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loss, it would wipe out any surplus that might be acculumated over a number of years. Again, I suggest that we be practical in our thinking as after all the extension of credit is a business that taxes the best minds of our financiers.
So, any farmer going into a small association and buying 5 percent of the loan in stock might just as well kiss it good-by and forget it.
SUMMARY OF INADEQUACY OF PRESENT LEGISLATION
In closing, we want to make it plain that the present law is inadequate to take care of the farmers' credit needs. The much-talked about seven plans now available for offering relief, when boiled down, still do not allow the land banks and Land Bank Commissioner to scale down debts of their borrowers, not to mention offering any relief for borrowers from private lenders. Certainly there is now no legal authority, without committing a breach of faith with the bondholders, to accept variable payments. Certainly so long as bonds are sold to the investing public they cannot be called and refinanced until the callable period has expired. If the Government were guaranteeing the bonds they could refinance them at will, provided they were held in the vaults of the United States Treasury.
While it was construed by the Governor of the Farm Credit Administration that in order to conserve their resources, they could reamortize Commissioner loans on a new basis, and in 1937 Congress gave them this specific authority, yet we contend the F. C. A. is at least acting in poor faith with the investing public if they do change the status of the collateral behind the Federal land-bank bonds held by the investing public. The law must be changed to allow land-bank loans to be reamortized. It is true that under the present law, they can decline to ask for deficiency judgments and can release same when taken, but the sad experience of the past leads us to believe that this would not be a general policy of the system's administration.
Summarizing our contention that existing legislation is inadequate to meet the farmers' credit needs, we contend:
First, there is no legal method of land-bank refinancing except expensive foreclosure, with resale to the same borrower not mandatory.
Second, there is no present legislation to provide for the marketing of Government-guaranteed bonds that will permit interest savings to the Government that can be passed to the farmers.
Third, there is no legislation that will continue even 3/4-percent interest rates beyond June 30, 1940.
Fourth, there is no legislation that will bring inflated farm debt in line with productive farm value.
Therefore, we are asking Congress to enact this proposed legislation into law at this session of Congress. We do not want it to go over to be made a political football in the coming election. The farmers of America want relief; they are looking to Congress for it.
I thank you.
Senator BANKHEAD. Doctor, I personally want to thank you for your very informative statement. You have presented many important facts, and the history of this organization has been presented as well.
It has been very interesting, and I know it will be very helpful to the committee.
Mr. DICKINSON. Thank you. There are one or two more exhibits which I should not overlook.
I have here a letter that was sent by Mr. Everett M. Reese, president of the First National Farm Loan Association of Los Angeles, to Representative Voorhis, dated May 1, 1940. In this letter he says:
Los ANGELES, May 1, 1940. Hon. JERRY VOORHIS.
DEAR SIR: I am writing to urge your support of bill H. R. 8748, introduced by Mr. Jones of Texas. The members of our board of directors are unanimously in favor of this bill and we believe that most of the borrowers through this association are likewise in favor of it. We believe the opponents of the bill are greatly exaggerating disastrous results if the bill becomes a law.
We are very much in sympathy with the provisions of the bill that will enable the farmers to obtain cheaper interest permanently, to obtain a refund of stock, and will provide for increasing the functions and responsibilities of the national farm loan associations.
We understand that objectors to the Jones bill are advancing the argument that the Federal la ban are already providing the benefits that are available in the new bill as far as forbearance and reamortization of loans is concerned.
However, it is my opinion that most of the benefits now available to borrowers who are in distress have been brought about since about November 1, 1939, when policies changed.
I am submitting below certain statistical information which may be of interest to you and which may prove my argument in this regard:
Amount Federal land-bank loans as of Jan. 1, 1940.
6, 997, 200 Land Bank Commissioner loans as of Jan. 1, 1940.
576 1, 991, 600 Total number of loans..
8, 388, 800 Reamortizations completed during 1938 and up to February 28, 1939: Federal land-bank loans, 129; Commissioner loans, 23.
Reamortizations rejected: Federal land-bank loans, 18, Commissioner, 7.
Of these rejected loans all except one have been reamortized since November 1, 1939.
From March 1, 1939, to November 1, 1939, only eight applications were submitted for reamortization.
Since November 10, 1939, including April 5, 1940, 231 land bank and 128 Commissioner applications were submitted, none of which were rejected.
The present policy of the Federal land bank as regards reamortization is about the same policy as was proposed by this association in a resolution passed about February 1, 1938, but in order to conform with the strict collection policy of the Federal land bank it was necessary for us to practically discontinue reamortization and enforce collections through recommendations for foreclosure where payments could not be made. Several foreclosures were completed during that period and a number were started which have since been reinstated.
Under a change in policy since November 1939, we are now being urged to grant the aid to borrowers which we have previously recommended, and for which we were criticized by the examining board of the Federal land bank.
We believe the board of directors of this farm loan association is better qualified to know the credit needs of the community than the credit department of the Federal land bank.
We believe the present policy being followed by the Federal land bank will be insured continuance by the passage of the Jones bill, and we urge your fullhearted support of it.
I should now like to file for the record an exhibit entitled "Debunking the charges relative to the destruction of the Farm Credit Administration," addressed to Members of Congress, dated at Washington, D. C., April 6, 1940.
Senator BANKHEAD. It may be received.
(The document referred to is as follows:)
DEBUNKING THE CHARGES RELATIVE TO THE DESTRUCTION OF THE FARM CREDIT
WASHINGTON, D. C., April 8, 1940. To the Members of Congress:
The bunk so far presented in criticism of the Wheeler-Jones farm-debt-adjustment bill boils down to five main questions.
As a large group of representatives of farmers in 21 States, which States are located in 9 of the 12 land-bank districts, we have carefully studied the statements in opposition to the bill. We, the undersigned, represent farm organizations and farmers' cooperative institutions serving approximately 350,000 farm families.
Speaking in behalf of those families, we outline below very briefly our appraisal of the “normal value” of that bunk—if necessary, we will follow this appraisal with one of the “productive value of the same bunk:
(1) Does the Wheeler-Jones bill destroy a cooperative farm credit system?
The Farm Credit Administration is not now cooperative. The Capper-Volstead Act, passed by Congress February 18, 1922, defined a cooperative as an institution owned and controlled by farmers. Under this definition the system is not a farmers' cooperative, as it is neither farmer-owned nor farmer-controlled.
(a) It is not farmer-owned. A study of the present set-up reveals that the farmers own less than one-sixth of the present capital stock of the four units comprising Farm Credit Administration. The farmers own $131,585,545.34, while the Government owns $877,269,877. It is admitted that losses that should be marked off at this time are approximately $300,000,000. This is more than twice the capital stock owned by the farmer-borrowers in the four units. Therefore, according to all business practices, the system is insolvent.
(6) It is not farmer-controlled, as the farmers do not elect a majority of the board of directors who formulate the policies of the system. They have no control over losses that are incurred and do not have a free hand in the selection of their local boards of directors and local secretary-treasurers, since the parent units demand a voice in the selection of these officers on the theory they are subsidizing the local organization. For example, the local association has but little or no voice in fixing sale values of farms foreclosed, yet losses sustained are charged back to the association.
(2) Does the Wheeler-Jones bill centralize authority and lessen farmer control?
The Wheeler-Jones bill does not centralize authority and does not lessen farmer control, for the following reasons:
(a) It retains all of the farmer participation now granted, through continuation of full power of the present farm-loan associations.
(b) It increases local authority by establishing debt-adjustment committees where there are no operating farm-loan associations.
(c) By the authorized delegation of power contained in section 8-A, the farmloan association or the debt-adjustment committee, whichever is functioning, may itself determine the purchase price of the refinanced farm and make conveyance to the farmer.
(3) Would the bill result in “loose," "easy," or "unsound” credit?
The purpose and effect of this bill will be to create a sound farm-credit system. The system has not operated on a sound basis up to this time as evidenced in part by widespread delinquencies and the necessity for the moratorium ordered by former Governor Hill last September. Provisions in the bill which could insure a sound farm-credit system are as follows:
(a) Any new loans made by the land banks will be made under the same procedure as heretofore.
(b) Applicants for refinancing must qualify with and be certified through their local debt-adjustment committee or the board of their local farm-loan association.
(c) After they have been so certified, they still must be approved by the Governor of the Farm Credit Administration, who is authorized to make any additional investigation which he deems necessary.
(d) Land values, upon which will be based refinancing and debt-adjustment operations, are determined in a more realistic manner than has ever been used up to this time. This is accomplished under the provisions of section 12-B, which determines the amount of mortgage reduction, if any, which is required to meet the maximum possible debt load which the farm will service.
(e) Paragraph 4 of section 12-A and paragraph 6 of section 12-C provide fully daequate protection for the farm-credit system in every case of bad faith on the part of farmers.
(f) Section 16, which prohibits foreclosures and deficiency judgments, contains exceptions which very adequately protect the interests of the system, since
(i) the farmer must convey title free of all liens and encumbrances to the land bank or the Federal Farm Mortgage Corporation.
(ii) he must pay or agree to pay for any damages resulting from any willful or negligent act of his own, otherwise the land bank
or the Corporation may pursue the remedies available to it by law. This means they may foreclose and/or take a deficiency judgment.
(4) Isn't existing legislation sufficient to take care of present and future farm credit needs?
Existing legislation has proven inadequate to meet the farmers' credit needs.
(a) On January 1, 1940, 2272 percent of land-bank mortgages and 29.7 percent of Commissioner loans were delinquent-a total of 269,920 loans. These figures themselves prove the delinquency of the system itself.
(6) There is no legal method of land-bank refinancing except expensive foreclosure, with resale to the same borrower not mandatory.
(c) There is no present legislation to provide for the marketing of Governmentguaranteed bonds that will permit interest savings to the Government that can be passed to the farmers.
(d) There is no legislation that will continue even 342 percent interest rates beyond June 1940.
(e) There is no legislation that will bring inflated farm debt in line with productive farm value.
(f) There is no legislation that will relieve the farmer of liability for the losses of other farmers, losses for which neither the guarantor nor the borrower are responsible.
(5) Would achievement of “parity” prices provide a solution for all farm-credit problems?
No; it will not.
(a) There is no prospect of farm prices that will repay the inflationary figures at which these loans were made.
(6) "Parity” income itself, if attained without debt adjustment, will merely encourage the expansion of multiple mechanized farms at the expense of presently distressed family-sized farms.
(c) The farmer needs a sound credit system regardless and in addition to attainment of fair farm prices.
(d) Present debt figures prove the debt situation to be a national problem independent of other considerations.
(e) Farm tenancy increased at the rate of 40,000 farms annually, and since 1910 owner-operators have lost 25 percent of their equity.
(f) Sound debt refinancing will reduce the price level necessary to make farming profitable.
Growers Association (operating in seven States); Fred C. Behm,
Union; H. C. Peterson, Chappell, Nebr., President, Westcentral
National Federation of Grain Cooperatives. Senator MILLER. Two or three days ago I suggested that a statement be prepared for the record, giving the history and the evolution of this system from 1916 down to date. So far as I am now concerned, the history given by Mr. Dickinson is what I wanted on that point; that is what I had in mind.
Senator BANKHEAD. If that represents what you had in mind, it will not, then, be necessary to have an additional statement on that subject.
Mr. DICKINSON. May I add this one statement on the cooperative feature?
Senator BANKHEAD. Certainly.
Mr. DICKINSON. We are very anxious to have a truly cooperative association, if one can be had, but this is what I am afraid of: jealousy may be developed when you do that and turn it over.
' For example, Illinois is fine Corn Belt country. We are down in Arkansas. They have large associations. There is four, five, or six million dollars in one association. They are going to want the lion's share.
I am afraid that if we make it truly a cooperative, we might have a lot of jealousy in different sections of the country. Let me illustrate that.
This bill provides that the Governor may-it does not say "shall”;: if it did, I would oppose it-provide for the payment of any obligation or indebtedness.
There is an association, we will say, in Illinois that has no delinquencies. There is fine, rich land up there, and no droughts. They have a volume of $5,000,000.
There is another association, we will say, in southern Illinois, with only $250,000. They have delinquencies; they have trouble down there. It takes three times as much expense to service that associa-tion as it does this big association; and yet this big association will be getting 10 or 20 times the amount of money from it.
That is what I am afraid of if we get into this other feature. We will have lots of friction, and it will probably cause much jealousy.