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The Corporation also may, under certain conditions, exchange bonds and advance cash to redeem or recover homes lost by the owner by foreclosure or forced sale by a trustee, or by voluntary surrender to the mortgagee (sec. 4(d), 4(e), and 4(g)).

If a mortgagee has refused to exchange his security for bonds of the Corporation and if the Corporation finds that the home owner cannot obtain a loan from ordinary lending agencies, it may, within the limitations prescribed, make a cash advance to the home owner secured by a first mortgage. Interest on this advance shall not exceed 6 percent (sec. 4(f)).

The Corporation is also authorized to sell its bonds to obtain funds for carrying out the purposes for which it is created (sec. 4(c)).

This review of the statutory provisions discloses that Home Owners' Loan Corporation is, in everything but form, a bureau or department of the Federal Government. It is regulated and directed by Federal officials; all of its capital stock is furnished by the Government; it is given free use of the mails.

In giving my opinion upon the validity of the bonds which Home Owners' Loan Corporation proposes to issue, it is necessary to consider whether the legislation, insofar as it relates to this Corporation and its bonds, is open to any constitutional objection.

If the purposes of Home Owners' Loan Act of 1933 fall within the powers of Congress under the Constitution, then it is clear that Congress may create a corporation to be used as an instrumentality of government to accomplish these purposes. It has long been settled that Congress may create or use such agencies, including corporations, as it may deem appropriate to aid in carrying into execution any of the powers which the Constitution confers upon Congress. M'Culloch v. Maryland, 4 Wheat. 316, 421-422; California y. Central Pacific R.R. Co., 127 U.S. 1, 39-40.1

I am further of the opinion that the purposes for which Home Owners' Loan Corporation was created are lawful and authorized by the Constitution. The question is whether Congress may employ public funds and use its borrowing power to assist home owners who are in danger of losing their homes.

The applicable constitutional provisions are found in clauses 1 and 2 of section 8, article I. Clause 1 confers upon Congress power “ to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and general welfare of the United States." Clause 2 gives Congress power “ to borrow money on the credit of the United States."

The power to appropriate public money results by necessary implication from the grant of powers contained in clause 1. (See Field v. Clark, 143 U.S. 649, 695.) It is unnecessary to determine whether the words “provide for the common defense and general welfare of the United States " constitute an independent delegation of power or whether they state the limits of the taxing and spending power of Congress. Under either view the appropriation of public funds for the purposes for which Home Owners' Loan Corporation was created comes within the purview of clause 1.

1 Banks and railroads are not the only kinds of corporations which Congress has utilized as governmental instrumentalities. See the United States Shipping Board Emergency Fleet Corporation (39 Stat. 731 ; The Lake Monroe, 250 U.S. 246, 252, 254); the Food Administration Grain Corporation (40 Stat. 276; 31 Op. 344); the Reconstruction Finance Corporation (47 Stat. 5).

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In 1917 the present Chief Justice of the United States Supreme Court (then in private practice), in a written opinion furnished at the request of certain dealers in securities, concluded that clause 1 authorized Congress to create Federal land banks as governmental instrumentalities and to give the bonds of these banks tax exemption. The reasoning of this opinion applies with equal force to the legislation now under consideration and strongly supports its constitutionality.

The report of the House Ways and Means Committee on the earlier Federal Farm Loan Bank Act (H.Rept. No. 1418, 72d Cong., 1st sess.) shows that preservation of the ownership of homes may be regarded as conducive to the general welfare, and hence an object for which the public money may be appropriated. The committee's report states (pp. 8–10) that home ownership in the United States is declining; that home ownership, as a national objective, would be permanently injured if the thousands of foreclosures then taking place should continue; that home owners should not be subject to the vicissitudes of the general money market, but funds should at all times be available to them at low cost and in liberal amounts; that if funds were available for needed home repairs and improvements, this would provide work for thousands of the unemployed; and that if confidence in realty values were not restored the credit of hundreds of towns and cities dependent upon the collection of taxes upon real estate would be permanently injured. Granting loans to assist owners in retaining title to their homes is certainly more closely connected with the general welfare.than appropriating funds for the benefit of a particular group in the community.”

It is significant that Congress authorized Home Owners' Loan Corporation to loan money and issue bonds only during the 3-year period following enactment of the act, after which time the Corporation is merely to liquidate its assets and liabilities. The grant of authority is thus limited to the emergency which Congress recognized and declared in the act.

The next point to be considered is the validity of the provisions of the act authorizing the issuance of Home Owners' Loan Corporation bonds and guaranteeing payment of the bond interest by the United States in the event of default by the Corporation. I find authority for these provisions in article 1, section 8, clause 1, of the Constitution which, in addition to giving Congress power to levy taxes, permits it to pay the debts" of the United States. This latter grant implies the power to incur debts, a power which would in any event be inherent in sovereignty in the absence of express consitutional prohibition.

The statutory provisions may also be rested upon article I, section 8, clause 2, giving Congress power to “borrow money on the credit of the United States.” This is an independent power, given without any limitation. Legal Tender Case, 110 U.S. 121, 444. It is at least as broad as the power to lay taxes, to pay the debts of the United States, and to appropriate the public money. It follows that if I have been correct in my conclusion that public funds may be used to provide relief for home owners, Congress may borrow money on the

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2An early example of such an appropriation is the bounty to the cod fisheries given by the act of Feb. 16, 1792 (1 Stat. 229). See also Story on the Constitution, sec. 091, and Corwin, The Spending Power of Congress, 36 Harvard Law Review, 548.

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credit of the United States for the same purpose and through Home Owners' Loan Corporation, the corporate medium created by the act.

The power to borrow on the credit of the United States necessarily includes the power to make only a partial use of that credit for borrowing purposes. In my opinion Congress is making a valid use of its borrowing power when it authorizes a corporate agency to borrow and places the credit of the United States behind payment of the interest, but not of the principal, of the obligations which that Corporation issues.

The Constitution gives Congress power to borrow “ money.” The question may be raised as to whether the provisions of the act authorizing Home Owners' Loan Corporation to issue its bonds in exchange for home mortgages are within this constitutional provision. Clearly, under the Constitution, Congress might have authorized the Corporation (1) to borrow money by selling its bonds to holders of home mortgages and (2) to use this money for the acquisition of home mortgages from such holders. When in this case the act authorizes the Corporation to effect these two steps in one transaction-by a direct exchange of the Corporation's bonds for home mortgages—this constitutes in my opinion a valid exercise of the borrowing power of Congress.

It is also necessary to consider the validity of the statutory provisions making the bonds of Home Owners' Loan Corporation exempt from State and certain Federal taxes. No constitutional question is involved in the exemption from Federal taxation, and the cases fully support the immunity conferred with respect to State taxation. It is settled that the States cannot tax instrumentalities of the Federal Government and that when Congress, acting within the limitations of its constitutional power, utilizes a corporation as such an instrumentality, the States have no power to tax the operations of the corporation (McCulloch v. Maryland, supra, pp. 430-437), or its shares of stock (First National Bank v. Anderson, 269 U.S. 341) or its bonds (Smith v. Kansas City Title Co., 255 U.S. 180).

Smith'v. Kansas City Title Co., supra, would appear to set at rest any doubt as to the validity of the tax exemption given Home Owners' Loan Corporation bonds. One question in that case was the constitutionality of a section of the Federal Farm Loan Act (39 Stat. 380) which declared that farm-loan bonds issued by Federal land banks and by joint-stock land banks should be deemed "instrumentalities of the Government of the United States” and should be “exempt from Federal, State, municipal, and local taxation.” The court, in sustaining this tax exemption, said (pp. 211, 212, 213):

Deciding, as we do, that these institutions have been created by Congress within the exercise of its legitimate authority, we think the power to make the securities here involved tax exempt necessarily follows. This principle was settled in McCulloch v. Maryland and Osborn v. Bank, supra.

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The exercise of such taxing power by the States might be so used as to hamper and destroy the exercise of authority conferred by Congress, and this justifies the exemption. If the States can tax these bonds, they may destroy the means provided for obtaining the necessary funds for the future operation of the banks.

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