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Dr. MYERS. The Federal land bank bonds are selling now, without any Government guarantee of interest, at prices that vary from 80 to 90. The different series of bonds, with different interest rates, range from approximately 80 to approximately 90, while some of them are at par. These new bonds will be consolidated bonds of the Federal land banks, and they will have their interest guaranteed by the United States Government. It is believed by those who are familiar with the bond market that these bonds will sell approximately at par. They believe that the 4 percent bonds will sell approximately at par.

Mr. KLEBERG. I have another question with reference to the valuation: In the valuation of the property, is it proposed to adhere pretty closely to the values upon which the loans were made in the past, or will there be a new valuation?

Dr. MYERS. I will refer that question to Mr. Bestor.

Mr. BESTOR. The act as written here provides for the valuation to be based on the normal value. The normal value, as interpreted by the appraisers of the land bank system, where loans are based on the normal value, would be to take the average price of commodities over a period of years, and then base the land value on the price of those commodities. For instance, if we had a period of years during which the average price of cotton was 10 or 12 cents a pound, they would fix the value of the land on that basis, by capitalizing it.

Mr. KLEBERG. There is no other means of writing that specifically into the bill.

Mr. BESTOR. I think Dr. Myers drew that provision.

Dr. MYERS. Mr. Chairman, the most difficult thing to determine in the world today is the exact value or the market value of farm property. It seems to us that to fix the basis of value in the bill would be unwise, because conditions may change markedly within 3 or 6 months. We take 50 percent of the value of the land and 20 percent of the value of the insured improvements. That is the identical provision in the Farm Loan Act now. The basis is left to administrative action, so that it can be changed from time to time in a manner to meet the situation, rather than having an arbitrary formula set out in the bill.

Mr. KLEBERG. That leads down to the question of whether, or not, you will have to depend on the administration for that.

Dr. MYERS. Yes, sir; that is the object.

Mr. TOBEY. Who drew this bill?

Dr. MYERS. There were a number of persons working on it. I had something to do with it.

Mr. TOBEY. What agricultural representatives were called into the conference?

Dr. MYERS. Do you mean representatives of the farm organizations?

Mr. TOBEY. Yes; of the leading ones.

Dr. MYERS. They were called into the conference.

Mr. TOBEY. Does this bill meet with their approval?

Dr. MYERS. Generally.

Mr. TOBEY. Were there any exceptions? Is Mr. Simpson in favor of it?

Dr. MYERS. I cannot say for Mr. Simpson.

Mr. TOBEY. Does the Farm Bureau Federation favor it?

Dr. MYERS. Yes, sir. Perhaps they had better answer for themselves. I will say that it has been presented to them, and at that time they expressed their approval of it.

Mr. FLANNAGAN. Are these securities to be tax-exempt?

Dr. MYERS. Except from inheritance taxes. They will be the same in that respect as Federal land bank bonds. They are identical with Federal farm land bank securities that are now outstanding, except that it is planned here to issue consolidated bonds, with the interest to be guaranteed by the United States. If conditions improve, that guarantee will cost the Government nothing, but it is believed that it will help to sell the bonds at a reasonable yield so as to raise money to assist in refinancing the mortgages.

Mr. GLOVER. To what extent do you contemplate that new loans will be made under this provision? Will there be new loans made on agricultural lands? For instance, suppose I am a farmer, with, say, 500 acres of land, not mortgaged, but I owe some personal obligations and I want to use this method to get money with which to pay them off. Would this system be available to me?

Dr. MYERS. It is my belief that that is a very important problem. About 58 per cent of the farms are not mortgaged, but many of those farmers have bank notes and other personal obligations to meet; and how can the farmer meet that situation unless we make it possible for him to refund those short-term debts through a mortgage so he can pay it off over a series of years? That is an important problem. Mr. GLOVER. I live in a State where one of the principal crops comes from the growing of fine trees and getting the lumber to the market. We are trying to take care of the forests, and many of our people have the investments of their lives in timber growing. Now, would they be permitted to secure loans under the provisions of this bill?

Mr. BESTOR. Mr. Chairman, the original farm loan act provides that in making an appraisal of land its value for agricultural purposes shall be the basis of appraisal, and the earning power of the land shall be a principal factor.

Mr. GLOVER. Whether it is cultivated or not?

Mr. BESTOR. It also implies that the land shall be in cultivation or about to be cultivated.

Mr. GLOVER. Does it mean where it is susceptible of cultivation? We have much good land there that will be put into cultivation. Now, if they are unable to put this land into cultivation or to agricultural uses, would they be able to come in under this provision and secure a loan for that purpose?

Mr. BESTOR. The act has not been interpreted to mean that you can secure a loan on unimproved land; that is, land that is not being used for agricultural purposes.

Mr. GLOVER. I did not understand that.

Mr. BESTOR. The act has not been interpreted to mean that you can make a farm loan on land not improved or ready for cultivation. Mr. GLOVER. On new lands?

Mr. BESTOR. In other words, timbered lands are not given any value for agricultural purpose, except where there is a timber lot on the farm which might be of value to the farm. However, such a timber lot is not considered from the standpoint of cultivation.

Mr. GLOVER. Timber is as much a growing crop as cotton, corn, or wheat, and I was wondering whether this act would take care of many of those who are growing timber, with the expectation of growing other crops after the timber is cut off.

Mr. BESTOR. As I understand it, this bill does not change the Farm Loan Act at all in that respect.

Mr. HOPE. Right in that connection, you say that this does not change the Farm Loan Act with respect to that requirement, that the borrower be living on the farm. Is that correct?

Mr. BESTOR. The act says that no loan shall be made to any person who is not at the time, or shortly to become, engaged in the cultivation of the farm.

Mr. HOPE. Would that be true of mortgages which may be taken over by the Federal land bank? By that I mean other mortgages. You say you make the same requirement in this bill that is covered in the original Farm Loan Act. Say, for instance, I have a mortgage, and I do not live on the land; I cannot get a mortgage, or I cannot get a loan from the Federal land bank, because I do not live on the land and cultivate it myself. Now, we will say this mortgage is in default, and I want to come in under this system. Could I do that?

Mr. BESTOR. That is where you are exchanging a mortgage. For instance, a life insurance company, holding the mortgage, may desire to sell the mortgage under this provision.

Mr. HOPE. Yes.

Mr. BESTOR. Then, you want to know whether the land bank would be in a position to take the mortgage?

Mr. HOPE. Yes; the idea is, would the land bank be in a position to take the mortgage?

Mr. BESTOR. The mortgagor must be an eligible borrower under the terms of the act.

Mr. HOPE. So that, if the mortgagor could not quality to go originally to the Federal land bank for the loan, he could not come in under the provisions of this act in attempting to refinance such mortgage?

Mr. BESTOR. That is right, as I understand it.

Mr. HOPE. What proportion of the farm-mortgage indebtedness is in default today?

Doctor MYERS. There are no figures available covering all the farm-mortgage indebtedness. The figures of the Federal land banks show that about 50 per cent are delinquent. That is the percentage of delinquency in the Federal land bank system.

Mr. BESTOR. That includes loans upon which extensions have been granted. It is about 50 percent of loans, including those that have been extended. A loan on which an extension is granted is treated technically as delinquent. The delinquencies, on which no extensions have been granted, would represent about 17 percent of total loans.

Mr. HOPE. Then, this sum of $2,000,000,000 is not enough to take care of all the farm-mortgage loans which are in default today, even if you applied all of it to taking care of the loans now in existence and in default.

Dr. MYERS. There are many mortgagees who are able to carry their mortgages even though the borrowers are temporarily in de

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fault. The Federal land banks are a case in point, and presumably, the life insurance companies have up to this time in most cases been able to carry the borrowers along, where they are operating efficiently, even though they cannot meet the current payments of interest on the mortgages. All of those things would be taken into consideration. Whether the mortgagee would wish to dispose of his mortgage, would undoubtedly depend on the indvidual situation of the mortgagee, and as to whether he ought to have the money.

Mr. HOPE. Of course, the first thought of the mortgagee would be to try to come under the provisions of this act. If the old mortgagee could qualify under this act, he would try to come under it, of course. What I want to get at is whether it will take all of this $2,000,000,000 to refinance the mortgages which would be eligible to come in under the terms of this act, and which are now in default. You spoke awhile ago about the possibility of making new loans, but, in view of the great number of mortgages in default, there would not be enough left with which to make new loans.

Dr. MYERS. Of course, new loans, or the exchange of bonds for mortgages, can be accomplished under the act only after appraisal, which means a physical limit upon the making of loans. We will be limited to the existing Federal land bank machinery in taking care of that. Whether or not the $2,000,000,000 will be adequate depends upon factors that can not be foreseen. If the agricultural situation should improve, there would be less demand for refinancing. Perhaps Mr. Bestor could answer that better than I can. They would have to operate at high speed in order to make loans to the amount of $2,000,000,000 in 2 years.

The CHAIRMAN. May I interrupt at this point? Mr. Henry Morgenthau, Jr., is present. He will be the governor of the Farm Credit Administration under this set-up, and he will be glad to answer any questions as we go along that the committee may desire to ask.

Mr. MORGENTHAU. I will answer that by saying that that is the best guess we could make after consulting various people that we thought knew something about it. It is just an honest guess-that is all.

Mr HOPE. That is, the $2,000,000,000 would be the maximum amount that would be called for under the terms of this act within the next 2 years?

Mr. MORGENTHAU. I would not put it that way. I would say this, that $2,000,000,000 would be the maximum amount that we could handle.

Mr. HOPE. I would like to follow that up with one more question. What proportion of the mortgages in default do you think could come in under the terms of this act? I assume that there are a good many mortgages now which are in excess of the value of the land, so far as the amount is concerned, and which probably could not under any circumstances come under the provisions of this act, but I just wonder if you have any figures that would indicate what proportion of the mortgages in default are in that class?

Mr. MORGENTHAU. Mr. Bestor could probably better answer that. Mr. BESTOR. I think it would depend considerably on to what extent the holder of the mortgage would be willing to scale down

the principal of the mortgage. This bill is designed, of course, to scale down the principal of outstanding mortgages. If the loan is delinquent, and the man holding the mortgage believes it will not be paid, or if he needs money badly he will be willing to scale down the principal. In that way, the loan might be made eligible to the benefits of this system.

Mr. Hope. That man may come in if he will scale down the principal of the indebtedness?

Mr. BESTOR. Yes, sir.

Mr. TERRELL (a Representative from Texas). Mr. Chairman, I would like to ask one or two questions. I am obliged to go back to work very soon, and I would appreciate it if the committee would allow me to ask one or two questions.

The CHAIRMAN. Without objection, we will extend to Mr. Terrell the courtesy of asking some questions.

Mr. TERRELL. I think we all agree that the interest rate is too high, and I want to ask if it would not be practicable to write the bill otherwise, providing that in the issuance of these bonds the Government shall have the option up to a certain date, or after a certain period of years, to call in those bonds, because they might be able to sell bonds at a lower rate of interest? I would like to see in the bill a practicable provision under which they would call in the bonds after a certain date, and issue new bonds drawing a ower rate of interest. That is one of my questions.

Mr. BESTOR. All farm-loan bonds have a provision whereby they can be called after a certain date. Some bonds. of a 10-30 bond issue are callable in 10 years, some are callable in 5 years, and some are callable in 2 years.

Mr. TERRELL. Another question I want to ask is this: There is a provision in this bill that these bonds that are issued by the farmloan banks shall not be issued as nontaxable bonds, and I want to know whether it is practicable to provide in the bill that bonds hereafter issued by the Federal Government shall not be nontaxable. That is a very important proposition. Those are the two questions I wanted to ask.

The CHAIRMAN. I doubt if this committee would have jurisdiction in that matter. The Ways and Means Committee has jurisdiction in reference to the issue of Government bonds. I doubt whether this committee would have the authority to pass on that.

Mr. DoXEY. Following up the last question by Mr. Hope, am I correct in my observation that this $2,000,000,000 is an arbitrary figure set up there as the maximum amount required to take care of the situation as best we can, or as a stabilzing influence? In other words, it is simply a matter of speculation as to how many mortgage holders will desire to transfer or convert their securities, and take advantage of these provisions, if they feel secure otherwise. Now, having that thought in mind, and I do not want to anticipate or prolong any discussion, what are the provisions of this bill with reference to aiding those who have already lost their homes by reason of foreclosure, or otherwise? What are the stipulations and conditions under which they can get money with which to redeem their homes?

Dr. MYERS. Under title III, second mortgage loans are permitted to assist in the repurchase or redemption of farms foreclosed within

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