                                                                   February 23, 1978



78-10      MEMORANDUM OPINION FOR THE DEPUTY
           GENERAL COUNSEL, DEPARTMENT OF
           HOUSING AND URBAN DEVELOPMENT

           Flood Disaster Prevention Act (42 U.S.C. § 4106)—
           Mortgage Loans— Effect of Statute on Executive
           Order


   This is our response to your request for our opinion on the relationship
between Executive Order No. 11988 and § 703(a) of the Housing and
Community Development Act of 1977 (Pub. L. No. 95-128; 91 Stat. 1111).
Section 703(a) has replaced § 202(b) of the Flood Disaster Prevention Act of
 1973 (87 Stat. 975).
   Your General C ounsel’s opinion reaches the following five conclusions: (1)
Executive Order No. 11988 applies to the Federal agencies regulating financial
institutions; (2) it requires them to minimize harmful results o f their activities in
flood plains; (3) this result is not contrary to the intent of § 703(a); (4) this result
is consistent with the Flood Disaster Protection Act o f 1973 and other statutes;
and (5) the order is therefore valid and has the force o f law. More specifically,
the opinion concludes that Executive Order No. 11988, 42 F. R. 26951 (1977),
requires the agencies regulating banking to minimize flood damage by
prohibiting regulated institutions from making loans secured by real property
within a flood plain unless flood insurance is available.
   After a careful examination o f § 703(a), the Flood Disaster Prevention Act,
and their legislative histories, we conclude that § 703(a) was intended to deny
the Federal Government authority to prohibit federally regulated private lenders
from making mortgage loans in a flood plain. The statute takes precedence over
Executive Order No. 11988 to the extent of any conflict. Thus, the Executive
order may not require regulatory agencies to prohibit those lenders from
making such loans.

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   As enacted in 1973, § 202(b) o f the Flood Disaster Prevention Act (Act) (42
U .S.C . § 4106(b)), provided as follows:
         (b) Each Federal instrumentality responsible for the supervision,
      approval, regulation, or insuring of banks, savings and loan associations,
      or similar institutions shall by regulation prohibit such institutions on
      and after July 1, 1975, from m aking, increasing, extending, or
      renewing any loan secured by improved real estate or a mobile home
      located or to be located in an area that has been identified by the
      Secretary as an area having special flood hazards, unless the
      community in which such area is situated is then participating in the
      national flood insurance program .'
This section was part o f a comprehensive scheme to utilize the Federal flood
insurance program as a means o f limiting flood losses by controlling housing
development in flood plains. Thus, in addition to the provision set forth above,
the Act barred Federal financial assistance for construction in flood plains in
communities where flood insurance was riot available.2 It also prohibited
Federal assistance or private loans for real property not covered by available
flood insurance.3 For a community to be eligible for flood insurance, it must
have a land use code that restricts development in areas vulnerable to flooding.4
By limiting the availability o f Federal or private funds for construction in
communities ineligible for flood insurance, these provisions served the statu­
tory purpose o f inducing States and localities “ to participate in the flood
insurance program and to adopt adequate flood plain ordinances with effective
enforcement provisions consistent with Federal standards to reduce or avoid
future flood losses.” 5
   In October 1977, § 703(a) o f the Housing and Community Development Act
amended § 202(b) o f the Flood Disaster and Prevention Act to read as follows:
         (b) In addition to the requirements o f section 1364 o f the National
      Flood Insurance Act o f 1968, each Federal instrumentality described
      in such section shall by regulation require the institutions described in
      such section to notify (as a condition of making, increasing,
      extending, or renewing any loan secured by property described in
      such section) the purchaser or lessee of such property of whether, in
      the event of a disaster caused by flood to such property. Federal
      disaster relief assistance will be available to such property.


   'Subsequently enacted exceptions are im m aterial for the purpose o f this opinion.
   Section 3(a)(5) o f the Act. 42 U .S .C . § 4003(a)(5), defines "federal instrum entality responsible
for the supervision, approval, regulation, or insuring o f banks, saving and loan associations, or
sim ilar institu tio n s" to mean the Federal Reserve Board of G overnors, the C om ptroller of the
Currency, the Federal Deposit Insurance Corporation, the Federal Savings and Loan Insurance
C orporation, the Federal Hom e Loan Bank Board, and the National Credit Union A dm inistration.
   242 U .S .C . § 4106(a).
   ’42 U .S .C . §§ 4 0 l2 (a)(b ).
   4See National Flood Insurance Act o f 1968, as am ended, §§ 1315, 1361; 42 U .S .C . §§ 4022,
4102.
   542 U .S .C . § 4002(b)(3). See also S. Rept. 93-583, 93d C ong., 1st sess. (1973), at 18-19.

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Thus, it deleted the express requirement that bank regulatory agencies prohibit
lenders from making secured loans on flood plain real estate.in communities
where flood insurance is not available. Instead, the agencies were directed to
require lenders to notify borrowers whether disaster relief would be available.6
It does not, however, contain an explicit requirement that agencies either
permit or prohibit the making o f real estate loans by regulated lenders in flood
plain areas not covered by the Federal insurance program. We think that the
legislative history o f the am endm ent removes any serious question as to what
was intended by the modification.
   Section 703(a) was introduced as a floor amendment by Senator Eagleton,
who stated that its purpose was to permit localities to reject land use controls
and develop flood plains with mortgage loans from private lenders.7 He
clarified this point in the following colloquy with Senator Danforth:8
     Mr. DANFORTH. . . . As I understand this amendment, and I ask
     Senator EAGLETON if he will bear me out in this, he is not objecting
     to the Federal Government conditioning the offering of Federal flood
     insurance or Federal grants or Federal loans or what amounts to land
     use planning.
     What he is objecting to, as 1 understand it, is the Federal Government
     purporting to tell banks with no connection at all other than, for
     example, FD1C coverage, banks that are located in a community,
     people who have lived in the community all their lives, that they are
     not able to make loans in flood plain areas.
     Mr. EAGLETON. The Senator is absolutely correct.
     Just permitted to fit the loan money to a business deriving in that area
     if they think it is a good, prudent loan, the bank is permitted to make
     the loan [sic]. That is all the amendment does.
     Mr. DANFORTH. Under the law as written now, if a Federal
     bureaucrat designates an area as being within a flood plain, then a
     bank which is FDlC-covered, or insured, is prohibited by the present
     law from making a loan to a business located in that flood plain.
     Mr. EAGLETON. The Senator is exactly correct.
     Mr. DANFORTH. And this is exactly the kind o f overreach by the
     Federal bureaucracy that we were objecting to in offering this
     amendment.
     Mr. EAGLETON. 1 thank my colleague. 1 think he has summed it up
     very convincingly.
Even the opponents o f the measure agreed that it would remove the Federal
Governm ent’s ability to prohibit such loans as a means o f compelling the




  6See also National Flood Insurance Act o f 1968, § 1364 (88 Stat. 739; 42 U .S .C . § 4104(a).
  7123 Cong. Rec. S. 8971-72 (June 6, 1977).
  8123 Cong. Rec. S. 8972 (June 6, 1977).

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 adoption o f local flood plain use ordinances.9 This discussion is the only
 legislative history pertinent to § 703(a).
    The legislative history is unequivocal. Both the sponsor and the opponents of
 § 703(a) understood that the existing law cut off private regulated mortgage
 financing in order to compel localities to adopt your Departm ent’s approved
 land use controls on flood plain development. Both understood that the effect of
 § 703(a) would be to permit private mortgage loans in flood plains despite the
lack o f acceptable land use controls. The explanation of the sponsor of a floor
amendment is strong evidence o f legislative intent. United States v. Dickerson,
310 U .S. 554, 557 (1940); Richbourg M fg. Co. v. United States. 281 U.S.
528, 536 (1930). Indeed, in this instance it is unrefuted. Hence, it is apparent
that by amending § 202(b) of the Flood Disaster Prevention Act, Congress
intended to prevent Federal restrictions on private mortgage lending from being
used as a method for achieving the A ct’s purposes.10
    Executive Order No. 11988 was promulgated in May 1977, nearly 4 months
before the enactment of the Housing and Community Development Act. The
preamble cites that it is issued in furtherance of the National Environmental
Policy Act (42 U .S.C . § 4321 e tse q .), the National Flood Insurance Act of 1968
(42 U .S.C . § 4001 et seq.), and the Flood Disaster Prevention Act. Section 1 of
the order, in pertinent part, directs each Federal agency to act “ to reduce the
risk o f flood loss, to minimize the impact of floods on human safety, health,
and welfare, and to restore and preserve the natural and beneficial values served
by flood plains in carrying out its responsibilities for . . . (2) providing
Federally . . . assisted construction or improvements; and (3) conducting Fed­
eral activities and programs affecting land use, including, but not limited to
water and related land use planning, regulating, and licensing activities.”
Under § 2(a)(2), agencies allowing an “ action” to occur in a flood plain must
consider alternatives to avoid “ adverse effects and incompatible develop­
m ents” in flood plains. Section 2(d) requires each agency, “ as allowed by
law ,” to amend its regulations to conform to the order.
    Although the Executive order does not, on its face, prohibit the making of
these types of loans, we agree, for purposes o f this discussion, that the order
may be read to require bank regulatory agencies to prohibit mortgage loans in
flood plains that are not governed by a federally approved land use code. The
preamble of the order cites the Flood Disaster Protection Act as authority, and it
furthers the congressional policies and purposes in § 2 of that Act (42 U .S.C .
§ 4002). The A ct’s and the order’s definition o f “ agency” extends to the bank
regulatory agencies. M oreover, this interpretation o f the order would be com ­



   vSee 123 Cong. Rec. S. 8973-74 (Senator Proxm ire): S. 8974-75 (Senator Brooke); S. 8975-76
(Senator W illiam s).
   l0The congressional statem ents o f policy and purpose in S 2 o f the Flood Disaster Prevention
A ct, 42 U .S .C . § 4002, were not am ended. H ow ever, later specific am endm ents to a statute modify
earlier general statem ents o f purpose. See generally. Inr'I. Longshorem en's W arehousem en's
Union v. W irtz, 170 F. (2d) 183 (9th Cir. 1948); Callahan v. U nited Slates, 122 F. (2d) 216 (D C.
Cir. 1941).

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pletely consistent with § 202(b) of the Act at the time the order was
promulgated.
   Thus, its application would in our view be contrary to the intent of Congress
manifested in the subsequent amendment of § 202(b). In such a conflict, the
statute controls. Both the provision of flood insurance and disaster relief and
the regulation of lending institutions are normally subjects of domestic
legislation." The Constitution, of course, has vested “ all legislative pow ers”
over these subjects in Congress. The President can ordinarily regulate the
affairs of private persons by Executive order only on the basis of some express
or implicit statutory authority. Youngstown Sheet and Tube Co. v. Sawyer, 343
U.S. 579, 587-89 (1952); United States v. Guy W. Capps, Inc.. 204 F. (2d)
655, 658-60 (4th Cir. 1953), a j f d on other grounds, 348 U.S. 296 (1955);
Independent M eat Packers Assn. v. B u n , 526 F. (2d) 228, 234-36 (8th Cir.
 1975); United States v. Yoshida International, 526 F. (2d) 560, 583 (C .C .P.A .
 1975).12 By revising § 202(b), it is our opinion that Congress clearly intended
to prohibit the bank regulatory agencies from using their powers to prevent
unregulated development in flood plains. W hile it retained the objections of the
Flood Disaster Protection Act, Congress nevertheless intended to withdraw the
Executive’s power to use that method of attaining them. See, Youngstown Sheet
andTube Co. v. Sawyer, supra, 343 U .S ., at 587-89, 599-604 (Frankfurter, J.,
concurring).13
   Basically, the question turns on congressional intent in replacing § 202(b)
with § 703(a) o f the Housing and Com m unity Development Act. Your General
Counsel concluded that the amendment simply resurrected the status quo before
passage of § 202(b) in 1973. If this were all that could fairly be concluded from
the 1977 am endment, we would agree that the President has the power to
prohibit altogether the making of these types of loans. It would be clearly
appropriate for the Executive to fill in the details o f a program which Congress
has defined only in its broad outline. We do not think, however, for the reasons
stated above, that § 703(a), when read as it must be with its legislative history,
can' fairly be understood to have left to executive discretion the question of
prohibiting regulated institutions from approving loans in these circumstances.


   " S f f U .S . C onstitution, Art. I, § 8, cl. 1, 3, 18.
   l2The cases cited in your opinion are not to the contrary. M ost involve Executive orders for
which the courts found underlying statutory authority. E .g .. L etter C arriers v. A ustin. 418 U.S.
273 (1974); G notta v. U nited States. 415 F. (2d) 1271 (8th Cir. 1969); F arkas v. Texas Instrum ent,
Inc., 375 F. (2d) 629 (5th Cir. 1967); F arm er v. P hiladelphia E lectric C o., 329 F. (2d) 3 (3d Cir.
 1964). P orter v. U nited States, 473 F. (2d) 1329 (5th Cir. 1973), involved the Executive order
creating the W arren C om m ission. Although the point was not discussed, authority to create the
Com m ission can be found in the P resident's constitutional duty to "ta k e care that the laws be
faithfully ex ecu ted .” See U .S . C onstitution, Art. II, § 3. None involves an order contrary to a
statute.
   l3W e are aware o f the cases that state that the Executive order requiring nondiscrim ination by
Governm ent contractors is valid despite the repeated failure o f Congress to confer such authority by
statute. E .g ., F arm er v. P hiladelphia E lectric C o.. 329 F. (2d) 3, 7-9 (3d Cir. 1964). In the case
you have brought us, how ever, Congress first granted express statutory authority and then
withdrew it, and the legislative intent to deny the authority is sufficiently clear to prevent the action
contem plated under the Executive order.

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Insofar, then, as Executive Order No. 11988 is read as imposing such a
prohibition, we do not think it may be enforced.

                                       Larry A . Ham m   ond

                                 Deputy Assistant Attorney General
                                               Office o f Legal Counsel




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