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is principal, is a payment on his principal and where, because of crop failures due to drought, flood or other catastrophes, or because of extremely low prices of farm products the borrower accumulates delinquencies which he cannot expect to make up within a reasonable time from his normal operations. The principal portion of one or more installments may be deferred, through long-term extensions to the end of the loan. In other words it puts it clear back to the last installment and his final maturity is extended by the number of principal installments that he needs to have extended.

Then there is the method of reamortization. If a careful study of the loan indicates that the borrower's installments are heavier than he can meet from the normal production of his farm but that in all probability he could repay his loan if it were extended over a longer period of years with smaller annual or semi-annual installments, the Ioan may be reamortized over the longer period.

We had in the Louisville district an opportunity of extending a number of loans, particularly in those cases where we used the socalled Springfield plan. You have heard something of that plan. That is the one where the principal payment is extended over a period of 33 years, which means that about 3 percent of the principal payment is due each year. The so-called standard plan makes the smaller principal payment at the beginning and that increases with the same definite payment throughout the period and during the life of the loan a man may find it impossible to meet those larger payments under the Springfield plan, so there is nothing to keep us from changing the plan and reamortizing or we may extend the loan for some 5 or 6 years because of some drought condition or other trouble overcoming the farmer and he needs to have it reamortized over, say a longer period, and that is available to him.

And then there is the so-called standstill of second mortgages that is now available. Those are cases where the Federal land-bank loan and the second mortgage, the Commissioner loans, and both the first and second mortgages are delinquent, the installments on the Commissioner loan may, in proper cases, be held in suspense for a reasonable period, not to exceed 5 years, in order to permit the borrower to bring his first mortgage and taxes to a current condition. After that payments on the second mortgage may then be resumed according to their original terms, or the debt may be reamortized. And, those things generally work out that the whole debt is reamortized.

There is the so-called variable-payment plan.

In areas subject to wide variations in farm income because of fluctuating crop yields or prices for farm products, means are provided in proper cases, to permit variable payments represented either by a share of the crops produced or by sliding-scale cash payments, or a combination of both, so as to enable the borrower to bridge over low-income years and recoup in years of better than average farm income.

Then there is the so-called suspended-payment plan where the borrower's present income from the normal farm operations appear to be abnormally low with no immediate prospect for improvement, provision is made, in proper cases, for permitting him to make payments in an amount less than his regular installments over an agreed period. The unpaid portion of these installments are then extended under an agreement whereby a part of the borrower's income above an agreed base is to be applied to the payment of such extended loans.

Then there are the cases in which foreclosure is the only alternative. You heard Mr. Mylander refer to the procedure followed by the Federal land bank at Louisville, and that same process is followed, I am sure, in the other 11 banks where in those instances after every test has been made; after interviews have been made through the association or the county agency, or the farm security administrator is called upon and plans are considered as to whether or not he could be helped through that source, and after all of those have been exhausted then foreclosure is the only alternative.

But you will find upon investigation of those cases, that it is either abandonment or gross incompetency or bad faith which constitutes about 90 percent of the cases. Certainly there are mistakes in judgment, but I know that there is not a foreclosure brought in any of the banks now without the written request of the majority of the board of directors and, of course, even they can be wrong, but every precaution is taken to preclude the necessity of bringing foreclosure.

The next plan is lease and option. In cases where the former owner is interested in the purchase of his former farm that has been acquired by the Federal land bank by foreclosure, such farm may be leased to such former owner with an option to purchase at some agreed time. Of course, such cases are those where the farm has been lost because the debt is too large for the farmer to carry. No objection has been made by the Federal land bank to sell to such former owner at an appraised price which usually is lower than the original debt. This particular plan has been used pretty generally throughout the system, and it was used by the Federal land banks back in 1930 and 1931 without prejudice to the former borrower. Obviously, it is necessary that the bank insure itself concerning the ability of the farmer and the prospect of his carrying out any new contract to purchase which might be made. I think that you will find that banks have applied that all through the years. It is true there was a regulation or an understanding rather that foreclosed farms should not be sold, resold, to their former borrowers. I know in many instances in the Louisville district, it was not beating the devil around the bush so much as it was just good business to have a son, a son-in-law, a younger brother, or somebody join in so às to make it possible for this farm to be kept in the family and overcome the objection that too often is true that a man being sick, or maybe he was approaching an age where he could not undertake the contract to pay over the term of years.

I thought I would just bring to your attention the plans that are not in vogue with the Federal land banks and treat intelligently the very difficult delinquent cases that all of them have. I am sure they are doing their best to treat each case in the proper way.

I know we tried to do that in Louisville. We certainly knew-I think we knew intimately every delinquent case that had to be carried beyond say one or two delinquencies.

Mr. ZIMMERMAN. May I interrupt?
The CHAIRMAN. Mr. Zimmerman.

Mr. ZIMMERMAN. From your experience, would you say that it was only in cases of abandonment or fraud or incompetency that the Federal land banks in your district, and I think that that is true in other districts, have refused to let the man buy the farm back and become the owner of the farm under an agreed set-up.

Mr. Brown. Well, Mr. Zimmerman, I do not think I said that. I said that was 90 percent of the cases; a great majority.

Mr. ZIMMERMAN. That has been the policy?
Mr. BROWN. That is right.

Mr. ZIMMERMAN. Of the Federal land bank in the Louisville district ?

Mr. Brown. That is right.

Mr. ZIMMERMAN. Do you not think that in a case where a man has abandoned a farm or where he shows that he just cannot make the grade, as we say, and in some cases starts out to defraud the lender, he ought not to have the land bank?

Mr. BROWN. That is right.

Mr. ZIMMERMAN. And it would be detrimental to the system if they were permitted to, where it is known that they could be permitted to again own or possess the farm?

Mr. Brown. That is correct. Thank you, Mr. Chairman.
The CHAIRMAN. We desire to thank you.

THE AMERICAN BANKERS ASSOCIATION,

New York, N. Y., April 6, 1940. Hon. MARVIN JONES, Chairman, Committee on Agriculture, House of Representatives,

Washington, D. C. MY DEAR MR. Jones: Returning to my office today I find a letter which I had addressed to you under date of April 1 and which was written in opposition to H, R. 8748. Although I have seen you since this letter was dictated, I think, however, that it might be helpful to the committee to have it included in your record. I am, therefore, enclosing it for such use as you may make of it.

In this connection I want to express appreciation of my associates and myself for the very courteous treatment extended to us by you and other members of your committee during the past week.

If there is any additional information that we can give which will be helpful in your committee's deliberation of this very important bill, do not hesitate to call upon us. We are anxious to do anything we can. Again thanking you and with very kind regards, I am Yours very truly,

A. G. BROWN,
Deputy Manager.

THE AMERICAN BANKERS ASSOCIATION,

New York, N. Y., April 1, 1940. Hon. MARVIN JONES, Chairman, Committee on Agriculture, House of Representatives,

Washington, D. C. MY DEAR MR. JONES: This statement is made in opposition to H. R. 8748.

Having been president of the Federal Land Bank of Louisville for a number of years, and intimately acquainted with the operations of that institution during the more than 23 years of its existence; and appreciating the contribution which the 12 Federal land banks throughout the country have rendered to the credit needs of agriculture, I am loathe to believe that a Congress as generous as it has been to the sound credit requirements of farmers, would give favorable consideration to this bill.

Those supporting this bill refer to the terrible plight of the farmer-borrowers as reflected by the delinquent status of the 12 banks of the more than 800,000 member-borrowers, 23 percent of which were delinquent on December 31, 1939. Of these delinquencies, 80 percent were in the Great Plains area served by 4 banks, Spokane, St. Paul, Omaha, and Wichita. In other words, of practically 185,000 delinquents nearly 150,000 of them were concentrated in one great area. It seems unfair to indict the Federal land-bank system that met the credit

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needs of agriculture following the break-down in farm prices in the early 1920's, and then again, rising to the responsibilities placed on it by the Farm Credit Act in 1933 in leading out in the rehabilitation of the farm-mortgage debt of the whole country. Apparently it has failed in one area, the Great Plains, and there mainly because a mistake of judgment of everyone, including the Department of Agriculture, which apparently thought natural pasture lands could be converted into productive farming.

The requirement that borrowers contribute to the capital needs of the system is its strength and not its weakness as has been suggested by the proponents of this bill. It is said that farmers are poor cooperators, that they are strictly individualists--but in this the Federal land-bank system, they have builded the greatest cooperative in the world. The charge that farmer borrowers are not interested in the cooperative feature as reflected by the fact that only about 20 percent attend annual meetings, is hardly fair. Even a record of 20 percent attendance is much better than the attendance at annual stockholders meetings of business or industry. Having attended the annual meetings of practically all the 400 or more national farm-loan associations, served by the Federal land bank at Louisville, and having visualized the keen interest that the farmer borrowers of those associations have in the welfare of the farm-loan system, I am convinced that farmers generally, as evidenced by their fine record, are willing to make the contribution necessary to preserve the system as a farmer-owned organization, and an insurance against the time when they might not be able to borrow from any other source.

At least eight of the Federal land banks have a record not dissimilar to that of the Federal Land Bank of Louisville. That institution has come through thus far in the great depression, and has taken every loss out of current income, and not touched a reserve. By that, I mean that its earned reserves are larger today than they were in 1929. This marvelous record is in favorable contrast to that of commercial banks, which, having dealt in the credits of business and industry, has had to "dig deep" into their reserves. This is the record of the farmers themselves, the majority of whom, whether members of the farm-loan system or not, will not acknowledge the permanent need of paternalistic support. They are against the subversion of the landbank system, and agree that it would be better for farmers generally to have Federal land banks, commercial banks, life-insurance companies, and other loaning agencies competing for their security than to be dependent entirely upon the Government. Yours very truly,

A. G. BROWN, Deputy Manager. Do you have any other witnesses, Mr. Wiggins?

Mr. Wiggins. Mr. Chairman and gentlemen of the committee, I know that the hour is late. We have a banker here who has come here from Cedar Rapids, Iowa, for the purpose of presenting to the committee briefly the viewpoint of the country banker on farm credit, and with a statement as to what the country bankers are doing in farm credit, and we would like very much for the committee to hear Mr. Paul H. Houston.

STATEMENT OF PAUL H. HOUSTON, CEDAR RAPIDS, IOWA

The CHAIRMAN. Mr. Houston, we will be glad to hear you.

Mr. Houston. Mr. Chairman, I am vice president of the People's Savings Bank, Cedar Rapids, Iowa.

Mr. Chairman and gentlemen, I arrived in Washington this morning and I am sure I had no thought of even being allowed to speak before this committee this afternoon. I came to hear the discussion and to take back to Iowa my thought as to whether the effects of this bill would be as we rather thought they might be before I left home.

I was very much interested this morning in Mr. Mylander's presentation of the Federal land-bank system, and the Federal landbank system in eastern Iowa, from the Omaha office, has been, I believe, quite successful, in eastern Iowa, at least. I know a good many mortgages they have there. I know the men at the head of it and I do not know of any foreclosure that has taken place in our county or counties contiguous to our county.

Now, as we thought of this bill back in Iowa, and as I say, this is possibly only the thoughts of a few of us who sit in front of the barns back there, as our own institution is just a country bank out in an agricultural State, and our bank is not a member of the Federal Reserve System. It is a State bank and I, as one of the officers, happen to be a member of the State Banking Board of the State of Iowa, which has to do with the general welfare, with the supervising, examinations, and so forth of the State banks of Iowa; and in that latter position it has been also probably my duty to consider this not only as to its effect upon our own institutions and the farmers of our own community, but its effect upon the State banks, at least of the State of Iowa, and the farmers whom they serve in their different communities.

It may be well to say that in our own institution, of which I can speak better, that it is an institution in a town of 70,000_a little larger than the average run of the Iowa towns--one of the largest towns, in fact, in the State.

Of course, being a commercial bank we do serve in a town of that size a city interest as well as a farm interest, but I tell you gentlemen that we do serve more farmers in our community than all of the rest of the banks in our city combined. We have other offices, under the office law, also in adjacent counties, in centers from which we serve large communities of farmers in that vicinity, and I did not bring the books of the bank with me, but being a Scotchman, my memory is pretty good.

I would like to just briefly tell you what our bank looks like from a farmer's standpoint. In our institution we have farm mortgages to the amount of $400,000 at the going rate today, which is 4 percent, and in our own institution we have about $175,000 at the present time on feeder-loan rate of interest which is 412 percent, and advertised. We have over half of all of the corn loans in our county, $260,000 worth, at the rate to the bank, which is one-half of 1 percent.

On farmer's statements, without security and other loans to farmers for dairy purposes-we have quite a dairy shed in and around Cedar Rapids—there is at least $100,000 more.

In other words, an examination of the note case of our bank will show a full 25 percent of our deposits being used by the farmers in our community.

Now, the note case of the smaller banks in the smaller towns will show a far bigger percentage of their deposits being utilized for that purpose, because they are, of course, more largely farming communities than we are and as we study this measure and its effect with the provisions that are in this bill for a further reduction of interest and of a possible scaling down in the

Mr. PIERCE (interposing). Is that not the essence of your objection? Mr. HOUSTON. What?

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