*1 Honorable F.C. Branson

Banking Commissioner

Austin, Texas

Dear Sir: Opinion No. .1-1618

Re: Bank loan limit -- R.C.S. Article 392 -- F.H.A. Title 1, Class 132ns.

We beg to acknowledge rece:pt of your lette:: of Janurr; 1343, asking an opinfon from this department, ES follcv;~: 13,

"Tine Federal Housing Act was originellp enacted 5.n 1534, and 3n M.2~ 9, 1937, under its

several titles and brovislons it authorized the

insurance of several classes of loans. Each class

of loan eligible for insurance was subject to

divers tests and restrictions, and each was insured to a stipulated percentega 3f the em3unt 9f the loans.

"On X2;- 2, 1337, the Legislature of Texas amended Article 332 of the Revised Statutes. That

article, in its original form> prohibited ^[2] state bank from in::esting more than half of its securities in real estate loans, and prohibited such banks from mak+ng real estate loans in excess of 50% of the

value of the real estate securing the same. The

Amendment of May 3: 1337, provided that the restrict- ions contained in Article 392, should not apply to

mortgsge loans insured by the Federal Houscng Admin- istrator. t3 May 2, 1937: m July 1, 1332, “Subsequent

the Federal Housin Act (Sub-section B of Section 17,33, Title 12, U.S.C.A. $ was amended. This amendment prov%ed for the partial insurance of new and different class, of loan; a loan not to exceed $2,503.,X to be made i”x- the purpose of erecting improvements uponland owned by or (with certain restrictions) held under lease b:-: the borrower, The Act did nat limit the amount of ty;e loan to an;- given percentage of the value of the land and improvements. The Insurance on this character of loan was 1LmIted to 1~3% of the amount of the loan.

This new class of loan has been designated by the Fed- eral Housing Administrator as Title 1, Class 3 loans, end will be hereinafter referred to as such.

Honorable P.C. Branson, Page 2 . I-1619

"The Department is advised that certain state bon!cs are now contemplating extensive investments in Title 1, Class 3 loans. The office Counsel of this Department has ruled that Article 392, 2s amended,

permits unlimited investment of bank funds in loans which were insured by thee Federal Hmsing Authority under the provisions of the Federal Housing Act is it existed on Nay 9, 1937. However, our counsel has

ruled that the exceptionto Article 392, as provided in the above mentioned amendment, does not permit a state bank to invest in loans which were not eligible for insurance under the provisions of the Housing 1937; that Title 1, Class

Act as it existed on May 9, loans, not being eligible fw insurance under the Housing Act as it then existed, are not eligible in-.

vestments for state banks. I attach herewith a copy of his opinion.

"IF Article 33°C is tc be construed to authorize staza banks to invest in Title 1 Class loansz such construction must necessarily be based upon the proposition tha~t the amendement authorized investment, not only in loans which were insured under the then existing Federal Housing Act, but also in any loan which might thereafter be partially insured under the provisions of any subsequent amendment to the F.H.A. Act'. Tine amendment of July 1, 123$, pro- vided for 19;: insurance on loans, and made no re-

striction as to the percentage of the value of the security that might be loaned. Ti>e next amendment may reduce the insurance coverage to 1%.

'I am sure that I do not need to point out the far-reaching, and possibly serious effect which any construction of Article 392, as amended, may have on the banks of this State.

'In the light of the above, I respectfully submit the fcllovring question:

:'Under the pro\Titins of Article 532, as amended: ma:; state banks make unlimited investments in Title 1: Class 3 loans: 2s above defined?!'