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for default in payment of principal. Loans under this section shall be made for the following purposes only: (1) Refinancing, either in connection with proceedings under chapter VIII of the Bankruptcy Act of July 1, 1889, as amended (relating to agricultural compositions and extensions), or otherwise, any indebtedness, secured or unsecured, of the farmer; (2) providing working capital for his farm operations; and (3) enabling any farmer to redeem and/or repurchase farm property owned by him and occupied by him as a home prior to foreclosure, which has been foreclosed within one year prior to the enactment of this Act or which is foreclosed after the enactment of this Act. As used in this section, the term "farmer " means any individual who is bona fide engaged in farming operations, either personally or through an agent or tenant, or the principal part of whose income is derived from farming operations, and includes a personal representative of a deceased farmer.

REGULATIONS

SEC. 302. The Farm Loan Commissioner is authorized to make such rules and regulations as may be necessary to carry out the purposes of this title and to make the relief contemplated by this title immediately available.

PENALTIES

SEC. 303. Any person who shall knowingly make any material false representation for the purpose of obtaining any loan under this title, or in assisting in obtaining any such loan, shall, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than six months, or both.

TITLE IV

LOANS TO AGRICULTURAL IMPROVEMENT DISTRICTS

LOANS BY RECONSTRUCTION FINANCE CORPORATION

SEC. 401. The Reconstruction Finance Corporation is authorized and empowered to make loans, in an aggregate amount not exceeding $50,000,000, to drainage districts, levee districts, levee and drainage districts, irrigation districts, and similar districts, duly organized under the laws of any State, and to political subdivisions of States, which have undertaken projects devoted chiefly to the improvement of land for agricultural purposes, for the purpose of enabling such districts or political subdivisions to reduce and refinance their outstanding indebtedness incurred with respect to any such project. Loans under this section shall be made subject to the same terms and conditions as loans made under section 5 of the Reconstruction Finance Corporation Act, as amended; except that loans under this section may be made for a period not exceeding forty years, shall be secured by bonds issued by the borrower which are a lien on the real property within the project, shall be made on condition that the borrower shall issue no bonds secured by a lien on the real property within the project except with the consent of the Reconstruction Finance Corporation, and shall be made on condition that the borrower shall reduce the indebtedness to the borrower of the users of such project in amounts corresponding to the reduction of the indebtedness of the borrower as a result of such reduction or refinancing of indebtedness. No loan shall be made under this section until the Reconstruction Finance Corporation has caused an appraisal to be made of the property securing and/or underlying the outstanding bonds of the applicant, and has taken into consideration the average market price of such bonds over the six months' period ending March 1, 1933, and the economic soundness of the project.

INCREASE OF LENDING POWER OF RECONSTRUCTION FINANCE CORPORATION

SEC. 402. In order to provide funds to carry out the purposes of this Act, the amount of notes, debentures, bonds, or other such obligations which the Reconstruction Finance Corporation is authorized and empowered under section 9 of the Reconstruction Finance Corporation Act, as amended, to have outstanding at any one time, is hereby increased by $300,000,000.

SHORT TITLE

SEC. 403. This Act may be cited as the "Emergency Farm Mortgage Act of 1933."

STATEMENTS OF HENRY MORGENTHAU, JR., GOVERNOR FARM CREDIT ADMINISTRATION; DR. W. I. MYERS, SPECIAL ASSISTANT ADMINISTRATOR OF FARM CREDIT ADMINISTRATION; PAUL BESTOR, COMMISSIONER, FEDERAL FARM-LOAN BOARD; AND PEYTON EVANS, GENERAL COUNSEL, FEDERAL FARM-LOAN BUREAU

The CHAIRMAN. I have asked Dr. Myers to make an explanation of this measure, as he had a part in drafting it. Dr. Myers, in view of the fact that the committee has not had this bill before it heretofore, we would like for you to make a rather full explanation of it. We will permit you to proceed first with a complete explanation of it before interruption. I will ask the members of the committee to forego interruptions until Dr. Myers has finished his general

statement.

Dr. MYERS. Mr. Chairman, if it meets with your approval, I would like to follow through this analysis that covers the main points of the measure, and then I will try to answer any questions you may have regarding it.

Under title I, the first and one of the most important things is this, that for 2 years it authorizes the Federal land bank to issue bonds at an interest rate not to exceed 4 percent, the interest of which is guaranteed by the United States, the maximum amount to be $2,000,000,000. The proceeds are to be used to make new mortgages or to refinance existing mortgages. That is covered by section 1.

Second, in order to reduce and refinance existing farm mortgages, the Federal land banks are authorized to exchange bonds for or to buy outstanding farm mortgages on the best terms possible, passing the savings in principal and interest on to the farmerborrowers. That is covered by section 2.

Third, the maximum interest rate to borrowers on old and new Federal land bank mortgages shall not exceed 42 percent for a 5-year period. An appropriation of $15,000,000 is to be used to compensate the Federal land banks for loss in interest during the first year, because of this arbitrary cut in the interest rate on existing mortgages and because of the inadequate margin that may prevail on new mortgages.

Fourth, neither old nor new borrowers from Federal land banks are required to pay installments on principal of mortgages for a 5-year period.

Fifth, for 5 years, it authorizes Federal land banks to grant extensions of payment to deserving old and new borrowers, such extensions to be financed by loans from the United States. An appropriation of $50,000,000 is authorized for this purpose for the ensuing fiscal year.

Sixth, it provides for raising the maximum limit of Federal landbank mortgage. loans from $25,000 to $50,000 on approval of the Farm Loan Commissioner.

Seventh, it authorizes the Federal land banks to make direct loans to farmer-borrowers where no local farm-loan associations are available, on condition that the farmer agrees to join such association when there are enough borrowers in the community to establish one. The interest rate on direct loans is to be one half

of 1 percent higher than on loans through the local associations, but the rate is to be reduced when the borrowers join the local association.

Eighth, it authorizes receivers for joint stock land banks to borrow from the Reconstruction Finance Corporation on the security of receivers' certificates in order to pay taxes on real estate.

That covers the most important items of the general program of refinancing existing mortgages and making new ones through the Federal land-bank system.

Title II relates to the joint-stock land banks. First, it prohibits joint-stock land banks from issuing tax-exempt bonds or making new farm loans, except in connection with the refinancing of existing loans.

Second, it authorizes the Reconstruction Finance Corporation to loan up to $100,000,000 to joint-stock land banks at 4 per cent on the security of first mortgages, provided two things are done:

First, that the joint-stock land bank reduces the interest rate on mortgages to 5 percent per annum, and, second, that it agrees not to foreclose on mortgages for a 2-year period, except in unavoidable circumstances, such as abandonment, or something of that kind.

These provisions will make it possible for joint-stock land banks to liquidate their affairs in an orderly manner, giving consideration to farmer-borrowers and to security holders.

Title III allocates $200,000,000 of Reconstruction Finance Corporation funds for loans through the Farm Loan Commissioner for the following purposes:

First, to enable farmers to redeem and/or repurchase farm prop erty lost through foreclosure.

Second, to reduce and refinance junior obligations, and
Third, to provide working capital.

These loans are to be under the supervision of the Farm Loan Commissioner, using the machinery of the Federal land banks, the loans to be made direct to the farmers, and no loan to be in excess of $5,000. The total of the first and second mortgage, if any, is not to exceed 75 percent of the value of the farm property. Repayment is to be made in ten equal annual installments, plus interest at 5 percent, but no payment on principal is required for the first 3 years.

The principal purpose of these loans is to enable the farmers to buy back foreclosed farms and to make small, reasonably safe, second mortgages to refinance junior liens and unsecured debts on a scaledown sufficiently drastic to permit farmers to pay out.

Title IV authorizes the Reconstruction Finance Corporation to make loans not to exceed $50,000,000 to drainage, levee, irrigation, and similar districts to reduce and refinance indebtedness. The loans are to be for a period not exceeding 40 years, and are to be secured by bonds issued by the borrower, which are a lien on the real property or on the assessment of benefits. Such loans are to be made on condition that the borrower shall reduce the indebtedness of the users of such projects in amounts corresponding to the reduction of its debt. No loan is to be made until after appraisal has been made of the property, taking into consideration the average market price of bonds over a 6-months period ending March 1, 1933, and the economic soundness of the project.

Now, Mr. Chairman, I am at your disposal. Shall I discuss it in a general way, or wait for your questions?

The CHAIRMAN. I believe we would like to have you take up this measure, section by section.

Dr. MYER. Do you want me to read the bill?

The CHAIRMAN. Yes; you might read parts of the bill and discuss fully each section. We want full information regarding the measure, and I believe that is the best way to handle it. I believe most of the Members have actually read the bill. I have read it several times.

Mr. CLARKE. I would like to get a complete picture of it first before we begin reading the bill. I would like to have a picture of the situation as they see it, and then we could go into the bill.

The CHAIRMAN. Dr. Myers has already given a very general picture of it. I did not mean that he should read the bill in detail, but I meant that he could take it up by sections.

Mr. HOPE. Sometime during the course of the hearings, I would like to have a full picture of the situation that is to be met, and a statement as to just how this bill will meet that situation.

The CHAIRMAN. I expect that to be developed during the discussion of the bill. A statement has been furnished with reference to farm mortgages, and that is available to each member. It seems to me that these conditions can be carried on to the discussion of the various sections of the bill as we go through them. In fact, I think that the first section will involve a full explanation of the farm-mortgage situation.

Dr. MYERS. I will try to do that, and, if I do not, perhaps some other people here can answer the questions that may be raised.

The first thing, of course, is the authorization of a bond issue by the Federal land banks limited to a 2-year period, and limited to $2,000,000, with interest at a rate not to exceed 4 percent. With the amount of mortgage loans outstanding on farm property, as developed by the Department of Agriculture, aggregating about $8,500,000,000, we are faced with a difficult situation. The Federal land banks cannot sell their bonds at a yield sufficiently low to enable them to make new loans within the limit of the act. They require, in spite of efficient management, a margin of about 1 percent. In the past, in normal times, they have been able to sell their bonds at yields ranging from 4 to 5 percent, averaging 42 percent. The same condition of low prices which makes it impossible for them to sell bonds at a reasonable yield makes it imperative that the farmers be granted some relief in the interest rate. That possibility of a reduction of interest rates on mortgages makes necessary some kind of governmental assistance, or temporary Government aid, or the use of Government credit, in order to enable those institutions to meet the situation. It is my belief that the most important single factor in the farm-mortgage situation today is to have some agency ready to make new loans on a conservative basis on good farm property so as to prevent the utter demoralization of values that prevails.

Now, the Federal land banks have had a satisfactory experience over about 18 years, over bad periods and good, and this method we are taking here of using the Government guaranty of interest only, limits the Government's risk, and puts behind the bonds a first mort

gage on good American farms, on a conservative basis. If the ultimate security of American farms is not adequate, then there is nothing in the country that has any value.

The CHAIRMAN. The philosophy of the bill, as I understand it, is that by fixing the interest at the rate determined here, you will be able to finance a readjustment and scaling down of the principal and interest of those mortgages without going into the field and refinancing every one of them outright.

Dr. MYERS. That is correct.

The CHAIRMAN. Do you believe that this is as low an interest rate as can be fixed which will yet enable you to sell the securities? Dr. MYERS. We have had the best advice obtainable on that. As for the man who can forecast the bond market accurately, if he exists, I have not met him. The bond houses that have been handling Federal land bank bonds feel that if conditions continue as they are, with, perhaps, some improvement, or without getting any worse, consolidated Federal land bank bonds, with the interest guaranteed by the Government, can be sold on approximately a 4 percent yield. That is, a 4 percent bond would be sold at or close to par.

The CHAIRMAN. Perhaps we had better discuss the first and second paragraphs together. As I understand it, the second paragraph will authorize the selling of those bonds and the use of the funds for refinancing or exchanging the bonds themselves for mortgages of all kinds.

Dr. MYERS. That is correct.

The CHAIRMAN. I think that covers the main portion of the bill. Dr. MYERS. Section 2 of the bill reads as follows:

In order to reduce and/or refinance farm mortgages, to invest such funds as may be in its possession in the purchase of qualified first mortgages on farm lands situated within the Federal land bank district within which it is organized or for which it is acting, or to exchange farm-loan bonds for any duly recorded first mortgages on farm lands executed prior to the date this paragraph, as amended, takes effect, at a price which shall not exceed in each individual case the amount of the unpaid principal of the mortgage on the date of such purchase or exchange, or 50 percent of the value of the land mortgaged and 20 percent of the value of the permanent insured improvements thereon as determined upon an appraisal made pursuant to this act, whichever is the smaller: Provided, That any mortgagor whose mortgage is acquired by a Federal land bank under this paragraph shall be entitled to have his farm mortgage indebtedness refinanced in accordance with the provisions of sections 7 and 8 of this act on the basis of the amount paid by the bank for his mortgage.

Mr. FULMER. I gather from this memorandum you have submitted, that in making provision for new loans, you have in mind, not only saving the farmer's land, but protecting the price of the land in that particular community. Of course, if the lands were thrown upon the market, it would have a bad effect on the value of the land now covered by farm mortgages generally.

Dr. MYERS. It is intended to prevent demoralization of prices; yes, sir.

Mr. KLEBERG. I would like to ask one question: You state that there will be a guarantee of the interest by the Government, and I would like to know how you are going to support the value of those bonds.

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