Mr. MURRAY. When they were set up, they said that they did not want any long-time loans, and I understood it was just an emergency system. Mr. MYLANDER. No; no. That is not the thought. At the time. the Production Credit Associations Act was passed it was not the thought that it was to be a temporary agency, but that was a permanent agency set up for the purpose of furnishing credit for agriculture and it was set up for the purpose of taking care of just the situation that you describe. I am not familiar with your district. Mr. MURRAY. I live right in the central part of Wisconsin. We have a peculiar situation. We have not only P. C. A.'s, but we have another thing, a hybrid P. C. A. If a man happens to have a lot of money he can secure the papers and establish a sort of a hybrid P. C. A. Now, I do not have anything personally against them. A man can take his own money and start up one of these institutions and he can operate it without all the red tape that a bank has to go through in order to loan the money. He can operate on that margin and get his money from the intermediate credit bank. I have never quite seen the end of the road, as to what is going to be the future of this personal-property loan. Mr. MYLANDER. Well, he discounts his paper at the intermediate bank and he conducts his business along a little different line. Mr. MURRAY. But about the same as the P. C. A.'s. He conducts his business along pretty much the same lines, so far as procedure is concerned. Mr. MYLANDER. We have a number of regional agricultural corporations in our district, particularly cotton operators, just as you describe. There are two of them in Memphis, for example, which are owned and operated by large cotton-buying organizations, and they furnish money to the growers in competition with the production credit association, but they furnish it on the same basis. Mr. MURRAY. All right, then. Mr. MYLANDER (continuing). So that the farmer gets the benefit of the competition. Mr. MURRAY. All right; just add on this, what you said about the banker, if he is wide awake-I do not believe national banks have been wide awake, because I do not think that they are doing this. They do not do it in our State. I know that the State banks have set up a plan to place their money. I know more than one of them. Mr. MYLANDER. The reason I asked Mr. Murray, where you are from, is because I want to send somebody out there to wake up the national banks, because they can make farm loans; they are doing it in our territory. Mr. MURRAY. You would have to send out different examiners from those who have been sent out there in the last 5 years. They even want to tell which one of the officials of the bank will take the stenographer home at night when they come around and examine the banks. Mr. CUMMINGS. I want to ask you one question about the length of the loans. In other words, you say that the loans are limited to 33 years on the basis that they thought that the fellow would kick out before that time. Mr. MYLANDER. No; no; not at all. I did not want to convey that impression. As a matter of fact, the average age of our borrowers in the Louisville district is well into the middle fifties. What I said was that in the original conception of the Federal land bank system, I think the 33 years was fixed, because it was believed that 33 years was about the productive life of a farmer and that he could pay off his loan during his productive life. Mr. CUMMINGS. Then I got the 33 in the wrong place? Mr. ZIMMERMAN. Mr. Chairman- Mr. ZIMMERMAN. As a member of the board of the Louisville bank, you have given us some very interesting facts about the practical workings of that institution. During these hearings there has been a good deal of criticism directed against the present operation of our Federal Lank Bank system in the matter of foreclosures and the difficulty of the owner in buying the land back. Mr. MYLANDER. Yes, sir. Mr. ZIMMERMAN. Criticism has been made that they sell the land in many instances at a great loss to somebody else and will not let this man have a chance to own it. Will you tell us what the experience of the Louisville bank has been recently under a modified regulation as to the distribution of these lands which have been taken over under your foreclosures? Mr. MYLANDER. Well, Mr. Zimmerman, let me answer that question in this way: There will follow me as representing the American Bankers' Association a gentleman who is much better qualified than I am to speak on the various ways by which a farmer who gets into difficulty may adjust his debts to the Federal land bank and get it put off to a later date, and his annual payments cut down, and so forth. That is machinery which is administrative machinery. On the board of directors, of course, we authorize it, but as to the actual details I am not as thoroughly familiar with it as I would like to be, and I would rather that that part of the question, at least, go over. Now, as to the foreclosure policy: It has been our policy for several years in the Louisville district-or let me go back, because our collections are handled in the field mainly through the national farm loan associations. The national farm loan association, of course, has the first knowledge that a loan is in trouble and, through its secretary, does its utmost to put that loan in shape. They may even call upon the bank to send a special representative out to see what can be worked out, which we do. Finally the association exhausts all of its resources and it sees that, well, this fellow is through. It says, "We cannot do anything. We cannot collect from him. His loan is badly in default and there is only one thing left to do, and that is to foreclose and take the property." Let me remind you that that association has endorsed that loan and the loss, if any, on that loan, falls upon the association and its stockholders, not upon the Federal land bank. Consequently they say, "We have got tot foreclose and take that loan and take that property." That recommendation for foreclosure comes to the bank signed by a majority of the board of directors of that local association. Now, presumably, we ought to go ahead and foreclose that loan, but we do not. We immediately get someone out there again. We go see this fellow's relatives, see if there is someone there who can help him out. We look over his farm, check up on his farm operations; we go to the county agent and see whether there is not some way by which that fellow can be rehabilitated on his present farm. We have the Farm Security Administration. We contact it, take its men to see the farm and see if there is any way it can help out. It may be that he has sold all of his livestock to make his last payment on the land-bank loan and he needs some livestock on his farm to keep going. We see whether that cannot be furnished in an effort to keep him going. We exhaust every remedy we have before we recommend foreclosure. Now, we foreclose. We have done everything possible to try to keep from foreclosing on that fellow. We foreclose and get title to the farm. Now, up until 2 or 3 years ago-I cannot give you the exact date-it was the policy of the Farm Credit Administration not to sell that farm back to the farmer who was on the farm. Mr. ZIMMERMAN. That has been one of the complaints. Mr. MYLANDER. That has been one of the complaints; yes, sir. There are obvious reasons why that should not be done; but in recent years, in the last 2 or 3 years, at least, we have developed a policy of selling that farm back to the farmer by this method, leasing it to him for 5 years, with an option to purchase. We have had very little use for that in Louisville, because of the fact we go so far before we foreclose. That is, as I said in my prepared statement, most of our foreclosures have been enforced foreclosures, where they cannot possibly be avoided, and where nobody wants the property. Mr. ZIMMERMAN. Now, do you think that with this modification of the policy, change in the policy, that these complaints will be reduced to a minimum and that there will be few cases where the man will not be allowed to repurchase the farm and that that only applies in cases where men are guilty of fraud and refusing to cooperate, or have shown an unwillingness to carry on even? Mr. MYLANDER. I would say so, Mr. Zimmerman. to think otherwise. I see no reason Mr. ZIMMERMAN. I wanted to find out your practical connection with that policy. Mr. MYLANDER. Of course, that depends entirely upon the management of the Federal land bank in the district. It all depends upon how actively they work to try to work the situation out. After all you have 12 banks and men are different. Mr. COFFEE. Mr. Mylander, I think your statement and testimony has been very constructive and very informative. Mr. MYLANDER. Thank you. Mr. COFFEE. I am in accord with your views in general on that. You mentioned this morning the very fine showing that the Louisville bank had made with reference to the Federal land bank loans, and I take it that is one of the few banks in the system that will be able to operate on a 1 percent margin. Have you any information as to what your experience has been with reference to Land Bank Commissioner loans in that bank? Mr. MYLANDER. Well only this, Congressman. First let me say in our district, almost 50 percent of our Commissioner loans are firstmortgage loans. As a matter of fact, the figures we have are 52,000 Land Bank Commissioner loans and of those 27,000 are secondmortgage and 25,000 are first. Mr. COFFEE. Can you state what your cost of administration and the cost as a result of charges off to loss reserve had been in connection with your Land Bank Commissioner loans? Mr. MYLANDER. I cannot. I cannot give you those figures offhand. I do not have them with me. Mr. COFFEE. No doubt they will exceed 1 percent. Mr. MYLANDER. The commissioner loans? Mr. COFFEE. Yes. Mr. MYLANDER. No; I do not think so. The expenses in connection with our commissioner loans are about the same as they are on our land-bank loans. Our foreclosures are in about the same ratio. When I said, this morning, we had 300 farms in Louisville that could be sold, about half of those are land bank-owned farms and the other half commissioner-owned farms. Our foreclosures in our district on commissioner loans have not been more than those on land-bank loans and our losses not any higher, I do not believe, in proportion. Mr. COFFEE. That is a very credible showing in view of the fact that for the whole system the cost ratio has been on the Federal land-bank loans about 1.28 percent to cover the expenses and losses during the 10-year period and the Land Bank Commissioner loans in all of the banks average about 2.75 percent, and the bill before us provides for operating both the land-bank commissioner loans and the Federal land-bank loans on a 1 percent margin. In connection with the matter that Mr. Murray brought up with reference to the production credit associations, do you not feel that the Federal Government should retire from stock ownership in these productive credit associations as soon as it is possible for the borrowers, and stockholder-borrowers to take control of those associations? Mr. MYLANDER. Of course that brings up a rather interesting situation, Mr. Coffee. The production credit law, of course, provides exactly the same procedure for the gradual retirement of the Government-owned stock that the Federal land-bank system provided, namely, that when the reserve of the associations reaches a certain prescribed percentage, 25 percent, I believe, of the capital, the Government stock may be retired, or something of that sort. Mr. COFFEE. Do you not think that would be desirable? Mr. MYLANDER. Í do; yes, sir; but here is the trouble: Your production credit association borrower comes in and borrows, let us say, $500 to make a crop. He has to take $25 worth of stock. He has that loan for 10 months. He pays it off and his stock is retired. Maybe he does not borrow anything next year. The result is that I am somewhat at a loss to see how the production credit associations ever can build up their own capital to a point large enough to support their operations unless some way is provided whereby that farmer who has once borrowed from the production credit association must leave his stock investment in the business. Now, that is directly contrary to the philosophy underlying the bill before us which would take him clear out; but after all, these associations must have some capital on which to operate. They cannot operate on air. Mr. COFFEE. Have you any recommendations in that connection. to make at this time? Mr. MYLANDER. No; I have not, sir. As a matter of fact, it is not something to which I have given a great deal of thought and this is just a passing observation. The same thing is true, let me add, of the cooperative banking system that is set up. In other words, the borrowers take down their stock investments as rapidly as they pay off their loans and how you can build up the capital of the bank of cooperatives, or the capital of the other organization, I cannot quite figure it out. Mr. COFFEE. I think that that is one of the problems that this committee wants to give a little consideration to and that is how best to achieve that main objective of making it a pure cooperative system, farmer owned. Mr. MYLANDER. Farmer owned. Mr. COFFEE. In connection with the matter Mr. Murray brought up with reference to real-estate loans by commercial banks: What real-estate paper can commercial banks rediscount with the Federal Reserve System? Mr. MYLANDER. None. Mr. COFFEE. There is no real-estate paper eligible? Mr. MYLANDER. Real-estate paper is eligible as collateral for a loan made under section 10 (b) of the Federal Reserve Act and that is handled just as any other collateral is; valued by the Federal Reserve bank and they lend any percentage of that value of that collateral they may desire to or think that they ought to lend. Mr. COFFEE. Now, in connection with this Farm Credit Administration and the bill that is before us, assuming that it would be impossible to return it to an independent status at this time, would you look with favor, or do you think it would be advantageous to the system and to the borrowers if an independent board, bipartisan, with staggered terms were provided to administer the Federal landbank system, in order to establish a continuity of policy? Mr. MYLANDER. Well, I think very definitely, sir, that if we are to have a permanent farm-credit system, it ought to be set up on a more permanent basis and on a more independent basis than as a mere bureau in one of the executive departments. We have set up the Federal Reserve System as an independent agency with a staggered board, the staggered board that you speak of. We have set up the Home Loan bank system with a similar staggered board. If it is good for industry and for home owners, I see no reason why the same theory should not be good for farm credit and, frankly, I think you would get a much better continuity of policy by the creation of a nonpartisan board to be the policy makers for the farm-credit system. Likewise, it has been my experience that no board can be an executive. If you sat with me last night helping to prepare a state |