
    Home Owners’ Loan Corporation Bonds.
    No. 2
    September 14, 1933.
   Segal, Assistant Deputy Attorney General,

We have your request to be advised whether life insurance companies, fire insurance companies, marine insurance companies, fire and marine insurance companies, and fraternal benefit societies may invest in, or accept in exchange for mortgages held by them, bonds of the Home Owners’ Loan Corporation.

The Home Owners’ Loan Corporation is a corporation organized by the Federal Home Loan Bank Board under the provisions of the Home Owners’ Loan Act of June 13,1933,48 Stat. at L. 128,12 U. S. C. § 1461. Its entire capital, not exceeding $200,000,000, is subscribed by the Government of the United States. The corporation is authorized to issue bonds in an amount not exceeding $2,000,000,000.

The act provides that the bonds shall mature within a period of not more than 18 years, shall bear interest at the rate of 4 percent per annum, and shall be guaranteed by the United States as to interest only. There is no guaranty as to the payment of principal.

The bonds may be sold by the corporation to provide additional funds for carrying out the purposes of the act, or they may be exchanged for mortgages or other liens upon real property occupied by the owner as a home. The face value of bonds exchanged, plus accrued interest thereon, and any cash advanced in accordance with the provisions of the act, shall not exceed $14,000, or 80 percent of the value of the real property, as determined by an appraisal made by the corporation, whichever is the smaller amount. The value of the property, as so appraised, must not exceed $20,000. The mortgage or lien taken by the corporation in exchange for the bonds must be a first lien upon the real property taken as security.

We shall consider separately the questions involved with respect to each of the institutions mentioned in your inquiry.

Stock or mutual life insurance companies

Section 404 of The Insurance Company Law of May 17,1921, P. L. 682, prescribes the classes of securities in which a stock or a mutual life insurance company may invest its capital and reserves. In our opinion, the bonds of the Home Owners’ Loan Corporation do not fall within any of the categories therein specified.

It has been suggested that these bonds come within the group specified in section 404(&), that is, bonds of the United States. In Home Owners’ Loan Corporation Bonds, 18 D. & C. 602, we advised the Secretary of Banking that bonds of the Home Owners’ Loan Corporation are not bonds of the United States.

Section 405 of The Insurance Company Law of 1921 lists the classes of securities in which a stock or a mutual life insurance company may invest its surplus. These classes likewise do not, in our opinion, include bonds of the Home Owners’ Loan Corporation.

The question next arises whether such companies may accept such bonds in exchange for mortgages held by them.

Section 404 of The Insurance Company Law of 1921, which deals with investments of the capital and reserves of life insurance companies, provides as follows:

“Nothing herein contained shall be so construed as to prevent any such company from acquiring or holding property . . . which may be obtained in satisfaction of any debt previously contracted.”

Section 405, which deals with the investments and surplus of such companies, provides, in part, as follows:

“Any money over and above the capital and reserves of any stock or mutual life insurance company may be invested in the securities enumerated in the preceding section. . . .”

Under these provisions, it is clear that such companies have the power to exchange mortgages held by them for such bonds, whenever in their opinion such action is for the best interests of the companies.

Therefore, we advise you that stock or mutual life insurance companies are not authorized to purchase bonds of the Home Owners’ Loan Corporation as investments, but they may accept them in exchange for mortgages whenever such action seems to be to their best interests.

Stock or mutual fire insurance, marine insurance, or fire and marine insurance companies

Section 517 of The Insurance Company Law of 1921, as amended by the Act of June 23, 1931, P. L. 904, specifies the classes of securities in which stock or mutual fire insurance, marine insurance, or fire and marine insurance companies may invest their capital, and section 518 of that act, as amended by the Act of May 12,1925, P. L. 601, establishes the legal investments for the surplus of such companies. In our opinion, none of the classifications in either section includes bonds of the Home Owners’ Loan Corporation.

It has been suggested that such bonds fall within the following category in section 518:

“. . . the stock or other evidence of indebtedness of any solvent corporation created under the laws of this Commonwealth or of any. other State of the United States or the District of Columbia. . .

The Home Owners’ Loan Corporation was organized by the Federal Home Loan Bank Board under the laws of the United States, not under the laws of any State or of the District of Columbia. Clearly, therefore, it is not included in any of the classes enumerated in the portion of section 518 which we have quoted above.

Whether such bonds may be accepted in exchange for real estate mortgages of such companies is a different question. Such action is neither expressly authorized nor expressly prohibited by any provision of law. It involves the power of any institution or any fiduciary with limited investment powers to protect itself or the estate, respectively, from loss on a previous investment by acquiring property which it could not purchase as an original investment. Such power must be implied, unless it is expressly prohibited. Its existence is essential to the successful operation of the companies under discussion in this opinion.

Therefore, we advise you that stock or mutual fire insurance companies, marine insurance companies, or fire and marine insurance companies are- not authorized to purchase bonds of the Home Owners’ Loan Corporation as investments, but they may accept them in exchange for mortgages in any cases in which, after an independent study of all the surrounding circumstances, they deem such action to be to their best interests.

Stock or mutual casualty insurance companies

Section 602 of The Insurance Company Law of 1921 specifies the authorized investments for the capital of stock casualty insurance companies, and section 603 of that act, as last amended by the Act of March 10, 1925, P. L. 30, lists the authorized investments for their surplus. In our opinion, bonds of the Home Owners’ Loan Corporation are not within the terms of either list.

Section 802 of The Insurance Company Law of 1921 provides as follows:

‘“No domestic mutual company other than a mutual life company shall invest any of its assets except in accordance with the laws of this Commonwealth relating to the investment of the assets of domestic stock insurance companies transacting the same kinds of insurance.”

Although there are no relevant statutory provisions on the question of the power of casualty companies to accept such bonds in exchange for mortgages, we are of the opinion, for the reasons stated above in connection with fire insurance, marine insurance, or fire and marine insurance companies, that they may do so under the same circumstances as apply in the case of such companies.

Therefore, we advise you that stock or mutual casualty insurance companiés are not authorized to purchase bonds of the Home Owners’ Loan Corporation as investments, but they may accept them in exchange for mortgages in any cases in which, under the particular circumstances involved, they deem such action to their best interests.

Fraternal benefit societies

Section 10 of the Act of May 20, 1921, P. L. 916, as amended by the Act of April 26,1929, P. L. 796, provides, in part as follows: /

“Except as herein otherwise allowed, every domestic [fraternal benefit] society shall invest its funds only in securities permitted by the laws of this Commonwealth for the investment of the reserves of life insurance companies.

Therefore, we advise you that fraternal benefit societies may not purchase bonds of the Home Owners’ Loan Corporation as investments, but they may accept them in exchange for mortgages, in any cases in which, after an independent study of the facts involved in each case, they deem such action to their best interests.

Summary

To summarize, we advise you that life insurance companies, fire insurance companies, marine insurance companies, fire and marine insurance companies, and casualty insurance companies, whether stock or mutual, as well as fraternal benefit societies, are not authorized to purchase bonds of the Home Owners’ Loan Corporation as investments, but they may accept them in exchange for mortgages upon real property in any case in which, after an independent study of the particular facts involved, they deem such action to the best interests of the companies or societies.

From C, P. Addams, Harrisburg, Pa.  