stock land banks, and would enable the farmer to reduce his indebtedness.

Dr. MYERS. We are in a difficult situation there, Mr. Chairman, because in the interest of fairness to the investors we must consider them as well as the borrowers. The farm prices have declined and that has affected the borrower, and our sympathy is with him. However it is a fact that people have been investing in these bonds, believing in the soundness of the farm mortgages into which they have put their money.

The CHAIRMAN. That is true.

Dr. MYERS. There is no solution to that problem that will be satisfactory to both sides. Frankly, we are in a mess, and we have got to work out of it the best we can. In my judgment the method suggested here would be fair to both parties, with the provision of this amendment to which I called your attention a moment ago. The CHAIRMAN. Yes.

Dr. MYERS. That you give to the individual borrower a chance to refinance his mortgage on the best terms that he can get.

The CHAIRMAN. And in case the bonds are low they have an opportunity to buy them at a discount.

Dr. MYERS. Yes.

Mr. FULMER. One queestion there, Mr. Chairman. Suppose this bill were to pass today, what effect would it have on these jointstock land bank bonds?

Mr. PIERCE. They would double in value.

Dr. MYERS. I do not know that I could agree with you there, because where are they going to get the money to pay the next installment of interest on the bonds?

Mr. PIERCE. Stocks and bonds in the joint-stock land banks will materially increase in value.

Mr. MARSHALL. I do not quite follow the Governor there. I do not see where it could have that effect of making these bonds so valuable because the security back of them is not increased. These banks are going to be liquidated. I do not follow the idea about the joint-stock land bank bonds doubling in value, and their buying them in, because they are not going to increase their indebtedness. The CHAIRMAN. If scaled properly, it will not affect it materially, unless general conditions improve.

Mr. MARSHALL. If conditions should get better, and that is what we want, it would be taken care of automatically. I cannot see where this will increase the value of the bonds.

Mr. HOPE. The price, or the value of the bonds, declined because the security back of them declined.

Dr. MYERS. Yes.

Mr. HOPE. And this is not going to make the security any more valuable.

Dr. MYERS. That is right.

Mr. HOPE. And this gives a chance for the land banks to make a compromise and get, possibly, more out of the deal than they could get by simply foreclosing on the mortgage.

Mr. PIERCE. Not necessarily, Mr. Chairman.

Mr. HOPE. Not necessarily, but it does give them a chance to clear the matter up.

The CHAIRMAN. Suppose we let Dr. Myers explain this joint-stock loan provision.

Dr. MYERS. Just to make the situation clear, in the light of title I, which provides that the joint-stock land banks that are in receivership-that is in section 7 of title I, that a receiver can borrow from the Reconstruction Finance Corporation, on security of the receiver's certificate, for the purpose of paying taxes and interest on mortgaged land, or real estate, to protect the security, in cases where the borrower, who owes the mortgage is either unable or unwilling, mostly unable, to pay the tax; so that the joint-stock land banks that are in receivership, through their receiver, can borrow to pay their taxes.

Now, under title II opportunity is given to the joint-stock land banks to get certain benefits in borrowing, to borrow from the Reconstruction Finance Corporation, through the Farm Loan Commissioner, but those loans are to be made only after an appraisal. That is presumably because some of the lands and property values have been appraised too high. This limits the loans, as put in here, not to exceed 60 percent of the appraised value of the farm. The farms have got to be appraised, reappraised to get that amount.

Now, that leaves out the question of the joint-stock land banks that are not now in receivership, and that cannot get a loan under that title. In response to public agitation, farmers, many of them unable to pay their taxes or the interest on their mortgage, and some of them will be less willing to pay from now on, and therefore the joint-stock land banks will need money in order to pay the interest on these bonds and to pay taxes in instances where they have not come in under the other section. Therefore, this amendment was accepted and was reported out as a part of the bill by the Senate Committee on Banking and Currency and would apply as section 203. It would follow immediately after section 202, at the top of page 14.

The CHAIRMAN. I would like to have you read that.
Dr. MYERS. I will be glad to do so, Mr. Chairman.

I would like to make this explanation, also, that the Reconstruction Finance Corporation already has the power to make loans on the security of mortgages to land banks, as well as other organizations, but the difficulty is here, that the joint-stock land banks' mortgages are up in the hands of the registrar as security for the bonds. The Reconstruction Finance Corporation has interpreted "full and adequate security" to be first mortgages. Now, those first mortgages are alrady in the hands of the registrar as security for the bonds. Therefore, the joint-stock land banks cannot borrow in order to meet the interest on the bonds and taxes on the farms on which they hold mortgages, and the dilemma is increasing. So the language of this section is suggested.

Section 203 (a). In addition to loans authorized to be made to joint-stock land banks as provided in section 202 of this title to this act and as provided in section 5 of the Reconstruction Finance Corporation Act, as amended, the Reconstruction Finance Corporation is further authorized and empowered to make loans,, at a rate of interest not to exceed 4 per centum per annum, to any joint-stock land bank for the purpose of securing the postponement for two years from the date of the enactment of this section of the foreclosure of first mortgages held by such banks on account of, first, default in the payment of interest, and principal due under the terms of the mortgage and second, unpaid

delinquent taxes, excluding interest and penalties, which may be secured by the lien of said mortgage: Provided, That during the period of postponement of foreclosure such bank shall charge the mortgagor interest at a rate not exceeding 4 per centum per annum on the aggregate amount of such delinquent taxes and defaulted interest and principal with respect to which loans are made pursuant to this section. The amount loaned to any joint-stock land bank under this section shall be made without reappraisal: Provided, That the amount loaned with respect to any mortgage on account of unpaid principal shall not exceed 5 per centum of the total unpaid principal of such mortgage, and the total amount loaned to any such landbank with respect to any mortgage shall not exceed 25 per centum of the total unpaid principal of such mortgage.

That is, for taxes and interest, loans can be had for not exceeding 25 percent of the unpaid principal.

(b) No such loan shall be made with respect to any mortgage unless the corporation is satisfied that the mortgagor after exercising ordinary diligenceto pay his accrued delinquent taxes and meet accrued interest and principal payments, has defaulted thereon; and unless the bank shall have agreed to the satisfaction of the corporation that during such 2-year period the bank will not foreclose such mortgage unless the property covered thereby is abandoned by the mortgagor or unless in the opinion of the corporation such foreclosure is necessary for other reasons.

(c) Each such loan shall be secured by an assignment to the corporation of the lien of the taxes and/or of the bank's mortgage with respect to which the loan is made: Provided, That the part of each such lien so assigned representing the interest and principal due and unpaid in any such mortgage which has been assigned to the farm-loan registrar shall be subordinate to the existing lien of the bank for the balance of the indebtedness then or thereafter to become due under the terms of such mortgage; but the corporation may require the bank to furnish additional collateral as security for such loan, if such collateral is available to the bank.

(d) The corporation is authorized to make such rules and regulations as may be necessary to carry out the purposes of this section and to make the relief contemplated immediately available.

The CHAIRMAN. With respect to the 25 percent of the unpaid principal, what would be the procedure there?

Dr. MYERS. The actual procedure would be this: That the bank. that has not been able to collect the interest and taxes, could borrow up to the amount of not to exceed 25 percent of the total unpaid principal of such mortgage. They can do that without a reappraisal. And then if they make application to the Farm Loan Commissioner, for an appraisal, then after appraisal, they_could borrow 60 percent, with the repayment of the 25 percent. It just means that they can get money quickly in order to meet taxes and interest on bonds that must be met if they are not to be forced into immediate liquidation; and if they are immediately put into liquidation, presumably it will be very hard for the borrower as well as the security holder.

The CHAIRMAN. If there are no further questions I suggest that you gentlemen prepare whatever changes you have to offer in that last section.

Dr. MYERS. I will be glad to do that.

The CHAIRMAN. Do you think you can have it ready for tomorrow morning?

Dr. MYERS. We will do our best, Mr. Chairman. I am to see Senator Wagner as soon as I can.

The CHAIRMAN. We would like to have the benefit of those suggestions as soon as they are available.

Mr. PIERCE. Why could we not make provision for selling straight Government bonds instead of guaranteeing the interest during the life of the bond. I cannot see much difference in the Government guaranteeing the interest on bonds in perpetuity and selling straight Government bonds. The moment you hold out to the bond holder that he is going to be paid interest forever, it is all he wants with tax exemptions. It would seem to me that we ought to ascertain somewhere near the present market value of the joint-stock land bank bonds and give the farmer the advantage of the discount. This bill means something to the farmer, but nothing like it means to the joint-stock land banks; it is going to mean a great deal to them. That is not said in criticism of the men who have drafted this bill. I fully appreciate the problem that is facing them. I would like to see some real relief to the mortgagor.

The CHAIRMAN. Is there anything further you care to add, Dr. Myers?

Dr. MYERS. No, Mr. Chairman.

Mr. CUMMINGS. If this bill made provision for taking something from one group for the purpose of giving it to another group would not vote for it. I do not think that we should tax one group of people for the purpose of turning the money over to another group. I am going to vote for this bill because it does not do that. The CHAIRMAN. I think we had better reserve our discussions on the bill for the executive session.

Mr. CUMMINGS. Yes, Mr. Chairman.

The CHAIRMAN. If there are no further questions to be asked of these gentlemen, we will ask them to be back here in the morning with such suggestions as they care to make.

I would like to have the committee remain for a few moments in executive session.

There will be no further hearing this afternoon. The hearings will be resumed tomorrow at 10 o'clock.

(Thereupon, at 4 o'clock, p.m., the committee went into executive session.)

FARM MORTGAGE RELIEF

THURSDAY, APRIL 6, 1933

HOUSE OF REPRESENTATIVES,
COMMITTEE ON AGRICULTURE,
Washington, D.C.

The committee met at 10 o'clock a.m., Hon. Marvin Jones (chairman) presiding.

ADDITIONAL STATEMENTS OF PAUL BESTOR, COMMISSIONER, FEDERAL FARM-LOAN BOARD, AND PEYTON EVANS, GENERAL COUNSEL, FEDERAL FARM-LOAN BUREAU

The CHAIRMAN. The committee will please come to order. Mr. Flannagan wishes to ask some questions.

Mr. FLANNAGAN. Mr. Bestor, under section 2 of the bill loans to joint-stock land banks up to $100,000,000 are authorized. Now, suppose the joint-stock land banks take that money and go into the market and buy their bonds at 30 cents on the dollar. That is their selling price now, is it not?

Mr. BESTOR. The average price quoted recently is something

Over 30.

Mr. FLANNAGAN. Would not this bill be just giving the jointstock land banks an opportunity to buy in their bonds at 30 cents on the dollar, thereby making a profit of 70 cents on the dollar on every bond that they bought in? How would that help the farmer?

Mr. BESTOR. Your question is whether it would benefit the farmer. Now, this benefits him only insofar as it permits the bank to ride along with the delinquent borrower and to hold the property from the market. It helps that way, because it improves the position of the bank to the extent that it may follow a lenient policy. So far as any money that the joint-stock land banks have made is concerned, let me say that none of the joint-stock land banks have paid any dividends since January 1932. Two dividends which were declared by the joint-stock land banks later in 1932 were not approved by the Farm Loan Board. The Farm Loan Board did not have any authority to pass upon the dividends of the joint-stock

land banks until 1932.

Mr. FLANNAGAN. As a practical proposition, are you not doing this: Would they be robbing-although that may be too strong a word-would they not be making a profit of 70 cents on the dollar on every one of those bonds, and turning that profit over to the joint-stock land banks.

Mr. BESTOR. In other words, the bondholder takes the loss. There is no question about that.

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