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THE B LUE

BOOK

(2d Ed.)

B r ie f A c c o u n t o f t h e

L e n d i n g O p e r a t i o n op

HOME OWNERS' LOAN
CORPORATION
w it h
the

Sp e c ia l R e f e r e n c e to

E x a m in a t io n

L a n d T it l e s

AND
the

C o n d u c t a n d C l o s in g of R e a l E s t a t e L o a n s

Prepared Under Direction of the
H o n , H orace R ussell

General Counsel, Federal Home Loan Bank Board
and the
H o n , O . B . T aylor

Associate General Counsel in Charge
H O L C Legal Department

By
C. S. Shabe, Principal Attorney

W a s h in g t o n

1 9

CONTENTS

Page
Foreword, by the Hon. Horace Russell..............................................
Introductory .................................* .................................... .......................

m
5

FART I
Chapter 1— T he Home Owners’ Loan Corporation.______
Chapter 2— Organization

...................... * .....................................

Chapter I— lo a n P recedure........... .............................................

Chapter 2— Title Examination k Loan Closing....................

P A R T II

--------O--------

Appendix A — Excerpts from Home Owners’ Loan Act o f 1933, as
amended

Appendix B— Excerpts

from HOLC Manual of Rales & Regulations

Appendix C— Organization

Chart, FHLBB Legal Department

FOREWORD
In the organization and direction of a staff of nearly 1>000
lawyers employed for their full time on a salaried basis and
about 9,000 additional lawyers employed on a fee basis for
title examination and loan closing, in addition to more than
3,000 abstract companies and 300 title insurance companies,
it has appeared to be helpful to prepare and now to revise a
short statement of the organization, purposes, and procedures
of the Legal Department of Home Owners’ Loan Corporation.
Every reasonable effort has been made by the Legal Depart
ment of the Corporation to accomplish its purposes without
unnecessary directions from Washington and by the imposi
tion of the simplest possible rules and regulations.
Fee attorneys and their employees, abstract and title com
pany officials and their employees have labored most faithfully
both day and night in their contribution to the task o f refund
ing more than 1,000,000 individual mortgages on the homes
of that great number of families in distress in the 48 states
and 4 territories. T h e legal title examination and loan clos
ing work for Home Owners’ Loan Corporation has been
accomplished probably more economically than such work
was ever done before* and in the shortest possible time* Very
little negligence under the circumstances of this operation has
been discovered, and it is a high tribute to those concerned
that no case is known of the misapplication of funds by the
lawyers, abstract companies, and title companies concerned
although each of these loans has been separately settled in their
offices over their desks by the distribution of miscellaneous
payments to the mortgagees, lienholders, tax collectors, con
tractors, and others, and in nearly every county of the United
States. I take great pleasure in paying this personal tribute
and expressing this personal word of my very great apprecia
tion for the diligent service, effective work, and fidelity of this
large group who have had so large a part in this successful
emergency relief,

iii

The Corporation m recent months has been recording
more than 40 million dollars in loans per month and will
continue its lending operations based upon applications already
on file to June 13, 1936, and many legal problems will present
themselves. The legal staff of the Corporation has had and
will for some months have great responsibility in securing first
mortgages on good titles by proper legal procedure and the
proper disbursement of funds, but it has before it an equally
great task in the future operation of the Corporation, its loan
servicing program, the foreclosure of mortgages where neces
sary, and its property servicing program, including the resale
of real estate acquired. I hope that this booklet will be help
ful to us in understanding our task better and in rendering
better service.
H orace R u ssell,

General Counsel
Federal Home Loan Bank Board
Washington, D. C,
December 19th, 1935

THE BLUE BOOK
Introductory
Purpose
This booklet is designed to present a brief account of
the lending operations of the Home Owners* Loan Corpora
tion with special reference to the examination of land titles
and the legal aspects of the conduct and closing of its loans.
Attention will also be given to the organization of the Cor
poration and of its Legal Department, and an attempt will be
made to indicate the extent of the relief which the Corpora
tion may afford its borrowers under the law.
The Blue Book was first issued in November* 1934. It
was furnished to each attorney and title company approved
by the Corporation as hereinafter mentioned and was designed
for use as a guide in the examination of land titles and the
conduct and closing of the Corporation's loans.
This booklet supersedes the first edition of Th e Blue
Book, It is intended to serve as a reference book for those
persons who are now or will hereafter be engaged in examin
ing titles and in closing loans in the field on behalf of the
Corporation .and under the supervision of its Legal Depart
ment*
Though this booklet is addressed primarily to the Cor
poration’s legal personnel and to those other persons operating
in the field as mentioned above, an effort will be made to free
this discussion from technicalities and statistics as nearly as
may be, in order that it may prove to be of some interest to
the homeowner himself, for whose benefit the Corporation
was created.
A ct and Regulations
The Corporation’s procedure with respect to title examition and loan closing has now become crystallized. Excerpts
from the Corporation’s manuals of rules and regulations gov
erning the examination of land titles and the conduct and
closing of its loans are set out in Appendix B of this booklet

for the guidance and assistance of title examiners and loan
closers. Excerpts from the Home Owners' Loan Act of 1933*
as amended, will be found in Appendix A 3 while Appendix C
consists of a skeletonized chart of the organization of the
four Legal Departments which function at the Home Office
under the direction of the Federal Home Loan Bank Board.
Estimate and Account of Operations
It is estimated that the Corporation, upon completion of
its lending operations under its present program, will have
saved the homes of more than a million American families from
foreclosure by its investment of upwards of $3,000,000,000
in those homes. Nevertheless, the plan and scope of the Cor
poration’s operations and the purposes and philosophy which
underly the legislation creating it are but little understood
generally, and for this reason a brief and very general state
ment of these matters may not be inappropriate at this place.

PART I
Chapter 1
THE HOME OWNERS* LOAN CORPORATION
The Original A ct
The Home Owners’ Loan Act of 1933 became law on
June 13 of that year by action of the Congress and the
approval of President Roosevelt. Under the terms of the
Act, the Federal Home Loan Bank Board, which until that
time had been authorized to make direct loans to home
owners in eligible cases, was invested with power to organize
a corporation, to be known as the Home Owners’ Loan
Corporation, and the members of that Board constitute its
board of directors in the conduct of its business. The Act
has been twice expressly amended by the Congress. The
first amendment thereof was approved on April 27, 1934,
while the second was approved on May 28, 1935. The Act
was also amended in certain respects by adoption of the
National Housing Act, approved June 27, 1934. The fol
lowing observations have reference to the Act as it stood on
January 1, 1936.
Purpose of A ct
The Act declares, in substance, that the chief business
of the Corporation is to provide emergency relief to dis
tressed homeowners in eligible cases by refinancing, upon
long terms and at a reasonable interest rate, those encumbrances upon their homes which cannot be elsewhere or
otherwise refinanced. The philosophy of the Act lies at the
base of government. It may be said to be that the general
welfare is promoted by encouraging the thrift of the Nation’s
homeowners and by protecting them and their families in
the ownership and occupancy of their homes, despite adverse
economic conditions which are beyond the control of the
homeowner and which temporarily jeopardize that owner
ship and occupancy.

THE BLUE BOOK

Capital Stock
T he Act authorizes the Corporation to issue its capital
stock to a maximum amount of $200,000,000 and directs
that the Secretary of the Treasury shall subscribe, on behalf
of the United States, for so much of that capital stock as
may be issued. Dividends on this stock may be paid from
corporate earnings, at the discretion of the board of directors.
Corporate Bonds
It cannot be too strongly emphasized that Home
Owners’ Loan Corporation is designed to be self-supporting
and self-liquidating, and that the funds invested by it are
acquired solely by the sale and exchange of its own bonds.
The bonds issued by the Corporation may not exceed its
assets. These bonds may not bear maturity dates later than
1952, nor may they bear interest at a rate in excess o f 4 per
cent per annum. Principal and interest on all bonds issued
pursuant to the provisions of the said amendment of April 27,
1934, are unconditionally guaranteed by the United States,
and they are tax-exempt, except as to surtaxes and estate,
inheritance and gift taxes* T he A ct directs the Corporation
to retire its bonds and stock as rapidly as its resources will
permit, and all payments made upon the principal of the
Corporation's loans must be used to retire its bonds* Any
surplus remaining after the Corporation’s business has been
wholly liquidated must be paid into the Treasury of the
United States.
Lending Process Terminated
As said, the Corporation is engaged in the business of
saving the homes of the distressed homeowners of America,
within the limitations imposed by the amended Act. The
provisions of the amended Act, which authorize the Corpora
tion to make loans for this purpose until June 13, 1936, and
the resumption of operations by private lending agencies which
has been brought about by rapidly improving economic condi-

HOME OWNERS’ LOAN CORPORATION

tions, rendered it advisable that the Corporation discontinue
the acceptance of loan applications to permit it to conclude
its lending operation seasonably. Accordingly, June 27,1935
was set as the day and midnight of that day as the hour, after
which no further applications for loans or for the recondi
tioning of home properties would be accepted by the Corpora
tion. As of January 23, 1936, a grand total of 1,884,323
applications for loans had been received, though only 143,637
of these were received subsequent to M ay 28, 1935, the date
of the latest amendment of the A c t As these lines are
written, the Corporation is engaged in investigating and dis
posing of these applications as rapidly as is possible in view of
its reduced personnel.
Operations Restricted
It should be understood that the Corporation does not
enjoy in the conduct of its business the freedom of action of
the private lending agency. Each loan granted by it must
conform in every respect not only to the principles of sound
mortgage lending practice but also to the requirements of the
amended Act and of the rules and regulations promulgated by
the Board in pursuance of the Act. Thus, the extent of the
relief granted by the Corporation in a given case is rigidly
limited, as are the obligations which may be refunded, and
the types of security which may be accepted by it are limited
as well. Likewise, each case must be thoroughly investigated
before a loan may be granted, in order to determine the
eligibility under the law of the applicant and his home prop
erty, And these matters and the action taken therein by
the Corporation^ several field offices are again closely scrut
inized in one of its eleven Regional Offices by trained exam
iners after the loan is closed, for the purposes of correcting
possible defects therein and assuring that the loan is in
every respect eligible and regular.

THE BLUE BOOK

Eligibility of Applicant
T o be eligible for a loan from the Corporation, an appli
cant must be unable to carry or refund the indebtedness upon
his home property, and he must have been in involuntary
default as to that indebtedness on June 13, 1933, the date of
adoption of the original Act. However, if the applicant
can show* to the satisfaction of the Corporation, that he
became involuntarily in default as to such indebtedness after
June 13, 1933 because of unemployment or economic misfor
tune or conditions beyond his control, he will be deemed to
be eligible. Further, the applicant must be of good moral
character and must have a past record for honesty and integ
rity.
From this it will be seen that the Corporation’s business
is to assist those homeowners who would not require or
request its assistance but for the temporary disruption and
dislocation of their financial affairs by economic forces which
they are powerless to control. It would manifestly be idle
to grant this relief to an applicant who is in such hopeless
distress, because of illness, advanced age or other cause, that
he has no present or prospective income whatever to enable
him to repay the loan, since the relief afforded to such an
applicant could be only temporary in character. In such
cases, it is required that responsible parties must join with
the applicants in executing their notes to the Corporation,— a
procedure which is indicated by ordinary prudence as well as
by the purposes of the Act. An applicant who has been
granted one refunding loan is ineligible for another, but he
may have one refunding loan and one loan for the purpose of
reconditioning or repairing his home property, as hereinafter
mentioned.
Eligibility of Security
As security for its loans, the Corporation may accept
only real property owned by the applicant in fee simple or the
applicant’s interest in real property held by him under a re

HOME OWNERS’ LOAN CORPORATION

newable lease for not less than 99 years or under a lease having
not less than 50 years to run from the date of execution of the
Corporation’s lien instrument The property must be im
proved with one or more dwellings, though the property is
ineligible if the dwellings thereon are designed for use by
more than four families or if the land and improvements are
appraised for more than $20,000 by the Corporation, It must
be shown that the property is the bona fide home of the appli
cant, though he need hot actually occupy the property, since it
is recognized that the very distress of the applicant frequently
prohibits him from occupying his home and forces him to lease
or rent it and to seek cheaper quarters, and since many appli
cants have lost the right to occupy their homes, through fore
closure or otherwise, before the Corporation’s relief was made
available. However, if he does not actually occupy the prop
erty as his home, it must be shown beyond all reasonable doubt
that the property is in fact his bona fide home and that he is
only temporarily absent from it for good reason In proper
cases, the Corporation may accept as security home property
which is designed for partial business use or which includes
some farm land, but in the former case it must be shown
that the business use is merely incidental to the use of the
property as a home or the case must be approved by the Cor
poration’s Loan Review Division at Washington, and in the
latter it is required that the applicant be shown to draw his
main livelihood from a source other than the farm lands, in
order to render such properties eligible. Property used for
illegal or immoral purposes is, of course, ineligible.
Refunding in Bonds
As said above, the Corporation’s bonds are used in the
bulk of its refunding operations, and such cash as is advanced
for the accounts of its borrowers is acquired solely through
the sale of its bonds. In the first 2j4 years of its operations,
the Corporation disbursed its bonds to the total face amount
of $2*699,085^113, while in the same period it disbursed in

THE BLUE BOOK

connection with all loans only $62,914,486 in cash. It should
he understood that these funds are not advanced to the bor
rower in the ordinary case but are disbursed by the Corpora
tion, for the account of the borrower, directly to the parties
to whom the borrower is indebted.
Extent of Relief
In eligible cases, the Corporation may advance its bonds
and cash for the purposes following;
(a) T o refinance, in bonds or cash in the cases herein
after mentioned, such indebtedness of the applicant as con
stitutes a lien or charge upon his home property;
(b ) T o pay, in cash* taxes and assessments upon the
home property;
(c ) T o pay, in cash, the expense of necessary mainte
nance and repair of the home property;
(d ) T o redeem or recover, in exchange for bonds, homes
lost by the applicant through foreclosure or forced sale or by
voluntary surrender of the property in lieu thereof;
(e) T o pay, in cash, the expense of rehabilitating, mod
ernizing, rebuilding or enlarging the home property;
( f ) T o pay, in cash, the expenses incidental to the
making of the loan; and
(g ) T o make cash adjustments, not exceeding $25,
where the face value of the bonds, plus accrued interest
thereon, is less than the amount of the demand of the holder
of the refunded obligation or the owner of the home property
redeemed or recovered for the applicant.
Bonds and cash are advanced for these purposes subject
to numerous restrictions imposed by the amended Act and
by the Corporation’s rules and regulations. While any com
plete enumeration of these restrictions is impossible at this
place, the mention of a few of them may be of interest
Eligibility of Refunded D ebt
As said above, the refunding loans of the Corporation

HOME OWNERS’ LOAN CORPORATION

constitute the great bulk of its lending operations* In order
to be eligible for refinancing by the Corporation, the obliga
tion must have been in existence and must have constituted a
lien or charge upon the home property prior to June 13,1933,
the date of enactment of the original A c t Not only obliga
tions secured by the ordinary mortgage or deed o f trust are
eligible* but judgments, security deeds, purchase and sale
agreements and the like may also be refunded. In a few
exceptional cases oral agreements have been refunded as well,
where the parties had in good faith acted in pursuance of the
oral agreement to such an extent that an equity court would
have enforced the agreement upon petition of either party.
In this connection, the test of eligibility may be said to be that
performance of the obligation by the applicant must be a con
dition precedent to the continuance of his right to own and
occupy the home property.
Full information of the amounts claimed by the creditor
is obtained, and every effort is made to induce him to scale
down his demand for the benefit of the debtor. If and when
a mutually satisfactory adjustment has been reached, the
creditor consents in writing to accept, within a specified time,
the Corporation’s bonds or cash in exchange for the bor
rower's obligation. When the Corporation's loan is closed
and disbursed and the necessary releases of the obligations
refunded have been placed on record, an authorization form is
delivered to the creditor, which entitles him to receive bonds
of the Corporation in the amount of his demand, in liquidation
of his claim. After the loan is closed, these bonds are for
warded by the United States Treasury to the approved de
positary designated by the creditor, which depositary delivers
the bonds to the creditor upon his surrender of the authoriza
tion therefor. The transaction is thus completed, so far as
the creditor is concerned. T h e manner in which the Cor
poration is reimbursed by its borrower for the bonds and
cash advanced by it will be hereinafter described in some
detail.

THE BLUE BOOK

Loan Limits
Where bonds are used to refund the obligation, the ag
gregate of bond? and cash advanced may not exceed $14,000,
or 80% of the value of the home property as determined by
the Corporation, whichever sum is the smaller. In the rela
tively few cases in which the creditor has declined to accept
the Corporation’s bonds, the obligation held by him may be
refunded in cash, but the total loan may not exceed 40 % of
the value of the home property as determined by the Corpora
tion, The Corporation may also make cash loans upon homes
which are otherwise unencumbered for the purposes of pay
ing taxes and assessments and providing for necessary main
tenance or making necessary repairs, or for any of these
purposes, but such a loan may not exceed 50% of the value
placed upon the home property by the Corporation. The
Corporation may also make cash loans of several classes for
reconditioning the home property, as is hereinafter mentioned*
Taxes
It is required that all taxes upon the home property
which are passable (i. e,, which can be paid) at the close of
the loan shall be then paid. If the applicant is himself unable
to pay them, then the Corporation may make such payment
in cash and include in the loan the amounts so paid. In
cases where the time for payment of taxes has been extended
by statutory moratoria, the tax need not be paid, but the
amount to be lent to the applicant must be reduced by the
amount of such outstanding taxes, thus affording a degree of
protection to the Corporation against the future payment of
such taxes in the event the borrower should default in their
payment In other cases, though taxes upon the home prop
erty may be legally due or even delinquent, it may be impossi
ble to pay them at the close of the loan, because of delay by
the taxing authority in fixing their amount or for other rea
son. In such cases, it is required that a sum estimated by the

HOME OWNERS’ LOAN CORPORATION

taxing officials to be sufficient to pay such taxes shall be im
pounded by the Corporation out of the loan proceeds when the
loan is closed, and such impounded sum is used to pay such
taxes immediately when they can be ascertained and paid.
Assessments
A ll assessments against the home property, whether for
public improvements or other purposes, which are due and
payable at the close of the loan should be paid by the appli
cant, but if he is unable to pay them, cash may be advanced by
the Corporation for that purpose and included in the amount
of the loan. However, if such assessments are not legally due
when the loan is closed, even though they could then be paid,
it is not required that payment of them be then made. In
such cases, the amount to be lent to the borrower must be
reduced if it appears that the combined taxes and assessments
borne by the home property for any year during the term
of the loan will exceed 3% of the value set upon the home
property by the Corporation. Such excess assessments are
computed for each year during the term of the loan, and the
amount of the loan is reduced by the aggregate of excess as
sessments only during the full term of the loan, thus again
affording some protection to the Corporation against the
future payment of such assessments, as in the case of taxes
extended by statutory moratorium. For details concerning
the Corporation’s tax and assessment procedure, the reader
is referred to Appendix B of this booklet.
Maintenance and Repairs
If, in the opinion of the Corporation, it is necessary to
make repairs of the home property or to perform maintenance
work thereon in order to render it reasonably comfortable as a
home or to retard deterioration, and if the applicant is unable
to pay for such work, the Corporation may in proper cases
advance cash for those purposes and include in the loan the
amounts so advanced. Such work is done by parties selected

THE BLUE BOOK

by the applicant upon the basis of competitive bids, but the
completed work must be approved by the Corporation and
all bills for labor and materials must be paid, in order to assure
that no liens will thereafter attach to the home property by
reason of the claims of laborers, contractors or materialmen.
These precautions are taken not only to protect the interests
of the Corporation but for the protection of the homeowner
as well.
Redemption and R ecovery
In many cases, the applicant has lost his home, through
foreclosure or forced sale or by voluntary surrender o f the
home property in lieu thereof* before the relief afforded by
the Corporation could be made available to him. If the home
was thus lost subsequent to January 1,1930* the amended Act
permits the Corporation, in proper cases, to redeem or recover
such homes for the applicant by issuing its bonds or cash to
the present owner of the property. The amount advanced by
the Corporation to the titleholder for this purpose is limited,
however, to the amount invested in the property in good faith
by the titleholder at the time he acquired the same, plus actual
advances made by the titleholder for taxes* insurance and
improvements on the property. Ordinarily, a home may be
redeemed or recovered only for the person who lost it in one
of the ways set out above, but if the person who lost the home
is deceased, it may be recovered for his heirs, if they were
bona fide occupants of the home property at the time it
was lost.
R e con ditioning
In addition to the maintenance and repair work men
tioned above, the Corporation may advance cash in proper
cases for the purposes of rehabilitating, modernizing, rebuild
ing and enlarging homes. As in the case of maintenance and
repair work, the performance of such reconditioning work
must meet the Corporation's requirements and must be ap

HOME OWNERS’ LOAN CORPORATION

proved by it, and all bills for labor and materials must be
fully paid at the completion of the work and proper receipts
and releases taken. This class of relief constitutes the only
exception to the rule that an applicant who has obtained one
loan from the Corporation is ineligible for another, for ad
vances may be made for reconditioning a home after an
original loan has been placed upon the home property by the
Corporation. Such a subsequent reconditioning loan also con
stitutes the only case, aside from those presented above in
connection with taxes and assessments, in which the Corporation may accept other than first lien security for its loan. A d
vances for reconditioning work may be secured by a lien upon
the home property which is junior only to the Corporation's
first lien thereon, acquired in connection with a loan previously
placed by it upon the same home property, or, in cases where
the advance is to effect necessary repairs not in excess of $300
and where the Corporation has already acquired a first lien
upon the home property, the transaction is effected under a
simplified procedure prescribed by the Board in such cases.
Loan Term s
The terms upon which the Corporation’s loans are made
are prescribed by the amended Act. They must be amortized
over a period o f not longer than 15 years immediately follow
ing the date of close of the loan. The great bulk o f the loans
included in the Corporation's portfolio are 15~year loans,
though in some cases loans are made for shorter terms where
it appears that the improvements on the home property are
such that they will not constitute adequate security for the
amortizing debt over the full 15-year period. Nearly all o f
the Corporation’s loans amortize monthly, and accrued inter
est thereon is payable monthly with principal, but in excep
tional cases loans may be made to amortize quarterly, semi
annually or even annually, with accrued interest payable with
principal installments. T h e interest charge is 5% per
annum in all cases, except in the case of a refunding in

THE BLUE BOOK

cash, when an interest charge of 6 % per annum is made. Pre
payments on loans may be made by borrowers at any time,
and any indebtedness owing to the Corporation from its bor
rowers may be paid at any time in the Corporation’s bonds at
their face value*
Incidental Charges
Charges for appraisal, character report, title examination
and loan closing are made at uniform rates within each jurisdiction and are paid by the borrower. These services are per
formed by persons or agencies approved by the Corporation.
The charges actually made by these persons for these
services constitute all incidental charges paid by the borrower
in connection with his loan, in the ordinary course and where
reconditioning is not involved, excepting necessary fees for
recording and for abstract or title insurance where required.
O f course, no bonus of any kind is paid by any person in con
nection writh the loan,
Evidencing and Securing Loans
The borrower’s loan from the Corporation is evidenced
and secured by such instruments as are ordinarily accepted by
the better class of private money lenders to evidence and secure
real estate loans in the several localities in which the Corpora
tion operates* Though the Corporation is authorized to
extend its relief in 53 jurisdictions, which include the 48
States, the District of Columbia and the Territories of Alaska,
Hawaii, Puerto Rico and the Virgin Islands, it has as yet
placed no loans in the Territory last named. The Corpora
tion’s loans are generally evidenced by promissory notes,
though bonds are used where this is the local practice. In 42
of the jurisdictions in which the Corporation operates, it ac
cepts mortgages to secure its loans, in 9 it accepts deeds of
trust and in one it accepts a security deed. All of these instru
ments are written in English, save in Puerto Rico, where the
mortgage is in the Spanish tongue, while the note is drafted
in English and is interlined with the Spanish equivalent.

Chapter 2
ORGANIZATION
At this point it may be useful to review briefly the present
organization of the Corporation as a going concern, in order
to gain some idea of the progress made since its beginning and
of the ramifications of the largest money-lending institution
in history.
H om e Office
This organization has its roots in Washington. As said,
the members of the Federal Home Loan Bank Board consti
tute the Board of Directors of the Corporation. T h e Board
has established in the Home office in Washington a head
quarters staff consisting of a General Manager, a General
Counsel and other heads of Departments and Divisions, as
well as incidental services. There are five deputies and six
assistants to the General Manager, An Assistant General
Manager is in charge of each of the six Districts mentioned
below. The Legal Department of the Corporation, both in
Washington and in the field, is under the general supervision
and control of the General Counsel and the direct supervision
and control of an Associate General Counsel,
Regional Offices
In the interest of facilitating administration, the 52
jurisdictions in which the Corporation now operates have
been grouped into six Districts, each of which is in charge of
an Assistant General Manager at the Home office, and
these six Districts have been divided into eleven Regions. In
each Region, a Regional office has been set up. Regional
offices now operate in the following cities, serving the Regions
indicated below:
Region 1A— B O ST O N , serving Maine, Massa
chusetts, New Hampshire, Rhode Island and
Vermont.
Region IB — N E W Y O R K , serving Connecticut,
New Jersey and N ew York.

THE BLUE BOOK

Region 2A— B A L T IM O R E , serving Delaware,
the District of Columbia. Maryland, Penn
sylvania and Virginia,
Region 2B— C IN C IN N A T I, serving Ohio and
West Virginia.
Region 3A — A T L A N T A , serving Alabama,
Georgia, North Carolina, Puerto Rico, South
Carolina and Florida,
Region 3B — M E M P H IS , serving Arkansas,
Kentucky, Louisiana, Mississippi, Missouri
and Tennessee.
' Region 4A— C H IC A G O , serving Illinois and
Wisconsin.
Region 4B — D E T R O IT , serving Indiana and
Michigan.
Region 5A— O M A H A , serving Colorado, Iowa,
Kansas, Minnesota, Nebraska, North Dakota
and South Dakota.
Region 6— SAN FR A N C ISCO , serving Alaska,
Arizona, California, Hawaii, Idaho, Montana,
Nevada, Oregon, Utah, Washington and
Wyoming.
W ith some variations in detail, the organization of each
Regional office duplicates that of the Home office, and all of
the Corporation’s business for the Region served is transacted
through it, the Home office exercising an advisory and general
supervisory function as to the Regional offices.
Each
Regional Legal Department is in charge of a Regional
Counsel, who functions under the direct administrative and
professional supervision and control of the General Counsel.
State Offices
A central office has been set up in each State and Terri
tory in which the Corporation operates, as well as in the
District of Columbia. The organization of these offices of
necessity differs in certain respects from that of the Home

ORGANIZATION

and Regional offices, due to the difference in function. Each
head of a Department in these offices reports to his immediate
superior in the Regional office. The State and Territorial
Legal Departments are in charge of State or Territorial
Counsel, who are under the immediate administrative and
professional supervision and control of the Regional Counsel.
Such central offices now operate in the following cities:
Birmingham, A la.
Phoenix* Ariz.
Little Rock, Ark.
Los Angeles, Calif.
Denver, Colo.
New Haven, Conn.
Wilmington, DeL
Washington, D. C,
Jacksonville, Fla,
Atlanta, Ga.
Honolulu, T . H.
Boise, Idaho
Chicago, 111*
Indianapolis, Ind.
Des Moines, Iowa
Topeka, Kan.
Louisville, Ky.
New Orleans, La.

Portland, M e.
Baltimore, M d.
Boston, Mass.
Detroit, Mich.
S t Paul, Minn.
Jackson, M iss.
St. Louis, M o.
Great Falls, Mont.
Omaha, Nebr.
Reno, Nev.
Manchester, N. H.
Newark, N. J.
Albuquerque, N, M .
New York, N . Y ,
Salisbury, N . C.
Fargo, N. Dak;
Columbus, Ohio
Oklahoma City, Okla.

Portland, Ore.
Philadelphia, Pa.
San Juan, P. R.
Providence, R . I.
Columbia, S* C.
Sioux FallSt S. Dak,
Nashville, Tenn.
Dallas, Tex.
Houston, T e x .
San Antonio, Tejt,
Salt Lake City, Utah
Rutland, Vt.
Richmond, V a .
Seattle, W a sh .
Charleston, W . Va.
Madison, W is .
Casper, W y o .

District Offices
Each State or Territorial Manager is directly responsi
ble to his Regional Manager for the proper and efficient dis
charge of the duties and responsibilities of his office. The jur
isdiction of State and Territorial offices includes, in nearly
every case, District offices located through the State or Terri*
tory, according to the volume of loans placed in the locality
or the size of the territory to be served. Thus, Missouri has
four District offices, at St. Louis, Kansas City, Springfield and
Moberly, while Montana has none. Each District office is
under the administrative supervision of a District Manager,
who reports directly to his State Manager, and the District
Legal Department is in charge of a District Counsel under
the supervision of the State Counsel In some localities where

THE BLUE BOOK

the loan load is particularly heavy Subdistrict offices were also
set up, though most of these have since been discontinued.
Organization Exemplified
Michigan may be taken as an example of the Corporation s organization. District offices are located in that State
at Battle Creek, Detroit, Grand Rapids, Marquette and
Saginaw. These report to the Michigan State office at De
troit, which in turn is supervised by the Regional office, also
in Detroit. The Detroit Regional office is under the general
supervision of the Home office at Washington.
The Legal Department
Since this discussion is chiefly concerned with the activi
ties of the Corporation’s Legal Department, something should
be said at this point concerning its organization. The organi
zation of the General Counsel’s staff in the Home office at
Washington is typical of that of the Regional Legal Depart
ments.
Function
The function of the Legal Department is to render to the
Board and to the other Departments of the Corporation such
legal services and legal advice as may be necessary to the
proper conduct of the Corporation's affairs. These services
include the preparation of legal opinions, the preparation and
promulgation of all legal regulations and procedure, super
vision of the examination of land titles for the Corporation
and of the closing of its loans, the examination of the Cor
poration’s loans to determine their legal regularity, the prepa
ration of all necessary legal instruments and forms, supervi
sion and direction of the conduct of all necessary litigation,
including foreclosures, disposition of all claims asserted by or
against the Corporation, the general supervision of those
branches of the Legal Department in the field, and, in short,
the supervision and conduct of all of the Corporation’s affairs

ORGANIZATION

which are legal in their nature, as distinguished from admin
istrative and managerial. The responsibility of the Legal
Department is coextensive with its authority.
General Counsel
The General Counsel to the Federal Home Loan Bank
Board is also the Corporation’s General Counsel. H e is like
wise in charge of all other legal matters for the Board, includ
ing those pertaining to Federal Home Loan Banks, Federal
Savings and Loan Associations and the Federal Savings and
Loan Insurance Corporation. However, the Legal Depart
ment of Home Owners’ Loan Corporation is under the direct
control of an Associate General Counsel, who functions sub
ject to the supervision of the General Counsel and the Board.
Legal Divisions
The Legal Department is divided into three main
Divisions,— namely, the Advisory, the Litigation and the
Examining and Servicing Divisions. Each Division is under
the direction of a Division Head, who reports directly to the
Associate General Counsel in charge of the Department.
Advisory Division
The Advisory Division is charged with the duty of
furnishing such legal advice, opinions and interpretations as
are required in the conduct of the Corporation’s affairs. It
handles all legal matters which are not within the province of
the Litigation or the Examining and Servicing Divisions and
effects liaison for the Department, It consists of the Finance,
Audit, Accounts, Briefs and Regulations Sections.
Litigation Division
The Litigation Division is divided into four sections, as
follows:
1.
The General Litigation Section, which supervises the
handling of miscellaneous actions and litigation to which the
Corporation is a party or in which its interests are involved

THE BLUE BOOK

and all other matters involving present or prospective litiga
tion which are not properly referable to any other Section
of the Division.
2. The Criminal Section, which investigates all criminal
offenses against the Corporation and procures the institution
and assists in the conduct of prosecutions therefor in proper
cases.
3. The Foreclosure Section, which supervises the insti
tution and conduct of necessary foreclosure actions on behalf
of the Corporation and the sales of its borrowers* property
in consequence thereof*
4. The Claims Section, which supervises the disposition
of all persona! injury and tort claims against the Corporation,
including claims of employees for compensation under Federal
or State law.
Examining and Servicing Division
The Examining and Servicing Division consists of five
sections, as follows:
1. The Examining Section, which is charged with the
duty of supervising the examination of land titles and the
closing of the Corporation’s loans in the field, as well as the
duty of determining the legal regularity of those loans when
closed. ■
2. The Loan Service Section, which furnishes legal serv
ice and advice to the Loan Service Division of the General
Manager’s office and supervises the legal aspects of the serv
icing and collection of the Corporation’s loans until repayment
and discharge of the Corporation’s Hen or until reference to
the Litigation Division for foreclosure or other legal action,
3. The Property Service Section, which furnishes legal
service and advice to the Property Management Division of
the General Manager’s office in connection with the sale,
rental or other disposition of real property acquired by the
Corporation as an incident of its operations, by foreclosure or
otherwise.

ORGANIZATION

4. The T ax Section, which is charged with the duty
of protecting the Corporation from loss by reason o f non
payment of taxes, assessments and other recurring liens and
charges of like nature upon property accepted by it as secur
ity or acquired by it through foreclosure or otherwise.
5. The Reconditioning Section, whose function it is to
prevent the attachment of liens as for labor performed, serv
ices rendered or materials furnished in connection with recon
ditioning work upon property accepted by the Corporation as
security or acquired by it by foreclosure or otherwise and to
render legal service and advice to the Reconditioning Division
of the General Manager's office.
Legal Organization
There are no Criminal Sections in the Regional Legal
Departments and the Regional Reconditioning Sections have
been merged with the Regional Service Sections. With
these exceptions, the foregoing organization is duplicated in
the Regional Legal Departments, Each Division of the
Washington Legal Department has a point of quick contact,
through its counterpart in the Regional office, with the State,
Territorial and District Legal Departments, in every juris
diction in which the Corporation operates. Only through
such an organization is it possible to obtain quickly the infor
mation and reports and to transmit the directions to the field
which are necessary to render an efficient legal service to an
institution engaged in such a business on so large a scale.
Legal Personnel
On November 30, 1935, the Corporation employed a
total of exactly 20,000 full-time salaried employees in the
conduct of its business. O f these, 2,964 were employed in the
Legal Department, and this figure included stenographers,
clerks and other necessary office personnel of every grade, in
addition to attorneys, of whom there were but 843. O f the
attorneys, 67 were employed in the Home office, 189 in the

THE BLUE BOOK

eleven Regional offices, and 587 in the State, Territorial and
District offices. W ith the passing of the peak of the Corpora
tion’s lending operations, its personnel is being drastically
reduced in every Department and in such of its offices as have
not already been discontinued or consolidated within other
offices.
Title Examiners and Loan Closers
The work of examining land titles and conducting and
closing the Corporation’s loans is not done by the salaried
personnel of the Corporation, but by attorneys and title
companies approved by the Corporation. A standard scale of
fees for these services has been adopted in each jurisdiction.
These fees are paid by the borrower, but if he is financially
unable to pay them, the fees may be advanced by the Cor
poration and charged to the borrower's account. The attor
neys and title companies performing these services are in no
sense employees of the Corporation. On December 9, 1935,
there were 8,486 attorneys and 326 title companies upon the
Corporation’s “ approved list” in the 52 jurisdictions men
tioned above. The qualifications and standing of approved
“ fee” attorneys and title companies are carefully investigated
by the Corporation before their names are placed upon the
approved list. Unsatisfactory work by fee attorneys or title
companies will result either in their removal from the Cor
poration’s approved list or in refusal by the Corporation to
permit the offenders to perform such services in connection
with its future loans. On the same date, 3,163 abstracters
and abstract companies in those 52 jurisdictions were render
ing service in connection with the Corporation’s loans.
W ith this brief and necessarily incomplete account of the
purposes for which the Home Owners* Loan Corporation was
created, its organization, the extent of the relief afforded by it
to distressed homeowners and the scope of its operations, we
may now turn to a summary consideration of the methods

ORGANIZATION

developed by the Corporation for the conduct of its actual
lending ope ration, which includes the examination of title
to the estates accepted by it as security for its loans and the
actual conduct and closing of those loans.

PART II
Chapter 1
LOAN

PROCEDU RE

Scope of Outline
A brief review of the Corporation’s loan procedure will
be found useful at this point and will enable the reader to
appreciate the relation borne by the operations of title
examination and loan closing to the entire lending procedure.
W e shall attempt to outline the progress of a typical loan
from the time the application is filed until the closed loan
file reaches the Regional office for examination and servicing.
It must be understood that only the salient features of the
Corporation’s procedure in the progress of a typical refund
ing loan can be given here and that an exhaustive treatment
of this subject is impossible within, the compass of this booklet
In prescribing this procedure, the Board has striven to effect
uniformity as far as is practicable. Nevertheless, varying
practice and procedure in the 52 jurisdictions in which the
Corporation operates render some flexibility both necessary
and admissible, and deviations from the prescribed procedure
have been, and will in future be, permitted where good
cause therefor can be shown and where proper authority for
the deviation under the Corporation’s rules and regulations
is obtained in advance. In the following treatment it will
be assumed that the application for the loan was received in a
District office of the Corporation. Those portions of the
following procedure which apply to State offices apply as
well to Territorial offices and to the District office serving
the District of Columbia.
Application for Loan
The application may be filed by the prospective bor
rower at the Corporation’s District or Subdistricfc office
which serves the territory in which his home property is
located, or at the State or Territorial office in those jurisdic-

LOAN PROCEDURE

tions where no District or Subdistrict office serves the ter
ritory and their function has been assumed by the State or
Territorial office.
No applications are received by the
Home office or by any Regional office. As said above, we
shall assume that the application in the instant case is re
ceived by a District office. The application must be com
pleted on the Corporation’s approved form and signed by the
applicant. W ith his application, the applicant is required to
submit such evidence of his tide to or interest in the home
property as may be in his possession, together with a written
statement of the circumstances which occasion his distress
with reference to the property and two photographs repre
senting unobstructed front and rear views of his property.
If repair or reconditioning work upon the property is con
templated, the applicant must file a separate application to
cover it. A t the time of filing his application* the applicant
is interviewed by an employee of the Corporation, who
attempts to obtain from the applicant a complete picture of
the facts and circumstances which render his application
necessary.
Preliminary Eligibility Analysis
The application file is then analyzed in the office of
the District Manager. If the case is ineligible under the
amended Act and the rules and regulations, the application
fs rejected, and the applicant, his mortgagee and all other
interested parties are immediately notified of such rejection.
An application once rejected may not be again filed, except
in the most unusual circumstances, although if at any stage
of the progress of the application it should be rejected, the
applicant may obtain reconsideration of his case by presenting
to the Manager of the receiving office his proofs that the
rejection was erroneous. If upon preliminary analysis, the
application appears to be eligible, a number is assigned to it,
the case is noted on the progress record and the applicant is

THE BLUE BOOK

notified of the action taken and of the number assigned to
his application. The case file is then transmitted to the
Control Section of the District office.
Character Report and Mortgagee’s Report
A character report is then ordered from an approved
reporting agency. This report contains information as to
the applicant’s financial status and any other facts which
can be ascertained concerning him which bear upon his
eligibility as a borrower from the Corporation* including
statements concerning his character and reputation in the
community. At the same time, a report is obtained from
each holder of a Ken or encumbrance upon the applicant’s
home property, and this report contains an itemized state
ment of the amounts owing from the applicant to the lien
holder, with other information bearing upon the eligibility
of the case. All information contained in the application
file at every stage of the proceedings is regarded by the
Corporation as confidential, and its employees are instructed
against disclosing it.
Preliminary Appraisal
A preliminary appraisal of the applicant's home property
is then made by an employee of the Corporation’s Appraisal
Department, who must inspect the property and render a
report of his opinion of its value. In addition, the preliminary
appraiser must report as to the necessity for repairing the
home property and include in his report such other informa
tion as bears upon the eligibility of the case. If the applicant
has requested that reconditioning work be done, the property
may also be viewed by an inspector of the Corporation’s
Reconditioning Department.
Eligibility Analysis
If at this point it appears that the appraised value of
the property is sufficient to support the loan applied for,

LOAN PROCEDURE

the case is again submitted to analysis by the staff of the
District Manager, and the tests of eligibility prescribed by
the Board are applied to the facts disclosed by the case file
which has been built up. If the case fails to measure up to
all of these tests, it must be rejected, and the applicant, all
lienholders and all other interested parties are immediately
notified of such rejection. If, however, all of the tests are
met, the case goes to final appraisal, and in all probability
the loan will be granted^ barring title defects or other
unfavorable developments.
O f the 1,884,522 applications received by the Corporation on or before December 19, 1935, 965,713, or about
*51%, had been favorably acted upon and the loans had been
granted on said date. However, it should not be concluded
from these figures that the remaining 4 9 % of these applica
tions have been rejected, for 67,668 applications still re
mained on that day to be acted upon by the Corporation. Of
these applications received, 851,141, or about 4 5 % , had
actually been rejected as ineligible, or withdrawn, o r were
held in suspense on December 19, 1935.
Appraisal
A second appraisal of the home property is now made
by an appraiser who is not employed by the Corporation but
whose qualifications have been investigated and approved by
it. This appraisal is arrived at by applying the Corpora
tion’s “ 3-point” appraisal formula. This second appraisal
is known as the “ fee” appraisal and this appraiser is called
the “ fee” appraiser, because he is paid a fee for his services
in each case by the applicant and is not an employee of the
Corporation. This fee appraisal must disclose the necessity
for making repairs of the home property. The amount of
the appraiser’s fee must be approved by the Corporation, and
it is a flat fee and is not determined by the value of the
property appraised. If the applicant is unable to pay the
appraiser’s fee, the Corporation may advance the necessary

THE BLUE BOOK

amount and charge it to the prospective borrower’s account.
If the value set upon the home property by the prelimi
nary appraisal is such that it is doubtful that the loan can be
granted, though the case appears to be eligible and regular
otherwise, a fee appraisal may nevertheless be made if the
applicant, a lienholder or some other interested party will
post with the Corporation an amount sufficient to cover the
fee appraisal or otherwise guarantee payment of the cost
thereof. If the value set upon the home property is not
sufficient to support the loan applied for, a second fee
appraisal may generally be made> if the review appraiser in
the District office considers such procedure proper in. the
circumstances and if the applicant or other interested party
will pay for such additional appraisal The fee appraiser’s
report is reviewed by a review appraiser employed by the
Corporation, and if it appears that that value of the home
property is sufficient to support the loan applied for, the case
file is transmitted to the loan committee together with the
review appraiser’s recommendations. Where reconditioning
work is to be done, the case file is routed through the
Reconditioning Department, where specifications of the work
and estimates of its cost are prepared and forwarded to the
loan committee with the case file.
Final Corporation Value
A loan committee sits at each State office and consists
of the State Manager, the State Counsel and the State
Appraiser, or their authorized deputies, respectively. In
cases where reconditioning work is to be done, the State
Reconditioning Supervisor, or his deputy, also sits upon the
loan committee. The loan committee, after consideration
of the preliminary and fee appraisals, the recommendations
of the review appraiser and all other facts disclosed by the
case file, fixes the final Corporation value of the home prop
erty if the case file is in every respect eligible and regular.
So far as the value of the home property is concerned, the

LOAN PROCEDURE

application is granted or rejected upon the basis o f this
final Corporation value, which may be in such amount as
the loan committee deems proper, though it may not excecd
110% of the amount of the fee appraisal* Where recondi
tioning work is to be done, the final Corporation value
should reflect the value of the home property as recondi
tioned. If the final Corporation value of the home property
is not sufficient to support the loan applied for, or if the case
is ineligible or irregular in any respect, the application is
rejected and all interested parties are promptly notified;
otherwise the case is referred to the Insurance Section,
Insurance Report
The Insurance Section now prepares a schedule which
sets out the kinds and amounts of insurance coverage required
by the Corporation with reference to the home property.
Fire insurance is required in every case in companies satis
factory to the Corporation and in an amount equal to either
the depreciated reproduction value of the improvements upon
the home property or the principal amount of the loan, whichever is the smaller. In some localities, windstorm and hail
insurance are also required in varying amounts.
Tax Report
While the insurance schedule is in preparation, in some
jurisdictions a report is obtained which shows the items of
taxes and assessments which constitute liens upon the home
property and which are unpaid. In most jurisdictions, how
ever, this tax and assessment report is included in the Pre
liminary Certificate of Title hereinafter mentioned.
Lienholder's Consent
At this point the case file is referred to the Adjustment
Section, in order finally to determine whether the amount
which can be lent by the Corporation upon the security of the
home property will be sufficient to liquidate all eligible in

THE BLUE-BOOK

debtedness of the borrower, taxes and assessments, the cost
of necessary repairs and the incidental expenses of the trans
action, as well as the cost of such reconditioning work as may
be contemplated. A representative of the Adjustment Sec
tion interviews each lienholder, if possible, and each lien
holder's consent to accept the Corporation’s bonds or cash,
in an amount ccrtain, in liquidation of his claim must be
obtained in writing. The lienholder’s written consent must
be unconditional, though it may provide for the payment to
him of accrued interest on the amount he agrees to accept to
the date of close of the loan. If the amount to be lent by
the Corporation is insufficient to liquidate the entire demand
of a lienholder the loan may not be closed unless the lien
holder will consent to waive the unliquidated balance of his
claim or will agree to subordinate it to the Corporation’s
prospective lien upon the home property. The amounts of
claims so subordinated may not exceed the difference between
the final Corporation value of the home property and the
principal amount of the Corporation's loan, nor may the
terms upon which such subordinated claims are payable be
such as to render it unlikely that the applicant can discharge
all indebtedness upon his home property when and as due or
such as to cause him undue hardship. If all necessary adjust
ments cannot be made, the application must be rejected at this
point, and all interested parties must be promptly notified of
such rejection. But if all necessary adjustments have been
made and the case appears to be eligible and regular in every
respect, it is now referred to the Legal Department of the
District office for the final steps in the progress of the loan,
which will be treated in more detail below.

Chapter 2
T I T L E E X A M I N A T I O N and L O A N C L O S I N G

Responsibility of Legal Department
From the time the case file leaves the Adjustment Sec
tion until the closed loan file is transmitted to the Regional
office, the Legal Department is solely responsible for its
prompt and proper progress, for the reason that the examina
tion of tides and the rendering of opinions thereon and the
actual closing of the loan are matters exclusively legal in
their nature.
Title Investigators
The Corporation relies upon attorneys at law, title
companies and abstracters for evidence of the applicant’s
title to or interest in the real property offered to it as security
for its loans, It relies upon attorneys at law and title com
panies for assurance that the instrument taken by it to secure
its loan creates a valid first lien upon that title or interest
within the meaning of the amended Act. It should be
emphasized that none of these attorneys, title companies or
abstracters is employed by the Corporation. They arc em
ployed by the applicant to furnish such evidence and assurance
of his title as will be satisfactory to the Corporation, and
their fees for these services are paid by the applicant, either
from his own pocket or out of the proceeds of the Corpora
tion’s loan to him. The qualifications of the persons, firms and
corporations rendering these services are closely scrutinized
by the Corporation, and only those whose experience and
equipment enable them to render an efficient and dependable
service in these connections are used. Attorneys and title
companies which fulfill the Corporation’s requirements in
these respects are enrolled upon its “ Approved List of Fee
Attorneys and Title Companies” , and thereafter may render
these services to prospective borrowers from the Corporation.
If the service rendered by an approved agency should prove to
be unsatisfactory to the Corporation in any respect, its services
are not thereafter acceptable to the Corporation.

THE BLUE BOOK

Title F ees
The fees paid for title examination must he approved
by the Corporation and must be uniform within a given
locality, though a fee in excess of the standard fee may be
allowed in instances where it is necessary for the title exam
iner to furnish extraordinary services in connection with the
clearance of objections to the title or in order to remedy
defects therein.
Requirements
As has been said above, the Corporation's requirements
in connection with its loans must go beyond those of the
private mortgage lender, who will generally lend to anyone
who can furnish adequate security and whose past record
shows him to be an acceptable moral risk, A reading of
Chapter 1, Part I, of this booklet will show that this Cor
poration must operate within the much more narrow limits
prescribed by the amended Act, and since its loans will not
in all probability be collected and otherwise serviced by the
persons and agencies which conducted and closed them, it is
essential that a complete record of the loan be prepared for
use by its collection and servicing agencies over the 15 years
which must elapse before the ultimate due-date of most of
these investments.
Rules and Regulations
In consequence, a procedure for the conduct of the
Corporation’s business and affairs has been prescribed by the
Board and has been promulgated by the Manual of Rules and
Regulations (commonly called the State Manual) and the
Manual of Rules and Regulations for Regional offices (com
monly called the Regional Manual). Additional procedure
is provided, under Board authority, by administrative orders
issued by the office of the General Manager with the approval
of the General Counsel, and legal instructions are also from
time to time issued by the General Counsel and his associates
to cover special or unusual cases.

TITLE EXAMINATION AND LOAN CLOSING

It is essential that those attorneys and title com
panies upon the Corporation’s approved list be kept
fully informed at all times of those portions of these
regulations, orders and instructions which relate to the per
formance of their duties in connection with the Corpora
tion’s business. The State, Territorial and District Counsel
are responsible for the instruction of title examiners and loan
closers in these matters, but the task is so great and a uniform
procedure is so necessary to the efficient conduct of a business
of such magnitude that other auxiliary methods have from
time to time been devised for this purpose. The Blue Book
is one of these auxiliary methods. Manuals cannot be sup
plied to the fee personnel, and the excerpts from the Manuals
which are contained in Appendix B, post, are designed
to serve as a kind of pocket manual for title examiners and
loan closers. Its contents will be from time to time revised
and amplified by legal bulletins and supplemental instructions
issued by the several State, Territorial and District Counsel
as the Manuals are amended or new rules, regulations or
procedure are otherwise promulgated*
Usual Practice and Procedure Followed
In general, the Corporation has endeavored to follow
the practice and procedure adopted by the Bar and the better
class of first mortgage lenders in the several jurisdictions in
which it operates. This hypothetical “ better class” includes
all reputable and responsible agencies engaged in the business
of lending money upon first mortgages, though similarity of
problems encountered has led the Corporation to follow in
many instances the practice and procedure adopted by those
insurance companies which lend on first mortgage security
on a national scale. It will be noted that the standards set
by this “ better class of first mortgage lender” are often re
ferred to in the Corporation’s regulations as guides in the
determination of matters which in their nature do not lend
themselves to exact definition or explicit instructions.

THE BLUE BOOK

Estates Accepted
Thus, though the security upon which the Corporation
may lend is restricted by the amended Act to “ real estate, in
fee simple, or * * . a leasehold under a lease for not less than
ninety-nine years which is renewable or under a lease having
a period of not less than fifty years to run from the date the
mortgage was executed’^ still the regulations provide that,
within these limits, the Corporation will accept ‘'such titles
as the better class of first mortgage lenders have accepted in
the past as first mortgage security, in the territory where the
property is situated’\ Use restrictions, to which so much
residential property is subject, offer an illustration of the
application of this rule, for the Corporation may lend upon
property which is subject to such restrictions if the better class
of mortgage lenders in the locality customarily make loans
upon the security of such propert}r, However, it should be
added that this rule-of-thumb is not and cannot be safely fol
lowed in every case, since titles which have actually been
accepted by this better class of lender in the past may be and
frequently are rejected upon the advice and recommendation
of the Corporation s Legal Department.
R eference for Title Examination
When the procedure outlined in the next preceding
chapter of this booklet has been completed and all necessary
adjustments have been made, our typical case is referred to the
Legal Department for title examination, if it appears thus
far to be eligible and regular in every respect. From that
time until the application is finally disposed of> either by the
granting and closing of the loan or by rejection, the Corpora
tion’s Legal Department is solely responsible for the conduct
of the case and must keep a detailed record of it in order to
assure its prompt and proper disposition. The entire file is
now in the custody of the Legal Department.

TITLE EXAMINATION AND LOAN CLOSING

Order for Preliminary Title Investigation
An order for a preliminary report upon the condition
of title to the applicant's home property is now placed with a
fee attorney or title company. As said above, the name of the
attorney or title company selected must appear upon the
Corporation s approved list before the case is so referred, for
the Corporation is vitally concerned with the accuracy and
reliability of the title report upon the property it is requested
to accept as security for its loan.
Unrecorded Liens and Claims
An unusual feature of the title examination required
by the Corporation is that although, as in the ordinary case,
the preliminary title report is based upon the record title to
the real property > it must also set out all unrecorded matters
affecting the title of which the Corporation has acquired
notice in any way, as well as all matters affecting the title to
or possession of such chattels as are reasonably necessary to
the comfortable use of the premises as a home. Liens upon
such chattels may be refunded by the Corporation as are liens
upon the realty itself, if they meet the requirements as to
eligibility which are prescribed by the Corporation’s regula
tions. Such refundings are permitted not only because
removal of such chattels would probably result in in ju ry to
the freehold, even though they are not legally fixtures, but
also because their removal would materially affect the value
of the realty as security by diminishing its resale or rental
value if vacant Chattels of this character most frequently
dealt with in the Corporation s operations are furnaces, bath
room and plumbing fixtures and the like. For all practical
purposes, such chattels constitute a part of the freehold itself,
from the viewpoint of the mortgage lender, whether or not
such chattels constitute in law fixtures on the freehold.
Extent of Investigation
The title examiner may not, therefore, confine his search

THE BLUE BOOK

solely to matters which are of public record, but must also
thoroughly investigate and report upon all matters which in
any way affect the title to or possession of any of the property
wThich is offered by the applicant to the Corporation as security
for its proposed loan. In order to make the thorough title
examination required by the Corporation and to render his
report thereon, he must thus be well grounded in the pro
cedure prescribed by the Manuals, and he must also be
equipped to apply the Corporation^ rules of eligibility to the
facts found as the result of his investigation, even though
eligibility is finally determined by the Corporation's State and
District offices.
Preliminary Certificate of Title
The title examiner’s findings upon completion of the pre
liminary title investigation are required to be submitted to
the Corporation upon its approved form of “ Preliminary Cer
tificate of Title” . No deviation from this form is permitted,
save in some jurisdictions where title insurance is taken and in
others where the law or the prevailing practice renders minor
deviations therefrom necessary or advisable in the opinion of
the Legal Departments of the Home and Regional offices.
Perhaps an understanding of the character and extent of the
title investigation required by the Corporation can best be
gained by a consideration of its standard “ Preliminary Cer
tificate of T itle” .
Extent of Title Investigation
This form must be completed, dated as of the time of
completion of the preliminary title investigation and signed
by the fpe attorney or title company making the investigation.
By so doing, the title examiner certifies to the Corporation
that the certificate contains a correct, full and complete state
ment of the condition of title to the real property therein
described at the date of the certificate, as disclosed by examina
tion of the public records or by examination of an abstract

TITLE EXAMINATION AND LOAN CLOSING

which purports to reflect the contents of the public records
affecting the title and as disclosed by investigation of un
recorded matters affecting title of which the examiner has
notice.
Source of Title
In general, the title examiner may base his Preliminary
Certificate upon a grant from the sovereign, which is general
ly in the nature of a patent from the United States Govern
ment, or upon a search extending for at least forty years prior
to the date of the Certificate to a well-recognized source of
good title. The recommendations of State Counsel are gen
eral^ accepted as to the adequacy of the sources of title in
each jurisdiction.
Contents of Preliminary Certificate of Title
The chief matters as to which the title examiner certifies
in executing the Preliminary Certificate of Title are:
(a)
That an accurate legal description of the real
property offered to the Corporation as security for its loan is
set out in said Certificate.
r (b ) That the marketable fee simple title to said prop
erty is indefeasibly vested in the party or parties named in
the Certificate. The exact interest in the property and the
marital, fiduciary or legal status of each such party must be
specified.
(c) That such fee simple title thus vested under and
by virtue of a deed or other instrument, which must be fully
described as to parties, dates of execution and record and
recording reference.
(d) That such title is free from encumbrances, except:
(1 ) Specified mortgages and deeds of trust, each of
which must be fully described as to parties, date, amounts
secured, with interest rate, and when and how due, and
recording reference. Both recorded mortgages and deeds of

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trust and those which are unrecorded but of which the title
examiner has notice must be set out in the Preliminary
Certificate.
(2 ) Specified mechanics* or materialmen’s liens of
record and unrecorded claims of such liens where the Cor
poration has notice that labor has been performed, services
rendered or materials furnished upon the property and the
statutory period for filing claims of such liens has not expired
at the date of the Preliminary Certificate. Such liens and
claims must also be fully described as to names of claimants,
the items of labor, services and materials for which lien is
claimed and the dates upon which they were performed,
rendered or furnished upon the property, amount of lien or
claim and, if recorded, the date of recordation and the record
ing reference. Such mechanics1 and materialmen's Kens may
be refunded by the Corporation’s loan if they attached to the
property prior to June 13, 1933; if they did not so attach,
they must be otherwise cleared before the loan may be
granted. Such liens have no connection, of course, with
reconditioning, repair or maintenance work done in connec
tion with the Corporations loan and paid for out of the
proceeds thereof.
(3 ) Judgments of State and Federal courts, including
fines and penalties in criminal matters, which constitute liens
upon the property. These must also be fully described as to
names of judgment debtor, judgment creditor and assignee,
if any, the issuing Court, the total judgment debt, including
costs and interest, and the date of docketing or entry with
book and page reference thereto.
(4 ) Attachments upon the property, in connection
with which the dates of the writ and of the accrual of the lien
must be shown, as well as the names of attaching creditors,
the amount of the demand, the issuing Court and proper
reference to the action in which the writ issued.
(5) Liens and agreements affecting title to or posses

TITLE EXAMINATION AND LOAN CLOSING

sion of chattels and equipment used in connection with the real
property, the removal of which would affect the utility or
marketability of the premises, including conditional sale con
tracts, chattel mortgages, title retention agreements and the
like. Not only must recorded liens and agreements of this
kind be shown, but the Certificate must also set out complete
descriptions of all such liens and agreements, even though
unrecorded, if the Corporation has notice of their existence*
(6 ) Estate and income taxes. Federal and State, which
constitute liens upon the property, giving name of claimant,
full amount of claim, including penalties and interest, and
proper reference to record of assessment as to each such
recorded item.
(7 ) All taxes and assessments which constitute liens
upon the property, as well as water rates, where they consti
tute such a lien, and assessments or payments upon water*
ditch or irrigation stock, whether or not a lien, where reten
tion of the rights and privileges accruing from the ownership
of such stock is necessary to the full and profitable use of the
real property. The form of Preliminary Certificate requires
that each such item be set out with such particularity as will
afford a basis for the proper application of the Corporation's
rules and regulations relative to the payment of taxes and
assessments.
(8 ) Agreements of purchase and sale of the real prop
erty, including recorded agreements and 'those unrecorded
agreements of which the Corporation has notice, which must
be fully described as to date, names of vendor and vendee, sale
price, terms of sale and unpaid balance of sale price, and, if
recorded, proper recording reference must also be given. Full
information concerning such agreements Is of particular im
portance in cases in which they are refunded by the Cor
poration’s loan.
(9 ) Recorded leases and known unrecorded leases of
any of the property, which must be fully described as to date,

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parties, term, renewal terms and purchase options, and, if
recorded, date of recordation and recording reference. In
cases of severance of oil or mineral rights, a full report of
leases or conveyances of such rights should also be furnished.
Full information as to such leases is of the greatest importance
in determining eligibility where a leasehold estate is offered
as security for the Corporation’s loan or where the Corpora
tion is requested to refund an agreement to buy and sell which
has arisen by virtue of the applicants exercise of an option
to buy contained in such a lease.
(10) Covenants, conditions and restrictions affecting
the title to or use of the real property must be fully reported,
whether imposed by private contract or by public authority.
It is of the first importance to ascertaia the exact nature of
such restrictions, in order to determine the legal consequences
of their breach, as reversion or other defeasance of title may
result upon such breach if title is conditioned upon their
performance. If their effect is to render the applicant's title
or interest conditional and defeasible, and if the better class
of first mortgage lenders in the locality do not lend upon the
security of lands so encumbered, then the Corporation’s loan
may not be granted unless and until a valid release or waiver
of the reversionary rights to the applicant’s property is ob
tained and recorded.
(11) Other liens and encumbrances upon the property
and objections to and defects in the title thereto, including lis
pendens in State and Federal Courts, bankruptcy proceedings
instituted by or against any party in the chain of title within
ten years next preceding the date of the Certificate* party
wall agreements, easements and encroachments and all other
matters of whatever nature which in any way affect the title
to or possession of the real property offered to the Corpora
tion as security for its loan. Each such matter discovered
must be fully described in the Preliminary Certificate of
Title by the title examiner.

TITLE EXAMINATION AND LOAN CLOSING

Clearance of M inor Encumbrances
Upon completion of the preliminary title investigation
and prior to his return of the Preliminary Certificate of
Title, the title examiner should clear the title to the property
of so many of the encumbrances, defects and objections dis
covered by him as will not be refunded out of the proceeds
of the Corporation's loan or otherwise paid at or prior to the
close of the loan or subordinated to the Corporation's lien
at the closing of the loan. Quite frequently, minor defects,
objections and encumbrances can be cleared by the mere
obtaining of an affidavit or other instrument, without in
curring expense, and it is intended that all such minor
defects and objections shall be cleared by the title examiner
before submission of his Preliminary Certificate of Title.
However, even though properly cleared, such encumbrances,
defects and objections should still be reported in the Prelimi
nary Certificate, and the title examiner should note oil the
margin of the Certificate the fact and manner of clearance of
each such item and should initial each such marginal nota
tion. These marginal notations should be brief but so com
plete as to enable a stranger to the transaction to ascertain
that the steps taken by the title examiner were proper and
that the encumbrance, defect or objection noted was effec
tually cleared or cured. By such marginal notations, the
title examiner should also indicate such other encumbrances,
defects and objections as in his opinion may safely and prop
erly be waived without adversely or materially affecting the
Corporation’s prospective security.
Preparation for Closing
In the usual case, the title examiner now transmits to
the District Counsel who ordered the title investigation all
of the case file, including the completed Preliminary Cer
tificate of Title and the title examiner’s suggestions for
clearance of such encumbrances, defects and objections as

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he has not succeeded in clearing, excluding, however, such
encumbrances as will be cleared at the closing of the loan
in the ordinary course. The title examiner should also
furnish to the District Counsel such other pertinent informa
tion as will aid in the proper disposition of the case. The
careful title investigator will fix a date for closing the
loan w7hich will permit sufficient time for transmittal of the
case file to the State office, through the District office, the
preparation of necessary closing papers and the checking of
the file in the State office, the return of the file to the loan
closer, the loan closer’s supplemental title search and the
other preliminary steps necessary to closing the loan. Such
closing date should be recommended to the State office by
the title examiner, 3nd all disbursements should be accu
rately computed as of that closing date. If the Preliminary
Certificate discloses encumbrances, defects or objections which
materially affect the title and render the property inadequate
security for the Corporation's prospective loan, or if it ap
pears that the case is ineligible in any particular, the applica
tion must be rejected at this point. If, however, the case
appears to be eligible and regular, it is transmitted immedi
ately by the District Counsel to the State Counsel, in whose
office the eligibility and regularity of the case are again
scrutinized.
Preparation of Closing Instruments
The Legal Department of the State office now sets a
date for the closing of the loan, which date should be far
enough in the future to permit the loan closer to comply with
the closing requirements of the State office, and prepares the
note or bond, the mortgage, trust deed or securit}' deed and
an itemized statement of the disbursements to be made from
the loan, which statement is known as the Settlement Sheet,
where these instruments have not been prepared by the title
examiner. These instruments must be prepared upon the

TITLE EXAMINATION AND LOAN CLOSING

approved forms and must comply with the Corporation's
rules and regulations throughout. The checks and vouch
ers necessary for disbursement of the loan proceeds are pre
pared in the State office at the same time, as is a schedule
of the insurance required and all other papers necessary to
enable the loan closer to close and disburse the loan* and
the whole file is then returned to the loan closer with the
final instructions of the State office. Any attorney, firm of
attorneys or title company on the Corporation’s -approved
list may act as loan closer, but it is preferable that the same
agency which made the preliminary investigation ot title
be selected for this purpose.
Loan Closing
Upon receipt of the case file and the closing instruc
tions of the State office, it is the duty of the loan closer to
notify the applicant, the lienholders and all other interested
parties of the time and place at which the loan will be
closed. The applicant must also be notified of the expense
incidental to the closing of the loan and required to pay the
same and to provide insurance as required by the Corpora
tion if he is able to do so. T h e loan closer now obtains from
the applicant -an Affidavit of Title, in the prescribed form,
wherein the applicant sets out, under oath, all matters known
to him which may aifect the title to or possession of his home
property, with special reference to such matters as have
arisen since the filing of his application and which are not
of public record. The loan closer will carefully investigate
all matters newly disclosed by the Affidavit of T itle and will
also make a supplemental search of the record title to the
home property* If new encumbrances, defects or objections
disclosed by the Affidavit of Title or supplemental search of
title cannot be properly cured or waived upon thorough in
vestigation by the loan closer, he must return the case file,
with a complete report of such encumbrances, defects and

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objections to the State office, and the loan may not be closed
except upon fulfillment of the express instructions of the
State office. However, if no new encumbrances, defects or
objections are so discovered, or if, having been discovered
they are properly cleared or waived, the loan closer will,
upon the day set for closing the loan, file for record the
Corporation^ Hen instrument, after assuring himself by
search of the public records to the time of filing such lien
instrument for record that title to the home property is un
changed. Thereupon, disbursement of the loan proceeds
m2y be made, pursuant to the Settlement Sheet and the in
structions of the State office, all necessary receipts, releases
and other acquittances taken, together with the cancelled
instruments evidencing and securing the refunded obliga
tions or proper assignments thereof, and the loan may be
closed.
The following required and recommended procedure
with reference to title examination and loan closing may
merit special mention:
Signatures
The instruments evidencing and securing the Corpora
tion’s loan must be executed and, where legally necessary,
acknowledged by all parties whose signatures are legally
necessary to the acquisition by the Corporation of a valid
and enforceable lien or charge upon the fee simple title to the
home property or upon an eligible leasehold estate therein.
When loans are made to married persons, both spouses must
join in the execution of these instruments and no such loan
shall be closed without such signatures, unless the Corpora
tion will acquire a valid, enforceable first lien or charge by
virtue of the signature of one spouse alone and (a) the
joinder of the spouses in the execution of said instruments
would be illegal, or (b ) the other spouse is legally incompe
tent to sign, or (c ) the case be first approved by the Cor

TITLE EXAMINATION AND LOAN CLOSING

poration’s Loan Review Division in Washington. All
parties whose signatures are required upon the instruments
evidencing and securing the Corporations loan are also
required to execute the Settlement Sheet Every instrument
executed by an owner of the fee simple title or the leasehold
estate accepted by the Corporation as security for its loan
must be executed by him in the name under which his estate
is vested in him, unless it is made to appear upon the face of
the instrument that the party executing it is in fact such
vestee notwithstanding a variance in name. All instruments
executed by any party in connection with the loan must be
executed by him in one name without variance.
Forms
Wherever the use of a form is prescribed by the Cor
poration, the title examiner and loan closer shall use only the
latest revised form approved for use in his jurisdiction, and
each such form must be carefully completed, as specified by
the instructions for its use or as indicated by the form
itself, and dated and signed by the title examiner, loan
closer or other executing party. It should be remembered
that the closed loan file built up at the close of the loan
must serve as the Corporation’s record of the loan after
many of the sources of the information contained therein
are no longer available. It is therefore of great importance
that the file be complete and that no item required by the
rules and regulations be omitted from i t
Time of Closing and Disbursement
All arrangements for the disbursement of the proceeds
of the Corporation’s loan must be completed before the in
strument securing the loan or any other instrument designed
for record in connection with the loan may be filed for
record. No such disbursement may be made until the instru
ment securing the loan has first been filed for record and the
certificate of the recording officer evidencing such filing has

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been obtained, and the disbursement must be made within
72 hours after such filing for record. The instrument secur
ing the loan may not be filed for record if more than 30
days have elapsed between its date and the time for such
filing, and in cases within the operation of this rule, all loan
papers must be returned to the State office, where they will
be cancelled, and the loan must be closed upon new loan
papers drawn by the State office. No deviations from the
rules stated in this paragraph are permitted unless approval
thereof by the General Counsel and the Regional Counsel is
first obtained,
Refunded Instruments
All instruments which evidence or secure any obligation
refunded by the Corporation's loan must be cancelled and
delivered to the loan closer, together with proper releases
thereof, as a condition precedent to the closing of the loan,
unless (a ) such cancellation does not accord with the local
practice, in which event the instruments may be delivered
uncancelled to the loan closer, or (b) the instruments,
though not lost, nevertheless cannot be delivered to the loan
closer, in which event the loan closer shall obtain a copy of
each such instrument and certify that each such copy is a true
copy of its original and that each instrument evidencing an
obligation refunded by the loan has been cancelled on its
face, or (c ) the instrument evidencing the refunded obli
gation has been lost, in which event it must either be legally
re-established or security for the protection of the Corpora
tion against such lost instrument must be approved by the
General Counsel before the loan is closed. In any event,
where written instruments evidence and secure the obliga
tions refunded by the Corporation's loan, the loan closer
must obtain and include in the closed loan file a proper
release of each such obligation, together with the original
instruments evidencing and securing such obligations or

TITLE EXAMINATION AND LOAN CLOSING

those authorized substitutes for such original instruments
which are mentioned above. Where the obligation so re
funded is neither evidenced nor secured by written instru
ments, a statement of the substance of the obligation, sup
ported by the affidavits of all of the parties thereto, must be
obtained by the loan closer and included in the closed loan
file.
Certificate of Authority
Where the release or other acquittance of an obligation
refunded by the Corporation's loan is executed by another
than the owner of such obligation the authority of such
party to act for such owner must be evidenced in the closed
loan file by either (a) a Certificate of Authority, in the form
prescribed by the Corporation, properly completed, dated and
signed by the loan closer or by a full-time salaried attorney
employed by the Corporation, or (b) a copy of the court
order authorizing such release or acquittance of such re
funded obligation, which copy must be certified by the clerk
or other official or by the loan closer to be a true copy of its
original, or (c) authorization by the Comptroller of the
Currency for the release or acquittance of such obligation
in cases where such obligation is held by an institution in his
custody. The prescribed Certificate of Authority is pre
ferred to other evidence in all cases in which the circum
stances permit its use.
Final Certificate of Title
When the instrument securing the Corporation's loan
has been filed for record and the loan proceeds have been
disbursed, the loan closer shall complete, date and execute
a Final Certificate of Title, in the form prescribed by the
Corporation. By so doing, the loan closer certifies that in
his opinion the fee simple title or leasehold estate described
in the Preliminary Certificate of Title and in the instrument
securing the Corporation's loan is, at the date of the Final

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Certificate, vested in the applicant by virtue of a deed or
other instrument fully described in the Final Certificate,
that all encumbrances, defects and objections shown by the
Preliminary Certificate, except taxes and assessments not
yet due and payable, have been properly cleared, that the
recorded instrument securing the Corporation's loan creates,
in his opinion* a valid lien upon the property therein de
scribed, subject only to the taxes and assessments mentioned
above, that such security instrument secures the note or bond
of the applicant in favor of the Corporation, that the full
consideration for said note or bond and security instrument
has passed to the applicant, and that his title examination
was continued from the date of the Preliminary Certificate
of Title to the day and hour specified in the Final Certificate,
which day and hour includes the time at which the Corpora
tion’s security instrument was filed for record and is the date
of the Final Certificate of Title.
Reconditioning
The progress of the typical loan as outlined above is
not in any way altered in those cases in which reconditioning
or repair and maintenance work are financed by the Corpor
ation for the applicant as an incident of a refunding loan.
In such cases, the home property is appraised at its value as
reconditioned, after estimates of the cost of such recondi
tioning have been made by the Corporation’s representatives,
competitive bids are taken, the contract is awarded to the
lowest qualified bidder and funds to defray the cost of the
reconditioning work are included in the loan and are placed
in escrow with the Corporation for that purpose at the time
the refunding loan is closed. Thereafter, the reconditioning
work must be performed under the supervision of a salaried
representative of the Corporation or an inspector approved
by the Corporation and retained upon a fee basis, and upon
completion of the work, the funds allocated to that purpose

TITLE EXAMINATION AND LOAN CLOSING

are disbursed and proper receipts and releases are taken by
the Corporation. In cases where application for a loan for
reconditioning or repair and maintenance work is made after
a refunding loan has been placed by the Corporation upon the
home property, a much simplified procedure has been pre
scribed, especially where the loan is for necessary repairs to
an amount not exceeding $300.
Transmittal of Closed Loan File
Upon.the day the loan is closed, the loan closer should
transmit all available instruments and material in the loan
file to the State or District office from which he received
his instructions, and this shipment must include in any event
the Settlement Sheet, the instrument evidencing the Cor
poration’s loan, duplicates of all Authorizations for Deliv
ery of Bonds to lienholders and the recording official's cer
tificate that the instrument securing the loan has been filed
for record. If other loan instruments are not available on
the day of closing, they must be transmitted to the State or
District office by the loan closer in a second shipment as soon
as the same are available to him>in order that the closed loan
file may be made complete. Upon receipt of each such
shipment by the District office, it must be properly checked
and approved by the District Counsel's staff and forwarded
promptly to the State office. There the shipment is again
carefully checked as to accuracy and completeness in the
State Counsel's office and it is then promptly forwarded to
the Regional office serving the territory.
In the Regional office, the loan is set up and serviced
upon receipt of the first shipment of loan papers, and upon
completion of the closed loan file, it is audited, its servicing
is completed and it is subjected to rigid examination by the
Examining Section of the Regional Legal Department, pur
suant to the procedure prescribed for that purpose. It is of
interest to note, in connection with this final legal examina

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tion of the closed loan file, that of the 920,779 files thus
examined through November 28, 1935j only 41 have been
found to be substantially defective, by which is meant that
the defect discovered may, but will not necessarily* jeopardize the recovery by the Corporation of all or part of the
funds lent and that the defect could not be cured by the
Corporation’s Legal Department. O f all irregularities dis
covered by the Regional Examining Sections, which irregu
larities include some substantial defects but consist for the
most part of infractions of the provisions of the amended
Act or of the Corporation’s rules and regulations which
cannot jeopardize the Corporation’s recovery of its loan,
nearly 99% have been cured by the Corporation's Legal
Department.
When the final legal examination of the closed loan
file has been completed by the Regional Examining Section,
the file is retired to the permanent files to serve as the record
of the Corporation’s loan until the loan is repaid or the
Corporation’s lien is enforced by foreclosure or otherwise.
Termination of Lending Phase
It is now intended that the Corporation will close no
loans after June 12, 1936, and that date will therefore mark
the end of the first phase of the work for which the Cor
poration was created. Thereafter its major tasks will be to
service and collect its loans, dispose of real estate acquired in
the course of its operations, retire its bonds and otherwise
liquidate its business as expeditiously as possible* as directed
by the amended A c t

A P P E N D IX A

EXCERPTS FROM
HOME

TH E

O W N E R S ’ LOAN A C T

AS A M E N D E D

(Public, No. 43— 73d Congress)

(H . R. 5240)

1933

EXCERPTS FROM
HOME OWNERS' LOAN ACT OF 1933
AS AMENDED
A N A C T T o provide emergency relief with respect to home
mortgage indebtedness, to refinance home mortgages,
to extend relief to the owners of homes occupied by
them and who are unable to amortize their debt else
where, to amend the Federal Home Loan Bank Act, to
increase the market for obligations of the United
States and for other purposes.
Be it enacted by the Senate and House of Represent
atives of the United States of America in Congress assentbled, That this Act may be cited as the “ Home Owners'
Loan Act of 1933,”
Definitions
Sec 2.

As used in this Act—

(a) The term “ Board" means the Federal Home Loan
Bank Board created under the Federal Home Loan Bank
A ct
(b) The term “ Corporation” means the Home Owners’
Loan Corporation created under section 4 of this A c t
(c) The term “ home mortgage” means a first mort
gage on real estate in fee simple or on a leasehold (1 ) under
a lease for not less than ninety-nine years which is renew
able, or (2 ) under a lease having a period of not less than
fifty years to run from the date the mortgage was executed,
upon which there is located a dwelling or dwellings for not
more than four families, which is used in ivhole or in part
by the owner as a home or held by him as his homestead,
and which has a value of not to exceed $20,000; and the
term “ first mortgage” includes such classes of first liens as
are commonly given to secure advances on real estate under
the laws of the State in which the real estate is located,
together with the credit instruments, if any, secured thereby*

APPENDIX A

Repeal of Direct Loan Provision of Federal Home
Loan Bank A ct
Sec. 3. Subsection (d) of section 4 of the Federal
Home Loan Bank A ct (providing for direct loans to home
owners) is hereby repealed.
Creation of H om e Owners* Loan Corporation
Sec. 4. (a ) The Board is hereby authorized and
directed to create a corporation to be known as the Home
Owners’ Loan Corporation, which shall be an instrumen
tality of the United States, which shall have authority to sue
and to be sued in any court of competent jurisdiction, Fed
eral or State, and which shall be under the direction of the
Board and operated by it under such bylaws, rules, and
regulations as it may prescribe for the accomplishment of
the purposes and intent of this section. The members of the
Board shall constitute the board of directors of the Cor
poration and shall serve as such directors without additional
compensation.
(b )
The Board shall determine the minimum amount
of capital stock of the Corporation and is authorized to in
crease such capital stock from time to time in such amounts
as may be necessary, but not to exceed in the aggregate $200,000,000. Such stock shall be subscribed for by the Secretary
of the Treasury on behalf of the United States, and pay
ments for such subscriptions shall be subject to call in whole
or in part by the Board and shall be made at such time or
times as the Secretary of the Treasury deems advisable* The
Corporation shall issue to the Secretary of the Treasury
receipts for payments by him for or on account of such stock,
and such receipts shall be evidence of the stock ownership
of the United States. In order to enable the Secretary of
the Treasury to make such payments when called, the
Reconstruction Finance Corporation is authorized and di
rected to allocate and make available to the Secretary of the

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Treasury the sum of $200,000,000, or so much thereof as
may be necessary, and for such purpose the amount of the
notes* bonds, debentures, or other such obligations which
the Reconstruction Finance Corporation is authorized and
empowered under section 9 of the Reconstruction Finance
Corporation Act, as amended, to have outstanding at any
one time, is hereby increased by such amounts as may be
necessary.
(c)
In order to provide for applications heretofore
filed, for .applications filed within thirty days after this
amendment takes effect, and for carrying out the other pur
poses of this section, the Corporation is authorized to issue
bonds in an aggregate amount not to exceed $4,750,000,000,
which may be exchanged as hereinafter provided, or which
may be sold by the Corporation to obtain funds for carrying
out the purposes of this section or for the redemption of any
of its outstanding bonds; and the Corporation is further
authorized to increase its total bond issue for the purpose of
retiring its outstanding bonds by an amount equal to the
amount of the bonds to be so retired (except bonds retired
from payments of principal on loans), such retirement to be
at maturity or by call or purchase or exchange or any
method prescribed by the Board with the approval of the
Secretary of the Treasury: Provided, That no bonds issued
under this subsection, as amended, shall have a maturity
date later than 1952. Such bonds shall be in such forms
and denominations, shall mature within such periods of not
more than eighteen years from the date of their issue, shall
bear such rates of interest not exceeding 4 per centum per
annum, shall be subject to such terms and conditions, and
shall be issued in such manner and sold at such prices, as may
be prescribed by the Corporation, with the approval of the
Secretary of the Treasury. Such bonds shall be" fully and
unconditionally guaranteed both as to interest and principal
by the United States, and such guaranty shall be expressed

APPENDIX A

on the face thereof, and such bonds shall be lawful invest
ments, and may be accepted as security, for all fiduciary,
trust, and public funds* the investment or deposit o f which
shall be under the authority or control of the United States
or any officer or officers thereof. In the event that the Cor
poration shall be unable to pay upon demand, when due,
the principal of, or interest on, such bonds, the Secretary* of
the Treasury shall pay to the holder the amount thereof
which is hereby authorized to be appropriated out of any
moneys in the Treasury not otherwise appropriated, and
thereupon to the extent of the amount so paid the Secretar}"
of the Treasury shall succeed to all the rights of the holders
of such bonds. The Secretary of the Treasury, in his dis
cretion, is authorized to purchase any bonds of the Corpora
tion issued under this subsection which arc guaranteed as to
interest and principal, and for such purpose the Secretary
of the Treasury is authorized to use as a public-debt transac
tion the proceeds from the sale of any securities hereafter
issued under the Second Liberty Bond Act, as amended, and
the purposes for which securities may be issued under such
Act, as amended, are extended to include any purchases of
the Corporation’s bonds hereunder. T h e Secretary of the
Treasury may, at any time, sell any of the bonds of the Cor
poration acquired by him under this subsection. A ll redemp
tions, purchases, and sales b y the Secretary of the Treasury
of the bonds of the Corporation shall be treated as publicdebt transactions of the United States* The bonds issued by
the Corporation under this subsection shall be exempt, both as
to principal and interest from all taxation (except surtaxes,
estate, inheritance, and gift taxes) now or hereafter imposed
by the United States or any District, Territory, dependency,
or posession thereof, or by any State, county, municipality, or
local taxing authority. The Corporation, including its fran
chise, its capital, reserves and surplus, and its loans and
income, shall likewise be exempt from such taxation; except

THE BLUE BOOK

that any real property of the Corporation shall be subject
to taxation to the same extent, according to its value, as other
real property is taxed. No such bonds shall be issued in excess
of the assets of the Corporation, including the assets to be
obtained from the proceeds of such bonds, but a failure to
comply with this provision shall not invalidate the bonds or
the guaranty of the same. The Corporation shall have
power to purchase in the open market at any time and at any
price not to exceed par any of the bonds issued by i t Any
such bonds so purchased may, with the approval of the Secre
tary of the Treasury, be sold or resold at any time and at any
price. For a period of six months after the date this subsec
tion, as amended, takes effect, the Corporation is authorized
to refund any of its bonds issued prior to such date or any
bonds issued after such date in compliance wTith commitments
of the Corporation outstanding on such date, upon applica
tion of the holders thereof, by exchanging therefor bonds of an
equal face amount issued by the Corporation under this sub
section as amended, and bearing interest at such rate as may
be prescribed by the Corporation with the approval of the
Secretary of the Treasury; but such rate shall not be less than
that first fixed after this subsection, as amended, takes effect
on bonds exchanged by the Corporation for home mortgages.
For the purpose of such refunding the Corporation is further
authorized to increase its total bond issue in an amount equal
to the amount of the bonds so refunded- Nothing in this
subsection, as amended, shall be construed to prevent the
Corporation from issuing bonds in compliance with commit
ments of the Corporation on the date this subsection, as
amended, takes effect.
(d)
The Corporation is authorized, for a period of
three years after the date of enactment of this Act, (1 ) to
acquire in exchange for bonds issued by it, home mortgages
and other obligations and liens secured by real estate (includ
ing the interest of a vendor under a purchase-money mort

APPENDIX A

gage or contract) recorded or filed in the proper office or
executed prior to the date of the enactment of this Act, and
(2) in connection with any such exchange, to make advances
in cash to pay the taxes and assessments on the real estate, to
provide for necessary maintenance and make necessary repairs,
to meet the incidental expenses of the transaction, and to
pay such amounts* not exceeding $50, to the holder of the
mortgage, obligation, or lien acquired as may be the difference
between the face value of the bonds exchanged plus accrued
interest thereon and the purchase price of the mortgage, obli
gation, or lien. The face value of the bonds so exchanged plus
accrued interest thereon and the cash so advanced shall not
exceed in any case $14,000, or 80 per centum of the value of
the real estate as determined by an appraisal made by the
Corporation, whichever is the smaller. In any case in which
the amount of the face value of the bonds exchanged plus
accrued interest thereon and the cash advanced is less than
the amount the home owner owes with respect to the home
mortgage or other obligation or lien so acquired by the Cor
poration, the Corporation shall credit the difference between
such amounts to the home owner and shall reduce the amount
owed by the home owner to the Corporation to that extent.
Each home mortgage or other obligation or lien so acquired
shall be carried as a first lien or refinanced as a home mort
gage by the Corporation on the basis of the price paid therefor
by the Corporation, and shall be amortized by means of
monthly payments sufficient to retire the interest and princi
pal within a period of not to exceed fifteen years; but the
amortization payments of any home owner may be made
quarterly, semiannually, or annually, if in the judgment of
the Corporation the situation of the home owner requires it
Interest on the unpaid balance of the obligation of the
home owner to the Corporation shall be at a rate not exceed
ing 5 per centunvper annum. The Corporation may at any
time grant an extension of time to any home owner for the

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payment of any installment of principal or interest owed by
him to the Corporation if, in the judgment of the Corporation,
the circumstances of the home owner and the condition of the
security justify such extension. As used in this subsection,
the term “ real estate1’ includes only real estate held in fee
simple or on a leasehold (1 ) under a lease for not less than
ninet5r-nine years which is renewable, or (2 ) under a lease
having a period of not less than fifty years to run from the date
the mortgage was executed, upon which there is located a
dwelling or dwellings for not more than four families, which
is used in whole or in part by the owner as a home or held
by him as his homestead, and which has a value of not to
exceed $20300(X No discrimination shall be made under this
Act against any home mortgage by reason of-the fact that the
real estate securing such mortgage is located in a municipality,
county, or taxing district which is in default upon any of its
obligations.
For the purposes of this Act, levies of assessments upon
real property, made by any special district organized in any
State for public improvements* shall be treated as general-tax
levies are treated. The Board shall determine the reason
ableness of the total annual burden of taxes and assessments
of all kinds upon any property offered as security for the pay
ment of a loan made by the Corporation and the effect of the
total levies upon the loanable value of such property, but no
deduction shall be made from the loanable value of any prop
erty for levies not due at the time of making such loan in any
instance where the total annual taxes and assessments borne
by the said property for all purposes does not exceed a sum
which, in the discretion of the Board* is a reasonable annual
tax burden for such property,
(e)
The Corporation is further authorized, for a period
of three years from the date of enactment of this Act, to make
loans in cash subject to the same limitations and for the same
purposes for which cash advances may be made under subsec--

APPENDIX A

tion (d ) of this section, in cases where the property is not
otherwise encumbered; but no such loan shall exceed SO per
centum of the value of the property securing the same as
determined upon an appraisal made by the Corporation Each
such loan shall be secured by a duly recorded home mortgage,
and shall bear interest at the same rate and shall be subject
to the same provisions with respect to amortization and ex
tensions as are applicable in the case of obligations refinanced
under subsection (d ) of this section.
( f ) The Corporation is further authorized, for a period
of three years from the date of enactment of this Act, in any
case in which the holder of a home mortgage or other obliga
tion or lien eligible for exchange under subsection (d ) of this
section does not accept the bonds of the Corporation in
exchange as provided in such subsection and in which the
Corporation finds that the home owner cannot obtain a loan
from ordinary lending agencies, to make cash advances to such
home owner in an amount not to exceed 40 per centum of the
value of the property for the purposes specified in such sub
section ( d ) + Each such loan shall be secured by a duly
recorded home mortgage and shall bear interest at a rate of
interest which shall be uniform throughout the United States,
but which in no event shall exceed a rate of 6 per centum per
annum, and shall be subject to the same provisions with
respect to amortization and extensions as are applicable in
cases of obligations refinanced under subsection (d ) of this
section.
(g ) The Corporation is further authorized to exchange
bonds and to advance cash to redeem or recover homes lost
by the owners by foreclosure or forced sale by a trustee under
a deed of trust or under power of attorney, or by voluntary
surrender to the mortgagee subsequent to January 1, 1930,
subject to the limitations provided in subsection ( d ) of this
section.
(h) The Board shall make rules for the appraisal of the

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property on which loans are made under this section so as to
accomplish the purposes of this A ct: Provided, That no
person shall be allowed to act as appraiser if he is in the
employ of any company holding a loan on the property, or if he
is interested in the subject matter of the loan.
(i)
Any person indebted to the Corporation may make
payment to it in part or in full by delivery to it of its bonds
which shall be accepted for such purpose at face value.
( j ) The Corporation shall have power to select, employ,
and fix the compensation of such officers, employees, attorneys,
or agents as shall be necessary for the performance of its duties
under this Act, without regard to the provisions of other laws
applicable to the employment or compensation of officers, em
ployees, attorneys, or agents of the United States. No such
officer, employee, attorney, or agent shall be paid compensa
tion at a rate in excess of the rate provided by law in the
case of the members of the Board. The Corporation shall
be entitled to the free use of the United States mails for its
official business in the same manner as the executive depart
ments of the Government, and shall determine its necessary
expenditures under this A ct and the manner in which they
shall be incurred, allowed, and paid, without regard to the
provisions of any other law governing the expenditure of
public funds. The Corporation shall pay such proportion
of the salary and expenses of the members of the Board and
of its officers and employees as the Board may determine to be
equitable, and may use the facilities of Federal Home Loan
Banks, upon making reasonable compensation therefor as
determined by the Board. No person shall be appointed or
retained as an officer} employee, agent, or attorney, at a fixed
salary, in any regional or State office of the Corporation who
is an officer or director of any firm, corporation, or association
engaged in lending money on real estate; nor shall any person
be appointed or retained as an officer, employee, agent, or
attorney in any State or district office of the Corporation, who

APPENDIX A

has not been a bona fide resident of the State served by sucfa
office for a period of at least one year immediately preceding
the date of his appointment,
(k) The Board is authorized to make such bylaws>
rules and regulations* not inconsistent with the provisions o f
this section, as may be necessary for the proper conduct of
the affairs of the Corporation. The Corporation is further
authorized and directed to retire and cancel the bonds and
stock of the Corporation as rapidly as the resources of the
Corporation will permit. A ll payments upon principal of
loans made by the Corporation shall under regulations made
by the Corporation be applied to the retirement of the bonds
of the Corporation. Upon the retirement of such stock, the
reasonable value thereof as determined by the Board shall
be paid into the Treasury of the United States and the receipts
issued therefor shall be canceled. The Board shall proceed
to liquidate the Corporation when its purposes have been
accomplished, and shall pay any surplus or accumulated funds
into the Treasury of the United States. The Corporation
may declare and pay such dividends to the United States as
may be earned and as in the judgment of the Board it is
proper for the Corporation to pay*
(1 )
No home mortgage or other obligation or lien shall
be acquired by the Corporation under subsection ( d ) , and no
cash advance shall be made under subsection ( f ) , unless the
applicant was in involuntary default on June 13, 1933, with
respect to the indebtedness on his real estate and is unable
to carry or refund his present mortgage indebtedness: Pro
vided, That the foregoing limitation shall not apply in any
case in which it is specifically shown to the satisfaction of the
Corporation that a default after such date was due to unem
ployment or to economic conditions or misfortune beyond the
control of the applicant.
(m ) In all cases where the Corporation is authorized
to advance cash to provide for necessary maintenance and to

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make necessary repairs it is also authorized to advance cash
or exchange bonds for the rehabilitation, modernization, re
building and enlargement of the homes financed; and in all
cases where the Corporation has acquired a home mortgage
or other obligation or Hen it is authorized to advance cash or
exchange bonds to provide for the maintenance, repair, re
habilitation, modernization, rebuilding, and enlargement of
the homes financed and to take an additional lien, mortgage,
or conveyance to secure such additional advance or to take a
new home mortgage for the whole indebtedness; but the total
amount advanced shall in no case exceed the respective
amounts or percentages of value of the real estate as elsewhere
provided in this section. Not to exceed $400,000,000 of the
proceeds derived from the sale of bonds of the Corporation
shall be used in making cash advances to provide for necessary
maintenance and necessary repairs and for the rehabilitation,
modernization, rebuilding and enlargement of real estate se
curing the home mortgages and other obligations and liens
acquired by the Corporation under this section.
(n ) The Corporation is authorized to purchase Federal Home Loan Bank bonds, debentures, or notes, or consoli
dated Federal Home Loan Bank bonds or debentures. The
Corporation is also authorized to purchase full-paid-income
shares of Federal Savings and Loan Associations after the
funds made available to the Secretary of the Treasury for the
purchase of such shares have been exhausted, Such purchases
of shares shall be on the same terms and conditions as have
been heretofore authorized by law for the purchase of such
shares by the Secretary of the Treasury: Provided, That the
total amount of such shares in any one association held by the
Secretary of the Treasury and the Corporation shall not
exceed the total amount of such shares heretofore authorized
to be held by the Secretary of the Treasury in any one asso
ciation, The Corporation is also authorized to purchase
shares in any institution which is (1 ) a member of a Federal

APPENDIX A

Home Loan Bank, or (2 ) whose accounts are insured under
title IV of the National Housing Act, if the institution is
eligible for insurance under such title; and to make deposits
and purchase certificates of deposit and investment certificates
in any such institution. O f the total authorised bond issue
of the Corporation $300,000,000 shall be available for the
purposes of this subsection, without discrimination in favor
of Federally chartered associations, and bonds of the Corpora
tion not exceeding such amount may be sold for the purposes
of this subsection. . . .
Sec 7. The provisions of this A ct shall apply to the
continental United States^ to the Territories of Alaska and
Hawaii, and to Puerto Rico and the Virgin Islands.
Penalties
Sec. 8. (a) Whoever makes any statement, knowing it
to be false, or whoever willfully overvalues any security, for
the purpose of influencing in any way the action of the Home
Owners’ Loan Corporation or the Board or an association
upon any application, advance, discount* purchase, or repur
chase agreement, or loan, under this Act, or any extension
thereof by renewal deferment, or action or otherwise, or the
acceptance, release, or substitution of security therefor, shall
be punished by a fine of not more than $5,000, or by impris
onment for not more than two years, or both.
(b )
Whoever (1) falsely makes, forges, or counterfeits
any note, debenture, bond, or other obligation or coupon, in
imitation of or purporting to be a note, debenture, bond, or
other obligation, or coupon, issued by the Home Owners*
Loan Corporation or an association; or (2 ) passes, utters, or
publishes, or attempts to pass, utter, or publish, any false,
forged, or counterfeited note, debenture, bond, or other obli
gation, or coupon, purporting to have been issued by the Home
Owners* Loan Corporation or an association, knowing the
same to be false, forged, or counterfeited; or (3) falsely alters

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any note, debenture, bond or other obligation, or coupon,
issued or purporting to have been issued by the Home Own
ers* Loan Corporation or an association ; or (4 ) passes, utters,
or publishes, or attempts to pass, utter, or publish, as true any
falsely altered or spurious note, debenture, bond, or other
obligation, or coupon, issued or purporting to have been
issued by the Home Owners* Loan Corporation or an associa
tion, knowing the same to be falsely altered or spurious, shall
be punished by a fine of not more than $10,000, or by imprisonment for not more than five years, or both,
(c ) Whoevery being connected in any capacity with the
Board or the Home Owners' Loan Corporation or an associa
tion (1 ) embezzles, abstracts, purloins, or willfully misapplies
any moneys, funds, securities, or other things of value,
whether belonging to xt or pledged or otherwise intrusted to
it; or (2 ) with intent to defraud the Board or the Home
Owners1 Loan Corporation or an association, or any other
body politic or corporate, or any individual, or to deceive any
officer, auditor, or examiners of the Board or the Home
Owners* Loan Corporation or an association, makes any false
entry in any book, report, or statement of or to the Board or
the Home Owners* Loan Corporation or an association, or,
without being duly authorized, draws any order or issues, puts
forth, or assigns any note, debenture, bond, or other obliga
tion, or draft, mortgage, judgment, or decree thereof, shall be
punished by a fine of not more than $10,000, or by imprison
ment for not more than five years, or both.
(d ) The provisions of sections 29, 30, 32, 35, 37, 39,
112, 113, and 117 of the Criminal Code of the United States
(U . S. C , title 18, secs. 73, 74, 76, 82, 83, 88, 91, 202, 203,
and 207), insofar as applicable, are extended to apply to the
Home Owners’ Loan Corporation, its contracts or agree
ments, and an association under this A ct which, for the pur
poses herein shall be held to include advances, loans, discounts,
and purchase or repurchase agreements; extensions and re

APPENDIX A

newels thereof; and acceptances, releases, and substitutions
of security therefor.
(e )
No person, partnership* association, or corporation
shall, direcdy or indirectly* solicit contract for* charge, or
receive, or attempt to solicit, contract for, charge, o r receive,
from any person applying to the Corporation for a loan, (1 )
any fee, charge, or other consideration, whether bond or cash,
except ordinary fees authorized and required by the Cor
poration for services actually rendered for examination and
perfection of title, appraisal, and like necessary services, or
(2) any moneys, check, note, or other form of obligation, rep
resenting payment of any difference which may exist between
the market value and the par value of the bonds of the Home
Owners’ Loan Corporation. Any person, partnership, asso
ciation, or corporation violating the provisions of this subsec
tion shall, upon conviction thereof, be fined not more than
$5*000, or imprisoned not more than two years, or both.
Separability Provision
Sea 9. If any provision of this Act, or the application
thereof to any person or circumstances, is held invalid, the
remainder of the Act, and the application of such provision to
other persons or circumstances, shall not be affected thereby.
Home Owners* Loan A ct of 1933, approved June 13,
1933,
An A ct to Guarantee the Bonds of the Home Owners’
Loan Corporation, approved April 27, 1934.
The National Housing Act, approved June 27, 1934.
An Act to Provide Additional Home-Mortgage Relief
approved May 28,1935.

APPENDIX B

EXCERPTS

FROM

HOLC

MANUAL

RULES AND REGULATIONS DEALING
WITH TITLE EXAMINATION
AND LOAN CLOSING

Note: Parenthetical notations
refer to State Manual
chapters and sections.

APPENDIX B

F ee Attorneys and Title Companies

a. Selection of Fee Attorneys and Title Companies (Ch.
VI, sec. l d [ l ] ) .
The State Manager and State Counsel shall select and
recommend responsible title companies for title examinations
and other purposes required in connection with making loans,
and shall select also all necessary fee attornej's, who shall be
the best qualified attorneys available in the territory. Both
individual attorneys and firms of attorneys shall be selected
on the basis of the best interests of the Corporation. All fee
attorneys and title companies shall be selected subject to the
approval of the General Counsel.
b. Fee Attorneys Are not Employees (Ch. V I , sec. 1
d [2 ]) .
Fee attorneys are not employees of this Corporation and
shall be paid upon a fee basis., . ,
c. Closing W ork to Be Done by Fee Attorneys (Ch. VI,
sec. 1 d [3 ]) .
All loan closing work should be done in the office of the
fee attorneys or title companies. A ll State Counsel and
State Managers should select a sufficient number of fee attor
neys and/or title companies in each county to do the work
promptly and efficiently.
d. Where Firm Name to Be Signed by Fee Attorney
(Ch. V I, sec. 1 d [ 4 ] ).
Where a firm of attorneys has been placed on the ap
proved list of fee attorneys, the preliminary certificate, final
certificate, or other form or report is required to be signed
in the name of the firm by a member thereof, and where a
member but not the firm is on the approved list, such certifi
cates, forms, or reports shall be signed in the name of the firm
by such member.
e. When Fee Attorney’s W ork Is Unsatisfactory (Ch.
VI, sec. 1 d [ 5 ] ).
The State Counsel should immediately notify the Re

THE BLUE BOOK

gional Counsel whenever the work of any fee attorney may be
unsatisfactory, or if for any reason such fee attorney is no
longer available to perform work for the Corporation. The
State Counsel is instructed not to refer any additional work
to any attorney whose work is unsatisfactory. T h e General
Counsel, if in his opinion the work of any fee attorney is un
satisfactory, may direct that no more work shall be sent to
such fee attorney. The Regional Counsel may similarly give
such directions and must report the same to the General
Counsel.
f. Writing of Insurance by Fee Attorneys (Ch. V I,
sea 1 d [ 6 ] ) .
Fee attorneys who are also local insurance agents may
be allowed to rewrite policies, on risks previously written by
them, covering properties being refinanced by die Corporation,
but fee attorneys shall not solicit or accept business on any
risk, covering properties being refinanced by the Corporation,
which they have not heretofore written.
g. Attorneys W ho Are Holding Public Office (Ch. V I,
sec. I d [ 7 ]).
Title work shall not be given to a fee attorney actively
engaged in running for public office, but he shall be allowed to
complete work previously given him before he sought such
office. If a fee attorney is holding any public office, which
makes it impossible for him properly to handle title work for
this Corporation, then during such period of office no title
work shall be referred to him. The holding of public office
shall not disqualify a fee attorney, if the duties of such office
do not interfere with proper handling of the title work of the
Corporation. N o person may be employed as a salaried attor
ney while engaged in running for public office or while hold
ing public office.
h. (Ch. X IV , sec 17 and Ch. I ll, sec. 16).
. . , Fee attorneys „ • . and others compensated on a fee
basis are not entitled to the benefits of the Compensation Act.

APPENDIX B

. . , Persons employed on a fee basis are not officers of the
Government within the meaning of the law and are not
entitled to the free use of the United States mails,
i. (Ch. V II, sec. 2 a [2 ]) .
In all cases where * . * (a ) fee attorney . , . or other fee
personnel is either an applicant for a loan or is interested as a
lien holder or interested in a corporation or company which
is a lien holder, or is attorney or agent for any interested
party, the complete file must be forwarded to the Loan
Review Division in Washington for final approval before
closing.
j. (Ch. IX , sec. 2 b ),
Fees paid to fee attorneys, title companies or abstractors
and escrow agencies for services rendered in connection with
title examination and loan closing shall be paid only after
loans have been closed. . . *
2.

Eligibility

a. Legal Tests for Eligibility (Ch. V I, sec. 4 a ).
T o be eligible for consideration under the Home Own
ers’ Loan Act of 1933 and Amendments, all applications for
refinancing home properties must be submitted to the follow
ing legal tests:
(1 ) The property must be real estate held in fee simple
or held under a lease for not less than ninety-nine years, which
is renewable, or held under a lease having not less than fifty
years to run from the date the mortgage is executed.
(2 ) The property must have located thereon a dwelling
or dwellings for not more than four families.
(3 ) The property must be used by the owner as his
home or held by him as his homestead.
(4 ) The property must have a value not exceeding
$20,000 as appraised by the Corporation(5 ) No loan may be made for an amount that exceeds
$14,000, or eighty per centum (8 0 % ) o f the Corporation’s

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appraisal of the property offered, whichever is the smaller,
(6 ) The applicant must have been in involuntary de
fault on June 13th, 1933, with respect to the indebtedness on
his home and be unable to carry or refund his present mort
gage indebtedness except where it is specifically shown to the
satisfaction of the Corporation that a default after June
13th, 1933, is due to unemployment or economic conditions
or misfortune beyond the control of the applicant.
(7 ) T o redeem a home from forced sale or voluntary
surrender to a mortgagee, such sale or surrender must have
been subsequent to January 1st, 1930.
b. Supplementary Tests of Eligibility (Ch, VI, sec. 4 b ) .
Many cases occur which must be determined by an inter
pretation of the general principles laid down by the Act. T o
assist in the decision of such cases, the following regulations
and comments are added as supplementary to the legal tests,
(1 ) If the property is not encumbered by a mortgage
or other obligation or lien, a loan may be made in an amount
not to exceed 50 per centum of the value of the property as
determined upon an appraisal made by the Corporation, to pay
the taxes and assessments on the real estate and to provide for
necessary maintenance and make necessary repairs and for
rehabilitation, modernization, rebuilding and enlargement and
to pay incidental expenses of the transaction. In this connec
tion, however, it must be shown to the satisfaction of the Cor
poration that the applicant is unable to secure funds for these
purposes from either private sources or other governmental
agencies.
(2 ) In cases of combined business and residence prop
erty where the business portion of the property predominates
and the loan is eligible in all other respects, the file shall be for
warded to the Loan Review Division in Washington, D, C.,
and the Loan Review Division shall determine the amount
of the loan to be granted.
(3 ) If a portion of the property is rented for any pur

APPENDIX B

pose, the rent therefrom .must be assigned to the Corporation
as additional security but may be retained by the borrower as
long as installments due on the Corporation’s loan are paid*
(4 ) Any applicant who has secured one loan is not
eligible for another.
(5 ) The moral character and past record for honesty
and integrity of the applicant must be considered as an element
of eligibility. The applicant is ineligible if his record is unsat
isfactory in these respects.
(6 ) A home which is being used for illegal or immoral
purposes is ineligible.
(7 ) The property may have some farm land, but ordi
nary farm property is not eligible* The test here is whether
the applicant is primarily a farmer, or draws his main liveli
hood from some other source than the land. In all cases of
this character where there is any doubt as to whether the
loan should be made by the Farm Credit Administration or
by this Corporation the file should be referred to the Loan
Review Division, Washington, D. C„ for consideration.
(8 ) The applicant need not necessarily be living on
the property to be eligible for refinancing, but in such cases it
must be shown beyond all reasonable doubt that the property
is the bona, fide home of the applicant and he or she is only
temporarily absent therefrom, and the State Manager shall
require satisfactory proof, including an affidavit of the good
faith of the applicant,
(9 ) Where the applicant acquired title to the prop
erty since June 13, 1933, it must be shown that he resided
thereon on said last mentioned date as his home and had some
substantial interest directly or indirectly in the same, or has
since acquired title by inheritance or by gift, and in the case of
a gift, the applicant should further show to the satisfaction of
the Loan Review Division in Washington that such property
was received as a bona fide absolute gift of an equity of
substantial value.

THE BLOE BOOK

(10) Great care must be exercised in cases where home
mortgage distress is only incidental to the applicant's general
financial embarrassment in his business or banking commit
ments. It is not intended to refinance an applicant’s home if
such refinancing only serves as a protection to bank loans or
other business obligations.
(11) The applicant must be in real distress with his
mortgage indebtedness, and yet applicants who have no present
or prospective income of any character and who clearly cannot
pay the indebtedness proposed to be refunded are not eligible*
unless their notes are also signed by responsible parties. It is
the intention to preserve the homes of those who are victims
of the general economic depression, and who have a reasonable
chance o f financially rehabilitating themselves with the return
of more normal conditions. The Corporation does not intend
to refinance the home of an owner who could continue to carry
his present loan by making some sacrifice, nor will it refinance
the home of an owner who is in such hopeless distress through
illness or advanced age, as to be primarily a case for charity.
c. Liens Eligible for Refinancing (Ch. V I, sec. 4 c)*
The Corporation is authorized to take up any kind or
number of liens against a home, such as first mortgages, second
mortgages, judgments, purchase money contracts and all other
kinds of liens which were recorded or filed in the proper office,
or executed prior to June 13, 1933, provided the case is other
wise within the provisions set forth in this Manual.
d. Liens Ineligible for Refinancing.
(1 )
Incidental Agreements (Ch. V I, sec. 4 d [1])*
The Corporation will not refund any indebtedness where
the mortgagor is required to pay more than he owes, through
agreements either to pay future interest to the original mort*
gagee, or to absorb any loss of interest by the original mort
gagee, or to guarantee any diiference between the face value
of the bonds plus accumulated interest thereon and the mar
ket value of the same, or to cover any assumed loss on account

APPENDIX B

of acceptance of the bonds of the Corporation by the mort
gagee. The Corporation will not become a party to any con
tract between a mortgagor and a mortgagee in reference to
indebtedness refunded by the Corporation.
(2 ) Second Mortgages (Ch. V I, sea 4 d [ 2 ] ) .
Where the full amount of the indebtedness against the
property cannot be refunded by the Corporation, the mortga
gee or other lien holder will be permitted to take a second
mortgage or second deed of trust if the amount of such second
mortgage or deed of trust does not exceed the difference
between the Corporation’s appraisal and the amount of the
Corporation’s first mortgage. In no case shall the second trust
or second mortgage to such other mortgagee or lien holder be
in terms which would cause the mortgagor’s payments to the
Corporation to be a hardship, or deprive the mortgagor o f
reasonable opportunity to pay such second mortgage or second
trust
3.

Tax Search

(Ch. I l l, sec. 1 1 a ).

A t the same time that the case is referred to the Insur
ance Section, the Control Section should order a tax search
from the Tax Section or from outside sources approved for
rendering such service. The Tax Report shall set forth a
schedule of all taxes and assessments due and unpaid plus the
penalties to date. If there are any special levies or assess
ments affecting the property, the search will show the total
amount of the lien, the date the lien attached, the amount now
due and payable and it will contain a schedule of installments
payable in the future. In those States where the offices of the
Corporation do not have T ax Sections, tax reports may, with
the approval of the Regional Manager, be obtained from fee
attorneys, abstract companies or title companies in accordance
with the procedure heretofore in effect in such States.
4.

Treatment of Loan Files (Ch. I ll, sec. 12 f).
Loan files shall not be delivered to the Legal Department,

THE BLUE BOOK

and no abstracts or other title work ordered, or any other title
expense incurred, until after all proper and necessary work
as to such files has been wholly completed by the other Depart
ments, including the determination under all required signa
tures, of the final Corporation appraisal* Files which are not
in proper condition to proceed with the title work must be
promptly returned to the proper Department for further han
dling, No abstracts or other title work may be ordered except
by the Legal Department which shall have control of and be
responsible for every file received by this Department until
the loan is closed and the file forwarded to the proper Regional
Office. Loan files rejected by the Legal Department shall be
returned promptly to the Department concerned. The Legal
Department shall keep an adequate record of all loan files
received, of the progress of the work thereon, and of their
disposition.
5.

Assignment of Cases for Title Examination
(Ch. Ill,sec. 13 a).

The responsibility for the distribution of cases to fee
attorneysr abstract or title companies . . . shall rest with the
Legal Department in the District Office in which the applica
tion has been filed, or to which it has been forwarded, for
examination. If the State Office, in addition to its admin
istrative duties, is also acting in the capacity of a District
Office, insofar as the examination of title is concerned, the
Legal Department of such State Office will, under circum
stances similar to those mentioned above, be charged with a
like duty and responsibility. The Legal Department in the
State or District Office responsible for the examination of
title will order an examination as soon as the case is received.
6-

Procedure Required (Ch. V I, sec. 18),

In the examination of titles and closing of loans the
procedure set forth in (the Corporation's Manual of Rules
and Regulations) is required, together with all such other

APPENDIX B

precautions as are necessary for reasonable assurance of a
valid first lien upon eligible estates. The best practice
wherever possible is to have all work in connection with the
title examination and closing of loans done for one fee by
either a fee attorney or title company. Such fee attorney or
title company should do all such necessary legal work and
the Legal Department should confine itself to review and
supervision.
7,

Order for Title Examination

(Ch. VI, sec. 19).

Upon receipt by the Legal Department of a loan file for
title examination, the State or Wholesale Counsel or the
Counsel for a District or Autonomous Office, shall direct an
approved fee attorney or title company in the locality in which
such property is situated to make an investigation of and pre
liminary report on the title. Such fee attorney or title com
pany shall be provided with all available information, includ
ing that contained in the Application, Appraisal and Char
acter Report, relative to all liens, recorded or unrecorded,
against such property, and any chattels used in connection
therewith, which chattels are reasonably necessary to the com
fortable occupancy of the premises as a home, and all avail
able information relative to assessments, rights o f way, en
croachments, covenants, conditions and other matters which
may in any way affect the title.
8*

Titles

a, Character of Title Required (Ch. VI, sec. 5 a).
The Corporation requires reasonable assurance o f a valid
first lien upon a fee simple title or an eligible leasehold estate.
Many titles have minor defects which do not materially affect
the title or the security of the first mortgage thereon, such
as . . . slight encroachments, etc. The Corporation is willing
to accept such titles as the better class of first mortgage lenders
have accepted in the past as first mortgage security, in the
territory where the property is situated.

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b. Restrictive Covenants— Reverter (Ch. V I, sec 5 b).
Forfeiture and defeasance clauses are void in many
states as against public policy. In other states, they are
held to be restrictions which can only be taken advantage of
by an injunction suit or suit for damages. In many instances,
the forfeiture clause has been waived by failure on the part of
the creator of the forfeiture to restrain violations, and thus
an estoppel has been raised. Where there is reasonable evi
dence that the forfeiture or defeasance clause is unenforceable,
or where the better class of mortgage lenders in the locality
customarily make loans without regard to such clauses, or
where a valid waiver of the reversionary right is secured and
recorded, the Corporation may make or refund a loan.
9*

Chattels
:a. Search Required (Ch. V I, sec. 7 a).

Careful search must be made for any liens on any chattels
used in connection with the real estate. Affidavits or other
evidence should be taken upon closing as to the status of title
to such chattels according to the practice of the better class
of mortgage lenders In the territory. If such chattels are rea
sonably necessary to the comfortable use of the premises as a
home, such as a furnace or plumbing fixtures, any lien thereon
may be treated as a mortgage obligation or lien on the home.
If the chattel is not necessary to make the same reasonably
comfortable as a home, such as a bird bath, the Hen cannot
be taken up as other mortgages, obligations, or liens on the
home.
b. Mechanics* Liens, etc.

(Ch, V I, sec. 7 b ).

Liens for labor and material in most states exist from
the beginning of the improvement, and therefore if the im
provement for which the lien is claimed started prior to June
13th, 1933, the liens are eligible for refunding and must be
dealt with as any other lien provided such lien has not ex

APPENDIX B

pired. In the case o f such liens accruing after June 13th,
1933, for necessary repairs and necessary maintenance, it must
be determined that the laborers, materialmen and contractors
have been duly paid and releases procured in due form for
recording before such liens may be refinanced.
10.

Preliminary Certificate of Title (Ch. V I, sec, 20).

Upon receipt of the instructions and information men
tioned above the fee attorney or title company shall make a
thorough search of all public records which may disclose the
status of the title and shall also make a thorough investigation
of all unrecorded liens or encumbrances of which the Corporation has notice. Following such search and investigation the
fee attorney or title company shall issue its signed Preliminary
Certificate of Title which shall set out, among other things,
the name of the person in whom title is vested, the legal status
and the nature and extent of the estate of the owner therein
a complete description of the property and all objections and
encumbrances whether recorded or unrecorded, including the
dates of execution thereof. T h e Preliminary Certificate of
Title shall bear the date of the completion of the title search.
The form of such certificate shall have been approved by the
General Counsel or Associate General Counsel in charge of
the Examining Division of the Legal Department. Remov
able encumbrances, defects and objections, except liens in
cluding taxes and assessments to be refunded, paid, or subor
dinated shall be cleared, so far as possible at that time, before
the Preliminary Certificate is forwarded and the fact and
manner of such clearance indicated by appropriate marginal
notations thereon.
11. Title Report— Clearing of D efects or Encum
brances (Ch. I ll, sec. 13 c ).
The title report will be returned to the State or District
Counsel, who ordered the same, for his examination. If the
report shows objections, defects or encumbrances in addition

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to the refundable liens, the applicant shall be so advised and it
will be his duty to have the title cleared for closing. However,
if such objections, defects or encumbrances are of a minor
nature and may be cured by the simple procedure of obtaining
affidavits, releases, waivers and like papers* the fee attorney
or title . . . company making the report may be required to
render the necessary service.
12.

Closing Date— H o w Determined
(Ch. I ll, sec. 13 c ) .

When it has been ascertained that the title is subject only
to the liens to be refunded and final written consents shall
have been obtained from all lien holders agreeing to exchange
the liens held by them for the bonds and cash authorized by
the Corporation, a day shall be fixed for closing the loan.
Such closing date should be far enough ahead to allow the
preparation of loan papers, vouchers and settlement sheet
(Form No. 15) and the forwarding of such papers to the
closing agent. A period of not more than fifteen days will
ordinarily be sufficient for this purpose,
13.

Notice of Closing Date (Ch. I ll, sec* 13 f ).

The applicant and the lien holders should be notified of
the date fixed for closing and instructed to be present at that
time prepared to execute loan papers and deliver evidences of
existing liens and to release them of record. If the lien holder
is a non-resident or if he is temporarily absent and cannot be
personally present at the closing date to sign the bond au
thorization (Form 62), or if the lien holder prefers, then
Forms 86 and 87, revised, may be used. The applicant
should also be given notice of the Corporation’s requirements
for fire and windstorm insurance and instructed to have
proper policies ready for delivery on the closing date.

APPENDIX B

14.

Loan Papers and Form N o. IS T o Be Prepared
by the Legal Department (C h . Ill, sec. 13 g).

As soon as the closing date has been set the Legal De
partment, or the Fee Attorney if authorized to do so, will
prepare the note and mortgage, or trust deed, in accordance
with the regulations of the Corporation and the requirements
and practice of the locality. In all cases where reconditioning
work is to be done the required contracts will be prepared by
the Legal Department. Uniformity and accuracy can only be
assured by the preparation of the loan papers in the office of
the Legal Department After these papers have been drawn,
Form No* 15 should be prepared and the file should then be
sent immediately to the State Office,
15.

Preparation o f Disbursement Forms
(Ch. I ll, sec. 14 a).

The State Office should prepare all necessary disburse
ment forms and vouchers as soon as the file is received from
the District Office. . , . Inasmuch as time is an important
element, the State Office should be so organized that, within
48 hours, all necessary forms may be prepared, the file prop
erly checked and mailed to the District Office, or where so
authorized the file will be mailed to the fee attorney or title
company.
16*

Forwarding of File to F ee Attorney, e t c f o r
Closing (Ch. I ll, sec. 14 b ).

The loan file accompanied by the disbursement papers
will be forwarded by the District Office, for closing, to the
fee attorney or other authorized loan closer on the same day
that such file and papers are received from the State Office.
17.

Taxes and Assessm ents
a.

6 a).

Items Which May Be Paid in Cash (Ch. V I, sec,
|
Taxes and assessments outstanding in the form of liens

THE BLUE BOOK

against the home may oe paid, if necessary, in cash* Liens
of the United States for taxes may be taken up, as well as liens
of states, counties, municipalities, and other taxing authori
ties. Liens of states, counties, municipalities, or other taxing
authorities for assessments for improvements such as street
paving, curb, sidewalk, sewer, water, and other improve
ments* the costs of which are assessed against specific property, may be taken up in cash.
b. Contractors' or Other Private Assessment Liens (Ch.
V I, sec* 6 b ).
It is not the purpose to take up with cash, under Section
4 (d ) of the Home Owners' Loan A ct of 1933 as Amended, so
called “ assessment liens” which are merely private liens in the
hands of contractors or other private parties and which must
be enforced by legal process. Such liens may be taken up with
bonds under Section 4 (d ) or cash under Section 4 ( f ) of the
Act.
c. Items Paid by Mortgagee and Refundable Only in
Bonds (Ch. VI, sec. 6 c ).
Any tax or assessment lien that has been paid by the
mortgagee and thus satisfied cannot be taken up by the Cor
poration in cash as a tax or assessment lien but may only be
refunded as a part of the mortgage indebtedness.
d. Items to Be Paid or If Unpaid to Be Deducted From
Loanable Amounts (Ch. V I, sec, 6 d ).
All taxes payable at the time the Corporation closes the
loan shall be paid, even though time for payment of all or a
part of such tax has been extended; provided, however, that
where the time is extended by a statutory tax moratorium,
such tax may be left unpaid, but the amount of the tax in such
cases shall be deducted from the loanable amount.
e. Due and Past Due Items Which Cannot Be Paid at
Closing— Escrow (Ch. V I, sec* 6 e).
Taxes due and past due which cannot be paid at the time
o f closing the loan, whether on account of delay by taxing

APPENDIX B

officials in arriving at the amount of such taxes, or litigation,
or for other reason, shall be provided for by placing in escrow
with the Corporation a sum estimated by taxing officials to
be sufficient to cover such past due taxes, to be disbursed imme
diately when such taxes are ascertained and payable.
f. Past Due Improvement Assessments (Ch. V I , sec. 6 f)*
Improvement assessments due and payable shall be paid
and discharged.
g. Assessments Not Due or Payable (Ch. V I, sec. 6 g ) .
(1 ) A reasonable total annual burden of taxes acid
assessments of all kinds is determined to be a sum equivalent
to 3 percent of the value of the property as appraised by the
Corporation. No deduction shall be made from the loanable
amount on any property, for levies not due at the time of
making the loan, in any instance where the total annual taxes
and assessments borne by the property for all purposes does
not exceed a sum equivalent to 3 percent of the value of the
property as appraised by the Corporation*
(2 ) Whenever, after title examination, it appears that
on account of special assessments, which are to remain and be
payable in the future, the total annual burden for taxes and
assessments exceeds an amount equivalent to 3 percent of the
value of the property as appraised by the Corporation, such
case shall be referred to the State, Territorial, or Autonomous
Loan Committee.
(3 ) In such case the Loan Committee after considering
the total burden for taxes and assessments over and above said
3 percent, shall deduct from the loanable amount the excess
amount of the special assessment. In those cases in which the
annual burden of taxes, exclusive of special assessments, is
equal to or greater than 3 percent of the Corporation ap
praisal, the full amount of such special assessment which remains and is payable in the future shall be deducted. In those
cases in which the annual burden of taxes, exclusive of special
assessments, is less than 3 percent of the Corporation ap

THE BLUE BOOK

praisal such part of the special assessment as will raise the
annual burden to 3 percent shall not be deducted, but the re
mainder df such special assessment which remains and is pay
able in the future in periodical installments shall be deducted,
(4 ) A ll appraisals shall proceed as heretofore,
(5 ) For the purposes herein outlined special assessments
are defined as payments due for street improvements, sanitary
improvements, mosquito abatement, flood control, electric
lighting, gas, irrigation, water stocks, and similar encum
brances, having a definite maturity date and not ordinarily
classified as general taxation. . . .
h. Items Accruing After Closing (Ch. V I, sec. 6 i).
Taxes accruing after the closing of the loan should be
paid by the mortgagor.
i. Tax Form 53 (Revised)— (CIl VI, sec. 25),
Tax Form 53 (Revised) shall be carefully prepared and
signed by the loan closer. Full information concerning all
statutory moratoria extending the time for payment of taxes
and assessments, then in force, must be set out on the reverse
side of said Tax Form 53 (Revised).
18.

Note and Mortgage
a. Form (Ch. V I, sec, 22 a).

The notes and bonds and the mortgages and other instru
ments which are taken by the Corporation to secure a first
lien shall be only upon the forms approved for the respective
states and territories.
b. Terms (Ch. V I, sec, 22 b ).
A ll loans shall bear interest at the rate of 5 % per annum
except that loans under Section 4 ( f) of the Act as amended
shall be at the rate of 6 % per annum. The loan instruments
shall provide for monthly payments and for amortization
within a period not exceeding fifteen (15) years as may be
determined by the State Manager. In exceptional and un
usual cases where the extreme necessities of the home owner

APPENDIX B

require it, the loan may be amortized quarterly, semi-annually,
or annually, provided such amortization is recommended by
the State Manager and the approval of the Regional Manager
is first obtained. In the event the loans are made on tem
porary, fragile, or other houses which will not retain their
value over a longer period of years, such loans shall provide
for amortization in not over ten (1 0 ) years. Monthly
amortization payments of not less than $10.00 shall be re*
quired in every case, provided, however, that in cases o f
applicants with very small earning capacity, who cannot
make such payments, the monthly amortization payment may
be fixed at not less than $5*00 or at the regular amortization
rate, whichever is larger. In no event shall the monthly
amortization payment be fixed at less than $5.00.
c* Execution and Date (Ch. V I, secs. 22 c and 11).
The instruments evidencing and securing the Corpora
tion’s loan shall bear all signatures now or hereafter required
by the rules and regulations, . . . Said loan instruments and
the settlement sheet (Form No. 15) shall be signed in the
same manner and shall bear the same date. This date shall
be, as nearly as possible, the date of the actual closing and
disbursement of the loan. . . .
All signatures shall be required which are necessary to
give the Corporation a valid first lien upon a fee simple title
or an eligible leasehold estate. In the case of loans to married
persons, both husband and wife shall be required, if legal, to
join in the execution of the instruments evidencing and secur
ing the debt Upon failure to do so, except on such legal
grounds, the loan shall be declined. In loans to married
persons where one spouse is legally incompetent, a loan may
be closed without the signature of such spouse, provided that
the Corporation secures a valid first lien without such signa
ture. In loans to married persons where one spouse is legally
competent to sign, but will not do so, the loan may be closed
without the signature of such spouse provided the Corporation

THE BLUE BOOK

will secure a valid first lien, and provided further that all
such cases shall be forwarded to the Loan Review Division
in Washington, with a full statement of the situation and the
recommendation of the State Manager and approval obtained
before closing.
In States where minor home owners are otherwise eligi
ble and can legally create a valid first lien to secure a loan,
loans may be made* upon the approval of the State Counsel,
to such persons on condition that the adults living on the
home property endorse the note to this Corporation.
19.

Clearance o f Encumbrances

(Ch. V I, sec, 21).

. . . Where the Preliminary Certificate shows an out
standing assessment lien payable in the future, and where the
loanable amount has been reduced under proper authority by
a sum equal to such lien, the State or Wholesale Counsel or
the Counsel of a District or Autonomous Office shall approve
the waiver of payment of such lien by the following initialed
marginal notation upon the Preliminary Certificate of T itle :
“ Payment Waived— Loanable Amount Reduced Accord
ingly” . Where the method of clearance has been approved
and the closing papers drawn, the preliminary certificate
shall then be returned to the loan closer who shall dispose of
all such encumbrances, defects and objections according to
instructions. The fact and manner of clearance of all remain
ing encumbrances, defects and objections, noted in the Pre
liminary Certificate of Title, whether recorded or unrecorded,
shall be evidenced by marginal notations made thereon by the
loan closer and by him initialed. Such marginal notations
should be concisely stated, yet sufficiently complete to enable
a stranger to determine the steps taken to clear such encum
brances, defects and objections. If any objections are waived,
such fact and the reasons therefor should be evidenced by such
initialed marginal notations.

APPENDIX B

20.

Supplemental Title Search
(Ch. VI, sec. 23).
Upon return of the preliminary Certificate o f Title to
the loan closer for closing with directions of counsel in the
Legal Department such loan closer shall make a thorough sup
plementary search of the public records in order to ascertain
the status of the title at the date of closing the loan* The fact
of such search and any encumbrances, defects, or objections
disclosed thereby shall be evidenced by a To-date Report,
either as a separate instrument or as a part of the Final Certifi
cate, as the State Counsel may direct.
21. Recovery of H om es Lost by Foreclosure— Junior
Liens Which M u st Be Disposed O f
(Ch. VI, sec. 9 b ).
No recovery may be effected unless outstanding obliga
tions which were junior liens on the property prior to fore
closure, and all general judgments against the applicant are
properly canceled or subordinated. If such liens or judgments
were in existence on or prior to June 13th, 1933, and would
attach upon the property being deeded back to the applicant,
they may be refunded by the Corporation. If they were not
so outstanding on June 13th, 1933, or if they would not attach
as liens they cannot be refunded, but nevertheless must be
released or subordinated to the lien of the Corporation before
the Corporation may proceed to make a loan.
22.

Insurance

a. Insurance Policies to Be Obtained From Applicant
(Ch. I l l, sec. 14 c ).
At the time of closing the loan the fee attorney, or other
authorized closing representative, will obtain from the
applicant or mortgagee all insurance policies still in force and
such new policies as have been required in accordance with
the insurance schedule and instructions prepared by the
Insurance Section.
b. Amount of Insurance Required (Ch. X I, sec. 2 e).

THE BLUE BOOK

(1 ) The amount of fire insurance required shall be as
follows;
(a) If amount of loan is more than the replacement
value, then full insurance to value is required on all buildings.
(b ) If amount of loan is equal to or less than the re
placement value, then fire insurance is required on the main
dwelling in an amount equal to the loan, if possible, and in
addition, an amount equal to 50% of the replacement value
on outbuildings valued at $200.00 or more, is required.
(2 ) The amount of windstorm or other necessary in
surance coverage to be required in certain territories will be
specified by the General Manager.
23.

Closing and Disbursing Loans (Ch. V I, sec, 26).

Encumbrances (other than liens to be refunded), defects
and objections must be properly cleared and supplemental title
search disclose no new matters, before proceeding with clos
ing, filing for record of closing papers, and disbursement.
Disbursement of cash and bond authorizations shall be made
immediately after filing for record of Corporation mortgage
or other instrument securing the loan, and in any event
within seventy-two hours thereafter, provided the Corpora
tion will obtain a valid first lien. If, under the recording
or other laws of a particular state or territory, it is necessary
to withhold disbursement for a longer period after the filing
for record, then disbursement shall be made as soon as a valid
first lien can be obtained. Unless arrangements have been
completed for such disbursement, no mortgage or other instru
ment to secure the Corporations lien, releases or transfers
of liens, or other closing instruments shall be filed for record.
In states or territories where it is legally necessary to deviate
from the foregoing rule in order to obtain a valid first lien,
the State or Territorial Counsel shall advise the General
Counsel and the Regional Counsel of the legal necessity
therefor, together with a statement of the necessary time

APPENDIX B

which must elapse after the filing for record before disburse
ment may be safely made. Except as hereinbefore provided
in this section, no deviation from its provisions w ill be per
mitted in the loan closing procedure, unless advance approval
of the Regional Counsel and General Counsel has been
obtained.
If unforeseen obstacles beyond the control of the loan
closer arise after the loan instruments have been executed but
before filing for record and such closing and filing are not
completed within thirty days from the date of such papers, the
loan instruments shall be canceled and Form No. 15. checks,
and Form No. 62 shall be returned to the State Office for
cancelation. Closing and disbursement shall be made on new
papers in accordance with the requirements contained in this
Chapter,
All of the original instruments evidencing the debt to be
refunded shall be produced and canceled at the time of closmg or the loan shall not be closed. In jurisdictions where
cancelation is not in accordance with the local practice, the
note and mortgage or other instrument shall be assigned to
the Corporation or release thereof delivered in due form for
recording. In the case of a lost instrument evidencing the
debt the same must have been legally reestablished by Court
proceedings or otherwise, or the Corporation must be pro
tected by security approved by the General Counsel. The
Recorder s Certificate (Form No. 13) shall, wherever possi
ble, be obtained when the mortgage is filed for record and
shall be made a part of the loan file.
Before a loan is closed, there shall be in the file all neces
sary mortgagee's consents on the latest revised form in use
when such consent was executed, for the definite amount to be
paid to such mortgagees without conditions or exceptions
other than for interest to the date of settlement. In the event
that, after a mortgagee’s consent has been obtained, it is dis
covered that such consent does notrepresent the correct amount

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to be paid or contains exceptions and conditions other than
for interest to date of settlement, then a new consent on the
latest revised form shall be secured for the correct amount
without any conditions or exceptions except for interest to
date of settlement. No consent shall be obtained by any
official of this Corporation except on the latest revised form in
use at the time and for a definite amount without conditions
and exceptions other than for interest to date of settlement.
No deviations from the provisions of this paragraph will be
permitted without the approval of the General Counsel or
an Associate General Counsel.
24,

Instruments Refunded

(Ch* VI, sec. 2 8 ).

When a loan is closed the loan closer should have in
hand the original note or other evidences of the debt refunded,
together with the original instruments securing such obliga
tions and releases of the same. The note or other instru
ments evidencing the debt refunded shall be canceled on
their faces, or in jurisdictions where such cancelations are not
in accordance with local practice the note or mortgage or
other instrument shall be assigned to the Corporation or re
leases thereof delivered in due form for recording. All of
these original instruments should be included in the loan file.
If the original note or other evidence of the refunded debt
cannot be obtained for enclosure in the loan file the loan
closer shall procure a true copy of each of them and certify
that it is such and that the original of each was canceled on its
face* If the original recorded or unrecorded instrument
securing the refunded debt cannot be obtained the loan closer
shall obtain a copy which shall then be certified by him as to
correctness and included in the file. If the contract sought
to be refunded was oral, a statement of the substance of the
contract supported by affidavits of the parties thereto, must
have been approved, before the loan is closed* by the Loan
Review Division in Washington and must be included in the
file.

APPENDIX B

25*

Evidence of Custodian’s Authority
a. (Ch. V I, sec 29).

Whenever a receiver, administrator or other custodian
of the assets of another agrees to accept bonds of the Cor
poration or cash in exchange for any of such assets and exe
cutes a release, the loan closer, after proper investigation,
shall execute a certificate that such receiver, administrator or
other custodian was duly appointed and authorized to accept
such settlement and to execute a valid release thereof.
b. (Ch. V III, sec. 3 g ).
In dealing with Receivers, Conservators, Agents or Trus
tees it is, in most cases, necessary to secure a Court Order
approving the refunding of the loan. In all instances where
Court Authorization is necessary a certified copy of the Court
Order authorizing the liquidator or receiver to accept the
Corporation's bonds and to give a valid release, or satisfactory
evidence thereof as shown by a certificate (Form 112A) of an
attorney for the Corporation, must accompany each loan file
before it is forwarded to the Regional Office. T h e Comp
troller of the Currency has issued a blanket authorization to
accept the Corporation's bonds in all cases where the claim of
a national bank is to be fully liquidated. When mortgage or
other eligible liens held by national banks in the custody of
the Comptroller of the Currency require adjustment, author
ity to accept such adjustments must be obtained from the
Comptroller of the Currency and placed in the file. A ll mat
ters relating to wholesale handling which require contact with
the offices of the Comptroller of the Currency or any other
Government department shall be directed through the chan
nels of the Wholesale Department at Washington*
26.

Final Certificate of Title

(C h . VI, sec. 2 7).

After a loan has been closed, the loan closer shall execute
a Final Certificate of Title on a form approved by the General
Counsel or Associate General Counsel in charge of the Exam

THE BLUE BOOK

ining Division, certifying that the mortgage or other instru
ment securing the indebtedness to this Corporation has been
duly filed for record, giving the date together with the book
and page where recorded, or, the Clerks or Register’s filing
or document numberf and certifying that the full considera
tion for said note or other obligation and mortgage has passed
to the mortgagor, and that such mortgage is a valid first
lien in accordance with the regulations contained in this
Manual.
27.

Evidence of Title

( Ch.. VI, sec, 30).

Each closed loan file shall contain one of the following
evidences of title: An abstract and a certificate of the closing
attorney as to title, or a policy of title insurance, or a certifi
cate of title. The form of the title insurance policy or of
the certificate of title must be approved by the General Coun
sel or Associate General Counsel in charge of the Examining
Division. Such evidence of title shall contain a legal descrip
tion of the property and a statement of the nature of the
borrower’s estate therein and the encumbrances thereon.
28*

R eview bp Legal Department

(C L V I, sec. 31).

When the loan has been closed, the loan closer should
forward the file to the State, District or Autonomous Office
serving the territory, where it should be inspected by the
Counsel in such office and the title evidence approved if sat
isfactory. If there be an approved contract for recondi
tioning* such Counsel shall obtain and forward, as soon after
the completion thereof as is possible, all necessary receipts and
releases relative to materialmens and laborers’ liens in
accordance with the reconditioning provisions of this Manual.
29*

Split File

a. Shipment from District Office to State Office (Ch.
I l l , sec. 14 h ).
On the same day that the District Office receives the

APPENDIX B

closing papers from the fee attorney or other closing repre
sentative, the Legal Department will forward to the State
Office the original bond or note to the Corporation, Forms
No. 15 (Settlement Sheet) and No* 62 (Duplicate Bond
Authorization) together with Form No. 13 which is the
Recording Officer's receipt for the mortgage to the Corpora
tion. The remainder of the file is to follow as soon as the
abstract or title opinion is properly extended to include the
mortgage or trust deed to the Corporation, final certificate
of title obtained and all papers pertaining to the loan brought
together, except waivers of mechanics and materialmen*s liens
and the required receipts* the certification of completed work
by the Reconditioning Department and the acceptance
of the work by the mortgagor when reconditioning is to he
done. All papers and material remaining in the file in any
way relating to the handling or closing of the loan shall be
sent to the State Office for transmittal to the Regional
Treasurer. In those cases where there has been recondition
ing, the certification of completion by the Reconditioning
Department, the acceptance by the mortgagor together with
waivers of mechanics and materialmen’s Hens and all required
receipts shall be forwarded to the State Office for transmittal
to the Regional Treasurer as soon as the work has been
completed.
b. Shipment from State Office to Regional Office
(Ch. I l l, sec. 14 i).
Promptly upon receipt by the State Office of the note,
receipt and forms next above mentioned and where possible
on the same day, such note, receipt and forms shall be for
warded to the Regional Treasurer together with transmittal
Form No. 46, sufficiently completed to cover the items for
warded. The remainder of the file shall likewise be for
warded to the Regional Treasurer, wTith proper covering
Form No. 46, listing the items being forwarded as soon as
received and checked in the State Office.

APPENDIX C

ORGANIZATION CHART
FEDERAL HOME LOAN BANK BOARD
LEGAL DEPARTMENT

Appendix C

LEGAL USPAEiiOD

FEDERAL

LOAKMKKBOAJII)
KASHTtfflTOS

HORACE &JSSEU
GENERAL C03HSE,
Harvey L* Jones
Anthony ft* X>s Poto
Ur5 - Ethel H# Honroe

SsciTetery

FEDERALEME

KMBOVHERS*

LOAN BANK SYSTEM

U3A.lt COHPORATIOH

0. B. Taylor
Associate

Jasses H* Fraser
Associate

ADVISORY DIVISION
firight Clark
Ass o ■■ Gen* Counsel
Matthew Gault
As so. Geti. Counsel

sysrar

Associate
General Counsel

Associate
Gfincr&l Co’iinstl
In_Ghtr£e

I n Charge
Howard fi. fceihrenbradfc
John A* Murray
Stathryn E< Gwitm

LITIGATION DIVISION
Luke E. Keeley
Ass 604 Gon. Counsel
ThiKnas B« King
A ssistan t

GENERAL LITIGATION SECTION

FIKAKCE SECTION

E>ery J. ?>ocKi&ll

Jaass fi. F ras«r

General Counsel
I n Charge
Thocas A- Sbenaan
T« Wade Harrison
Cheater S. Shade

General Ccrucs*l
I n Charge
Stephen L . Upson
C„ ?,ylie Allen

FEDERAL SAVTKGS AKD
LOAH INSURANCE
CORPORATION

SiVTZiC-S AND I jOAK

Dougli3 U. Orr

John L. F ltzgarsld
Ho*eU Cobb

E m . & SERVictw d iv .
V5ttUa.ee ftfllker
As e oc 1i 8tfc_Coun 3 fcl
A ldrich Kymen
Assistant

EXAMINING SECTION

Ernest K. fleunaivi

J . Arthur Wood
ft. P. Btirday

AUDIT SECTI0H

CRIUIMAL S1CTI0N

LOAN SERVICE SECTION

D. Hurd Hudson

J . G. flOSS

Jtanllton B. Stephens

ACCOUNTS SECTIOB

FORECLOSURE SECTION

PROPERTY SERVICE SECTION

H, f t TiioBp3on

Heber H. flica

John ft. Phillips, J r .

BftlEFS SECTIOK

CLAIMS SECTION

k&tttwr Gaalt
Asaa&lnte GeneraL_CounS£l^

E rnest F. Anes
B . B. Bailey

J . Edgar Cans

Burton Sadth

REGULATIONS SECTION

RECONDITIONING SECTION

A. L. HexpMll

Bet tin Stalling

11
REGIONAL COtflSEL
&nd
STAFF

52
STATE te TERRITORIAL COUNSEL
arrf
*
STAFF

Huaber o f attorneys on Salary baalo, tiation-wids 764
ilUEber o f attorneys on Fee b a sis, nation wide
- €,360
Revision Approved

by Horace R u sae ll, Gtrwr&l Counsel, Feb* 1 , 1936
Prepared by fLecords Section

Full text of The Blue Book : A Brief Account of the Lending Operation of Home Owners' Loan Corporation with Special Reference to the Examination of Land Titles and the Conduct and Closing of Real Estate Loans

FRASER