A-80873, OCTOBER 29, 1936, 16 COMP. GEN. 453

A-80873: Oct 29, 1936

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

IS AS FOLLOWS: THE FEDERAL HOUSING ADMINISTRATOR IS CONFRONTED WITH THE QUESTION OF WHETHER HE CAN LAWFULLY INSURE PROPERTY ACQUIRED BY HIM IN EXCHANGE FOR DEBENTURES UNDER TITLE II OF THE NATIONAL HOUSING ACT. THIS ADMINISTRATION RECOGNIZES THAT THE GENERAL POLICY OF THE GOVERNMENT IS TO ASSUME ITS OWN RISK AND THAT APPROPRIATIONS CANNOT BE USED TO BEAR THE EXPENSE OF HAZARD INSURANCE UNLESS EXPRESSLY PROVIDED THEREFOR. IT IS BELIEVED THAT THE INSURANCE OF PROPERTIES TAKEN OVER BY THE ADMINISTRATOR DOES NOT FALL WITHIN THIS RULE AND THAT THE ADMINISTRATOR NOT ONLY HAS THE AUTHORITY TO EFFECT SUCH INSURANCE BUT POSSIBLY HAS A DUTY IMPOSED UPON HIM TO DO SO. INSURED MORTGAGES ARE GROUPED ACCORDING TO CERTAIN CHARACTERISTICS.

A-80873, OCTOBER 29, 1936, 16 COMP. GEN. 453

INSURANCE - PRIVATE PROPERTY ACQUIRED BY FEDERAL HOUSING ADMINISTRATION PROPERTY ACQUIRED BY THE FEDERAL HOUSING ADMINISTRATOR IN EXCHANGE FOR DEBENTURES UNDER TITLE II OF THE NATIONAL HOUSING ACT OF JUNE 27, 1934, 48 STAT. 1247, MAY BE INSURED, UNDER THE BROAD GENERAL AUTHORITY OF SAID ACT, AGAINST LOSS BY FIRE OR OTHER HAZARDS, PAYMENT TO BE MADE THEREFOR OUT OF FUNDS AVAILABLE FOR THE OPERATION OF THE FEDERAL HOUSING ADMINISTRATION.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE ADMINISTRATOR, FEDERAL HOUSING ADMINISTRATION, OCTOBER 29, 1936:

YOUR LETTER OF SEPTEMBER 30, 1936, IS AS FOLLOWS:

THE FEDERAL HOUSING ADMINISTRATOR IS CONFRONTED WITH THE QUESTION OF WHETHER HE CAN LAWFULLY INSURE PROPERTY ACQUIRED BY HIM IN EXCHANGE FOR DEBENTURES UNDER TITLE II OF THE NATIONAL HOUSING ACT, APPROVED JUNE 27, 1934, AS AMENDED, AGAINST LOSS BY FIRE OR OTHER HAZARDS, AND PAY FOR SUCH INSURANCE OUT OF FUNDS AVAILABLE FOR THE OPERATION AT THE FEDERAL HOUSING ADMINISTRATION.

THIS ADMINISTRATION RECOGNIZES THAT THE GENERAL POLICY OF THE GOVERNMENT IS TO ASSUME ITS OWN RISK AND THAT APPROPRIATIONS CANNOT BE USED TO BEAR THE EXPENSE OF HAZARD INSURANCE UNLESS EXPRESSLY PROVIDED THEREFOR. HOWEVER, IT IS BELIEVED THAT THE INSURANCE OF PROPERTIES TAKEN OVER BY THE ADMINISTRATOR DOES NOT FALL WITHIN THIS RULE AND THAT THE ADMINISTRATOR NOT ONLY HAS THE AUTHORITY TO EFFECT SUCH INSURANCE BUT POSSIBLY HAS A DUTY IMPOSED UPON HIM TO DO SO.

FIRST. SUCH PROPERTY OCCUPIES A DIFFERENT STATUS FROM GOVERNMENT OWNED PROPERTY, AND IT DOES NOT FALL WITHIN THE MEANING OF THE ADOPTED GOVERNMENTAL POLICY OF NOT CARRYING HAZARD INSURANCE ON PROPERTY IT OWNS. UNDER THE PROVISIONS OF SECTION 205 (A) OF SAID ACT, INSURED MORTGAGES ARE GROUPED ACCORDING TO CERTAIN CHARACTERISTICS. MORTGAGE INSURANCE PREMIUM PAYMENTS, APPRAISAL FEES, AND ANY OTHER CHARGES FOR INSURANCE OF MORTGAGES, ALL RECEIPTS DERIVED FROM PROPERTY CONVEYED TO THE ADMINISTRATOR, AND ALL EARNINGS ON THE ASSETS OF THE GROUP ACCOUNT ARE CREDITED TO THE PROPER GROUP ACCOUNT. PRINCIPAL AND INTEREST ON DEBENTURES ISSUED IN EXCHANGE FOR ANY PROPERTY, EXPENSES INCURRED IN THE HANDLING OF THE PROPERTY, AND PAYMENTS MADE TO THE MORTGAGEE AND THE MORTGAGOR ARE CHARGED TO THE GROUP ACCOUNT TO WHICH SUCH MORTGAGE IS ASSIGNED. SUBSECTION (B) OF SAID SECTION PROVIDES FOR A GENERAL REINSURANCE ACCOUNT, THE CREDIT IN WHICH SHALL BE AVAILABLE TO COVER CHARGES AGAINST SUCH GROUP ACCOUNTS WHERE THE AMOUNTS IN SUCH GROUP ACCOUNTS ARE INSUFFICIENT TO COVER SUCH CHARGES. SECTION 202 CREATES A MUTUAL MORTGAGE INSURANCE FUND OUT OF MONEY MADE AVAILABLE BY THE RECONSTRUCTION FINANCE CORPORATION, WHICH IS USED AS A REVOLVING FUND TO CARRY OUT THE PROVISIONS OF TITLE II AND IS CREDITED TO THE GENERAL REINSURANCE ACCOUNT.

THUS, PROPERTY ACQUIRED BY THE ADMINISTRATOR IS IN FACT PROPERTY OF A PARTICULAR GROUP. IT IS HELD BY THE ADMINISTRATOR FOR THE BENEFIT OF THE GROUP TO WHICH IT IS ASSIGNED. EVERY RECEIPT DERIVED FROM THE INSURED MORTGAGE ON THE PROPERTY AND FROM THE PROPERTY ITSELF, AFTER BEING ACQUIRED BY THE ADMINISTRATOR, IS CREDITED TO THE GROUP ACCOUNT. LIKEWISE, EXPENSES INCURRED IN HANDLING THE PROPERTY MUST BE CHARGED TO THE GROUP ACCOUNT. PREMIUMS FOR HAZARD INSURANCE WOULD BE CHARGED TO SUCH GROUP ACCOUNTS. IT IS TRUE THAT THE GENERAL REINSURANCE ACCOUNT, WHICH CONSISTS OF FUNDS MADE AVAILABLE BY THE RECONSTRUCTION FINANCE CORPORATION, IS LIABLE FOR EXPENSES OF GROUP ACCOUNTS WHERE SUCH GROUP ACCOUNTS ARE NOT SUFFICIENT TO MEET THE EXPENSES CHARGED TO THEM. HOWEVER, THE NATURE OF THESE GROUP ACCOUNTS IS NOT AFFECTED BY THE FACT THAT THE GOVERNMENT HAS ALLOCATED FUNDS TO ACT AS A CUSHION TO ASSURE THE SOLVENCY OF SUCH GROUP ACCOUNTS.

MOREOVER, THE ADMINISTRATOR, WHO HOLDS TITLE TO THE PROPERTY FOR THE BENEFIT OF THE GROUP ACCOUNTS, IS CHARGED WITH THE DUTY OF PRESERVING THE ASSETS OF EACH GROUP. IN ADDITION TO THE PAYMENT OF EXPENSES INVOLVED AND THE DEBENTURES OUT OF GROUP ACCOUNTS, THE ACT PROVIDES FOR PAYMENT TO THE INSURED MORTGAGEE ON HIS CERTIFICATE OF CLAIM AND TO THE MORTGAGOR, SHOULD FUNDS BE AVAILABLE THEREFOR FROM THE SALE OF A PARTICULAR PIECE OF PROPERTY. THUS, SHOULD A PARTICULAR GROUP SUFFER HEAVY LOSS RESULTING FROM FIRE OR OTHER HAZARD, IT WOULD BE JEOPARDIZED, WHILE THE OTHER GROUPS WOULD NOT FEEL THE EFFECT OF SUCH LOSS.

SECOND. SECTION 1 PROVIDES THAT THE ADMINISTRATOR MAY MAKE SUCH EXPENDITURES "AS ARE NECESSARY TO CARRY OUT THE PROVISIONS OF THIS TITLE AND TITLES II AND III, WITHOUT REGARD TO ANY OTHER PROVISIONS OF LAW REGARDING THE EXPENDITURE OF PUBLIC FUNDS.' THE ADMINISTRATOR HAS DETERMINED THAT IT IS NECESSARY TO CARRY OUT THE PROVISIONS OF TITLE II OF THE NATIONAL HOUSING ACT, AS AMENDED, TO PROVIDE FOR PROPER HAZARD INSURANCE ON PROPERTIES CONVEYED TO HIM IN EXCHANGE FOR DEBENTURES AND CERTIFICATES OF CLAIM AND TO PAY THEREFOR, AS HEREIN STATED.

FURTHERMORE, SECTION 204 (E) PROVIDES THAT, NOTWITHSTANDING ANY OTHER PROVISION OF LAW RELATING TO THE ACQUISITION, HANDLING, OR DISPOSAL OF REAL PROPERTY BY THE UNITED STATES, THE ADMINISTRATOR "SHALL HAVE POWER TO DEAL WITH" SUCH PROPERTY IN HIS DISCRETION. THE POWER TO "DEAL WITH" THE PROPERTY "IN HIS DISCRETION" IS TAKEN TO MEAN TO ADMINISTER, OR TO MANAGE ADEQUATELY. IT GIVES THE ADMINISTRATOR POWER TO USE HIS JUDGMENT AND PRUDENCE IN DETERMINING HOW THE PROPERTY SHOULD BE CARED FOR. IT IS SUBMITTED THAT THESE PROVISIONS ARE BROAD ENOUGH TO INCLUDE THE CARRYING OF HAZARD INSURANCE.

IT IS RESPECTFULLY SUBMITTED THAT AUTHORITY EXISTS FOR SUCH ACTION AND THAT PAYMENTS THEREFOR MAY BE MADE AS HEREIN OUTLINED.

A PROMPT REPLY WILL BE APPRECIATED.

IN DECISION A-54351, DATED MAY 10, 1934, TO THE GOVERNOR, FARM CREDIT ADMINISTRATION, INVOLVING THE PROPRIETY OF CARRYING INSURANCE UPON PROPERTY ACQUIRED THROUGH MORTGAGE FORECLOSURE PROCEEDINGS, IT WAS STATED:

THE BASIC PRINCIPLES OF FIRE, TORNADO, OR OTHER SIMILAR INSURANCE IS THE LESSENING OF THE BURDEN OF INDIVIDUAL LOSSES BY WIDER DISTRIBUTION THEREOF, AND IT IS DIFFICULT TO CONCEIVE OF A PERSON, CORPORATION, OR LEGAL ENTITY BETTER PREPARED TO CARRY INSURANCE OR SUSTAIN A LOSS THAN THE UNITED STATES GOVERNMENT. THE POLICY OF THE GOVERNMENT TO ASSUME ITS OWN RISKS HAS BEEN ADHERED TO IN NUMEROUS DECISIONS OF THIS OFFICE, AND APPROPRIATIONS NOT EXPRESSLY PROVIDING FOR PAYMENT OF PREMIUMS ON INSURANCE HAVE BEEN CONSTRUED AS NOT BEING AVAILABLE THEREFOR. THIS PRACTICE HAS BECOME A SETTLED POLICY OF THE GOVERNMENT, AND ANY MODIFICATION THEREOF OR DEVIATION THEREFROM WOULD BE PROPERLY FOR CONSIDERATION BY CONGRESS, AND IT IS CONSIDERED THE DUTY OF THIS OFFICE AND OF ALL ADMINISTRATIVE OFFICERS TO ADHERE TO SUCH CONSTRUCTION IN THE ABSENCE OF SPECIFIC STATUTORY AUTHORITY FOR SUCH PAYMENTS. * * *

WHEN, AFTER FORECLOSURE, THE PROPERTY SECURING AN INSURED MORTGAGE IS CONVEYED BY THE MORTGAGEE TO THE ADMINISTRATOR IN EXCHANGE FOR A DEBENTURE AND CLAIM CERTIFICATE UNDER THE PROVISIONS OF TITLE II OF THE NATIONAL HOUSING ACT OF JUNE 27, 1934, 48 STAT. 1247, SUCH PROPERTY WOULD APPEAR TO BECOME GOVERNMENT PROPERTY IN A GENERAL SENSE. WHILE IT IS STATED YOUR ADMINISTRATION RECOGNIZES THE GENERAL POLICY OF THE GOVERNMENT TO ASSUME ITS OWN RISK, AS ASSERTED IN THAT PART OF THE DECISION QUOTED ABOVE, YOU HAVE EXPRESSED THE VIEW THAT PROPERTY ACQUIRED IN THE MANNER ABOVE STATED OCCUPIES A STATUS DIFFERING FROM GOVERNMENT-OWNED PROPERTY AS TO WHICH SUCH GENERAL POLICY APPLIES. THAT SUCH DIFFERENTIATION SHOULD BE MADE HERE IS NOT READILY APPARENT. HOWEVER, IN VIEW OF THE PROVISION IN SECTION 1 OF TITLE I OF THE NATIONAL HOUSING ACT THAT "THE ADMINISTRATOR * * * MAY MAKE SUCH EXPENDITURES * * * AS ARE NECESSARY TO CARRY OUT THE PROVISIONS OF THIS TITLE AND TITLES II AND III, WITHOUT REGARD TO ANY OTHER PROVISIONS OF LAW GOVERNING THE EXPENDITURE OF PUBLIC FUNDS," AND IT HAVING BEEN DETERMINED BY THE ADMINISTRATOR THAT IT IS NECESSARY TO CARRY OUT THE PROVISIONS OF TITLE II OF THE NATIONAL HOUSING ACT, AS AMENDED, TO PROVIDE FOR PROPER HAZARD INSURANCE ON PROPERTIES CONVEYED TO HIM IN EXCHANGE FOR DEBENTURES AND CERTIFICATES OF CLAIM AND TO PAY THEREFOR, THIS OFFICE WILL RAISE NO OBJECTION TO THE USE OF THE FUNDS INVOLVED FOR SUCH PURPOSE.