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122
BOARD OF GOVERNORS
OF" THE
S-430
FEDERAL RESERVE SYSTEM
WASHINGTON
ADDRESS OF"F"ICIAL CORRESPONDENCE
TO THE SOARD
January 28, 1942
Dear Sir:
For your information there is atta.ched a copy of a letter add.ressea to Mr.
Mastin G. Whito, Solicitor of the U. S.
Department of Agriculture, under date of
Januar-y 15, 19!;2, regarding tl:l.e application
of secti'Jn 6(a) of RegulatLm W.
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L. P. Bethea,
As.sistn.nt Secretary.
Enclosure
TO TB:L PRESIDEl1TS OF ALL FBDGR.AL R.ESF;RVE B.AN'KS
123
S-430-a
Janua_-ry 15,
191~2
lV!r. r-~astin G. White, Solicitor,
U. S. Department of Agriculture,
Washington, D. C.
Attention:
Clarence I. Blau, Chief
of Fa.rrn Security Division.
N~.
Dear Mr. White:
ReferencG is made to your letter of December 27, .1941, regarding section 6(a) of the Board's Regalation V1 which exempts: 11 Aey
extension of crodit which is secured 'b'J a bona fide first lien on improved real estate .dt:A.ly rocorded • • • • 11
Yolll~ inquiry re.:Lates t.o supplemental loans made b<; your Department under Title I of the B~mkhead-Jones Farm Tenr..nt Act (7 U.S.C.
1000-1006). You doscribo such a case in which a loan was made in
April 1941 in the amount of $3,680 88cured by o. first mortgage recorded April 16, 191+.1. This lonn includ0d the runount of ~~150 estimated to be necessary .for ths drilling of a well in order to supply
water on the farm. This amount was calculated on the o.ssumpti·?n that
a well somewhat in excess of 65 feet, the average depth of wells in
the community, would be necessary. At a depth of 93 feet water has
not been located. It is, accordingly, necessary to adva..YJ.ce additional funds in the amou."lt of $300 so as to permit the v<ell to be drilled
to a. greater depth.
Under.the prov~s1ons of lo.w cited ~:Jbove, the snpplement::::.l
loa.-·1., as well as the original loan, is required to be se.Jured by a
first mortgage. Accordingly, an additional note and mortgage are
te.ken to secure the supplGmental advance in cases of this chuacter.
Because of the additional expense that would be involved to the low
income 9orrowers of your Department, the Department has not insisted
upon c. consolidated mortgage to secure both the original advance and
the supplemental o.dv~~ce. Since both.mortgages are held by th~ Department, and since there are no ~tervening liens, your Department
feels that the requirements of lav: that a first mortgage be o.btained
have been satisfied.
As you stat.; in your letter, the Board's interpretation
Vi-30 dealt with a case in which a mortgagee who has made a loan of
$2,000 secured b.Y a first mortgage advonces $400 more to the sc.me
borrower but instead of' combining the two t::..~ansactions into on.e. debt
124
S-430-a
-2-
secured by one ;nortgage the lender takes another note and a second
mortgage. That interpretation expressed t~1e view that the ~~400 adva...l1.ce there involv<:ld is not secursd by a "first lien" within the
meaning of section 6(a). Ym:. point out, however, that in tho case
you p:::-esent the supplemental advance is part of a co:1tinuing relationship and cou. .rse of dealing betvmen the lencier and borrower, and
hence in a vor:y roal sense is part of a single transaction. This
did not a.ppec.r to be the case in the situation discussed in W-30.
Tho facts of that GC.SL-: do not indicate any connection between the
two e:dvances other than the fo.ct tt"at both not8s n.nd both liens happened to be held by the same ler:..::ler.
It is the view of the Board that in a situation such as
you describe the entire pro~eeding ma,y be viewed as a single transaction and that, acco:.cdingl;t, the tota.l e.dvance to the borrower may
be considered a single extension of credit which is sect~.red by a
first lien within the r.;eaning of section 6(a).
Very truly y::mrs,
(Signed)
Chestt;;r Morrill
Chester Horrill,
Sec~'etary.
@FedFRASER