decided: June 28, 1982.
FIDELITY FEDERAL SAVINGS & LOAN ASSOCIATION ET AL
DE LA CUESTA ET AL.
APPEAL FROM THE COURT OF APPEAL OF CALIFORNIA, FOURTH APPELLATE DISTRICT.
Blackmun, J., delivered the opinion of the Court, in which Burger, C. J., and Brennan, White, Marshall, and O'connor, JJ., joined. O'connor, J., filed a concurring opinion, post, p. 171. Rehnquist, J., filed a dissenting opinion, in which Stevens, J., joined, post, p. 172. Powell, J., took no part in the consideration or decision of the case.
[ 458 U.S. Page 144]
JUSTICE BLACKMUN delivered the opinion of the Court.
At issue in this case is the pre-emptive effect of a regulation, issued by the Federal Home Loan Bank Board (Board), permitting federal savings and loan associations to use "due-on-sale" clauses in their mortgage contracts. Appellees dispute both the Board's intent and its statutory authority to displace restrictions imposed by the California Supreme Court on the exercise of these clauses.
The Board, an independent federal regulatory agency, was formed in 1932 and thereafter was vested with plenary authority to administer the Home Owners' Loan Act of 1933 (HOLA), 48 Stat. 128, as amended, 12 U. S. C. § 1461 et seq. (1976 ed. and Supp. IV).*fn1 Section 5(a) of the HOLA, 12 U. S. C. § 1464(a) (1976 ed., Supp. IV), empowers the Board,
[ 458 U.S. Page 145]
"under such rules and regulations as it may prescribe, to provide for the organization, incorporation, examination, operation, and regulation of associations to be known as 'Federal Savings and Loan Associations.'" Pursuant to this authorization, the Board has promulgated regulations governing "the powers and operations of every Federal savings and loan association from its cradle to its corporate grave." People v. Coast Federal Sav. & Loan Assn., 98 F.Supp. 311, 316 (SD Cal. 1951).
In 1976, the Board became concerned about the increasing controversy as to the authority of a federal savings and loan association to exercise a "due-on-sale" clause -- a contractual provision that permits the lender to declare the entire balance of a loan immediately due and payable if the property securing the loan is sold or otherwise transferred.*fn2 Specifically,
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the Board felt that restrictions on a savings and loan's ability to accelerate a loan upon transfer of the security would have a number of adverse effects: (1) that "the financial security and stability of Federal associations would be endangered if . . . the security property is transferred to a person whose ability to repay the loan and properly maintain the property is inadequate"; (2) that "elimination of the due on sale clause will cause a substantial reduction of the cash flow and net income of Federal associations, and that to offset such losses it is likely that the associations will be forced to charge higher interest rates and loan charges on home loans generally"; and (3) that "elimination of the due on sale clause will restrict and impair the ability of Federal associations to sell their home loans in the secondary mortgage market, by making such loans unsalable or causing them to be sold at reduced prices, thereby reducing the flow of new funds for residential loans, which otherwise would be available." 41 Fed. Reg. 6283, 6285 (1976). The Board concluded that "elimination of the due on sale clause will benefit only a limited number of home sellers, but generally will cause economic hardship to the majority of home buyers and potential home buyers." Ibid.
Accordingly, the Board issued a regulation in 1976 governing due-on-sale clauses. The regulation, now 12 CFR § 545.8-3(f) (1982),*fn3 provides in relevant part:
"[A federal savings and loan] association continues to have the power to include, as a matter of contract between it and the borrower, a provision in its loan instrument
[ 458 U.S. Page 147]
whereby the association may, at its option, declare immediately due and payable sums secured by the association's security instrument if all or any part of the real property securing the loan is sold or transferred by the borrower without the association's prior written consent. Except as [otherwise] provided in . . . this section . . . , exercise by the association of such option (hereafter called a due-on-sale clause) shall be exclusively governed by the terms of the loan contract, and all rights and remedies of the association and borrower shall be fixed and governed by that contract."
In the preamble accompanying final publication of the due-on-sale regulation, the Board explained its intent that the due-on-sale practices of federal savings and loans be governed "exclusively by Federal law." 41 Fed. Reg. 18286, 18287 (1976). The Board emphasized that "[federal] associations shall not be bound by or subject to any conflicting State law which imposes different . . . due-on-sale requirements." Ibid.*fn4
Appellant Fidelity Federal Savings and Loan Association (Fidelity) is a private mutual savings and loan association chartered by the Board pursuant to § 5(a) of the HOLA. Fidelity's principal place of business is in Glendale, Cal. Appellees,
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de la Cuesta, Moore, and Whitcombe, each made a purchase of California real property from one who had borrowed money from Fidelity. As security for the loan, the borrower had given Fidelity a deed of trust on the property. Each deed of trust contained a due-on-sale clause. Two of the deeds also included a provision, identified as para. 15, which stated that the deed "shall be governed by the law of the jurisdiction in which the Property is located." App. 51, 86.*fn5
Fidelity was not notified prior to each appellee's purchase of property; when it did learn of the transfer, it gave notice of its intent to enforce the due-on-sale clause. Fidelity expressed a willingness to consent to the transfer, however, if the appellee agreed to increase the interest rate on the loan secured by the property to the then-prevailing market rate. Each appellee refused to accept this condition; Fidelity then exercised its option to accelerate the loan. When the loan was not paid, Fidelity instituted a non-judicial foreclosure proceeding.
In response, each appellee filed suit in the Superior Court of California for Orange County. Each asserted that, under the principles announced by the California Supreme Court in Wellenkamp v. Bank of America, 21 Cal. 3d 943, 582 P. 2d 970
[ 458 U.S. Page 149]
(1978), Fidelity's exercise of the due-on-sale clause violated California's prohibition of unreasonable restraints on alienation, Cal. Civ. Code Ann. § 711 (West 1982), "unless the lender can demonstrate that enforcement is reasonably necessary to protect against impairment to its security or the risk of default." 21 Cal. 3d, at 953, 582 P. 2d, at 977. Each complaint sought (1) a judicial declaration that the due-on-sale clause was not enforceable unless Fidelity first showed that the transfer had harmed its security interest, (2) an injunction against any foreclosure procedures based on the clause, and (3) compensatory and punitive damages. App. 5, 49, 84.*fn6
The Superior Court consolidated the three actions and granted appellants' motion for summary judgment. The court explained that "the federal government has totally occupied the subject of regulation of Federal Savings and Loans," and held, therefore, that the decision in Wellenkamp "cannot be extended to [federal] savings and loans." App. to Juris. Statement 29a.
The Court of Appeal for the Fourth Appellate District, however, reversed that judgment. In an opinion that adopted substantial portions of a parallel ruling by the Court of Appeal for the First Appellate District, it concluded that the California Supreme Court's opinion in Wellenkamp was controlling. 121 Cal. App. 3d 328, 331, 175 Cal. Rptr. 467, 468 (1981), quoting Panko v. Pan American Federal Sav. & Loan Assn., 119 Cal. App. 3d 916, 174 Cal. Rptr. 240 (1981), cert. pending, No. 81-922. The court found that Congress had neither expressed an intent to pre-empt state due-on-sale law nor fully occupied the field of federal savings and loan regulation; for example, the court pointed out, federal associations traditionally have been governed by state real property
[ 458 U.S. Page 150]
and mortgage law with respect to title, conveyancing, recording, priority of liens, and foreclosure proceedings.
The Court of Appeal likewise rejected appellants' contention that the Board's 1976 regulation expressly had pre-empted the Wellenkamp doctrine. Although the court recognized that the preamble accompanying 12 CFR § 545.8-3(f) (1982) manifested the Board's intent that its due-on-sale regulation supersede conflicting state law, it refused to "equate the Board's expression of intent with the requisite congressional intent." 121 Cal. App. 3d, at 339, 175 Cal. Rptr., at 474 (emphasis in original).*fn7
Finally, the Court of Appeal found no evidence that federal law impliedly had pre-empted state law, reasoning that California's due-on-sale law was not incompatible with federal law. The Wellenkamp doctrine, the court observed, "is a substantive rule of California property and mortgage law," and not a form of "regulation" over federal savings and loans. 121 Cal. App. 3d, at 341, 175 Cal. Rptr., at 474. Moreover, the court noted, the Board's regulation "merely authorizes and does not compel savings and loan associations to include a due-on-sale clause in their loan contracts and to exercise their rights thereunder." Ibid., 175 Cal. Rptr., at 475. The Court of Appeal likewise discovered no conflict between the Wellenkamp doctrine and the purposes of the HOLA because both were designed to assist financially distressed homeowners.
The court derived "further support," 121 Cal. App. 3d, at 342, 175 Cal. Rptr., at 475, for its decision from para. 15, which was included in two of the deeds of trust and which provided that the deeds would be "governed by the law of the jurisdiction
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in which the Property is located." See n. 5, supra. That language, the court ruled, evinced an unmistakable intent that state law should govern the interpretation, validity, and enforcement of the deeds.*fn8
The California Supreme Court denied appellants' petition for review. App. to Juris. Statement 28a.
Because the majority of courts to consider the question have concluded, in contrast to the decision of the Court of Appeal, that the Board's regulations, including § 545.8-3(f), do pre-empt state regulation of federal savings and loans,*fn9 we noted probable jurisdiction. 455 U.S. 917 (1982).
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The pre-emption doctrine, which has its roots in the Supremacy Clause, U.S. Const., Art. VI, cl. 2, requires us to examine congressional intent. Pre-emption may be either
[ 458 U.S. Page 153]
express or implied, and "is compelled whether Congress' command is explicitly stated in the statute's language or implicitly contained in its structure and purpose." Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977). Absent explicit pre-emptive language, Congress' intent to supersede state law altogether may be inferred because "[the] scheme of federal regulation may be so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it," because "the Act of Congress may touch a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject," or because "the object sought to be obtained by the federal law and the character of obligations imposed by it may reveal the same purpose." Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947).
Even where Congress has not completely displaced state regulation in a specific area, state law is nullified to the extent that it actually conflicts with federal law. Such a conflict arises when "compliance with both federal and state regulations is a physical impossibility," Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143 (1963), or when state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," Hines v. Davidowitz, 312 U.S. 52, 67 (1941). See also Jones v. Rath Packing Co., 430 U.S., at 526; Bethlehem Steel Co. v. New York Labor Relations Bd., 330 U.S. 767, 773 (1947). These principles are not inapplicable here simply because real property law is a matter of special concern to the States: "The relative importance to the State of its own law is not material when there is a conflict with a valid federal law, for the Framers of our Constitution provided that the federal law must prevail." Free v. Bland, 369 U.S. 663, 666 (1962); see also Ridgway v. Ridgway, 454 U.S. 46, 54-55 (1981).
Federal regulations have no less pre-emptive effect than federal statutes. Where Congress has directed an administrator to exercise his discretion, his judgments are subject to
[ 458 U.S. Page 154]
judicial review only to determine whether he has exceeded his statutory authority or acted arbitrarily. United States v. Shimer, 367 U.S. 374, 381-382 (1961). When the administrator promulgates regulations intended to pre-empt state law, the court's inquiry is similarly limited:
"If [his] choice represents a reasonable accommodation of conflicting policies that were committed to the agency's care by the statute, we should not disturb it unless it appears from the statute or its legislative history that the accommodation is not one that Congress would have sanctioned." Id., at 383.
See also Blum v. Bacon, 457 U.S. 132, 145-146 (1982); Ridgway v. Ridgway, 454 U.S., at 57 (regulations must not be "unreasonable, unauthorized, or inconsistent with" the underlying statute); Free v. Bland, 369 U.S., at 668.
A pre-emptive regulation's force does not depend on express congressional authorization to displace state law; moreover, whether the administrator failed to exercise an option to promulgate regulations which did not disturb state law is not dispositive. See United States v. Shimer, 367 U.S., at 381-383. Thus, the Court of Appeal's narrow focus on Congress' intent to supersede state law was misdirected. Rather, the questions upon which resolution of this case rests are whether the Board meant to pre-empt California's due-on-sale law, and, if so, whether that action is within the scope of the Board's delegated authority.
As even the Court of Appeal recognized, the Board's intent to pre-empt the Wellenkamp doctrine is unambiguous. The due-on-sale regulation plainly provides that a federal savings and loan "continues to have the power" to include a due-on-sale clause in a loan instrument and to enforce that clause "at its option." 12 CFR § 545.8-3(f) (1982). The California courts, in contrast, have limited a federal association's right
[ 458 U.S. Page 155]
to exercise a due-on-sale provision to those cases where the lender can demonstrate that the transfer has impaired its security.
The conflict does not evaporate because the Board's regulation simply permits, but does not compel, federal savings and loans to include due-on-sale clauses in their contracts and to enforce those provisions when the security property is transferred. The Board consciously has chosen not to mandate use of due-on-sale clauses "because [it] desires to afford associations the flexibility to accommodate special situations and circumstances." 12 CFR § 556.9(f)(1) (1982).*fn10 Although compliance with both § 545.8-3(f) and the Wellenkamp rule may not be "a physical impossibility," Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S., at 142-143, the California courts have forbidden a federal savings and loan to enforce a due-on-sale clause solely "at its option" and have deprived the lender of the "flexibility" given it by the Board.
Moreover, the Board recently has "[reiterated] its longstanding policy" of authorizing federal savings and loan associations to enforce due-on-sale clauses "subject only to express limitations imposed by the Board." 46 Fed. Reg. 39123, 39124 (1981). The only restrictions specified in the Board's regulation are contained in 12 CFR § 545.8-3(g) (1982).*fn11 That provision, unlike the Wellenkamp doctrine,
[ 458 U.S. Page 156]
does not confine a federal association's right to accelerate a loan to cases where the lender's security is impaired. In addition, Wellenkamp explicitly bars a federal savings and loan from exercising a due-on-sale clause to adjust a long-term mortgage's interest rate towards current market rates -- a due-on-sale practice the Board has approved and views as critical to "the financial stability of the association." See Schott Advisory Opinion, at 27.
By further limiting the availability of an option the Board considers essential to the economic soundness of the thrift industry, the State has created "an obstacle to the accomplishment and execution of the full purposes and objectives" of the due-on-sale regulation. Hines v. Davidowitz, 312 U.S., at 67. Cf. Franklin Nat. Bank v. New York, 347 U.S. 373, 378 (1954) (finding a "clear conflict" between federal law, which authorized national banks to receive savings deposits but did not specifically permit -- much less require -- advertising by such banks, and New York law, which forbade them to use the word "savings" in their advertising or business).
Contending that the Wellenkamp doctrine is not inconsistent with the due-on-sale regulation, however, appellees point to the regulation's second sentence, which provides in pertinent part:
"[Exercise] by the association of such option (hereafter called a due-on-sale clause) shall be exclusively governed by the terms of the loan contract, and all rights and remedies
[ 458 U.S. Page 157]
of the association and borrower shall be fixed and governed by that contract." 12 CFR § 545.8-3(f) (1982).
Appellees interpret this language as incorporating state contract law -- and therefore any state law restricting the exercise of a due-on-sale clause. We note, however, that the incorporation of state law does not signify the inapplicability of federal law, for "a fundamental principle in our system of complex national polity" mandates that "the Constitution, laws, and treaties of the United States are as much a part of the law of every State as its own local laws and Constitution." Hauenstein v. Lynham, 100 U.S. 483, 490 (1880). See also Testa v. Katt, 330 U.S. 386, 390-392 (1947).*fn12 Moreover, in our view, the second sentence of § 545.8-3(f) simply makes clear that the regulation does not empower federal savings and loans to accelerate a loan upon transfer of the security property unless the parties to the particular loan instrument, as a matter of contract, have given the lender that right. Similarly, if the parties to a given contract agree somehow to limit the association's right to exercise a due-on-sale provision,
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the second sentence of § 545.8-3(f) precludes the lender from relying on the first sentence as authorizing more expansive use of the clause.
Any ambiguity in § 545.8-3(f)'s language is dispelled by the preamble accompanying and explaining the regulation. The preamble unequivocally expresses the Board's determination to displace state law:
"Finally, it was and is the Board's intent to have . . . due-on-sale practices of Federal associations governed exclusively by Federal law. Therefore, . . . exercise of due-on-sale clauses by Federal associations shall be governed and controlled solely by [§ 545.8-3] and the Board's new Statement of Policy. Federal associations shall not be bound by or subject to any conflicting State law which imposes different . . . due-on-sale requirements, nor shall Federal Associations attempt to . . . avoid the limitations on the exercise of due-on-sale clauses delineated in [§ 545.8-3(g)] on the ground that such . . . avoidance of limitations is permissible under State law." 41 Fed. Reg. 18286, 18287 (1976) (emphasis added).*fn13
In addition, the Board recently has "[confirmed]" that the due-on-sale practices of federal savings and loans "shall be governed exclusively by the Board's regulations in pre-emption of and without regard to any limitations imposed by state law on either their inclusion or exercise." 12 CFR § 556.9(f)(2)
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(1982). Thus, we conclude that the Board's due-on-sale regulation was meant to pre-empt conflicting state limitations on the due-on-sale practices of federal savings and loans, and that the California Supreme Court's decision in Wellenkamp creates such a conflict.*fn14
The question remains whether the Board acted within its statutory authority in issuing the pre-emptive due-on-sale regulation. The language and history of the HOLA convince us that Congress delegated to the Board ample authority to regulate the lending practices of federal savings and loans so as to further the Act's purposes, and that § 545.8-3(f) is consistent with those purposes.
The HOLA, a product of the Great Depression of the 1930's, was intended "to provide emergency relief with respect to home mortgage indebtedness" at a time when as many as half of all home loans in the country were in default. H. R. Conf. Rep. No. 210, 73d Cong., 1st Sess., 1 (1933). See 77 Cong. Rec. 2499 (1933) (remarks of Rep. Hancock); id., at 2570 (remarks of Rep. Reilly); Home Owners' Loan Act: Hearings on S. 1317 before a Subcommittee of the Senate Committee on Banking and Currency, 73d Cong., 1st Sess., 9 (1933) (Senate Hearings) (statement of Horace Russell, one of the drafters of the bill and General Counsel, Federal Home Loan Bank Board, Atlanta, Ga.). Local institutions that had previously supplied funds to finance homes had ceased doing business or had discontinued such long-term loans, so that more than half the counties in the country, containing almost one-fifth of the
[ 458 U.S. Page 160]
total population, were without home-financing institutions. See id., at 7, 19; see also H. R. Rep. No. 55, 73d Cong., 1st Sess., 2 (1933); S. Rep. No. 91, 73d Cong., 1st Sess., 2 (1933); Home Owners' Loan Act: Hearings on H. R. 4980 before the House Committee on Banking and Currency, 73d Cong., 1st Sess., 16-17 (1933) (House Hearings) (statement of William F. Stevenson, Chairman, Federal Home Loan Bank Board); Comment, 11 Pac. L. J. 1085, 1103 (1980) (by 1933, 1,700 state-chartered savings and loans had failed, causing losses of some $200 million, about one-third the value of savings in these associations).
In order to ameliorate these conditions, Congress enacted the HOLA, "a radical and comprehensive response to the inadequacies of the existing state systems." Conference of Federal Sav. & Loan Assns. v. Stein, 604 F.2d 1256, 1257 (CA9 1979), summarily aff'd, 445 U.S. 921 (1980). The Act provided for the creation of a system of federal savings and loan associations, which would be regulated by the Board so as to ensure their vitality as "permanent associations to promote the thrift of the people in a cooperative manner, to finance their homes and the homes of their neighbors." S. Rep. No. 91, 73d Cong., 1st Sess., 2 (1933); see also H. R. Rep. No. 55, 73d Cong., 1st Sess., 2 (1933); 77 Cong. Rec. 4974 (1933) (remarks of Sen. Bulkley).
Thus, in § 5(a) of the Act, Congress gave the Board plenary authority to issue regulations governing federal savings and loans:
"In order to provide local mutual thrift institutions in which people may invest their funds and in order to provide for the financing of homes, the Board is authorized, under such rules and regulations as it may prescribe, to provide for the organization, incorporation, examination, operation, and regulation of associations to be known as 'Federal Savings and Loan Associations', or 'Federal mutual savings banks' . . . , and to issue charters therefor,
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giving primary consideration to the best practices of local mutual thrift and home-financing institutions in the United States." 12 U. S. C. § 1464(a)(1) (1976 ed., Supp. IV) (emphasis added).
The broad language of § 5(a) expresses no limits on the Board's authority to regulate the lending practices of federal savings and loans. As one court put it, "[it] would have been difficult for Congress to give the Bank Board a broader mandate." Glendale Federal Sav. & Loan Assn. v. Fox, 459 F.Supp. 903, 910 (CD Cal. 1978), final summary judgment granted, 481 F.Supp. 616 (1979), order reversing and remanding, 663 F.2d 1078 (CA9 1981), cert. pending, No. 81-1192. And Congress' explicit delegation of jurisdiction over the "operation" of these institutions must empower the Board to issue regulations governing mortgage loan instruments, for mortgages are a central part of any savings and loan's "operation." See Schott Advisory Opinion, at 21; House Hearings 16 (Apr. 20, 1933) (statement of William F. Stevenson, Chairman, Federal Home Loan Bank Board) ("We are loaning [savings associations] seven million dollars a week and they are lending it pretty largely on homes of the type contemplated in the Act"); Tr. of Oral Arg. 4 (approximately 78% of savings and loan associations' assets are invested in mortgage loan contracts).
Moreover, Congress directed that, in regulating federal savings and loans, the Board consider "the best practices of local mutual thrift and home-financing institutions in the United States," which were at that time all state-chartered. § 5(a) of the HOLA, 12 U. S. C. § 1464(a). By so stating, Congress plainly envisioned that federal savings and loans would be governed by what the Board -- not any particular State -- deemed to be the "best practices." See also First Federal Sav. & Loan Assn. v. Massachusetts Tax Comm'n, 437 U.S. 255, 258, n. 3 (1978) (observing that the HOLA "protects federal associations from being forced into the state
[ 458 U.S. Page 162]
regulatory mold"). Thus, the statutory language suggests that Congress expressly contemplated, and approved, the Board's promulgation of regulations superseding state law.
[ 458 U.S. Page 163]
Appellees, however, point to the various sections of the HOLA explicitly pre-empting*fn15 and incorporating*fn16 state law, and contend that the Board has no additional authority to adopt regulations displacing state law. Although Congress made decisions about the applicability of certain aspects of state law to federal savings and loans, these provisions do not imply that Congress intended no further pre-emption of state law. Rather, Congress invested the Board with broad authority to regulate federal savings and loans so as to effect the statute's purposes, and plainly indicated that the Board need not feel bound by existing state law. § 5(a) of the HOLA, 12 U. S. C. § 1464(a) (1976 ed., Supp. IV). We cannot read this broad delegation of power as confining the Board's authority to pre-empt state law to those areas "specifically described by the Act's other provisions." United Page 163} States v. Southwestern Cable Co., 392 U.S. 157, 172 (1968); see also Phelps Dodge Corp. v. NLRB, 313 U.S. 177, 193-194 (1941).
Furthermore, if federal savings and loans were expected to conform to state law except where explicitly pre-empted in the Act itself, the provisions incorporating specific aspects of state law were needlessly repetitive. We decline to construe the Act so as to render these provisions nugatory, "thereby offending the well-settled rule that all parts of a statute, if possible, are to be given effect." American Textile Mfrs. Institute, Inc. v. Donovan, 452 U.S. 490, 513 (1981). See also Jarecki v. G.D. Searle & Co., 367 U.S. 303, 307-308 (1961); cf. Franklin Nat. Bank v. New York, 347 U.S., at 378 ("We find no indication that Congress intended to make this phase of national banking [ i. e., advertising] subject to local restrictions, as it has done by express language in several other instances").*fn17
Because of the exigencies of the times, the HOLA was enacted hurriedly and its legislative history, concededly, is somewhat sparse.*fn18 But that history does confirm our reading
[ 458 U.S. Page 164]
of the statutory language and the Board's plenary authority to regulate the operations of federal savings and loans. Attempting to provide for the "relief of the man who is about to lose his home," Congress set out the general framework and left many of the details to the Board. House Hearings 13 (Apr. 20, 1933) (statement of William F. Stevenson, Chairman, Federal Home Loan Bank Board). Thus, references to the Board's broad discretion to regulate the newly created federal savings and loans appear throughout the legislative history. Nowhere is there a suggestion of any intent somehow to limit the Board's authority.
Chairman Stevenson's testimony during the HOLA hearings suggests that the Act contemplated that federal law would govern the terms of the loan instruments used by federal savings and loans. Discussing § 5(c) of the HOLA, as amended, 12 U. S. C. § 1464(c), Representative Hancock noted: "You are departing from uniformity with respect to loan associations throughout the United States when you say that the thrift associations cannot loan on a piece of real estate in excess of $20,000." House Hearings 14 (Apr. 21, 1933). The Chairman replied: "That may be true. We are departing in a good many ways. We have a good many [thrift associations] that are in dire straits because they have loaned on property way up yonder in value, and they have their money tied up in hotels, apartment houses and things of that kind, which puts them in a desperate situation." Ibid.
Similarly, in response to concern expressed during the Senate hearings that the Act did not prohibit borrowers from obtaining financing and then renting the property, Chairman Stevenson observed: "That would be a matter of regulation. That could be covered by regulation under the bill." Senate
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Hearings 14. Asked whether the Board would have authority to promulgate such a regulation, Stevenson replied:
"If the Federal Home Loan Bank Board should choose to make that kind of a regulation it could put that in. A great many of these local private institutions would put that kind of a clause in their loans." Ibid.
See also House Hearings 5 (Apr. 20, 1933) (statement of Chairman Stevenson) (referring to "the regulations as to the use of the property after the loan is once obtained"); id., at 9 (Apr. 21, 1933) (statement of Mr. Stevenson) ("[It] is in the discretion of the Board when it will grant [a 3-year] extension [of loan payments]"); id., at 18-19 (colloquy between Mr. Stevenson and Rep. Reilly) (noting that the Board has discretion in determining whether to charter a federal association).
The subsequent debates confirm that Congress accepted Chairman Stevenson's offer and furnished the Board with broad power to regulate the federal savings and loans. Thus, Representative Luce, ranking minority member of the House Committee on Banking and Currency, observed that the federal savings and loan associations "will be formed in accordance with the best building-and-loan practice, and I feel sure we may rely upon [Chairman Stevenson] and his Board to carry out that promise." 77 Cong. Rec. 2480 (1933). "It is contemplated by the bill before us to put the machinery in the hands of the Home Loan Bank Board," and "[we] give the board great power to administer the act," Representative Luce continued. Id., at 2480, 2481. See also id., at 2481 ("We leave such things [as limitations on conversion of federal home loan banks to federal savings and loans] to the judgment of the board"); id., at 2501 ("The prudent course is to leave this to the judgment of the board, by imposing a maximum [rate of interest] in the bill -- 4 percent upon what we borrow, 5 percent upon what we lend -- and trust this Board . . . to get lower rates for borrowing or make
[ 458 U.S. Page 166]
lower rates for lending as the opportunity may come"); id., at 4987 (colloquy between Sens. Hebert and Bulkley) (observing that the Board has discretion in determining when savings and loans should be chartered in areas with existing local thrift institutions).
Thus, the HOLA did not simply incorporate existing local loan practices. Rather, Congress delegated to the Board broad authority to establish and regulate "a uniform system of [savings and loan] institutions where there are not any now," and to "establish them with the force of the government behind them, with a national charter." House Hearings 15 (Apr. 21, 1933) (statement of Chairman Stevenson); id., at 17 (Apr. 20, 1933).*fn19 And the Board has exercised
[ 458 U.S. Page 167]
that discretion, regulating comprehensively the operations of these associations, including their lending practices and, specifically, the terms of loan instruments.*fn20
As we noted above, a savings and loan's mortgage lending practices are a critical aspect of its "operation," over which the Board unquestionably has jurisdiction. Although the Board's power to promulgate regulations exempting federal savings and loans from the requirements of state law may not be boundless, in this case we need not explore the outer limits of the Board's discretion. We have no difficulty concluding that the due-on-sale regulation is within the scope of the Board's authority under the HOLA and consistent with the Act's principal purposes.
[ 458 U.S. Page 168]
Congress delegated power to the Board expressly for the purpose of creating and regulating federal savings and loans so as to ensure that they would remain financially sound institutions able to supply financing for home construction and purchase. Thus, in testifying during the House hearings on the HOLA, the Board's Chairman observed: "The new corporations that we propose to set up, we want them set up on a sound basis as they will be of very material assistance in home financing for all time, if properly managed." House Hearings 12 (Apr. 21, 1933). And the relevant House and Senate Reports referred to the federal associations as "permanent" institutions. S. Rep. No. 91, 73d Cong., 1st Sess., 2 (1933); H. R. Rep. No. 55, 73d Cong., 1st Sess., 2 (1933).
The due-on-sale regulation was promulgated with these purposes in mind. The Board has determined that due-on-sale clauses are "a valuable and often an indispensable source of protection for the financial soundness of Federal associations and for their continued ability to fund new home loan commitments." 12 CFR § 556.9(f)(1) (1982). Specifically, the Board has concluded that the due-on-sale clause is "an important part of the mortgage contract" and that its elimination "will have an adverse [effect] on the earning power and financial stability of Federal associations, will impair the ability of Federal associations to sell their loans in the secondary markets, will reduce the amount of home-financing funds available to potential home buyers, and generally will cause a rise in home loan interest rates." Schott Advisory Opinion, at 2, 17-18.
The Board's analysis proceeds as follows: It observes that the federal associations' practice of borrowing short and lending long -- obtaining funds on a short-term basis and investing them in long-term real estate loans, which typically have a 25- to 30-year term -- combined with rising interest rates, has increased the cost of funds to these institutions and reduced their income. Exercising due-on-sale clauses enables savings and loans to alleviate this problem by replacing long-term,
[ 458 U.S. Page 169]
low-yield loans with loans at the prevailing interest rates and thereby to avoid increasing interest rates across the board. See id., at 21-22. Moreover, the Board has determined that restrictions like the Wellenkamp doctrine lengthen the expected maturity date of a lender's mortgages, thus reducing their marketability in the secondary mortgage market. As a result, the Board fears, "the financial stability of Federal associations in California will be eroded and the flow of home loan funds into California will be reduced." Schott Advisory Opinion, at 34.*fn21
Admittedly, the wisdom of the Board's policy decision is not uncontroverted.*fn22 But neither is it arbitrary or capricious. As judges, it is neither our function, nor within our
[ 458 U.S. Page 170]
expertise, to evaluate the economic soundness of the Board's approach. In promulgating the due-on-sale regulation, the Board reasonably exercised the authority, given it by Congress, so as to ensure the financial stability of "local mutual thrift institutions in which people . . . invest their funds and . . . [which] provide for the financing of homes." § 5(a) of the HOLA, 12 U. S. C. § 1464(a) (1976 ed., Supp. IV).*fn23 By so doing, the Board intended to pre-empt conflicting state restrictions on due-on-sale practices like the California Supreme Court's Wellenkamp doctrine.
Our inquiry ends there. Accordingly, we hold that the Board's due-on-sale regulation bars application of the Wellenkamp rule to federal savings and loan associations.*fn24 The judgment of the Court of Appeal is reversed.
It is so ordered.
[ 458 U.S. Page 171]
JUSTICE POWELL took no part in the consideration or decision of this case.
121 Cal. App. 3d 328, 175 Cal. Rptr. 467, reversed.
JUSTICE O'CONNOR, concurring.
I join in the Court's opinion but write separately to emphasize that the authority of the Federal Home Loan Bank Board to pre-empt state laws is not limitless.*fn* Although Congress delegated broad power to the Board to ensure that federally chartered savings and loan institutions "would remain
[ 458 U.S. Page 172]
financially sound," ante, at 168, it is clear that HOLA does not permit the Board to pre-empt the application of all state and local laws to such institutions. Nothing in the language of § 5(a) of HOLA, which empowers the Board to "provide for the organization, incorporation, examination, operation, and regulation" of federally chartered savings and loans, remotely suggests that Congress intended to permit the Board to displace local laws, such as tax statutes and zoning ordinances, not directly related to savings and loan practices. Accordingly, in my view, nothing in the Court's opinion should be read to the contrary.
JUSTICE REHNQUIST, with whom JUSTICE STEVENS joins, dissenting.
The Court today concludes that in § 5(a) of the Home Owners' Loan Act of 1933 (HOLA), 12 U. S. C. § 1464(a) (1976 ed., Supp. IV), Congress authorized the Federal Home Loan Bank Board to pre-empt by administrative fiat California's limitations upon the enforceability of "due-on-sale" clauses in real estate mortgages held by federal savings and loan institutions. The Court reaches this extraordinary result by concluding that due-on-sale clauses relate to a savings and loan's mortgage lending practices which "are a critical aspect of its 'operation' over which the Board unquestionably has jurisdiction." Ante, at 167. Because I conclude that Congress has not authorized the Board to promulgate a regulation such as 12 CFR § 545.8-3(f) (1982), I dissent.
Section 5(a) of the HOLA, 12 U. S. C. § 1464(a) (1976 ed., Supp. IV), unquestionably grants broad authority to the Board to regulate the mortgage lending practices of federal savings and loans. In order to perform this role, the Board may take into account state property and contract law which governs real estate transactions in general and the enforceability and interpretation of mortgage lending instruments in particular. Thus, it would be within the Board's power to determine that it constitutes an unsafe lending practice for a
[ 458 U.S. Page 173]
federal savings and loan to conclude a real property mortgage without a fully enforceable due-on-sale clause. It would be within the authority delegated to it by Congress for the Board to conclude that a due-on-sale clause must be included in a mortgage instrument as a means of enabling a federal savings and loan to remove unprofitable loans from its portfolio.
Such a regulation would be entirely consistent with the approach taken by Congress in regulating the savings and loan industry. In § 8 of the Federal Home Loan Bank Act of 1932 (FHLBA), 12 U. S. C. § 1428, the precursor to HOLA, Congress has required the Board to examine state law "relating to the conveying or recording of land titles, or to homestead and other rights, or to the enforcement of the rights of holders of mortgages on lands securing loans." (Emphasis added.) Section 8 provides further:
"If any such examination shall indicate, in the opinion of the board, that under the laws of any such State . . . there would be inadequate protection to a Federal Home Loan Bank in making or collecting advances under this chapter, the board may withhold or limit the operation of any Federal Home Loan Bank in such State until satisfactory conditions of law . . . shall be established." 12 U. S. C. § 1428 (emphasis added).
Thus, there is no indication in the FHLBA that the Board may, by promulgating regulations, pre-empt those state laws that are deemed to be economically unsound. Instead, if the Board concludes that California's limitations upon the enforceability of due-on-sale clauses endangers the soundness of the system established by the HOLA and the FHLBA, then the response contemplated by Congress is for the Board to "withhold or limit the operation" of the system in California.
In declaring the due-on-sale clause enforceable as a matter of federal law, however, the Board has departed from the approach
[ 458 U.S. Page 174]
contemplated by Congress. Although Congress has authorized the Board to regulate the lending activities of federal savings and loan associations, there is no indication in the HOLA itself, or in its legislative history, that Congress has empowered the Board to determine whether and when federal law shall govern the enforceability of particular provisions contained in mortgages concluded by federal savings and loan associations. If anything, § 8 of the FHLBA indicates that it was Congress' understanding in 1932 that the enforceability of provisions in mortgages is a matter of state law. Contract and real property law are traditionally the domain of state law. Aronson v. Quick Point Pencil Co., 440 U.S. 257, 262 (1979); Butner v. United States, 440 U.S. 48, 55 (1979). In the HOLA, Congress did not intend to create a federal common law of mortgages. See Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630 (1981).*fn*
The Board's attempt to enforce due-on-sale clauses as a matter of federal law cannot be upheld as a regulation of mortgage lending practices of federal savings and loan associations. In § 545.8-3(f), the Board has gone beyond regulating how, when, and in what manner a federal savings and loan may lend mortgage money. Instead, as the Court recognizes, ante, at 146-147, the Board's regulation purports to create a rule of law which will govern the rights and obligations of the parties to the mortgage instrument. This regulation does not simply delineate those provisions a federal savings and loan must or must not include in a mortgage instrument. Section 545.8-3(f) purports to guarantee the enforceability of a contractual provision notwithstanding state law to the contrary. In this case, the Board is not regulating the operation of federal savings and loan associations,
[ 458 U.S. Page 175]
but the operation of due-on-sale clauses. Without a congressional authorization more explicit than that relied upon by the Court, I conclude that the Board has entered a domain in which it is not authorized to override state laws.
The limitations the California courts have placed upon the enforceability of due-on-sale clauses do not impair the ability of the Board to regulate the manner in which federal savings and loan associations engage in mortgage lending. California has not interfered with the Board's determination that it constitutes an unsafe lending practice for a federal savings and loan to enter a loan agreement without a fully enforceable due-on-sale clause. California's rule regarding due-on-sale clauses is not invalid pursuant to the Supremacy Clause simply because it makes it difficult for lenders to eliminate unprofitable mortgage loans from their portfolios.
Although the Board has concluded that the California courts' limitations upon the enforceability of due-on-sale clauses is economically unsound, I cannot agree that Congress has enabled the Board to insulate federal savings and loans from California mortgage law merely by promulgating a regulation that declares these clauses to be enforceable. Discharge of its mission to ensure the soundness of federal savings and loans does not authorize the Federal Home Loan Bank Board to intrude into the domain of state property and contract law that Congress has left to the States.
* Briefs of amici curiae urging reversal were filed by Daniel J. Goldberg and Matthew G. Ash for the American Savings and Loan League; and by Aaron M. Peck, C. Steven McMurry, Michael R. Grzanka, G. Howden Fraser, Terry O. Kelly, and Daniel H. Willick for the United States League of Savings Associations.
Briefs of amici curiae urging affirmance were filed for the State of Michigan et al. by Frank J. Kelley, Attorney General of Michigan, Louis J. Caruso, Solicitor General, Harry G. Iwasko, Jr., and Robert Ianni, Assistant Attorneys General, John Steven Clark, Attorney General of Arkansas, and Frederick K. Campbell, Assistant Attorney General, Robert Corbin, Attorney General of Arizona, and Anthony B. Ching, Solicitor General, J. D. MacFarlane, Attorney General of Colorado, and Marshall A. Snider, Assistant Attorney General, Carl R. Ajello, Attorney General of Connecticut, Tyrone C. Fahner, Attorney General of Illinois, Linley E. Pearson, Attorney General of Indiana, Robert T. Stephan, Attorney General of Kansas, and W. Robert Alderson, First Deputy Attorney General, James E. Tierney, Attorney General of Maine, Warren R. Spannaus, Attorney General of Minnesota, William A. Allain, Attorney General of Mississippi, Michael T. Greely, Attorney General of Montana, Gregory H. Smith, Attorney General of New Hampshire, Jeff Bingaman, Attorney General of New Mexico, Rufus L. Edmisten, Attorney General of North Carolina, Millard Rich, Deputy Attorney General, and John R. B. Matthis, Special Deputy Attorney General, Robert O. Wefald, Attorney General of North Dakota, William J. Brown, Attorney General of Ohio, Dave Frohnmayer, Attorney General of Oregon, Daniel R. McLeod, Attorney General of South Carolina, John J. Easton, Jr., Attorney General of Vermont, Kenneth O. Eikenberry, Attorney General of Washington, and Bronson C. La Follette, Attorney General of Wisconsin; for the Secretary of the Business, Transportation and Housing Agency of the State of California by George Deukmejian, Attorney General of California, Arthur C. De Goede, Assistant Attorney General, Joseph M. O'Heron, Deputy Attorney General, and W. Gary Kurtz; for the California Association of Realtors et al. by John R. Hetland and Charles A. Hansen; for the Consumer's Committee to Protect Mortgage Rights by Irwin M. Alterman; for the Georgia Association of Realtors, Inc., by E. Catherine Kimmel; for the National Association of Realtors by William D. North and Robert D. Butters; and for Charles J. Bether et al. by Peter J. Gregora, James M. Weinberg, and Robert L. Winslow.
Bruce O. Jolly, Jr., filed a brief for the Credit Union National Association, Inc., as amicus curiae.