Honorable William D. Gordon,
AGO 86
Opinion no. 86
Pennsylvania Attorney General Opinions
Opinion of the Attorney General
August 17, 1933
Banks and Banking—Borne Owners' Loan Corporation Bonds—Investment in, and exchange for mortgages.
Banks when operating without restrictions, may purchase bonds of the Home Owners' Loan Corporation as investments and may accept them in exchange for mortgages on real estate. When operating under restrictions, these institutions may not purchase such bonds as investments with old funds, and can purchase them with segregated funds only if the Secretary of Banking classifies them as "liquid assets"; but the banks may accept such bonds in exchange for mortgages, in any cases in which they are satisfied that to do so will avoid loss.
Bank and trust companies, for their own account have the same powers as banks. They may not purchase these bonds for trust estates in the absence of clear and unequivocal authority in the instrument creating the fiduciary relationship; but they may accept them in exchange for mortgages held by them for such estates, if any case in which, after a careful and independent examination of all the facts, it appears that to do so will save the estate from loss upon the mortgage thus given in exchange.
Savings banks are authorized to purchase such bonds as investments or accept them in, exchange for mortgages, only if authorized to do so by their articles of incorporation or any amendment thereto; if not authorized by their articles of incorporation to invest in such bonds, they may nevertheless accept them in exchange for mortgages held by them whenever it appears that to do so will save them from loss upon such mortgages.
Trust companies, for their own account, have the same powers and are subject to the same limitations with respect to such bonds, as savings banks. For trust estates, they have the same power as bank and trust companies.
Private banks under supervision of Department of Banking have the same powers as banks.
Building and loan associations are not authorized to purchase such bonds as investments, but may accept them in exchange for mortgages held by them, in any cases in which it appears that to do so will save them from loss upon such mortgages. The powers of these associations are not affected by the fact that they are operating under order of segregation.
The Secretary of Banking as receiver of banks, bank and trust companies and trust companies for their own account, savings banks, private banks under supervision of Department of Banking, building and loan associations, is not authorized to purchase such bonds as investments, but may, with the approval of the court, accept them in exchange for mortgages of the institution of which he is in possession in any cases in which he deems such action to the best interests of the estate. -The Secretary of Banking as receiver of bank and bank and trust companies and trust companies for estates of which they, are serving in a fiduciary capacity is not authorized to purchase such bonds as investments for estates, but may accept them in exchange for mortgages of estates under the same circumstances and subject to the same conditions as governed the action of the institution in this regard prior to his taking of possession.
Liquidating trustees of building and loan associations, subject to the terms of the particular plan of voluntary dissolution, have the same powers as the Secretary of Banking as receiver of a building and loan association.
Honorable William D. Gordon, Secretary of Banking, Harrisburg, Pennsylvania.
Sir: "We have your request to be advised whether banks, bank and trust companies, trust companies, savings banks, and building and loan associations, operating either normally or upon a restricted basis, the Secretary of Banking as receiver in possession of any such institution, or liquidating trustees of building and loan associations, elected pursuant to plans of voluntary dissolution, may invest in, or accept in exchange for mortgages held by them, bonds issued by the Home Owners' Loan Corporation.
The Home Owners' Loan Corporation is a corporation organized under the Federal "Home Owners' Loan Act of 1933," approved June 13, 1933. 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 eighteen years, shall bear interest at the rate of four per centum per annum, and shall be guaranteed by the United States as to interest only. There is no guarantee 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 eighty per cent 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.
I
Institutions Operating Without Restrictions
1.
Banks and Bank and Trust Companies.
Section 1001 of the Banking Code, Act No. 112, approved Cay 15, 1933, provides that a bank or bank and trust company shall have the power:
"(5) To discount, buy, sell, negotiate, or assign * * * bonds, or other evidences of debt; * * *"
There are no limitations or restrictions in any other section of the Banking Code which modify this power, as far as concerns the purchase by an institution for its own account of the bonds of the Home Owners' Loan Corporation.
Accordingly, banks and bank and trust companies may purchase as investments the bonds issued by the Home Owners' Loan Corporation.
It follows necessarily that these institutions have the power to exchange assets, other than cash, for such bonds. If a given security is a legal investment for banks and bank and trust companies, it is immaterial, in our opinion, whether it is procured by means of an outright purchase or whether it is by means of an exchange of securities.
Therefore, banks and bank and trust companies are authorized for their own account to invest their...
