Opinion ID: 454815
Heading Depth: 2
Heading Rank: 1

Heading: The Duty to Refinance.

Text: 25 Where, as here, resolution of a question of federal law turns on a statute and the intention of Congress, we look first to the statutory language and then to the legislative history if the statutory language is unclear. Blum v. Stenson, 465 U.S. 886, 104 S.Ct. 1541, 1548, 79 L.Ed.2d 891 (1984). Our inquiry, therefore, begins with the text of the Housing Act of 1949, as amended. We remain mindful, however, that a statute, although seemingly clear at first, often contains latent ambiguities, requiring recourse to other explanatory sources. See James v. United States, 760 F.2d 590, 593-94 (5th Cir.1985) (en banc). 26 In the Housing Act of 1949, Congress declared the following to be national housing policy: 27 governmental assistance to eliminate substandard and other inadequate housing through the clearance of slums and blighted areas, to facilitate community development and redevelopment, and to provide adequate housing for urban and rural nonfarm families with incomes so low that they are not being decently housed in new or existing housing shall be extended to those localities which estimate their own needs and demonstrate that these needs are not being met through reliance solely upon private enterprise, and without such aid; and governmental assistance for decent, safe, and sanitary farm dwellings and related facilities shall be extended where the farm owner demonstrates that he lacks sufficient resources to provide such housing on his own account and is unable to secure necessary credit for such housing from other sources on terms and conditions which he could reasonably be expected to fulfill. 28 42 U.S.C. Sec. 1441. Toward this end, section 501(a) of the Act, as amended, provides in pertinent part: 29 The Secretary of Agriculture (hereinafter referred to as the Secretary) is authorized, subject to the terms and conditions of this subchapter, to extend financial assistance, through the Farmers Home Administration, (1) to owners of farms in the United States ... to enable them to construct, improve, alter, repair, or replace dwellings and other farm buildings on their farms, and to purchase buildings and land constituting a minimum adequate site, in order to provide them, their tenants, lessees, sharecroppers, and laborers with decent, safe, and sanitary living conditions and adequate farm buildings as specified in this subchapter, and (2) to owners of other real estate in rural areas for the construction, improvement, alteration, or repair of dwellings, related facilities, and farm buildings and to rural residents ... for such purposes and for the purchase of buildings and the purchase of land constituting a minimum adequate site, in order to enable them to provide dwellings and related facilities for their own use and buildings adequate for their farming operations, and (3) to elderly or handicapped persons or families who are or will be the owners of land in rural areas for the construction, improvement, alteration, or repair of dwellings and related facilities, the purchase of dwellings and related facilities and the purchase of land constituting a minimum adequate site, in order to provide them with adequate dwellings and related facilities for their own use, and (4) to an owner described in clause (1), (2), or (3) for refinancing indebtedness which-- 30 (A) was incurred for an eligible purpose described in such clause, and 31 (B)(i) if not refinanced, is likely to result (because of circumstances beyond the control of the applicant) at an early date in the loss of the applicant's necessary dwelling or essential farm service buildings, or 32 (ii) if combined (in the case of a dwelling that the Secretary finds not to be decent, safe, and sanitary) with a loan for improvement, rehabilitation, or repairs and not refinanced, is likely to result in the applicant's continuing to be deprived of a decent, safe, and sanitary dwelling. 33 42 U.S.C. Sec. 1471(a). The FmHA is required to exercise these powers consistently with the national housing policy declared by this Act and in such manner as will facilitate sustained progress in attaining the national housing objective. Id. Sec. 1441. Nonetheless, it is clear that the FmHA, while a lender of last resort, is authorized only to extend assistance if the applicant has the ability to repay in full the sum to be loaned. Id. Sec. 1472(a). A loan from the FmHA is by no means a grant. 34 From the text of the Act itself, it is evident that Congress did not expressly distinguish between FmHA borrowers and non-FmHA borrowers for purposes of extending refinancing assistance. It is not clear, however, whether Congress intended to compel the FmHA to provide such assistance or whether refinancing is totally within the guided discretion of the Secretary. Nor can we ascertain from merely the language of the Act whether, if some duty to refinance exists, it would extend to all borrowers that met the threshold eligibility requirements of the statute. The government is correct in pointing out that the word authorize generally is given a permissive connotation rather than a mandatory one. See, e.g., Creek Nation v. United States, 318 U.S. 629, 639, 63 S.Ct. 784, 789, 87 L.Ed. 1046 (1943); United States v. Maryland, 471 F.Supp. 1030, 1038 (D.Md.1979). This rule, though, is by no means absolute. In establishing a program of indefinite duration requiring annual appropriations, Congress is more apt to use permissive terms notwithstanding the fact that the duty of the agency to implement the program is clearly mandatory. See generally Commonwealth of Pennsylvania v. Lynn, 501 F.2d 848, 854 & n. 21 (D.C.Cir.1974). Indeed, in divining Congress' intent with respect to such programs, the courts have almost uniformly eschewed a mechanical reliance on one or two discretionary terms in an act in favor of a careful examination of the statute as a whole in the light of its purposes and legislative history. See, e.g., Matzke v. Block, 732 F.2d 799, 801 (10th Cir.1984); Commonwealth of Pennsylvania v. Lynn, supra, at 854; Curry v. Block, supra, at 515; Rocky Ford Housing Authority v. USDA, 427 F.Supp. 118 (D.D.C.1977); Pealo v. FmHA, 361 F.Supp. 1320, 1324 (D.D.C.1973); accord, Statement of William H. Rehnquist, Assist. Atty. Gen., Office of Legal Counsel, in Hearings on Executive Impoundment of Appropriated Funds, Before the Subcomm. on Separation of Power of the Senate Comm. on the Judiciary, 92d Cong., 1st Sess. 234 (1971). It is to such an examination that we now turn. 35 As originally enacted, the Housing Act of 1949, Pub.L. No. 81-171, 63 Stat. 432 (1949), was intended to be the essential first action toward a comprehensive housing program. The purpose of the section 502 rural housing program in particular was to supplement, on reasonable terms, the credit already available to farmers faced with the uncertainties of agricultural income. S.Rep. No. 84, 81st Cong., 1st Sess., reprinted in 1949 U.S.Code Cong. Service 1550, 1552, 1576. 10 Consequently, the authority granted to the Secretary only included the power to extend loans to qualified borrowers and provide moratorium relief when needed. 11 Nothing in the legislative history of the Act, as originally constituted, indicates that Congress ever considered vesting the Secretary with the authority to refinance any loan or, for that matter, to subsidize loan payments. 36 The Secretary was first given the authority to refinance loans with the passage of the Demonstration Cities and Metropolitan Development Act of 1966, Pub.L. No. 89-754, 80 Stat. 1282 (1966). This Act, in part amending section 501 of the Housing Act, gave the Secretary authority to refinance indebtedness not held or insured by the United States or any agency thereof. This type of assistance for the first time provided relief to the rural borrower who was able to obtain a loan from private sources but, as a result of a reduction in income or an increase in necessary expenses, was in jeopardy of losing his home. Inexplicably, however, there is no mention of the refinancing provision in the history of the 1966 Act. The measure apparently was added to the bill following the Conference Committee Report and passed without debate. 12 37 The first substantive legislative discussion of the FmHA's refinancing program accompanied the Housing and Development Act of 1974, Pub.L. No. 93-383, 88 Stat. 633 (1974) (1974 Amendments), which contained further amendments to the Housing Act of 1949. 13 Under these amendments, the prohibition against refinancing government loans was deleted from the Act and replaced with a general provision barring the FmHA only from extending refinancing to any indebtedness incurred within five years prior to the application for assistance. While the House and Conference Reports do little more than track the language of the statute, the Senate Report reveals more fully the objectives of the legislation: 38 The Farmers Home Administration already has forebearance authority under section 505 of the Act, which authorizes the Secretary to grant a moratorium on interest and principal for so long as he deems necessary when failure to repay the loan is due to circumstances beyond the control of the borrower. In cases of extreme hardship the Secretary is authorized to cancel interest payments accrued during such moratorium, and he is barred from taking a deficiency judgment in the event of subsequent foreclosure when the borrower has faithfully tried to meet his obligation. 39 The refinancing authority provided in this bill would give the Secretary an additional means of preventing severe hardship to rural housing borrowers resulting in loss of dwelling, and a means probably less costly to the Federal Government than forebearance. Refinancing to permit rehabilitation or prevent loss of dwelling would appear to be consistent with the Administration's policy of emphasizing use of existing housing to meet the needs of low and moderate income families. 40 The Committee has been informed that the Secretary has never actually utilized the forebearance authority granted in present law and in fact has not even issued regulations pursuant to that authority. In view of the pressing need to enable rural families to acquire and maintain adequate housing, the Committee urges the Secretary to utilize existing authority as well as the new authority granted in this bill to enable rural housing borrowers to keep their homes in cases of financial hardship. 41 In addition, the Committee notes that the refinancing authority provided under this section is discretionary with the Secretary. Nothing in the statutory language requires FmHA to refinance bad debts or to bail out other creditors. The Secretary is urged to develop guidelines and criteria for making full use of this authority consistent with the need for sound administration of FmHA housing programs. 42 S.Rep. No. 693, 93d Cong., 2d Sess. 65, reprinted in 1974 U.S. Code Cong. & Ad. News 4273, 4334. 43 From this language, several things are apparent. First, the refinancing authority was meant to complement, rather than duplicate, moratorium relief. The Senate Report quite clearly contemplated that the FmHA would use refinancing in addition to moratoria and probably at less cost to the government. Second, it follows from this that the Secretary's refinancing power included the authority to refinance FmHA loans. Certainly, if the effect of refinancing is to reduce the cost of servicing loans, refinancing must be used in lieu of moratorium relief under circumstances where such relief would otherwise be available. Finally, it is clear that the Secretary was given at least some discretion in implementing its refinancing authority. For example, the FmHA was not obligated to make bad loans or bail out creditors. The limits of this discretion, however, remain murky. While the Report stressed the need to provide increased assistance to rural homeowners, it only urged the Secretary to utilize new as well as existing authority. Similarly, the Report only urged the Secretary to exercise its discretion consistent with the need for sound administration of FmHA housing programs. This language is ambivalent at best and cannot serve as the basis of a finding that the Secretary has an imperative duty to allow the FmHA to refinance its own loans. We therefore agree with the government that, although the Report clearly sets forth the hopes of the committee on the matter, the 1974 amendments only gave [the] FmHA discretion to refinance its own loans. Appellant's Reply Brief at 8. 44 The most recent amendments to the section 502 rural loan program that we need consider were passed as part of the Housing and Community Development Amendments of 1979, Pub.L. No. 96-153, 93 Stat. 1101 (1979) (1979 Amendments). 14 These amendments removed the five-year restriction to permit refinancing without regard to length of time the house was owned. Drawing upon the various committee reports on these amendments, both the Garners and the government find support for their respective positions. 45 The Garners, echoing the district court, contend that Congress in passing the 1979 Amendments intended to impose a mandatory duty on the FmHA to refinance its own loans. In support of this claim, the Garners point to the Conference Report, which reads in pertinent part: 46 The conferees, in approving the new refinancing authority, expect the Secretary to use the authority to assist rural home owners threatened with the loss of their homes or continuing housing deprivation under certain circumstances. At the same time, the conferees desire the Secretary to use the new authority prudently and in a manner that does not encourage borrowers to relax in managing their finances and fully meeting their loan obligations. 47 The conferees intend that the Secretary should provide applicants refinancing assistance where, because of illness, loss of employment or income resulting from a local or national economic downturn, or such other similar events or unforeseen circumstances, the applicant might lose the dwelling. 48 The conferees also expect the Secretary not to deny refinancing assistance to an applicant because his or her dwelling is not found to be dilapidated or uninhabitable. A deteriorating dwelling with major deficiencies in decent, safe and sanitary standards should, if otherwise eligible, be permitted to be refinanced. 49 Conf.Rep. No. 706, 96th Cong., 1st Sess. 96, reprinted in 1979 U.S.Code Cong. & Ad.News 2317, 2455. 15 50 The language used in the above excerpt is more compulsory than that found in the Senate Report on the 1974 Amendments. Based on both these reports, we think it is evident that, at least by 1979, Congress intended refinancing to be allowed at least in some instances. However, we do not read the language in either report as specifically mandating that the Secretary permit the FmHA to refinance its own loans. Rather, it seems reasonably clear that Congress granted the Secretary discretion in implementing its refinancing authority, although that discretion of course was intended to be exercised prudently in accordance with the policies of the Act. 51 For similar reasons, we also cannot accept the government's contention that the congressional intent behind the 1979 Amendments was to deprive the FmHA of even the option to refinance its own loans. In asserting this position, the government relies upon the following language from the Senate Report: 52 Section 3 of the bill would authorize FmHA to refinance a non-FmHA mortgage on a house owned less than 5 years, when the owner faces foreclosure or hardship. Under existing law, FmHA is prohibited from helping rural homeowners who have purchased their homes within 5 years of their request for financial help, even though credit may not be available from other sources. The committee believes that the prohibition, which was enacted in order to insulate FmHA from possible abuses arising from the sale of homes with commercial rather than mortgage loans, is too restrictive. Accordingly, it recommends repeal of the prohibition at this time. 53 S.Rep. No. 157, 96th Cong., 1st Sess. 3 (1979) (emphasis added). 16 54 The off-handed reference to the FmHA's refinancing authority as extending to non-FmHA loans is hardly sufficient to compel the conclusion that Congress in enacting the 1979 Amendments intended to create or even approve of a bar against the refinancing of FmHA loans. The restriction is not mentioned in any of the other committee reports and played no part in the floor debates on the 1979 Amendments. We find it inconceivable that such a substantive restriction on the power of the Secretary would receive not even summary treatment in any of these other traditional sources of legislative history and intent. As we discuss infra, the government contends that the FmHA in practice did not refinance its own loans between 1974 and 1979. We can only regard the above passage as a reflection of that practice that inexplicably made its way to the text of the Senate Report. 55 In sum, we find that, under the Housing Act of 1949, as amended, the Secretary has the duty to implement a refinancing program of some description. This duty, however, does not require the refinancing of FmHA loans, at least as a matter of statutory law. We further find that, in exercising its refinancing authority, the Secretary does not enjoy unfettered discretion. Rather, it is incumbent upon the Secretary to institute a refinancing program that serves the objective of the section 502 loan program: providing needed financial support to rural home owners threatened with the loss of their homes in a manner that does not encourage borrowers to relax in managing their finances and fully meeting their loan obligations. Conf.Rep. No. 706, 96th Cong., 1st Sess. 96, reprinted in 1979 U.S.Code Cong. & Ad.News at 2455. 56 Because we hold that the regulation prohibiting the FmHA from refinancing its own loans is not contrary to statute, it remains for us to determine whether the regulation was rationally adopted under the appropriate standard of review. 57