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Governor MYERS. May I just add one other thought in response to Mr. Hope's question that the commissioner's loans require that all evidence must come within the 75 percent. If the farmer has additional income or has other means or other sources of security to take care of the additional debt, that debt, of course, is not required to be brought within the 75 percent.

Mr. HOPE. I understand, that is true. And I am not quarreling with that general proposition, of reducing farm indebtedness where it can be done fairly, but there are a good many difficulties in individual cases. Now, you might have the case of a farmer who has some other source of income and who might be able to liquidate this other indebtedness; or take the case of a good many farmers, good competent farmers, more enterprising than the average, you cannot freeze them into the same pattern that the average farmer would fit into. A farmer may desire to increase his operations; he may rent some land and produce more stuff, so that I do not believe you can say to that particular farmer just what his actual amount of income is going to be for a certain period of years, in advance, or during the life of the loan.

Now, I do not believe that the law itself actually requires this; at least, I cannot find any language requiring it, and I assume that it is therefore simply an administrative policy. I do not think that you could apply the same rule to all cases and say that the farmer is going to get the same income from the same kind of a farm in each case.

Governor MYERS. If the individual farmer has other sources of income with which to meet the debt or the loan on the farm, his is made a special case.

Mr. HOPE. Well, if that is true, I think that takes care of it.
Governor MYERS. They are special cases.
Mr. HOPE. And that would obviate a great deal of criticism.

Now, here is one other unfortunate feature of the whole thing, and that is the fact that when you start scaling down the indebtedness it is usually the unsecured creditor who must make the biggest concession. The local unsecured creditor has to take most of it because the secured creditor is very reluctant to stand any of the loss and, the farmer is very hesitant about going to the local creditors and asking them to scale down the indebtedness, and yet apparently most of the scaling will have to be done by them, because the insurance companies and the mortgage companies which are secured, are going to be very reluctant to make any concession. Now if something could be done to see that a fair scaling down all the way along the line would take place I think it would be very helpful in working out the situation and getting the farmers to feel more favorable to the idea.

Governor Myers. That is the primary reason for Governor Morgenthau's requesting that debt adjustment committees be set up in the States and counties. Such farm debt-adjustment committees are now being set up in a large majority of the States in order to find out just how adjustments can be obtained wherever necessary.

Mr. HOPE. How successful have committees been in working out these adjustments?

Governor Myers. They have been operating and have been quite successful. As a creditor, we cannot go into a region and tell the

creditors, that is, other creditors that they must sacrifice a part of their indebtedness. We feel that about all we can do, under the authority granted us in the law, is to make as sympathetic an interpretation of the law as we can and leave to the local people the final determination of how the adjustments will be made if they are to be made.

Mr. HOPE. Is it the policy of the Federal land bank to scale down its indebtedness in cases where a scaledown is required in order to qualify for a Commissioners loan?

Governor MYERS. No.

Mr. HOPE. It takes the same position as every other secured creditor, does it not?

Governor MYERS. But please remember this: The Federal land banks are owned by the borrowers and it stands between the farmer who owes the debt or the mortgage and the bond holder; and further, more, it does not have any funds out of which it can scale down the debt unless further provision is made for such. However, the Federal land banks have been lenient in their treatment of debtors. They have shown a real interest in their outstanding mortgages and in many cases have made it possible for a good farmer to pay his interest. Where it has been found that the farmer could not pay all his interest, the banks have worked out some form of extension which would allow him to work himself out. Although the principal of the Federal land bank loan cannot be scaled down, I think that the Federal land bank borrower has had considered treatment.

The CHAIRMAN. If all other mortgage holders had been as lenient with the farmers there would not be as much difficulty as there is now.

Governor MYERS. They have been helping meet the difficulty.

Mr. HOPE. I have one other question. In looking over this statement as to the loans that have been made by the various Federal land banks I notice there is a great difference in the amount that has been loaned by the different banks. For instance, in the month of December 1933, the St. Paul bank loaned eighteen and odd million dollars; Omaha, sixteen and odd million dollars; and the Wichita bank only $3,868,000. Now, I suppose that they did not have as many applications, and possibly the amounts were not as large, on the average, in Wichita, as they were in St. Paul or Omaha, and yet it seems to me that there must be some explanation for the great difference in these figures.

Governor MYERS. The Wichita bank was somewhat slow in getting underway. Many things, about which you are no doubt familiar, were somewhat unsatisfactory. We believe that with the organization which is now operating the bank we can now handle the situation in that territory.

Mr. HOPE. There is not any reason why the Wichita Bank should not be in position to loan money on the same basis as other land banks and with the same expeditious service?

Governor MYERS. No.
Mr. HOPE. As the other banks.

Governor MYERS. Of course, there are a number of reasons giving rise to this variation in amount. Among these are the greater number of applications and the size of the applications.

Mr. HOPE. Yes; I understand; but that would not seem to me to explain the great difference in the figures.

Governor Myers. There is no great difference in{the number of applications which have been closed. The Wichita bank, up to November, had closed or approved 52. percent of all applications received, which was slightly above the average of 50.5 percent for the United States. The Wichita bank is not the largest one, but it is now closing loans faster than it did earlier.

Mr. HOPE. How do the amounts paid out compare?

Governor MYERS. I do not have those figures with me. I can get them for

you

if
you

desire.
Mr. Hope. I do not think that so so material.
The CHAIRMAN. Anything further?

Mr. FULMER. I have had a number of complaints from persons who have made applications for loans for refinancing their indebtedness. Many of these complaints run along this line. When the application is made the appraiser will go out and appraise the value of the land and the building and in a number of cases he reports that that farmer ought to have or should have an additional loan, and that they find that the dwelling should be painted, and perhaps the farmer has started an addition to his house and that it should be completely finished, and in passing on that application a certain amount of the application will be granted for the purpose of building a barn, completing or painting a dwelling, and when the actual amount allowed in making the land loan is not sufficient, and in a great many cases perhaps the party holding the mortgage will reduce his loan to a certain extent, but still the amount is not enough to take it up with the funds which are left if they are required to do certain repair work, paint the house, or build a barn, which if not done the loan is refused, the mortgage is foreclosed, and the farmer loses his home.

Governor MYERS. That is explained in this way.

Mr. FULMER. Would it not be better to let the farmer keep his home?

Gov. MYERS. One of the problems, of course, we have to meet is this: If a man has debts that he has accumulated they have to be refinanced. And in order to make it a good loan there has to be some improvement on the farm; the applicant may need a farm and a half to make an effective operating unit. The loan therefore must also provide a way in which such needs may be financed. It is the same sort of thing as requiring that a debt made for the purpose of improving the farm be brought within that amount.

Mr. FULMER. Would it not possibly be better for the farmer to stay there, continue his operations, and give him some method of refinancing his indebtedness in order to save his home rather than to refuse to do so on account of lack of repairs to his roof and have the farmer lose this home?

Gov. MYERS. It depends on how necessary that farmer's roof is to the house; it might be an integral part of the loan. You see a farm is just land without a dwelling. Some types of farms without barns are not complete farms. If the requirements are reasonable, and most of them are, I think they are necessary. If there has been unreasonable action in some cases, the Administration will be glad to correct it.

The CHAIRMAN. Anything further?
Mr. KLEBERG. I would like to ask a question, Mr. Chairman.
The CHAIRMAN. Mr. Kleberg.

Mr. KLEBERG. I am wondering whether the farm credit administration, generally, has taken cognizance of the general banking situation in so far as the number of depositors in the banks are concerned and their extending loans now made to the farmers which could not be made in the so-called "period of depression"? In other words, it seems to me that the borrowers are likely to have the benefit from this whole scheme.

Gov. MYERS. I think so. For one thing, there is more money available through the refinancing of the debt, and a large part of the refinancing money has gone back to these banks and opened up channels of credit.

Mr. KLEBERG. That is the point I had in mind.

Gov. MYERS. And has helped the farmers and also helped the community through the liquidation of frozen assets.

Mr. KLEBERG. That is the point I am referring to.

Gov. MYERS. And back of that the banks are long on cash and short on good investments, that is, investments which will pay a fair return. We believe that the use of these good bonds we propose will afford an opportunity for banks in many localities to invest their money in bonds which will bring a fair return and still be safe. These bonds, furthermore, can be used by a bank, if it has any difficult problems of its own with the Federalf Reserve bank.

Mr. KLEBERG. I would like to ask one further question as to what the percentage of the Government is with reference to the mortgage loans—I am referring to mortgages on farms—what percentage went back to the local community where the mortgage was held?

Governor MYERS. I do not have the figure. They are somewhat less than the insurance companies. I do not know exactly.

Mr. KLEBERG. Would you be able to determine that later on?

Governor MYERS. I would like to say this, however: We have refinanced much more mortgage indebtedness than other forms of indebtedness. Our biggest effort has been made to help refinance these mortgages so as to help the farmer borrow what he needs and to help him work his way out.

Mr. KLEBERG. One other question I would like to ask.
Governor MYERS. Yes.

Mr. KLEBERG. Right in line with the original question and your statement. Is it not perfectly true that this question of borrowing does have something to do with the bond question of the local municipality, the county, and the State or whatever subdivision there is, which has to depend upon the local community for raising of taxation in order to meet the bonds? Is it not a fact that these bond issues will help bring greater prosperity to the agricultural section and that the refinancing program on this basis will result in extending greater credit on a long-time basis, and that the exchange of bonds for mortgages, held by creditors will have the direct effect of raising the value of the farm to the farmer, the result of getting a better price for his produce, and thereby be a direct benefit to the local communities which have to depend upon taxation for their revenue?

Governor MYERS. I think there is no question but that refinancing a pressing debt on the farm, especially a short-time debt, will improve the position of the municipal obligations which have to depend on taxation for their support.

Mr. KLEBERG. That is the point I was endeavoring to make.
The CHAIRMAN. Any further questions?

Mr. GILCHRIST. Governor Myers, I come from Ohio and I was interested in the questions that were asked you about scaling down the debts and in particular reference to the Federal land bank scaling down its debt. Of course, the joint-stock land banks are not owned by the borrower. That is a different set-up. We have had a good deal of difficulty in the question of scaling down debts, but since we are making it possible for them to get money, would it not be possible for some program to be worked out whereby the joint-stock land banks could share in this burden of scaling down the debts? It seems to me that since this bill apparently will make the loans easier and much more money available, I suggest that as long as that is possible it would seem that we could try to find some means to force them to scale down their bonds to a reasonable point in order that the new loans could be made and that they could be paid either in cash or in bonds, Government bonds guaranteed by the Government.

Your suggestion a while ago in answer to another question was that the Federal land bank bonds could not be scaled down because the Federal land banks were owned by the borrowers.

Governor MYERS. Yes.

Mr. GILCHRIST. Now, as long as we are giving them something cannot they be forced to be a little more lenient? In other words, we are giving them something here by making money more available. I am suggesting that simply because I have had a good deal of difficulty on that particular sort of loan up in my country. I do not know how you could limit it. Of course, there ought to be some ratable scaling down but they naturally, having first-mortgage security, will insist and do insist in a great many cases in getting their full amount from what is paid out.

Governor MYERS. Some of the joint stock land banks, although I do not know whether or not this includes a large majority of them, have been very fair. Others have been most difficult to deal with I think this does not change the procedure at all as far as these loans are concerned, for the plan is to make the loans on a better basis and to make these bonds guaranteed by the Government. It is not intended to alter the loaning procedure so I think this does not change their position from what it is at the present time.

Mr. GILCHRIST. It will be helpful to the joint-stock land banks. Governor MYERS. In that they had rather have bonds than cash? Mr. GILCHRIST. The whole system will be helped in that there will be made available more funds and the joint-stock land banks will be receiving the benefit in that they will be getting payments on their loans.

Governor MYERS. Mr. Chairman, you are a constitutional lawyer and perhaps you can answer that better than I.

The CHAIRMAN. I would not like to undertake that; you have your lawyer here, have you not?

Governor MYERS. Yes. Mr. Scott W. Hovey.

STATEMENT OF MR. SCOTT W. HOVEY, GENERAL COUNSEL,

FARM CREDIT ADMINISTRATION

Mr. Hovey. We have had certain suggestions of that sort under consideration and it might be very desirable if there were some way to force the joint stock land banks to scale down their mortgages, but legislation of that character, I believe, would be unconstitutional.

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