It is felt that it would be possible to obtain a drastic scaling down of these store bills, and junior obligations, if it were made possible to make a small, reasonable, safe second mortgage loan.

I think it would do two things: It would enable the farmer to buy in frozen debts at a percentage of their present value, and, by permitting them to be paid over a 10-year period, it would then enable him to carry on, and pay out, if we have any improvement in conditions.

Second, I believe it would be a very important factor in many country communities where banks and dealers and others are faced with frozen assets, that is, with notes due from farmers on which they are unable to make payments. Many banks, of course, also have frozen farm paper. The facilities of the Government, up to this time, have not in its finance program, or refinance program, trickled out to the rural communities. I believe that the amount of money suggested here would give heart to many farmers, and would assist in improving the business situation in the country, commensurate with such a risk.

The CHAIRMAN. It is not contemplated that the total of both types of credit shall exceed the reasonable market value of the farm.

Dr. MYERS. Seventy-five percent will be the limit for the sum of the first and second mortgages. This would clear the tax and the mortgage, and will enable him to keep it on a reasonably conservative basis.

The $200,000,000, the Reconstruction Finance Corporation is taking, involves a reasonable business risk, in order to make it possible for farmers to reduce their debts, and to scale them down, to pay out. We believe it is better than for them to default and better for the creditor.

Mr. PIERCE. Mr. Chairman

The CHAIRMAN. Mr. Pierce.

Mr. PIERCE. How are you going to arrive at the 75 percent?
Dr. MYERS. I believe I will ask Mr. Bestor to answer that.

Mr. BESTOR. It is, of course, a difficult problem, as I said during my statement this morning, to arrive at values at the present time. I believe the only way to arrive at what we call normal value is to take the average price of commodities for a period of years, which could be termed a normal period; the period preceding the war, for example, might be used.

Mr. PIERCE. How would you arrive at that?

Mr. BESTOR. Determine the value based upon commodity prices, say, for the period of years from 1909 to 1914 or 1915.

Mr. PIERCE. I want to say just this, Mr. Chairman, that while Governor of the State of Oregon, I was confronted with the question of making loans to soldiers on the basis of 75 percent of the real value, and under the law that was passed, the Supreme Court held that we were compelled to make it on the basis of 75 percent, and the State of Oregon will lose $10,000,000 as a result thereof, one third, probably, of the amount loaned. There is extreme danger there; very extreme danger in that.

The CHAIRMAN. But in your law, you were compelled to make the loan?

Mr. PIERCE. We were compelled.

The CHAIRMAN. That was my understanding.

Mr. PIERCE. Yes.

The CHAIRMAN. But as I understand it, the 75 percent here is a maximum.

Mr. PIERCE. Yes.

Dr. MYERS. They are not compelled to.

Mr. PIERCE. You are not obligated to go to that amount.

Dr. MYERS. No.

Mr. BESTOR. The Commissioner cannot go beyond that.

Mr. PIERCE. The Supreme Court said we had to, if requested by borrowers.

Dr. MYERS. We think that with 75 percent of the value of the real estate as a maximum, it would be safe.

The CHAIRMAN. Anything else?

Dr. MYERS. Now, of course, with real estate and all other commodities at the present price, the way that prices of land have declined during the last years, to use that price for land would be impracticable. Therefore, the 75 percent loan could not be made on a safer basis in the past quarter of a century, and perhaps longer, than it could be made at this time.

Mr. BOILEAU. Mr. Chairman.

The CHAIRMAN. Mr. Boileau.

Mr. BOILEAU. How would the valuing of property as it is in normal times be done? As I understand it, no farmer would be allowed to buy in his property for more than that.

Dr. MYERS. Yes.

Mr. BOILEAU. I think there would be trouble with that system. Dr. MYERS. Now, reading on page 14, beginning with line 13: The amount of the mortgage given by any farmer, together with all prior mortgages or other evidence of indebtedness secured by such farm property of the farmer, shall not exceed 75 per centum of the value thereof, as determined upon an appraisal made pursuant to the Federal Farm Loan Act, as amended.

One of the committees on the other side, in Congress, struck out "normal" leaving the definition of appraisal, that is of value, to be made by the administrative authorities in charge of the administration of the act. I believe that is wise.

Mr. BEAM. May I ask a question there, Mr. Chairman?
The CHAIRMAN. Mr. Beam.

Mr. BEAM. I can see the possibility of the difficulties that you are going to be faced with when you come to administer that. Dr. MYERS. Yes.

Mr. BEAM. And one element entering into such difficulty is the taxable value. Now, taxes have increased during the last years. We are concerned in making some basis of value to the farmer so he will benefit under the law, why would it not be expedient from an administrative standpoint to insert the word taxable, normal taxable value?

That would meet some of the difficulties which Governor Pierce referred to when they were trying to arrive at values. There are

a lot of elements entering into it; it might be the market value; it might be the salable value; it might be the value for condemnation purposes, and other kinds. Now, as a safeguard in the matter of administration, I think it would be expedient if we said the normal taxable value.

Dr. MYERS. Mr. Chairman, based on some knowledge of the farm conditions in one State, an appraisal made by a representative of a Federal land bank is a much more accurate measure of value than an assessment made by a local assessor. Their treatments vary within the same State and Territory, from farm to farm and from region to region. I doubt the wisdom of using taxable value as a basis, although I recognize that you have put your finger on one of the most difficult points in the administration of the law. The matter of value is a question of judgment. I have no suggestion to offer other than I believe it might be best to leave it to the administration of this act, believing that they will arrive at a more accurate measure of value than could be made in any other manner.

The CHAIRMAN. May I suggest in that connection. Dr. Myers, that some States have one method and some another. For instance, some have full rendition and some a certain percentage, which is very low. Dr. MYERS. Yes.

The CHAIRMAN. If we undertook to apply a general term.

Dr. MYERS. Mr. Chairman, there is one other thing

Mr. HOPE. Mr. Chairman, a question there.

The CHAIRMAN. Mr. Hope.

Mr. HOPE. Is it contemplated that this $200,000,000, which is loaned as a second mortgage will be any better security than a second mortgage usually is where the first mortgage is held by anyone other than the Federal land bank?

Mr. MYERS. It is possible, and this safeguards it. There is a provision in here which safeguards it, beginning with line 21:

Every mortgage made under this section shall contain an agreement providing for the repayment of the loan on an amortization plan by means of a fixed number of annual or semiannual installments, sufficient to cover (1) interest on unpaid principal at the rate not to exceed 5 per cent per annum and (2) such payments equal in amount to be applied on principal as will extinguish the debt within an agreed period of not more than 10 years from the date the first payment on principal is due: Provided, That during the first 3 years the loan is in effect payment of interest only may be required. No loan shall be made under this section unless the holder of any prior mortgage or instrument of indebtedness secured by such farm property arranges to the satisfaction of the Farm Loan Commission to limit the right to proceed against the farmer and such farm property for default in payment of principal.

Mr. HOPE. I see.

Dr. MYERS. So that during the life of this loan, which is to be 10 years, the holder of any prior mortgage would limit his right of proceeding for nonpayment of principal, which would protect the second loan.

Mr. HOPE. I see. I had not noticed that provision.

Dr. MYERS. That takes care of it.

Mr. DOXEY. Mr. Chairman.

The CHAIRMAN. Mr. Doxey.

Mr. DOXEY. In my question to Mr. Morgantheau, this morning, I asked with reference to the 1-year period, on foreclosures.

Dr. MYER. Yes.

Mr. DOXEY. And his answer on that was, the amount was determined upon with reference to the mortgage redemption..

Dr. MYERS. Yes.

Mr. DOXEY. Have you any figures as to what you would estimate the cost might be as to the 1-year period?

Dr. MYERS. No.

Mr. DOXEY. For redemption under foreclosure sales, within a year. Dr. MYERS. I believe in my own State there is no redemption period. And in many cases the foreclosure on the property passes it to an innocent purchaser and it is impossible to redeem it.

Mr. DOXEY. It is impossible to redeem it in States that make no provision by statute for redemption. That's the case in my State of Mississippi.

Dr. MYERS. Yes.

Mr. DoXEY. Could the State legislatures meet and pass a law that would be retroactive in order to take advantage of this legislation? The point I am making is this: What objection would you have to making this 2 years if the States would have such a law enacted? Dr. MYERS. Personally, none. I think that is a question that certainly comes under the jurisdiction of your group and if you gentlemen say that 2 years is better than 1, we will do everything we can to administer it.

Mr. DOXEY. Yes. I am for the 2-year period, and will endeavor to secure an amendment to that effect.

Mr. FULMER. Mr. Chairman.

The CHAIRMAN. Mr. Fulmer.

Mr. FULMER. Doctor, when we were considering the farm relief bill, we were able to obtain the price of farm products during the pre-war period 1909-1914.

Dr. MYERS. Yes.

Mr. FULMER. This gave the pre-war prices, and we also secured prices for the period between that time and the present time.

Now, have you any figures or have you been able to get figures as to the pre-war value of land and the value for the period since then up until now?

Dr. MYERS. The Department of Agriculture has such figures. I think they can be found in that report, Mr. Chairman. Just as a matter of approximation, the average value of farm land in the United States, at this time, and insofar as it is ascertainable, is about 80 percent of the average of the years from 1910 to 1914. Mr. FULMER. In other words land values now are 20 percent below pre-war values.

Mr. CLARKE. The average.

Mr. FULMER. I am glad to have that.

Dr. MYERS. That is the average over the United States, based on figures of the Department of Agriculture. I may be somewhat in error, but I think that is about right.

The CHAIRMAN. In between there has been quite a change.

Dr. MYERS. The peak was reached in 1920, and in 1931 or 1932 the average was about 50 percent of 1920, but it is only about 20 percent below 1910 to 1914.

The CHAIRMAN. Anything further?

Mr. CLARKE. I would like to ask a question, Mr. Chairman, if I may.

The CHAIRMAN. Mr. Clarke.

Mr. CLARKE. I did not quite follow the Governor, in the determination of values of farms. Now, five different men operate the same farm, and those five different men would get different results.

Now, how are you going to fix the average value? Then, it is based on the fluctuation of prices and costs from 1909 to 1914. I would like to know how you are going to get at that.

Dr. MYERS. Mr. Clarke, that problem of the appraisal of property is a problem all over the country. It is not peculiar to farm property, and whether the appraisal is based upon the current or past valuations, after all it is on the past

Mr. CLARKE [interposing]. I can see the basis of it, clear enough, as far as the value of farm commodities are concerned, from 1909 to 1914, but when it comes to the question of determining the value of farms upon the pre-war basis, I just cannot see it.

Mr. FLANNAGAN. Mr. Chairman, may I ask a question?

The CHAIRMAN. Mr. Flannagan.

Mr. FLANNAGAN. Doctor, do you not think the interest rate of 42 percent as provided in this bill is a little high?

Dr. MYERS. Well, I would like to get it lower. We are met by the fact that the same conditions which make the low rate necessary. make it impossible to sell bonds at a reasonable rate; that is, the uncertainty of agriculture and returns from agriculture result in some discrimination, or rather investors are wary about buying bonds because of the uncertainty of income received from the farmer, on the principal.

Now that being the state of facts, we had rather have a high interest rate and sell the bonds. And the fact is that you cannot make the mortgage loans unless the loan is safe.

Now, what that rate should be is for you gentlemen to decide. I offer this thought: In the first place. 4% percent may be large in some instances. It is not on the whole, and for a limited period; if conditions improve, a higher rate with fair prices for farm produce, 5 percent on a loan is a fair rate.

Mr. FULMER. It is a fact too, that the farmer would have an opportunity to have his obligations scaled down?

Dr. MYERS. Yes. And also, the fact that if these borrowers cannot pay the 41⁄2 percent, and they do the best they can, they pay what they can, they are not foreclosed on; those payments are carried forward and can be carried forward for 5 years, and the loan then be rewritten. I think that is fair treatment.

The CHAIRMAN. Any further questions?

Mr. BOILEAU. You stated that the value was 80 percent of what they were in 1914?

Dr. MYERS. Pardon me.

Mr. BOILEAU. You stated that it was approximately 80 percent of what the value was in 1914?

Dr. MYERS. Yes.

Mr. BOILEAU. Have you any figures, or do you know approximately what the percentage of the value in 1914 was as compared with 1928, and whether the mortgages were greater during the latter period?

Dr. MYERS. It would be difficult to say. The point is that some people, when they speak of farm mortgages increasing, assume that the same farmers are going deeper into debt. Now, the fact is that many young men are going onto the farm and buying farms at a high price level, and they are paying mortgages on those farms, and