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necessary to try to get funds to carry forward the program. The demands upon the Government for cash are such that the administration deemed it advisable and necessary for us to attempt to finance the loan program by the use of bonds instead of cash, and the purpose of this bill is to make possible that procedure.

Mr. Chairman, would it be appropriate to make a brief statement analyzing the proposed bill?

The CHAIRMAN. I think it would be well for you to make such a comment, Governor Myers.

Governor MYERS. If it meets with your approval I would like to make a general statement on the sections of the bill and come back, after I have completed, and answer any questions that may be asked insofar as I can.

The CHAIRMAN. You may proceed in such a manner as you desire.

Governor MYERS. Section 1: The Governor of the Farm Credit Administration is authorized to organize and charter a corporation known as the Federal Mortgage Corporation.

The board of directors of the corporation will consist of the Secretary of the Treasury, or an officer of the Treasury duly designated by him, the Governor of the Farm Credit Administration, the Land Bank Commissioner, and two officers of the Farm Credit Administration, to be designated by the Governor. The directors will serve without compensation. The Governor will be chairman of the board of directors.

Section 2: The corporation shall have succession until dissolved by an act of Congress and will exercise all of the general and incidental powers of an ordinary corporation. The corporation will also be entitled to free use of the mails, and, with the consent of any board, commission, or other department of the Government, may avail itself of the use of their facilities.

Section 3: The capital of the corporations will be in the sum of $200,000,000, all of which will be subscribed and owned by the United States Government. Stock will be paid for out of funds made available to the Land Bank Commissioner under the provision of section 32 of the Emergency Farm Mortgage Act of 1933.

This refers to the Land Bank Commissioner's fund, the $200,000,000 made available to the Land Commissioner last year. No additional capital is contemplated.

Section 4: In order to enable the Federal land banks and the Land Bank Commissioner to obtain the necessary funds for the continuation of their lending operations, the corporation will be authorized to issue bonds in an aggregate amount outstanding at any one time of not to exceed $2,000,000,000. These bonds will be fully and unconditionally guaranteed as to interest and principal by the United States, and on account of such guaranty shall be lawful investments, and may be accepted as security, for all fiduciary, trust, and public funds.

The Federal Farm Mortgage Corporation will have power to issue its bonds in such amounts and at such times as may be approved by the Secretary of the Treasury. The bonds will be secured by consolidated bonds issued by the Federal land banks, by mortgages on farm lands made by the Land Bank Commissioner, and by such other collateral as the corporation may have available.

The corporation may also exchange its bonds for consolidated farm loan bonds issued by the Federal land banks, and make loans to Federal land banks on the security of consolidated farm loan bonds. The corporation will also be authorized to purchase, for cash, consolidated farm loan bonds from the 12 Federal land banks.

The Secretary of the Treasury is authorized, in his discretion, to purchase bonds of the corporation, and to sell the same. The bonds will be printed from engraved plates prepared and held by the Secretary of the Treasury. The expense of such engraving and printing will be paid by the corporation.

Section 5: Except for the purpose of refinancing bonds previously issued thereunder, no Federal land bank will be permitted to issue bonds under the provisions of section 21 of the Emergency Farm Mortgage Act of 1933, after 90 days after the enactment of this act. (The amount of bonds which have been issued under the provisions of the Emergency Farm Mortgage Act does not exceed $150,000,000.)

That is, this section limits the issuance of additional bonds from the $2,000,000,000 authorized by the Emergency Farm Mortgage Act of 1933, on which the interest only was guaranteed by the United States.

Sections 6 and 7: Loans made by the Federal land banks and by the Land Bank Commissioner may, at their option, be made in bonds of the Federal Farm Mortgage Corporation.

Section 8: The Federal land banks will be authorized to exchange their bonds for Federal Farm Mortgage Corporation bonds of equal face value, and to purchase bonds of the Corporation.

Section 9: The aggregate amount of first and second mortgage loans, which may be made by the Land Bank Commissioner under th provisions of section 32 of the Emergency Farm Mortgage Act of 1933, has been increased from $200,000,000 to $8,000,000. The funds necessary to make this $600,000,000 of additional loans will be obtained from the sale or exchange of bonds issued by the Federal Farm Mortgage Corporation.

Sections 10, 11, and 12 provide: (1) That the Federal Farm Mortgage Corporation may act as fiscal agent of the United States; (2) that the Corporation and its property and obligations will be exempt from taxation; and (3) that the penalty provisions of the Farm Credit Act of 1933 shall be applicable to the operations of the Corporation.

Sections 13 and 14 provide for the creation of a revolving fund of not exceeding $40,000,000 out of the balances, collections, and appropriations allocated under subsection (a) of section 5 of the Farm Credit Act of 1933, which are in excess of the $120,000,000 therein provided for. That was the production credit revolving fund. The new revolving fund thus created will be available to the Governor of the Farm Credit Administration for the purpose of subscribing, with the approval of the Secretary of the Treasury, to the capital and paid-in surplus of the Federal intermediate credit banks. These subscriptions will be made in such amounts as the Governor may determine are necessary, in order to meet the credit needs of eligible borrowers from those institutions.

Section 15 would authorize any Federal Reserve bank to buy and sell Federal Farm Mortgage Corporation bonds, having maturities from date of purchase of not to exceed 6 months and to make loans on the security of such bonds subject to the same limitations and restrictions respecting loans made on the security of direct obligations of the United States issued under the Second Liberty Loan Act, as amended. Section 16 reserves the right to alter, amend, or repeal the act, and provides that if any provision of the act is held to be invalid its other provisions shall not be affected thereby.

Section 17: The act shall be cited and known as the “Federal Farm Mortgage Corporation Act.”

The establishment of the Corporation in the Farm Credit Administration merely gives a device whereby we may issue $2,000,000,000 in bonds, the interest and principal of which will be guaranteed by the United States, to continue the mortgage refinancing program.

The first use of that $2,000,000,000 would be to refund the bonds which have been issued under the act of last May and which have been given to the Reconstruction Finance Corporation as collateral for loans. That is $150,000,000 of the new bonds will be used for this purpose of refinancing. The $2,000,000,000 under this bill, therefore, does not represent an increase from the $2,000,000,000 authorized last spring, but simply represents a change in the type of bond.

Now, the corporation will issue its bonds, guaranteed as to principal and interest; and will exchange these bonds for Federal land bank bonds, thereby furnishing the land banks with Government guaranteed bonds to be paid out to borrowers instead of cash.

The Land Bank Commissioner would act as the agent for this corporation and would continue to make the loans which we call the Land Bank Commissioner's loans. The mortgages obtained on such loans would be exchanged for these Government guaranteed bonds, and, therefore, the same type of bonds would be paid to the borrower who obtains a loan from the Land Bank Commissioner as is paid to land bank borrower.

Mr. Chairman, I shall be glad to answer any questions concerning any points that have not been covered.

The CHAIRMAN. There are two or three questions that I would like to ask you, Governor Myers.

How does the amount of loans actually closed since last May compare with the loans made by the land banks during the previous year?

Governor Myers. The second page of the figures which you have, Mr. Chairman, shows the loans closed for 1932 were $27,569,800. Up to last night we had closed, since May, approximately $250,000,000

The CHAIRMAN. In other words, about ten times as much during the period since May as was closed during the previous year?

Governor MYERS. It would be about nine times as much since May.

The CHAIRMAN. What are the total commitments, or rather, the total applications that have been made during this period?

Governor MYERS. From May 1 to December 31, inclusive, received 497,207 applications, for slightly over $2,000,000,000, and during the same period, 50 percent of these applications had either been closed or approved. Those which have been closed into loans aggregate $210,000,000. In addition, we have approved loan applications aggregating $655,000,000.

The CHAIRMAN. And through this proposal you expect to be able to make further loans when the bonds are made available?

Governor MYERS. Yes.

The CHAIRMAN. In order to carry out the purposes of the emergency act?

Governor MYERS. I am sure that everybody would prefer, to pay out cash if we could do that, but we have, however, a problem since

we

the Government, in financing its program, needs its cash for the purposes with which you are familiar.

The CHAIRMAN. You are making a suggestion for additional capital to the intermediate credit banks. Is there prospect for the need of the additional funds for that purpose?

Governor MYERS. The reason is this: We make the Farm Credit Administration independent of the Treasury, insofar as requesting aid or cash during the next few months is concerned. As soon as the Farm Credit Administration took over the regional agricultural credit corporations, the notes which were formerly discounted for them by the Reconstruction Finance Corporation were transferred to the intermediate credit banks to be financed by debentures.

Now, the rediscounting for the regional agricultural credit corporations has increased the normal amount of business, and in addition provisions for the production loans through the production credit system must be made. So in order to be sure we can sell the volume of intermediate credit-bank debentures needed at a rate which will make the cost of the credit to the farmer reasonable, we think that it may be necessary for the banks to have more capital. Therefore, we request the permission to increase the capital if the Secretary of the Treasury and the Farm Credit Administration believes it is necessary.

The CHAIRMAN. Any questions?

Mr. Buck. I would like to ask one question. Section 4 authorizes the issuance of bonds but it makes no provision for the interest rate.

Governor MYERS. No. The interest rate is not stipulated in the law because the interest rate necessary to make the bonds worth par cannot be determined in advance, so we provide in the law that the interest rate will be determined only after consultation with the Treasury.

These bonds will be virtually Government bonds, and their interest rate will be adjusted to make them worth par.

Mr. Buck. You feel that will be better?
Governor MYERS. Yes.
The CHAIRMAN. Mr. Fulmer.

Mr. FULMER. Do I understand you are making a provision to take up Federal land-bank bonds, to take the cash from the bonds and buy any outstanding Federal land bank bonds?

Governor Myers. No.

None of those land bank bonds authorized last May have been issued except the $150,000,000 in the hands of the Reconstruction Finance Corporation as collateral.

Mr. FULMER. And you would not have to take up the outstanding bonds?

Governor MYERS. No.
Mr. FULMER. Under that clause.

Governor MYERS. So far as the public is concerned this would have no effect. In other words, we are not changing the status of the amount, but provide for taking up the bonds in the hands of the Reconstruction Finance Corporation with the new bonds.

The CHAIRMAN. Any further questions?

Mr. HOPE. Governor Myers, at the time the farm mortgage bill was passed, last spring, it was contemplated that you would be able to exchange land-bank bonds for mortgages.

Governor MYERS. That is correct.
Mr. HOPE. What effort has been made to do that?

Governor MYERS. The situation was this. After careful study we decided that it was unwise to exchange bonds for mortgages unless the bonds were worth par. The condition of the bond market was such that these 4-percent bonds could not be sold for par. We felt convinced that the creditor would want to discount the principal of these bonds more than in our judgment, the facts warranted. Therefore, we have borrowed on the bonds and have paid cash, believing that we would get a better refinancing program for the farmer by the use of cash than by the use of the bonds which were worth less than par under the conditions existing at the time.

Mr. HOPE. Have any of these bonds been offered to the public?

Governor MYERS. We discussed the matter with the best advisers we could get, the bonding houses that have handled the bonds of the Federal land bank issues and others. Because the outstanding Federal land bank bonds were selling at a discount due, in part, to the agricultural situation, and because the money situation was disturbed it seemed perfectly clear that the bonds could not be sold in sufficient quantities to carry forward the program. We are now prepared to close loans at the rate of $150,000,000 a month, as long as necessary to meet the farm debt situation.

Mr. HOPE. Did you ever take it up with insurance companies and other companies handling bond matters and discuss with them the matter of taking the bonds in transfer for their paper?

Governor MYERS. It was discussed with insurance company presidents to whom we were offering some of the bonds in lieu of their paper. Of course, the fact that only the interest on the bonds was guaranteed made them less attractive to the insurance companies, so they preferred to have cash.

Mr. HOPE. And they would not indicate that they would be willing to take bonds in exchange for mortgages?

Governor MYERS. They would not do it in most cases. They would be willing to exchange some poor mortgages for bonds.

Mr. HOPE. Do you contemplate exchanging these new bonds that are to be issued for farm mortgages, or is it your idea to go on the market and sell them and get cash and make it entirely a cash transaction so far as the loan is concerned?

Governor MYERS. In that we will be guided by the advice of the Treasury. It is likely that for the next month we will exchange bonds for mortgages. But we feel that if they are fully guaranteed as to principal and interest, we can use these bonds which are just as near to cash as anything can be and not be the actual cash. Then, when the fiscal operations of the Government will permit these bonds to be sold we will go back to the cash basis.

Mr. HOPE. You think you can sell these new bonds at a rate which will enable you to continue to make loans at the same rate of interest you now make them?

Governor MYERS. The rate of interest on the mortgages cannot be changed for 5 years under the terms of the act.

Mr. HOPE. No.

Governor MYERS. No matter what the rate of interest on the bonds is, the rate of interest on the mortgages cannot be changed.

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