Two additional sources of funds that could make a significant impact in the pinched housing market have been developed in the past two weeks: the issuance of commercial paper by savings and loan associations and a three-pronged program by the Federal National Mortgage Association to promote urban rehabilitation and construction.
Last June the Federal Home Loan Bank Board, in an effort to stop depositors from withdrawing money and putting it into high-interest government securities, authorized thrift institutions to offer money market certificates linked to Treasury bill rates. Now the board has decided to let S&Ls compete on an equal basis with corporations and banks by allowing them to issue commercial paper, or business IOUs.
For the first time, federally chartered mutual savings associations will be able to sell notes amounting to 5 percent of their deposits with maximum maturities of 270 days. Since the paper comes in $100,000 minimum denominations, it is expected that the takers will be primarily pensions funds and other large institutional investors. The notes can be either backed by mortgages or unsecured.
Thus far three institutions have received permission to issue commercial paper: Perpetual Federal Savings and Loan Association in Washington; City Federal Savings and Loan Association of Elizabeth, N.j., c/alifornia Federal Savings and Loan Association, the largest S&L in the country. A bank board spokeswoman said no estimate has been made of how much extra money the new instrument is expected to generate.
Perpetual has decided not to issue any notes until rates drop somewhat. Blyth Eastman Dillon analyst Robert Chaut predicted that if rates do drop, "you'll see S&Ls producing a wild variety of things. (They) will sop up more and more money in the financial markets."
This week the Federal National Mortgage Association (Fannie Mae) announced it would launch three new programs to provide funds for the rehabilitation of existing residential properties and for new construction in urban areas.