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HOME OWNERS' LOAN CORPORATION BONDS (Opinion of Hon. HOMER S. CUMMINGS, Attorney General of the United States)

AUGUST 22, 1933. SIR: I have the honor to comply with your request for my opinion upon certain questions submitted to me by the Chairman of the Federal Home Loan Bank Board in his letter of July 29, 1933. The chairman, in this letter, transmits a form of bond which Home Owners' Loan Corporation proposes to use in issuing its bonds and requests my opinion upon the legality of these bonds, when issued, and upon such other questions relating to the issuance or the terms of the bonds as in my judgment would be appropriate.

The first legislation which must be considered in passing upon the questions presented is the act of July 22, 1932 (ch. 522, 47 Stat. 725), known as the “ Federal Home Loan Bank Act." This act created a Federal Home Loan Bank Board consisting of five members appointed by the President by and with the advice and consent of the Senate. The Board is directed to establish not less than 8 nor

more than 12 Federal home-loan banks, each with a minimum capital qof $5,000,000. The Secretary of the Treasury is required to subscribe for such part of this minimum capital as is not subscribed by member borrowers within 30 days after the stock has been offered

for subscription. The banks are authorized to loan money on the ni security of home mortgages to building and loan associations, savings

and loan associations, cooperative banks, homestead associations, insurance companies, and savings banks.

The act of June 13, 1933 (Public, No. 43, 73d Cong.), known as the “ Home Owners' Loan Act of 1933 ”, was intended to supplement this Home Loan Bank System by setting up a governmental agency to provide direct relief to home owners. It is entitled: “ An act to provide emergency relief with respect to home-mortgage indebtedness, to refinance home mortgages, to extend relief to the owners of homes occupied by them and who are unable to amortize their debt elsewhere, to amend the Federal Home Loan Bank Act, to increase the market for obligations of the United States, and for other purposes."

The pertinent provisions of the act may be summarized as follows: The Federal Home Loan Bank Board, called the “Board", is directed to create a corporation to be known as the “Home Owners' Loan Corporation.” This Corporation shall be “ an instrumentality of the United States”; it shall have authority to sue and to be sued; it shall be operated under the bylaws, rules, and regulations prescribed by the Board. The members of the Board shall constitute the board of directors of the Corporation and shall serve as such without additional compensation (sec. 4(a)).

The Board shall determine the minimum capital stock of the Corporation, which shall not exceed $200,000,000. The Secretary of the

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Treasury shall subscribe for this stock on behalf of the United States, and payments for such subscription shall be subject to call in whole or in part by the Board (sec. 4(b)).

The Corporation is authorized to issue bonds in an aggregate amount of $2,000,000,000. The bonds shall be issued in such denominations as the Board shall prescribe, shall mature not more than 18 years from the date of their issue, shall bear interest at a rate not to exceed 4 percent per annum, and “ shall be fully and unconditionally guaranteed as to interest only by the United States, and such guaranty shall be expressed on the face thereof." If the Corporation shall be unable to meet any interest payment falling due upon its bonds, the Secretary of the Treasury shall pay the Corporation an amount sufficient to meet such interest payment, the Corporation thereupon becoming obligated to the United States in a like amount. The bonds" shall be exempt, both as to principal and interest, from all taxation (except surtaxes, estate, inheritance, and gift taxes) now or hereafter imposed by the United States or any District, Territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority.” The Corporation, and its franchise, capital, reserves, surplus, loans, and income, shall likewise be exempt from such taxation, except that its real property may be taxed to the same extent as other real property (sec. 47c)).

The Corporation may employ, and fix the compensation of, its officers and employees, without regard to the provisions of other laws applicable to the employment or compensation of officers or employees of the United States. It shall determine its expenditures and the manner in which they shall be incurred, allowed, and paid, without regard to the provisions of any other law governing the expenditure of public funds. The Corporation shall be entitled to the free use of the United States mails in the same manner as the executive departments of the Government (sec. 4(i)).

The Corporation is directed to retire and cancel its bonds and stock as rapidly as its resources permit, the stock being retired at the reasonable value thereof as determined by the Board. The Board shall liquidate the Corporation when its purposes have been accomplished and shall pay any surplus or accumulated funds into the Treasury of the United States (sec. 4(k)).

Within the limits fixed by the act, the Corporation may exchange its bonds for home mortgages and other like obligations and liens secured by real estate used or held by the owner as a homestead. When the amount owed by the home owner upon the security acquired by the Corporation exceeds the face amount of the bonds which it has issued in exchange, plus accrued interest thereon and any cash advances, the home owner's liability is to be reduced by the amount of

The maximum interest payable by the home owner to the Corporation is 5 percent, and the Corporation may extend the time of payment of any installment of principal or interest (sec. 4(d)).

Within the limits fixed by the act, the Corporation may make cash advances to home owners to pay taxes and assessments on his home, to provide for necessary maintenance and repairs, and to meet expenses incidental to the exchange of securities authorized by the act.

this excess.

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