection--
(A) The terms "home mortgage" and "mortgage" include a first lien given (in accordance with the laws of the
State where the property is located and accompanied by such security and other undertakings as may be required
under regulations of the Secretary) to secure a loan made to finance the purchase of stock or membership in a
cooperative ownership housing corporation the permanent occupancy of the dwelling units of which is restricted
to members of such corporation, where the purchase of such stock or membership will entitle the purchaser to the
permanent occupancy of one of such units.
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12 V.S.C.A. § 1709
(B) The terms "appraised value of the property", "value of the property", and "value" include the appraised
value of a dwelling unit in a cooperative housing project of the type described in subparagraph (A) where the
purchase of the stock or membership involved will entitle the purchaser to the permanent occupancy of that unit;
and the term "property" includes a dwelling unit in such a cooperative project.
(C) The term "mortgagor" includes a person or persons giving a fIrst lien (of the type described in subparagraph
(A» to secure a loan to fmance the purchase of stock or membership in a cooperative housing corporation.
(0) Insurance of mortgages on owner occupied homes in communities subject to adverse economic conditions
resulting from Indian claims to ownership of land; obligation of Special Risk Insurance Fund
(1) Notwithstanding any other provision of this section or any other section of this subchapter, the Secretary is
authorized to insure, and to commit to insure, under subsection (b) of this section as modifIed by this subsection a
mortgage which meets both the requirements of this subsection and such criteria as the Secretary by regulation may
prescribe to further the purpose of this subsection, in any community where the Secretary determines that--
(A) temporary adverse economic conditions exist throughout the community as a direct and primary result of
outstanding claims to ownership of land in the community by an American Indian tribe, band, or Nation;
(B) such ownership claims are reasonably likely to be settled, by court action or otherwise;
(C) as a direct result of the community's temporarily impaired economic condition, owner occupants of homes in
the community have been involuntarily unemployed or underemployed and have thus incurred substantial
reductions in income which signifIcantly impair their ability to continue timely payment of their mortgages;
(D) as a result, widespread mortgage foreclosures and distress sales of homes are likely in the community; and
(E) fIfty or more individual homeowners were joined as parties defendant or were members of a defendant class
prior to December 31, 1976, in litigation involving claims to ownership of land in the community by an
American Indian tribe, band, or Nation.
(2) A mortgage shall be eligible for insurance under subsection (b) of this section as modifIed by this subsection
without regard to limitations in this subchapter relating to a mortgagor's reasonable ability to pay, economic
soundness, marketability of title, or any other statutory restriction which the Secretary determines is contrary to the
purpose of this subsection, but only if the mortgagor is an owner of a home in a community specifIed in paragraph
(1) who, as a direct result of the community's temporarily impaired economic condition, has been involuntarily
unemployed or underemployed and has thus incurred a substantial reduction in income which signifIcantly impairs
the owner's ability to continue timely payment of the mortgage. The Secretary is authorized to encourage or afford
directly to or on behalf of mortgagors whose mortgages are insured under subsection (b) of this section as modifIed
by this subsection forebearance, assignment of mortgages to the Secretary, or such other relief as the Secretary
deems appropriate and consistent with the purpose of this subsection. The Secretary, in connection with any
mortgage insured under subsection (b) of this section as modifIed by this subsection, shall have all statutory
powers, authority, and responsibilities which the Secretary has with respect to other mortgages insured under
subsection (b) of this section, except that the Secretary may modify such powers, authority, or responsibilities
where the Secretary deems such action to be necessary because of the special nature of the mortgage involved.
Notwithstanding section 1708 of this title, the insurance of a mortgage under subsection (b) of this section as
modifIed by this subsection shall be the obligation of the Special Risk Insurance Fund created pursuant to section
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12 U.S.C.A. § 1709 -
1715z-3 of this title.
(P) Insurance of mortgages in communities subject to temporary adverse economic conditions as a result of claims
to ownership of land in the community by an American Indian tribe, band, or nation; eligibility, authorities, etc.
(1) Notwithstanding any other provision of this section or any other section of this subchapter, the Secretary is
authorized to insure, and to commit to insure, under subsection (b) of this section as modified by this subsection a
mortgage which meets both the requirements of this subsection and such criteria as the Secretary by regulation
shall prescribe to further the purpose of this subsection, in any community where the Secretary determines that--
(A) temporary adverse economic conditions exist throughout the community as a direct and primary result of
outstanding claims to ownership of land in the community by an American Indian tribe, band, or nation;
(B) such ownership claims are reasonably likely to be settled, by court action or otherwise; and
(C) fifty or more individual homeowners were joined as parties defendant or were members of a defendant class
prior to April 1, 1980, in litigation involving claims to ownership of land in the community by an American
Indian tribe, band, group, or nation pursuant to a dispute involving the Articles of Confederation, Trade and
Intercourse Act of 1790, or any similar State or Federal law.
(2) A mortgage shall be eligible for insurance under subsection (b) of this section as modified by this subsection
without regard to limitations in this subchapter relating to marketability of title, or any other statutory restriction
which the Secretary determines is contrary to the purpose of this subsection, but only if the mortgagor is an owner
of a home in a community specified in paragraph (1). The Secretary, in connection with any mortgage insured
under subsection (b) of this section as modified by this subsection, shall have all statutory powers, authority, and
responsibilities which the Secretary has with respect to other mortgages insured under subsection (b) of this
section, except that the Secretary may modify such powers, authority, or responsibilities where the Secretary deems
such action to be necessary because of the special nature of the mortgage involved. Notwithstanding section 1708
of this title, the insurance of a mortgage under subsection (b) of this section as modified by this subsection shall be
the obligation of the Special Risk Insurance Fund created pursuant to section 1715z-3 of this title.
(q) Insurance of mortgages secured by property on certain lands leased by Seneca Nation of New York Indians
(1) Notwithstanding any other provision of this section or any other section of this subchapter, the Secretary shall
insure and commit to insure, under subsection (b) of this section as modified by this subsection, any mortgage
secured by property located on land that--
(A) is within the Allegany Reservation of the Seneca Nation of New York Indians; and
(B) is subject to a lease entered into for a term of99 years pursuant to the Act of February 19, 1875 (Chapter 90;
18 Stat. 330) and the Act of September 30, 1890 (Chapter 1132; 26 Stat. 558).

f
i
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12 U.S.C.A. § 1709
(2) A mortgage shall be eligible for insurance under subsection (b) of this section as modified by this subsection
without regard to limitations in this subchapter relating to marketability of title or any other statutory restriction
that the Secretary determines is contrary to the purpose of this subsection.
(3) The Secretary, in connection with any mortgage insured under subsection (b) of this section as modified by this
subsection, shall have all statutory powers, authority, and responsibilities that the Secretary has with respect to
other mortgages insured under subsection (b) of this section, except that the Secretary may modify such powers,
authority, or responsibilities if the Secretary determines such action to be necessary because of the special nature of
the mortgage involved.
(4) Notwithstanding section 1708 of this title, the insurance of a mortgage under subsection (b) of this section as
modified by this subsection shall be the obligation of the Special Risk Insurance Fund created in section 1715z-3
of this title.
(r) Actions to reduce losses under single family mortgage insurance program
The Secretary shall take appropriate actions to reduce losses under the single- family mortgage insurance programs
carried out under this subchapter. Such actions shall include--
(1) an annual review by the Secretary of the rate of early serious defaults and claims, in accordance with section
1735f-11 of this title;
(2) requiring that at least one person acqurrmg ownership of a one- to four- family residential property
encumbered by a mortgage insured under this subchapter be determined to be creditworthy under stfllldards
prescribed by the Secretary, whether or not such person assumes personal liability under the mortgage (except
that acquisitions by devise or descent shall not be subject to this requirement);
(3) in any case where personal liability under a mortgage is assumed, requiring that the original mortgagor be
advised of the procedures by which he or she may be released from liability; and
(4) providing counseling, either directly or through third parties, to delinquent mortgagors whose mortgages are
insured under this section, using the Fund to pay for such counseling.
In any case where the homeowner does not request a release from liability, the purchaser and the homeowner shall
have joint and several liability for any default for a period of 5 years following the date of the assumption. After
the close of such 5-year period, only the purchaser shall be liable for any default on the mortgage unless the
mortgage is in default at the time of the expiration of the 5-year period.
(s) Suspension or revocation of approval of mortgagee; notice and statement of reasons
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12 V.S.C.A. § 1709
Whenever the Secretary has taken any discretionary action to suspend or revoke the approval of any mortgagee to
participate in any mortgage insurance program under this subchapter, the Secretary shall provide prompt notice of
the action and a statement of the reasons for the action to--
(1) the Secretary of Veterans Affairs;
(2) the chief executive officer of the Federal National Mortgage Association;
(3) the chief executive officer of the Federal Home Loan Mortgage Corporation;
(4) the Administrator of the Farmers Home Administration;
(5) if the mortgagee is a national bank or District bank, or a subsidiary or affiliate of such a bank, the
Comptroller of the Currency;
(6) if the mortgagee is a State bank that is a member of the Federal Reserve System or a subsidiary or affiliate of
such a bank, or a bank holding company or a subsidiary or affiliate of such a company, the Board of Governors
of the Federal Reserve System;
(7) if the mortgagee is a State bank that is not a member of the Federal Reserve System or is a subsidiary or
affiliate of such a bank, the Board of Directors of the Federal Deposit Insurance Corporation; and
(8) if the mortgagee is a Federal or State savings association or a subsidiary or affiliate of a savings association,
the Director of the Office of Thrift Supervision.
(t) Disclosure regarding interest due upon mortgage prepayment
(1) Each mortgagee (or servicer) with respect to a mortgage under this section shall provide each mortgagor of
such mortgagee (or servicer) written notice, not less than annually, containing a statement of the amount
outstanding for prepayment of the principal amount of the mortgage and describing any requirements the
mortgagor must fulfill to prevent the accrual of any interest on such principal amount after the date of any
prepayment. This paragraph shall apply to any insured mortgage outstanding on or after the expiration of the
90-day period beginning on the date of effectiveness of fmal regulations implementing this paragraph.
(2) Each mortgagee (or servicer) with respect to a mortgage under this section shall, at or before closing with
respect to any such mortgage, provide the mortgagor with written notice (in such form as the Secretary shall
prescribe, by regulation, before the expiration of the 90-day period beginning upon November 28, 1990) describing
any requirements the mortgagor must fulfill upon prepayment of the principal amount of the mortgage to prevent
the accrual of any interest on the principal amount after the date of such prepayment. This paragraph shall apply to
any mortgage executed after the expiration of the period under paragraph (1).
(u) Accountability of mortgage lenders

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12 U.S.C.A. § 1709
(1) No mortgagee may make or hold mortgages insured under this section if the customary lending practices of the
mortgagee, as determined by the Secretary pursuant to section 1735f-17 of this title, provide for a variation in
mortgage charge rates that exceeds 2 percent for insured mortgages made by the mortgagee on dwellings located
within an area. The Secretary shall ensure that any permissible variations in the mortgage charge rates of any
mortgagee are based only on actual variations in fees or costs to the mortgagee to make the loan.
(2) For purposes of this subsection--
(A) the term "area" shall have the meaning given the term under subsection (b)(2) of this section;
(B) the term "mortgage charges" includes the interest rate, discount points, loan origination fee, and any other
amount charged to a mortgagor with respect to an insured mortgage; and
(C) the term "mortgage charge rate" means the amount of mortgage charges for an insured mortgage expressed
as a percentage of the initial principal amount of the mortgage.
(v) Use of FHA insurance with assistance under 42 U.S.C. 1437f
Notwithstanding section 1708 of this title, the insurance of a mortgage under this section in connection with the
assistance provided under section 1437f(y) of Title 42 shall be the obligation of the General Insurance Fund
created pursuant to section 1735c of this title. The provisions of subsections (a) through (h), 0), and (k) of section
1710 of this title shall apply to such mortgages, except that (1) all references in section 1710 of this title to the
Mutual Mortgage Insurance Fund or the Fund shall be construed to refer to the General Insurance Fund, and (2)
any excess amounts described in section 171 O( f)( 1) of this title shall be retained by the Secretary and credited to
the General Insurance Fund.
(w) Annual report
The Secretary of Housing and Urban Development shall submit to the Congress an annual report on the single
family mortgage insurance program under this section. Each report shall set forth--
(1) an analysis of the income groups se.rved by the single family insurance program, including--
(A) the percentage of borrowers whose incomes do not exceed 100 percent of the median income for the area;
(B) the percentage of borrowers whose incomes do not exceed 80 percent of the median income for the area;
and
(C) the percentage of borrowers whose incomes do not exceed 60 percent of the median income for the area;
(2) an analysis of the percentage of minority borrowers annually assisted by the program; the percentage of
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12 U.S.C.A. § 1709
central city borrowers assisted and the percentage of rural borrowers assisted by the program;
-
(3) the extent to which the Secretary in carrying out the program has employed methods to ensure that needs of
low and moderate income families, underserved areas, and historically disadvantaged groups are served by the
program; and
(4) the current impediments to having the program serve low and moderate income borrowers; borrowers from
central city areas; borrowers from rural areas; and minority borrowers.
The report required under this subsection shall include the report required under section 1735f-18(c) of this title
and the report required under section 1711 (g) of this title.
(x) Management deficiencies report
(1) In general
Not later than 60 days after October 21, 1998, and annually thereafter, the Secretary shall submit to Congress a
report on the plan of the Secretary to address each material weakness, reportable condition, and noncompliance
with an applicable law or regulation (as defmed by the Director of the Office of Management and Budget)
identified in the most recent audited fmancial statement of the Federal Housing Administration submitted under
section 3515 of Title 31.
(2) Contents of annual report
Each report submitted under paragraph (1) shall include--
(A) an estimate of the resources, including staff, information systems, and contract assistance, required to
address each material weakness, reportable condition, and noncompliance with an applicable law or regulation
described in paragraph (1), and the costs associated with those resources;
(B) an estimated timetable for addressing each material weakness, reportable condition, and noncompliance
with an applicable law or regulation described in paragraph (1); and
(C) the progress of the Secretary in implementing the plan of the Secretary included in the report submitted
under paragraph (1) for the preceding year, except that this subparagraph does not apply to the initial report
submitted under paragraph (1).
[FNl] So in original. Probably should be "subsection".
[FN2] So in original. Second comma probably should not appear.
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12 U.S.C.A. § 1709
END OF DOCUMENT
-
12 USCA § 1710, Payment ofinsurance Page 1
*83941 12 U.S.c.A. § 1710 adjuStme~ts), aSd~te~~-by th~'Se~;etary, or

U}ITTEDSTATESCODE (B) upon the sale of the insured property by the
ANNOTATED mortgagor after default, if (i) the sale has been
TITLE 12. BANKS AND BANKING approved by the Secretary, (ii) the mortgagee
CHAPTER 13--NATIONAL receives an amount at least equal to the fair
market value of the property (with appropriate
HOUSING
adjustments), as determined by the Secretary, and
SUBCHAPTER II--MORTGAGE :Ji
(iii) the mortgagor has received appropriate
'INSURANCE II
ill! I,
homeownership counseling, as determined by the
Secretary; and (2) upon the assignment to the
Currentthrough P.L. 105-175, approved II :i', Secretary of all claims referred to in clause (2) of
5-11-98 the preceding sentence. The payment of benefits
l
under the preceding sentence may be made for any
§ 1710. Payment of insurance mortgage insured pursuant to a commitment to
\: .,!'<. ",.-,~"".,.', .._•• "~,,,'I"' ••, ...";/',\ j~~.:.... ~. ~;.'. , ~ ~ "~j, & ... iIl&])l;l;ljs~lle(totLQr l;ifter November)O.1983 (on.",..__ ."
(a) Conveyance, sale, and assignment) by or after November 7, 1988, with respect to the
mortgagee; debentures and certificates of ell, ; payment of benefits under clause (l)(B) of the
cost of foreclosure; direct conveyances :! preceding sentence), and, with the approval of the
mortgagee, for any mortgage insured pursuant to a
In any case in which the mortgagee under a commitment issued before that date. As a
mortgage insured under section 1709 of this title condition of the receipt of such benefits, the
shall have foreclosed and taken possession of the mortgagee shall maintain or assure the
mortgaged property in accordance with maintenance of the mortgaged property (in such
regulations of, and within a period to be manner as the Secretary shall by regulation
determined by the Secretary, or shall, with the provide) during the period beginning on the taking
consent of the Secretary, have otherwise acquired of the possession or other acquisition of the
such property from the mortgagor after default, mortgaged property by the mortgagee and ending
the mortgagee shall be entitled to receive the on conveyance to the Secretary or other
benefit of the insurance as hereinafter provided, disposition of the mortgaged property in
upon (1) the prompt conveyance to the Secretary accordance with this section, and funds expended
of title to the property which meets the by the mortgagee in meeting such obligation shall
requirements of rules and regulations of1 ;'the be included, to" the extent provided in this
Secretary in force at the time the mortgage' as subsection or in subsection (k) of this section, in
insured, and which is evidenced in the m er debentures or other insurance payment pursuant to
prescribed by such rules and regulations, an ! (2) this section. Upon the conveyance and assignment
the assignnient to him of all claims of i the referred to in the first sentence of this section or
mortgagee against the mortgagor or others, ari,l ~g the sale and assignment referred to in the second
out of the mortgage transaction or forecld$Jlfe sentence of this subsection, the obligation of the
proceedings, except such claims as may have bben mortgagee to pay the premium charges for
released with the consent of the Secretary. The insurance shall cease and the Secretary shall issue
Secretary is also authorized, in accordance with to the mortgagee debentures having a par value
such regulations as the Secretary may prescribe, to equal to the value of the mortgage and (subject to
make the benefit of the insurance as hereinafter subsection (e)(2) of this section) a certificate of
provided available to the mortgagee, claim, as hereinafter provided. For the purposes
notwithstanding any provision of this section of this subsection, the value of the mortgage shall
requiring conveyance of title to the property to the be determined, in accordance with rules and
Secretary, (l)(A) upon sale of the insured property regulations prescribed by the Secretary, by adding
at foreclosure, where such sale is for at least the to the amount of the original principal obligation
fair market value of the property (with appropriate of the mortgage which was unpaid on the date of
12 USCA § 1710, Payment of insurance Page 2
.....•.,_... ,_. -..,- ...... _--~- .... _-_._ -
.. ...... _-........
the institution of foreclosure proceedings, or on 1709 of this title on or after August 2, 1954, there
the date of the acquisition of the property after may be included in the debentures issued by the
default other than by foreclosure the amount of all Secretary on account of the cost of foreclosure (or
payments which have been made by the mortggee of acquiring the property by other means) actually
for taxes, ground rents, and water rates, whic i are paid by the mortgagee and approved by the
liens prior to the mortgage, special assessPl nts Secretary an amount, not in excess of two-thirds
which are noted on the application for insuran or of such cost or $75 whichever is the greater: And
which become liens after the insurance of :.the provided further, That with respect to a mortgage
mortgage, charges for the administraon, accepted for insurance pursuant to a commitment
operation, maintenance and repair of corom ,ity- issued on or after September 2, 1964, the
owned property or the maintenance and rep . of Secretary may include in debentures or in the cash
the mortgaged property, the obligation for which payment an amount not to exceed the foreclosure,
arises out of a covenant filed for record 'and acquisition, and conveyance costs actually paid by
approved by the Secretary prior to.the insurance of the mortgagee and approved by the Secretary:
".. Jp.~.. ,WoJ;j:~~,~ •.insyr~9~L,.,p,n~" . .1h~.:;IDQJigag~ .~ '•. A»g,,;,p.t:pyid~s.L f.vrth,er, l'h~twith1e~p~ct to. a.
property, and any mortgage insurance premiums, mortgage accepted for insurance pursuant to a
and any tax imposed by the United States upon commitment issued prior to September 2, 1964,
any deed or other instrument by which said the Secretary may, with the consent of the
property was acquired by the mortgagee . and mortgagee (in lieu of issuing a certificate of claim
transferred or conveyed to the Secretary and by as provided in subsection (e) of this section),
deducting from such total amount any amount include in debentures or in the cash payment, in
received on account of the mortgage after either of addition to amounts otherwise allowed for such
such dates, any amount received as rent or other costs, an amount not to exceed one-third of the
income from the property, less reasonable total foreclosure, acquisition, and conveyance
expenses incurred in handling the property, 'fter costs actually paid by the mortgagee and approved
either of such dates, and, in the case of insur. ce by the Secretary, but in no event may the total
benefits paid in accordance with the s bnd allowance for such costs exceed the amount
sentence of this section, any amount received actually paid by the mortgagee: And provided
the sale of the property: Provided, That " th further, That with respect to mortgages to which
respect to mortgages which are accepted, I for the provisions of sections 532 and 536 of the
insurance under section 203(b)(2)(B) of this ".. ct, Appendix to Title50 apply, and which are insured
and which are foreclosed before there shall l1~ve under section 1709 of this title, and subject to
been paid on account of the principal obligatio)1 of such regulations and conditions as the Secretary
the mortgage a sum equal to 10 per centum of the may prescribe, there shall be included in the
appraised value of the property as of the date the debentures an amount which the Secretary finds to
, mortgage was accepted for insurance, there may be sufficient to compensate the mortgagee for any
be included in the debentures issued by the loss which it may have sustained on account of
Secretary, on account of foreclosure costs actually interest on debentures by reason of its having
paid by the mortgagee and, approved by, the postponed the institution of foreclosure
Secretary an amount not in excess of 2 per centum proceedings or the acquisition of the property by
of the unpaid principal of the mortgage as of the other means during any part or all of the period of
date of the institution of foreclosure proceedings, such military service and three months thereafter:
but in no event in *83941 excess of $75: And And provided further, That where the claim is paid
provided further, That with respect to mortgages in cash there shall be included in the cash payment
which are accepted for insurance under se ion an'amount equivalent to the compensation for loss
203(b)(2)(D) of this Act or under the se pnd of debenture interest that would be included in
proviso of section 1713(c)(2) of this title, or 'der computing debentures if such claim were being
section 1715e of this title, or with respect to [any paid in debentures: And provided further, That .
mortgage accepted for insurance under se ion I with respect to any mortgage covering a one-, two-
Copyright (c) West GrouP. '1998 No claim to original U.S. Govt. works
, three-, or four-family residence insured

this chapter, if the Secretary fmds, after notic, of
der would otherwise be entitled to if such conveyance
had been made to the mortgagee and from the
-
default, that the default was due to circumst ces mortgagee to the Secretary: And provided further,
'I'
beyond the control of the mortgagor, he may, upon That the Secretary may pay insurance benefits to
such terms and conditions as he may prescribe; (1) the mortgagee to recompense the mortgagee for its
approve the request of the mortgagee for an actions to provide an alternative to the foreclosure
extension of the time for the curing of the default of a mortgage that is in default, which actions may
and of the time for commencing foreclosure include special forebearance, loan modification,
proceedings or for otherwise acquiring title to the and deeds in lieu of foreclosure, all upon terms
mortgaged property to such time as the Secretary and conditions as the mortgagee shall determine in
may determine is necessary and desirable to the mortgagee's sole discretion, within guidelines
enable the mortgagor to complete the mortgage provided by the Secretary, but which may not
payments, including an extension of time beyond include assignment of a mortgage to the Secretary:
the stated maturity. of the mprtgage, and in the And provided further, That for purposes of the
...;;.,;,:;.hi...·; i,Li.eveitt iQf a$Jtp._seq~J,1tfQrec19sur~ QT.a~qpi&Uion ~ .lit..,;. '. ImfP~g.prQ¥~, J;l0 .aGtioR a:uthQrized by the,.....,.._._._.~....
the property .by other means the Secretary is Secretary' and no action taken, nor any failure to
authorized to include in the debentures an amount act, by the Secretary or the mortgagee shall be
equal to any unpaid. mortgage interest, or; (2) subject to judicial review.. [FN1]
approve a modification of the terms of ,the
mortgage for the purpose of changing lthe *83942 (b) Consent to release of mortgagor or
amortization provisions by recasting, over ithe property
remaining term of the mortgage or over uch
longer period as may be approved by I the The Secretary may at any time, under such terms
Secretary, the total unpaid amount then du i as and conditions as he may prescribe, consent to the
determined by the Secretary, with the modific¥on release of the mortgagor from his liability under
to become effective currently .or to becOme the mortgage or the credit instrument secured
effective upon the termination of an agreed-upon thereby, or consent to the release of parts of the
extension of the period for curing the default; 'and mortgaged property from the lien of the mortgage.
the principal amount of the mortgage, as modified,
shall be considered to be the "original principal (c) Debentures; form and amount
obligation of the mortgage" as that term is used in
this chapter for the purpose of computing the total Debentures issued under this section--
face value of the debentures to be issued or the (1) shall be in such form and amounts;
cash payment to be made by the Secretary to a (2) shall be subject to such terms and
mortgagee: And provided further, That, conditions;
notwithstanding any requirement contained in this (3) shall include such provisions for
chapter that debentures may be issued only upon redemption, if any, as may be prescribed by the
acquisition of title and possession by the Secretary of Housing and Urban Development,
mortgagee and its subsequent conveyance and with the approval of the Secretary of the
transfer to the Secretary, and for the purpos of Treasury; and
avoiding unnecessary conveyance expens! in (4) may be in book entry or certificated
connection with payment of insurance ben' fits registered form, or such other form as the
under the provisions of this chapter, the Secr ary Secretary of Housing and Urban Development
is authorized, subject to such ruh~s and regulat ions may prescribe in regulations.
as he may prescribe,. to permit the mortgag4 to
tender to the Secretary a satisfactory convey~ce (d) Debentures; execution; negotiability; terms;
of title and transfer of possession direct frOIn the tax exemptions
mortgagor or other appropriate grantor and to pay
the insurance benefits to the mortgagee which it The debentures issued under this section to any
12 USCA § 1710, Payment of insurance
mortagee [FN2] with respect to mortg ges such guaranty shall be expressed on the face of the
insured under section 1709 of this title shal be debentures. In the event that the Mutual
issued in the name of the Mutual Mort age Mortgage Insurance Fund fails to pay upon
Insurance Fund as obligor and shall be negoti Me, demand, when due, the principal of or interest on
and, if in book entry form, transferable, in the any debentures. issued under this section, the
manner described by the Secretary in regulati: I'ns. Secretary of the Treasury shall pay to the holders
All such debentures shall be dated as of the date the amount thereof which is authorized to be
foreclosure proceedings were instituted, or, the appropriated, out of any money in the Treasury
property was otherwise acquired by the mortgagee not otherwise appropriated, and thereupon to the
after default: Provided, That debentures issued extent of the amount so paid the Sec:retary of the
pursuant to claims for insurance filed on or after Treasury shall succeed to all the rights of the
September 2, 1964 shall be dated as of the date of holders of such debentures.
default or as of such later date as the Secretary, in
his discretion, may establish by regulation. The *83943 (e) Certificate of claim
;~<:debentures shall, bearinterestirQm such date at ,a
rate established by the Secretary pursuant to (1) Subject to paragraph (2), the certificate of
section 17150 of this title, payable semiannually claim issued by the Secretary to any mortgagee
on the 1st day of January and the 1st day of July shall be for an amount which the Secretary
of each year, and shall mature twenty years 'fter determines to be sufficient, when added to the face
the date thereof. Such debentures as are issu in value of the debentures issued and the cash
exchange for property covered by mortg 'ges adjustment paid to the mortgagee, to equal the
insured under section 1709 or section 1713 ofthis amount which the mortgagee would have received
title prior to February 3, 1938 shall be su 'ect if, at the time of the conveyance to the Secretary
only to such Federal, State, and local taxes a I the of the property covered by the mortgage, the
mortgages in exchange for which they are is :ued mortgagor had redeemed the property and paid in
would be subject to in the hands of the hold ,I of full all obligations under the mortgage and a
the debentures and shall be a liability or'lllie reasonable amount for necessary expenses
MutUal Mortgage Insurance Fund, but such incurred by the mortgagee in connection with the
debentures shall be fully and unconditionally foreclosure proceedings, or the acquisition of the
guaranteed as to principal and interest by the mortgaged property otherwise, and the conveyance
United States; but any mortgagee entitled to thereof to the Secretary. Each such certificate of
receive any such debentures may elect to receive in claim shall provide that there shall accrue to the
lieu thereof a cash adjustment and debentures holder of such certificate with respect to the face
issued as hereinafter provided and bearing the amount of such certificate, an increment at the rate
current rate of interest. Such debentures as are of 3 per centum per annum which shall not be
issued in exchange for property covered by the compounded. The amount to which the holder of
mortgages insured after February 3, 1938, shall be any such certificate shall be entitled shall be
exempt, both as to principal and interest, from all determined as provided in subsection (f) of this
taxation (except surtaxes, estate, inheritance, ,and section.
gift taxes) now or hereafter imposed by the U'ted (2) A certificate of claim shall not be issued and
States, by any Territory, dependency, or the provisions of paragraph (1) of this subsection
possession thereof, or by any State, co ty, shall not be applicable in the case of a mortgage
municipality, or local taxing authority; and 'uch accepted for insurance pursuant to a commitment
debentures shall be paid out of the M ual issued on or after September 2, 1964.
Mortgage Insurance Fund, which shall ,be
primarily liable therefor, and they shall be~Wly ,Cf) Division of excess proceeds; settlement of
and unconditionally guaranteed as to principal-land certificates of claims and refunds to mortgagors
interest by the United States, and, in the casb' of
debentures issued in certificated registered form, (1) If, after deducting (in such manner and
-
12 USCA § 1710, Payment of insurance PageS
amount as the Secretary shall determine to be liquidation of the Secretary's interest in the
equitable and in accordance with sound property, to settle any certificate of claim issued
accounting practice) the expenses incurred by the pursuant to subsection (e) of this section, with
Secretary, the net amount realized from any respect to which settlement had not been effected
property conveyed to the Secretary'under .this prior to September 2, 1964, by making payment in
section and the claims assigned therewith exceed cash to the holder thereof of such amount not
the face value of the debentures issued and the exceeding the face amount of the certificate of
cash paid in exchange for such property plus all claim, together with the accrued interest thereon,
interest paid on such debentures, such excess ~hall as the Secretary may consider appropriate:
be divided as follows: : Provided, That in any case where the certificate of
(i) If such excess is greater than the btal claim is settled in accordance with the provisions
amount payable under the certificate of c ~im of this paragraph, any amounts realized after
issued in connection with such property,the September 2, 1964, in the liquidation of the
Secretary shall, pay to the holder of uch Secretary's interest in the property, shall be
j~':~~~;,-,:.:;,,_;::,~),:k.~~.. .·certific~_h~1UJl ,aIlJolllit~·s-o iipayable, aild. :~. :lttl.:reitaiaed,"byth~ ...Secretal1Y 8)1ld credites to ~_~__._...
excess remaining thereafter shall be paid' to; the applicable insurance fund.
mortgagor of such property if the mortgage '~as
insured under section 1709 of this title: (g) Handling and disposal of property; settlement
Provided, That on and after September 2, 1964, of claims
any exc;ess remaining after payment to the holder
of the:,f:ull amount of the certificate of claim, Notwithstanding any other prOVlSlon of law
together with the accrued interest increment relating to the acquisition, handling, or disposal of
thereon, shall be retained by the Secretary and real property by the United States, the' Secretary
credited to the applicable insurance fund; and shall have power to deal with, complete, rent,
*83944 (ii) If such excess is equal to or less renovate, modernize, insure, or sell for cash or ,-
than the total amount payable under such credit, in his discretion, any properties conveyed
certificate of claim, the Secretary shall pay to the to him in exchange for debentures andc::ertificates 11\'
holder of such certificate the full amount of such of claim as provided in this section; and,
excess. notwithstanding any other provision of law, the
(2) Notwithstanding any other provisions ofthis Secretary shall also have power to pursue to final
section, the Secretary is authorized, with respe I t to collection, by way of compromise or otherwise, all
mortgages insured pursuant to commitments i for claims against mortgagors assigned by
insurance issued after August II, 1955, and, i ·th mortgagees to the Secretary as provided in this
the consent of the mortgagee or mortgagor, a .the section: Provided, That section 5 of Title 41 shall
case may be, with respect to mortgages ins I. ed not be constiued to apply to any contract for
pursuant to commitments issued prior to .uch hazard insurance, or to any purchase or contract
date, to effect the settlement of certificate.· of for services' or supplies on account of such
claim and refunds to mortgagors at any time Jfter property if the amount thereof does not exceed
the sale or transfer of title to the property $1,000. The Secretary shall, by regulation, carry
conveyed to the Secretary under this section'and out a program of sales of such properties and shall
without awaiting the final liquidation of such develop and implement appropriate credit terms
property for the purpose of determining the net and standards to be used in carrying out the
amount to be realized therefrom: Provided, That program. The power to convey and to execute in
the settlement authority created by the Housing the name of the Secretary deeds of conveyance,
Amendments of 1955 shall be terminated with deeds of release, assignments and satisfactions of
respect to any. certificates of claim outstanding as mortgages, and any other written instrument
of September 2, 1964. relating to real or personal property or any interest
(3) With the consent of the holder thereof, the therein heretofore or hereafter acquired by the
Secretary is authorized, without awaiting the final Secretary pursuant to the provisions of this
chapter, may be exercised by an officer appo' ,ted rights of the mortgagee anq the mortgagor under
by him., without the execution of any exp ess I.
this· section shall terminate as of the date of such
delegation of power or .power of atto . ey: notice.
Provided, That nothing in this subsection sha.. be
construed to prevent the Secretary from delega~ing (k) Debentures; inclusion of payments and taxes;
such power by order or by power of attorney, in termination of obligation to pa.y premiums
his discretion, to any officer, agent, or employee
he may appoint: And provided further, That a Notwithstanding any. other provision of this
conveyance or transfer of title to real or· personal section or of section 1739 or 175Oc of this title
property or an interest therein to the Secretary of and with respect to any debentures issued in
Housing and Urban Development, his successors exchange for properties conveyed to ~d accepted
and assigns, without identifying the Secretary by the Secretary after September 23, 1959 in
therein, shall be deemed a proper conveyance or accordance with such sections, the Secretary may
transfer to the same extent and of like effect as. if (1) include in debentures reasonable payments
the Secretary were personally.,. naJ;l1ed in such +'" mad~ by the m.oxtgagee with' the approval of the
conveyance or transfer. Secretary for the purpose of protecting, operating,
, I
or preserving the property, and taxes imposed
*83945 (h) Mortgagor's or mortgagee's intere tin upon any deed or any other instrument by which
property or claim conveyed the property was acquired by the mortgagee and
transferred or conveyed to the Secretary; (2)
No mortgagee or mortgagor shall have, an no include in debentures as a portion of foreclosure
certificate of claim shall be construed to giv, to costs (to the extent that foreclosure costs may be
any mortgagee or mortgagor, any right or int ·est included in such debentures by any other provision
in any property conveyed to the Secretary in of this chapter) payments made by the mortgagee
any claim assigned to him; nor shall the SecreltiuY for the cost of acquiring the property and
1:1
owe any duty to any mortgagee or mortgagor with conveying and evidencing title to the property to
respect to the handling or disposal of any such the Secretary; and (3) terminate the mortgagee's
property or the collection ofany such claim. obligation to pay mortgage insurance premiums
upon receipt of an application for debentures filed
(j) [FN3] Foreclosure; payment and cessation of by the mortgagee, or in the event the contract of
obligation insurance is terminated pursuant to section l7l5t
of this title.
In the event that any mortgagee' under a
mortgage insured under section 1709 of this title *83946 (l ) Nullification of right of redemption of
(other than a mortgagee receiving insurance single family mortgagors
benefits under clause (l)(A) of the second
sentence of subsection (a) of this section) (1) Whenever the Secretary or a contract
forecloses on the mortgaged property but does not mortgagee (pursuant to its contract with the
convey such property to the Secretary: in Secretary) forecloses on a Secretary-held single
accordance with this section, and the Secret is family mortgage in any Federal or State court or
given written notice thereof, or in the event at pursuant to a power of sale in a mortgage, the
the mortgagor pays the obligation under the purchaser at the foreclosure sale shall be entitled
mortgage in full prior to the maturity thereof,and to receive a conveyance of title to, and possession
the mortgagee pays any adjusted premium ch ge I • of, the property, subject to the interests senior to
required under the provisions of section 170 (c) the interests of the Secretary or the .contract
of this title, and the Secretary is given wdten mortgagee, as the case may be. Notwithstanding
notice by the mortgagee of the payment of such any State law to the contrary, there shall be no
obligation, the obligation' to pay any subsequent right of redemption (including in all instances any
premium charge for insurance shall cease, and all right to possession based upon any right of
-
.-
redemption) in the mortgagor or any other person that--

subsequent to the foreclosure sale in conne .ion (i) was formerly insured by the Secretary
with a Secretary-held single family mortgage. ; he under any section of this subchapter; or
appropriate State official or the trustee, as the ase (ii) was taken' by the Secretary as a
may be, shall execute and deliver a deed or er purchase money mortgage in connection with
appropriate instrument conveying title to .the the sale or other transfer of Secretary-owned
purchaser at the foreclosure sale, consistent I.• th property under any section of this subchapter.
applicable procedures in the jurisdiction .and (D) The term "single-family mortgage" means
without regard to any such right of redemption' i
.• 1
a mortgage that covers property on which is

(2) The following actions shall be taken in oraer located a I-to-4 family residence.
to verify title in the purchaser at the foreclosure
sale: CREDIT(S)
(A) In the case of a judicial foreclosure in any
Federal or State court, there shall be included in 1998 Electronic Update
/.,,,.,.,.; 'v.,. . the 'pptitio}J. llIl,(,i iJ;l the j1,1Qgmeoiof.;fqrec!Qsure,a . .~.~,
statement that the foreclosure is in accordance dun/21, 1'934, ~: 817, Titlell: § jtj4, 48 Stat. 1249; May·'·
28,1935, c. 150, § 29(c), 49Stat 300; Feb. 19, 1937, c. 12,
with this subsection and that there is no right of 50 Stat. 20; Feb. 3, 1938, c. 13, § 3,52 Stat 12; June 3,
redemption in the mortgagor or any other person. 1939, c. 175, §§ 9,10, 53 Stat. 806; June 28, 1941, c. 261,
(B) In the case of a foreclosure pursuant to a § 9, 55 Stat. 365; Oct. 14, 1943, c. 258, § 1, 57 Stat 570;
power of sale provision in the mortgage, the Aug. 10, 1948, c. 832, Title 1, § 101 (/), (q), 62 Stat. 1273,
statement required in subparagraph (A) shall be 1274; Apr; 20,1950, c. 94, Title I, §§ 105,122,64 Stat. 52,
59; Sept. 1, 1951, c. 378, Title VI, § 604(a), 65 Stat. 314;
included in the advertisement of the sale land Aug. 2, 1954, c. 649, Title!, §§ 111, 112 (a), 113, 68 Stat.
either in the recitals of the deed or er 593, 594; Aug. 11, 1955, c. 783, Title I, § 102(a), 69 Stat.
appropriate instrument conveying title to !the 635; July 12,1957, Pub. L. 85-104, Title I, §§ 107, 108(a),
purchaser at the foreclosure sale or in an i. 71 Stat. 297; Sept. 23, 1959; Pub. L. 86-372, Title I, §§
affidavit or addendum to the deed. 114(b), 117, 73 StaL 662, 664; June 30, 1961, Pub. L.
87-70, Title VI, § 612(b), (c), 75 Stat. 180; Sept. 2, 1964,
(3) For purposes of this subsection: Pub. L. 88-560, Title I, §§ 104(a), 105(a), 78 Stat. 769, 770;
(A) The term "contract mortgagee" me .s a Aug. 10, 1965, Pub. L. 89-117, Title XI, § 11 08(d), 79 Stat.
person or entity under a contract with ,) the 504; May 25, 1967, Pub. L. 90-19, § 1(a)(2), (3), (4), (d),
Secretary that provides for the assignment bf a 81 Stat. 17, 18; Nov. 30, 1983, Pub.L. 98-181, Title IV, §
426,97 Stat. 1218; Feb. 5, 1988, Pub.L. 100-242, Title Ii'; §
single-family mortgage from the Secretary to the
569, 101 Stat. 1948; Nov. 7, 1988, Pub.L. 100-628, Title X.
person or entity for the purpose of pursuing § 1064(a), (b), 102 Stat. 3275; Pub.L. 101-235, Title L §
foreclosure.. 136, 103 Stat. 2028; Oct. 28, 1992, Pub.L. 102-550, Title
(B) the [FN4] term "mortgage" means a deed Ii'; § 5I6(a), 106 Stat. 3790; Jan. 26, 1996, PubL 104-99,
of trust, mortgage, deed to secure debt, security Title IV, § 407(a), 110 Stat. 45; Apr. 26, 1996, Pub.L.
104-134, Title L § 101(e){I'itle II, § 221 (a)], 110 Stat
agreement, or any other form of instrument
1321-290; renumbered Title I May 2, 1996, Pub.L.
under which any interest in property, real, 104"140, § I (a), 110 Stat. 1327.)
personal, or mixed, or any interest in property,
including leaseholds, life estates, reversionary [FNl] So in original.
interests, and any other estates under applicable
[FN2] So in original. Probably should be "mortgagee".
State law, is conveyed in trust, mortgaged,
encumbered, pledged, or otherwise rendered [FN3] So in original. There is no subsection "(i)".
subject to a lien, for the purpose of securin .the
[FN4] So in original. Probably should be "The".
payment of money or the performance 0 an
obligation. r <General Materials (GM) - References,
*83947 (C) The term "Secretary-held sl: gle Annotations, or Tables>
family mortgage" means .a single-£ 'ly I
) mortgage held by the SecretarY or by a con 'act HISTORICAL NOTES

mortgagee at the time of initiation of forec1o ure
'1:
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Contact I Employment I Links I FO!.4 I Forms I Privacy Modified: 10/15/2003

.1:'age 1 or L.
Statement by SEC Chairman:

Remarks at Commission Open Meeting
by
Chairman Harvey L. Pitt
Washington, D.C.
January 15, 2003
Good Morning. This is an open meeting' of the U.s. Securities and Exchange
Commission on January 15, 2003.
This week's open meeting, and next week's, quite possibly will be the
busiest two weeks of rulemaking in this Agency's history. By the end of
next week, we will have considered nine final rules and produced four
major studies related to our obligations under the Sarbanes-Oxley Act. This
is in addition to a host of other actions already taken, and yet to come.
Despite the compressed time frame imposed upon us bySarbanes-Ox~:¥,j
we received numerous and thoughtful comments on all of our rule
proposals, and the recommendations before us today show that the Staff
has considered them all carefully, and made appropriate modifications
where warranted.
All three recommendations before us today are from the Division of

Corporation Finance, led superbly by Alan Beller. Alan's Division has taken
the lead' on many of the rulemakings under Sarbanes-Oxley, but Staff from
virtually every Division and Office of the Commission has been working
tirelessly to implement the many facets of the Act. I know my colleagues
share my pride in, and admiration for, the Staff's incredible efforts toward
completing this task in record time. The tasks we were assigned are
daunting, and the time frames for action ungenerous, but our Staff never
flinched in meeting our obligations.
The first item on the agenda today is Regulation G, which addresses the
use of pro forma financial information and implements Section 401(b) of
the Act. The Commission has long recognized the need for investors to
better understand the use of so called "pro forma" financial information - or
information that is not prepared us~g the_~erally Accepted Accounting
• princil?les reguired for financial stat~ments filed with the SEC. Over a year
ago, we issued cautionary advice about the use of such information,l as
well as an Investor Alert describing how "pro forma financials should be
analyzed, including a reminder that they should be viewed with appropriate
and healthy skepticism."~
The rules we are considering here today, go even further by setting out
http://www.sec.gov/news/speech/spchOllS03hlp.htm 1/17/03
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conditions for the disclosure of material non-GAAP information by public
companies, both within and outside of SEC filings, as well as requiring that
public earnings releases and other material non-GAAP information be
provided to the Commission.
Second, we will consider Regulation BTR (for Blackout Trading Restrictions),

which has been prepared in consultation with the Department of Labor
pursuant to Section 306 of the Act. Section 306(a) prohibits directors and
executive officers of publicly-held companies from trading company
securities if employees in the company's pension plan are subject to a plan
blackout period preventing them from trading through their plan accounts.
Regulation BTR provides definitions and clarifying rules for Section 306(a)
to ensure that it will operate as Congress intended.
Finally, we will consider two new types of disclosures in annual reports to

implement Sections 406 and 407 of the Act. The first requires public
companies to disclose whether they have at least one financial expert
serving on their audit committee, if not, why not, and, if so, the person's
name and whether they are independent of management. The second
requires public companies to disclose whether they have adopted a code of
ethics that applies to principal executive officers and senior financial officers
- and, if not, why not.
We received a great deal of comment on our original proposal's definition of

financial expertise, and I believe the Staff has responded to the legitimate
criticisms raised with a very thoughtful, and workable, proposal.
Endnotes
10 Cautionary Advice Regarding the Use of "Pro Forma" Financial Information

in Earnings Releases, Release No. 34-45124, FR-59 (Dec. 4, 2001).
2. '''Pro Forma' Financial Information: Tips for Investors" available at

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Home I Previous Page Modified: 01/15/2003
http://www.sec.gov/news/speech/spchOI1503hlp.htm 1/17/03
Speech by SEC Chairman:
Remarks at the Commission Open Meeting
by
Chairman Harvey L. Pitt
u.s. Securities and Exchange Commission

Washington, D.C.
January 22, 2003
Good Morning. This is an open meeting of the Securities and Exchange Commission,
on January 22, 2003.
As I noted at our last open meeting, this week and last are the busiest two weeks of
rulemaking in this Agency's history. Today we'll consider adopting four final rules
related to thf;$arbanes,..OxleyAct. By the end of this week - only 6 months after the
President signed the Act - the record of action by the Commission and its Staff will
be nothing short of remarkable:
Within 30 days of the Act's signing, we adopted rules requiring CEOs and CFOs to
certify their financial statements.
Including those we'll consider today and tomorrow, we will have adopted eight other
final rules relating to:
Pro forma financial information,
Codes of ethics for senior executives,
Financial experts on audit committees,
Trading during pension fund blackout periods,
Disclosure of material off-balance sheet transactions,
Retentioniof audit records,
Independence standards for public company aUditors, and
Standards of conduct for corporate attorneys.
In addition, by the end of the week we will have submitted to Congress four separate
studies of:
Penalties and disgorgements in our enforcement cases,
Securities professionals who've "aided and abetted"
federal securities law violations,
Commission enforcement actions involving reporting violations
and restatements, and
The role and function of credit rating agencies.
These deadlines will have been met without the Commission slOWing its other work -
including our robust enforcement program and numerous regulatory initiatives
unrelated to Sarbanes-Oxley. And we've already begun work on other rules, studies
and requirements of the Act, including by proposing rules related to:
Improper influence on auditors, \
Listing standards related to audit committees, and
Public company internal control reports.
Although I've said it many times before, it bears repeating - I commend the Staff for
its work to meet the deadlines under the Act. The entire Agency has been involved in
implementing the Act. Our Staff has been working, literally, around the clock for
months to meet incredibly short deadlines, while carefully considering thousands of
comment letters received on our proposals.
-
.-.
I'd also like to commend the diligence and dedication of my four colleagues, who've
read through countless drafts, endured numerous meetings, and have spent a great
deal of time worrying through the details of each of these projects.
Today, we consider recommendations from our Division of Corporation Finance,
Office of the Chief Accountant, and Division of Investment Management. Those
who've represented the Staff at the table over the last few months deserve
extraordinary praise, but there are many others who have not been at the table
whose efforts also have contributed greatly to the Staff's achievements. For
example:
Ethiopis Tafara, Acting Director of our Office of International Affairs, and his Staff,
have been of enormous assistance to the Staff and Commissioners regarding the
extraterritorial impact of many of the rules, including coordinating our interactive
roundtables on the international impact of the attorney conduct and auditor
independence rules. As I think you will see, we have made a concerted effort to try
to be responsive to the concerns of international regulators, without diminishing US
investor protections, and Ethiopis has been at the forefront of those efforts.
Many in our General Counsel's office, including Meridith Mitchell, Gordon Seymour,
Kimberly Drexler and Jill Felker, have contributed greatly. They're represented at the
table by General Counsel Giovanni Prezioso.
Jack Katz, our Secretary, and the rest of his Office also have coordinated an
unprecedented number of releases, comment letters and meetings, while providing
valuable input. Jack is the repository of much of the agency's institutional memory,
without whom we could not really function.
Joan McKown, Chief Counsel of our Enforcement Division, and her able Office, led
three of the studies we will submit to Congress this week.
David Shillman and Mark Attar, of the Division of Market Regulation, led the efforts
to complete the study on credit rating agencies.
And Larry Harris, our Chief Economist, and the entire Office of Economic Analysis,
lent their economic expertise to all of our efforts.
Our agenda is long today, and we are anxious to get started.
The first item is the adoption of Form N-CSR. This form will be used by mutual funds
and other registered management investment companies to certify their reports to
shareholders under Section 302 of the Sarbanes-Oxley Act. We also are
implementing the "code of ethics" and "financial expert" disclosure requirements of
the Sarbanes-Oxley Act for mutual funds and other registered management
investment companies.
Second, we consider amending existing requirements to enhance the independence
of auditors of public companies, including in key areas such as the provision of non-
audit services, partner compensation and partner rotation. I commend Jack Day, our
Acting Chief Accountant, and Sam Burke, Bob Burns and Paul Munter, for their
incredibly hard work on this proposal, which fulfills Congress's intent in a way that
serves investors well. I'd also like to thank Jeff Minton from the Division of
Corporation Finance for his assistance on this rule.
Next, we'll consider rules that would require companies to provide a discussion of
off-balance sheet arrangements in the MDM portion of their SEC filings. We'll also
consider requiring registrants to present information about their contractual
obligations in a clear and straightforward table. This will improve transparency of
registrants' liquidity and capital resources. I commend Corp Fin Director Alan Beller,
and Andrew Thorpe, as well as Acting Chief Accountant Jack Day, and his colleagues
Jenifer Minke-Girard and Eric Schuppenhauer, for their hard work on this important
initiative.
J Finally, we'll consider a rule specifying the information auditors must retain
subsequent to the completion of an audit or review of a company's financial
statements. These records are often key to our enforcement efforts. Again, I
commend the Staff in our Chief Accountant's Office - especially Jack Day and Bob
Burns - as well as the staff of our Enforcement Division - including Linda Thomsen
and Laurie Stegman - for their hard work in drafting this sensible rule on this
important issue.
http://www.sec.gov/news/speech/spch012203hlp.htm
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-
SEC Amends Definition of uDealer" for Banks,

Adopts Analyst Certification Rule
FOR IMMEDIATE RELEASE

2003-21
Washington, D. c., February 6, 2003 - The Securities and Exchange.

Commission voted today to approve certain measures affecting banks and
their activities as dealers under the Gramm-Leach-Bliley Act of 1999.
The Commission also voted to adopt Regulation Analyst Certification,

requiring research analysts to certify the truthfulness of the views they
express and to disclose compensation related to the specific views
expressed in reports or appearances.
1. Amendments to Exchange Act Bank Dealer Exceptions
The Gramm-Leach-Bliley Act amended the Exchange Act to eliminate the

complete exception of banks from the definitions of "broker" and "dealer,"
Instead, it provides banks with four exceptions from the definition of
"dealer" and eleven exceptions from the definition of "broker." The
proposed rules primarily address certain of the exceptions from the
definition of "dealer."
Specifically, the Commission voted to adopt ru·les amending definitions of

terms used in a bank exception to the definition of "dealer" in Section 3(a)
(5) of the Securities Exchange Act of 1934, amending an exemption for
banks from the definition of dealer for certain de minimis riskless principal
transactions, adding a new exemption from broker-dealer registration for
certain bank securities lending transactions, and extending an exemption
from rescission liability for contracts entered into by banks in a dealer
capacity for a transition period until March 31, 2005.
Definitions of Terms Used in Asset-Backed Exception to Dealer

Registration
The asset-backed transactions exception from the definition of dealer

permits a bank to issue and sell securities backed by obligations the bank
and its affiliates originated, or other obligations originated by other banks
and their affiliates in a syndicate. The Commission adopted amendments
with only technical changes from the proposal.
The amendments will
) • modify the definition of "originated" so that banks may use

distribution channels (such as automobile dealers, mortgage
companies, and other banks), even though the bank does not "make
and fund" the loan at the exact time that the loan is made;
http://www.sec.gov/news/press/2003-21.htm 2/6/03
V.LJ'V ~U"'LlU" ....,"'LHLlUVLl VI. .1J~~.l .lVI .uw.~, ~UUI-'Lb rUnUYSL veruncauon Kwe page:.! ot 4
• retain the standard for "predominantly originated" at 85 percent;
• replace the definition of "member of a syndicate of banks" with a

definition of "member" as it relates to "syndicate of banks" to make
clear that the individual banks originate the obligations, not the
syndicate; and
• retain the requirement that when a syndicate of banks issues asset-

backed securities through a grantor trust or other separate entity,
each bank selling the securities, and thus, acting as a dealer in the
transaction, must have originated at least 10 percent of the value of
the pool of obligations backing the securities.
Exemption from the Definition of Dealer for Banks Engaged in

"Riskless Principal" Transactions
The de minimis exception from the definition of broker permits banks to

engage in up to 500 transactions per year without broker-dealer
registration. The Commission permitted "riskless principal" transactions to
c()unt toward that total in its existing rules. The rule amendment provides
that both legs of a riskless principal transaction are counted as one
transaction solely for purposes of the de minimis exemption. The
Commission adopted the amendments with only a minor technical change
from the proposal.
Exemption for Non-custodial Securities Lending from Dealer and

Broker Registration and Custodial Lending from Dealer Registration
The Commission added a new exemption from the definitions of broker and
dealer for banks that engage in certain non-custodial securities lending
transactions with "qualified investors." The exemption will permit banks to
engage in certain non-custodial securities lending transactions with
"qualified investors" without registration as a broker or dealer under the
securities laws. The term "qualified investor" is defined in Section 3(a)(S4)
of the Exchange Act and includes certain advised pension plans. For
purposes of this exemption, banks may also engage in securities lending
transactions with other pension plans that may not meet the restrictions
applicable to qualified investor pension plans that have $25 million in
investments and are managed on a discretionary basis. The exemption is
being adopted with technical changes from the proposal.
Timing
The Commission exemption from the definition of "dealer" for banks,

savings associations, and savings banks was set to expire on Feb. 10/
2003. In connection with adopting the rules described above, the
Commission is also issuing a separate order to extend this exemption until
Sept. 3D, 2003. This should give banks time to conform their securities
transactions to the dealer provisions of the Gramm-Leach-Briley Act and the
implementing rules adopted by the Commission.
Exemption From Rescission Liability Under Exchange Act Section 29
The Commission is also amending Rule lSa-8 to give practical effect to the
previously adopted exemption from rescission liability under Exchange Act
1"age ,j or 4
-
Section 29. This rule provides relief from rescission liability for contracts
r
entered into by banks in a dealer capacity for a transition period until March
31, 2005. This additional period will allow banks to perfect their internal
controls for dealer transactions without the threat of private liability for
-
inconsequential violations.
The compliance date for these amendments will be Sept. 30, 2003.
2. Regulation AC - Analyst Certification
The Securities and Exchange Commission voted to adopt Regulation Analyst

Certification, which will require research analysts to certify the truthfulness
of the views they express in research reports and public appearances, and
to disclose whether they have received any compensation related to the
specific recommendations or views expressed in those reports and
appearances.
Research Reports
Under Regulation AC, research reports distributed by brokers, dealers, and

certain covered persons will include
• a statement by the research analyst certifying that the views

expressed in the research report accurately reflect such research
analyst's personal views about the subject securities or issuers; and
• a statement by the research analyst certifying whether the analyst's

compensation was, is, or will be directly or indirectly related to the
specific recommendations or views contained in the research report.
If the analyst received related compensation, the statement will include the
source, amount, and purpose of such compensation, and further disclose
that such compensation may influence the recommendation in the research
report.
Public Appearances
Under Regulation AC, broker-dealers will be required to make a record

related to public appearances by research analysts. Specifically, a broker or
dealer who publishes, circulates, or provides a research report by a
research analyst will be required to make a record within 30 days after
each calendar quarter in which the research analyst made the public
appearance, that wilt include
• a written statement by the research analyst certifying that the views

expressed in each public appearance accurately reflected such
research analyst's personal views 'about the subject securities or
issuers; and
• a written statement by the research analyst certifying that no part of

such research analyst's compensation was, is, or will be directly or
indirectly related to any specific recommendations or views expressed
in any public appearance.
In cases where the broker or dealer does not obtain a statement by the
..........
research analyst in connection with public appearances as described above,
the broker or dealer will be required to disclose in all research reports
prepared by that analyst for the next 120 days that the research analyst
did not provide the certifications.
r
The regulation will be effective 45 days from the date of its publication in
the Federal Register.
.....
The full text of detailed releases concerning each of these items will be
posted to the SEC Web site as soon as possible.
http://www.sec.gov/news/press/2003-21.htm
Home I Previous Page Modified: 02/06/2003
••• _ • • \:I_~ , ...... _. - . - - - - - . - ... - . . I' ... -....,..... ~ .•• .....,""'•••••• '""'...... ~
'State.& Educa~H)n Shep , C.=:l'1t8-n:r3cc~ About. Ne\- s -In!: R"s~.

1 Li){;.3f ',C.am;ttf::rlBA ! I
'i~lBA &. f\1;''i:"'tli 1 gs 0Il~1BA R0(.rri. Bt:,;Jrct ::. ~~
FROM MBA •••

.. Media Advisory: MBA to Host New York Stock Exchange (N't'SE) Symposium (1123) I~.~~ QuickLinks
.. 11l!..o\.R~1~C!~~J,Q[!g~J~rTn.£9J:e..Cil.stlor
U.S, Economy and Housing Anance MM~~Ul/22)
.. ~BA-'L'1Yelis 2_004 Advoc~~'m.('kUll22)
.. Mortgage Bankers Association and Blackboard Announce a New Turnkey Training package for
f'i1)~l}Cia1.2ervLc_e.JI}.!i!Ltlltig.Q$.(1/21)
.. MBA tQ.J:!Qst QiyersitY..R~f~on~iQ.Q4 Commercial Real Estate finance/Multifamily Housing

convention & Expo (1121)
Last: lJpdaM
1/30/2004 • 2:52 p.m. .. Register for M!3A/STRATMOR Peer Group Survey and Roundtables (1115)
lcon_y Grow,. At ,. 4 Pen:eat. Residential Finance COfflfOOn:Ja/ I; MuftifSmily

A8a. . . . . . Mortgage Interest R..
.. OFHEO Directs Freddie Mac To Maintain .. HUD Highlights: FHA Commitment Authority
F........ Nac SWwy l.iIItle CapitalS U rplus (1/29) (01130104) ~
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.. ~~S<;Bt,-8.<;g!J.i.r~m§!l~ (1122) .. MayS, ZOQ.4.JrrMinneapoUs
~SA 14<Irltet HalIK
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CHANGING r'UNDS, BUILDmG COi-1MUNIl1ES: l;'Yr Fixed RaU!
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PWuIIt t'flJl's-I1€:':!.;t.! .F..j~~JD~_lj[i!n.c~_\:QDJmjJ:m.el1t Communications Campaigns (01128/04) FI'EGdIIii Mac:
t'llttlQ.Qty_lFt!AJ:1I,Jl4:.(m. (1/12) Ccm10mung 'U.tl!!f
Exld!It-"'- salel> E.... 29CU .. HUD Highlights: Section 232 Professional
.. HUD Announces Latest Credit Watch 30- Y, Fixed Rate
OJ! StroAIL"..t .., ~"AJ!al!.! ]J().QUJITJ.D?uraJ}&;".(OI/28/04) 15-Y' Fixed Rate
~cord I§.'Lmit}£ltion Ioitia.tive Action.§.JlI12)
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.. Ji!HLtlj!1hI[g!l.ts:"l'r:.Qf~ssion~'-lLa!?JI!!'y' Ins!!~
R"al Est...t" PoJ.~f.!!!..·.I!>!'!l:.: .. Q.~S:~~LJ~ FlO!!1 Rules On Preempj;ion...9Jl for ";>,tion 232 Pn>grams (01/16/04) Saurces:MllA Freddie Ma
Term' 5bengtlt er.~di!.tQ..f}'_l&ndlnQ.. (1/07)
.. HIJ.Q--':Ugl1Jlg!)t~L.Ad(mLQ.O<lLI:!!LD..B-.l;!qjALt:~'lll;!nts
f(lr.c:as~!i-,~,eglJ\$.t:ing.Locl<o!J.t()l{~rrid~_Qr
Other MaioI' Financial Relief (01/13104)
Washington Up.da-te
~"'!I!L~.~K
M!Ktgag. no lJIlII• • c.~.
to- House Subcommittee Examines Freddie Mac's State- & Lf1cal Initiatives
FreeN.'. hveIR. . . . . . . . . . . !-srcQ!l"ti.ngJl~~ri!!"fYl.~E!L(1128)
L~~ .. B!£h Ratings Addr"sses New Mexico Preda.!Q!:y.
.. !i(lll.~~. Sll.Q.CQ.l}lm!n~!LtQ..Mgl:e~.Q(:~..Er!t
!,&1~LdjngJ,.j;gl.;;jatj.011.(1/15)
emption (1/271
Jobs Cllt At Fairbanks, WaMu
.. Please Visit the new 'Capitol Assets Program" .. BJ:~h.RatingsURClatg!'i.J<i'!t!f19.C!:i1'i!rig
2003 Housing Construction Best ftegardingPredatory Loan!; (1/15)
Since 1978
.. Freddie Mac Adopts New Subprime Mortgage
Home Builders Off To Solid start ,a..mit.@.!i~..l'91LcY (12/4)
~20iM'-' .------.--------
.. p'[~atoryJ,__tmc!Lng_l!Pd~t~~recent additions:
Freddie Mac CEO To Confroat NJ,OK, IL, ME, NM,NH, CA (12/15) State UpdateS
Congress /o19Jft"
~~.!!I:~~-,-~--!
Campus-MBA
~~"I.F..a~_
TN"" ... l1BA Economic F..Q1:...e£<:l§t, Jan\!.i!..ry fp<!fji (1/12) ... HeWSD_:BD11.£mlrse Fom--.at Qff~r:s New Titles:
.. ~M.l'loJ..1;~lnancUorecast,D~~mber .Banl<ing lQJ.JIJ~!yi~~LWith lLt=:@jJQstE!rJ()J]ll.
Single-Family Real Estate [pdf] (12/17) !ll9..r.~.. 1/20
'stabl,,'
.. M!l~~onomic Comm~!JtM'i - A More .. ~_amR.u.?_MIiA~.s;;Q.[P..Q@!gJ:@ining I091L~
HUD Announces New "Zero Balanced Expansion (12/11) !'1~t.r9..1lrJ;:Q.."1Q.any·s 1raJ!1ing Goals Anq
DOwn Payment"Mortga"" Ng~.g.!'i...1/20
Membel
Rates Tumble To Lowest Point caD par
Since Last Summer MORPA
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t:t(lm~~l,IYE!~
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Pen:ent In Dec. .. How I~uch House Can I Afford?
Whole!!al" Prices Rise 0.3

Percen.t In .D~,
1/30/04
Mortgage tsanKers f\SSOCla(lUU - "IVl::lSlllly III \JVIIII IIUI IIUl;;';' . -a- - -"-
News Releases
.. Latest MBA Weekly Mortgage loan Applications Survey - PUrChil$'" Applications Dip from Rec-ord
High; Refinance Applications Hold SteadY • For Previous Releases Check Here. Subscr1berscan
Mortgage Industry News Click Here to access this week's mortgage application survey data. (1128)
For CREF New.
• Media ,\,c:Ivlsory: MJ~A to HQst New York Stock Exchange (N'!'SEI SymQ9Slum (1123)
Click "ere
Mortgage. Market News and State of the Real Estate Finance Industry Press Conference
Dab Click Here
• MBA Releases Lone-Term Forecast for U.S. Economy and Housing Finance Market (1122)
.. ~J}.A.~~J!~L21tQ4 Ar;lyoCi,,9'~nda (1122)

.. f~~_Le"'~"-"~_oJl.~
.. LenderCateefJ
.. 11o,t'Jage Bankers Association and Blackboa,-d Announce a New Turnkey Training Package for
.. Lend., T.c.... Dlogie. Roancia! ServIce Institutions (1121)
-
.. MIlA to Ho~ Dlvers!!Y__B~f§Q!;jpn at 2004 Commercial Real Est~te Anan~Mu!!!HiJ!lilYJ:tousing
~Ql1vlillYQrULE;."po \1121\
.. JIIS.O
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Copyright e 2003-1997 MQ!:t!ll'-9~~~nkersp,ssQQatLQ.!1
.. Q,*" Buy,,", (Ou~ 1919 Pennsylvania Ave. HW Washington, DC 20006-34114
(202) 557-2700, All Rights Reserved•
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lean.J:tiJJse-fLhi'lilC¥5ta!f'.meot
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"-q!LQ~~
IVIL-. ''''' • IVIII<;; I Q~g
-
--
Welcome to
What is MERS?
MERS was created by the real estate finance industry to eliminate the need to prepare and
record assignments when trading mortgage loans.
How does MERS work?
Our members record MERS as mortgagee as nominee for the lender in the county land
records and electronically track changes in servicing and beneficial ownership rights over
the life of the loan on the MERS® System.
What is the AfERS mission?
Our mission is to register every mortgage loan in the United States on the MERS® System.
Copyrighl@ 2002 by MERSCORP. Inc. 1-8OO-646-MERS (6377)

Other products or company narMS are or may be trademarks
or registered trademarks and are the property of their l'IISpective holders.
)
MERS Recommended Foreclosure Procedures
MERS has assembled a Foredosure Manual to provide a state-by-state guideline for our Members to follow when
foreclosing a mortgage loan in the name of MERS. Each state's procedure was developed jointly with local counsel in that
respective state. There may be future versions of this Manual if needed. If you have any questions as to whether the
version you have is the most recent copy, please contact MERS.
Sharon McGann Horstkamp

Corporate Counsel
CopyrlghtCl 2002 by MERSCORP, Inc. 1~RS (6377)

other produc:l:ll or company na~ are or may be trademarks
or registered trademarks and are the property eX
their resll8Ctive holders.
IVIL.I'\.""
~
I '\.wVVIIIlIIQII\,,,n;;,u I VlvvIV.wrIio,A.""" I IV"",,-,,""to,,iI.V~" I. I".""Y "",,", • _~_ I "" .....
-
MERS Recommended Foreclosure Procedures for - \
OHIO
Version 1.1, 11 November 1999
Foreclosing a loan in the name of Mortgage Electronic Registration Systems, Inc. is something new in the foreclosure
arena. However, when the role of MERS is examined, it becomes clear that MERS stands in the same position to
foreclose as the servicer. MERS, like the servicer, will be the record mortgage holder. It is through the mortgage or deed
of trust that MERS is given the authority to foreclose.
To help make a smooth transition from foreclosing loans in the name of the servicer to foreclosing loans in the name of
MERS, we have developed state by state recommended gUidelines to follow. These guidelines were developed in
conjunction with experienced foreclosure counsel in your state. We have been able to keep the MERS recommended
procedures consistent with the existing foreclosure procedures. The goal of the recommended procedures is to avoid
adding any extra steps or incurring any additional taxes or costs by foreclosing in the name of MERS instead of the
servicer.
MERS will continually review the guidelines and, if necessary, will issue revisions. The recommended guidelines to follow
in your state are as follows:
Mortgages are used and are foreclosed judiciaily. MERS local counsel advises that a loan can be foreclosed in the name
of MERS. The caption should state Mortgage Electronic Registration Systems, Inc. as the plaintiff. The body of the
complaint should be the same as when foreclosing in the name of the servicer. MERS stands in the same shoes as the
servicer to the extent that it is not the beneficial owner of the promissory note. An investor, typically a secondary marKet
investor, will still be the ultimate owner of the promissory note.
The agencies (Fannie Mae, Freddie Mac and Ginnie Mae) require a blank endorsement of the promissory note when the
sellerlservicer sells a mortgage loan to them. Therefore, the note should remain endorsed in blank when the foreclosure is
commenced in the name of MERS. We have been advised that sometimes there is an endorsement of the note to the
'SeNicer prior to foreclosure. However, we recommend that the agencies' pol\cies be fol\owed.
Employees of the servicer will be certifying officers of MERS. This means they are authorized to sign any necessary
documents as an officer of MERS. The certifying officer is granted this power by a corporate resolution of MERS. In other
words, the same individual that signs the documents for the servicer will continue to sign the documents, but now as an
officer of MERS.
After a judgment to MERS is entered, a sheriff's sale is held. The certifying officer will instruct the foreclosing attorney as
to the bid to be entered on behalf of MERS. If it is the successful bid, then MERS will assign its bid to the investor. The
deed will then be issued directly to the investor. This is the same method that is used when the servicer forecloses in its
name. Because the MERS recommended procedure follows the same procedure that is used when the servicer
foreclosures in its name, no additional taxes are incurred by foreclosing in the name of MERS.
Evictions are handled the same way they are handled when the servicer commences the foreclosure as the foreclosing
entity. If it is an FHA-insured loan and an eviction is necessary, then the bid assignment is given to the servicer instead of
to HUD. This way, the servicer will proceed with the eviction the same way it would if the foreclosure were filed in its own
name.
If the debtor declares bankruptcy, the proof of claim should be filed jointly in the name of Mortgage Electronic Registration
Systems, Inc. and the seNicer. It is advised to ille in both names in order to disclose to the court the relationship of MERS
and the servicer. The address to be used is the servicer's address so that all trustee payments go directly to the servicer
) not to MERS. The Motion for Relieffrom Stay may be filed either solely in the name of MERS or jointly with the servicer. i
. MERS is the foreclosing entity, then it is MERS that needs the relief from the bankruptcy.
- ..,;;I" -'-- - .....
MERS Local Counsel:
Richard M. Rothfuss, Esq.

Lerner, Sampson & Rothfuss, P.A.
Eighth Floor. 120 East Fourth Street
Cincinnati, OH 45202-4007
Tel: (513) 241-3100
Fax: (513) 241-4094
e-mail: [email protected]
I IVIIIO..:J QII"'" "'''''''111111\.01111 .... ...,.., ~-...,- _ ...... ,...._••__ • __ •• - - • - - - _ ••• " _ .. - - - - - - _ .. - _ .. -,-;"-.- ••• - ... - , . - _ - ,
Friday, January 30, 2004
President Bush Signs A.merican Dream Loc.al Information

Downpayment Act
HUD news Find information about homes and
President Bush and Acting communities, organized by state.
Newsroom
Secretary Alphonso Jackson
Priorities
applaud the annual $200 million
About HUD
downpayment assistance
Homes program called the American
Buying Dream Downpayment Act. The initiative will help Homes for Sale
Owning increase minority homeownership.mor~•••
Find homes for
1m
Selling ." from HUDandot
Renting HUD Highlights
••..• '.•.........-
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'. federal agencies.
Homel.ess '.'
.. ~_Qy~_~~e oft~.J)oi~LM4r..ess . .' ,_ '.1:' { - ~- .•
Home improvements ~ Bush AdnUnisb:ation announces new HUD "zero down

B
HUD homes payment mortgage

.. $17.6 mil!ionj.nJ_~J:_housinggrants.warded to fight Information For,••
Fair housing against housin!l..bia~
FHA refunds .. .HUD announces hiQher FHA home loan limits Otizens
foreclosure .. B.~bMroJn!tl~@~!m!l! ..m()l.lnc~r~<t.$!,77 Qimc:m_~ .. !::!Q.I!!d?Y'Lers
Consumer info ~l~~r~~_Qf!:h~_oL~f.m!l~ i!'!~ktL} .. Is. .. ~r.Qtg~~
and families • Veterans/Mirrtary
.. 2003 PerfOl"manc;~and Accountability Report I>Ki~
Communities .. AJ.1:l~igm~ro_~WJ'\j;1!i)'!!1~_p.g .. ~_~ents
About communities II- 1iY~~C;-'iniq, fortlYQJ~~~ I> People with disabilities
Volunteering It' !'tational calenda.r of events .. R~$~r~~~
Organizing .. Q~kJ[1~~~ II- landlords
Economic development I> Tenants
At Your Service • Colonias/farmworkers
I> Native American.
Working with HUD .. Learn how to use HUO's website .. Victims of Discrimination
Grants .. Learn how to buy a HUD home
Programs " learn how to ~P2IY~icJ'~O.a.....""l~L~on 8: Housing Industry
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,. Find a HUO-approv-ed lender in your area II Brokers
Work online
.. Talk to a ~IDQc~ 1>'~kMH~nQ~l~~
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Complaints II- Submit Freedom. of Information Ad (FOIAl request II- Apll'f'ai&ef1J
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Content updated January 26, 2004
) U.S. Department of Housing and Urban Development

451 7th Street S.W.~ Washington, DC 20410
Telephone: (202) 708-1112 TrY: (202) 708-1455
I IVII Il;;;:) ailU VVIIIIIIUIIILIl;;;:) - U.-.1. VvfJCI/ LlllvllL VI IIVU"'III~ QIIY UII./QI, Vl;;VvlVfJlllvllL \ I I U V / I Q~v"Vl"
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About Bert Ely
Contact information GSEs effectively nationalize or socialize credit cis/( and 10 some cases, Interest rate risk, too. Consequet
Deposit insurance reform GSEs create taxpayer risk while distorting the capta+ allocation process, thereby harming the U.S. aeon-
Therefore, Bert By's work on GSE issues focuses on entirely on privatizing all GSEs..
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Lmm. '9(;i.l @ 2004 Ely & Company,_ Inc Last Updated on November ;;.
• ....1:1... I VI I
-
~~~~r:g I.. -
Fanrie Mae announces e7.:}~.n~~~~2!~~
•• ;.'i~ .~:~_:, ,': .J~.,. ~~ :,.__.~.. :~ .~~?
;;~: ~:n_:.:'::}~
FHA TOTAL S~of",,::af1 lootmg for the reviled Form 10031 RllYi
and begin using the Ia. . versions of OUI
Lenders may now r~~~ "(~:s?S to me ne«v Sooreov:ard available via DU"
<?~.Q'm~r;_!~~.,! T:~. ;,;_~.~ ~y::!:; :1;:(:~! rr:~.
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Single Family Home Guide Forms
Underwrite and Process a: ~Sirl!1{fr-_Ef1rl11fE~)s!/!?:L~·S~r:/f:2t.~ __ G.~L~j::2~_;rl~~LForJfr.S. a L~?E!.p.r.Qf1Q?r};:!!!.t:~.fl'!e?3}. - The Loan Prospect
Loans - All of the Guide forms used in the origination, Appraisal Forms (1149,2055 and 2070) and
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securitized mortgages. (Forms 1-2999)
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o:Qr:n. 1f,~:F a-Completion of the Annual o I.QlTJJJJij'SL a- The Seller/Servicer Change
Eligibility Certification Repolt is a requirement Notification Form must be submitted whenever
Account Management defined by Section 4.9 of the Single-Family institutional changes occur per Sections 4.11-4.
Forms and the Guide
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a Sign up for Aut()rnat~dClearinghout'>e eAGHl to a Review techl1ic;;.\lspecificatfons for the revised

automatically pay your Seller. GoldWorks and Forms 11 and 13SF. These changes are requin
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checks again.
UnJfonn Mortgage Instruments
c Uniform Mortqagc l:;stmmcnts - The legal documents used in the origination of Freddie Mac-owned 01
securitized mortgages. You will find security instruments, notes and riders, as referenced in Exhibit 4 of
Guide (Forms 3000-3999).
Servicing Forms
n Mcrtg"gc o-c·:::umcnt M3rnQ.:::rm"n"t Forms - A convenient method to quickly obtain the 1034 series of
forms pertaining to document custody.
other Forms
[] Residential Ground Lease ,A.ar2€:rnsnt

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P~ter~~:'!~ S::e~'tk$ to H~m'20\~.·TH~:r~h!p!r.nO'~Ja!!on$,:,tN.lIl~HS Conference

Next rate update February 5 Freddie MaG S COO Paul Peterson, diSCUsses 1101'1 automaled underwnting and GSE deb! securities have en.
r)m~:'n~ 'i·,:·~·(~hiY ;3;~;! . . ,::~· the mortgage indu$try to meet homebuyer demands for record refinancing, He also descl'lbed the obstacles
(,Qr.DQiliiW-'l.9.LWw!.<!y__S!!l'l@.>§ minonties face In l)ecomin911omeowners.
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:>;,,:t'=
F~nanGtal. Restatement Information
} Loan Prospector>1l< Aooes·s Jan 26 FreddieMac<:lnd the Fimmci'ijlI nstitutKmsGrollp o{ !nterFilst..,

Go to l o;;./l-';·::-.. .':,.-rC.:.;cr ,c<Jfrr, our online sUite of
mortgage ulider\....rifing and processing tools.
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Forms & Gui'delines _
AiiRegs' Online Fannie Mae :5ingie-f'amii J" Guides L~ntlil\9 ,. 5er\/,ciltll COmltlutlily
~, Single-Farnily
Fannie Mae, in collaboration with AllRegse, is pleased
) O'iginaUng & Undenvnting
to provide our Single-Family Guides free of charge
through the AIlRegs' Online Fannie Mae Single-Family F Second"')' Markeling
Guides service. Available guides include:

); General S~rvlclng
• Selling and Servicing Guides, including

Announcements and Letters,
• Selling and Servicing Guide Forms,
• Guide to Underwriting with Desktop Underwriter4l, :, Mullifamily
• Mortgage Selling and Servicing Contract, and

• Guidelines for Document Custodians. BfJf;tn~S'S Centers
:', Afforda.ble Housing Center

Access: Credit Union Center
, AllRegs' Online Fannie Mae Single-Family
:> Mortgage Broker Center
Guides
Fannie Mae's official copies of the Selling Guide, ;"; Register

Servicing Guide, and Forms Guide are available in hard ~ Manage
copy and are distributed directly by Fannie Mae. You ',:; Launch
can obtain copies by calling our Guides Distribution
~; Learning Center
Center at 1-800-452-5250.
Fannie Mae's Single-Family Selling and Servicing

Guides provide information about our policies and
procedures related to mortgages secured by one- to
four-family properties.
The Guides are updated periodically through the

issuance of p,i;r;uur;;:efr,,:,nt;~ and Lend;;;)" Letters, which
introduce policy revisions, address the need for interim
operating procedures, and provide clarifications or
special guidance.
The Selting Guide was enhanced in March 2002 in an

effort to make it easier to use. Expansion of the Selling
Guide includes new "Parts" which emphasize the
importance of key requirements in the selling function.
Be sure to read Li:;i;;je:r Ltotte~ Cn..(J2 and the l!<:!!hn;:h~t:s;
The Servicing Guide was updated in December 2002 to
incorporate Announcements and Lender Letters issued
since November 1996, as well as some new policy and
procedural changes. Read the Transmittal Letter (.pdf,
145KB, 10 pages) for more information.
S€!!in9 .and Sefvidny Gukle Fcorms

The Selling and Servicing Guide Forms include forms
that are used for originating and underwriting, shipping
and de6very, general servicing, investor accounting, and
default management.
The GUide to Underwriting with Desktop Underwriter is a

reference manual for underwriting conventional
conforming loans with De;Gf;,1:op Unc18t\'.'rite"" (DUTM).
The Guide identifies specific characteristics in the loan
application and credit report that DU uses to evaluate
risk and provide underwriting recommendations for
conventional loans that are eligible for sale to Fannie
Mae. The Guide provides detailed information for
complete and accurate submission of conventional
conforming loans to DU.
To access the PDF version of the Guide and for

information on how to order a hard copy, see DC!DU
Guides and Releast~ l'Jotes.
The Mortgage Selling and Servicing Contract includes

language related to establishing a lender as an
approved seffer of mortgages and participation interests,
terms and conditions of sales, and establishing a lender
as an approved servicer.
Fannie Mae's Guidelines for Document Custodians

provides information regarding requirements related to
certain documents relating to mortgages in MBS pools
that are held by custodial institutions (called document
custodians).
You can access an electronic version of the Guides with

additional functionality by subscribing directly to
AIIRegs. AIlRegs offers Fannie Mae's Multifamily Guides
as well as other industry guides, and includes added
functionality such as
• improved search features,

• comprehensive alphabetic listing,
• expanded topic outline,
• simplified user interface,
• personal bookmarks, and
-
• company-wide notes. -
For more- infnrm8ti'jn
For details or to subscribe to AIIRegs' expanded
product, call the AIIRegs Sales Department at
1-800-848-4904 or visit www.AIIRegs.com.
AHRegs' Oniil'!€ Sin~~!.z~FamIIV Guides arE. dr. unofficIal \"'~rSlcn oftl1e F8nn~ Mae Guk:ies.
and art? Offf'fP-1 eiB·:1ronKal!y on tha AIlP.t?gs \.'\'eb site by Monga,Jo? R~.i)lHce Center, Inc..
~1i"·1 tile e,pres, permls~"'n of Fanme Mae. Final reliance ,hould 3~,-ay, be place,;! on the
docum",nbtli:,n distribUted direct~' by Fannie M3€.
APPENDIX
~~~~~~~~======~~~~~~~
1998 OFHEO REPORT TO CONGRESS
71
-
Federal Housing Enterprises Financial Safety
and Soundness Act of 1992
-
(Title 13 of Public Law 102-550)
(a) DUTK-''fhedl,lty9fthe Director shCl1l beto ·~~t~·efltarprisE$

are adequately capt~-
1zedandoperatingsafeIy. jnaCctlrdancewf~thtstice; . .•.... '.' . .. '. .'
(bJ AUTH0I®'EXCLUS1V1t0FSEC.RETARY.-TheDitec~ is allthorized.without tlk.re-
view or approvalofthesecretat)r,t6make'SQCh detei~natio~ take such actions, and perfonn such func-
tions asthe Director detenni~esneCessaryregard1ng - . .' . .... '. .' . . . . •. .
(l)theissuan(;e0f reSulationsto carry out this part. subtitle B. and subtitle C (includ-
ing the Cmat>Usfllnent. ofapitalStaJlcl#dSp~uantt()subtit1e B);, ' ' ' .
. (2) ex~ons~fth~e.rl~tlsesunQer~onJ~17; .'.. ' .' .'
'. .. . ..' (3).#termitrlngth~e~taileye~~f th~ent~ lIi}<l. cl~ificati0Jl ofthe~nterpriSes
. within caPitA¥cl~ficati~l1s~cJbliilledundersu~tiiJeB~ . •. . . . .... . .
. (4)d~sions~appoill~~!lsef"'ltd~ iqrthe~n~rprisesi ".•.•. •'.... .' .,.
. . . .' ..,..... (5}adFnistrative andalltorcementa'?epnsul1d~~ubtiUeB,actionsta}{enuoder suI:>-
title Cwith respect toenfotcement ofSli9ti~eB;and.ofhetmattersrelatingt() s at«yand sound~
.,n~ (6rap;rovarofpaywentlofcapit~' distributions by the enterprises under sectioJ}

303(c)(2)oftheFe~eral National Mortg~AssoctationChart~rAct and section 303(b)(2) of
the Feda'lll Home Lo~riMortgag~Corpol1lti0tlAct; . . .
> .' . ...•. .... •.•.... (7)mjuiring thef'Jite;rp~ tosubrnU reports under seCtionJ 314 of this tide, sectlon
309(k)of Fedend NationallvlOrt~~AsSodationCharter Act. and section S07(e) orthe
the
Federal HomeL~lvfot'tg~.C()rporatiOl1A~; ... . . •. . •. •. ••.. • /.. . >
. (gh~~uhibitin~thepa~f\t ofexc~sive cnmpensattonby llieentetynsesto any e)¢;~
ecutive omceeof th~ enterpdsElS un~t se£:tiOll1318;.
. . (9) therrumagementofU1e orocf!,indudlngthee~tablishment'and implementation
of annual budgetS; thehirlrtg, af,aIld. compensation lellels for. persOnnel of tile Office. and
annual assessmen~forthecostsofth~ Oft1t~;
(lQ}eontiuctingresearth andfinancial anal}'liis; '.." . ..
(11) the submisSion of reports reqOiredbyl:heDirectorunderthlstitle,
(o) DELEGATION OF AUTHORlTY.-The Directormay delega~ to' officers and employees of

the Office any of the fllnctions. powers, and duties of the Director. as the Director considers appropriate.
(e) INDEPENDENCE IN PROVIDING INFORMATION TO CONGRESS;, The Directot

.shall not be required to obtain the prior apprOVlll' comment, or review arallY officer or agency of theUnited
.States before submitting to the Congress. or any
committee or subcommittee thereof, any: reports, recom-
.' rnen.d.mons.'.. t.e.stimon.y..• ore.·omrn
. '. e.n
. ts if su".ch. SIl.b.·.·.m.issi
. ansine.I.ud.e. a.. sta.·tern. ...t.. ·..i.n.•diea.·.t.in.g. ilia
". .en .......• t.'. th
....e....view.s .
expressed therein are those 0.•. f the Director. and do .
not
' - ,
necessarily represent the .views of th~Secretaryorthe .
'P~esident
72
OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT
. OFHEO's priIllaryrWssi0n·is eflSl1ring thecapltal adequaeyanq•• flnancla1safetyamfsoun~.Qftw().gQVern

mertt-.sp()nscirede~terPrises (gsEs) ~the:Federal National Mortgage Associatton (Fannie Mae) and the
"Federal flome toah. Mortgage Crirporati.on(Fredc1ie Mac), .
. ' , ' .
Fann1e~~ and Fretidie Mtcare the. ~tlon's]arg~t boUsirigflncuicetilstitutions. Theyhu)'· mortgag$frorn

··c~ flanks,tlldfllrystitlitf0IiS.. ItlQrtgage .f!an~~ ~d()therprUl1at)l.lenders' and either .flold th~ mo~~
. ···gagesinth~itown ror&°U?Spt~geth~int()ffi()rt.g~g~bflC~~~~tiesforresldeWfnvest~.11IllSe
sec()pdaty•• mo~~g~ . ~~t . . oper11tioQ$pJaY.. a.. ~orrole in~tin$a~dY supply Ofnt0rtgagefunds:for
>Arnerlcan.h?rt1eb~yers.. Combined. assets and· off-blilailce. sheet obIigatioOsofFanrife. Mae and FreddIeMa~
'were $L6tiiIllqnatth6 end ()f1997. . . . .
.- ' .
Fannie . Mae. and .·.F~eMac ·areFong~onal1)';chartered•. publiclY~owned. corporationS whose shares at~
listed on the NewYorf StockExchange. Under termsoftheir GSE c~artE!fs' they are exempt from state andloqil·
taxationand from regfstratibnrequir-ements of the Securities and Excbang~Cornmission.Each firm hasabac~'
'upcreditIine with th~ V,S. Treasury.· .. . .
. '"',' - - : ' - .
G0l:lductingbroad-based examinations of Fannie~andF~ddleMac~ . . . .

DeveIoptngrls~-based capitalstandart:lsus1nga "StreSS tes( that simulates stressfulintere$t rate and
credit risk scenarlos~
MakingCJ,uartedy fmmngs of capital adequacy based. on minirnum capital st<lndar-ds until a risk~
· b~ed stahdaniJ$ completed; . ..... ..
·Prohibi~g~ve executiVi! compensation;
· Issuing regwationsconceming capital and enforcement starJdilrds: and
Takingne<'.essaryenftil'c~nt actiot\!'o' .
OFHEO Is funded through assesSments of Fannie Mae aiufFreddie Mae.. OFHEO'soperations represent no
direct cast to the taxpayer. OFHEO's·1998 budgElt of$16 million supports a full. time staff of 72.·
. . .
In its safety and. soundnessmIssion,OFHEO hasregulatoryauthortty similar 10 such other federal financial
r-egulators as the Federal Deposit lrisuranceCorpor-atlori; the Office of the Comptroller ~f the Currency, the
Office of Thrift Supervision and the Federal Reserve System. .
. " ; ..
(The legislation that established OFHEOalso requfl1JS Fannie Mae andFreddie Mat to meet certain atTordable
hoUSlrJdgoaJS setannuaUyby the Secretary ofHousi1l/fand Urban Development These goals specify the share of
·mortga$f!Sthatthe two GSEr arereqlJired topwr;/Ia$eannual/y /fom low-loCllme,mor/erate-inromeand central-city
. Jiomebuyers) . .
73
19980FHEO REPORT TO CONGRESS
-
OFFICE OF FEDERAL HOUSING
ENTERPRISE OVERSIGHT
SENIOR OFFICIALS
-'M~k Kfusey . . _.."

Acrlng L)irectof
)
74 ~~~~~~~~~~~~~~~~~~~~~
I,,,, '-'III,":''''' VI I ,",uolal IIVU;:'III~ L.IIU::::'1J11 ;:'C VVt:1I;:;I!::I"l tvrncv} - nuu tJage 1 or ~
,............ ,
~ffice
of Federal Housing Enterprise Oversight
(OFHEO)
Cl:t' Local information
~ Print version
=9 Email this to a friend
Office of Federal Housin9 Entel"prise Oversight Location/Room Phone

Location & Mailing Address:
1700 G Street, N.W., 4th Floor
Washington, D.C 20552 Location/Room
0 Director (Vacant) 1700 G St. Rm 4011 414-6923
0 Deputy Director Mark Kinsey 1700 G St. Rm 4006 414-6923
0 Executive Assistant Jamie Schwing 1700 G St. Rm 4006 414-3787
FAX Office of the Director Facsimile Machine 1700 G St. Rm 4103~
Office of Policy Analysis Location/Room Phone
~rectorand Chief Economist Patrick J. Lawler 1700 G St. Rm 4021 414-3827
FAX Office of Chief Economist Facsimile Machine 1700 G St. Rm 4206 414-3826
Office of Examination and Oversight Location/Room Phone
OE Director Scott Calhoun 1700 G St. Rm 4041 414-8929
Thomas A.
JE Deputy Director
Loeffler
1700 G St. Rm 4042 414-3800
Office of Examination and Oversight Facsimile

FAX
Machine
1700 G St. Rm 4308 414-8917
Iv ........ u. rlnance and Administration Location/Room iPhone

OF Director Susan S. Jacobs 1700 G St. Rm 4030 414-8925
OF Deputy Director Unda L. Gwinn 1700 G St. Rm 4031 414-8925
Frances L.
OF Contracting Officer 1700 G St. Rm 4040 414-3761
I Sullivan
,
Financial Management
OF !Gail S. Palestine 1700 G St. Rm 4035 414-3816
Officer
OF Human Resources Officer 1Janet Ray 1700 G St. Rm 4037 414-8904
Human Resources Facsimile
1700 G St. Rm 4037 414-8938
Machine
ords Management Officer Alice Gannon 1700 G St. Rm 4039 414-3791
Office of Finance and Administration Facsimile
FAX
Machine
1700 G St. Rm 4308 414-8917
Office of General Counsel Location/Room Phone
~ General Counsel ~ 1700 G St. Rm 4009 1414-6924

IAnne Dewey
OG Deputy General Counsel G~ St. ~ ' " "
I
IFAX Office of General Counsel Facsim G Sf-'" ... .,..,n -6504
Office of Congressional Affairs on/Room Phone
IIlI II II II
l. VI I 11.,;.l::
... ~
VI ,. OUOI ClI I IUU~III~ L.lllOIIJII.,g ""Vgl"I~IIL \ VI I ..... "" J - • 'V,,",
-
OL Director IJoanne Hanley 1700 G St. Rm 4003 414-6922
Office of Congressional Affairs Facsimile
FAX 1700 G St. Rm 4103 414-3823
Machine
Office of Public Affairs Location/Room Phone
OP Acting Director yJiJI Weide 1700 G St. Rm 4002 414-6922
FAX Office of Public Affairs Facsimile Machine 1700 G St. Rm 4103 414-3823
Office of Research, Analysis and Capital
Location/Room Phone
Standards
OR Director ~d Pearl 1700 G St. Rm 4073 414-3830
OR Deputy Director I(Vacant) 1700 G St. Rm 4068 414-3830
Office of Research, Analysis & Capital
FAX
Standards Facsimile Machine
1700 G St. Rm 4206 414-3826
Return to Department.al Listing
Content updated May 21, 2002 o Backtotop
U.S. Department of Housing and Urban Development

Pri~Q!!!;;~
451 7th Street S.W., Washington, DC 20410
Home
Telephone: (202) 708-1112 TTY: (202) 708-1455
Ei.ng1!J~.EdfLre§~Qt~.liJ,JP
.9ffice nea CYQY.
II IIVI IIICU.VI I V" ~OIIC:UO ,",VI 1111 IIlL~ VII Odll"''' 19. nvu~n(Jg, eUlU uroan I-\TTalrS t-'age 1 ot 2
Information on
Senate Committee on Banking, Housing, and Urban Affairs
Contact Information
Majority (RepUblicans) NBnorIty (Democrats)

Committee omce: Dirksen Senal8 Office aUilding 534 Dirksen Senal8 Office Building S34
Committee Phone: 202·224-7391 202-224·7391
Committee FAX: 202·224-5137 202·224·2080
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Committee WWW Homepage: htm:iiQ!lli!<lmL,>eDJlteJl.2yi (Entire Committee)
Subcommittees: $YPCQ!l1m~31IlgcClI1c;"!Iic_PQ!lcl1
Zubcommittee on Financiallnslttutions
Subcommittee on Housing and Transportalio ll
Subcommittee on International Trade and Finance
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Committee Membership
Majority Members (Republicans)

Member Name DC Phone DC FAX Email
Richard C. Shelby (R-ALj [Chairman) 202·224-5744 202·224-3416 http://shelby.senate
R9.bert.fJ:lermett.{R·Un 202·224-5444 202·228-1168 hJ:tp:f/\)ennett!ioe.'1".t!
latest Update
WaYI1!'.AI[!mLiR.~~Oj 202·224·5941 202·224-6-171 bttp:iiaiiar9L'>e.!13!!'.£
to Contact
Michael Enzi (R·WY) 202-224-3424 202·228-0359 http://enzi.senate.gc
Information:
January 25, g.l1iJQIl:J":lag!'liR ~N~J 202·224-4224 202·224-5213 !l.ttp:{lha9t!l1.!!e.!1.~,£
2004 fuck $~l]toru!1'Ll8.:e81 202·224-6324 202·22t.-0604 tlttpAs~J1i;pIYm·seD.f

Jim Bunning (R-KY) 202-224-4343 202·228-1373 http://bunning.senat
Mjl<:!!Lcr..p-,u.R.~fDl 202-224-6142 202-228-1375 h!!l!;!lcr:JPIL'>e.nJlP!'--4
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E!iz<!.~e!b.D_QfUR.:N.9
lJD.foln-'L~hJ~fee IR.-RI)
Minority Members (Democrats)

202-224-2841
202·224-6342
202·224·2921
202-228-4131
202·224-1100
202·228·2853
maUQ.o)l.@".l!!lLJD.\!~
None Currently Ava
b1tp..1!£b"J~e.seng~
Member Name DC Phone DC FAX Email

Paul S. Sarbanes (D-MO) [Ranking Member) 202·224-4524 202·224·1651 http://sarbanes.sem
~hri?!gp@[LQoflJi1P-en 2Q2-224-2t.23 202-224-1GP.3 httg;iLd!?d~.~D.\!~~
TLI"lL.)Q.hJ1j;.ClJLlO~~ 202·224-5842 202·228-5765 hl.tPJijQtl[lIlOI1,1;~.-"-~
Jack Reed (D-RIl 202·224-4642 202·224-4680 http://,,,,,,,,,,,.senale.g
gh.al!!';~..ScP!!rner (P-N)'} 202-224-6542 202·228-3027 http://.sJ;;.I1Urn~r.~na
I;.VJ!!t.6arl!JD..:l!~ 202·224-5623 202·228-1377 lJ!mJLb!1!Yh,!!.~m~~~g
Zell Miller (D-GA) 202·224-3643 202-228·2090 http://miller.senate.l;
Th9masJL~~~.fQ~Rfl 202·224-2441 202·228·2190 bJtp.Jlt;;!!rill!Lsena~.
i;¥l!.bie A. Si!<!genow (O-MI) 2Q2·2.24-41522 202·228.Q32S httQjJ~.~.now.sen'
Jon S. Corzine (O-NJ) 202·224-4744 202-228-2197 http://corzine.senale
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Information on ~enate (.;ommlttee on tsanKlng, HOUSing, ana uroan Arralrs ...age LOT"L
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General Assembly Raised Bill No. 987

January Session, 2003 Leo No. 3633
Referred to Committee on Banks

Introduced by:
(8A)
AN ACT CONCERNING MORTGAGE LOAN ORIGINATORS.
Be it enacted by the Senate and House of Representatives in General Assembly convened:
Section 1. Section 300-485 of the general statutes is repealed and the follOWing is substituted in lieu thereof (Effective
October 1, 2003):
As used in this section and sections 300-486 to 300-498, inclusive, unless the context otherwise requires:
(1) "Advance fee" means any consideration paid or given, directly or indirectly, to a mortgage lender, first mortgage
broker or originator required to be licensed or registered pursuant to sections 36a-485 to 36a-498, inclusive, prior to the
dosing of a first mortgage loan to any person, including, but not limited to, loan fees, points, broker's fees or
,mmissions, transaction fees or similar prepaid finance charges;
(2) "Advertise" or "advertisement" means the use of media, mail, computer, telephone, personal contact or any other
means to offer the opportunity for a first mortgage loan;
(3) "First mortgage broker" means a person who, for a fee, commission or other valuable consideration, directly or
indirectly, negotiates, solicits, arranges, places or finds a first mortgage loan that is to be made by a mortgage lender,
whether or not the mortgage lender is required to be licensed under sections 36a-485 to 36a-498, inclusive;
(4) "First mortgage correspondent lender" means a person engaged in the business of making first mortgage loans in such
person's own name where the loans are not held by such person for more than ninety days and are funded by another
person through a warehouse agreement, table funding agreement or similar agreement;
(5) "First mortgage lender" means a person engaged in the business of makirlg first mortgage loans: (A) In such person's
own name utilizing such person's own funds, or (B) by funding loans through a table funding agreement;
(6) "First mortgage loan" means a loan or an extension of credit, including, but not limited to, an extension of credit
pursuant to a contract or an assigned contract for the sale of goods or services, made to a natural person, the proceeds of
which are to be used primarily for personal, family or household purposes, and which is secured by a first mortgage upon
any interest in one-to-four-family residential owner-occupied real property located in this state which is not subject to any
prior mortgages and includes the renewal or refinancing of an existing first mortgage loan;
(7) "Mortgage lender" means a first mortgage lender, a first mortgage correspondent lender, or both;
,6) "Originator" means (61 an individual who is employed or retainedt~L!~!!gQt~!i![_~S:1.1i~gL<gE.~l~g~~~J.iD5L<!JLG<;U1:!.',!.!J&-dg~

lo',,:!!Jor.i..2! with I:...h~~~peet,!!:~m 21..s! fee, n)mmissio~ or oth.er Valuable consideration, by a mortgage lender or first
ra~1:' L UI "'t
-
\ mortgage broker that is required to be licensed under sections 36a-485 to 36a-498, inclusive, as (jXI~!.!d_~~IJ)YJ.1Ih<:ll·Jf [for,
. or with the expectation of, a fee, commission or other valuable consideration, to negotiate, solicit, arrange or find a first
-
mortgage loan] or(B),·mindi".id.ual)ic\:'l1seddsan .in Sll rd,nce prod tlc~r.und~rchdf'tE'r.701d''\lh2i~",-m p.k)yed.by; or w ho
has an exclusive independent contract with, one mortgage lendertonegotiate, sol.ici~arrangcor find a first mortgage
t~~!!..G.~~L.~!Xn~~!.!J~J..h.<}_(~Ef'(.W tiQ!lE).LdJ~~.~.(~ll~!l!.~~? iO!!.9..!-..(!.v~~ __~'!.!!:!~?k~O ns} d (~.r.d tiol.1-~J:!j_~J1_m OI:.L.&g(' l£!:!.t!~·L~~_~ ((j I~_u .J
with an insurer rl'pn'sl'nleu hv such prudun'r, whdher or npt such m(Jrtgd\~e iI'nl/t'r i.., requin·J io bt·!iu·n..,pd under
spdiO!1S 16ct-485 lo,)6cl"+98,.inc!usiw,dS amt'mkdhythis dcl;.f'r-_'yidpdswh Il'nd\!f "Y~!riH<'ndgrp('mf~nl c!.ol'pls
fE'c;ron_~ihilityJ2r_an...YJ.'tl~it:'ess_~·O)ld,:,dflU'..Y_~~~h2!,if~il~at0r. "Originator" does not include an officer, if the licensee is a
corporation; a general partner, if the licensee is a partnership; a member, if the licensee is a limited liability company; or a
sole proprietor, if the licensee is a sole proprietorship;
(9) "Residential property" means improved real property used or occupied, or intended to be used or occupied, for
residential purposes;
(10) "Simulated check" means a document that imitates or resembles a check but is not a negotiable instrument;
(11) "Table funding agreement" means an agreement wherein a person agrees to fund mortgage loans to be made in
another person's name and to purchase such loans after they are made; and
(12) "Warehouse agreement" means an agreement to provide credit to a person to enable the person to have funds to
make mortgage loans and hold such loans pending sale to other persons.
Sec. 2. Subsection (a) of section 300-491 of the general statutes is repealed and the follOWing is substituted in lieu thereof
(Effective October 1, 2003):
)
(a) (1) Each applicant for a first mortgage lender license or a first mortgage correspondent lender license shall, at the time
of making such application, pay to the commissioner a license fee of eight hundred dollars, provided if such application is
filed not earlier than one year before the date such license will expire, the applicant shall pay to the commissioner a
license fee of four hundred dollars. Each applicant for a first mortgage broker license shall, at the time of making such
application, pay to the commissioner a license fee of four hundred dollars, provided if such application is filed not earlier
than one year before the date such license will expire, the applicant shall pay to the commissioner a license fee of two
hundred dollars. Each license issued pursuant to this section shall expire at the close of business on September thirtieth of
the even-numbered year follOWing its issuance unless such license is renewed. Such licensee shall, on or before September
first of the year in which the license expires, pay to the commissioner the appropriate license fee as provided in this
section for the succeeding two years, commencing October first, together with such renewal application as the
commissioner may require. Any renewal application filed with the commissioner after September first shall be
accompanied by a one-hundred-dollar late fee. Whenever an application for a license, other than a renewal application, is
filed under sections 36a-485 to 36a-498, inclusive, by any person who was a licensee under said sections and whose license
expired less than sixty days prior to the date such application was filed, such application shall be accompanied by a one-
hundred-dollar processing fee in addition to the application fee.
(2) A licensee ur i!...!..1.2rili(~~s~·.I~_II)OI~t3<1~{·J{:lld{·(~'_)ll.~·.rSUh'.9I'1tl~~ci...iJJh~Ls_ul·ld_i~vi~.i()(\{gh{~(·':!illI.I~h.<J.-±'0_~L.,!:~,~r!!.~nd~.:.t!

PYJI1~<, a'.l,
filing an application for registration of an originator shall, at the time of making such application, pay to the
commissioner a registration fee of one hundred dollars for such originator, provided if such application is filed not earlier
than one year before the date the license of the applicant will expire, the applicant shall pay to the commissioner a
registration fee of fifty dollars for such originator. Each registration W(:~lJ~~li~i':'J:!-".I:I: shall expire at such time as the
licensee's license expires unless such registration is renewed. Such licensee,.2:r_.!1_o~~J~(;,<·ns!'{'_!!!.2Itgdge!~~1d{!.!..l'.!.1d,·!,
suhrardgr_a,phJB)_()Ls.ul)divisi9n.JRLQf.~(}.<::li\)n. ..~t?a::4~?J..~!!.a,t:Tl~~t:'d~t.i..pyJhi~Jjc~, shall file an application for renewal of the
registration and pay to the commissioner the appropriate registration fee as provided in this subsection for the succeedinf
two years, commencing October first.
:le. 3. Section 300.-510 of the general statutes is repealed and the following is substituted in lieu thereof (Effective October 1,
2003):
As used in sections 368.-510 to 300-524, inclusive, Q~ unwnded bv thi~ ad, unless the context otherwise requires:
(1) "Advance fee" means any consideration paid or given, directly or indirectly, to a mortgage lender, secondary mortgage
broker or originator required to be licensed or registered pursuant to sections 300.-510 to 300-524, inclusive, ~~"!'-l!I>ndf:t!
b'.J.h~~ d(:!L prior to the closing of a secondary mortgage loan to any person, including, but not limited to, loan fees, points,
broker's fees or commissions, transaction fees, or similar prepaid finance charges;
(2) "Advertise" or "advertisement" means the use of media, mail, computer, telephone, personal contact or any other
means to offer the opportunity for a secondary mortgage loan;
(3) "Licensee" means any person who is required to be licensed pursuant to section 300-511;
(4) "Mortgage lender" means a secondary mortgage lender or a secondary mortgage correspondent lender, or both;
(5) "Originator" means~l an individual who is employed or retained 11-~J1f'goli~~e, F>Oli~-i!!_~n:lJ.!£.~I)!_(i.~t:!_~firslrno~!£EU

kldll f~)!Lgr.\"ri~b---!h~_t>)(['~('J<lJjQ!~J,_<il~~,-_cg,!! 1l!~si~~n_or_~~[-':!~I.~:!1!-1db!t>_C0-,:,~tkrd li~)Q, by a mortgage lender or secondary
mortgage broker that is required to be licensed under sections 300.-510 to 300-524, inclusive, as amended by this act, [for,
or with the expee la tion of, a fee, commission or other valuable consideration, to negotiate, solicit, arrange or find a
secondary mortgage loan] 0r_J~Ldl~i!1qiyj.':!!:I.<lJJil:~I!:~(~tL<l§_~1~il:!?_Ur_'-!1lC~£!"g5:i~0~_l,lt:lI.J~_~:h~,E~(~~1'_Q]~~~J:!2_i~~~!1!£to.yed hy~
gr. ~VJlt). hdS.d l'!_I':,:,::LlJs (~(.j fld .~~l~e}l<1(· rtt.(~']1ird<:.LV\liihL' )rt(~Jl!(IXlgclg~Jl~ll tll~ r_l()_ll(·Zt)Ji.~I.l(~I_s, l( icj lLdX£iJ n g"<trJi !"' (I ..ct_Jirs l
'11~ l rl g~tzPJ<.)dl1(l)r,-~)r_~jlbJh~_.ex,r~<:Jdli!"~~1_',-lfL.,!JpeLS()JTl!1!.iY!~i~':! '-!r_l~lh~r_\I~I~!...~b!~-"Ol1.,j4~r,-IJ-i5}I1,_)·/hj~hf!l~~r.lgct&f:c' I~l~t>r is
J~li,,-le~<i~l ~l1._,!!1 jl:!SUret:.repre~lJ!~d.~y-.s~E_h l'!g_~h!S~r ,-.Y"~tl1.fr. or 1}(?.L!;':I(:l:lQlortl~age Jel1l,i~!J~_t:e(luj!~~-UQJ~ice]}s..ed
!!nder!)~ction~ 3{)<l-:5.:!Q~o_}t1<l":524,-iI1<,:lll~i'ye,.aSdII\e!1.q~~by.thiSdel, pl'oyideg s_1Is:bJ~IJc:ler_.bJ'~_r~Lle11_<lgrl!m!1l!11.t.~.~l:~P~
responsibility for Jny businpss conducted by such originator. "Originator" does not include an officer, if the licensee is a
corporation; a general partner, if the licensee is a partnership; a member, if the licensee is a limited liability company; or a
sole proprietor, if the licensee is a sole proprietorship;
(6) "Principal amount of the loan" means the gross loan amount the borrower is obligated to repay including any prepaid
finance charge and other charges which are financed. The provisions of this subdivision apply to all loans negotiated
before, on and after June 14, 1993;
(7) "Secondary mortgage broker" means a person who, for a fee, commission or other valuable consideration, directly or
indirectly, negotiates, solicits, arranges, places or finds a secondary mortgage loan that is to be made by a mortgage
lender, whether or not the mortgage lender is required to be licensed under sections 300-510 to 300-524, inclusive;
(8) "Secondary mortgage correspondent lender" means a person engaged in the business of making secondary mortgage
loans in such person's own name where the loans are not held by such person for more than ninety days and are funded
by another person through a warehouse agreement, table funding agreement or similar agreement;
(9) "Secondary mortgage lender" means a person engaged in the business of making secondary mortgage loans: (A) In
such person's own name utilizing such person's own funds, or (B) by funding loans through a table funding agreement;
(10) "Secondary mortgage loan" means (A) a loan or an extension of credit, including, but not limited to, an extension of
credit pursuant to a contract or an assigned contract for the sale of goods or services, made to a person, the proceeds of
~oVhich are to be used primarily for personal, family or household purposes, and which is secured in whole or in part by a
!lortgage upon any interest in one-to-four-family residential owner-occupied real property located in this state, provided
such real property is subject to one or more prior mortgages, and (B) the renewal or refinancing of any existin~ loan or
t'age 4 at 4 -
extension of credit described in subparagraph (A) of this subdivision;
(11) "Simulated check" means a document that imitates or resembles a check but is not a negotiable instrument;
(12) "Table funding agreement" has the meaning given to that term in subdivision (11) of section 36a-485,_~., illll~nd(-,-~'y
p]is'!.g:; and
(13) "Warehouse agreement" has the meaning given to that term in subdivision (12) of section 36a-485,_~~_~I!l"!~~!ld{~~LQyJh!~
ael.
Sec. 4. Subsection (b) of section 300-514 of the general statutes is repealed and the following is substituted in lieu thereof
(Effective October 1, 2003):
(b) A licensee {_~r_Gl ..f1!-'1_1Ii!_~·~~,:~:_!!1(_)r~g':!1~~J':~!:.,,:1_(.~~ __l!~1,:t(::.r.2_t.'~J1_.:1rd_gr~p.bj13J..()L~~l)(]_i V i~.l~)11ja_~li sl:(JL(!rl_}_t2~_~;JJ_QL_~!'.. ~ nl' ·!.1~~:4

by lhi?_,t(:l, filing an application for registration of an originator shall, at the time of making such application pay to the
commissioner a registration fee of one hundred dollars for each originator, provided if such application is filed not earlier
than one year before the date the license of the applicant will expire, the applicant shall pay to the commissioner a
registration fee of fifty dollars for each originator. Each registration fjl~AI"Iil-Ji(~!.ic.,,~eshall expire at such time as the
licensee's license expires unless such registration is renewed. Such licensee (~r_.!}!~J:!J i~:~~~~~_mortl~g~Jen_~er_~_I!l~~!:.
~t1bparagraph(l3t(?LSubdivisioJl(5)9t~e~tiQ_n :}6a-512t as ~!lwn<.1~c:!.J"Llhi~_Clc1 shall file an application for renewal of the
registration and pay to the commissioner the appropriate registration fee as provided in this subsection for the succeeding
two years, commencing October first.
IThis act shall take effect as follows: I

ISection 1 lI0ctober 1, 2003 I
ISec.2 lI0ctober 1, 2003 I
ISec.3 lI0ctober 1, 2003 I
ISec.4 lI0ctober 1,2003 I
Statement of Purpose:
To classify licensed insurance producers, who contract exclusively with a mortgage lender affiliated with an insurer that
the producer represents to arrange first or secondary mortgages, as "originators" where such lender agrees in writing to
take responsibility for business conducted by such originator, and to permit any such mortgage lender that is not a
licensee to file an application for registration for such an originator.
[proposed deletions are enclosed in brackets. Proposed additions are indicated by underline, except that when the entire text
of a bill or resolution or a section ofa bill or resolution is new, it is not underlined.]
)
1...11. LdW i::lUUUl••. IVIUI lYi::lyt::#~ l""C:lge I OT ~
LII
legal il1Ji)rmatit)n imIDlwe Law About. • •
collection home search tell me more Whome
mortgage law: an overview menu of sources
A mortgage involves the transfer of an interest in land as Federal Material

security for a loan or other obligation. It is the most common
method of financing real estate transactions. The mortgagor is Federal Statutes
the party transferring the interest in land. The mortgagee,
usually a financial institution, is the provider of the loan or • 12 U.S.C. - Banks and Banking
other interest given in exchange for the security interest.
Normally, a mortgage is paid in installments that incJude both
Federal Regulations
interest and a payment on the principle amount that was
borrowed. Failure to make payments results in the foreclosure
of the mortgage. Foreclosure allows the mortgagee to declare • Title 12 C.F.R.
that the entire mortgage debt is due and must be paid
immediately. This is accomplished through an acceleration Federal Judicial Decisions
clause in the mortgage. Failure to pay the mortgage debt once
foreclosure of the land occurs leads to seizure of the security • U.S. Supreme Court: Recent
interest and it's sale to pay for any remaining mortgage debt. Q§~j~i~mLQn---.MQD:.ill!9-~~
The foreclosure process depends on state law and the terms of • U.S. Circuit Courts of Appeals:
'le mortgage. The most common processes are court Recent Decisions on Mortgages
.,Jroceedings (judicial foreclosure) or grants of power to the
mortgagee to sell the property {power of sale foreclosure}. State Material
Many states regulate acceleration clauses and allow late
payments to avoid foreclosure. State Statutes
Three theories exist regarding who has legal title to a

• State Property Law Statutes
mortgaged property. Under the title theory title to the security
interest rests with the mortgagee. Most states, however, follow
• ;;t.gt~_ Fi na_n ~@Un?tj!!!.tJQD~
SJatyj:~~
the lien theory under which the legal title remains with the
• StClJe Civil Codes
mortgagor unless there is foreclosure. Finally, the intermediate
theory applies the lien theory until there is a default on the
mortgage whereupon the title theory applies.. State Judicial Decisions
The mortgagor and the mortgagee generally have the right to • N.Y. Court of Appeals:
transfer their interest in the mortgage. Some states hold that o gec~DLOe_cjsi9n.?_9n
even when the purchaser of a property subject to a mortgage M9_D:fLag e s
o Commentary from
does not explicitly take over the mortgage the transfer is
assumed. Mortgagees employ due-on-sale and due-on- liLbulleUQ-ny
encumbrance clauses to prevent the transfer of mortgages. • AP~ellaJ~_J2_e_<:lsions from Other
These clauses allow acceleration (having the principal and States
interest become due immediately) of the mortgage. In 1982,
Congress made th~se clauses enforceable nationwide by Other References
passage of the Garn-St Germain Depository Institutions Act of
1982. The law of contracts and property govern the transfer of Key Internet Sources
le mortgagee's interest.
• Federal Agencies:
Lit Lawaoout...Mortgages
-
If the mortgage being foreclosed is not the only lien on the o Qffj~ELQf_ThrifL~lJQ_~rvision
property then state law determines the priority of the property o Comptroller of the
interests. For example, Article 9 of the Uniform Commercial <::urr~rJ~.Y
Code governs conflicts between mortgages on real property o NatiQnal Credit lLnion
and liens on fixtures (personal property attached to a piece of Administration
rea I estate). o l),~_,_Q~mLrtlll~n.tQf
flous i M_9_n_QJJs1>a n
When a mortgage is a negotiable instrument it is governed by Development (HUD)
Article 3 of the Uniform Commercial Code. See Negotiaple o Eannie _t·t9~
Instruments. A mortgage may be used as a security interest by o Ered9ie Mac
the mortgagee. See ~~fl,Jr~d Tr9_ns9etiQ.n~ o ~innie Mae
o F~deral Housi!]g
The law of mortgages is mainly governed by state statutory Ad.minLstrq!LQfl

and common law. Mortgagees are regulated by federal or state o Department of Veterans
law or agencies depending on under whose law they were Affairs Home Loans
chartered or established. The Office of Thrift Supervision, an
office in the Department of the Treasury, regulates federally Useful Offnet (or Subscription - $)
chartered savings associations. The Comptroller of the Sources
Currency charters and regulates national banks. Federal credit
unions are chartered and regulated by the National Credit • Good Starting Point in Print:
Union Administration. Nelson and Whitman's
Federal agencies that purchase loans and mortgages are the Hornbook on Real Estate Anance
Federal National Mortgage Association or Fannie Mae, the Law, West Group (1994)
Federal Home Loan Mortgage Corporation or Freddie Mac, and
) the Government National Mortgage Association or Ginnie Mae. Other C.9Il§titutional andJndividual
The federal government also insures mortgages through the Rights Iopjc~
Federal Housing Association and the Department of Veterans
Affairs.
proU.net I Real Estate Glossary I Page 1 Page 1 of 21
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8 Real Estate Glossary

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Glossary .V 8W .x 8Y 8Z
8R..§i ,. Related Web Links
J;:state Link~
• State Law
YIlks .A
abatement:
1. A reduction or decrease. 2. The removal of a nuisance.
A, B, C, 0 paper:
Mortage loans are rated as A, B, C, or D paper. "A" paper loans are the
highest quality, lowest risk loans; "B" quality are loans where the borrower
has minor credit problems; "CD quality are borrowers with marginal or poor
credit; "D" quality indicates very high risk loans.
absorption rate:
The total number of vacant square feet of office space divided by the square
footage leased per year historically. Used to analyze demand of office
space in a given market area.
abstract of title:
A fu\l summary of a\l consecutive grants, conveyances, wills, records and
jUdicial proceedings affecting title to a specific parcel of real estate, together
with a statement of all recorded liens and encumbrances affecting the
property and their present status. The abstract of title does not guarantee or
ensure the validity of the title of the property. Rather, it is a condensed
history that merely discloses those items about the property that are of
public record; thus, it does not reveal such things as encroachments and
forgeries. (See abstracter, title insurance pol~, certificate of title)
abstract of judgment:
A full summary by the court of a judgment. It becomes a general lien on all
of a debtor's property in the county where it is recorded. (See general lien,
judgment)
abstracter:
The person preparing the abstract of title. The abstracter searches the title
as recorded or registered with the county recorder, county registrar, circuit
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Secunties &
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E ~ Home I Previous PageD
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CommissIon
Ixl u.s. I-
I. Securities and Exchange Commission
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I~ I.
Staff Report:
Enhancing Disclosure in the
Mortgage-Backed
Securities Markets
~ SEC Logo ~ u.s. Treasury Logo o Office of Federal
Housing Enterprise
Oversight Logo
I I
U.S. Securities Department of Office of Federal
and the Treasury Housing
Exchange Enterprise
Commission Oversight
A Staff Report of the Task Force on Mortgage-Backed

Securities Disclosure
January 2003
Contents
Executive Summary
L IIJ_tr()d",~tion
II. Background
A. Issuers
B. MBS Investors
C. Mortgage-Backed Securities
1. Secondary Mortgage Market Enhancement Act of 1984
2. Effect of Tax Laws on MBS Markets
3. Types of Underlying Mortgage Loans
4. Guarantees or Credit Enhancements
5. Risks - Prepayment and Credit
a. Repayment Risk
b. Credit Risk
D. Structure of the MBS
1. Pass-Through Securities
2. REMICS
E. Creation and Sales of GSE and Ginnie Mae MBS
1. Creation of GSE and Ginnie Mae MBS
2. The To-Be-Announced Market
3. Types of Trades of TBA-Elig\ble MBS
4. Dollar Rolls
F. Creation and Sales of Private-label MBS
1. Creation of Private-label MBS
2. Sales of Private-label MBS
G. Statutes Governing the Offer and Sale of MBS
III. Current Disclosure Practices
A. General
B. Offering Documents
1. Private-label Offering Materials
2. GSE and Ginnie Mae Offering Materials
C. Post-Offering Disclosures
1. Private-label MBS
2. GSE and Ginnie Mae MBS
D. Particular Issues Addressed by Disclosure
1. Prepayment Risk
2. Credit Risk
E. Types of Disclosures
1. Loan Terms
a. Coupon or Interest Rates on Underlying Loans
b. loan Maturity Dates and loan Age
c. Loan Size
d. Points Paid at Settlement
2. Property Information
a. Geographic Distribution
b. Property Types
c. Occupancy Types
d. Loan-to-Value Ratio
3. Borrower Information
a. Credit Scores
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b. Loan Documentation
-
c. Loan Purpose
d. Borrower Debt-to-Income Ratios
4. Sellers, Originators and Servicers
a. Seller Identification
b. Servicer Identification
IV. Jnformation Imbalance Issues
V. fl~ldil!~
Appendix A
Appendix B
Executive Summary
Staff of the Department of the Treasury ("Treasury"), the Office of Federal Housing
Enterprise Oversight ("OFHEO"), and the Securities and Exchange Commission (the
"Commission") formed a joint task force (''Task Force") in August 2002 to conduct a
study of disclosures in offerings of mortgage-backed securities ("MBS"). The
purpose of the joint study was to evaluate current disclosure practices and consider
whether disclosure enhancements are desirable in assisting investors to make
informed investment decisions.
In conducting the study, the Task Force reviewed the history and development of
the MBS markets, the current disclosure requirements for these securities, and
market-driven industry disclosure practices and standards. The Task Force also
interviewed a variety of MBS issuers and investors, and other experienced market
participants and observers, which provided the Task Force with additional
perspectives about the evolution of the MBS markets, Including changing disclosure
standards. The Task Force received recommendations concerning changes to
current disclosure standards based on investor needs, and assessments as to the
likely impact of additional disclosure on the MBS markets' continued smooth
functioning and liqUidity. This report contains the Task Force's findings, conclusions,
and recommendations regarding enhanced MBS disclosures.
Government sponsored enterprises ("GSEs") - the Federal National Mortgage

Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac") - as well as a wholly-owned federal government corporation - the
Government National Mortgage Association ("Ginnie Mae") - played a major role in
creating the MBS markets and today remain the largest issuers. Privately owned
financial institutions have become increasingly important as issuers in the so-called
"private-label" market. The MBS markets are estimated to have grown by more
than 800% in the past two decades. During this time, the structure of MBS vehicies
or products - whether issued by the GSEs, by Ginnie Mae, or by private-label issuers
- has evolved and become significantly more complex. MBS investors continue to be
almost exclusively institutional, but their expressed needs have changed with the
evolving market and economic conditions. In recent years, investors have focused
much more time, attention and resources on the evaluation of prepayment risk and,
in the case of private label MBS, credit risk.
The Task Force found that the significant degree of evolution in disclosure standards
) in the offer and sale of MBS - whether of GSEs, Ginnie Mae or private-label MBS- in
the past has been nearly entirely market driven. Market participants interviewed by
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the Task Force indicate that the changes have been considered beneficial to the
market.
In interviews with the Task Force, MBS market participants also agreed, almost
without exception, that the significant changes in disclosure did not affect the highly
liquid nature of the GSE and Ginnie Mae pass-through and to-be-announced
markets, and MBS markets generally operate reliably and efficiently. Yet, the Task
Force also found that most market participants with whom it spoke, as well as most
lenders and non-GSE issuers, believe the MBS markets could function better with
additional pool-level disclosure. Moreover, consistent with their past experiences
with changes in disclosure, these market participants expressed confidence that
additional pool-level disclosures would not have a significant adverse effect on the
markets' liquidity.
Based on the study, the Task Force has concluded that additional pool-level
disclosures would be both useful and feasible. Market participants interviewed by
the Task Farce were clear in suggesting additional information that they believed
would be usefu\. This report sets forth and descnbes the most frequently mentioned
information that market participants recommended be disclosed to supplement
currently disclosed information. Examples of additional disclosure Items that market
participants suggested wouJd present few practicaJ obstacles are:
• loan purpose;
• original loan-to-value ratios;
• standardized credit scores of borrowers;
• servicer information;
• occupancy status; and
• property type.
The Task Force believes there are no significant obstacles to the introduction of
these additional pool-level disclosures and that the benefits of enhanced
transparency would ultimately outweigh any costs. To implement additional
disclosures, the Task Force recommends that investor interest and issues of
practicality should be k.ey cnteria used to determine the specific items for additional
disclosure in the MBS markets, as well as the appropriate timing and method of
providing this additional disclosure. In the past, industry groups and other mark.et
participants have stepped forward to coordinate and implement additionaJ
disclosures in the MBS market. The Task Force encourages a continuation of this
approach at this time. If market forces are unable to reach consensus on disclosure
enhancements, the agencies represented on the Task Force will need to consider
what additional action might be appropriate.
In addition to its review of MBS disclosures, the Task Force inquired about
allegations of selective MBS selling and purchasing practices arising from possible
information imbalances among market participants. The Task Force looked at
policies and procedures regarding information barriers at the GSEs. In addition,
OFHEO reviewed OFHEO examination reports and inquines of the GSEs as to specific
allegations. Though questioned by the Task Force about such allegations,
interviewees provided no evidence to substantiate allegations of improper activity.
The Treasury, the Commission, and OFHEO will, in their separate capacities,
continue to monitor the MBS markets to assess the implementation and potential
VtJvvlal ~~uuy. Oldll l"\.~fJUll Uri I:.lIm::mclng Uisclosure In me Mortgage-Backed Securiti... Page 5 of 49 -
impact of enhanced MBS disclosures. If future developments warrant, the Task
Force members, in their separate capacities or jointly as they agree appropriate,
could consider what additional steps might help provide additional, useful
disclosures to MBS investors and market participants.
I. Introduction
In July of 2002, Treasury, OFHEO and the Commission made a joint announcement
regarding the intention of Fannie Mae and Freddie Mac to voluntarily register their
common stock under the Securities Exchange Act of 1934 (the "Exchange Act").
This voluntary registration, when in place, will trigger periodic disclosures regarding
the GSEs. Treasury, OFHEO and the Commission also indicated they would review
disclosure requirements and practices in the MBS markets, which would not be
affected under this voluntary registration initiative. The purpose of the review on
primary offering disclosures for MBS, which culminated in this report, was to
examine disclosures to all investors in these securities, with a view to enhancing the
availability of information that investors should have to evaluate the securities in
the MBS markets and make investment decisions.
Staff from Treasury, OFHEO and the Commission, acting as the Task Force, have
conducted the review of the disclosure practices in the MBS markets) The Task
Force focused on disclosures currently prOVided by all types of MBS issuers and
considered whether disclosure improvements were desirable in assisting investors to
evaluate securities in the MBS markets and make informed investment decisions.
The Task Force reviewed regulatory disclosure requirements and current industry
disclosure practices. The Task Force also interviewed Fannie Mae, Freddie Mac and
Ginnie Mae, private-label issuers, institutional investors, dealers, individual analysts,
MBS market and real estate finance trade groups, pension funds and others
involved in the markets to hear their views ranging from evaluations of current
markets, how the markets function and particular concerns regarding disclosures.~
As background to the Task Force's findings, the report discusses the development
and operation of the MBS markets, the various market participants, and the types of
MBS sold. The report also addresses current disclosure practices and investor
interest regarding the asset's of and structures used for the securitization vehides,
credit and repayment sources and other risks affecting the repayment and value of
the MBS, and information imbalance issues. Anally, the report notes categories of
information that the Task Force believes would enhance disclosures in the MBS
markets.
II. Background
The Task Force considered current MBS disclosures in the context of the market's
origins and growth, the market's participants - including issuers, investors and
others - the structure and risks of MBS, and the current laws governing the offer
",,,",outeu ';'lUUY . .;,U:U1 "t:#(JUll un cnnanclng Uisclosure In tne Mortgage-Backed Securiti... Page 6 of 49
and sale of such securities. Growth in the MBS markets has been significant over
the past 20 years. For example, single-family MBS grew from less than $367 billion
outstanding in 19B1 to more than $3.3 trillion outstanding at the end of 2001, an
800% increase) During this period, MBS have evolved, as have the standard
disclosures made to investors. In order to understand the reasons for evaluating
disclosure practices in the MBS markets, it is helpful to understand the development
and operation of the MBS markets.
As described in this section, the MBS markets consist primarily of the MBS issued or
guaranteed by two government-sponsored enterprises, Fannie Mae and Freddie
Mac, and one United States-owned corporation, Ginnie Mae. MBS are also issued by
private-label issuers, which are private institutions. The GSEs and Ginnie Mae
guarantee payments on their respective MBS, whereas private-label issuers use
various forms of credit enhancement.
The most commonly issued MBS are pass-through securities, which consist almost
entirely of GSE and Ginnie Mae MBS, and REMICs, which are the primary security
issued by private-label issuers. The MBS investor base has evolved, but remains
largely institutional. The most important risks in the MBS market are prepayment
risk and credit risk. 1 Investors perceive these risks differently depending on whether
the issuer (or guarantor) is a GSE, Ginnie Mae, or private-label issuer, due to the
different underlying mortgage loans and credit structures. This section includes a
discussion of how these risks drive disdosures in the MBS markets. Other sections
of this report discuss whether MBS disclosures can be enhanced.
A. Issuers
Fannie Mae, Freddie Mac, and Ginnie Mae were all created by federal law to address
perceived deficiencies in the U.S. housing finance market..2 The statutory purposes
of the GSEs and Ginnie Mae are to facilitate a secondary market for residential
mortgage loans and to enhance liqUidity in such loans. The GSEs and Ginnie Mae
enhance liqUidity by enabling lenders and originators to sell their mortgage loans
and use the proceeds from the sales to make new mortgage loans.
Fannie Mae was originally authorized only to buy FHA Insured loans. After being split
Into two entities in 1968, Fannie Mae and Ginnie Mae, Fannie Mae was authorized to
buy a broader range of loans. Freddie Mac was initially authorized to purchase
conventional mortgages from federally insured financial institutions. Both Fannie
Mae and Freddie Mac are now investor owned companies, and the common stock of
both companies is traded on the New York Stock Exchange.
In 1992, OFHEO was established as an independent entity within the United States
Department of Housing and Urban Development by the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992J~ OFHEO's primary mission is ensuring
the capital adequacy and financial safety and soundness of Fannie Mae and Freddie
Mac.
Ginnie Mae does not buy or sell loans or issue MBS; instead, it guarantees payment
on MBS that are backed by federally insured or guaranteed loans, mostly loans
insured by the FHA and guaranteed by the Department of Veterans Affairs (the
"VA"). Other guarantors or insurers of loans eligible as coJlateral for Ginnie Mae MBS
include other offices in the Department of Housing and Urban Development
("HUD"), and the Department of Agriculture's Rural Housing Service. Ginnie Mae is a
wholly-owned government corporation under the auspices of HUD.
Private-label issuers include commercial banks, savings associations, mortgage

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companies, investment banking firms and other entities that acquire and package
-
mortgage loans for resale as MBS.Z
B. MBS Investors
The types of investors in MBS have changed over time. Initially the primary
purchasers of MBS were thrift institutions, commercial banks, insurance companies,
pension funds, and mutual funds. More recently Fannie Mae, Freddie Mac, and
international institutions have also become much more active market participants.!!
The investor base remains overwhelmingly institutional. Investments in MBS are
made for a variety of reasons. Some investors purchase MBS to hold long-term in
portfolios while others purchase for short term trading purposes. MBS are also
widely used for hedging purposes. Much of the development of GSE, Ginnie Mae,
and private-label MBS markets has been in direct response to investor interests and
demands.
c. Mortgage-Backed Securities
The MBS market as we know it today can be traced back to 1970, when Ginnie Mae
first guaranteed a pool of mortgage loans. The creation of Freddie Mac in 1970
helped to expand the market.2. Freddie Mac issued its first mortgage-backed
participation certificates in 1971, and Fannie Mae issued its first MBS in 1981.10
Private-label MBS issuance began in 1977 when Bank of America engaged in the
first private-label issuance of interests in a trust that held single-family
mortgages.H There was little private-label issuance from 1977 until the early
1980s. 12
In the basic MBS structure, a group of mortgage loans is sold to a trust or other
investment vehicle. In the case of residential home mortgages, the pools usually
include a large enough number of loans so that information on no one loan is
important in analyzing the pool. The investment vehicle owns the mortgage loans,
issues securities that are either backed by or represent interests in the loans, and
makes payments to investors out of the payments made on the loans. A servicer is
hired to collect the mortgage payments from the borrowers and to pass the
payments, less fees, including guarantee and trustee fees, through to the trustee,
who passes these payments on to the investors that hold the MBS.
To facilitate sales of MBS, the GSEs and Ginnie Mae are authorized to guarantee the
MBS. Thus, if for some reason, there is insufficient money to cover the payments
due on the MBS, the GSEs make the payments due on the MBS. Ginnie Mae's
guarantee arises if the issuer (typically the loan originator) does not make the
delinquent payments to the MBS holders. Unlike Fannie Mae and Freddie Mac, which
are permitted to issue, as well as guarantee the payments on, MBS, Ginnie Mae only
guarantees the payment of MBS that are created by private entities. Ginnie Mae's
guarantee of the payment of MBS Is backed by the full faith and credit of the United
States, whereas the guarantee obligations of Fannie Mae and Freddie Mac are not. 13
There are significant differences in the composition and structure of typical private-
label MBS compared to MBS Issued or guaranteed by the GSEs or Ginnie Mae. The
perceived strength of the guarantees, the evolution of tax law, and the demands of
investors in an increasingly complex marketplace have contributed to current
practices and product distinctions between GSE and Ginnie Mae MBS and private-
label MBS. A number of regulatory and tax constraints initially impeded private
entities from expanding into the MBS market created by the GSEs and Ginnie Mae.
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1. Secondary Mortgage Market Enhancement Act of 1984
Many of the regulatory constraints affecting private entities were removed in 1984
with the passage of the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"). SMMEA was intended to encourage private sector participation in the
secondary mortgage mark.et by, among other things, relaxing certain regulatory
burdens that affected the ability of private-label Issuers to sell their MBS.14 For
example, SMMEA allowed state and federally regulated financial institutions to
invest in privately issued mortgage related securities.
2. Effect of Tax Laws on MBS Markets
Tax law constraints also affected the types of MBS that could be sold. Until the
passage of the Tax Reform Act of 1986 ("1986 Tax Act"), which recognized the Real
Estate Mortgage Investment Conduit ("REMIC") structure with its beneficial tax
treatment, most MBS were sold as "pass-through" securities. As discussed below,
pass-through securities pay an investor principal and interest received from
payments on the mortgage loans that are the assets of the trust. The payments on
the mortgage loans are passed through the trust to the investors as they are made.
Before 1986, the effect of the limitation on activity of grantor trusts under the tax
laws restricted the use of trusts with multiple classes of securities with differing
payment characteristics. In the multi-class structure, the principal and interest
payments are not just passed through pro rata as paid to all investors, but rather
are divided into varying payment streams to create classes with different expected
maturities, different levels of seniority or subordination or other differing
characteristics. Prjor to 1986, the tax Jaw treated these muJtj-dass trusts as
associations taxable as corporations, and distributions would have been taxable at
the trust level and also at the trust investor level. This "double taxation" made
multi-class structures generally unfeasible.
The 1986 Tax Act eliminated the double taxation for multi-class vehicles structured
as REMICs. With the advent of the REMIC, more complex structures with multiple
classes were developed which divided up the payment streams on the mortgage
loans that were collateral For the securities repayment obligations to investors.
3. Types of Underlying Mortgage Loans
There are differences between the GSE and Ginnie Mae MBS and private-label MBS
in the composition of the mortgage loans comprising the collateral for the respective
pools. The types of underlying mortgage loans that are eligible to be included in
GSE and Ginnie Mae MBS affect the composition of pools backing private-label MBS
because originators can generally receive the best price for eligible loans in GSE and
Ginnie Mae transactions. 15 Eligibility is not the sole criterion, however. Because the
GSEs require a higher fee to accept some loans of lesser credit quality, sometimes
originators may find a private-label transaction more attractive.
The mortgage loans included in Fannie Mae and Freddie Mac MBS generally have the
following characteristics:
• mortgages are on residential properties, most commonly one to four family

homes (these are referred to as single family loans);
• mortgages are generally 15 year and 30 year maturities that are fully
amortizlng;l§
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• most mortgage loans are fixed rate;ll
• most mortgages have monthly payments;
• there typically are no prepayment penalties;
• the loans are due on sale of the underlying property and cannot be assumed
by the buyer of the property; 18
• mortgage loans must be within the "conforming loan limit", which for one-
unit homes in 2003 is $322,700. 19
• loans within the conforming loan limit generally satisfy other GSE
specifications for loan documentation, credit information and property type,
among other requirements. 20
There are some mortgage (oans made to borrowers with good credit histories that
are within the conforming (oan limit but do not satisfy all the standard GSE
underwriting gUidelines, including documentation, for mortgage loans. These
mortgage loans are called "Alternative A" or "Alt A" loans. These Alt A loans fail to
satisfy the GSE guidelines for reasons such as limited or low documentation of
income from the borrower (for reasons of speed or convenience to the borrower),
unstable income sources, higher loan-to-value ratios ("L"TV") or other ratios of
payments to income)l
Alternative A loans and some lower credit quality loans that are within the
conforming loan limit can be swapped for Fannie Mae or Freddie Mac MBS or pooled
and sold as private-label MBS. Fannie Mae or Freddie Mac will issue MBS backed by
such loans if the lender pays a higher guarantee fee that compensates the GSE for
the potentially higher risk.
Apart from Alt A loans, there are other types of mortgage loans that do not satisfy
standard GSE requirements. Mortgage loans that are larger than the conforming
loan limit, called jumbo loans, cannot, by statute, be included in GSE or Ginnie Mae
MBS pools. Mortgage loans are also made to borrowers who fall to meet GSE
underwriting requirements because of certain borrower or loan characteristics. For
example, mortgage loans made to borrowers with poor credit histories or high debt-
to-income ratios may be ineligible for securitization by the GSEs or eligible only by
payment of a higher guarantee fee. These are the types of loans that typically
comprise the pools backing the private-label MBS.
Under the Ginnie Mae MBS program, HUD-approved mortgage originators pool FHA,
VA or certain other federally-insured mortgages into MBS and sell the MBS
guaranteed by Ginnie Mae. The terms of the underlying mortgage loans must
comply with the underwriting requirements of the FHA or VA, as applicable.
As a result of the GSE underwriting criteria and conforming loan limits and FHA and
VA underwriting requirements which do not apply to private-label issuers, the
mortgage loans in private-label MBS generally have more diverse collateral, credit
risk or other underwriting characteristics than GSE or Ginnie Mae MBS and have
wider variances in a number of terms including interest rate, term, size, purpose
and borrower characteristics. Private-label pools more frequently include second
mortgages, hjgh Joan-to-vaJue mortgages and manufactured housjng Joans. The
coupon rates and maturities of the underlying mortgage loans in a private-label MBS
pool may vary to a greater extent than those included ina GSE guaranteed pool.
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4. Guarantees or Credit Enhancement
As noted above, the GSEs and Ginnie Mae guarantee payments to investors on their
MBS. This guarantee ensures that investors receive scheduled payments of principal
and interest, regardless of whether payments on the underlying mortgages are
made. MBS issued in the private-label market are typically not guaranteed by the
issuer and instead rely on other forms of credit enhancement or support to give
investors greater assurance they will receive payments on their MBS. The credit
enhancement in private-label MBS may be internal or external to the vehicle issuing
the security. External credit enhancements generally involve insurance or a letter of
credit purchased by private-label issuers to support the underlying mortgage
payments. 22 Internal credit supports, reserve funds, or senior-subordinated
structures are structural features of multi-class MBS, such as REMICs, that are
designed to help ensure repayment to more senior classes of securities before other
subordinated classes in the case of default of the underlying mortgage 10ans.2·J
The most common credit enhancement currently used in private-label MBS is the
senior-subordinated structure in REMICs. In the senior-subordinated credit
enhancement, the trust will issue different classes of securities. There will be a
senior class or tranche and at least one class that has a subordinated right of
payment to the senior class. The senior class, which bears the least amount of risk
of default of the underlying mortgages, will carry a lower interest rate. The
subordinated class, which bears the greatest amount of risk of default of the
underlying mortgage loans, will carry a higher interest rate in order to compensate
for the greater risk exposure. The level of credit protection this structure provides to
the senior class may decline over time due to prepayments and thus other
mechanisms, such as prepayments going disproportionately to the senior class
(known as shifting interest structures), must be in place to prOVide further
safeguards.£.4 Because the senior-subordinated credit enhancement relies on a
multi-class security structure, this form of credit enhancement is typically available
for REMIC or other multi-class f'1BS, and not pass-through MBS.
5. Risks - Prepayment and Credit
a. Prepayment Risk
The most significant feature and risk that all MBS share is prepayment risk, which is
the risk that principal payments on an underlying loan will be paid earlier or later
than expected. Unscheduled prepayments may affect the return realized by MBS
investors. When an investor purchases an MBS or any other fixed income security, .
the investor does so with the understanding that the price he or she is paying for
the security reflects uncertainty about Its expected life. Prepayment risk on MBS Is
influenced by a wide range of factors that relate both to general market conditions,
including interest rates, and the performance on individual loans included in the
portfolio of loans backing an MBS issuance.
Prepayments arise for two primary reasons - refinancing and moving. As interest
rates fall below rates on existing mortgages, borrowers may, and commonly do,
prepay their existing loans and refinance at lower rates. Refinancings are recognized
as being the primary driver of prepayments}~ Prepayments also occur when
homeowners sell their homes. Most mortgage loans must be paid in full when a
home is sold. The mortgage loan can also be paid prior to its due date or maturity if
the homeowner does not pay the loan and the lender repossesses or forecloses on
and sells the home. Finally, a borrower may prepay a loan, in whole or in part, at
any time for any other reason. When MBS prepay as a result of borrower
refinancing, investors seeking to reinvest in the fixed income market will generally
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be forced to make a new investment in a lower Interest rate environment. When
prepayments are slower than expected, it often means that interest rates have
--
risen. The security pays later than expected, and the investor cannot take
advantage of more attractive investment opportunities with those funds. 26
b. Credit Risk
The potentially significant risk to investors in private-label MBS that Is generally

thought by investors to be less significant in the case of GSE and Ginnie Mae MBS is
credit risk. Investors in MBS, as with other fixed income instruments, evaluate the
risk of whether they win receive the scheduled payments of principal and interest on
their MBS. Credit risk reflects the risk that the borrowers on the underlying loans
may not be able to make timely payments on the loans or may even default on the
Joans.
In the absence of a guarantee or external credit enhancement, Mas investors

generally can (ook. only to the assets or collateral of the trust, the underlying
mortgage loans, as the source of payments on their securities and to the structure
of the transaction for any internal credit enhancement. The creditworthiness of the
underlying borrowers becomes significantly more relevant in private-label MBS
offerings because there is seldom an entity that is guaranteeing the payment of the
securities. Therefore, if the borrowers do not pay the mortgage loans, the MBS
securities will not pay, absent some credit enhancement. Consequently, GSE and
Ginnie Mae MBS and the private-label MBS may pose differing degrees of risk for
investors.
Since the GSEs and Ginnie Mae guarantee the timely payment of principal and
interest on the MBS, a GSE and Ginnie Mae MBS investor looks to the GSEs and
Ginnie Mae to determine the credit risk. Ginnie Mae's guarantee is the full faith and
credit guarantee of the United States. In contrast, Fannie Mae's and Freddie Mac's
guarantees are based solely on their own credit quality. Fannie Mae and Freddie Mac
provide extensive corporate disclosure and will soon register their common stock
under the Exchange Act, subjecting the two companies to all of the disclosure
requirements of the federal securities laws. Investors in Fannie Mae and Freddie
Mac MBS may look to these disclosures to assess those companies' abilities to fulfill
the guarantees of the MBS. Investors may also look to information provided by
OFHEO about the GSEs' creditworthiness, including results of examinations and risk
based capital stress tests.
In addition to assessing the credit quality of the underlying mortgage loans,

investors in private-label MBS must look to the creditworthiness of the provider of.
the external credit enhancement or must evaluate the reliability of the transaction
structure to provide any internal credit enhancement and the reliability of a rating
agency's rating. The amount of disclosure private-label issuers must prOVide with
respect to third party credit enhancements varies with the type and level of support
expected. Private-label issuers are reqUired to discuss in their registration
statements the material terms of any credit enhancement, whether internal or
external and to provide information regarding the credit enhancer, insurer or
guarantor,7-1
D. Structure of the MaS
As noted above, the most common form of private-label MBS is in the form of a
REMIC. The other common form of MBS is the pass-through security, which is used
) predominantly by the GSEs and Ginnie Mae. Both structures are briefly summarized
below.
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1. Pass-Through Securities
The most common type of MBS is a pass-through security backed by a pool of

single-family mortgage loans. Generally, pass-through MBS are created by pooling
or packaging mortgage loans together in a trust or other collective investment
vehicle and selling the interests in the trust. 28 In the pass-through structure, the
certificate holders own undivided interests in the pool. All payments on the
underlying mortgage loans, including principal, scheduled interest, and unscheduled
prepayments are passed through, on a pro rata basis, to the holders of the pool
interest or participation certificates after deducting the servicing fees, Ginnie Mae
and GSE guarantee fees, and trust expenses. The assets of the trust or other
vehicle are the mortgage loans in the pool. Most pass-through vehicles own fixed
rate mortgages, although adjustable rate mortgages may also be assets of a pass-
through MBS entity.29 The coupon or interest rate payable on a pass-through MBS is
less than the interest rate payable on the underlying mortgage loans in the pool.
The interest differential is used to pay for the guarantee fee to one of the GSEs and
the servicing fee to the servicer. Generany, the underlying mortgage loans are
serviced by the originating lender or another institution that has bought the
servicing rights.3 0
Private-label issuers can, but in most cases do not, issue pass-through securities. In
a private-label MBS, the interest differential would be used to pay for credit
enhancement or credit support, the servicing fee to the servicer, and trust
expenses.
2. REMICs
As previously noted, the REMIC is a multiple-class security vehicle that does not
have the burden of double taxation. The assets underlying the REMIC securities can
be either other MBS or whole mortgage loans. The assets are pooled and cash flows
from the assets are distributed to the various REMIC security classes according to
the priorities specified in advance. The REMIC structure allows issuers to create
securities with short, intermediate and long-term maturities. This fleXibility enables
issuers to expand the market for the MBS to fit the needs of a variety of investors,
not just investors looking for 3D-year fixed-rate securities. The REMIC structure has
allowed for a broader group of investors. REMICs may also be used to address
particular investment objectives or concerns about prepayment risk by carving up
principal and interest payments on the underlying mortgage loans to create
different timing and levels of payments on the securities)...1
REMICs are issued by private-label issuers and under the GSE and Ginnie Mae
programs. Fannie Mae and Freddie Mac REMICs generally are backed by GSE MBS.
The GSEs then guarantee the payment obligations on the REMIC securities. In the
Ginnie Mae REMIC program, Ginnie Mae guarantees the timely payment of principal
and interest on each of the classes. Ginnie Mae REMICs are pools of Ginnie Mae
guaranteed certificates.
Due to the widely diverse coupon and payment characteristics of the underlying
mortgage loans, most private-label securities are structured as REMICs. 32 Private-
label REMICs are generally backed by jumbo or otherwise non-conforming mortgage
loans. The GSE participation in the REMIC market has effectively priced most
potential private-label REMIC securities backed by conforming loans out of the
market. This is because, as a result of the GSE or Ginnie Mae guarantee, investors
will likely pay more for GSE and Ginnie Mae securities backed by the same loans,
even though guarantee fees are paid from the pool cash flows.
)
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In a standard REMIC structure, known as sequential pay, each class or tranche of

the security is generally paid the coupon rate on a monthly basis. Principal is paid
-
on the regular classes in sequential order: senior classes are paid first, and then the
subordinated classes. Any prepayments are allocated in the same way. The effect of
prepayments is that more senior classes may be paid off much sooner or later than
anticipated. Prepayments to senior classes can also shorten the expected maturities
of later maturity classes in a sequential pay structure, but later maturities have Jess
prepayment risk than exists for securities in a pass-through structure•
•
E. Creation and Sales of GSE and Ginnie Mae MBS
1. Creation of GSE and Ginnie Mae MBS
GSE and Ginnie Mae MBS are created through a variety of programs. For Fannie
Mae and Freddie Mac guaranteed MBS, each GSE has two basic mechanisms to
create MBS - a "cash" program and a "swap" program. A mortgage originator
selects a group of mortgage loans that it determines to sell to one of the GSEs as a
package. Under the "swap" programs, the lender selects and pools a group of
conforming mortgage loans that meet the GSE underwriting standards and "swaps"
them for MBS issued and guaranteed by one of the GSEs representing interests in
that same pool of mortgages. Under their "cash" programs, Fannie Mae and Freddie
Mac take whole mortgage loans and give the originators cash back. Subsequently,
the GSE will decide which mortgages out of the pools it has purchased in the cash
program to pool and use as collateral for new GSE MBS or whether to hold the
mortgage loans asan investment. The GSE will then issue MBS backed by the loans
it has purchased from lenders or originators, guarantee the timely payment of
prindpal and interest on the securities and sell the MBS through dealers. The
mortgage originator, not the GSE, decides whether to swap the loans for MBS or to
receive cash. A small amount of Fannie Mae and Freddie Mac MBS are created
through their respective "cash" programs, with the vast majority being created
through their respective "swap" programs. The loan originator, of course, would also
be free to use the loans in a private-label MBS issuance.
Under the Ginnie Mae MBS program, a HUD-approved mortgage loan originator
pools FHA, VA or certain other federally-insured mortgages and sells MBS
guaranteed by Ginnie Mae. Ginnie Mae does not issue securities or own the
underlying assets but rather guarantees the payment of the securities backed by
the underlying mortgage loans or mortgage pools. Uke the loans in the Fannie Mae
and Freddie Mac swaps, the loans in the mortgage pools comprising Ginnie Mae
guaranteed MBS are chosen by the lender, not by Ginnie Mae.~ Ginnie Mae has
pool and disclosure guidelines establishing the permissible content of the pools and
required disclosures including the number of issuers, first payment date, maturity,
and number of 10ans.:M
The GSEs have other MBS products that are either larger pass-through structures,
which can be pools of pools (small balance pools consolidated into one larger pool)
or are collateralized mortgage obligations such as REMICs.
2. The To-Be-Announced Market
In addition to the differences in the collateral and structures discussed above,

private-label MBS are sold to investors through different market mechanisms than
are GSE and Ginnie Mae MBS.li
)
Most pass-through MBS of each of Fannie Mae, Freddie Mac and Ginnie Mae are
eligible to be sold in the "to-be-announced" or TBA market, which is essentially a
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forward or delayed delivery market.36 Only pass-through securities issued or

guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and comprised of single-
family mortgages are eligible for trading in the TBA market. The TBA market allows
mortgage lenders essential\y to sen the loans they intend to fund even before the
loans are closed. This also allows the lender to lock in an interest rate for the
borrower. The lender, or other market participant, will enter into a forward contract
to seJJ MBS in the TBA market, promising to deJJver MBS on the settlement date
sometime in the future. In the TBA market, GSE and Ginnie Mae MBS are traded on
a forward or delayed delivery basis with settlement up to 180 days later. The actual
mortgage pools comprising the MBS are not specified at the time of sale. In fact,
many of the mortgage loans may not even be signed (and the mortgage pools
created) at the time of sale. The largest volume of trading in the TBA market is for
settlement within 30 days.37
In a TBA trade the seller and buyer agree to five pieces of information before
entering into the transaction: the type of security, which will usually be a certain
type of Fannie Mae, Freddie Mac or Ginnie Mae program and type of mortgage (i.e.,
GNMA 30-year pass-throughs); coupon or interest rate; face value (the total dol\ar
amount of MBS the purchaser wishes); price; and settlement date. The purchaser
will contract to acquire a specified dollar amount of MBS, which may be satisfied
when the seHer delivers one or more MBS pools at settlement. Forty-eight hours
before settlement, the seller specifies or allocates the identity and number of
mortgage pools by the specific pool numbers and CUSIPs to be delivered to satisfy
the TBA trade.
The Bond Market Association, a private trade association of dealers in debt

securities, publishes guidelines governing the mechanics of trading and settling
MBS, which are intended to implement standard industry practices. The guidelines,
titled "Uniform Practices for the Clearance and Settlement of Mortgage-Backed
Securities and Other Related Securities," contain specific gUidelines for trading and
settling GSE and Ginnie Mae pass-through MBS in the TBA market, known as Good
Delivery Guidelines.~ The Good Delivery Guidelines outline the basic terms and
conditions for trading, confirming, delivering and settling MBS. The Good Delivery
Guidelines set forth the basic characteristics that GSE and Ginnie Mae pass-through
MBS must have to be able to be delivered to settle an open TBA transaction. Most
newly issued GSE and Ginnie Mae pass-through MBS are eligible to be sold in the
TBA market. Already outstanding GSE and Ginnie Mae pass-through MBS may also
be used to cover a TBA trade. Therefore, the mortgage originator has until 48 hours
before the settlement date to dedde whether to use new pools of mortgages or to
buy outstanding GSE or Ginnie Mae MBS to cover the trade. The Task Force
understands that roughly 75% of GSE and Ginnie Mae MBS are eligible to trade in
the TBA market. 39
The Good Delivery Guidelines were developed as a result of the unique nature of the
GSE and Ginnie Mae MBS market. The TBA. market developed in response to the
demands of market participants for more liqUidity in trading GSE and Ginnie Mae
MBS. In order for the market to work on a delayed delivery basis, with sales of GSE
and Ginnie Mae MBS occurring before the underlying mortgage loans close, and to
account for the potential that not all commitments for mortgage loans will close
(called pipeline risk), the market had to develop a process that would allow the
identification of the securities that would be delivered in satisfaction of a trade a
very short time before settlement, rather than at the time the forward trade was
entered into. In addition, because there are over 1 million individual GSE and Ginnie
Mae MBS, with huge variations in outstanding principal amount, it was recognized
that it was impractical and inefficient, and would greatly limit liquidity, and
generally reduce price, to attempt to trade these GSE and Ginnie Mae MBS on a
pool-by-pool basis. Thus, it was essential to establish a concept of fungibility or
interchangeability among pools that would facilitate both forward trading and an
/
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-
orderly and liquid trading market in GSE and Ginnie Mae pass-through MBS.~Q
-
As a result of the GSE and Ginnie Mae standardized underwriting gUidelines for
single-family mortgages and the trading and settling parameters of the Good
Delivery Guidelines, GSE MBS that may be delivered to satisfy a TBA trade will have
similar characteristics. The mortgage loans underlying GSE and Ginnie Mae pass-
through MBS are pooled together according to similar characteristics that are based
on guidelines established by the GSEs and Ginnie Mae and enable the pools to
satisfy the Good Delivery GUidelines.41 Under the Good Delivery Guidelines, only
GSE and Ginnie Mae pass-through MBS that are within a particuJar product type and
coupon, have certain basic attributes and fall within certain parameters can be
delivered to satisfy a TBA trade. The TBA market functions on the premise that even
though each pool that will be created is unique, all pools eligible for delivery on a
given TBA trade are equivalent In their characteristics and expected performance.
Therefore, any distinct characteristics of the underlying mortgage loans comprising
a pool delivered in a trade are considered to blend together so that the MBS they
back can be considered a generic security. As a result, TBA market participants
consider MBS of Fannie Mae, Freddie Mac and Ginnie Mae that meet the Good
Delivery Guidelines to be interchangeable or fungible with other such MBS issued or
guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, respectively.
TBA trading vastly improves the liquidity of TBA-eligible pass-through MBS. Market
participants have noted that the fungible nature of TBA securities promotes broad
liquidity, which adds to efficiencies in pricing, execution, delivery and settlement. In
addition, the TBA market allows lenders to finance mortgages, thereby locking in
interest rates, prior to the actual closing of a mortgage.~ Commentators have
noted that "[w]lthout the TBA mechanism, mortgage pools could not be sold until
they had been formed, and originators would have to hedge their pipelines using
Treasury futures or Treasury or MBS options. Using TBA forward sales to hedge
pipelines is more efficient and has probably resulted in lower mortgage rates for
borrowers. "43
The pricing of TBA-eligible MBS is based on the assumption that the GSE or Ginnie
Mae MBS delivered in the TBA trade will be a generic MBS - one that, based on the
information available, is considered to be part of a fungible universe of TBA-eligible
MBS. In a TBA transaction, the security traded Is the one that the seller can buy or
obtain at the lowest cost for delivery at settlement (and thus has a higher profit
potential). In other words, TBA prices are based on the GSE or Ginnie Mae pass-
through MBS that are the "cheapest to deliver." Thus, the price of the cheapest to
deliver security or the generic security in a TBA trade is the base price for TBA
trades. Because the generic security trade price is the base price for TBA trades,
this price is also the floor off which other MBS trades are priced. Any extra amount
paid for a perceived benefit is measured relative to the base price. Market
participants note that the tremendous market liqUidity has created pricing efficiency
and reduced the bid/ask spread to 1/16 of a point or even 1/32 of a point.
BJoomberg LP and other third party vendors pubJish average dally price Quotations
for TBA trades, which Include only generic securities. There is also a competitive
dealer and interdealer broker network from which daily pricing of trades in generic
securities is available.
As described above, the Good Delivery Guidelines establish standard notification and
settlement dates for GSE and Ginnie Mae MBS. The trading gUidelines require
delivery of confirmations within one business day of the TBA forward trade. The
confirmation must contain Information regarding the security and the transaction,
including product type, coupon rate and settlement month. The confirmation may
contain other stipulated conditions that were negotiated as part of the trade. The
Good Delivery Guidelines also address delivery and settlement. 44 Under the
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notification process of the guidelines, to satisfy the seller's delivery obligation

regarding the TBA trade, a seller must notify a purchaser 48 hours before
settlement of the specific pools that will be delivered and the manner in which the
pools wi\! be assigned or allocated. Allocation is the process by which the seller
determines which GSE or Ginnie Mae MBS will be delivered to the buyer to satisfy
good delivery and requires that GSE or Ginnie Mae MBS assigned pools must be
within certain parameters. The parameters are necessary to maintain the fungible
character of the MBS delivered to satisfy a TBA trade. These parameters include the
permissible variance in the face value of MBS being delivered and the number of
MBS pools per million dollars traded. 45 GSE and Ginnie Mae MBS are issued and
transferred in book-entry form.
The Good Delivery Guidelines prohibit delivery of securities until 2 business days
after the seller provides pool information. As discussed below, the dollar roll market
enables sellers to acquire pools to deliver to avoid settlement fails or to follow buy-
in requirements.
3. Types of Trades of TBA-Eligible MBS
TBA-eligible MBS may be traded three ways: generic, stipulated and specified
trades. Generic TBA trades are trades that merely fit the Good Delivery Guidelines.
The majority of GSE and Ginnie Mae pass-through MBS are traded on a generic
basis through the TBA market process. Stipulated TBA trades are TBA-eligible
securities meeting Good Delivery Guidelines that have characteristics that have
been requested by the investor. In general, the stipulations are based on publicly
available information about the pools or alterations of the Good Delivery Guidelines.
The most common stipulated terms are number of pools that can be delivered, the
principal dollar amount variance, maturity year, weighted average loan age of the
mortgage loans in the pool, and geographic location of the underlying properties.
Recently, investors have increasingly stipulated Alternative A characteristics.
Investors also commonly stipulate to late delivery to facilitate a seller's ability to
obtain pools to satisfy an investor's trade. Investors entering into a stipulated trade
will pay a higher price than the price for a generic pool in the TBA market. This is
known as "paying up." As with generic TBA trades, there is no specific security
identified at the time the parties enter into the trade. 46
Finally, TBA-eligible securities may be traded on a specified pool basis. Investors

that wish to purchase a particular mortgage pool will engage in a specified trade -
they will identify the actual pool they wish to purchase by pool and CUSIP number.
Unlike generic and stipulated trades, specified pool trades occur outside the TBA
market. There are a number of reasons an investor may engage in a specified trade.
For instance, an investor may want to purchase particular pools that have been in
existence for a period of time, known as seasoned MBS, because of their better
known prepayment characteristics.:{l Investors can examine the prepayment history
of seasoned pools before actually purchasing them. Although seasoned pools may
trade in the TBA market, and can be used to settle any TBA trade, they often trade
on a specified basis outside the TBA market because of the increased differentiation
in prepayment histories.
Among newly created MBS, specified pools generally command the highest price
due to the additional available information regarding the content of the pool
indicating the pool is worth more than a generic pool. Market participants have
indicated that investors generally obtain information on these pools from dealers or
originators. These market participants have indicated, however, that certain
historical information they may receive about previously specified pools cannot be
independently verified.
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4. Dollar Rolls
-
In addition to the flexibility the TBA market gives to buyers to determine the level of
specificity the buyer desires in terms of pool characteristics, the TBA market has
two distinct trading uses. Investors, dealers, originators and other participants use
the TBA market not only to acquire pools for investment or to form other
investment vehicles, but TBA market participants trade TBA pools in "dollar rolls" as
financing vehicles.'!§.
Donar rons, which are a form of conateralized short-term financing where the
collateral consists of mortgage securities, perform a function analogous to that
provided by the repo (repurchase agreement) market. The vast majority of
financing in the MBS market occurs through the dollar roll market, which takes
advantage of the flexibility of the TBA market. Unlike a reverse repurchase
agreement, which generally requires redelivery of exactly the same securities that
are delivered during the first leg of the transaction, a dollar roll is a simultaneous
purchase and sale of substantially similar (TBA) securities for different settlement
dates. The dealer, who is said to "roll In" the securities received, is not required to
deliver the identical securities, only securities that meet the Good Delivery
Guidel\nes. Thus, the investor may assume some risk because the characteristics of
the MBS delivered to the investor may be less favorable than the MBS the investor
delivered to the dealer. Because the dealer is not obligated to return the identical
MBS collateral that the investor has delivered, both parties usually transact the
dollar roll with generic GSE or Ginnie Mae MBS pools that they believe to be of the
same or less value than the average TBA-eligible security.
Dollar roll deliveries are made pursuant to TBA Good Delivery Guidelines. Most
dollar roll purchase and sale dates conform to the same dates as TBA MBS
delivery .4~ The dollar roll market has been noted to have more favorable borrowing
rates than the repo mark.et for MBS, which benefits market participants. 50 The
dollar roll market also allows dealers and other sellers to acquire pools for delivery
to satisfy existing TBA trades, thus avoiding failed trades and providing a tool to
manage supply/demand imbalances in the market.!?·l
F. Creation and Sales of Private-label MBS
1. Creation of Private-label MBS
A private-label issuer generally creates MBS using whole loans that it either
originates or acquires in the secondary whole loan market or uses MBS, including
GSE and Ginnie Mae MBS, it acquires in the market. The MBS issuer will assemble
pools of mortgage loans that it will deposit into a trust in exchange for MBS. Most
private-label MBS are designed to meet specific investor needs; thus, the private
label issuer will generally obtain dealer and investor input on the desired
characteristics of the various MBS classes to be issued in any particular deal prior to
depositing the pool of whole mortgage loans or MBS into the trust. Once the
private-label MBS structure is established, the mortgage loans will be deposited into
a trust and the MBS sold to investors for cash. The private-label issuer or its
affiliates may also retain certain classes of the MBS offered in any deal. Private-label
MBS, generally REMICs (backed by both GSE and non-GSE collateral), are
composed of specified pools. The diversity of the underlying collateral and credit risk
issues heighten investor demand for detailed information to assess prepayment and
credit risk.
)
2. Sales of Private-label MBS
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Private-label MBS are not sold in the TBA market. Private-label MBS typically are
offered initially through underwriters and generally are not traded on a registered I
exchange or other organized market. As a result of the fact that private-label MBS .
have a wide variety of multi-class structures, pool characteristics and issuer
standards, they are not fungible and more information about the private-label MBS
is provided to facilitate trading. While the private-label MBS market is less liquid
than the TBA market, market partidpants indicate that there is a resale market for
many private-label MBS. Because there is no established trading market for resales
of private-label MBS, participants in this market must rely on dealer to customer
interaction to effect transactions in these securities. The trades are carried out in
the over-the-counter market by telephone, fax and e-mail with dealers.
G. Statutes Governing the Offer and Sale of MBS

The GSEs and Ginnie Mae were created by federal legislation, and a number of
provisions of federal law exempt their securities from most provisions of the federal
securities laws. These exemptions extend to the offer and sale of MBS issued or
guaranteed by the GSEs or Ginnie Mae. As discussed below, securities of private-
label issuers, including the offer and sale of their MBS, are subject to regulation
under these laws.
Ginnie Mae is a wholly-owned corporation of the United States Government under

HUD. As such, the securities It guarantees are exempt securities under Section 3(a)
(2) of the Securities Act 52 and Section 3(a)(12) of the Exchange Act. S3 The Federal
National Mortgage Association Charter Act provides that securities issued or
guaranteed by Fannie Mae will be considered exempt securities to the same extent
as U.S. Government securities and as such are also exempt in the same manner as
securities that Ginnie Mae guarantees.~4 The Federal Home Loan Mortgage
Corporation Act contains a similar provision for Freddie Mac.·~ Therefore, GSE and
Ginnie Mae MBS may be offered and sold without registration under the Securities
Act and the securities are freely tradable securities. Furthermore, the securities are
also considered government securities under the Exchange Act and may be traded
by government securities brokers.a~ Finally, GSE and Ginnie Mae MBS are also
exempt from the Trust Indenture Act of 1939 and the Investment Company Act of
1940.57
These exemptions, however, do not mean that the GSEs and issuers of Ginnie Mae
MBS are exempt from the antifraud provisions of the federal securities laws. Section
17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-S
promulgated thereunder, apply to all issuers of securities, whether or not the offer
and sale Is registered under the Securities Act.?~ The antifraud provisions of the
federal securities laws prohibit fraudulent or deceptive practices in the offer and sale
of MBS. Specifically, the provisions prohibit any person from making a false or
misleading statement of material fact. In making disclosures, issuers also may not
omit to state a material fact that is necessary in order to make the statements
made not misleading. To be considered material, there must be a substantial
likelihood that the disclosure of the omitted fact "would have been viewed by the
reasonable investor as having significantly altered the total mix' of information
made available."~~ GSE disclosures are also subject to OFHEO safety and soundness
supervision and regulation.
Unlike GSE and Ginnie Mae MBS, offerings of private-label MBS are subject to the
registration requirements of the federal securities laws. As such the offer and sale of
these securities must be done pursuant to a registration statement filed with the
Commission or pursuant to an exemption. The registration statement must meet the
Commission's disclosure requirements. If an exemption from the registration
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requirements is available, the private-label securities may be sold without filing a

registration statement with the Commission. 50 Almost all private-label MBS that are
-
not sold pursuant to a registration statement are sold in the 144A market. Rule
144A, a non-exclusive safe harbor from the registration requirements of the
Securities Act, permits resales to institutional investors that meet the criteria for
"qualified institutional buyer" ("QIB") of certain privately placed securities. 51 Rule
14411. also contains an information disclosure requirement if the issuer of the
securities is not a reporting entity under the Exchange Act. 52 Market participants
have indicated that the vast majority of private-label MBS, over 98% in 2001, are
sold in registered transactions with the remainder being sold in Rule 144A
transactions.~
III. Current Disclosure Practices

A. General
The content and timing of disclosure vary with the type of issuer and type of
security offered. Both private-label and GSE and Ginnie Mae MBS issuers provide
disclosure to potential MBS investors in a series of documents and through a variety
of means. The MBS structure used, whether pass-through or REMIC, will directly
affect the form and content of disclosure, because disclosure will address the terms
and risks of the securities being sold. While almost all pass-through MBS are issued
by the GSEs or Ginnie Mae issuers, private-label issuers sell primarily REMIC
securities. In MBS offerings, disclosure is particularly focused on helping investors
evaluate the prepayment and credit risks.
In addition, the different characteristics of the underlying mortgage loans included

in GSE and Ginnie Mae MBS and private-label MBS affect the format and content of
the disclosures in the respective MBS deals. As discussed above, there have been
slgn\ficant dlfferences, hlstoncally, between the mortgage loans underlying GSE and
Ginnie Mae MBS and those underlying private-label MBS. Some of these differences
between the mortgage loans in GSE and Ginnie Mae or private-label MBS pools may
be changing as the GSEs expand their programs to include mortgage loans that may
have more or less advantageous payment characteristics than the majority of
mortgage loans included in GSE MBS. Because these changes may affect the
existing homogeneity of the GSE MBS pools, the changes may also impact the type
of Information that investors require to assess risk and that the GSEs provide about
their MBS pools in the future.
Private-label issuers and the GSEs and Ginnie Mae provide MBS disclosure to
investors using different mechanisms. The differences in disclosure delivery arise for
two primary reasons. First, while GSE and Ginnie Mae MBS are exempt from the
registration and reporting requirements of the federal securities laws, private-label
issuers must either file a registration statement meeting the Commission's
disclosure requirements or rely on an exemption from registration. Second, GSE and
Ginnie Mae pass-through MBS are often sold through a different market, the TBA
market, than private-label MBS and GSE and Ginnie Mae REMICs backed by TBA-
eligible pass-through MBS. As noted above, the mortgage loans may not even have
been made at the time of sale in the TBA market, while the loans have been pooled
) and described by the time of issuance in the private-label market. Disclosure
procedures for providing ongoing information are also different for the GSEs, Ginnie
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Mae and private-label issuers.
B. Offering Documents
1. Private-label Offering Materials
A private-label issuer that registers the offer and sale of its MBS under the
Securities Act must comply with the content and procedural requirements of the
Securities Act covering such offering. In registered offerings under the Securities
Act, private-label issuers w\\\ disc\ose material information to investors through the
use of two primary documents: the core prospectus and the prospectus supplement.
When private-label issuers file a registration statement to register an issuance of
MBS, they typically use what is called "shelf registration. "64 Through this process,
issuers first file a disclosure document that outlines the parameters of the various
types of MBS offerings they may conduct in the future. This document is known as
the "core" or "base" prospectus. The registration statement will also contain a form
of prospectus supplement, which outlines the format of deal-specific information
they will disclose when they later conduct an offering.
In the private-label market, issuers may structure their MBS offerings to meet the
particular Investment needs of the investors to whom they wish to sell. In this
regard, private-label issuers will often provide potential investors with
computational materials and structural and collateral term sheets prior to finalizing
the deal structure and printing the final prospectus supplement.~~ These materials
are intended to help investors understand the proposed transaction and analyze
prepayment assumptions and other issues affecting yield. Structural term sheets set
out the proposed structure of the securities being offered, such as the parameters
of the various types of classes in a REMIC. Private-label issuers using structural
term sheets may be required to file them with the Commission and incorporate
them by reference into the registration statement for the registered offering. 66
Collateral term sheets provide information regarding the proposed underlying
assets. Collateral term sheets, like structural term sheets, may also be required to
be fi\ed with the Commission and thereby incorporated by reference into the
registration statement. A prospectus supplement describing the terms of the
securities the issuer intends to offer, particular risks, information regarding the
assets and other deal-specific information may also be prepared and used in the
offering process. The final prospectus supplement must be filed with the
Commission within two business days following its first useP As noted earlier, if the
private-label MBS are not sold pursuant to a registration statement filed with the
Commission, the private-label issuer must rely on an exemption from registration to
sell the MBS.§~
2. GSE and Ginnie Mae Offering Materials
The GSEs and Ginnie Mae are not subject to the registration requirements of the
Securities Act in connection with their MBS offerings. 6..2. The GSEs and Ginnie Mae do
not file any MBS offering materials with the Commission. However, the GSEs
prepare offering documents similar in form to the core prospectuses filed by private-
label issuers in registered offerings and make deal-spedRe information available
through either final prospectus supplements or website disclosures. Fannie Mae and'
Freddie Mac post their offering documents on their websites. Investors also receive
disclosures as part of the settlement process for TBA. trades'zQ.
Fannie Mae and Freddie Mac provide disclosures to investors through various
documents including the base prospectuses and deal specific supplements. Fannie
Mae and Freddie Mac also make available information statements that describe their
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business and operations, as well as include their full audited financial statements.
An information statement provides information investors need in order to evaluate
the GSEs' guarantees of the MBS. Ginnie Mae, unlike Fannie Mae and Freddie Mac,
-
does not utilize either a core prospectus or prospectus supplement to disclose
information regarding its guaranteed pass-through MBS issuances. Instead, Ginnie
Mae requires each issuer to use a single required form of disclosure document for
the initial MBS sale.
c. Post-Offering Disclosures
1. Private-label MBS
Private-label issuers that have registered the offer and sale of MBS under the
Securities Act generally will have a limited mandatory obligation to continue
providing information on the MBS.I.! The Exchange Act requires that issuers that
have offered and sold securities publicly pursuant to a registration statement must
file periodic reports. However, registrants that become subject to reporting
requirements pursuant to Section 15(d) of the Exchange Act may discontinue
reporting after they file their first annual report on Form 10-K if they have less than
300 record holders. 72 Most MBS issuances have less than 300 record holders.
Therefore, most private-label issuers are not required to continue filing reports with
the Commission after they file their first annual report. Although the securities were
offered publicly, the small number of investors indicates that the issuer should no
longer be considered a public entity. Because of the passive nature of MBS issuers,
the staff of the Commission has allowed a modified reporting scheme under the
Exchange Act for MBS issuers.ZJ
2. GSE and Ginnie Mae MBS
Ginnie Mae and the GSEs provide ongoing disclosure regarding the pools underlying
the securities they issue or guarantee.11 These disclosures generally are provided
on a monthly basis for the life of the security through a combination of website
disclosures, which vary among the three entities, and disclosures provided by third
party information vendors, some of whom purchase information from the GSEs and
Ginnie Mae and prOVide that information to the public for a fee. 75
D. Particular Issues Addressed by Disclosure
As noted above, the characteristics of the underlying mortgage I~ans and the
marketplace's evaluation of their expected payment speeds will affect the structure,
marketability and risk characteristics of the particular MBS. The yield, or return, on
MBS is primarily determined by the timing of payments on the underlying mortgage
loans. The underlying mortgage loans in a GSE or Ginnie Mae MBS will often have
different payment (including default and prepayment) and other characteristics from
those In a private-label MBS. This is due in large part to the eligibility requirements
for the underlying mortgage loans and the underwriting standards and guarantee
requirements that Ginnie Mae and the GSEs have established for their MBS
programs. The effect of these requirements is that the mortgage loans underlying
GSE and Ginnie Mae MBS may be less diverse than those underlying private-label
MBS. GSE and Ginnie Mae MBS will have more common or homogeneous features
and will benefit from the GSE and Ginnie Mae guarantees.
1. Prepayment Risk
)
As previously discussed, a major risk in an investment in MBS is prepayment risk.
Due to the importance of prepayment risk to an investor's decision to invest in MBS,
the key disclosures in MBS issuances relate to the various factors that might affect
prepayment.
Market participants have developed prepayment models to evaluate prepayment

risks. Prepayment models make certain assumptions regarding probable payments
on the underlying mortgage loans in order to estimate or predict cash f1ows.7 6 The
goal of a prepayment model is to tie together projected mortgage rates and
projected prepayment. l l The more diverse the underlying collateral is in terms of
coupons, maturity and loan age,
among other characteristics, the greater the need for more detailed information to
be able to model for different prepayment scenarios. 78
2. Credit Risk
As discussed above, credit risk, the risk that the borrowers on the underlying loans
may not make timely payments or may default on their loans, is thought by
investors to be more significant in private-label MBS than in GSE or Ginnie Mae
MBS. Consequently, GSE and Ginnie Mae MBS and the private-label MBS may pose
differing degrees of risk for investors. The GSEs and Ginnie Mae guarantee the
timely payment of principal and interest on the MBS. The Ginnie Mae guarantee is
backed by the full faith and credit of the United States. Fannie Mae and Freddie Mac
guarantees do not have United States backing. Investors should look to the audited
financial statements and other disclosures of Fannie Mae and Freddie Mac, as well
as safety and soundness information provided by OFHEO, to assess the credit risk.
E. Types of Disclosure
Characteristics of the loans backing MBS, of the properties that collateralize the
loans, and of the borrowers can have a significant effect on the prepayment and
default behavior of the loans and, therefore, on the expected payments to security
holders. Market participants have focused on various pieces of information that may
help them understand the risk of prepayment or payment failure. Factors that have
been most widely noted, including those that are currently disclosed, and some that
are not, are discussed below. The GSEs and Ginnie Mae disclosures discussed are
only with regard to their pass-through MBS.7 9 With respect to Freddie Mac, the
discussion below addresses the content and timing of disclosure for its swap
program. so
1. Loan Terms
The most important loan terms are the interest rates (coupons) paid by the
borrowers, the loan maturity dates, the ages of the loans (including origination
years), and the sizes of the loans.
a. Coupon or Interest Rates on Underlying Loans
Coupon information is critical because a borrower's financial incentive to prepay a

loan depends on the relationship between the coupon and current market rates. The
difference between the interest rate on a mortgage loan and the prevailing market
interest rate is the most important factor in evaluating the likelihood that the
mortgage loan will be prepaid.?l- When interest rates in the market drop and the
spread increases between the mortgage loan's interest rate and the available
market interest rates, the incentive to refinance an existing loan increases. In order
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-
to predict the prepayment of mortgage loans included within a pool underlying MBS,
investors look to information that discloses the interest rates of mortgage loans
-
within the MBS pool, and the interest rates that are most prevalent within the pool.
One measure of the overa\linterest rates on mortgage loans underlying a MBS pool
is the pool's weighted average coupon, or WAC. The WAC is the average of the
coupons on the loans included in the pool, weighted by each loan's outstanding
balance.
At issuance, Freddie Mac and private-label issuers typically disclose the WAC for the
pool and the distribution of the pool's total unpaid prindpal balances in various
increments across coupon ranges. For example, private label issuers might disclose
how much principal of the pool is subject to an interest rate of greater than six
percent and less than or equal to 6 1/8 percent.§1 Fannie Mae and Ginnie Mae
disclose each pool's WAC prior to settlement.~3.
b. Loan Maturity Dates and Loan Age
Information on original loan maturities (most often 15 or 30 years), remaining

maturities, and loan age make it possible for investors to estimate future loan
amortization payments. Principal payments increase as loans age, and the
payments are lower the longer the original maturities are. The difference between
original maturity and remaining maturity may be greater than loan age if borrowers
have partially prepaid loans because partial prepayments shorten remaining
maturities. Given loan age and original maturity, a shorter remaining maturity
implies faster amortization. The longest maturity date of a pool helps investors
determine the latest possible date by which scheduled payments on the underlying
mortgage loans and, In tum, the MBS should be made.
The weighted average maturity of the pool provides investors with Information
about the maturity dates of the loans included in the pool. Calculated initially as of
the date of pool formation, weighted average maturity is the average of the
maturities of the loans included in the pools, weighted by each loan's outstanding
balance. Many MBS issuers provide updated maturity information, which Is the
weighted average remaining maturity of all loans remaining in the pool at the date
of calculation. As loans are paid off or prepaid, the number of remaining monthly
payments decreases. To the extent prepayments are made, the remaining maturity
decreases at a faster rate than it would if borrowers paid only the required amount
each month. Thus, investors can evaluate prepayment speeds and make
determinations as to when they expect to receive payment on the MBS by
examining changes in the pool's weighted average remaining maturity or by
comparing the pool's average remaining term to maturity with its weighted average
original loan term and weighted average loan age. Unless loan age and loan
maturity are evaluated together, prepayments could make a pool look older than it
actually is. 84
Information on loan age is also useful In predicting prepayment speeds because

prepayments tend to increase during the first few years of newly issued pools and
then level out. 85 As a result, most MBS issuers disclose a pool's weighted average
loan age or information regarding the prevalence of specific loan origination years
within the pool, or both.
Prior to settlement, Freddie Mac discloses each pool's weighted average remaining
term to maturity, weighted average loan age, weighted average original loan term,
and latest loan maturity date, as well as the total number of loans, unpaid principal
) .baJance, and percent of the pool attributed to each loan origination year. Freddie
Mac also discloses, again prior to settlement, quartile data for each pool's weighted
average maturity, weighted average loan age, and weighted average original loan
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term. Prior to settlement, Fannie Mae discloses each pool's weighted average
remaining term to maturity, latest loan maturity date, number of mortgage loans
and unpaid principal balance.!!§. Ginnie Mae discloses each pool's weighted average
remaining term to maturity, weighted average loan age, and weighted average
original loan term prior to settlement. 87 Ginnie Mae also discloses the unpaid
principal balance.
Private-label issuers typically provide information similar to that provided by Fannie

Mae and Freddie Mac. In their offering documents, most private-label issuers
disclose each pool's weighted average remaining term to maturity and some
disdose weighted average original loan tenn. They also sometimes disdose, by
ranges of original loan term and either remaining terms to maturity or loan maturity
year, the number of loans, aggregate principal balance, and percent of pool
principal balance included in each range. Private label issuers also typically disclose
either the pool's weighted average loan age, with incremental disclosures
comparable to those for remaining term to maturity, or loan origination year.
Rnally, MBS issuers generally disclose changes in a pool's aggregate unpaid

principal balance. Disclosure of these changes over time may prOVide useful
information regarding the levels of default and prepayment in a particular pool. This
is most relevant in a REMIC structure. For example, a larger-than-expected decline
in unpaid principal balance may indicate that some of the underlying loans have
either defaulted or prepaid at a higher-than-expected rate. MBS issuers generally
disclose the aggregate unpaid principal balance of the MBS pool at issuance and
update that information monthly. In addition, the GSEs and Ginnie Mae disclose
each pool's "current factor" on a monthly basis after settlement. The current factor
is a decimal that represents the fraction of the pool's original unpaid principal
balance that remains unpaid. The current factor data for MBS create, over time, a
pool history of loan prepayments that is useful in projecting future prepayments;
c. Loan Size
It has been suggested that other than the refinancing incentive, the most important
factor in explaining prepayment behavior is loan size.§ll This is because if
refinancing costs are fixed, borrowers with larger loan balances will have more
incentive to refinance because the costs can be recouped more easily. Also, because
loan commissions typically increase with loan size, servicers who solicit borrowers to
refinance are more likely to target those with higher principal balances. 89 At
issuance, private-label issuers generally provide the average original loan size,
together with the number of mortgage loans within a range of balances, the
aggregate principal balances of the mortgage loans within each range, and the
percentage of the aggregate principal balance of the pool represented by loans in
each range. Private-label loan size information is typically presented in increments
of $50,000. Prior to settlement, Fannie Mae and Freddie Mac disclose the average
original loan size and Freddie Mac discloses quartile data on average original loan
size. 90 Prior to settlement, Ginnie Mae discloses only the aggregate original loan
balance of the pool, but does not disclose the average original loan size,n
d. Points Paid at Settlement
Many borrowers pay points to obtain lower interest rates. The number of points
paid, if any, to the lender at the time of loan origination may also be related to
likely prepayment behavior. Borrowers who expect to move quickly or are eager to
refinance at the earliest opportunity generally seek. to avoid points. Also, borrowers
with relatively poor credit and higher default risk may be forced to pay points.
Prepayment by these borrowers may be less sensitive to interest rate declines but
-
more sensitive to improvements in their credit standing. Neither private-label, the
GSEs nor Ginnie Mae MBS issuers typically provide this Information. The GSEs do
-
not currently collect such data.
2. Property Information
Property characteristics may also affect expected prepayment and default behavior.
The location of the mortgaged properties is of interest to investors, because
differences in local or regional economies may affect borrowers. Also, state and
local laws may affect the costs of refinancing or the costs of foreclosure.
a. Geographic Distribution
Because mortgage loan pools contain a number of mortgage loans, the mortgaged
properties securing the mortgage loans in a single pool can be located over a
diverse geographic area. Knowing the geographic distributions of the mortgaged
properties aids in understanding concentration of credit and prepayment risk. A
booming regional housing market, for example, could result in faster prepayment
speeds, while a depressed regional job market might increase the credit risk of a
pool. To the extent any adverse regional or local economic conditions exist, the
smaJJer the number and the more geographicaJJy concentrated the mortgaged
properties are, the greater the risk that any regional or localized economic factors
will affect payments on the MBS.~.2
Private-label Issuers typically disclose in their offering materials the number and
aggregate principal balance of mortgage loans secured by properties in each state.
They also disclose the percent of the total pool balance represented by loans in each
state. Fannie Mae and Freddie Mac also provide this Information prior to settlement.
Geographic distribution information on mortgaged properties in Ginnie Mae MBS is
provided quarterly following the MBS issuance.
b. Property Types
The mortgaged properties can be different property types. Common types include
single-family detached, high-rise condos, low-rise condos, two family homes, and
three to four family homes. Property type is relevant in analyzing both prepayment
and credit risk. Some types of homes, for example single-family detached homes,
are often more marketable than others. If a servicer Is required to foreclose on a
property, there is less risk of loss with a more marketable home. Mortgage loans on
single-family homes also default less often than mortgage loans on other types of
residential properties.'2..1
Private-label issuers typically disclose at issuance the number of mortgage loans

and aggregate principal balance outstanding in each property type category, as well
as the percent of the pool's aggregate unpaid principal balance within each
category. Fannie Mae and Freddie Mac segregate pools based on whether the
mortgaged properties are for one to four families or more, but do not provide a
breakdown of the type of single family homes. The required Ginnie Mae
prospectuses mandate that issuers state whether the underlying mortgage loans are
on single or multifamily residences, but no breakdown on type of single-family
homes is required.
c. Occupancy Types
)
The occupancy type of a mortgaged property indicates how the mortgage borrower
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FICO score, a credit reporting agency using the FICO system will analyze the
individual's credit history, including its length, current debt level, payment history,
type of credit in use and other new credit Inquiries. 99
Some, but not all, private-label issuers disclose credit scores in varying incremental
ranges, such as in 20-point increments. For each credit score range, they may
provide the number of mortgage loans, the aggregate unpaid principal balance, and
the percentage of total unpaid principal balance. Neither the GSEs nor Ginnie Mae
discloses credit scores.
b. Loan Document:i1tion
Mortgage lenders have different levels of documentation that they require prior to
making a mortgage loan. The level of documentation required varies with the
purpose of the mortgage loan and the credit profile of the borrower. For some
borrowers, mortgage lenders may be willing to accept less documentation than they
usually require because of the presence of other positive credit factors. Lenders may
also agree to originate a loan with less than the full level of documentation they
might otherwise require in return for higher origination fees.
Private-label issuers typically provide some loan documentation information. It may

be as few as two categories, such as "full documentation" or "reduced
documentation," or it may be several different categories depending on what type of
documentation levels the lender utilizes. A private-label issuer would typically
disclose the number of loans and aggregate outstanding principal balance of
mortgage loans underwritten with each level of documentation. The GSEs and
Ginnie Mae do not provide such information. The GSEs do not currently collect data
on categories of documentation types.
c. Loan Purpose
There are generally three potential reasons for a borrower to take out a mortgage
loan: to purchase a home; to refinance an already-purchased home to obtain a
lower interest rate or different payment term; or to refinance a home in order to
obtain access to additional funds. The last type Is commonly referred to as a cash-
out refinance or equity take-out loan. Loans used to purchase homes due to the
relocation of a borrower, which are a subset of "purchase" loans, are referred to as
relocation loans or relo loans. 100 Investors use information regarding loan purpose
to evaluate both credit and prepayment risk. For example, a forecasting model may
assume that borrowers whose loan purpose is a cash-out refinance may have more
credit risk lOl and are more likely to default l02 than borrowers purchasing a home.
Conversely, borrowers who have refinanced in the past may have better credit, be
more aware of refinancing opportunities, and, therefore, may be more likely or able
to refinance in any future declining interest rate environment.
Private-label issuers generally provide the number of loans in the pool that relate to
each of these categories. The information provided also discloses the aggregate
outstanding principal balance, and the percent of the pool's aggregate principal
balance by each loan purpose type. The GSEs and Ginnie Mae do not provide loan
purpose Information.
d. Borrower Debt-to-Income Ratios
The ratios of borrowers' required payments on their mortgage debt (or on all of
their debt) to their income might provide additional information about their
expected default and prepayment behavior. These ratios vary across lenders. While
will use the property. There are generally three types: owner-occupied; second
home; and non-owner-occupied properties. Mortgaged properties occupied by the
-
borrower default at a much lower rate than non-owner-occupied properties. 94
Therefore, the occupancy type is relevant to analyzing credit risk of the pool. It is
also relevant to prepayment modeling in that, as compared to owner-occupied
properties, borrowers on investment properties are more likely to sell the property
in an expanding housing market to lock in profits but typically experience more
difficulty in refinancing due to greater documentation requirements. 95
Private-label issuers typically disclose in their offering documents the number of

mortgage loans, the aggregate outstanding principal balance, and the percent of the
pool's aggregate principal balance for each category of occupancy type. The GSEs
do not provide any information with respect to occupancy types of the mortgage
loans. All but a de minimis amount of loans in a Ginnie Mae single family pool are
owner-occupied.
d. Loan-to-Value Ratio
The loan-to-value ratio of a mortgage loan is a measure of the loan balance

compared to the value of the mortgaged property. Typically disclosed as a
percentage, LTV is determined by dividing the principal balance of the loan at the
date of origination by a measure of the property's value. In the case of a sale, the
measure used \s the lower of the sale price or the appraised value at the time of
sale. In the case of a refinancing, the measure used is the appraised value of the
property at the time of the refinancing. In a streamlined refinance underwriting,
either the appraised value of the mortgaged property at the time the mortgage
being refinanced was originated or an appraised value determined by a limited
appraisal report at the time of the refinancing may be used in place of a full
appraisal of the mortgaged property. 9§'
LTV can be useful in assessing prepayment and credit risk of mortgage loans, and
the likely severity of loss in the event of foreclosure}·? LlV may serve as an
indicator of how easily a borrower may be able to refinance or purchase a new
home, thus prepaying the outstanding mortgage loan. loans with higher lTVs are
considered more likely to default because the borrower has less invested and has
less incentive to retain ownership of the mortgaged property.9~
Private-label issuers generally disclose in their offering documents the distribution of

mortgage loans by original LTV in incremental ranges, for example, five percent
increments from 50 percent to 95 percent. For each separate LTV range, private-
label issuers generally d\sclose the number of loans, unpaid balance, and
percentage of total pool balance. They also disclose the weighted average original
LlV ratio for the pool as a whole. The GSEs and Ginnie Mae do not provide LlV
data.
3. Borrower Information
A borrower's financial condition and borrowing purpose can also be indicative of

future default and prepayment behavior.
a. Credit Scores
Lenders use a credit score to rank borrowers according to credit risk. One popular
type of credit score used is FICO, a credit scoring system developed by Fair Isaac
and Company. FICO scores are intended to show the likelihood that an individual
might default on a debt based on past credit history. To determine an individual's
a mortgage loan originator's underwriting standards may have certain debt-to-
income caps for mortgage loans, private-label issuers typically do not disclose this
information as to the particular mortgage loans in the pool. The GSEs and Ginnie
Mae also do not provide debt-to-income information.
4. Sellers, Originators, and Servicers
a. Seller Identification
The seller of a loan is the entity that sells the mortgage loan to the MBS issuer. The
originator is the lender that made the mortgage loan to the borrower. Originators
often sell the loans they originate directly to MBS issuers in order to obtain ready
access to additional lending capital. Because of this, the seller and the originator are
in most cases the same entity. However, since whole loans may be bought and sold
in the secondary market, it is possible for an entity to sell to an MBS issuer whole
loans that It did not originate, in which case the seller and the originator are
different. Moreover, sellers or originators may sell servicing rights. The identity of
the originator of a loan could be relevant for both credit and prepayment risk. With
regard to credit risk, it is important to identify those originators that have less
stringent underwriting standards because they are likely to include loans with
greater credit risk in MBS pools. Identity of the seller could also be relevant to
prepayment to the extent the seller originates loans primarily in areas where there
is greater prepayment of mortgage loans.
In private-label offerings the seller's name is disclosed in the prospectus

supplement. Private-label issuers also sometimes disclose the amount of the pool,
by number of loans or unpaid principal balance, which other lenders originated.
Freddie Mac discloses the name of the seller prior to settlement and Fannie Mae
discloses the name of the seller after settlement. 103 For Ginnie Mae's single-seller
pools, the seller is disclosed prior to settlement. For its multiple issuer pools, the
sellers are identified post-settlement.
b. ServkerIdennficaoon
The servicer is the entity that collects payment of the underlying loans and
distributes payments on the MBS to the MBS holders either directly or through a
trustee. The servicer collects a fee for performing these responsibilities as set forth
in a servicing agreement with the issuer of the MBS. Servicer identification may
allow investors to make assumptions regarding the expected prepayment risk.
Servicers can be either master servicers or subservicers. 1Q4 Mortgage research
analysts currently compile reports ranking the prepayment speeds of mortgage
loans serviced by different servicers. L05 Some servicers are also originators and
they may try to solicit the borrowers into refinancing. In addition, pools may include
loans that have different servicers or that have master servicers.
Some private-label issuers may identify only master servicers in their offering
documents, while others identify subservicers as well. Neither Fannie Mae nor
Freddie Mac discloses the identity of servicers. In the Ginnie Mae I program the
servicer is disclosed prior to settlement and in the Ginnie Mae II program the
servicers are disclosed following settlement.
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IV. Information Imbalance Issues -

Some market participants have expressed concern that participants in the MBS
markets use Information they obtain in their capacities as originators, guarantors
and servicers, among others, to select for purchase, sale or retention MBS or
underlying mortgage loans that have more favorable characteristics than the
average universe of MBS or mortgage loans. Assertions have been made that these
entities have an unfair advantage over the marketplace generally in purchasing and
selling MBS. In order to evaluate these concerns, it is important to note that at each
level of the process of creating and selling MBS, the market participants involved
will make certain choices about which mortgage loans or MBS to retain or sell. For
example, lenders or pool sponsors select the underlying mortgage loans that they
will securitize. Investors maya/so dedde, at the time of a trade that they wish to
purchase MBS having certain characteristics.
To review concerns about "favorable selection" or "cherry picking" based on possible

information imbalances, it is also important to understand that market participants
might view a transaction differently. In order to understand how selection practices
may raIse Issues in the markets, it Is helpful to identify the sItuatIons that raise a
concern for some market participants.
First, some market participants are concerned that when other market participants
routinely decide to keep purchased or created MBS in their portfolio, they are
relying on information not generally available in making these decisions. In the MBS
market, situations exist where a market participant may determine to buy, sell or
hold a security or mortgage loan in its portfolio based on information in its
possession and not otherwise publicly available. Entities have different reasons for
determining to buy, sell or retain securities or mortgage loans, including their
knowledge of the product and their business goals and objectives. Any entity
involved in originating a mortgage, compiling a pool of mortgages for securitization
or creating a MBS may have detailed information about the characteristics of the
underlying mortgage loans. Determinations about what securities to keep or sell
remain within the control of the originator, sponsor or holder of the MBS.
The Task Force understands that Information Is not provided for various reasons,
including the fact that specific information is not generated or available to the MBS
seller, there has been a lack of market demand for particular information, or
disclosing the information could cause competitive harm. MBS issuers and
originators might not reveal all the information in their possession about the MBS.
Some market participants have indicated that even if the information is revealed to
the initial purchaser, such information may not be disclosed to the marketplace
generally.
A second concern expressed was that, in addition to having business reasons to

keep MBS in their portfolios, market participants use information that is not
generally available to make portfolio decisions. Once the MBS is originated,
securitized or purchased, the originator, securitizer or purchaser may determine to
keep the highest quality of the MBS In Its portfolio. The decision to keep MBS or
mortgage loans in a portfolio also may be made about lesser Quality products where
a market may not exist or may not provide a fair price for a lower quality asset.
Purchasing, originating or securitizing MBS or a mortgage loan and keeping it in a

portfolio may be desirable for a number of reasons, such as investment and other
business reasons. This practice has been termed "culling. It should be noted that ft
) market participants are under no oblIgation to distribute was or mortgage loans

with any particular characteristics and that purchasers establish MBS prices
'-'l-'g\JIQI VLUUJ. ""' ..""" • • • '''''t''''''''' ,." t. '~I''''''''~ .., •..,....,."""...,""'•.., ...., t ~ ~..., ""'.,,_ . . . , - - - . ••• • -~- -- _. __
according to their analysis of the relative value of the assets and the securities
being offered,1°6 As with any other industry, MBS market participants are entitled to
manage their own assets and portfolios.
Finally, the Task Force heard that a central concern for market participants was that
an originator or guarantor of MBS might purchase MBS in secondary trades through
their investment arm based on information about particular securities not generally
disclosed or available to the public, giving the internal or affiUated investment
department the ability to use such information to the detriment of other prospective
purchasers or sellers. Here the concern is that MBS sold into the market with
information is purchased back at some later time based on information greater than
that held by the current seller. The antifraud provisions of the federal securities laws
prohibit persons from making fraudulent misuse of material inside information in
connection with the offer and sale of securities. 107 Bank regulatory and OFHEO rules
also address this issue)~l!.
Market participants generally have in place policies and procedures to assure

compliance with legal requirements. The Task Force confirmed, for example, that
Fannie Mae and Freddie Mac have written policies to address internal sharing of
information. These policies include their codes of conduct that prohibit insider
trading and their internal safeguards (termed "firewa/ls" or "information barriers")
that prevent information sharing among divisions, primarily loan level data acquired
as part of the guarantor function for securitization that cannot be shared with the
investment function that seeks to purchase MBS for portfolio. The goal of these
policies is to prevent the trading desks at Fannie Mae and Freddie Mac from
receiving information that is available only to Fannie Mae and Freddie Mac as a
result of their purchases of underlying mortgage loans or in their capacities as
guarantors. Under the policies, the trading desks should trade with the same
information available to other market purchasers. The allegation was made that the
GSEs' own mortgage asset portfolios performed better than the outstanding MBS
guaranteed by the GSEs. The Task Force found this in itself to be unpersuasive as
the GSEs' mortgage portfolios include other instruments and the GSEs, like other
investors, may hold better portfolios by purchasing better performing MBS that they
select on the basis of publicly available information for which they may pay a higher
price. No evidence was brought forward of any impropriety in creating their portfolio
mix.
As part of its continuous examination of Fannie Mae and Freddie Mac, OFHEO
reviews each GSE's internal controls and corporate policies, including their firewall
policies, and examines each GSE to ascertain its financial safety and soundness,
including compliance with internal controls and policies. OFHEO reports annually to
Congress on its examination findings and on any enforcement actions that OFHEO
has undertaken that year. An OFHEO review of GSE practices and data on portfolio
prepayment performance did not support a conclusion that "cherry picking"
occurred,1Q~ In interviews in connection with preparing this report, no market
participant presented substantiated evidence to the contrary. As primary regulator
of the GSEs, OFHEO will continue to closely monitor GSE compliance in this area.
v. Findings
The Task Force made the following findings based on its review of current
disclosures in the mortgage-backed securities markets and its consideration of
enhancements to such disclosure.
-
1. Additional Pool Level Disclosures Are Justified and Expected to
have Minimal Disruption on the Functioning of the NBS Markets
The purpose of this study was to examine the current state of disclosure in the
markets for MBS with a view to determining whether enhancements in disclosure
practices would be useful. The Task Force finds that, given the current state of the
MBS market, enhanced disc\osure by MBS issuers - particularly by the GSEs that
issue securities in these markets - would be both justified and feasible on a pool
(aggregate) basis.
Disclosing a broader amount of information could assist Investors in their decision-

making, improve efficiency, pricing, and market confidence, and, insofar as It
improves market quality and transparency, enhance safety and soundness. The
Task Force bel\eves that carefully selected and implemented enhancements can also
be made without disruption to the functioning of the current market, particularly the
TBA market, or unreasonable cost to market participants. Collectively, the U.S. MBS
markets are the predominant sector of U.S. fixed-income markets. In general, the
Task Force finds the MBS markets for GSE and Ginnie Mae MBS to be robust,
fleXible, efficient and liqUid. The TBA market, which is the forward commitment
market for pass-through MBS, is the largest, most liquid, and perhaps most
important of these markets. Because the TBA market consists entirely of GSE and
Ginnie Mae MBS, the Task Force has focused its attention on this market.
Market participants agree that the TBA market is vital to the efficiency, fleXibility,
and liquidity of the GSE and Ginnie Mae MBS market, which are the largest
component of, and the benchmark for, the MBS markets. As the TBA market has
evolved, the GSEs have progressively expanded their disclosures with little adverse
impact on the market. In fact, these additional disclosures have enhanced market
transparency, confidence, stability, and discipline. Although the GSEs have indicated
that they regard the current level of disclosure as adequate, many large and smaller
market participants indicated that they would find timely disclosure of additional
information useful, primarily for enhanced prepayment risk analysis. As discussed
below, prepayment risk analysis has become more sophisticated in recent years.
Some market participants perceive issues of information asymmetry given these
changes in prepayment risk analysis and other developments in the MBS market in
recent years, including mortgage industry consolidation, a marginally less
homogenous TBA market due to increased volumes of stipulated trades, and the
growth in GSEs' retained portfolios.
During the study, the GSEs and some market participants maintained that
additional disclosure could adversely affect liquidity or efficiency in the TBA market
by fragmenting the market. However, even the GSEs acknowledge that the TBA
market is more liquid than ever before, while it is less homogenous and more
fragmented than it was five or six years ago due, in part, to Increasing
sophistication of borrowers and investors, greater refinements to prepayment
models, and, as a result, more stipulated trades. The first step in the current
pooling process can, therefore, involve screening loans for characteristics, including
those related to prepayment risk, that may command a premium on the TBA
market.
The Task Force finds more persuasive the arguments of other investors and market
participants who counter that any adverse effects from additional disclosure would
be short-term, and ultimately would be outweighed by the benefits of greater
information flOWing into, and therefore more informed analysis of, the MBS market.
For example, enhanced disclosure could better enable investors to analyze and
predict prepayments and other risks, which may help them to make more informed
investment decisions. While this might lead to some further fragmentation, it should
also eventually result in more efficient pricing of mortgage products available to
individual borrowers. TBA pricing is the basis for pricing for other segments of the
MBS market, and, therefore, improvements in TBA pricing could extend to the
pridng of other MBS products.
2. Implementation of Additional Disclosures Through Market Action
The market participants the Task Force interviewed identified a large number of
possible disclosure items. Of the possible additional disclosure items identified in the
interviews, this report highlights those disclosure items that a significant number of
participants said may have predictive value in analyzing prepayments. Within this
group of highlighted disclosure items, the Task Force also considered whether the
information is reasonably available. The Task Force believes investor interest and
issues of practicality should be important determinative criteria as to whether and
under what Circumstances particular disclosure items would add value and market
participants and the market would best make these determinations.
The Task Force believes that additional elements of disclosure in the MBS market
could be determined and implemented, as it has in the past, through guidelines
agreed upon by market participants, including large and small investors, broker-
dealers, industry groups and other market participants. Such determinations could
include the appropriate timing and method of providing additional disclosure. As a
supplement to this process, the GSEs could create greater homogeneity by revising
their underwriting guidelines or pooling requirements. If market forces are unable to
reach consensus on disclosure enhancements, the agencies represented on the Task
Force will need to consider what additional action might be appropriate.
3. Potential Items Suggested for Enhanced Disclosures in the MBS

Markets
During Task Force interviews with various market participants a number of items
were repeatedly mentioned as candidates for enhanced disclosure especially with
regard to TBA-eligible securities. The Task Force found that market participants
generally sought aggregate pool information - as opposed to loan-level information
- perhaps expressed in quartiles or other standardized breakdowns. Based on
current mortgage underwriting and purchase practices - automated and otherwise -
disclosure of certain of these items may be more readily achieved than others.
Market participants suggested that the follOWing additional pool-specific information

would present few practical obstacles:
• loan purpose (i.e., whether a purchase or refinance)
• originalloan-to-value (LTV) ratios
• standardized credit scores of borrowers
• servicer for the pool (this may not always be the seller or originator)
• occupancy status (owner-occupied or investor)
• property type (e.g., detached, condo)

The Task Force believes that these additional disclosures could benefit the MBS
markets and urges market participants to give serious consideration to
-
implementing these disclosures.
The above information is generally collected by loan originators and, to the extent it
is not already, could be provided to whole-loan mortgage purchasers (i.e., MBS
issuers), and passed on in appropriate form to market participants. For example,
GSEs do not receive standardized credit scores From sellers for all mortgage loans,
but the information is not difficult for the GSE issuer to obtain. Although the items
listed above may not present practical difficulties, they may entail data quality
issues. For example, it was noted that th.e timing of a credit rating might affect the
borrower's score. Similarly, the quality of LTV data may be affected if, for example,
originators do not use updated appraisal information in calculating the LlVs for
mortgage loans.
In addition to the list of items set forth above, a number of other possible desirable
disclosure enhancements were mentioned in interviews with market participants.
Although the consensus is less clear with respect to these items, the Task Force
beUeves they should be given consideration as subjects of enhanced disclosure.
Other requested information Included debt-to-income ratio, points paid, and level of
documentation (e.g., high, medium, low). The Task Force heard from some market
participants about possible drawbacks to colJecting and disclosing thIs information.
For example, Fannie Mae and Freddie Mac generally do not collect information on
points from loan originators. With respect to documentation, because different
lenders employ different standards (e.g., "low doc" may mean different levels of
documentation to different lenders), industry-Wide standards or common
nomenclature would need to be devised and implemented. Rnally, although debt-
to-income Is often available from lenders, it is subject to the varying standards
originators use to verify the borrowers assets and liabilities.
4. The Task Force Did Not Receive Substantiation of Allegations of

Improper Activity Based on Information Imbalances
Apart from issues of disclosure, the Task Force also heard allegations of selective
selling and purchasing practices tied to possible information imbalances, so-caned
"cherry picking." The allegations included claims that Fannie Mae and Freddie Mac
have made improper use of non-public information for trading purposes. No
evidence was brought forward to the Task Force, including by those making
allegations, that would have substantiated these claims. Moreover, the GSEs
maintain policies intended to prevent improper information sharing. Further, slower
prepayment speeds in retained portfolios of the GSEs is not totally unexpected
because the GSEs, like private issuers and loan originators, may sell or purchase
MBS with a goal of creating and maintaining their own strong portfolios.
5. Ginnie Mae Enhancements to MBS Market Disclosures
Ginnie Mae indicated to the Task Force that, as a matter of policy, it believes that
full and accurate disclosure on all aspects of its MBS and underlying collateral is
important. Ginnie Mae has developed, and continues to refine, procedures for
monitoring and disseminating information relating to its MBS.
Ginnie Mae is currently in the process of evaluating the enhancement of disclosure

of information on its securities. In particular, Ginnie Mae has been asked by market
participants to provide credit information, such as credit scores and loan-to-value
ratio information. Ginnie Mae is reviewing these requests in light of information
available to it and its ability to obtain accurate information. Ginnie Mae has advised
the Task Force that certain items of requested information are not required to be
provided under the FHA, VA or other relevant underwriting guidelines for Ginnie Mae
eligible mortgage loans.
6. Regulatory Oversight
The Treasury, OFHEO and the Commission expect to monitor the MBS markets in
general, and the TBA market in particular, to evaluate the implementation and
impact of disclosure enhancements, in assisting investors in evaluating securities in
the MBS markets and making informed investment decisions. If future
developments warrant, the Task. Force members, in their separate capacities or
jointly as they agree appropriate, could consider what additional steps may further
enhance disclosures to investors in the MBS mark.etplace.
In addition, with regard to non-exempt securities offerings, including MBS, the

Commission is continuing to study the need for a comprehensive regulatory
framework for all registered asset-backed securities offerings. OFHEO is continuing
its oversight and examination of the GSEs' operations and practices in their role as
the GSEs' safety and soundness regulator.
Footnotes
1 The Task Force consisted of personnel from the Department of

Treasury's Office of the Under Secretary for Domestic Finance and the
Office of General Counsel, from OFHEO's Office of General Counsel,
Office of Policy Analysis and Research and the Office of the Director
and from the Commission's Division of Corporation Finance.
2 Appendix A lists the market participants who were interviewed.
3. 2 Inside Mortgage Finance Publications, Inc., The 2002 Mortgage
Market Statistical Annual, 107 (2002).
"1 Interest rate risk, among other market risks, is another important risk
for MBS investors to consider. However, because interest rate risk is
not a disclosure issue specific only to the MBS, it is not separately
addressed in this report.
5 The enactment in 1934 of the National Housing Act established the
Federal Housing Administration ("FHA"), which was to provide for the
insurance of home mortgage loans made by private lenders in order to
help facilitate home ownership. This statute also provided for the
chartering of national mortgage associations. The only association ever
formed, the National Mortgage Association of Washington, was created
in 1938 and eventually became known as Fannie Mae. In 1968, Fannie
Mae was split into two entities. One part retained the name Fannie
Mae, was separated from FHA and became an investor-owned
company. The other part, Ginnie Mae, became a wholly-owned
government corporation within the auspices of the Department of
Housing and Urban Development. In 1970, Congress passed the
Emergency Home Finance Act of 1970 (12 U.S.C.§§ 1451-1459),
chartering Freddie Mac. Freddie Mac was originally capitalized by the
Federal Home Loan banks and controlled by the Federal Home Loan
Bank Board. It was restructured under the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 and is now wholly-
-
owned by private investors.
Q See 12 U.S.c. §§4501-464l.
Z See Kenneth G. Lore & Cameron L. Cowan, Mortgage-Backed
Securities; Developments and Trends in the Secondary Market 2-39
(2001).
§ The GSEs together hold more MBS than any other individual investors
in the market. The GSEs generally hold MBS in their portfolios until
they mature. Banks hold more aggregate whole loans and MBS
combined than the GSEs do. See Guide to US Mortgage Backed
Securities, MBS Research (Deutsche Bank)(Jan. 2002) at 10
[hereinafter Deutsche Bank Report].
2 See Lore & Cowan, supra note 7 at 1-10.
10 See Linda Lowell, Mortgage Pass- Through Securities in The Handbook
of Mortgage-Backed Securities 25, 29 (Frank Fabozzi ed., 5th ed.
2001); Freddie Mac, Key Corporate Statistics (visited Dec. 12, 2002) <
http://www.freddiemac.com/corporate/news/corp_stats.html; Federal
National Mortgage Association, SEC No-Action Letter (Nov. 7, 1977).
See also Leland Brendsel, Securitization's Role in Housing Finance: The
Special Contn"butions of the Government Sponsored Enterprises in A
Primer on Securitization 17, 17-29 (Leon T. Kendall et al. eds., 1997).
11 See Bank of America Nat'l Trust & Savings Association, SEC No-Action
Letter (Apr. 19, 1977). See generally Edward L. Pittman, Economic
and Regulatory Developments Affecting Mortgage Related Securities,
64 Notre Dame L. Rev. 497, 499 (1989).
12 See Lore & Cowan, supra note 7, at 1-11;. Joseph Philip Forte, Capital
Markets Mortgage (Apr. 1999»
http://www.capitalconsortium.org/docs/capmarkm/htm ("While some
isolated Private Label MBS issuance occurred in the late 1970s, non-
GSE securitization of whole loans did not gain momentum until the
thrift industry crises in the high interest rate environment of the early
1980s.").
13 Payments on mortgage loans underlying Ginnie Mae MBS are federally
insured or guaranteed.
Although the obligations of Fannie Mae and Freddie Mac are not
federally guaranteed, a number of special statutory provisions have
had the effect that lenders and investors provide the GSEs more ready
access to lower cost funding than other issuers. Among these
provisions are congressional charters, exemption from state and local
income taxes, treatment of GSE securities as government securities
under federal securities laws and the authority of the Secretary of the
Treasury to purchase up to $2.25 billion of securities from each of
Fannie Mae and Freddie Mac. See also the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992, 12 U.S.c. § 450l.
14 The legislation was aimed at encouraging participation in the
secondary mortgage market by investment banks, investment entities,
mortgage bankers, private mortgage insurance companies, pension
funds and other investors, depositary institutions and federal credit
unions. See Lore & Cowan, supra note 7, at 1-14. See also Pittman,
\)!Jt:ll;Ic:U \)lUUY. \)ldll 1't:#!JUll UII t:lllldllvlll~ UI;)vIU;)UI t:: III Lilt:: IVIUll~a~t::-Oetvr\.t::Uv~UI •.. r a~t:: oJU VI '1'.:7
supra note 11; infra note 64.

_15 See Lowell, supra note 10, at 31-32 ("Normally it is more profitable for
originators of conforming loans to use the agency programs").
J§ There are some 10 year, 20 year and balloon (not fully amortizing or
short maturity) loans, among others, that are securitized as well.
17 There are also adjustable rate mortgages that can be securitized as
Fannie Mae or Freddie Mac MBS.
lJ;l FHA and VA loans that might be part of a Ginnie Mae security can be
assumed by a subsequent buyer of the property.
12. A loan that is a single-family loan within the loan limit that is set
annually for Fannie Mae and Freddie Mac is said to be within the
conforming loan limit. There is no similar limit on the size of loans
guaranteed by Ginnie Mae, but the underwriting guidelines of the
federal housing programs may directly or indirectly establish such
limits. For example, the FHA has an established maximum family home
mortgage limit of $280,749. U.S. Department of Housing and Urban
Development, HUD Announces Higher FHA Home Loan Limits to Help
More American Families Become Homeowners (last modified Jan. 2,
2003) http://www.hud.gov/news/release.cfm?content=pr03-001.cfm
2.0 See generally Deutsche Bank Report, supra note 8 at 8.
2.1 See Frank J. Fabozzi & John N. Dunlevy, Real Estate-Backed Securities
98-99 (2001).
n See Frank J. Fabozzi et al., Nonagency CMOs in The Handbook of
Mortgage-Backed Securities, supra note 10, at 267,268.
2:3_ See [d. at 268-69.
21 See Fabozzi & Dunlevy, supra note 21, at 73.
22 See Michael Bykhovsky, Overview of Recent Prepayment Behavior and
Advances in Modeling in The Handbook of Mortgage-Backed Securities,
supra note 10, at 365, 372.
26 See Lore & Cowan supra note 7, at 3-5; Lowell, supra note 10, at 35-
42.
27 For example, where insurance is obtained on the pool backing the
private-label MBS, the material terms of the insurance or guarantee
and information on the insurer or guarantor must be described in the
prospectus supplement. If the pool insurance or other third party
credit enhancement insures or guarantees payments on 20% or more
of the cash flows of the MBS vehicle, the registration statement must
include audited financial statements of the party providing the
insurance or credit enhancement. If the third party enhancement is a
guarantee of the MBS rather than the pool cash flows, the guarantee is
also a security that either must be registered under the Securities Act
or exempt from registration. The insurance itself is exempt from
registration under the Securities Act under Section 3(a)(8). See 15
U.S.C. § 77c(a)(8). Even if the guarantee or insurance is exempt from
registration, disclosure relating to the financial condition of the
guarantor is reqUired.
28 "Pass through certificates generally are treated as a sale of the
mortgage loans to the holders of the participation certificates for tax
and accounting purposes." Lore & Cowan, supra note 7, at 3-9 .
.22 Fannie Mae, Freddie Mac and Ginnie Mae issue pass-through MBS
backed by adjustable rate mortgages. See Fannie Mae, Understanding
Fannie Mae MBS (visited Dec. 12, 2002)
http://www.fanniemae.com/markets/ mbssecurities/abouCm bs/
understanding_mbs{mbs_selecting.jhtml? p=Mortgage-
Backed+ Secu rities&
s=Understanding+Fannie+Mae+MBS&t=Selecting+an+MBS
+ Investment; Freddie Mac, About PC s (visited Dec.12,2002)
http://www.freddiemac.com/mbs/html!aop_gold.html.
30 "The servicer collects all payments of principal and interest from
individual mortgagors and is responsible for enforcing payment of
delinquent loans and reporting to the security holders." Lore & Cowan,
supra note 7, at 3-9. There appears to be a growing trend toward
unbundling the servicing activities from the loan origination activities
and consolidation within the servicing industry. See id.
31 See generally Lehman Brothers Inc. Mortgage Research Group,
Collateralized Mortgage Obligations in The Handbook of Mortgage-
Backed Securities, supra note 10, at 169, 169-196.
~ See Fabozzi & Dunlevy, supra note 21, at 65-66.
.JJ. See Lore & Cowan, supra note 7, at 2-6.

J~ Ginnie Mae has two basic types of securities: Ginnie Mae I and Ginnie
Mae II. The Ginnie Mae I product is comprised only of pools formed by
a single issuer, pays principal and interest separately on the
certificates, and the underlying mortgages have the same interest
rate. The Ginnie Mae II product may have pools formed by single or
multiple issuers, has an aggregate principal and interest payment on
the certificates, and the interest rates on the underlying loans may
vary within a specified percentage range.
35 While historically the MBS market has been a dealer to dealer or dealer
to customer market with trades occurring based on telephone
discussions and fax, the growth of electronic trading platforms has
impacted the TBA market. The growth of these electronic trading
platforms has been noted to result in greater transparency in TBA
pricing as well as improved efficiency and accessibility. The interdealer
market now depends heavily on electronic trading. In 2002 there were
12 electronic systems that covered the MBS market. See The Bond
Market Association, e-Commerce in the Fixed Income Markets - The
2002 Review of Electronic Transaction Systems, at 4-7 (last modified
Nov. 2002) http://www.bondmarkets.com/research/ETSRpt1102.pdf.
36 Other GSE MBS, including REMICs are sold in the same manner as
other fixed income instruments in the over the counter market, which
involves dealer to dealer or dealer to investor communications and
negotiation through interdealer screens, by telephone, e-mail or fax.
37 See generally Jeffrey Biby, Srinivas Modukuri & Brian Hargrave,
Trading, Settlement and Clearing Procedures for Agency MBS in The
Handbook of Mortgage-Backed Securities, supra note 10, at lOS, 105-
14.
38 See The Bond Market Association, Uniform Practices for the Clearance
and Settlement of Mortgage-Backed Securities and Other Related
Securities (1990) [hereinafter Uniform Practices]. Fixed Income
Clearing Corporation, the successor to the MBS Clearing Corporation, a
clearing agency registered with the Commission, provides clearing and
settlement services for GSE and Ginnie Mae MBS transactions .
.39 Trading is done by phone, fax or online. Online or other electronic sites
openly display bids, thus making the trade process more transparent.
An increasing amount of GSE and Ginnie Mae MBS are being traded
online. According to the Bond Market Association, approximately, $69
billion of GSE MBS are traded every day including $20 billion to $25
billion of TBAs. Of these, TradeWeb, an online trading platform,
estimates that nearly $3 billion of those TBAs are traded on its
platform, which lets institutions send out bond inquiries to dealers and
offers mutual disclosure to both parties in a transaction. See Tommy
Fernandez, Street Warming to MBS Web Marketplaces, Am. Banker,
Aug. 13, 2001, at 5.
40 See Biby, Modukuri & Hargrave, supra note 37; Deutsche Bank Report,
supra note 8, at 18. The Bond Market Association, TBAs: To-Be-
Announced Mortgage Securities Transactions (1999).
~tl Among the parameters in the Good Delivery Guidelines is a restriction
on the percentage of non standard mortgage loans in an underlying
pool that have diverging characteristics such as relocation loans, co-op
loans and buy down loans (where a payment is made to reduce the
interest rate.)
:1:.2 "Other market participants that benefit from TBA trading are the
mortgage bankers, commercial banks and thrifts that originate
residential mortgages and sell them into the secondary mortgage
market in securitized form. Most mortgage application processes allow
a borrower to lock in a mortgage rate at some point prior to closing.
After this rate lock, the mortgage originator is exposed to interest rate
risk: the risk that the value of the mortgage may change as market
rates change before the mortgage is sold. Actual MBS pools can be
formed only after mortgages close; while they are in the pipeline, pool
characteristics may shift if applicants withdraw their applications or
postpone closing, fail to meet underwriting standards, or change loan
amounts. Originators frequently hedge their pipelines of rate-locked
mortgages by selling them into the forward market as mortgage
securities for TBA delivery months (or more) in the future. TBA trading
allows originators to sell prospective mortgage securities before they
know the specific collateral characteristics of the pools." Biby,
Modukuri & Hargrave, supra note 37, at 106.
4J. Id. Although attempts have been made to establish a mortgage
futures contract, the most recent product by the Chicago Board of
Trade introduced in 2001 was delisted in January 2002 due to lack of
market interest. Market participants told the Task Force that they
found mortgage futures not to be acceptable for a few reasons. First,
the futures contracts did not afford participants the same flexibility or
economic certainty they currently have in the TBA market. Second, the
dealer community did not support the product.
44 "Bond Market Association scheduling of monthly settlements is
designed to distribute settlement activity as evenly as possible over a
series of days. The monthly schedule was established for two main
OtJl:A..'ICU OlUUY. OlClII n.l::f.JUIL un r:rUlClfll,;lrlg UISClosure In me MOl'lgage-tsaCKea ::secur... page ~~ ot 4~ -
reasons. Dealers must await pool factors released near the beginning
of the month before security trades can be settled. The factor is used
-
to determine the current face value of securities. In addition, dealers
can more easily create tradable blocks if all pools for a month of
trading are specified on the same day; the larger the inventory of
pools, the easier it is to meet the requirement of each buyer. Thus, the
monthly settlement schedule helps ensure liquidity in the [GSE] MBS
market." Id . at 107.
45 Variance is the permitted deviation in the quantity of GSE MBS that
can be delivered to satisfy an outstanding TBA obligation. The
standard variance is currently .01 % of the face value agreed to at the
trade date. At settlement, therefore, a seller may deliver from 99.99%
to 100.01% of the face amount of securities. The guidelines also
mandate that TBA trades include a maximum of three pools per million
for MBS with coupons below 11% and five pools per million for MBS
with coupons of 11% or more.
The pools per million and variance rule are important both for
combining irregular pools or securities and for ensuring that buyers are
not forced to accept delivery of a large number of splintered pools. The
notification rule gives the parties to the trade time to prepare for
settlement and ensure that the trade goes smoothly. See Id . at 109-
10.
46 According to The Bond Market Association stipulations could be on,
among other things, date of issuance, geographic, lot, lot variance,
maturity, pieces, pools per lot, pools per million, pools per trade, trade
variance, weighted average coupon, loan age or maturity, whole pool,
and year of issuance. See The Bond Market Association, Rxed Income
Protocols Initiative, TBA Mortgage-Backed Securities, Draft Business
Practices Documentation in Plain English (working draft 2002 ) 6
(Visited Dec. 12, 2002)
http://www.bondmarkets.com/ecommerce/tba-
mbs_business_practices.pdf; Jordan & Jordan, The Bond Market
Association STP/T 1 Mortgage-Backed Securities & Related Products,
Codes of Practice (working draft version 2.0 Dec. 19,2001) 5 (visited
Dec. 12,2002) http://www.bondmarkets.com/ecommerce/
cop_mortgage_drafC2-0.pdf); Deutsche Bank Report, supra note 8, at
18. According to some market participants, mortgage originators are
increasing stipulated pool formation, which increases variability in pool
prepayment speeds.
47 REMIC issuers that may be using GSE or Ginnie Mae MBS for the
assets of their trust may need pools that have particular collateral
characteristics and thus may specify pools for this purpose.
1~ See Deutsche Bank Report, supra note 8, at 32. See generally Biby,
Modukuri & Hargrave supra note 37, at 139-148.
49 "Consolidating all of an [GSE] agency/coupons trades into a single
settlement day each month greatly increases the liquidity of the
mortgage market." Deutsche Bank Report, supra note 8, at 33.
50 "A dollar roll transaction transfers prepayment risk to the dealer, who
must attach a prepayment assumption to the dollar roll and weigh the
risk of forecasting error. Exactly the same par amount of securities ,S
Vl-'g""IQI \o.I''-I''"''J. """fooCI' ."~,..,....,.,, ..,. . . . . . ,.,~ •• V.·.;:, _.-_._-_.- '" .... - ••• _ ....;:,-;::,- - - _... _ - - - - -. . . . . . -g- .. - _" __
returned in a dollar roll (within TBA variance guidelines). In a repo, the

security owner bears the prepayment risk." Id. at 32-33.
51 "Dollar rolls offer dealers a convenient way to obtain promised
mortgage securities, avoiding much of the cost of failing to make
timely delivery. In theory, the dealer (the short coverer) will be willing
to pay up to the cost of failure to deliver for the short-term
opportunity to borrow or purchase securities required to meet a
delivery commitment. For this reason most dollar rolls are transacted
close to the monthly settlement date for mortgage-backed securities.
Dollar rolls also allow dealers to even out the supply and demand for
mortgage securities in the current settlement month and back'
months." Biby, Modukuri &. Hargrave, supra note 37, at 140.
.22 15 U.S.c. § 77c(a)(2).
.2-~ 15 U.S.C. § 78c(a)(12).
54. See 12 U.S.C. § 1723c.
.2.5 See 12 U.S.c. § 1455g.
56 See 15 U.S.C. § 78c(a)(42) - (43). All brokers and dealers in
government securities, including banks, must register with or give
notice to their appropriate regulatory agency and are subject to certain
rules of that agency or their self-regulatory organization, as well as the
rules of the Department of the Treasury. See 15 U.S.c. § 780. These
rules include certain sales practice provisions, including suitability
obligations when making recommendations to certain customers.
.2Z See 15 U.S.c. § 77aaa - bbbb; 15 U.S.c. § 80a-l to -64.
.2S See 15 U.s.C. § 77q(a); 15 U.S.c.§ 78j(b) and 17 C.F.R. § 240.10b-5.
Private-label issuers selling registered MBS are also subject to the
liability provisions of Sections 11 and 12 of the Securities Act and
Section 18 of the Exchange Act with respect to reports they file with
the Commission. See 15 U.S.c. § 77k; 15 U.S.C. § 771 and 15 U.S.c. §
78r.
59 TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976).
60 If the private-label securities are sold pursuant to an exemption from
registration, the private-label issuer generally would look to a
transactional exemption, such as one of the private placement
exemptions under Section 4(2), 15 U.S.c. § 77d(2), or Regulation D,
17 C.F.R. § 230.501-.508, promulgated under the Securities Act.
Section 4(2) exempts "transactions by an issuer not involving any
public offering." Generally the private-label issuer would issue
securities under Section 4(2) of the Securities Act in a transaction
structured to allow resales pursuant to Rule 144A under the Securities
Act.
Q1 See 17 C.F.R. § 230.144A. A QIB includes institutional investors that
own and invest on a discretionary basis at least $100 million ($10
million for registered securities dealers acting for their own accounts or
the accounts of other QIBs) in securities of issuers unaffiliated with the
QIBs (With certain limited exclusions). Rule 144A identifies the types of
entities that could qualify as QIBs. See [d.
§2 For MBS, the servicer or the trustee is considered the issuer of the
-
MBS for purposes of the information requirements of Rule 144A. The
Commission stated in the Rule 144A adopting release that, for MBS
-
resales, it would consider information concerning the structure of the
securities, distributions on the securities, the underlying assets (type,
performance, and servicing information), and credit enhancement
mechanism, if any, as satisfying the Rule 144A information
requirements. See Resale of Restricted Securities, Securities Act
Release No. 33-6862 (Apr. 30, 1990). In a 1990 no-action letter, the
Commission staff agreed that the issuers could satisfy the information
disclosure requirement by contractually requiring the trustee to deliver
the required information. Kutak Rock & Campbell, SEC No-Action
Letter (Nov. 29, 1990).
63 See Thompson Financial, Mortgage Backed Securities Industry Totals
1996-2001 (Excluding CMBS and Federal Agency Issuances)(Dec. 6,
2002). Various market participants have suggested that disclosure
standards in Rule 144A offerings are similar to those in Commission-
registered offerings. Given the small percentage of private-label
offerings under Rule 144A and the difficulties in accessing
documentation of these private transactions, the Task Force did not
evaluate disclosure practices in Rule 144A offerings.
64 At the time of enactment of SMMEA, the Commission amended Rule
415, which is known as the shelf rule, to allow SMMEA eligible
mortgage related securities to use the shelf offering process. See
Simplification of Registration Procedures for Primary Securities
Offerings, Release No. 33-6964 (Oct. 22, 1992).
9.2 See Michael S. Gambro & Scott Leichtner, Selected Legal Issues
Affecting securitization, 1 N.C. Banking Inst. 131, 146 {Mar. 1997}.
p6 See Greenwood Trust Company, Discover Card Master Trust I, SEC No-
Action Letter (Apr. 5, 1996); Public Securities Ass'n, SEC No-Action
Letter (Mar. 9, 1995); Public Securities Ass'n, SEC No-Action Letter
(Feb. 17, 1995); Public Securities Ass'n, SEC No-Action Letter, (May
27, 1994); Kidder Peabody, SEC No-Action Letter, (May 20, 1994).
Most private-label MB5 offerings are registered on Form 5-3 for the
"shelf', which incorporates by reference into the registration statement
future filings by the same issuer. When issuers are required to file
structural and collateral term sheets, they file them on Form 8-K,
which is then considered to be part of the shelf registration statement.
67. See Instruction 1 to Securities Act Rule 424, 17 C.F.R. § 230.424.
9.8 Private-label private placements offering materials generally do not
differ widely from those used in registered offerings.
g.9 See supra text accompanying notes 52-57.
7Q Investors receive confirmations of TBA trades. The confirmations will
comply with the Good Delivery Guidelines and Rule 10b-l0 under the
Exchange Act (17 C.F.R. § 240.10b-l0) and will provide information
regarding the terms of the TBA trade.
L:t See 15 U.S.c.§ 780(d). This assumes that the MBS, as is typically the
case, is not trading on an exchange or quoted on an automated
quotation system.
\
?2 See 17 C.F.R. § 240.15d-6; 17 C.F.R. § 240.12h-3. MBS issuers, like
most fixed-income securities issuers, do not usually register their
securities under the Exchange Act and typically have a small number
of record holders. Therefore, they are usually able to suspend their
reporting obligations on the first day of the fiscal year after their
registered offering takes place. In the context of shelf registration
statements, where a trust is formed for the issuance of each separate
series of securities, a new reporting obligation is incurred by each new
trust that is formed and that offers securities under the shelf
registration statement. Each trust may stop reporting if it meets the
requirements of Section 15(d) of the Exchange Act, notwithstanding
the fact that separate trusts of the same sponsor may issue MBS
during the fiscal year.
73 Form 8-Ks are filed based on the frequency of payments on the
underlying assets in the trust (but not less than quarterly). These
filings include a copy of the servicing or distribution report required by
the pooling and servicing agreement or other governing documents
regarding the trust. These reports include unaudited information about
the performance of the assets, payments on the MBS, and any other
material developments that affect the trust.
Private-label issuers also file a modified Form 10-K. This form may
aggregate the information in the Form 8-Ks for the fiscal year, respond
to other applicable item requirements of the form, and include annual
statements from the servicer (or other relevant entity), so long as the
private-label issuer continues to be a reporting entity. The servicing
information must be reviewed (but not audited) by an independent
auditor. Any required exhibits must also be filed. Financial statements
are not required. See, e.g., Retease No. 34-16520 (Jan. 23, 1980)
(order granting application pursuant to Section 12(h) of Home Savings
and Loan Association); Release No. 34-14446 (Feb. 6, 1978) (order
granting application pursuant to Section 12(h) of Bank of America
National Trust and Savings Association); Bay View Securitization
Corp., SEC No-Action Letter (Jan. 15, 1998); Key Ban~ USA, Nat'l
flss'n, SEC No-Action Letter (May 9, 1997); CWMBS, Inc., SEC No-
Action Letter (Feb. 3, 1994).
A private-label issuer sometimes continues to provide information to

the holders of the MBS after its reporting obligation with the
Commission is suspended or even if it was never subject to Exchange
Act reporting requirements. This may be because of the terms of the
pooling and servicing agreement, the indenture pursuant to which the
MBS are issued, the terms of any purchase contract in a Rule 144A or
private placement transaction, or the demands of the marketplace. In
addition to prOViding information to the trustee under the indenture,
private-label issuers may put MBS performance information on their or
the trustees websites or use third party information vendors to
disseminate the information.
Z4. See infra note 79.
2'.i For example, with respect to individual pools, Bloomberg LP provides
information such as the current weighted average coupon of the pool,
the issue and maturity date of the MBS, the weighted average loan
age and weighted average remaining maturity as of the most recent
-
factor date, and the original and current unpaid principal balance on
the underlying loans. The GSEs have stated that the information that
-
they provide to third party vendors is also either available on their
websites or can be calculated from such information.
16 See Lowell, supra note 10, at 41.
77 See Byl<hovsl<y, supra note 25, at 366.
78 The GSEs may change their underwriting criteria for a variety of
reasons. For GSE pools of a given size, expansion of underwriting
criteria by the GSEs could lead to decreasing pool homogeneity and
increasing unpredictability of pool performance. Changed GSE
underwriting criteria would also affect the composition of pools
underlying private label MBS and would therefore affect the
prepayment behavior of private label securities. See Dale Westhoff &
V.S. Srinivasan, The Next Generation of Prepayment Models to Value
Nonagency MBS in The Handbook of Mortgage-Backed Securities,
supra note 10, at 397, 400.
79 While private-label issuers generally provide more information in their
Commission filings than the GSEs and Ginnie Mae issuers provide in
their offering materials, the information is provided, as to most
categories of data, in incremental ranges such as quartiles and not
with respect to each mortgage loan within the pool. With respect to
the information described in this section and disclosed by the GSEs
and Ginnie Mae prior to settlement, that information is generally
updated by the GSEs monthly and Ginnie Mae quarterly. As noted in
subsequent footnotes, Fannie Mae and Ginnie Mae initially disclose
certain items of information after settlement and update the
information monthly for Fannie Mae and generally quarterly for Ginnie
Mae.
Most pools are composed of fixed-rate loans. For MBS backed by pools
of adjustable-rate loans, there is disclosure describing how the future
rates are determined.
tlQ Freddie Mac's swap program comprises approximately 85% of its fixed
rate pass-through MBS issuances. For its cash program, Freddie Mac
usually provides similar disclosure, but it is generally provided within
two weeks following settlement of the TBA trade.
al See Lore & Cowan, supra note 7, at 3-3.
~ Freddie Mac discloses information about coupon ranges in the pool by
breaking the pool disclosure down into four segments, also known as
quartile data.
~.3 Fannie Mae discloses WAC quartile data following settlement. Fannie
Mae has stated that it will begin disclosing this information prior to
settlement in March 2003. Prior to settlement, Fannie Mae discloses
the highest and lowest annual interest rates on the underlying
mortgage loans. In the Ginnie Mae I program, the coupon rate for all
loans is disclosed. In the Ginnie Mae II program, the range, but not
the distribution, of loan coupons is disclosed.
84 See William W. Bartlett, The Valuation of Mortgage-Backed Securities
42 (1994).
85 See Lore & Cowan, supra note 7, at 1-6 to 1-7
86 Fannie Mae discloses weighted average remaining term to maturity,
weighted average loan age, and weighted average original loan term
quartile data following settlement. Fannie Mae has stated it will begin
disclosing this information priorto settlement in March 2003. Fannie
Mae also discloses loan origination year information after settlement.
It has stated it will disclose weighted average loan age and weighted
average original loan term prior to settlement beginning in March
2003.
87 Following settlement, Ginnie Mae discloses the number of loans in the
pool. Ginnie Mae has stated it will disclose the number of loans in the
pool prior to settlement beginning in March 2003.
88 See Westhoff & Srinivasan, supra note 78, at 410.
89 See Id.
9..Q Fannie Mae discloses original loan size quartile data following
settlement and has stated it will disclose this information prior to
settlement beginning in March 2003.
21 However, after settlement, Ginnie Mae discloses the number of loans
in the pool, so the average original loan size can be calculated after
settlement. Ginnie Mae has stated that it will disclose this information
prior to settlement beginning in March 2003.
22 State law can also affect prepayment rates, so it is important to
investors to know if the loans are located or concentrated in any state
where such laws might affect prepayment.
9:3. See Frank J. Fabozzi & David Yuen, Managing MBS Portfolios 134
(1998).
9A See Id.
9~ See Westhoff & Srinivasan, supra note 78, at 424 .
.2§ The appraised value used depends on the LTV percentage at the time
of origination of the loan being refinanced.
92 See Lore & Cowan, supra note 7, at 1-6.
.2.a See Fabozzi & Yuen, supra note 93, at 87-88.
9..~ See Fabozzi & Dunlevy, supra note 21, at 112-13; Fair, Isaac and
Company, Inc., List of FICO Score Factors (visited Jan. 13, 2003)
http://www.myfico.com/MyFICO/CreditCentraI/ScoreConsiders/
FICOFactors.asp.
.lQ.Q See Fabozzi & Yuen, supra note 93, at 19.
101 See Westhoff & Srinivasan, supra note 78, at 425; Thomas
Zimmerman & Kumar Neelakantan, Credit Performance of High LTV
Loans in The Handbook of Mortgage-Backed Securities, supra note 10,
at 329, 339 .
.102 See Zimmerman & Neelakantan, supra note 101, at 339 (noting that
cash-out refinancings reduce the equity a borrower has in the home) .
.lQ~ Freddie Mac does not disclose the name of the seller for MBS issued
under its cash program, where the pools include multiple sellers.
Fannie Mae has stated it will disclose the name of the seller prior to
'-'t-',;;n..,IQI ,,",,"Y'-l~. "" -- "" _.1 _ _ _ ~ _.__._---- ---- -.. ---a-a- __._ .. _ -- - -
settlement beginning in March 2003.

1-04 Master servicers enter into the servicing agreement with the MBS
-
issuer and are usually permitted to delegate some of their servicing
responsibilities to other servicers.
105 See, e.g., J.P. Morgan Securities, Inc., Mortgage Research, Mortgage
Servicers Prepayment Report (Apr. 8, 2002). Because the terms
servicer and seller are frequently used interchangeably, it is not
always clear as to which entity the information relates.
1{;L6 Further, regulated firms such as banks, thrifts and GSEs have
legislative and regulatory incentives to maintain assets that are of a
high quality.
107 See 17 C.F.R. § 240.10bS-1.10b-S, 10bS-l to lObS-2.
108 See e.g., Board of Governors of the Federal Reserve System, Trading
and Capital Markets Activities Manual §21S0.1, at 212 (1998)
(discussing conflicts of interest issues). For OFHEO rules and guidance
see 12 C.F.R. § 1710.1-.20 (corporate governance rule; systems of
internal control and conflict of interest standards) and 12 C.F.R. §
1720 apps. A (internal controls and information technology) & C
(policy guidance-- safety and soundness standards for information).
See also Office of Federal Housing Enterprise Oversight, Examination
Handbook at ch. 2 (1998)(internal controls and separation of duties
and responsibilities).
~Q2 It should be noted that slower prepayment speeds are not necessarily
indicative of "cherry picking."
TQE
tl
Appendix A -Meetings and Interviews

The Task Force interviewed the folloWing firms, groups and individuals:
• The Bond Market Association
• Alan Boyce, Portfolio Manager, Soros Fund Management
• California State Teacher's Retirement System (CALSTRS)
• Countrywide Home Loans, Inc. and Countrywide Securities Corporation
• Fannie Mae
• FM Watch
• Freddie Mac
• Ginnie Mae
• Dr. Dwight Jaffee (Haas School of Business, University of California, Berkeley)

vtJOwlC21 ""LUUy. ~LClII I ,gIJUt LVII 1-1 .. IQII\JII.~ "" "",....,...., "" ~_~_ - __ ••• • _~_ • __ • ._
• Mortgage Bankers Association of America
• Scott Simon of PIMCO
• Phillip Thigpen, Jr. (Phillip Thigpen, Jr., a financial advisory firm)
• Peter Wallison (American Enterprise Institute)
• Washington Mutual Bank, FA, Washington Mutual Mortgage Securities Corp.,

and Long Beach Mortgage Company
Appendix B -Summary of Part III.E.,

"Types of Disclosure"
These tables summarize the information in Part III. E., "Types of Disclosure." The
tables compare the content of disclosures provided by Ginnie Mae and the GSEs
with respect to their pass-through MBS offerings and private-label issuers,
generally, with respect to their REMIC offerings, in each case, except as otherwise
noted, at or prior to settlement. l The tables do not address differences in the timing
of pre-settlement disclosure or amount or frequency of any ongoing disclosure.
Reference should be made to the detaUed discussion in Part III.E.
Loan Terms Fannie Mae Freddie Ginnie Mae Private

Ma~ Labell
Disclosure Item (Pass-through MBS) (REMICs)

Weighted average Yes Yes Yes Yes
coupon
Distribution of loan Yes, post- Yes VariableS. Yes

coupons within pool settlementJA
Weig hted average Yes Yes Yes Yes

remaining term to
maturity
Distribution of Yes, post- Yes No Yes

remaining terms to settlement4
maturity or loan
maturity year
within pool
Weighted average Yes, post- Yes Yes Variable

loan age settJement4
Distribution of loan Yes, post- Yes No Yes

ages or loan settlement4
origination years
-
within pool -
Weighted average Yes, post- Yes Yes Variable
original loan term settlement4
Distribution of Yes, post- Yes No Variable

original loan terms settlement4
within pool
Latest maturity Yes Yes No Variable

date of loans in
pool I
Number of loans in Yes Yes Yes, post- Yes

pool settlementQ
Unpaid principal Yes Yes Yes Yes

balance
Average original Yes Yes Yes, post- Yes

loan size settlement6
Distribution of Yes, post- Yes No Yes

original loan sizes settlement4
within pool
.
Points paid No No No No
Property Information Fannie Freddie Ginnie Private

Mae Mac2 Mae Labell

Distribution of mortgaged Yes Yes Yes, post- Yes
properties' geographic settlement
locations
Distribution of property No No No Yes

types within pool (e.g.,
single-family detached,
high rise condo, low rise
condo)
Distribution of occupancy No No YesZ Yes

types within pool (e.g.,
owner-occupied, second
home, non-owner-
occupied)
Weighted average original No No No Yes

loan to value ratio
Distribution of original No No No Yes
loan to value ratios within
pool
Borrower Information Fannie Freddie Ginnie Private

Mae Mac 2 Mae Labell
Distribution of credit scores No No No Variable

within pool
Distribution of loan No No No Yes

documentation information
(e.g., full, reduced,
streamlined)
Distribution of loan purpose No No No Yes

within pool (e.g., purchase,
rate/term refinance, cash-out
refinance)
Debt to income ratios of No No No No

borrowers
Seller, Originator Fannie Mae Freddie Ginnie Private

and Servicer Mac2 Mae Labell
Information

Seller identity Yes, post- Yesa Variable2 Yes
settlement 4
Portion of pool No No No Variable

originated by others
than seller
Servicer information No No Yes Yes
Appendix B Footnotes
1 Because of the relatively diverse group of issuers in the private-label

market, there is substantial but not complete uniformity to the
information disclosed in the offering materials of SEC-registered private-
label MBS. As to private-label issuers, therefore, the chart indicates the
typical or normal practice with respect to disclosure, as discussed further
-
in the text. As a result, where it is indicated in the charts that disclosure
is provided there are almost certainly cases where such disclosure is not
.-
provided. Conversely, where it is indicated that disclosure is not
provided, there may well be cases where such disclosure is provided.
Where the chart indicates that practice is variable for private-label
issuers, the Task Force has been unable to identify a significantly
predominant pattern of disclosure for the category.
l The discussion in Part III.E. of the report addresses the content and
timing of disclosure for Freddie Mac's swap program. Freddie Mac's swap
program comprises approximately 85% of its fixed-rate pass-through
MBS issuances. For its cash program, Freddie Mac usually provides
similar disclosure, but it is generally provided within two weeks following
settlement of the TBA trade.
J Prior to settlement, Fannie Mae discloses the highest and lowest annual
interest rates on the loans in the pool.
1. Fannie Mae has stated it will begin disclosing this information prior to
settlement in March 2003.
.2 In the Ginnie Mae I program the coupon rate for all loans is disclosed. In
the Ginnie Mae II program, the range, but not the distribution, of loan
coupons is disclosed.
~ Ginnie Mae has stated it will disclose the number of loans in the pool
prior to settlement beginning in March 2003. At that time it will be
possible to determine the average original loan size prior to settlement.
7 All but a de minimis amount of loans in a Ginnie Mae single-family pool
are owner-occupied.
~ Freddie Mac discloses the seller in its swap program but not in its cash
program, where the pools include multiple sellers.
51 For Ginnie Mae's single-seller pools, the seller is disclosed prior to
settlement. For its multiple-issuer pools, the sellers are identified post-
settlement.
http://www.sec.gov/news/studies/mortgagebacked.htm
Modified: 02/03/2003
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foreciosures
By Jeffrey Cohan, Pittsburgh Post-Gazette
_.
An Aiipnhpnv l:l"lIlntv rpr.nrri wiii hp hrnkpn thi~ morninn hilt if~ no r:~(J~P for
~ _.
Th", q ~ m ",;"'",riff", ",~i", wili ('Idmin"'t~ th'" hll",j.. ",t \,;:.~r nn rpr-nrri T0 f m0rt'J::I!J~
~0te~~(;~:.:!":?'2 :?'~d t:::y_l~=~ s:-=i2~.

Fe-; ~h~ f:~t t~~~~ ~\f==r, th~ s~2;iff~. =·ff~~ b=~
processed more than 4,000 filings from creditors who want to seize real estate
from debtors.
Aiready, creditors have tiied more than 400 properties for the january sale,
setfiny a pace 'that couid push the county above the 5,000 maiK in 2004.
;;Where is it gomg to stopr said Marty Madigan, who has the gnm task of
rnanagiilg the monthly auctions of orooeitv for fhe sheriff's office.
The number of foreclosures and tax lien sales have risen every year since
I ~97 nroducing figures tn'll are far worse than anythin9 the county saw during
lflree tirnes the iotai ffOm any year in ihe i 980s.
year, iI was the highest mark. recorded in the United States since the j"1ortgage
Bankers P\ssocla\lon of AmeTlca started keeplng tracK IT'i .4i 972.
Determining the cause orthe upswing in rorecicsures is difficuit.
Arl'orriinn to ivi::lriin;'in riivorr:p j, tn;:> mn<:;t ("'nmmol"l ,-':::1"'" "fforpr:!,,<:;lIrp ,in..-p

r:;~:;~/ r:C"i!"'!"~~0~.:·.:r:~;5 ;;,-?::;~.i tt~.!(; !~(:0~?~ tc ~"2~e fhsh" ~:~~~-c;~r:=:::- 2~..:~
divorce doesn't expiain why the county surpassed the 4,000 mark for the first
-nme th:;s year.
it is more likeiy that tne culprits indude sub-prime lending, high unemployment
and tax increases.
Suo-pnme lenaers offer mortgages to people witn credit problems, but at

h'igher-than-average ·interest rates.
Consumer advocates use the term "predatory lenders" to describe mortgage

cornoanies that combine sub-mime loans with Ur1scrUOU[OU5 fa dies such as
payrnent is due and rushing to ('.:.tieciose instead of granting forebea!t.:Ince.
i\;i;:mr:np<:;tpr nnmpownp.r Sr,prry S!",t"",i<" ;'l vidim of py::;Miy tnn>:;p t::ldir:~ <:.::lW
hs<__:s~ ;:s~~dr::!' shedff'-=. ~'E;1:;? three. !f~~s H,,:;s \'6=1' E;::;·~~:~'~~tr=~. sh~
Sf'
managed to escape from foreciosure by filing for bankruptcy.
_--;--_. _--
.... .... _...
" ..... '-"'"-
-
Shortly after she bought her house in 1999, Speaks' loan was sold to Utah-
h::lc:;pri F::lirh::lnkc:; C::tnir::li (;nrr tnp n::ttion'c:; i;:;rClPc:;t ",pr,fii~pr nf C;lln-primA
~-:~·:-t:"';~::l~:':=::-; T~~ "~.:';~~;=~~,:' ~~~q~~ H:~2 ~(:'::;t~ ~:;;~-=-d ~:: :?
S.d.·!) ~~E~0~ S2:t~~~er;t
after the Federai Trade Commission charged that the firm had engaged in
r ..... ,.; ....... -."I./ •.., ~~IT, ...-. _"...,.J ;.11.... ,._, P'l _ _ -IT~:*>_
'" Gilcay Ul u c ctJUYC 01 iU 11IC:;}lClt iJl C\..lllvt~.
"i was so angry and so mad at Fairbanks, I was not going to let them win,"
t"-. .... _t ......... _:...J
QlJe",,,:> :>dIU.
Housing advocates In Allegheny County fear tliat predatory lenders, such as

Fairbanks. are driv'irIQ UiJ the nurnber of foreclosures.
"There has been an increase In predatory lending in the area and predatory
fendino I?ads to an increase in sheriff's safes" said LouAnn Ross executive
"A iot of .
nponip
.tnin
. . r;:;n nl'lrr....w tnP!r w;:;v.. Ollt of ti""ht ,. <:;;:;iri i inri;:; H::lnf::ln
i< tnpv
t'!""!:-"".~~.-~-.:::-"t~ :"'~~~r~~r.-=+nt' f~r· il:-'-.iih!'~ ~~~::¢:i~:,,-:: j~r -=~:-",:t-h.c!" !"~t":.':'"~~t"~h~ .""'"':!"1"''!..i:~
, , .• '.
~. '-:' , ~:'! -.' •.' ._" ." '''-''_ • "'-' '. , ,"', u,· '':''' .' .-...-' .", - '..... ....,." '_ ,," ::! ' ~.
"7h~\1 ilP:.t ~r~!,1t iin:?~~i~fi\, ~::Hl\lY,~f ~h~ ~8i(i :~A:t ~0m~ t"l(1i~~1 it .!q~t h~f}'!V~ IJ!" ~p
f~=;! ;·.::::r::::,~::-
stable, at worst, tnlS year. But that nas been onset oy an Increase In
rne county's unemployment rate In September stooa at 4.4 percent, better

than the 4.8 Dercenf rate of Septernber 2002 but higher than the rates for the
"The eCO(lOiW\i ·is a little iOU9h ri9ht now, as everyone knows," Ross said.
Property tax increases might also figure into the surge in foreclosures.
~::~.'~i"~.'~'-":: ;~~ ~\r"!~,:t- ¥'~I"--:,t~-;ht·"f-'1!'"h~-"'f'lr~.:;: ~r~~:'~:"---{~l:ir~ ·h·-~ t~Y' i!!!"--!'"r".':.-:'s<:r-:;'C ~:~":If" thl"-~";==~ ~f.fh~-~ P:-'"""':! ~;I"-~
..... '" ........ ,'. .......
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leasi: afford them.
"A int of !i.. rini~ ::.r~ io"'inQ th",ir h0I1i~'3 n"'G:::l.IJBP. ofth!=, \Nh0i~ t~x <:;ih. l::otiO Ii "
H~;t!2:: s:::~~. .
rai:her than foreciosures.
Tnt" ~()i1nty ::Inri ~ity of Pitt<;;hm0h h::lvt" <:;olri "'ttr.h iit"n<:; to miv::ltp. firm'" whir.n
) h~'fe er;g~;ed h: ::;;5gres~1\!~ ~;::ne;:;t~(;r; effc-;,t~ ~r;d h~\/e r;~:·t~~r:ed r;ur:;~~~~s
'lnprtii"!,; throllnh
. - ~hpriff~ ~~ip~
Various programs are in place, though, to help the record number of people
who ::.ri" in ri;::mnpr ("If io"inCl tnpir homp,,-
- -
Last month, a coalition of 25 local neighborhood organizations, mortgage
Iinri.o.r\t\fri'tor
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- f\Ji~C1
_ ..- _.'. :3nrl.. +hrot::l.
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oj 983 in response to a spate of steel miii ciosures. Through the program,

homecvvtiers can receive statfS roans to make deifnquent moitqaq€ pavments.
But Clesplte tnese programs and others like them, there \Nih be plenty of activity
this tfiorning in the Gold Roon; of the Anegheny County Courthouse. where a
recQrG-brt-~k;r1G sht~~ff:; sale ~vin tdk~ G~~ce.·
Jeffre:t/ Cohan can be reached a{[email protected] or 412-263-3573.

SECTION EIGHT
This section pertains to Privacy and F.O.I.A. Act
A.. United State Code [Federal Statutes] Title 5, Section 552a
B. Code of Federal Regulations, Title 16 Commercial Practices,
Chapter 1, P~rt 4 Misc. Rules, Sec. 4.13 Privacy Act Rules
C. Ditto but, Subchapter A Financial Management Service, Part 202
Depositaries and Financial Agents of the Federal Government, Sec.
202.2, 202.3 & 202.6
D. Board of Governors, Federal Reserve System - Procedure letter
E. Federal court decision regarding Federal Home Loan Mortgage Corp.
plus sample of correspondence from Fannie Mae
F. Listing of the several states agencies concerning banking, regUlation,
permits and licenses one can contact

uS' !t-:00'Ci.,HUe ::>, ~ectlon ::>::>ka nttp:IIWWW4.1aw.comeU.eOUIUSCOOe/::l/::>::>:ka.text.htInl _
4,
US Code as of 0//05/99
Sec. 552a. Records maintained on individuals
• (a) DefInitions. - For purposes of this section-
?0V~CY
o (1) the term "agency" means agency as defmed in section
552(e) ill of this title;
o (2) the term "individual" means a citizen of the United
States or an alien lawfully admitted for permanent residence;
o (3) the term "maintain" includes maintain, collect, use, or
disseminate;
o (4) the term "record" means any item, collection, or grouping
of information about an individual that is maintained by an
agency, including, but not limited to, his education, fmancial
f\v}
transactions, medical history, and criminal or employment history
~d that contains his name, or the identifying number, symbol, or
other identifying particular assigned to the individual, such as
a fInger or voice print or a photograph;
o (5) the term "system of records" means a group of any records
under the control of any agency from which information is
retrieved by the name of the individual or by some identifying
number, symbol, or other identifying particular assigned to the
individual;
o (6) the term "statistical record" means a record in a system
of records maintained for statistical research or reporting
purposes only and not used in whole or in part in making any
determination about an identifiable individual, except as
provided by section 8 of title 13;
o (7) the term "routine-use" means, with respect to the
disclosure of a record, the use of such record for a purpose
which is compatible with the purpose for which it was collected;
o (8) the term "matching program" -
• (A) means any computerized comparison of-
• (i) two or more automated systems of records or a system of
records with non-Federal records for the purpose of-
• (I) establishing or verifying the eligibility of, or
continuing compliance with statutory and regulatory
requirements by, applicants for, recipients or
beneficiaries of, participants in, or providers of services
with respect to, cash or in-kind assistance or payments
under Federal benefIt programs, or
• (II) recouping payments or delinquent debts under such
Federal benefit programs, or
• (ii) two or more automated Federal personnel or payroll
systems of records or a system of Federal personnel or
payroll records with non-Federal records,
• (B) but does not include-
• (i) matches performed to produce aggregate statistical data
without any personal identifIers;
• (ii) matches performed to support any research or
statistical project, the specifIc data of which may not be
used to make decisions concerning the rights, benefIts, or
privileges of specifIc individuals;
• (iii) matches performed, by an agency (or component
thereof) which performs as its principal function any
activity pertaining to the enforcement of criminal laws,
subsequent to the initiation of a specifIc criminal or civil
law enforcement investigation of a named person or persons
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.,
for the purpose of gathering evidence against such person or

persons;
• (iv) matches of tax information (1) pursuant to section
6103(d) of the Internal Revenue Code of 1986, (II) for
purposes of tax administration as defined in section
61 03(b)(4) of such Code, (III) for the purpose of
intercepting a tax refund due an individual under authority
granted by section 404(e), 464, or 1137 of the Social
Security Act; or (IV')7or the purpose of intercepting a tax
refund due an individual under any other tax refund intercept
program authorized by statute which has been determined by
the Director of the Office of Management and Budget to
contain verification, notice, and hearing requirements that
are substantially similar to the procedures in section 1137
of the Social Security Act;
• (v) matches -
• (1) using records predominantly relating to Federal
personnel, that are performed for routine administrative
purposes (subject to guidance provided by the Director of
the Office of Management and Budget pursuant to-subsection
(v»; or
• (II) conducted by an agency using only records from
systems of records maintained by that agency;
if the purpose of the match is not to take any adverse
financial, personnel, disciplinary, or other adverse action
against Federal personnel;
• (vi) matches performed for foreign counterintelligence
purposes or to produce background checks for security
clearances of Federal personnel or Federal contractor
personnel; or
• (vii) matches performed incident to a levy described in
section 61 03(k)(8) of the Internal Revenue Code of 1986;
o (9) the term "recipient agency" means any agency, or .-
contractor thereof, receiving records contained in a system of
records from a source agency for use in a matching program;
o (10) the term "non-Federal agency" means any State or local
government, or agency thereof, which receives records contained
in a system of records from a source agency for use in a matching
program;
o (11) the term "source agency" means any agency which
discloses records contained in a system of records to be used in
a matching program, or any State or local government, or agency
thereof, which discloses records to be used in a matching
program;
o (12) the term "Federal benefit program" means any program
administered or funded by the Federal Government, or by any agent
or State on behalf of the Federal Government, providing cash or
in-kind assistance in the form of payments, grants, loans, or
loan guarantees to individuals; and
(13) the term "Federal personnel" means officers and
employees of the Government of the United States, members of the
uniformed services (including members of the Reserve Components),
individuals entitled to receive immediate or deferred retirement
benefits under any retirement program of the Government of the
United States (including survivor benefits).
• (b) Conditions of Disclosure. - No agency shall disclose any record which is contained in a system
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of records by any means of communication to any person, or to another agency, except pursuant to
a written request by, or with the prior written consent of, the individual to whom the record
pertains, unless disclosure of the record would be -
o (1) to those officers and employees of the agency which
-
maintains the record who have a need for the record in the
performance of their duties;
o (2) required under section 552 of this title;
o (3) for a routine use as defiiiea in subsection (a)(7) of this
section and described under subsection (e)(4)(D) of this section;
o (4) to the Bureau of the Census for purposes of planning or
carrying out a census or surveyor related activity pursuant to
the provisions of title 13;
o (5) to a recipient who has provided the agency with advance
adequate written assurance that the record will be used solely as
a statistical research or reporting record, and the record is to
be transferred in a form that is not individually identifiable;
o (6) to the National Archives and Records Administration as a
record which has sufficient historical or other value to warrant
its continued preservation by the United States Government, or
for evaluation by the Archivist of the United States or the
designee of the Archivist to determine whether the record has
such value;
o (7) to another agency or to an instrumentality of any
governmental jurisdiction within or under the control of the
United States for a civil or criminal law enforcement activity if
the activity is authorized by law, and if the head of the agency
or instrumentality has made a written request to the agency which
maintains the record specifying the particular portion desired
and the law enforcement activity for which the record is sought;
o (8) to a person pursuant to a showing of compelling
circumstances affecting the health or safety of an individual if
upon such disclosure notification is transmitted to the last
known address of such individual;
o (9) to either House of Congress, or, to the extent of matter
within its jurisdiction, any committee or subcommittee thereof,
any joint committee of Congress or subcommittee of any suchjoint
committee;
o (10) to the Comptroller General, or any of his authorized
representatives, in the course of the performance of the duties
of the General Accounting Office;
o (11) pursuant to the order of a court of competent
jurisdiction; or
o (12) to a consumer reporting agency in accordance with section
37II(e) of title 31.
• (c) Accounting of Certain Disclosures. - Each agency, with respect to each system of records
under its control, shall -
o (1) except for disclosures made under subsections (b)(I) or
• (b)
o (2) of this section, keep an accurate accounting of -
• (A) the date, nature, and purpose of each disclosure of a
record to any person or to another agency made under subsection
(' (b) of this section; and
) (B) the name and address of the person or agency to whom the
disclosure is made;
o (2) retain the accounting made under paragraph (1) of this
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subsection for at least five years or the life of the record,

whichever is longer, after the disclosure for which the
accounting is made;
o (3) except for disclosures made under subsection (b)(7) of this
section, make the accounting made under paragraph (I) of this
subsection available to the individual named in the record at his
request; and
(4) inform any person or other agency about any correction or
notation of dispute made by the agency in accordance with
subsection (d) of this section of any record that has been
disclosed to the person or agency if an accounting of the
disclosure was made.
. • (d) Access to Records. - Each agency that maintains a system of records shall -
o (1) upon request by any individual to gain access to his record
or to any information pertaining to him which is contained in the
system, permit him and upon his request, a person of his own
choosing to accompany him, to review the record and have a copy
made 'of all or any portion thereof in a form comprehensible to
him, except that the agency may require the individual to furnish
a written statement authorizing discussion of that individual's
record in the accompanying person's presence;
o (2) permit the individual to request amendment of a record
pertaining to him and -
• (A) not later than 10 days (excluding Saturdays, Sundays, and
legal public holidays) after the date of receipt of such
request, acknowledge in writing such receipt; and
(B) promptly, either-
• (i) make any correction of any portion thereof which the
individual believes is not accurate, relevant, timely, or
complete; or
• (ii) inform the individual of its refusal to amend the
record in accordance with his request, the reason for the
refusal, the procedures established by the agency for the
individual to request a review of that refusal by the head of
the agency or an officer designated by the head of the
agency, and the name and business address of that official;
o (3) permit the individual who disagrees with the refusal of the
agency to amend his record to request a review of such refusal,
and not later than 30 days (excluding Saturdays, Sundays, and
legal public holidays) from the date on which the individual
requests such review, complete such review and make a fmal
determination unless, for good cause shown, the head of the
agency extends such 30-day period; and if, after his review, the
reviewing official also refuses to amend the record in accordance
with the request, permit the individual to file with the agency a
concise statement setting forth the reasons for his disagreement
with the refusal of the agency, and notify the individual of the
provisions for judicial review of the reviewing official's
determination under subsection (g)(I)(A) of this section;
o (4) in any disclosure, containing information about which the
individual has filed a statement of disagreement, occurring after
the filing of the statement under paragraph (3) of this
subsection, clearly note any portion of the record which is
disputed and provide copies of the statement and, if the agency
deems it appropriate, copies of a concise statement of the
reasons of the agency for not making the amendments requested, to
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persons or other agencies to whom the disputed record has been

disclosed; and
(5) nothing in this section shall allow an individual access to
any infonnation compiled in reasonable anticipation of a civil
-
action or proceeding.
• (e) Agency Requirements. - Each agency that maintains a system of records shall -
o (l) maintain in its records only such information about an
individual as is relevant and necessary to accomplish a purpose
of the agency required to be accomplished by statute or by
executive order of the President;
o (2) collect information to the greatest extent practicable
directly from the subject individual when the infonnation may
result in adverse detenninations about an individual's rights,
benefits, and privileges under Federal programs;
o (3) infonn each individual whom it asks to supply information,
on the form which it uses to collect the information or on a
separate form that can be retained by the individual -
• (A) the authority (whether granted by statute, or by
executive order of the President) which authorizes the
solicitation of the information and whether disclosure of such
information is mandatory or voluntary;
• (B) the principal purpose or purposes for which the
infonnation is intended to be used;
• (C) the routine uses which may be made of the information, as
published pursuant to paragraph (4)(D) of this subsection; and
(D) the effects on him, if any, of not providing all or any
part of the requested information;
o (4) subject to the provisions of paragraph (11) of this
subsection, publish in the Federal Register upon establishment or
revision a notice of the existence and character of the system of
records, which notice shall include -
• (A) the name and 10catiQn of the system;
• (B) the categories of individuals on whom records are
maintained in the system;
• (C) the categories of records maintained in the system;
• (D) each routine use of the records contained in the system,
including the categories of users and the purpose of such use;
• (E) the policies and practices of the agency regarding
storage, retrievability, access controls, retention, and
disposal of the records;
• (F) the title and business address of the agency official who
is responsible for the system of records;
• (0) the agency procedures whereby an individual can be
notified at his request if the system of records contains a
record pertaining to him;
• (H) the agency procedures whereby an individual can be
notified at his request how he can gain access to any record
pertaining to him contained in the system of records, and how
he can contest its content; and
(I) the categories of sources of records in the system;
o (5) maintain all records which are used by the agency in making
any detennination about any individual with such accuracy,
relevance, timeliness, and completeness as is reasonably
( necessary to assure fairness to the individual in the
determination;
o (6) priorto disseminating any record about an individual to
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any person other than an agency, unless the dissemination is made

pursuant to subsection (b)(2) of this section, make reasonable
efforts to assure that such records are accurate, complete,
timely, and relevant for agency purposes;
o (7) maintain no record describing how any individual exercises
rights guaranteed by the First Amendment unless expressly
authorized by statute or by the individual about whom the record
is maintained or unless pertinent to and within the scope of an
authorized law enforcement activity;
o (8) make reasonable efforts to serve notice on an individual
when any record on such individual is made available to any
person under compulsory legal process when such process becomes a
matter of public record;
o (9) establish rules of conduct for persons involved in the
design, development, operation, or maintenance of any system of
records, or in maintaining any record, and instruct each such
person with respect to such rules and the requirements of this
section, including any other rules and procedures adopted
pursuant to this section and the penalties for noncompliance;
o (10) establish appropriate administrative, technical, and
physical safeguards to insure the security and confidentiality of
records and to protect against any anticipated threats or hazards
to their security or integrity which could result in substantial
harm, embarrassment, inconvenience, or unfairness to any
individual on whom information is maintained;
o (11) at least 30 days prior to publication of information under
paragraph (4)(D) of this subsection, publish in the Federal
Register notice of any new use or intended use of the information
in the system, and provide an opportunity for interested persons
to submit written data, views, or arguments to the agency; and
(12) if such agency is a recipient agency or a source agency in
a matching program with a non-Federal agency, with respect to any
establishment or revision of a matching program, at least 30 days
prior to conducting such program, publish in the Federal Register
. notice of such establishment or revision.
• (f) Agency Rules. - In order to carry out the provisions of this section, each agency that maintains
a system of records shall promulgate rules, in accordance with the requirements (including general
notice) of section 553 of this title, which shall-
o (l) establish procedures whereby an individual can be notified
in response to his request if any system of records named by the
individual contains a record pertaining to him;
o (2) define reasonable times, places, and requirements for
identifying an individual who requests his record or information
pertaining to him before the agency shall make the record or
information available to the individual;
o (3) establish procedures for the disclosure to an individual
upon his request of his record or information pertaining to him,
including special procedure, if deemed necessary, for the
disclosure to an individual of medical records, including
psychological records, pertaining to him;
o (4) establish procedures for reviewing a request from an
individual concerning the amendment of any record or information
(
pertaining to the individual, for making a determination on the
request, for an appeal within the agency of an initial adverse
agency determination, and for whatever additional means may be
necessary for each individual to be able to exercise fully his
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rights under this section; and

(5) establish fees to be charged, ifany, to any individual for
making copies of his record, excluding the cost of any search for
and review of the record. The Office of the Federal Register shall biennially compile and
-
publish the rules promulgated under this subsection and agency notices published under
subsection (e)(4) of this section in a form available to the public at low cost.
• (g)
o (l) Civil Remedies. - Whenever any agency
• (A) makes a determination under subsection (d)(3) of this
section not to amend an individual's record in accordance with
his request, or fails to make such review in conformity with that
subsection;
• (B) refuses to comply with an individual request under
subsection (d)(l) of this section;
• (C) fails to maintain any record concerning any individual with
such accuracy, relevance, timeliness, and completeness as is
necessary to assure fairness in any determination relating to the
qualifications, character, rights, or opportunities of, or
benefits to the individual that may be made on the basis of such
record, and consequently a determination is made which is adverse
to the individual; or
• (D) fails to comply with any other provision of this section,
or any rule promulgated thereunder, in such a way as to have an
adverse effect on an individual, the individual may bring a civil action against the
agency, and the district courts of the United States shall have jurisdiction in the
matters under the provisions of this subsection.
o (2)
) • (A) In any suit brought under the provisions of subsection (g)(1 ) (A) of this section,
.~. the court may order the agency to amend the individual's record in accordance with
his request or in such other way as the court may direct. In such a case the court shall
determine the matter de novo.
• (B) The court may assess against the United States reasonable attorney fees and other
litigation costs reasonably incurred in any case under this paragraph in which the
complainant has substantially prevailed.
o (3)
• (A) In any suit brought under the provisions of subsection (g)(1 )(B) of this section,
the court may enjoin the agency from withholding the records and order the
production to the complainant of any agency records improperly withheld from him.
In such a case the court shall determine the matter de novo, and may examine the
contents of any agency records in camera to determine whether the records or any
portion thereof may be withheld under any of the exemptions set forth in subsection
(k) of this section, and the burden is on the agency to sustain its action.
• (B) The court may assess against the United States reasonable attorney fees and other
litigation costs reasonably incurred in any case under this paragraph in which the
complainant has substantially prevailed.
o (4) In any suit brought under the provisions of subsection (g)(l )(C) or (D) of this section in
which the court determines that the agency acted in a manner which was intentional or
willful, the United States shall be liable to the individual in an amount equal to the sum of -
• (A) actual damages sustained by the individual as a result of
the refusal or failure, but in no case shall a person entitled to
recovery receive less than the sum of$I,OOO; and
(B) the costs of the action together with reasonable attorney
fees as determined by the court.
("') o (5) An action to enforce any liability created under this section may be brought in the
district court of the United States in the district in which the complainant resides, or has his
principal place of business, or in which the agency records are situated, or in the District of
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Columbia, without regard to the amount in controversy, within two years from the date on
which the cause of action arises, except that where an agency has materially and willfully
misrepresented any information required under this section to be disclosed to an individual
and the information so misrepresented is material to establishment of the liability of the
agency to the individual under this section, the action may be brought at any time within
two years after discovery by the individual of the misrepresentation. Nothing in this section
shall be construed to authorize any civil action by reason of any injury sustained as the
result of a disclosure of a record prior to September 27, 1975.
• (h) Rights of Legal Guardians. - For the purposes of this section, the parent of any minor, or the
legal guardian of any individual who has been declared to be incompetent due to physical or
mental incapacity or age by a court of competent jurisdiction, may act on behalf of the individual.
• (i)
o (1) Criminal Penalties. - Any officer or employee of an agency, who by virtue afhis
employment or official position, has possession of, or access to, agency records which
contain individually identifiable information the disclosure of which is prohibited by this
section or by rules or regulations established thereunder, and who knowing that disclosure
of the specific material is so prohibited, willfully discloses the material in any manner to
any person or agency not entitled to receive it, shall be guilty of a misdemeanor and fined
not more than $5,000.
o (2) Any officer or employee of any agency who willfully maintains a system of records
without meeting the notice requirements of subsection (e)(4) of this section shall be guilty
of a misdemeanor and fined not more than $5,000.
o (3) Any person who knowingly and willfully requests or obtains any record concerning an
individual from an agency under false pretenses shall be guilty of a misdemeanor and fined
not more than $5,000.
• G) General Exemptions. - The head of any agency may promulgate rules, in
accordance with the requirements (including general notice) of sections 553(b)(1),
(2), and (3), (c), and (e) of this title, to exempt any system of records witlilri the
agency from any part of this section except subsections (b), (c)(1) and (2),
• (e)
• (4)
• (A) through (F), (e)(6), (7), (9), (10), and (11), and (i) if the system of
records is-
• (1) maintained by the Central Intelligence Agency; or
• (2) maintained by an agency or component thereof which performs
as its principal function any activity pertaining to the
enforcement of criminal laws, including police efforts to
prevent, control, or reduce crime or to apprehend criminals, and
the activities of prosecutors, courts, correctional, probation,
pardon, or parole authorities, and which consists of (A)
information compiled for the purpose of identifying individual
criminal offenders and alleged offenders and consisting only of
identifying data and notations of arrests, the nature and
disposition of criminal charges, sentencing, confinement,
release, and parole and probation status; (B) information
compiled for the purpose of a criminal investigation, including
reports of informants and investigators, and associated with an
identifiable individual; or (C) reports identifiable to an
individual compiled at any stage of the process of enforcement of
the criminal laws from arrest or indictment through release from
supervision. At the time rules are adopted under this subsection, the agency
shall include in the statement required under section 553(c) of this title, the
reasons why the system of records is to be exempted1rOm a provision of this
section.
• (k) Specific Exemptions. - The head of any agency may promulgate rules, in
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accordance with the requirements (including general notice) of sections 553(b)(1),
(2), and (3), (c), and (e) of this title, to exempt any system of records witIiiii the
agency from subsections (c)(3), (d), (e)(1), (e)(4)(G), (H), and (I) and (f) of this
section if the system of records is -
-
o (1) subject to the provisions of section 552(b)(1) of this
title;
o (2) investigatory material compiled for law enforcement
purposes, other than material within the scope of subsection'
(j)(2) of this section: Provided, however, That if any individual
is denied any right, privilege, or benefit that he would
otherwise be entitled by Federallaw, or for which he would
otherwise be eligible, as a result of the maintenance of such
material, such material shall be provided to such individual,
except to the extent that the disclosure of such material would
reveal the identity of a source who furnished information to the
Government under an express promise that the identity of the
source would be held in confidence, or, prior to the effective
date of this section, under an implied promise that the identity
of the source would be held in confidence;
o (3) maintained in connection with providing protective services
to the President of the United States or other individuals
pursuant to section 3056 of title 18;
o (4) required by statute to be maintained and used solely as
statistical records;
o (5) investigatory material compiled solely for the purpose of
determining suitability, eligibility, or qualifications for
Federal civilian employment, military service, Federal contracts,
or access to classified information, but only to the extent that
the disclosure of such material would reveal the identity of a
source who furnished information to the Government under an
express promise that the identity of the source would be held in
confidence, or, prior to the effective date of this section,
under an implied promise that the identity of the source would be
held in confidence;
o (6) testing or examination material used solely to determine
individual qualifications for appointment or promotion in the
Federal service the disclosure of which would compromise the
objectivity or fairness of the testing or examination process; or
o (7) evaluation material used to determine potential for
promotion in the armed services, but only to the extent that the
disclosure of such material would reveal the identity of a source
who furnished information to the Government under an express
promise that the identity of the source would be held in
confidence, or, prior to the effective date of this section,
under an implied promise that the identity of the source would be
held in confidence. At the time rules are adopted under this subsection, the agency shall
include in the statement required under section 553(c) of this title, the reasons why the
system of records is to be exempted from a proVlslon of this section.
• (1) Archival Records. - Each agency record which is accepted by the Archivist of the
United States for storage, processing, and servicing in accordance with section 3103
of title 44 shall, for the purposes of this section, be considered to be maintainedoythe
agency which deposited the record and shall be subject to the provisions of this
section. The Archivist of the United States shall not disclose the record except to the
agency which maintains the record, or under rules established by that agency which
C' ) are not inconsistent with the provisions of this section.
o (2) Each agency record pertaining to an identifiable individual which was transferred to the
National Archives of the United States as a record which has sufficient historical or other
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.
U;S Code: Title 5, SectIon 552a
"
http://www4.law.comell.eduJuscode/5/552a.text.html
value to warrant its continued preservation by the United States Government, prior to the
effective date ofthis section, shall, for the purposes of this section, be considered to be
maintained by the National Archives and shall not be subject to the provisions of this
section, except that a statement generally describing such records (modeled after the
requirements relating to records subject to subsections (e)(4)(A) through (G) of this section)
shall be published in the Federal Register.
o (3) Each agency record pertaining to an identifiable individual which is transferred to the
National Archives of the United States as a record which has sufficient historical or other
value to warrant its continued preservation by the United States Government, on or after the
effective date of this section, shall, for the purposes of this section, be considered to be
maintained by the National Archives and shall be exempt from the requirements of this
section except subsections (e)(4)(A) through (G) and (e)(9) of this section.
o (m)
• (1) Government Contractors. - When an agency provides by a contract for the
operation by or on behalf of the agency of a system of records to accomplish an
agency function, the agency shall, consistent with its authority, cause the
requirements of this section to be applied to such system. For purposes of subsection
(i) of this section any such contractor and any employee of such contractor, if such
contract is agreed to on or after the effective date of this section, shall be considered
to be an employee of an agency.
• (2) A consumer reporting agency to which a record is disclosed under section 3711(e)
of title 31 shall not be considered a contractor for the purposes of this section.--
o (n) Mailing Lists. - An individual's name and address may not be sold or rented by an
agency unless such action is specifically authorized by law. This provision shall not be
construed to require the withholding of names and addresses otherwise permitted to be
made public.
o (0) Matching Agreements. - (1) No record which is contained in a system of records may be
disclosed to a recipient agency or non-Federal agency for use in a computer matching
program except pursuant to a written agreement between the source agency and the recipient
agency or non-Federal agency specifying-
• (A) the purpose and legal authority for conducting the program;
• (B) the justification for the program and the anticipated
results, including a specific estimate of any savings;
• (C) a description of the records that will be matched,
including each data element that will be used, the approximate
number of records that will be matched, and the projected
starting and completion dates of the matching program;
• (D) procedures for providing individualized notice at the time
of application, and notice periodically thereafter as directed by
the Data Integrity Board of such agency (subject to guidance
provided by the Director of the Office of Management and Budget
pursuant to subsection (v», to -
• (i) applicants for and recipients of fmancial assistance or

payments under Federal benefit programs, and
(ii) applicants for and holders of positions as Federal
personnel,
that any information provided by such applicants, recipients,
holders, and individuals may be subject to verification through
matching programs;
o (E) procedures for verifying information produced in such
matching program as required by subsection (p);
o (F) procedures for the retention and timely destruction of
( identifiable records created by a recipient agency or non-Federal
agency in such matching program;
o (G) procedures for ensuring the administrative, technical, and
physical security of the records matched and the results of such
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programs;
o (H) prohibitions on duplication and redisclosure of records
provided by the source agency within or outside the recipient
agency or the non-Federal agency, except where required by law or
essential to the conduct of the matching program;
o (I) procedures governing the use by a recipient agency or
non-Federal agency of records provided in a matching program by a
source agency, including procedures governing return of the
records to the source agency or destruction of records used in
such program;
o (1) information on assessments that have been made on the
accuracy of the records that will be used in such matching
program; and
(K) that the Comptroller General may have access to all records
of a recipient agency or a non-Federal agency that the
Comptroller General deems necessary in order to monitor or verify
compliance with the agreement.
o (2)
• (A) A copy of each agreement entered into pursuant to paragraph (1) shall-
• (i) be transmitted to the Committee on Governmental Affairs of

the Senate and the Committee on Government Operations of the
House of Representatives; and
(ii) be available upon request to the public.
o (B) No such agreement shall be effective until 30 days after the date on which such a copy
is transmitted pursuant to subparagraph (A)(i).
o (C) Such an agreement shall remain in effect only for such period, not to exceed 18 months,
as the Data Integrity Board of the agency determines is appropriate in light of the purposes,
and length of time necessary for the conduct, of the matching program.
o (D) Within 3 months prior to the expiration of such an agreement pursuant to subparagraph
(C), the Data Integrity Board of the agency may, without additional review, renew the
matching agreement for a current, ongoing matching program for not more than one
additional year if -
• (i) such program will be conducted without any change; and

(ii) each party to the agreement certifies to the Board in
writing that the program has been conducted in compliance with
the agreement.
o (P) Verification and Opportunity to Contest Findings. - (1) In order to protect any individual
whose records are used in a matching program, no recipient agency, non-Federal agency, or
source agency may suspend, terminate, reduce, or make a final denial of any fmancial
assistance or payment under a Federal benefit program to such individual, or take other
adverse action against such individual, as a result of information produced by such matching
program, until -
o (A)
• (i) the agency has independently verified the infonnation;
or
• (ii) the Data Integrity Board of the agency, or in the case of
a non-Federal agency the Data Integrity Board of the source
agency, determines in accordance with guidance issued by the
Director of the Office of Management and Budget that -
o (I) the information is limited to identification and amount
of benefits paid by the source agency under a Federal benefit
program; and
(. ) (II) there is a high degree of confidence that the
information provided to the recipient agency is accurate;
o (B) the individual receives a notice from the agency containing
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a statement of its findings and infonning the individual of the

opportunity to contest such findings; and
(C)(i) the expiration of any time period established for the
program by statute or regulation for the individual to respond to
that notice; or
• (ii) in the case of a program for which no such period is

established, the end of the 30-day period beginning on the date
on which notice under subparagraph (B) is mailed or otherwise
provided to the i n d i v i d u a l . _
o (2) Independent verification referred to in paragraph (1) requires investigation and
confinnation of.specific infonnation relating to an individual that is used as a basis for an
adverse action against the individual, including where applicable investigation and
continnation of -
• (A) the amount of any asset or income involved;
• (B) whether such individual actually has or had access to such
asset or income for such individual's own use; and
(C) the period or periods when the individual actually had such
asset or income.
o (3) Notwithstanding paragraph (1), an agency may take any appropriate action otherwise
prohibited by such paragraph if the agency determines that the public health or public safety
may be adversely affected or significantly threatened during any notice period required by
such paragraph.
• (q) Sanctions. - (l) Notwithstanding any other provision oflaw, no source agency
may disclose any record which is contained in a system of records to a recipient
agency or non-Federal agency for a matching program if such source agency has
reason to believe that the requirements of subsection (P), or any matching agreement
entered into pursuant to subsection (0), or both, are not being met by such recipient
agency.
o (2) No source agency may renew a matching agreement unless-
• (A) the recipient agency or non-Federal agency has certified
that it has complied with the provisions of that agreement; and
(B) the source agency has no reason to believe that the
certification is inaccurate.
• (r) Report on New Systems and Matching Programs. - Each agency that
proposes to establish or make a significant change in a system of records or a
matching program shall provide adequate advance notice of any such proposal
(in duplicate) to the Committee on Government Operations of the House of
Representatives, the Committee on Governmental Affairs of the Senate, and the
Office of Management and Budget in order to pennit an evaluation of the
probable or potential effect of such proposal on the privacy or other rights of
individuals. . .
• (s) Biennial Report. - The President shall biennially submit to the Speaker of
the House of Representatives and the President pro tempore of the Senate a
report -
o (1) describing the actions of the Director of the Office of
Management and Budget pursuant to section 6 of the Privacy Act of
1974 during the preceding 2 years;
o (2) describing the exercise of individual rights of access and
amendment under this section during such years;
o (3) identifying changes in or additions to systems of records;
o (4) containing such other infonnation concerning administration
of this section as may be necessary or useful to the Congress in
( reviewing the effectiveness of this section in carrying out the
purposes ofthe Privacy Act of 1974.
o (t)
• (l) Effect of Other Laws. - No agency shall rely on any exemption contained in
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section 552 of this title to withhold from an individual any record which is otherwise
accessible to such individual under the provisions of this section.
• (2) No agency shall rely on any exemption in this section to withhold from an
individual any record which is otherwise accessible to such individual under the
provisions of section 552 of this title.
-
o (u) Data Integrity Boards. - UTEvery agency conducting or participating in a matching
program shall establish a Data Integrity Board to oversee and coordinate among the various
components of such agency the agency's implementation of this. section.
• (2) Each Data Integrity Board shall consist of senior officials designated by the head of the
agency, and shall include any senior official designated by the head of the agency as responsible
for implementation of this section, and the inspector general of the agency, if any. The inspector
general shall not serve as chairman of the Data Integrity Board.
• (3) Each Data Integrity Board-

o (A) shall review, approve, and maintain all written agreements
for receipt or disclosure of agency records for matching programs
to ensure compliance with subsection (0), and all relevant
statutes, regulations, and guidelines;
o (B) shall review all matching programs in which the agency has
participated during the year, either as a source agency or
recipient agency, determine compliance with applicable laws,
regulations, guidelines, and agency agreements, and assess the
costs and benefits of such programs;
o (C) shall review all recurring matching programs in which the
agency has participated during the year, either as a source
agency or recipient agency, for continued justification for such
disclosures;
o (D) shall compile an annual report, which shall be submitted to
)
the head of the agency and the Office of Management and Budget
and made available to the public on request, describing the
matching activities of the agency, including -
• (i) matching programs in which the agency has participated as

a source agency or recipient agency;
• (ii) matching agreements proposed under subsection (0) that

were disapproved by the Board;
• (iii) any changes in membership or structure of the Board in

the preceding year;
• (iv) the reasons for any waiver of the requirement in

paragraph (4) of this section for completion and submission of
a cost-benefit analysis prior to the approval of a matching
program;
• (v) any violations of matching agreements that have been

alleged or identified and any corrective action taken; and
(vi) any other information required by the Director of the
Office of Management and Budget to be included in such report;
o (E) shall serve as a clearinghouse for receiving and providing
information on the accuracy, completeness, and reliability of
records used in matching programs;
( ) o (F) shall provide interpretation and guidance to agency
components and personnel on the requirements of this section for
matching programs;
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o (G) shall review agency recordkeeping and disposal policies and

practices for matching programs to assure compliance with this
section; and
(H) may review and report on any agency matching activities
that are not matching programs.
o (4)
• (A) Except as provided in subparagraphs (B) and (C), a Data Integrity Board shall not
approve any written agreement for a matching program unless the agency has
completed and submitted to such Board a cost-benefit analysis of the proposed
program and such analysis demonstrates that the program is likely to be cost effective.
.0
• (B) The Board may waive the requirements of subparagraph (A) of this paragraph ifit
determines in writing, in accordance with guidelines prescribed by the Director of the
Office of Management and Budget, that a cost-benefit analysis is not required.
• (C) A cost-benefit analysis shall not be required under subparagraph (A) prior to the
initial approval of a written agreement for a matching program that is specifically
required by statute. Any subsequent written agreement for such a program shall not be
approved by the Data Integrity Board unless the agency has submitted a cost-benefit
analysis of the program as conducted under the preceding approval of such
agreement.
o (5)
• (A) If a matching agreement is disapproved by a Data Integrity Board, any party to
such agreement may appeal the disapproval to the Director of the Office of
Management and Budget. Timely notice of the filing of such an appeal shall be
provided by the Director of the Office of Management and Budget to the Committee
on Governmental Affairs of the Senate and the Committee on Government Operations
of the House of Representatives.
• (B) The Director of the Office of Management and Budget may approve a matching
agreement notwithstanding the disapproval of a Data Integrity Board if the Director
determines that - .
• (i) the matching program will be consistent with all applicable

legal, regulatory, and policy requirements;
• (ii) there is adequate evidence that the matching agreement

will be cost-effective; and
,(iii) the matching program is in the public interest.
o (C) The decision of the Director to approve a matching agreement shall not take effect until
30 days after it is reported to committees described in subparagraph (A).
o (D) If the Data Integrity Board and the Director of the Office of Management and Budget
disapprove a matching program proposed by the inspector general of an agency, the
inspector general may report the disapproval to the head of the agency and to the Congress.
• (6) In the reports required by paragraph (3)(D), agency matching activities that are not
matching programs may be reported on an aggregate basis, if and to the extent
necessary to protect ongoing law enforcement or counterintelligence investigations.
• (v) Office of Management and Budget Responsibilities. - The Director of the Office of
Management and Budget shall -
o (1) develop and, after notice and opportunity for public
comment, prescribe guidelines and regulations for the use of
agencies in implementing the provisions of this section; and
(2) provide continuing assistance to and oversight of the
implementation of this section by agencies.
Footnotes
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U.'S LOae,. f.': I1t1e '. :section "La
. . . . ,'"
htlp:llwww4.1aw.comeIl.eduluscode/51552a.text.html _
ill See References in Text note below.

ill So in original. Probably should be "cost-effective." -
15 of 15 7/25/00 2:51 PM
...
'
[Code of Federal Regulations]

[Title 16, Volume 1}
From the U.S. Govemment Printing Office via GPO Access
[CITE: 16CFR4.13}
[Page 109-112J
TITLE 16-COMMERCIAL PRACTICES
CHAPTER I-FEDERAL TRADE COMMISSION
PART 4-MISCELLANEOUS RULES-Table of Contents
Sec. 4.13 Privacy Act rules.
(a) Purpose and scope. (1) This section is promulgated to implement

the Privacy Act of 1974 (Pub. L. 93-579, 5 U.S.C. 552a) by establishing
procedures whereby an individual can, as to all systems of records
maintained by the Commission except those set forth in Sec. 4.13 (m) as
exempt from disclosuQl, (i) Request notification of whether the
Commission maintains a record pertaining to him in any system of
records, (ii) request access to such a record or to an accounting of its
disclosure, (iii) request that the record be amended or corrected, and
(iv) appeal an initial adverse determination of any such request. This
section also establishes those systems of records that are specifically
exempt from disclosure and from other requirements.
(2) The procedures of this section apply only to requests by an
individual as defined in Sec. 4.13(b). Except as otherwise provided,
they govem only records containing personal information in systems of
records for which notice has been. published by the Commission in the
Federal Register pursuant to section 552a(e)(4) of the Privacy Act of
1974 and which are neither exempt from the provisions of this section
nor contained in govemment-wide systems of personnel records for which
notice has been published in the Federal Register by the Office of
Personnel Management. Requests for notification, access, and amendment
of personnel records which are contained in a system of records for
-
~:
)--" which notice has been given by the Office of Personnel Management are -
governed by the Office of Personnel Managemenfs notices, 5 CFR part
297. Access to records which are not subject to the requirements of the
Privacy Act are governed by Secs. 4.8 through 4.11.
(b) Definitions. The following definitions apply to this section
only:
(1) Individual means a natural person who is a citizen of the United
States or an alien lawfully admitted for permanent residence.
(2) Record means any item, collection, or grouping of personal
information about an individual that is maintained by the Commission,
including, but not limited to, his education, financial transactions,
medical history, and criminal or employment history and that contains
his name, or the identifying number, symbol, or other identifying
particular assigned to the individual, such as a finger or voice print
or a photograph, but does not include information concerning
proprietorships, businesses, or corporations.
(3) System of records means a group of any records under the control
of the Commission from which information is retrieved by the name of the
individual
[[Page 110]J
or by some identifying number, symbol, or other identifying particular

assigned to the individual, for which notice has been published by the
Commission in the Federal Register pursuant to 5 U.S.C. 552a(e)(4).
(c) Procedures for requests pertaining to individual records in a
record system. An individual may request access to his or her records or
any information pertaining to that individual in a system of records,
and notification of whether and to whom the Commission has disclosed a
record for which an accounting of disclosures is required to be kept and
made available to the individual, using the procedures of this section.
Requests for the disclosure of records under this section or to
determine whether a system of records contains records pertaining to an
individual or to obtain an accounting of disclosures, shall be in
writing and if mailed, addressed as follows:
(" ) Privacy Act Request, Office of the General Counsel, Federal Trade
Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580.
If requests are presented in person at the Office of the General

Counsel, the individual shall be required to execute a written request.
All requests shall name the system of records that is the subject of the
request, and shall include any additional information specified in the
pertinent system notice as necessary to locate the records requested. If
the requester wants another person to accompany him or her to review the
records, the request shall so state. Nothing in this section will allow
an individual access to any information compiled in reasonable
anticipation of a civil action or proceeding.
(d) Times, places, and requirements for identification of
individuals making requests. Verification of identity of persons making
written requests to the deciding official (as designated by the General
Counsel) ordinarily will not be required. The signature on such requests
will be deemed a certification by the signatory that he or she is the
individual to whom the record pertains or is the parent or guardian of a
minor or the legal guardian of the individual to whom the record
pertains. The deciding official (as designated by the General Counsel)
may require additional verification of a requesters identity when such
information is reasonably necessary to assure that records are not
improperly disclosed; provided, however, that no verification of
identity will be required if the records sought are publicly available
under the Freedom of Information Act.
(e) Disclosure of requested information to individuals. Within 10
working days of receipt of a request under Sec. 4.13(c}, the deciding
official (as designated by the General Counsel) will acknowledge receipt
of the request. Within 30 working days of the receipt of a request under
Sec. 4.13(c), the deciding official (as designated by the General
Counsel) will inform the requester whether a system of records
containing retrievable information pertaining to the requester exists,
and if so, either that the request has been granted or that the
requested records or information is exempt from disclosure pursuant to
Sec. 4.13(m). When, for good cause shown, the deciding official (as
designated by the General Counsel) is unable to respond within 30
working days of the receipt of the request, that official will notify
)
-
the requester and inform him or her approximately when a response will -
be made.
(f) Special procedures: Medical records. When the deciding official
(as designated by the General Counsel) determines that disclosure of a
medical or psychological record directly to a requesting individual
could have an adverse effect on the individual. he or she will require
the individual to designate a medical doctor to whom the record will be
transmitted.
(g) Request for correction or amendment of record. An individual to
whom access to his records or any information pertaining to him in a
system of records has been granted may request that any portion thereof
be amended or corrected because he believes it is not accurate,
relevant, timely, or complete. An initial request for correction or
amendment of a record shall be in writing whether presented in person or
by mail, and if by mail, addressed as in Sec. 4.13(c). In making a
request under this subsection, the requesting party shall state the
nature of the information in the record the individual believes to be
[[Page 111]]
inaccurate, irrelevant, untimely, or incomplete, the correction or

amendment desired. and the reasons therefore.
(h) Agency review of request for correction or amendment of record.
Whether presented in person or by mail, requests under Sec. 4.13(g) will
be acknowledged by the deciding official (as designated by the General
Counsel) within 10 working days of the receipt of the request if action
on the request cannot be completed and the individual notified of the
results within that time. Thereafter, the deciding official (as
designated by the General Counsel) will promptly either make the
requested amendment or correction or inform the requester of his refusal
to make the amendment or correction. the reasons for the refusal, and
the requester's right to appeal that refusal in accordance with
Sec. 4.13(i).
(I) Appeal of initial adverse agency determination. (1) If an
initial request filed under Sec. 4.13(c) or Sec. 4.13(g) is denied, the
requester may appeal that denial to the General Counsel. The appeal
shall be in writing and addressed as follows:
Privacy Act Appeal, Office of the General Counsel, Federal Trade
Commission, 600 Pennsylvania Avenue, NW., Washington, DC 20580.
Within 30 working days of the receipt of the appeal, the General Counsel
will notify the requester of the disposition of that appeal, except that
the General Counsel may extend the 3Q-day period for good cause, in
which case, the General Counsel will advise the requester of the
approximate date on which review will be completed. In unusual or
difficult cases, the General Counsel may, in his or her sole discretion,
refer an appeal to the Commission for determination.
(2)(i) If the General Counsel refuses to amend or correct the record
in accordance with a request under Sec. 4.13(g), the General Counsel
will notify the requester of that decision and inform the requester of
the right to file with the deciding official (as designated by the
General Counsel) a concise statement setting forth the reasons for the
requester's disagreement with the General Counsel's determination and
the fact that the requester's statement will be treated as set forth in
paragraph (i)(2)(ii) of this section. The General Counsel will also
inform the requester that judicial review of the decision is available
by a civil suit in the district in which the requester resides, or has
his principal place of business, or in which the agency records are
situated, or in the District of Columbia.
(ii) If the individual files a statement disagreeing with the
General Counsel's determination not to amend or correct a record, such
disagreement will be clearly noted in the record involved and the
individual's statement will be made available to anyone to whom the
record has been disclosed after September 27, 1975, or is subsequently
disclosed together with, if the General Counsel deems it appropriate, a
brief statement of his or her reasons for declining to amend the record.
0) Disclosure of record to person other than the individual to whom
it pertains. Except as provided by 5 U.S.C. 552a(b), the written request
or prior written consent of the individual to whom a record pertains, or
of his parent if a minor, or legal guardian if incompetent, shall be
required before such record is disclosed. If the individual elects to
inspect a record in person and desires to be accompanied by another
-
person, the deciding official (as designated by the General Counsel) may
require the indMdual to furnish a signed statement authorizing
-
disclosure of his or her record in the presence of the accompanying
named person.
(k) Fees. No fees will be charged for searching for a record.
reviewing it, or for copies of records made by the Commission for its
own purposes incident to granting access to a requester. Copies of
records to which access has been granted under this section may be
obtained by the requester from the deciding official (as designated by
the General Counsel) on payment of the reproduction fees provided in
S c.4.8(b)(6).
(I) Penalties. Section 552a(i)(3) of the Privacy Act, 5 U.S.C.
·c
552a(i)(3), makes it a misdemeanor, subject to a maximum fine of $5,000,

-to knOWingly and willfully request or obtain any record concerning an
~
indMdual under false pretenses. Sections 552a(i) (1) and (2) of the
Privacy Act, 5 U.S.C. 552a(i) (1) and
[[Page 112])
(2), provide penalties for violations by agency employees of the Privacy

Act or regulations established thereunder. Title 18 U.S.C. 1001, Crimes
~
and Criminal Procedures, makes it a criminal offense, subject to a

maximum fine of $10,000 or imprisonment for not more than 5 years or
both, to knowingly and willfully make or cause to be made any false or
fraudulent statements or representations in any matter within the
j~riSd~Cti~~agency of the United States.
(m) Specific exemptions. (1) Pursuant to 5 U.S.C. 552aO)(2),
investigatory materials maintained by an agency component in connection
with any activity relating to criminal law enforcement in the following
systems of records are exempt from all subsections of 5 U.S.C. 552a,
except (b), (c) (1) and (2), (e)(4) (A) through (F), (e) (6), (7), (9),
(10). and (11), and (i), and from the provisions of this section, except
as otherwise provided in 5 U.S.C. 552aO)(2):
Office of Inspector General Investigative Files-FTC
~ )
(2) Pursuant to 5 U.S.C. 552a(k)(2), investigatory materials
compiled for law enforcement purposes in the following systems of
records are exempt from subsections (c)(3), (d), (e)(1), (e)(4)(G), (H),
and (I), and (f) of 5 U.S.C. 552a, and from the provisions of this
section, except as otherwise provided in 5 U.S.C. 552a(k)(2):
Investigational, Legal, and Public Records-FTC

Disciplinary Action Investigatory Files-FTC
Clearance to Participate Applications and the Commission's Responses
Thereto, and Related Documents-FTC
Management Information System.....FTC
Office of the Secretary Control and Reporting System-FTC
Office of Inspector General Investigative Files-FTC
Stenographic Reporting Service Requests-FTC
Identity Theft Complaint Management System-FTC
Freedom of Information Act Requests and Appeals-FTC
Privacy Act Requests and Appeals-FTC
Information Retrieval and Indexing System-FTC
(3) Pursuant to 5 U.S.C. 552a(k)(5), investigatory materials

compiled to determine suitability, eligibility, or qualifications for
Federal civilian employment, military service, Federal contracts, or
access to classified information, but only where disclosure would reveal
the identity of a confidential source of information, in the following
systems of records are exempt from subsections (c)(3), (d), (e)(1),
(e)(4) (G), (H), and (I), and (f) of 5 U.S.C. 552a, and from the
provisions of this section, except as otherwise provided in 5 U.S.C.
552a(k)(5):
Personnel Security File-FTC
[40 FR 40780, Sept. 3, 1975, as amended at 46 FR 26292, May 12,1981; 48

FR4280, Jan. 31,1983; 55 FR 37700, Sept. 13, 1990; 55 FR 38801, Sept.
21, 1990; 57 FR 10808, Mar. 31, 1992; 58 FR 7047, Feb. 4,1993; 63 FR
45648, Aug. 26, 1998; 64 FR 3014, Jan. 20,1999; 64 FR 69397, Dec. 13,
1999; 66 FR 64144, Dec. 12,2001; 67 FR 123, Jan. 2, 20021
-
SUBCHAPTER A-FINANCIAL MANAGEMENT SERVICE
PART 202-DEPOSITARIES AND FI- (2) Credit unions insured by the Na-
NANCIAL AGENTS OF THE FED- tional Credit Union Administration.
ERAL GOVERNMENT' (3) Banks. savings banks. savings and
loan. building and loan. and homestead
Sec. associations. credit unions created
202.1 Scope of regulations. under the laws of any State. the depos-
202.2 Designations. its or accounts of which are insured by
202.3 Authorization. a State or agency thereof or by a cor-
202.4 Agreement of deposit. poration chartered by a State for the
202.5 Previous~y designated depositaries.
202.6 Collateral security. sole purpose of insuring deposits or ac-
202.7 Maintenance of balances within au- counts of such financial institutions.
thorizations. United States branches of foreign
AurnORITY: 12 U.S.C. 90, 265-266, 391, banking corporations authorized by the
1452(d). 1464(1<). 1789a, 2013. 2122 and 3101-3102; State in which they are located to
31 U.S.C. 3303 and 3336. transact commercial banking business.
and Federal branches of foreign bank-
§ 202.1 Scope of regulations. ing corporations. the establishment of
The regulations in this part govern whJch has been appToved by the Comp-
the designation of Depositaries and Fi- troller of the Currency.
nancial Agents of the Federal Govern- (b) In order to be eligible for designa-
ment (hereinafter referred to as deposi- tion. a financial institution is required
taries). and their authorization to ac- to possess. under its charter and the
cept deposits of public money and to regulations issued by its chartering au-
perform other services as may be re- thority. either general or specific au-
quired of them. Public money includes, thority to perform the services. out-
but is not limited to. revenue and funds lined in §202.3(M. A financial institu-
of the United States. and any funds the tion is reqUired also to possess the au-
deposit of which is subject to the con- thority to pledge collateral to secure
trol or regulation of the United States public funds.
or any of its officers, agents. or em-
ployees. The designation and author- tU FR S3OOe. Sept. n, 1~7~, as amended at <i\\
ization of Treasury Tax and Loan de- FR 28152. May 26. 1981; 62 FR 45521, Aug. 27,
1997)
positaries for the receipt of deposits
representing Federal taxes are gov- § 202.3 Authorization.
erned by the regulations in part 203 of
this chapter. (a) To accept deposits covered by the
appropriate Federal or State insurer.
[62 FR 45520. Aug. 27, 1997]
Every depositary is authorized to ac-
§ 2¥>2.2 .Designations. cept a deposit of public money in an of-
ficial account. other than an account
(a) Financial institutions of the fol- in the name of the United States
lowing classes are designated as De- Treasury. in which the maximum bal-
positaries and Financial Agents of the ance does not exceed the . 'Recognized
Government if they meet the eligi- Insurance Coverage." "Recognized In-
bility requirements stated in para- surance Coverage" means the insur-
graph (b) of this section: ance provided by the Federal Deposit
":'JL (1) Financial institutions insured by Insurance Corporation, the National
7J"\.the Federal Deposit Insurance Corpora- Credit Union Administration, and by
tion. insurance organizations specifically
qualified by the Secretary of the Treas-
I The regulations, which preViously ap- ury.
peared In this part. governing payment of
checks drawn on the United States Treasury b) To perform other services. (1) The
now appear in revised form in part 240 of this Secretary of the Treasury may author-
chapter (Department Circular 21 (Second Re- ize a depositary to perform other serv-
vision». . ices including. but not limited to:
9
§202.4 31 CFR Ch. II (7-1-03 Edition)
(i) The maintenance of official ac- ~rmative action to employ and ad-
counts in which balances will be in ex- vance in employment qualified special
cess of the applicable Federal or State disabled and Vietnam Era veterans.
insurance coverage; [44-FR 53067, Sept. 11. 1979. as amended at 62
(il) The maintenance of accounts in FR45521. Aug. 27, 1997]
the name of the United States Treas-
.J...-ury; § ~.5 Previously designated deposi·
J (iii) The acceptance of deposits for taries. --
~ ~ : kcredit of the United States Treasury; A depoSitary preViously designated
-/ (iv) The furnishing of bank drafts in will. by the acceptance or retention of
exchange for collections. deposits. be presumed to have assented
Jy (2) To obtain authoriZation to per- to all the terms and provisions of this
"1 form services. a depositary must: part and to the retention of collateral
(i) File with the Secretary of the
security theretofore pledged.
Treasury an appropriate agreement
and resolution of its board of directors [32 FR 14215. Oct. 13. 1967]
authorizing the agreement (both on
forms prescribed by the Financial Man- § 202.6 Collateral security.
agement Service and available from (a) Requirement. Prior to receiving de-
Federal Reserve Banks). and posits of public money. a depositary
,ll..- (ii) Pledge coilateral security as pro- authorized to perform services under
7f'" vided for in §202.6. § 202.3(b) must pledge collateral secu-
[32 FR 14215. Oct. 13. 1967. as amended at 44 rity in the amount required by the Sec-
FR 53066, Sept. It, 1919; 49 FR 41001, Nov. 30. retary of the Treasury.
1984; 62 FR 45521. Aug. 27. 1997) (b) Acceptable sec!ld(Y. Types and ~
valuations of acceptable collateral se- 7f
curity are addressed in1LffR part 380.
For a current list of acceptable classes
of securities and instruments described
in 31 CFR part 380 and their valuations.
see the Bureau of the Public Debt's web
site at www.publicdebt.treas.gov.
(c) Deposits of securities. Unless the
Secretary of the Treasury provides oth-
erwise. collateral- security under this
part must be deposited with the Fed-
eral Reserve Bank or Branch of the dis-
trict in which the depOSitary is located
(depositaries located in Puerto Rico
and the Virgin Islands will be consid-
ered as being located in the New York
Federal Reserve district). or with a
custodian or custodians within the
United States designated by the Fed-
eral Reserve Bank. under terms and
conditions prescribed by the Federal
Reserve Bank. Securities deposited
with a Federal Reserve Bank must be
accompanied by a letter stating spe-
cifically the purpose for which the se-
curities are being deposited.
(d) Assignment. A depoSitory that
pledges securities which are not nego-
tiable without its endorsement or as-
signment may. in lieu of placing its un"
qualified endorsement on each secu-
rity. furnish an appropriate resolution
and irrevocable power of attorney au-
thorizing the Federal Reserve Bank to
10
~C\"UVII
-
"I [code of Federal Regulations]
[Title 31, volume 2J
[Revised as of July 1, 2003]
-
[CITE: 31CFR380.0]
[page 498]
TITLE 31--MONEY AND FINANCE: TREASURY
CHAPTER II--FISCAL SERVICE, DEPARTMENT OF THE TREASURY
PART 380--COLLATERAL ACCEPTABILITY AND VALUATION--Table of contents
subpart A--General Information
Sec. 380.0 what do these regulations govern?
The regulations in this part govern the types of acceptable

collateral that ¥ou may pledge to secure deposits of public monies and
other financial lnterests of the Federal Government, as well as the
valuation of that collateral. specifically, the regulations in this part
apply to the programs governed by the Department of the Treasury's
regulations at 31 CFR part 202 (Depositaries and Financial Agents of the
Government), 31 CFR part 203 (payment of Federal Taxes and the Treasury
Tax and Loan program)l and 31 CFR part 225 (Acceptance of Bonds secured
by Government obligatlons in Lieu of Bonds with sureties). The
regulations in this part apply only to the acceptability and valuation
of collateral that may be pledged under these programs. 31 CFR parts
202, 203, and 225 continue to govern the respective programs themselves.
)
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM

WASHINGTON, D. C. 20551
DIVISION OF BANKING
SlIPER\I1SIOH AND REGULATION
SR 97-11 (APP)
April 24, 1997
TO THE OFFICER IN CHARGE OF SUPERVISION

AT EACH FEDERAL RESERVE BANK
SUBJECT: Procedures for Making Regulatory Filings Available to Requesters
On February 19, 1997, the Board approved a substantial revision to

Regulation Y,1 which provides for streamlined procedures for review of certain
applications and notices, The new procedures went into effect on April 21, 1997.
Under the new procedures, the Board will provide expedited notice of
certain regulatory filings that are subject to public commenf ("regulatory filings")
through a new publication, the H.2A, which will supplement the H.2 publication. The
H.2A will announce applications and notices at the earlier of the time a request to
publish the Federal Register notice is received or a regulatory filing is submitted to the
System. It will be available through a fax-on-demand facility at the Board, on the
Internet, and through the mail. The H.2A will be updated at least every three business.
days, and it is intended to give commenters earlier notice than the H.2 publication
provides.
As part of the revision to Regulation Y, the Board also stated that it will
make regulatory filings more quickly available to the public. Specifically, the System
expects to make the public portion of regulatory filings, as well as other related filings
required by the Board, availableforequesters within three business days of receipt of
such a request. Effective April 21, 1997, therefore, PUblic portions of regulatory filiRg§:i
alreildy, receivedby<theSystem. areto:,be'madeavailableta thepublicbn request as
sooniaspassible', and; in any eventiwithinthreebusiness days after receipt aUh,e
162 Federal Register 9290 (February 28, 1997).
2Regulatory filings subject ta public comment under Regulation Y include: all sectian
3 applications, except certain reorganizations filed pursuant to sectian 225.17 of
Regulation Y; all change in bank control notices (section 225.41); and all section 4
notices, except for those qualifying far 10 day post notice (sectian 225.22) or 12 day
expedited processing (sectian 225.23).
-
request by the System. If a Reserve Bank receives a written request for a regulatory
filing before any such filing has been made, the request should be retained by the
-
Reserve Bank for as long as the Reserve Bank has reason to believe that a filing is
forthcoming. These requests should then be filled within three business days of receipt
by the System of the regulatory filing. Ordinarily, at a minimum the public portion of a
filing includes: the certification (in the case of a notice under the streamlined
procedures), the description of the transaction and the parties, the description of the
effect of the proposal on the convenience and needs of the community to be served,
and evidence of newspaper publication (if applicable).
Inasmuch as the regulatory filings are, and will continue to be, received at
the Reserve Banks before they are received at the Board, Reserve Bank cooperation is
essential to meeting the Board's goals. As indicated above, when a regulatory filing is
submitted, the public portion is to be made available to the public on request, including
at the Reserve Banks, within three business days of receipt of the request by the
System. However, because not all' requests for regulatory filil'l~' are filed with Reserv_
Banlts;it will also ,now be necessary to ensure that the Board's Freedom oflnfurmation
Office ("FOIA Office") has a copy of these regulatory filings, so that it, tao, will be abta
JO provide a copy of the regulatory filing within three business days-of receiptofthe'~:
r~quest by the System. It will, therefore, now be necessary for two copies of the filing
(with the public portion appropriately designated) to be fOrvvarded'tE>thEfBdard'~
Clearitrgi,Un'ifimmediatelyl'upotfreceipt oJ thaReserve BamkSt The Clearing Unit will
then forward one copy to the Board's FOIA Office and one copy to the Board's Records
Section. 3
It is recognized that, in order to meet the deadline, Reserve Banks may

need to provide the public portion of a filing to a requester before a review of the filing
has been completed to determine whether the submitter has misidentified information
as public that could have been withheld under applicable law. It also is possible that a
submitter may claim confidential status for information that cannot be withheld under
applicable law. If Reserve Bank staff believes that an applicant has misclassified
information as public or confidential, Reserve Bank staff should attempt to resolve the
issue in discussions with the applicant Information initially withheld but subsequently
determined to be public should be provided immediately to all persons who requested a
copy of the application. The amount of misclassified information, and when the public
information was provided to the requester, should be noted and will be considered by
the Secretary of the Board in determining whether and to what extent to grant requests
for extensions of the public comment period for a regulatory filing.
•,If ~ R~ervel3ank'receivesa:requestfar.battl'tI1eLpublf~:aC\l~CQnfi~emtiak', >
portion of a regulatoryfilingr;the:ReseftV&Bankshould'providethfifpubficportiofi'rJ:to;,thej
3Reserve Banks are also to continue to forward two copies of all other regulatory
filings immediately upon receipt to the Board's Clearing Unit.
-2-
Jeq!J~~tEtr~l'ldin1l11ediateJ~forwt;U'd ttl7.rerQld.:_~~~
;,;!3pard!s FOIAOffice for ptacessfn~/ "
If the Board receives a request for a regulatory filing before the filing has
been received at the Board but after it has been received at the Reserve Bank, the
request will be forwarded to the appropriate Reserve Bank. Telephone requesters will
immediately be transferred to the contact person named on the H.2A for the Reserve
Bank, and written requests will be faxed to the contact person at the Reserve Bank the
day they are received in the FOIA Office.
Reserve Banks also are requested to keep track of when requests for
regulatory filings are made and when they are filled.
If there are any questions regarding this letter, please contact

Pamela G. Nardolilli, Senior Attorney (2021452-3289),. or John A. Soboeiro, Attorney
(2021452-3838), of the Legal Division, or John S. Russell, Manager (2021452-2466), of
the Division of Banking Supervision and Regulation.
Richard Spillenkothen
Director
Cross Reference: Manual on Procedures for Processing Applications and

Notifications for Bank Holding Companies and State Member
Banks
-3-
5 USCA § 552, Public infonnation; agency rules, opinions, orders, records, and proceedings Pagel
-
"35727 Tax Court was not an "agency" for purposes of
this section such as to require it to disclose requested
information. Ostheimer v. Chumbley, D.C.Mont.l980, 498
F.Supp. 890, affirmed 746 F2d 1487.
The Freedom of Information Act (FOrA) applies to every
agency in the federal government, including the Immigration
and Natu:ralization Service emS).
SD.FJa.1998, 32 F.Supp.2d 1337.
Campos v. I.N.S., -
47. - Federal Home Loan Mortgage Corporation 50. - Municipalities
"-_-"!:;>. Federal Home Loan Mortgage COIporation was "agency", Freedom of Information Act does not apply to municipal
subject to disclosure and reporting requiremenm of t1:Jis carporaOOns. R.mke1 v. Town of G=:n~
section. Rocap v. Indiek, C.A.D.C.I 976, 539 F.2d 174, 176 SD.N.Y.1987, 117 FRD. 50.
U.SAppD.C. 172.
51. - National Academy of Sciences
48. - Food and Drug Administration
National Academy of Sciences is not an "agency" within
Pertinent records of the Food and Drug Administration this section. Lombardo v. Handler, t>.CD.C.I975. 397
may be sul:ject to the prmisions of this section and to the F.Supp. 792, affirmed 546 F2d 1043, 178 U.S.App.D.C.
277, certiorari denied 97 S.Ct. 2639, 431 U.S. 932. 53
reguIations pertaining to official records and information of
L.Ed.2d 248.
the Department of Health, Education, and Welfare. Apicella
v. McNeil Laboratories., Inc., ED.N.YJ 975,66 F.RD. 78.
52. - National Security Council
49. - Grantees Although structure of National Security Council (NSC) is

self-contained and proximate to the President, NSC staff
Federal participation in the generation of data by a exercise no substantial authority either to make or to
privately controlled organization by means of a grant from implement policy and, thus, NSC was not an "agency"
Department of Housing and Urban Development does not subject to disclosure requirements ofFreedom ofInformation
make the private organization a federal "agency" V\lifuin termS Act (FOlA) and obligated to preserve its records in
of this section. Forsham v. Harris, U.SDist.Co11980, 100 accordance with Federal Records Act (FRA). Armstrong v.
S.Ct. 977,445 U.S. 169,63 L.Ed2d293. Executive Office of the President, C.A.D.C.1996, 90 F.3d
553, 319 U.S.App.D.C. 330. rehearing and suggestion for
49A - Immigration and Naturalization Service rehearing in bane denied, certiorari denied 117 S.Ct. 1842,
520 U.S. 1239, 137 L.Ed2d 1046.
FROl1 : FAX NO. Jul. 15 2BB3 e1:19PM Pi
------ - -'._-'-'- .--" ..~------"
Two Galk:ria '1'o'Rr
~FannieMae
l~SS Nod Iolul
SUite 600
Da1bs. TX 7'~5003
mm466~
May 19. 1999
RE: Single family mortgage loan being loan • JI II iated 30 Septen;1ber 1987
~~andLoanAssociaOOnand_.
•. . .•. based from Sterling by Federal Home Loan Mortgage
Corp. 29 December 1987
We are in receipt of your letter dated April ~ 1999 which was addressed to Mr.
Frank Raines. Mr. Raines is CEO of Federal National Mortgage Association ("Famrle
Mae and is not associated with Federal Home Loan Mortgage Corp: ("Freddie
lt
)
Mac"). A review of ow: files 00es not show Fannie Mac to be the owner of tile subject
loan. We have sent a copy of your letter to Fleet Mortgage Group. 11200 W. Parkland
Avenue. Milwaukee. WI 53224 who appears to be the servicer for Freddie Mac.
LCY/ncm
.... ...
'
t.age "lOT 1 U
-
MAIN MENU: fraud Awaren€;s
:.<!: " ~
~: ' "_Y"",:~ 1< __ ;~~. ~ . . . . ._ ":-""~ <'_~
)7~""''>''''' .. ~, ~ ~"""""'''''''''''''''''''''~~''''~~ ~
FIND REGULATOR
;t ',~ - >;;,' ,," ,'~ ~', ~: ~

NASAA MEMBER REPRESENTATIVE UST
Qverview
Corporate Office
Board of Directo!l
Find R~lator Alabama North Dakota
Securities Commission Securities Commission
Project GrQYRi
770 Washington Avenue 600 East Boulevard
Top Stories Suite 570 State Capitol, 5th Floor
Archived Top Stories Montgomery, Al36130-4700 Bismarck, ND 58505-0510
(334) 242-2984 (BOO) 222~1253 (701) 328-2910
Events ClIlendar
(334) 242-0240 (Fax) (701) 255-3113 (Fax)
NASAA's 87th Annual
[email protected] [email protected]
Conferencg
www.asc.state.al.us/ www.state....o d.us/securities
NASAA Member Websites
Related Links
Joseph P. Borg, Esq. Karen Tyler
Internet SJles Directory Director Commissioner
NA,SAA Website (334) 242-2386 (701) 328-4702
Su bscriptj91Lyg [email protected] (701) 328-0125 (Fax)
[email protected]
Alaska
Dept. of Community and Economic Dev. Ohio
Div. of Banking, Securities & Corporations Division of Securities
State Office Building 77 South High Street
150 Third Street, Room 217 22nd Floor
Juneau, AK 99811-0807 Columbus, OH 43215
(614) 644-7381
Make an Inve$1rnent-Re!ated P.O. Box 110807 (614) 466-3316 (Fax)
COlllplaint »> Juneau, AK 99811-0807 www.securities.state.oh.us
(907) 465-2521
(907) 465-2549 (Fax) . Debbie Dye Joyce
www.dced.state.ak.us/bsc/secur.htm Commissioner
(614) 644-7435
Vincent Usera [email protected]
Acting Director
vince [email protected] Oklahoma
Department of Securities
Arizona 1st National Center, Suite 860
Corporation Commission 120 N. Robinson
Securities Division Oklahoma City, OK 73102
1300 West Washington Street (405) 280-7700
Third Floor (405) 280-7742 (Fax)
Phoenix, AZ 85007 [email protected],ok.us
(602) 542-4242 www.securities.state.ok.us/
(602) 594-7470 (Fax)
[email protected] Irving Faught
www.ccsd.cc.state.az.us/ Administrator
) (405) 280-7706
lif.@ secu ri.ties ..$.t..Ctl:e .0 k .!J.$.
page LOt 10
Matthew ,J. Neubert Oregon

Director Department of Consumer & Business Se
(602) 542-0605 Div. of Finance & Corp. Securities
(602) 594-7451 (Fax) 350 Winter Street, NE
[email protected] Room 410
Salem, OR 97301-3881
Arkansas (503) 378-4387
Securities Department (503) 947-7862 (Fax)
Heritage West Building www.cbs~ate.or.us/externqILdfcs
201 East Markham, Room 300

Uttle Rock, AR 72201-1692 Royd Lanter
(501) 324-9260 Division Administrator
(501) 324-9268 (Fax) [email protected]
grsec_@-':~Qn.net
www.state.ar.uslarsecl Pennsylvania
Securities Commission
Michael Johnson Eastgate Office Building
Securities Commissioner 1010 North 7th Street, 2nd Roar
[email protected] Harrisburg, PA 17102-1410
(717) 787-8061
California (717) 783-5122 (Fax)
Department of Corporations www.psc.state.pa.us
1515 K Street
Suite 200 Robert M. Lam
Sacramento, CA 95814 Chairman
(916) 445-7205 (717) 787-6828
www.corp.ca.gov
Puerto Rico
William P. Wood Commission of Financial Institutions
California Corporations Commissioner 1492 Ponce de Leon Avenue
(916) 324-9011 Suite 600
San Juan, PR 00907
TImothy l. le Bas
Assistant Commissioner &. General Counsel Fernandez Juncos Station
Office of Law & Legislation P.O. Box 11855
San Juan, PR 00910-3855
Colorado (787) 723-3131
Division of Securities (787) 723-4225 (Fax)
1580 Uncoln Street http://WWW-'C5;;tt..gQy,.m:Lhtm !i-ill es_s~ge~lJ1r
Suite 420
Denver, CO 80203 Felipe B. Cruz, Esq.
(303) 894-2320 Assistant Commissioner
(303) 861-2126 (Fax) (787) 723-3131 ext. 2222
www.dora.state.co.us/securities [email protected]
Fred J. Joseph Rhode Island

Securities Commissioner Department of Business Regulation
[email protected] 233 Richmond Street
Suite 232
Connecticut PrOVidence, RI 02903-4232
Department of Banking (401) 222-3048
260 Constitution Plaza (401) 222-5629 (Fax)
Hartford, cr 06103-1800 [email protected]
(860) 240-8230 www.dbr.state.rLus
(860) 240-8295 (Fax)
r dyt:: .;, VI IU
-
Maria D'Alessandro Piccirilli
.-.
www.state.et.us/dob/pages/seCdiv.htm
Associate Director &. Superintendent of,
Ralph A. Lambiase [email protected]
Director of Securities
(860) 240-8231
[email protected] South Carolina
Office of the Attorney General
Delaware Securities Division
Department of Justice Rembert C. Dennis Office Building
Division of Securities 1000 Assembly Street
Carvel State Office Building Columbia, SC 29201
820 North French Street, 5th Fl.
Wilmington, DE 19801 P.O. Box. 11549
(302) 577-8424 Columbia, SC 29211-1549
(302) 577-6987 (Fax) (803) 734-4731
!U'[email protected] (803) 734-0032 (Fax)
www.state.de.us/securities/index.htm [email protected]
www.scsecurities.com...L
James B. Ropp
Securities Commissioner T. Stephen Lynch
(302) 577-8925 Deputy Securities Commissioner
~Jl«Dstate.de.us 5Iyncl:[email protected]
District of Columbia South Dakota

Department of Insurance &. Dept. of Revenue and Regulation
Securities Regulation Division of Securities
Securities Bureau 118 West Capitol Avenue
810 First Street, NE Pierre, SD 57501-2000
Suite 622 (605) 773-4823
Washington, DC 20002 (605) 773-5953 (Fax)
(202) 727-8000 s~qJritlg?-@crR[J.. state.,-~_d......Ys
(202) 535-1199 (Fax) www~tate.sg.us/~sI~~curi.ties/securlty,
www.disr.washingtondc.gov
Gail Sheppick
Theodore A. Miles Director
Director, Securities Bureau [email protected]
(202) 442-7800
[email protected] Tennessee
Department of Commerce &. Insurance
Florida Securities Division
Office of Rnancial Regulation Davy Crockett Tower, Suite 680
101 East Gaines Street 500 James Robertson Parkway
Plaza level, The Capjtol NashvjJ)e, TN 37243-0575
Tallahassee, FL 32399-0350 (615) 741-2947
(850) 410-9256 (615) 532-8375 (Fax)
www.dbf.state.f1.us/licensing http://www.state.tn.us/commerce/secul
Don Saxon Daphne D. Smith

Director Assistant Commissioner for Securities
[email protected]
Texas
Georgia State Securities Board
Office of the Secretary of State 208 East 10th Street
Division of Business Services and Regulation 5th Floor
Two Martin Luther King, Jr. Drive SE Austin, TX 78701
t"'age QOT "IU
802 West Tower P.O. Box 13167

Atlanta, GA 30334 Austin, TX 78711-3167
(404) 656-3920 (512) 305-8300
(404) 651-6451 (Fax) (512) 305-8310 (Fax)
www.sos.state.ga.us/securities/ www.ssb.state.tx.us/
Wayne Howe\! Denise Voigt Crawford

Director, Division of Securities Securities Commissioner
[email protected] (512) 305-8306
(512) 305-8336 (Fax)
Hawaii [email protected]
Department of Commerce &. Consumer Affairs
Division of Business Registration Utah
1010 Richards Street Department of Commerce
2nd Floor Division of Securities
Honolulu, HI 96813 160 East 300 South
2nd Floor
P.O. Box 40 Salt Lake City, UT 84111
Honolulu, HI 96810
(808) 586-2744 P.O. Box 146760
(808) 586-2733 (Fax) Salt Lake City, UT 84114-6760
http://www.hawaii.9Q..v/dcca/breg::seu/ (801) 530-6600
(801) 530-6980 (Fax)
Ryan S. Ushijima [email protected]
Commissioner of Securities www.securities.utah.gov
rushijj~dcca.stat~ .hi._us
S. Anthony Taggart
Idaho Director
Department of Finance (801) 530-6606
700 West State Street2nd Floor [email protected]
Boise, ID 83720
Vermont
P.O. Box 83720 Department of Banking, Insurance, Secl
Boise, ID 83720-0031 Care
(208) 332-8004 Administration
(208) 332-8099 (Fax) 89 Main Street
www.state.id.us./fioaoce/sec.htm Drawer 20
Montpelier, VT 05620-3101
(802) 828-3420
Marilyn T. Chastain
(802) 828-2896 (Fax)
Securities Bureau Chief
www.bishca.state.vt.us/
[email protected]
Phillips Keller
Illinois Deputy Commissioner of Securities
Office of the Secretary of State pkeller@ bishca.state.vt.us
Securities Department
520 South Second Street
Suite 200 Uncoln Tower Virginia
Springfield, IL 62701 State Corporation Commission
(217) 782-2256 (800) 628-7937 Division of Securities & Retail Franchisin
(217) 524-2172 (Fax) 1300 East Main Street
http://www.cyberdriveillinois.com/ 9th Floor
departments/securities/ Richmond, VA 23219
Tanya Solov P.O. Box 1197

Director of Securities Richmond, VA. 23218
69 West Washington (804) 371-9051
......VT".V..".\ I"'age bot 1U _
12th Roor, Suite 1220

Chicago, IL 60602
(804) 371-9911 (Fax)
www.state.va .u~sCC/divisionl
-
(312) 793-3384 srf/webpages/homepage .htm
(312) 793-1202 (Fax)
[email protected] Ronald W. Thomas
Director
Indiana (804) 371-9006
Office of the Secretary of State [email protected]
Securities Division
302 West Washington Washington
Room E-l11 Department of Financial Institutions
Indianapolis, IN 46204 Securities Division
(317) 232-6681 150 Israel Road, SW
(317) 233-3675 (Fax) Olympia, WA 98501
http://www.in.gov/sos/securities/index.html
P.O. Box 9033
James Joven Olympia, WA 98507-9033
Securities Commissioner (360) 902-8760
[email protected] (360) 586-5068 (Fax)
www.dfi.wa.gov/sd
Iowa
Insurance Division Deborah R. Bortner
Securities Bureau Director of Securities
340 E. Maple Street (360) 902-8797
Des Moines, IA 50319-0066 (360) 704-6997 (Fax)
(515) 281-4441 dl:1Qrtner(rodfi. wa. gov
(515) 281-3059 (Fax)
www.iid.state.ia.us!Division/Securities
West Virginia
Office of the State Auditor
Craig A. Goettsch Securities Division
Superintendent of Securities Building 1
[email protected] Room W-l00
Charleston, WV 25305-0230
Kansas (304) 558-2257(877) 982-9148
Office of the Securities Commissioner (304) 558-4211 (Fax)
618 South Kansas Avenue [email protected]
Topeka, KS 66603-3804 www.wvauditor.com/
(785) 296-3307
(785) 296-6872 (Fax) Chester F. Thompson
~~-Y.fit~~@se~uritie~-st-itte.lg;.us Deputy Commissioner of Securities
!lttp-liL'.'LWw. S_~cu[jties.state. ks.us [email protected]
Chris Biggs Wisconsin

Commissioner Department of Financial Institutions
[email protected] Division of Securities
345 W. Washington Avenue
Kentucky 4th Floor
Department of Financial Institutions Madison, WI 53703
1025 Capital Center Drive
Suite 200 P.O. Box 1768
Frankfort, KY 40601 Madison, WI 53701-1768
(502) 573-3390 (800) 223-2579 (608) 266-1064
(502) 573-8787 (Fax) (608) 264-7979 (Fax)
http://dfi.ky.gov! \NWW. wdfi .or~ecuritl~§L
Colleen Keefe Patricia D. Struck

~age \:) OT lU
Director of Securities Administrator

(502) 573-2182 (Fax) (608) 266-3432
[email protected] [email protected]
Louisiana Wyoming
Securities Commission Secretary of State
Office of Rnancial Institutions Securities Division
3445 N Causeway Blvd State Capitol, Room 109
Ste 509 200 W. 24th Street
Metairie, LA 70002 Cheyenne, WY 82002-0020
(504) 846-6970 (307) 777-7370
(504) 846-6971 (Fax) (307) 777-5339 (Fax)
www.ofi.state.la.us/securit.htm ~.!'[email protected]~
t!~os_'t!'~tate."'l"DJds/securitilsecuril
Harry C. Stansbury
Deputy Securities Commissioner Thomas Cowan
[email protected] Division Director
(307) 777-5348
Maine [email protected]
Office of Securities
121 State House Station Canada
Augusta, ME 04333 Alberta
(207) 624-8551 Securities Commission
(207) 624-8590 (Fax) Suite 400, 300 - 5th Avenue S. W•
.!:1.ttQ:/Iwww.state. me. us/pfrlseclsec index.htm Calgary, AB T2P 3C4
Canada
Christine A. Bruenn (403) 297-6454
Securities Administrator (403) 297-6156 (Fax)
(207) 624-8555 '!!1Y1W.albertasecurities.com/aschome.htr
[email protected]
Stephen Sibold, Q.C.
Maryland Chair
Office of the Attorney General (403) 297-6454
Division of Securities [email protected]
200 Saint Paul Place
Baltimore, MD 21202-2020 British Columbia
(410) 576-6360 Sec.urities Commission
(410) 576-6532 (Fax) P.O. Box 10142, Pacific Centre
[email protected] 701 West Georgia Street
WW~Qi!Q..J;tgJ;g.., md. YJil Vancouver, BC V7Y 112
securiti~1.index.htm Canada
(604) 899-6500
Melanie Senter Lubin (604) 899-6506 (Fax)
Securities Commissioner [email protected]
(410) 576-6365 www-,..IJ~s_~bc.ca
[email protected]. u~
Adrienne Salvail-Lopez
Massachusetts Commissioner
Securities Division (604) 899-6536
One Ashburton Place [email protected]
Room 1701
Boston, MA 02108 Manitoba
(617) 727-3548 Sec.urities Commission
(617) 248-0177 (Fax) 1130-405 Broadway
www.state.ma.us/sec/sct/sctidx.htm Winnipeg, MB R3C 3L6
Canada
t"ClY'=' I UT I U
-
Matthew J. Nestor
First Deputy Secretary of the Commonwealth
(204) 945-2548
(204) 945-0330 (Fax)
-
(517) 727-7774 secu rities(Q)cca .gov.mb. ca
[email protected] www.. m_~~..1..mb.ca/
Michigan Donald G. Murray

Conduct Review &. Securities Division Chairman
Office of Finandal&. Insurance Services (204) 945-2551
Department of Labor &. Economic Growth [email protected]
611 West Ottawa St, Third Floor
Lansing, MI 48933 New Brunswick
Department of Jusace
P.O. Box 30701 Securities Administration Branch
Lansing, MI 48909-8201 133 Prince William Street, Suite 606
(877)999-6442 St. John, NB E2l 4Y9 ..
(517)241-3953 (Fax) Canada
[email protected]
www.michigan.gov/ofts
P.O. Box 5001
Unda A. Watters St. John, NB E2l4Y9
Commissioner canada
Office of Financial &. Insurance Services (506) 658-3060
(506) 658-3059 (Fax)
www.gov.nb.ca/justice!
Minnesota
Department of Commerce Donne W. Smith
85 East 7th Place Administrator
Suite 500 (506) 658-3114
Saint Paul, MN 55101 [email protected]
(651) 296-4026
(651) 296-4328 (Fax) Newfoundland
[email protected] Department of Government Services & l
httR:llwww.st~te.mn.us Securities Commission
2nd Floor, West Block
Scott P. Borchert Confederation Building
Director, Enforcement Division St. John's, NF AlB 4J6
(651) 296-9431 canada
[email protected]
P.O. Box 8700
Mississippi St. John's, NF AlB 4J6
Office of the Secretary of State Canada
Business Regulation &. Enforcement Division (709) 729-4189
202 North Congress Street (709) 729-6187 (Fax)
www.gov.nf.~cca/s!default.stm
Jackson, MS 39201
P.O. Box 136
Jackson, MS 39205-0136 Anthony W. Patey
(601) 359-6371 Director of Securities
WWW.sos.state.ms.us
Northwest Territories
James O. Ne~son, II Securities Registry
Assistant Secretary of State Department of Justice
Business Regulation &. Securities Division 1st Roar Stuart M. Hodgson Building
(601) 359-6747 5009 - 49th Street
[email protected] Yellowknife, NT X1A 219
canada
Missouri
rCiY~ 0 UI IV
Office of the Secretary of State Box 1320

600 West Main Street Yellowknife, NT XlA 2L9
Jefferson City, MO 65101 Canada
(573) 751-4136 (867) 873-7490
(573) 526-3124 (Fax) (867) 873-0243 (Fax)
httQ..;1Lwww.sos.mo.gov/securitiesl www.gov.nt.ca/
Douglas M. Ommen Tony Wong

Securities Commissioner Registrar of Securities
(573) 751-4704 tony wOfl~9ovt.nt.ca
ommend(cj)sosmail.state.mo.u5
Nova Scotia
Montana Securities Commission
Office of the State Auditor 1690 Hollis Street
Seculities Department 2nd Aoor, Joseph Howe Building
840 Helena Avenue Halifax, NS B3J 3J9
Helena, MT 59604 Canada
P.O. Box 4009 P.O. Box 458

Helena, MT 59604 Halifax, NS B3J 2P8
(406) 444-2040 Canada
(406) 444-5558 (Fax) (902) 424-7768
http;//www.stat~mt.us (902) 424-4625 (Fax)
hiscocb!:@QQ..v.ns.ca
John Morrison '!Jww .gov.ns.ca/nssc
Securities Commissioner
jmorrison@stat~.mt-!l~ Mr. H. Leslie O'Brien
Vice-Chair
Nebraska [email protected]
Department of Banking & Finance
Bureau of Securities Nunavut
1200 N Street Department of Justice
Suite 311 Legal Registries Division
Uncoln, NE 68508 P.O. Box 1000 - Station 570
1st Roor, Brown Building
P.O. Box 95006 Iqaluit, NU XOA OHO
Uncoln, NE 68509-5006 Canada
(402) 471-3445 (867) 975-6190
nttp:/lww.ndbf.org/;tec.htm (867) 975-6194 (Fax)
www.gov.nu.ca
Jack E. Herstein
Assistant Director Gary Crowe
jackhrcDbkg.state.ne.us Registrar of Securities
gcrowe~9..ov.nu. ca
Nevada
Secretary of State Ontario
Securities Division Securities Commission
555 East Washington Avenue 20 Queen Street West, Suite 1900
5th Floor, Suite 5200 Box 55
Las Vegas, NV 89101 Toronto, ON M5H 3S8
(702) 486-2440 Canada
(702) 486-2452 (Fax) (416) 593-8200
[email protected]§ (416) 593-8241 (Fax)
'!!.'!fW .sqs.stfl.1e.nv.us/securiti§L www.osc.gov.on.ca
Charles Moore David Brown

J-Iage ~ or lU _
Securities Administrator Chair

[email protected]
Prince Edward Island
New Hampshire Office of the Attorney General
Bureau of Securities Regulation 95 Rochford Street
State House Annex 4th Floor, Shaw Building
Suite 317A 3rd Floor Charlottetown, PE C1A 7NB
Concord, NH 03301 Canada
(603) 271-1463 (902) 368-4552
(603) 271-7933 (Fax) (902) 368-5283 (Fax)
http://webster.state.nh.us/ www.gov.pe.ca/caag/ccaid-info/index.pt
sos/securitiesl
Edison Shea
Mark Connolly Registrar of Securities
Deputy Secretary of State Canada
Director of Securities Regulation (902) 368-4551
[email protected] ejsheaCmgov .pe. ca
New Jersey Quebec

Department of Law & Public Safety Commission des valeurs mobilieres du Q
Bureau of Securities 800 Square Victoria, 22nd Roor
153 Halsey Street Stock Exchange Tower
6th Floor Montreal, PQ H4Z 1G3
Newark, NJ 07102 Canada
P.O. Box 47029 P.O. Box 246

Newark, NJ 07101 Montreal, PQ H4Z 1G3
(973) 504-3600 Canada
(973) 504-3601 (Fax) (514) 940-2150
www.state.nj.us/lps/ca/bos.htm (514) 873-0711 (Fax)
Qmrr.:igr@~mg,gouv..Qc.ea
Franklin L. Widmann www.cvmq.coml
Chief
(973) 504-3610 Saskatchewan
(973) 504-3639 (Fax) Securities Commission
[email protected] 800-1920 Broad Street
Regina, SK S4P 3V7
New Mexico Canada
Regulation & Licensing Department (306) 787-5645
Securities Division (306) 787-5899 (Fax)
725 St. Michaels Drive www.sse.gov.sk.ca
Santa Fe, NM 87505-7605
(505) 827-7140 Barbara Shourounis
(505) 984-0617 (Fax) Director
[ldsQ@st~te.mn.us (306) 787-5645,
www.rld.state.nm.us/securities/ [email protected]
Bruce R. Kohl Yukon

Director of Securities Department of Justice
!H"[email protected]:1~!J~ P.O. Box 2703
Corporate Affairs J-9
New York Whitehorse, YK Y1A 2C6
Office of the Attorney General Canada
Investor Protection & Securities Bureau (867) 667-5225
120 Broadway (867) 393-6251 (Fax)
) www.gov.yk.ea
23rd Roor
ra~g IV VI IV
New York, NY 10271 Richard M. Roberts

(212) 416-8200 Registrar of Securities
~w.,Qag.state.ny. us/investors
/investors.html Mexico
Comisi6n Nacional Bancarta y de Valore!
Gary Connor Direcci6n General de Asuntos Int'I
First Deputy Bureau Chief Av. Insurgentes Sur 1971, Torre Sur
Piso 9
North Carolina Plaza Inn, Col. Guadalupe Inn, C.P. 010:
Department of the Secretary of State Mexico
Securities Division 011 525 724-6578
P.O. Box 29622 011 525724-6220 (Fax)
Raleigh, NC 27626-0525 www.cnbv.9Q.b.mx
(919) 733-3924
(919) 821-0818 (Fax) Miguel Angel Garza
www.secretary.state.nc.us/secJ Director General (International Affairs)
(011) 525-574-6578
David S. Massey (011) 525-574-6220 (Fax)
Deputy Securities Administrator magarza (fficnbv.gob. mx
[email protected]

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The Bank

Secrets the bankers do not want you to know

or even by one's work or credit habits, i.e., credit rating (history).

federally chartered financial entity. This is an absolute given period.

the same miserable experiences they have gone through.

information being made available anywhere.

family's own future financial interests.

Welcome to chapter one of The . . . Code JixptnIeiI. this chapter is designed to

This section deals with

A. Definitions; purposes; powers and duties of banks.

B. Definitions; purposes; powers and duties of a bank holding company.

C. Definitions; purposes; powers and duties of security brokers and dealers.

(e) Bank Defined. -

For purposes of this chapter -

Except as provided in paragraph (2), the term "bank" means any of

An insured bank as defined in sectlon 3(h) of the Federal

An institution organized under the laws of the United States,

accepts demand deposits or deposits that the depositor may

is engaged in the business of making commercial loans.

12 USC Chapter 16 Sec. 1813. - Definitions

As used in this chapter -

(a) Definitions of Bank and Related Terms. -

The term "bank" -

includes any former savings association that -

has converted from a savings association charter; and

is a Savings Association Insurance Fund member.

(2) State bank. -

is engaged in the business of receiving deposits, other than

is incorporated under the laws of any State or which is

12 USC Chapter 2 Sec. 21. - Formation of national banking associations; incorporators;

No applying bank shall be admitted to membership unless it possesses capital stock

TITLE 12 > CHAPTER 17 > Sec. 1841.

TITLE 12 > CHAPTER 16 > Sec. 1813.

Sec. 1813. - Definitions

As used in this chapter -

(a) Definitions of Bank and Related Terms. -

(7) Sec. 1752. - Definitions

TITLE 12 > CHAPTER 3 > SUBCHAPTER I> Sec. 221.

Sec. 221. - Definitions

ode of Federal Regulations]

(v) small farm loan means a loan included in "loans to small

For purposes of this section, the following definitions shall apply:

(1) Affiliate, company, control, and subsidiary

The terms "affiliate", "company", "control", and "subsidiary" have

(2) Appropriate Federal banking agency, depository institution, insured bank,

The terms "appropriate Federal banking agency", "depository

(3) Financial subsidiary

The term "financial subsidiary" means any company that is

engages solely in activities that national banks are permitted

a national bank is specifically authorized by the express terms

~7V Sec. 222. - Federal reserve districts; membership of national

TITLE 12 > CHAPTER 2 > SUBCHAPTER XV> Sec. 214.

The term "originator" means any Farm Credit System institution,

TITLE 12 > CHAPTER 49 > Sec. 4901.

Sec. 4901. - Definitions

The term "servicer" has the same meaning as in section 2605(i)(2)

12 CFR PART 620--DISCLOSURE TO SHAREHOLDERS--Table of Contents

TITLE 12 > CHAPTER 2 > SUBCHAPTER I > Sec. 21.

Search this title:

Upon duly making and filing articles of association and an organization

Fifth. To elect or appoint directors, and by its board of directors to appoint

Sixth. To prescribe, by its board of directors, bylaws not inconsistent with

Seventh. To exercise by its board of directors or duly authorized officers