as amended, or the Emergency Farm Mortgage Act of 1933, as amended, or to any other creditor, may make application for the refinancing of his mortgage indebtedness, and if he establishes to the satisfaction of the Governor that his indebtedness is in excess of the productive value of the mortgaged farm, or that the payments periodically due on such indebtedness exceed the normal farm income available for such payments, he shall be entitled to refinance his mortgage indebtedness as hereinafter provided.

(b) Each such application shall be filed with the committee of the county in which the farm is located, shall be in such form and accompanied by such records and data covering the farm and its crop yields as the Governor may prescribe, and shall include a covenant by the applicant that, upon the approval of the application, and in consideration of the refinancing benefits to be made available to him, he will comply with all the conditions hereinafter set forth.

(c) If the committee finds that the application has been filed in good faith, and that the mortgage indebtedness is in excess of the productive value of the mortgaged farm, or that the payments periodically due on such indebtedness exceed the normal farm income available for such payments, and that the applicant, by reason of his character, ability, and experience is likely successfully to carry out the undertakings required of him, it shall so certify to the Governor; and no mortgagor shall be entitled to such refinancing benefits unless such certification has been made by the committee.

SEC. 11. (a) Upon receiving any certification required by section 10 of this Act, the Governor shall make such further investigation as he may deem necessary with respect to the matters covered by such certification. If, after such investigation, the Governor is satisfied that all the requirements of section 10 of this Act have been met, he shall refinance the mortgage to which such certification relates.

(b) Any mortgagor who is indebted to the Corporation shall be entitled to receive the refinancing benefits herein provided immediately upon the approval by the Governor of his application for such benefits.

(c) Any mortgagor who is indebted to a Federal land bank shall be entitled to receive such benefits upon the approval by the Governor of his application for such benefits and the assignment of his mortgage by such bank to the Corporation. Upon receiving notice from the Governor that any mortgagor's application for such benefits has been approved, the Federal land bank shall assign his mortgage to the Corporation and the Corporation shall deliver to such bank, in exchange for such mortgage, cash or bonds issued or held by such Corporation in an amount equal to the value of the property covered by such mortgage as agreed to by the Governor and such bank. Any losses or gains subsequently incurred or realized on account of the sale or other disposition of the property covered by any mortgage so assigned shall be shared equally by such bank and the Corporation.

(d) Any mortgagor who is indebted under a mortgage on his farm property to any creditor other than the Corporation or a Federal land bank, shall be entitled to receive such benefits upon the approval by the Governor of his application for such benefits and the assignment of such mortgage to the Corporation with the consent of the holder of such mortgage. The Corporation shall deliver to such holder, in exchange for the mortgage so assigned, cash or bonds issued or held by the Corporation in an amount not in excess of the value of the property covered by such mortgage as determined by the Governor.

SEC. 12. (a) Any mortgagor who is entitled to the refinancing benefits herein provided shall, as a condition to obtaining such benefits, forthwith convey to the Corporation full title to the property covered by his mortgage free and clear of all liens and encumbrances. Such conveyance shall constitute a waiver by the mortgagor of all rights of redemption under the mortgage, and the acceptance of such conveyance by the Corporation shall constitute a full release and satisfaction of the mortgage debt. Upon receiving such conveyance, the Corporation shall enter into a lease with the mortgagor which shall

(1) be for a period of not to exceed five years at a rental agreed upon between the parties thereto, which shall, so far as practicable, be in accordance with the rental arrangements prevailing in the locality, and may be either on a cash basis or for a share of the crop;

(2) be in such form and contain such covenants as the Governor shall prescribe to assure the payment of the agreed rental, and to assure that the farm will be maintained in repair and that waste and exhaustion of the property will be prevented;

(3) provide that the tenant, or the Corporation on his behalf out of the rental fixed under paragraph (1) hereof, shall pay taxes and assessments on the farm

to the proper taxing authorities, and unless otherwise provided for by the Governor, shall insure and pay for insurance on farm buildings; and

(4) provide that upon the assignment, sale, or other disposition of the lease, or any involuntary transfer or sale thereof, or upon default in the performance of, or failure to comply with, any covenant or condition contained in the lease, the Governor may terminate the lease.

(b) If the tenant complies with all of the terms and conditions of his lease and gives notice to the Corporation of his desire to purchase the property covered by such lease, the Corporation shall, as of the date of termination of the lease, or at such time prior thereto as the Governor shall approve, convey the property to the tenant at a price to be determined by the Governor on the basis of its productive value, or for the amount of the mortgage indebtedness on such property at the time it was conveyed to the Corporation, whichever shall be less. The tenant shall be entitled to credit towards the amount of such purchase price all rental payments made by him in excess of such amount as will compensate the Corporation (1) for interest on such purchase price during the period of the lease at the rate currently payable on loans made by the Federal land bank of the district in which the property is located, as determined pursuant to section 2 of this Act, and (2) for any expenditures made by the Corporation for current repairs or maintenance during the period of the lease which are necessary to preserve such property. In determining the productive value of the property as the basis for such purchase price, there shall be excluded any increases in the value of the property attributable to expenditures by the tenant.

(c) Upon such conveyance of any property by the Corporation, the purchaser shall deliver to the Corporation a first mortgage or deed of trust to secure the payment of the purchase price which shall

(1) provide for the payment of the purchase price within an agreed period of not more than forty years from the date of the conveyance;

(2) provide for the payment of interest on the unpaid balance of the purchase price at the rate of interest currently payable on loans made by the Federal land bank of the district in which the property is located, as determined pursuant to section 2 of this Act;

(3) provide for the payment of such purchase price, together with interest thereon, in installments in accordance with amortization schedules prescribed by the Governor;

(4) be in such form and contain such covenants as the Governor shall prescribe to secure the payment of the purchase price, together with interest thereon, to protect the security, and to assure that the farm will be maintained in repair, and waste and exhaustion of the property will be prevented;

(5) provide that the purchaser shall pay taxes and assessments on the property to the proper taxing authorities, and, unless otherwise provided for by the Governor, shall insure and pay for insurance on farm buildings; and

(6) provide that upon the assignment, sale, or other disposition of the property, or of any interest therein, without the consent of the Governor, or upon default in the performance of, or failure to comply with, any convenant or condition contained in the mortgage or deed of trust, or upon the involuntary transfer or sale of the property, the Governor may declare the amount unpaid immediately due and payable, or may rescind the conveyance. In event of any such rescission, the Corporation shall refund to the purchaser from the Corporation all principal payments theretofore made by him, less the amount of any damages to the property occasioned by his fault.

(d) No provision of section 75, as amended, or of chapters XI, XII, and XIII of the Act entitled "An Act to establish a uniform system of bankruptcy throughout the United States", approved July 1, 1898 (U. S. C., 1934 edition, title 11, sec. 203; supp. IV, 1938, title 11, sec. 203; and chs. XI, XII, and XIII), shall in any way affect, apply to, extend, or impair any obligation incurred by any person pursuant to this section

REPURCHASE OF FORECLOSED PROPERTY

SEC. 13. (a) Any farmer whose property was acquired under foreclosure by any Federal land bank or by the Corporation and has not been disposed of by such bank or the Corporation, and who is aggrieved by the refusal of such bank or the Corporation to permit him to repurchase the foreclosed property, shall be entitled to appeal to the committee of the county in which the property is located, and such appeal shall be in such form and accompanied by such records and data covering the property and its crop yields as the Governor may prescribe, and shall include a covenant by the person so appealing that, upon the allowance

of his appeal, and in consideration of the benefits to be made available to him, he will comply with all the conditions hereinafter set forth.

(b) If the county committee finds that the appeal has been taken in good faith, that the foreclosure of the mortgage was occasioned by causes beyond the control of the person so appealing, and that such person, by reason of his character, ability, and experience, is likely successfully to carry out the undertakings required of him, it shall so certify to the Governor; and no such person shall be entitled to the benefits herein provided unless such certification has been made by the committee.

(c) Upon receiving any such certifiction, the Governor shall make such further investigation as he may deem necessary with respect to the matters covered by such certification. If, after such investigation, the Governor approves the findings of the committee the person so appealing shall be entitled to lease and purchase the foreclosed property, and if such property is held by a Federal land bank such bank shall convey such property to the Corporation, on the same terms and and conditions as those provided in section 12 of this Act in the case of property covered by mortgages which are refinanced under such section.

VARIABLE PAYMENTS AND ADJUSTMENT OF FARM UNITS

SEC. 14. (a) The Governor may provide for the payment of any obligation or indebtedness under sections 10 to 13, inclusive, of this Act, or of any loan heretofore or hereafter made under the Federal Farm Loan Act, as amended, or the Emergency Farm Mortgage Act of 1933, as amended, by means of a system of variable payments under which amounts in addition to the required payments may be collected in periods of above-normal production or prices and employed to reduce the required payments in periods of subnormal production or prices.

(b) Whenever the Governor finds that any property otherwise eligible for refinancing or repurchase under the provisions of section 10 to 13, inclusive, of this Act, is either too large or too small to constitute an efficient farm-management unit, or requires land or building improvements necessary to enable a diligent farm family to carry on successful farming of a type which the Governor deems can be successfully carried on in the locality in which the property is situated, he is authorized, on behalf of the Corporation, to make the improvements so found to be necessary or to adjust the size of such property. For the purpose of making such adjustment, the Governor may either subdivide the property into smaller units or purchase such additional land as may be required to make the property an efficient farm-management unit.

REAMORTIZATION OF COMMISSIONER LOANS

SEC. 15. Notwithstanding the provisions of section 32 of the Emergency Farm Mortgage Act of 1933, as amended, the Governor is authorized to provide for the repayment of any loans heretofore or hereafter made pursuant to the provisions of such section, on the same amortization basis as that provided in the case of loans by Federal land banks under paragraph second of section 12 of the Federal Farm Loan Act, as amended. The Governor shall ascertain the extent to which any loan heretofore made pursuant to the provisions of such section 32, as amended, is being amortized over such a short period as to cause hardship to the borrower, and shall provide for the reamortization of any such loan over a period, not to exceed forty years, which he finds will be consistent with the protection of the security interest of the Government and the full repayment of such loan.

FORECLOSURES AND DEFICIENCY JUDGMENTS

SEC. 16. No foreclosure proceedings or suits for a deficiency judgment shall hereafter be instituted by any Federal land bank or by the Corporation on any mortgage executed pursuant to section 12 of this Act, or executed to secure any loan made pursuant to the Federal Farm Loan Act, as amended, or the Emergency Farm Mortgage Act of 1933, as amended, if the mortgagor conveys and delivers to such bank or to the Corporation, as the case may be, full title and possession to the mortgaged property free and clear of all liens and encumbrances: Provided, That the Governor may also require the mortgagor to pay, or agree to pay, upon terms and with security satisfactory to the Governor, an amount determined by the Governor to be equal to the amount of any damages to the mortgaged property resulting from the willful or negligent act or omission of such mortgagor. Upon such conveyance and delivery the Federal land bank or the Corporation, as the case may be, shall release the mortgagor from all liability on account of the

mortgage. Upon the failure or refusal of the mortgagor to pay or agree to pay the amount so determined, the Federal land bank or the Corporation, as the case may be, may foreclose the mortgage and otherwise pursue the remedies available to it by law.

PENALTIES

SEC. 17. (a) Whoever makes any material representation, knowing it to be false, for the purpose of influencing in any way the action of any farm-debt adjustment committee, or any officer or employee of the Farm Credit Administration, upon any application, lease, contract, or appeal under this Act, or upon any change in or extension of any such application, lease, contract, or appeal shall be punished, upon conviction thereof, by a fine of not more than $1,000, or by imprisonment for not more than one year, or both.

(b) No officer, attorney, or employee of the Government shall be the beneficiary of or receive any fee, commission, gift, or other consideration directly or indirectly, for or in connection with any transaction or business under this Act other than such salary, fee, or other compensation as he may receive as such officer, attorney, or employee. Any person violating any provision of this section or section 9 (d) shall, upon conviction thereof, be punished by a fine of not more than $1,000, or by imprisonment for not more than one year, or both.

RIGHT TO AMEND

SEC. 18. (a) The right to alter, amend, or repeal this Act, or any part thereof, is expressly reserved.

(b) Any provision of the Federal Farm Loan Act, as amended, the Emergency Farm Mortgage Act of 1933, as amended, or other law, inconsistent with the provisions of this Act, is hereby repealed.

Senator BYRNES (chairman of the subcommittee). Governor Black, we have invited you to attend this meeting this morning to present your views with respect to this bill and shall be glad to have you do so in your own way.

Governor BLACK. Thank you, Mr. Chairman.

STATEMENT OF ALBERT G. BLACK, GOVERNOR OF THE FARM CREDIT ADMINISTRATION, WASHINGTON, D. C.

Mr. BLACK. Mr. Chairman and gentlemen: I am appearing before this subcommittee in accordance with the request of the chairman to discuss the bill, S. 3509, sponsored by Senators Wheeler, Bankhead, and La Follette, which would make certain modifications in the Federal land bank system. I am in favor of the general objectives of this bill. However, before commenting in detail upon its provisions or making suggestions for modifications of some of those provisions, which I believe would greatly improve the bill, I should like to review briefly some of the considerations which point to the conclusion that changes in the farm-loan system are desirable.

It seems clear that the concept of the original plan was influenced largely by the landschaft system then operative in Germany. In that system each farmer had an unlimited liability for the loans of other borrowers. It was recognized that that system could not be duplicated in the United States. Consequently, for the unlimited liability of the landschaft system the framers of the original act modified the plan so as to require each borrower at the time of taking out his loan to buy stock equivalent to 5 percent of the principal of his loan. This stock carried a double liability which made his total responsibility 10 percent of the original principal. Subsequently this liability was diminished to 5 percent by elimination of the double liability. There has been much discussion about the proposal of this bill to eliminate the requirement that the borrower buy stock equal to

5 percent of the amount of his loan. The outstanding fact in connection with this controversy, and one not frequently mentioned, and never adequately met by the opponents of the principles embodied in the bill, is the fact that the scheme has not worked under the conditions of American agriculture. At the present time 60 percent of the national farm loan associations have their capital so badly impaired that they cannot accept applications for loans and sell their stock to borrowers.

Senator BANKHEAD. What percent?

Mr. BLACK. Sixty; as a matter of fact, it may be a little more than that, Senator.

Senator BYRNES (chairman of the subcommittee). Do you mean that by reason of their financial condition they are unable, then, to make loans to any additional farmers?

Mr. BLACK. They have incurred these losses by reason of foreclosures on farms of members of their associations; and under the provisions of the bill, any losses incurred that way are assessed back to the associations, and those losses have been of such magnitude that 60 percent of these associations are insolvent. They cannot accept applications when they become so insolvent, that a new borrower buying, for example, stock equal to 5 percent of his loan, would have stock of no value.

Senator BYRNES (chairman of the subcommittee). Do you mean that they can't do it or just that the farmer will not do it?

Mr. BLACK. There is a provision in the act which permits the setting up of so-called compartments, which keep separate new applicants from the old, but those have not been too successful. They are rather cumbersome to handle. Some of these associations that are partially impaired are using that compartment form of organization which separates the liability of the new borroewrs from the old ones.

Senator BYRNES (chairman of the subcommittee). Where that is done, how would it adversely affect the borrower?

Mr. BLACK. In those cases it would not affect the new borrowers; they would be exempt.

Senator BYRNES (chairman of the subcommittee). It is only where that is not done?

Mr. BLACK. That is correct, except that borrowers through compartments do pay a quarter percent more interest until such time as there are such borrowers with loans aggregating at least $20,000, whose loans are current, at which time the association's endorsement liability may attach, in which event their interest rates are reduced one-fourth of 1 percent.

Senator BYRNES (chairman of the subcommittee). They pay a quarter percent more?

Mr. BLACK. A quarter percent.

Senator BYRNES. What is the theory of that?

Mr. BLACK. I presume it is to compensate partially for the extra cost of handling the application, and also to partially compensate for the lack of endorsement liability by the association.

Senator BYRNES. I see.

Senator BANKHEAD. Does the impairment of that capital have any influence on the bank in continuing to make loans to that association? Mr. BLACK. Yes, when the capital gets to be very badly impaired, the bank refuses to make loans through that association. That, of