the preceding 12 months or foreclosed after the date of the passage of this act. In other words, the ordinary first mortgage held by the Federal land bank, plus the second mortgage under title III, or the sum of the two, must not exceed 75 percent of the normal value of the property. Both would be available to assist the farmer in the repurchase or redemption of a farm sold under those conditions.

Mr. DOXEY. I realize that the question of time must be considered in determining the value of the property. The value of the property at the time the original loan was made may have been greater than

now.

Dr. MYERS. Under the present method, the appraisal is based on the average price of farm products over a period of years. They would probably use the average over a period from 1909 to 1914.

Mr. DoXEY. Then, as I understand it, if the mortgage on the farm has been foreclosed within 12 months preceding the passage of this bill, the farmer would be eligible to secure a loan for the sole purpose of redeeming his farm.

Dr. MYERS. If the State law has a redemption period.

Mr. DOXEY. Under our State law, Mississippi, there is no redemption period.

Mr. CUMMINGS. Suppose a mortgage made when values were up, or during one of the so-called boom periods, is foreclosed: For instance, suppose the appraised value of the land was $15,000, but at the present time it would sell for only half of that amount; then, in order for him to be able to do business under this plan, the man who held the mortgage would have to give up $7,500 before he could come in.

Dr. MYERS. Assuming the farm value to be $10,000, that is right. Mr. CUMMINGS. So that the most the Government would get there would be loans that were made at a high rate, or where they were not able to get sufficient in the judgment to cover it.

Dr. MYERS. You would be between two fires there, and, of course, you must leave things to intelligent administration. You cannot work it successfully without sympathetic and intelligent administration.

Mr. CUMMINGS. But sympathy and intelligence do not always go together. You say there are about $8,500,000,000 in loans on farms: Now, what percent of that $8,500,000,000 has been loaned to farmers who operate farms and are living on the land?

Dr. MYERS. I cannot answer that question.

Mr. CUMMINGS. I do not believe that 25 percent, or, probably, not 20 percent of the loans are made to farmers who are living on the farm. I do not believe that 10 percent are living on those farms right now.

Dr. MYERS. How do they cultivate it?

Mr. CUMMINGS. It is rented. I have farms, but I have not lived on a farm for many years.

Mr. BESTOR. The Board has been trying to interpret that provision of the act as broadly as possible, in determining who is eligible for loans, and the Board has felt that where the owner of the land was exercising substantial supervision over the farm, he was eligible.

Mr. BOILEAU. A number of farmers in past years have executed quitclaims under which their property has gone to the holders of the mortgages, rather than have it go through a foreclosure proceeding, which is more expensive: Now, is this bill broad enough in its terms to enable those people to come in and buy back their farms?

Mr. BESTOR. If they come within the limit of 75 percent of the value, they could. If a man quitclaimed his farm and turned it over to the mortgagee, he would be eligible to a loan under title III.

Dr. MYERS. The borrower would be.

Mr. BOILEAU. Would this bill be more liberal, or would the Federal land bank be more liberal in making loans under the provisions of this bill than now, so far as funds are concerned? At the present time, many farmers who go there to make loans cannot get the money. Will they be more liberal under this bill?

Dr. MYERS. The bill is no more liberal, but the question is one of administration. I would like to say that this was criticized by a group of persons yesterday. They felt that the present values should be used so as to squeeze the mortgages down. That is one side, and the other side would make the valuations liberal so that the borrower could borrow as much as he needs to borrow in order to pay off his debts. That brings up a difficulty that must be met by the administration. That is something you will have to leave to intelligent administration.

Mr. CLARKE. In terms of practical relief, how much actual relief is there for the mortgagor, or the man who is living on the farm, in the reduction of the interest rate?

Dr. MYERS. To the present Federal land bank mortgagor, the average rate of interest is 52 percent, to which is added 1 percent for amortization. That means that the total will be 62 percent. That is the payment that is required to keep the loan in good standing. Under this bill, the interest is reduced to 42 percent for five years. That is the payment that will be required of the mortgagor, 412 per- cent, to keep his loan in good standing for that period.

Mr. CLARKE. Right there, let me say that we find that the Federal land banks and the intermediate-credit banks, and especially intermediate-credit banks, are hooking fees of one kind or another on these mortgages, so that the actual cost to the farmer goes away up. That is one of the things that all of us have to deal with when we go into the actual working of law and try to find out what is going on. Now, I want to know what will be the tangible effect of this, or how much it will cost the farmer.

Dr. MYERS. Who wants to make a mortgage loan?

Mr. CLARKE. I want to know what it will cost the farmer.

Dr. MYERS. Four and a half percent.

Mr. CLARKE. Is that all?

Dr. MYERS. Yes, sir.

Mr. CLARKE. I want that in the record.

Mr. MCCANDLESS. I would like to know whether cattle raisers are eligible under this bill. I would like to know if people in the cattle business, or in the business of pasturing cattle, are eligible under this bill?

Mr. BESTOR. Yes; if they have title to sufficient land to constitute a range unit.

Mr. MCCANDLESS. I mean by the cattle business those in the pasture business, where the pasture land is owned by the individual who wishes to make a loan. There was some question as to a timber man being eligible, but I want to know if a cattle man, who pastures his cattle on his own land, is eligible.

Mr. BESTOR. He is eligible.

Mr. MARSHALL. I am wondering just what relief can come from this bill in a situation that I have in mind back home, or in the county where I live, where I would say that three-fourths of the loans on land have been made by building and loan associations. We have two wonderfully strong building and loan associations, but it goes without saying that they have been too liberal, or they have made loans at too high a valuation when people were making plenty of money. Would there be any relief under this bill for those people?

The CHAIRMAN. This bill does not undertake to cover city homes. Mr. MARSHALL. I am speaking of farm lands.

Mr. MORGENTHAU. That is being taken up in a separate bill. The CHAIRMAN. I understand that some building and loan associations take mortgages on farms.

Mr. MARSHALL. They have at least 75 percent of the loans on farms in my sections.

The CHAIRMAN. In my section of the country, the building and loan associations are supposed to cover city property. I assume that, if such an organization also made loans on farm property, they would come under the terms of this bill. In other words, they would be mortgage holders, and insofar as they handle farm loans, they would be eligible under the terms of this bill, would they not?

Mr. BESTOR. Yes, sir; where the farm property constitutes a farm unit.

Mr. MARSHALL. The only relief there would be through scaling down and taking the loss, I suppose, in order to qualify under this

act.

The CHAIRMAN. I think that applies all along the line.

Doctor MYERS. Mr. Clarke, did you ask if there was any costtaking on these mortgages?

Mr. CLARKE. I know this from practical experience, or from what has been told me. If we went over there to find out about these intermediate credit-bank organizations, and should go into the question of the cost of the loans to the farmers themselves, we would find that they were tacking percentages on the loans until they would go up to 7 or 72 percent. That is what it would cost the farmer himself. That is what they tell me about all of these banks that are scattered over the country. That is the reason I want to know what relief will be brought to the farmer primarily, under this bill, and nobody else.

Mr. BESTOR. Mr. Chairman, I understand that this last statement refers largely to the intermediate credit banks. The cost to Federal land bank borrower is limited by law to 1 percent plus the actual cost of appraisal and determination of title. With regard to the intermediate credit banks, they do not make those charges. Those

charges are made by the agencies that discount the paper with the banks.

Mr. CLARKE. That is just quibbling with the problem.

Mr. MORGENTHAU. I would like to say that one of the ideas the President had in making the Executive order putting those various credit agencies together was that he hoped they would be able to render this service to the borrower at considerably less cost to them, and I am quite sure that we will be able to make quite long strides along that line.

Mr. CLARKE. The statement was just made that the net cost to the farmer will not exceed 42 percent.

Mr. MORGENTHAU. As Mr. Bestor said, they are limited to 1 percent, plus the cost of appraisal.

Mr. CLARKE. That is not the total at present, or it is not 1 percent a year.

Mr. MORGENTHAU. Do you mean that they charge the farmer more than 1 percent for that service?

Mr. BESTOR. In order to cover its expenses in handling applications for loans and forwarding them to the bank, a national farm loan association, under the law, may charge a borrower a fee which may not be more than 1 percent of the amount of the loan granted. In many cases the charge actually made is less than 1 percent. In addition, the Federal land bank may charge the borrower fees to cover its expenses in making appraisal, determination of title, recording the mortgage, and so forth. Such fees vary somewhat with the size of the loan and between districts, but in no event may they exceed the actual expenses to the bank. The experience of the banks is that the total fees collected under these provisions of the law are less than the actual costs to the banks of making appraisals, examining titles, recording the mortgages, and so forth. The important point to keep in mind in connection with these charges is that they occur only once in the life of the loan so that when they are spread over the entire term of the loan, which in the past has varied for most loans from 33 to 361⁄2 years, the cost per year is very small indeed. I am referring to the Federal land banks which you may be confusing with the intermediate credit banks.

Mr. PIERCE. I am watching closely to see what benefit will come to the farmer from this measure. Now, the interest rate, you say, is to be 412 percent over the 5-year period, and it appears that he is paying on the average 52 percent. Now, is this a farm relief bill, or is it a bill for the relief of the mortgage holders? It seems to me that the mortgagor would not get much benefit from this bill. The Government will put its name behind the bonds and will guarantee the interest. Why not let the mortgagee take the reduction just as the farmer is taking it? I fail to see wherein you are helping the farm situation by this measure. You are certainly helping the man who is holding the mortgage, and the farm loan banks, or the Federal land banks, but I do not see how you are helping the man on the farm.

Mr. MYERS. There are two ways to reduce the cost to the farmers

Mr. PIERCE (interposing). You are putting the Government behind the bonds.

Dr. MYERS. There are two ways to do that: One is by reducing the face of the mortgage, and the other is by reducing the rate of interest. Insofar as the mortgagee is willing to accept cash for less than the present face value of the mortgage, or is willing to accept bonds for the mortgage, you will be bringing down the principal and the interest on mortgages now held by any individual or by any life-insurance company or by local banks.

Mr. PIERCE. I fail to understand just how that scaling down will

come.

Dr. MYERS. We will take the case of a farm that is worth $20,000, with a $15,000 mortgage on it: Under this bill the limits would be set by the appraisal, or the appraised value of the farm, which would be approximately $10,000. If the mortgage holder was willing to accept $10,000 for the $15,000 mortgage on the $20,000 farm, then the farmer would get his mortgage reduced to $10,000, and would get his interest rate reduced to 42 percent for 5 years.

Mr. PIERCE. Under what conditions will that arise? Why is not that made mandatory?

Dr. MYERS. That will have no effect on outstanding bonds, because it is provided for a year that none of these new bonds can be used for exchange for outstanding Federal land bank bonds. They have to stand on their own feet; they are not interfered with. If after a year, this 2 billion has proved to be more than is needed to make new loans or exchange for mortgages, then the Farm Loan Commissioner may use some of this new issue of 2 billion to refinance outstanding bonds that have high interest rates, thereby reducing the interest cost to the borrowers in the Federal land bank system. But these new bonds will not be exchanged for outstanding Federal land bank bonds for a year and, if needed for making new loans, they won't be used for that purpose at all.

Now, if you have a $5,000 mortgage on a $20,000 farm, you cannot force any mortgagee to take less than he is willing to take. If he is willing to take less, we provide the machinery to permit the farmer to buy in his mortgage for whatever he can buy it for, and to refinance.

Mr. PIERCE. He would not be given the advantage, then, of revaluing his bonds from 80 cents to a hundred?

Dr. MYERS. There won't be any effect on those bonds, because new bonds cannot be exchanged for outstanding bonds at all for a year and, after that, they cannot be exchanged if they are needed for making new loans.

Mr. PIERCE. I fail to catch that provision; on what page is that? Dr. MYERS. At the top of page 3

after the expiration of 1 year from the date this paragraph takes effect, if in the opinion of the Farm Loan Commissioner any part of the proceeds of the bonds authorized to be issued under this paragraph is not required for the purpose of making new loans or exchanging bonds for mortgages as herein provided, such bonds may be issued within the maximum limit herein specified for the purpose of refinancing the outstanding issues of Federal farm-loan bonds * *

That is only for a year. If they are not needed

Mr. GILCHRIST. The provision is for an exchange of bonds for mortgages?

Dr. MYERS. Or of purchase money.