Mr. COFFEE. I think that would be desirable. Have you similar Mr. BLACK. Yes; we have similar information on that. We could (The statements follow:) Analysis of operating margin of Federal land banks 1 Percentage calculations are based upon average first-mortgage loans, purchase-money mortgages, and 2 Loan fees, interest on investments, and net gains on securities transactions have been excluded from 3 From interest on bonds and notes there has been deducted the total interest received on investments and Analysis of operating margin on farm-mortgage business of Federal Farm Mortgage [Excludes interest income on consolidated farm-loan bonds purchased or exchanged, and notes, together 1 Percentage calculations are based upon average first-mortgage loans, purchase money mortgages, and 2 Loan fees, interest on investments, and net gains on securities transactions have been excluded. The 3 To interest on bonds and notes has been added net losses on securities transactions less interest received Mr. BLACK. For the period from January 31, 1934, through December 31, 1939, on the mortgage corporation operating expenses, losses on mortgage loans and real estate, and reserves against real estate owned outright, at the end of the period averaged about 3 percent per year of the amount of loans outstanding during the period. Mr. COFFEE. Inasmuch as that averages approximately 3 percent, do you think that the 1 percent margin is sufficient, as provided in this bill, to make the organization self-sustaining? Mr. BLACK. That is on the commissioner's loans. I really do not know. Mr. COFFEE. This bill, as I understand it, would provide substantially that they could loan 75 percent of the value of the security. Mr. BLACK. Essentially it would; yes. As a matter of fact, of course, the loans do not average nearly 75 percent, but about 80 percent of the land bank loans are made with some amount of commissioner loans. Mr. COFFEE. One more question in connection with the local Federal land-bank associations. In some of these associations, their capital is unimpaired. Is not that the situation with a number of them? Mr. BLACK. There are some associations with capital unimpaired; yes. A considerable number, about 1,325 out of 4,000 Mr. COFFEE. Can you give me the approximate number of associations whose capital is impaired to the extent that their stock is practically worthless? Mr. BLACK. Do you want it in number or in percentage? Mr. COFFEE. I think perhaps in percentage would be better. Mr. BLACK. One-third of the associations have no impairment; 32 percent are impaired 100 percent or over; in between that, 5 percent are impaired 5 percent or less, 4 percent from 6 to 10 percent, 6 percent from 11 to 20 percent, 4 percent from 21 to 30 percent, 6 percent from 31 to 50 percent, 5 percent between 51 and 70 percent, and 5 percent between 71 and 99 percent. Mr. COFFEE. The effect of this bill would be to reimburse those stockholders in associations that are impaired 100 percent, to the same extent that it would the stockholders in the associations with no impairment of capital? Mr. BLACK. That is right. That would be the effect of it. Mr. ANDRESEN. Dr. Black, how long has it been the policy of the Department to add onto the principal the amount of the debentures or the amount of stock that the borrower was required to take? Mr. BLACK. You mean to the amount of the loan? That was done from the start. Almost never has the stock been subscribed for by a payment in cash. The loan is merely increased by that amount. Mr. ANDRESEN. As I understand it, you loan 50 percent on the land? Mr. BLACK. Yes. Mr. ANDRESEN. Twenty percent on the buildings? Mr. BLACK. Yes. Mr. ANDRESEN. And then am I to understand that they have added on the 5 percent amount of stock? Mr. BLACK. No; it is included in the loan. Suppose a farm is worth $20,000. The man wants a $9,500 loan. He needs $9,500. The loan would be written for $10,000, and that additional 5 percent would be the amount necessary to purchase the stock. That has been almost the invariable practice from the beginning. Mr. ANDRESEN. That is the first time I have ever heard of that practice. Ordinarily out in Minnesota and through the St. Paul Federal Land Bank they have taken 50 percent of the land value, 20 percent of the buildings. Then when the farmer paid for the stock it was deducted from the principal sum, and if it was a $10,000 loan, they held out $500. Mr. BLACK. That is what this amounts to. Mr. ANDRESEN. So it was not, in fact, added on? Mr. BLACK. You can look at it either way. If he applied for a $10,000 loan, then the $500 would be deducted and he would get $9,500. Mr. ANDRESEN. Is that the practice now when loans are made? Mr. ANDRESEN. Are any loans being made at the present time? Mr. BLACK. Yes, they are being made at the rate of $50,000,000 a year by the land banks. Mr. ANDRESEN. The Federal land bank or farm credit system, principally the Federal land bank, has been a separate institution until it was transferred to the Department of Agriculture? Is that correct? Mr. BLACK. No; it was separate until 1933 when the Farm Credit Administration was established. Then it with other loaning agencies. was placed under the Farm Credit Administration. Mr. ANDRESEN. But it still maintains its identity as a farmerowned and farmer-controlled agency? Mr. BLACK. No more than at present. Mr. ANDRESEN. The Federal land banks? Mr. BLACK. No more than at present. Mr. ANDRESEN. Well, the farmer borrowers and stockholders elected the majority of the members of the board of directors. Mr. BLACK. That is still the case. Mr. ANDRESEN. And control the policies? Mr. BLACK. That is correct. Mr. ANDRESEN. Or at least determined the control of the policies. Mr. BLACK. Yes, sir. Mr. ANDRESEN. Has there been any change in the policy of the administration of the Farm Credit Administration since it was taken over by the Department of Agriculture? Mr. BLACK. No. Mr. ANDRESEN. Do you have any requirements now in connection with new borrowers who make application, that they must comply with the A. A. A. program before they can get a loan? Mr. BLACK. Not the slightest. Mr. ANDRESEN. And you do not anticipate that any such policy will be put into effect? Mr. BLACK. No, sir. Mr. ANDRESEN. We have had considerable difficulty out in our section over the administration of the St. Paul Federal Land Bank. You have not, of course, been in the organization so very long, and may not be familiar with it, but during the last 3 or 4 years it has been very difficult for any legitimate borrower to get consideration from the St. Paul Federal Land Bank. I notice that some of the members of the committee here are making similar complaints, and if that can be remedied by law, of course, we would like to have it done. With reference to local loan associations, before you took over the administration of the Department we found that certain associations were allowed service charges for servicing loans, while, on the other hand, other farm associations were allowed no service charge. The test, as I understand it, was whether or not a local association would be willing to merge with some other local association before they could get that service fee. Now, this bill provides one-quarter of 1 percent for servicing of the loan. Mr. BLACK. That is the same as the current law does. The current law allows one-eighth of 1 percent semiannually. Mr. ANDRESEN. Do you pay that to all associations? Mr. ANDRESEN. Why do you not have a uniform rule to pay all of these associations for the work that they do in servicing loans? Mr. BLACK. They do. They are paid for the work that they actually do. Some associations perform more service than others, and in general the system of payment is on a fee basis for certain types of operation, rather than a straight percentage basis. The matter that you refer to arises out of this situation: At one time there were 5,000-I am not sure but what there might have been more than 5,000-farm loan associations. They had been chartered with little regard to the territory that they were to operate in. I am told that in 1 case there were 14 associations in overlapping territory in 1 county. The result was very inefficient competition between the various secretaries. None of the associations would be large enough to handle the business effectively. There was an effort started several years ago to consolidate the associations, enlarging them, so that they could afford to employ a competent, full-time man to take care of their affairs. The situation you describe arose out of the desire of the banks to get the associations to consolidate and employ 1 secretary-treasurer to handle the affairs of the entire area. In some cases that has not been entirely possible because stock impairment prevents it. An association that is not impaired does not want to consolidate with an association that is 75 percent impaired. To get around that difficulty, instead of actually consolidating they have arranged for the associations to keep their corporate identity but to group and consolidate their management and hire a single common employee for the several associations. As you say, there have been some associations in the St. Paul district who have not wanted to do that, and I believe that the land bank in that case has actually withdrawn fees from them. It is still being worked on. I do not know just how we can work it out. We are trying to do it now. Mr. ANDRESEN. Have you established any yardstick as to size of the local associations before it can lose its separate identity? Mr. BLACK. Before it can lose its separate identity? Mr. ANDRESEN. Yes. Mr. BLACK. No; there is no yardstick. Mr. ANDRESEN. Is there as to the amount? Suppose an association has $2,000,000 of loans? Mr. BLACK. It is desirable to have somewhere between 800 and 1,000 units, either loans or farms that belong to the bank. Those are called "units." Somewhere between 800 and 1,200 units is large enough to support an efficient association. If the association has only a handful of borrowers, the secretary-treasurer necessarily has other employment of some kind and does not give the attention to the association that he should. Mr. ANDRESEN. As I understand it, the Federal land bank is withholding the payment of service fees to associations where the Department feels that they should consolidate? Mr. BLACK. It is my understanding that they have done that in certain cases; yes. Mr. ANDRESEN. Is that a general policy, and do you propose to continue that practice? Mr. BLACK. I would not say that it was a general policy, because the grouping feature has not met with very much resistance. It has in the St. Paul district. Whether that is due to the manner in which the associations were approached, I do not know. I have not had a chance to examine into it. I know there are a number of associations very much disturbed about the treatment they feel they have received. Mr. ANDRESEN. Are you doing anything to investigate, to ascertain just what the trouble is? Mr. BLACK. Yes; we are. Mr. ANDRESEN. These local associations have helped build the Federal land banks. They still believe in the system, and as far as southern Minnesota is concerned, I think they have done as good a job there as they have in any other part of the country, and having built up their organization it occurs to me that it would be well to let them function, if they can do so in a creditable manner. Mr. BLACK. That situation is being looked into at the moment. There are very few of the associations that are objecting to that in your territory. I do not believe it will be more than possibly 20 out of several hundred. I do not know just what the local situation is there that has caused the difficulty, but we are making an examination of it. Mr. ANDRESEN. Some of the main complaints now from the farmers -and I think all the members here are having the same experience as I am, and that is that they are unable to get loans from the Federal land bank. Now, I know that the Federal land bank wants to operate somewhat as a business institution, but when farmers present applications for what I would term good, legitimate loans, they certainly should be given consideration. Mr. BLACK. I agree that they should. We have had some similar reports from certain other areas. I do not know that the banks have become more conservative since 1934 or 1935. Some of the officers in the banks tell me that they think the appraisers have become more conservative during that period. Mr. ANDRESEN. They have been very conservative for the last 3% years. Let me ask you whether or not you would favor taking over the activities of the Farm Security Administration with reference to making loans to farmers who acquire land? Mr. BLACK. No, sir. |