3. The refinancing provisions contained in sections 10 to 14 also embody, in my opinion, a sound policy from the standpoint of agriculture, and equally from the standpoint of a really sound farm credit policy. Excessive mortgage debt is bound to result in the same vicious exploitation of the mortgaged farm, the same wasteful neglect of farm improvements, and the same wasteful loss of operating capital by the mortgagor that results from excessive interest rates and unrealistic loan amortization policies. A policy of attempting to enforce collection of farm mortgages in an amount exceeding the probable future productive value of the farm is to adopt a penny-wise and pound-foolish practice, even from the most conservative standards of banking practice. The loss is there, in any event, and the only question is whether the loss should not be taken immediately while the mortgaged property is still an efficient farm unit, rather than to hope against hope that the investment of the lending institution can, through some miracle, be salvaged, with the certainty that if the miracle does not occur, the mortgaged property is bound to be neglected, wastefully exploited, and the ultimate loss of the lending institution increased rather than decreased because of the inevitable decrease in value of the security behind the mortgage.

A further reason why an immediate refinancing program seems to me sound credit policy is that the experience of the Farm Credit Administration, in its refinancing operations in 1933 and 1934, demonstrates the desirability of a continuous and orderly refinancing program, as compared with emergency refinancing at amounts higher than the probable future productive value warranted. The records of the Farm Credit Administration show, without much doubt, that most of the losses incurred on the land bank and Land Bank Commissioner loans, made in the emergency period of 1933 and 1934, were due to the fact that a simply staggering amount of refinancing had to be done within too short a time to make possible a careful examination of each case. It is unfortunate that there could not have been worked out at that time a comprehensive approach to a philosophy of sound landvalue appraisal based on probable future productivity. Today we are not under the same pressure, and there is every reason why we should build up a sound philosophy of land appraisal which takes into account secular trends and not merely differential land values.

4. The provisions of section 8, which look toward the vesting of additional functions in national farm loan associations, seem to me highly desirable. Decentralization of administration seems to be absolutely essential for the extension of really sound farm credit. Local experience and familiarity with the local conditions is invaluable in the administration of any program. Governor Black is already investigating the possibilities of using the local farm loan associations to improve the practical operations of the land banks, not only in the making of loans, but in the disposition of foreclosed property. It is my hope that, wherever possible, as much local farmer participation as possible will be achieved.

5. The provisions of section 14 (a) for variable payments also seem to embody a desirable policy. The Department of Agriculture, since the enactment of the Bankhead-Jones Farm Tenant Act, has put into operation a variable payment plan, which has so far worked with great success. It is my understanding that the Farm Credit Administration has also been exploring this field, and I hope that practical methods for putting this principle into operation can be developed.

6. The provisions of section 14 (b), authorizing the Governor to adjust uneconomic farm units and to make repairs necessary to place the farm in working condition seem to me highly desirable. I believe that such a policy has already been adopted by some of the Federal land banks. I also understand that, according to the testimony before the Temporary National Economic Committee, some of the large insurance companies have adopted an extensive rehabilitation. program in connection with farm property which they have acquired through foreclosures. Extension of such a rehabilitation program by the Farm Credit Administration seems to me sound business, as well as sound public policy.

7. The provisions for the abolishment of joint-stock liability also seem to embody a desirable policy. It seems to me that the risk of loss on long-term loans should properly be spread over a much larger unit than the national farm loan association. In the case of a shortterm credit, such as that administered by the production credit associations, most of the elements of loss risk can be fairly well controlled by the management of the association, through the careful selection of borrowers and the taking of adequate security and the careful check-up which takes place in making a short-term loan. The splendid work of the production credit associations would seem to indicate the feasibility of joint stock liability in the field of shortterm financing.

However, in the field of long-term financing, possible elements of loss cannot be so effectively guarded against by the local association. The actual loss experience of the national farm loan associations would seem to demonstrate the truth of this statement without much doubt. A review of the extent of impairment of the capital stock of national farm loan associations shows very clearly that the losses occurred mainly by regions and types of agriculture, and only to a very minor extent by the type of management of the local association. In other words, the losses occurred not because of the competence or incompetence of the management of the local association, or the diligence or indifference of its members, directors, or officers, but because of factors completely beyond their individual or collective control. I should think, therefore, that the joint liability feature of the national farm loan associations should be entirely eliminated, as is proposed in this bill.

I believe that the cooperative responsibility features designed in the original act can be carried out more effectively by means of the added authority given to the associations under the provisions of this bill.

8. I am also inclined to approve of the provisions of section 6 for the retirement of the presently outstanding capital stock of the land banks and farm-loan associations, and particularly the provisions for the retirement without regard to impairments resulting from losses by other borrowers through the local farm-loan association. As I have already stated, the experience of the Farm Credit Administration would seem to prove that the impairment which has occurred in many of the associations resulted from factors beyond the control of the members of the association whose capital is imapired, or of the directors or officers of these associations. In other words, the losses that have been charged against this stock constitute losses which should more equitably be spread over the entire system. It is my

understanding that the maximum amount of losses chargrable against the capital stock, as well as they can now be estimated, will not exceed eventually approximately $18,000,000. In other words, the retirement of this stock will, except for this figure, represent merely a bookkeeping transaction in which each borrower's loan account is credited with the amount of his stock and the capital stock account charged with a corresponding figure. Similarly, the total amount required for payments to retired stockholders, who have not received. the full value of their stock because of charges against the national farm loan associations of which they were members, will not exceed somewhere between $3,500,000 and $5,000,000.

9. The provisions of section 16 abolishing foreclosure proceedings caused me some concern. Under this provision, no personal liability could be enforced against any mortgagor if he conveyed the mortgaged property to the land bank or Federal Farm Mortgage Corporation. The only qualification now contained in the section is that the Governor might require such mortgagor to pay the amount of any damages to the mortgaged property resulting from the willful or negligent act or omission of the mortgagor. It seems to me that the committee might well consider making the mortgagor personally liable, in any event, for any interest on the mortgage debt while the property was operated by the mortgagor, which had not been paid by him while in possession of the farm. It seems to me that cases will undoubtedly arise, from time to time, in which an unscrupulous mortgagor will keep hold of the mortgaged property as long as possible, with no intention of meeting the morgage debt, and who might take advantage of the proposed provision against deficiency judgments by making no payments whatsoever for the period preceding his abandonment of the farm.

Among the other modifications which I might suggest are the following:

Wherever the phrase "productive value" appears (beginning with page 14, line 2), substitute the phrase "probable future productive value;" and delete all reference to "normal farm income" throughout the bill.

On page 18, lines 16 to 20, I would suggest that you strike out the following sentence:

In determining the productive value of the property as the basis for such purchase price, there shall be excluded any increase in the value of the property attributable to expenditures by the tenant.

In connection with the provisions of section 2, which contemplate the fixing of interest rates at 1 percent over the cost of money for administration and reserves against losses, the committee might consider the desirability of allowing a somewhat larger spread, for example, 14 or 11⁄2 percent.

I suspect, Mr. Chairman, after further careful study of figures and spreads the various branches of the executive departments might want to make some modifications, especially with regard to handling the liquidation of the capital stock.

The CHAIRMAN. Any questions?

Mr. ANDRESEN. Mr. Secretary, the success of any loan organization

Secretary WALLACE. Would you pardon me just a moment?
Mr. ANDRESEN. Yes.

Secretary WALLACE. My attention has been called to the fact that a statement which I dictated last night is omitted from the testimony which I have just given, and I do not know just how the failure took place of not including it in the statement, but if you do not mind my endeavoring to include it in the record at this time I will try to give it as I dictated it.

The CHAIRMAN. Do you have a copy of that statement?

Secretary WALLACE. I do not have a copy, but I can give it to you. The CHAIRMAN. I think it would be helpful to the committee if you would supply us with a mimeographed copy of whatever might be added later. Without objection that will be included in the record. (The statement follows:)

Before I begin to discuss the details of the specific legislation under consideration, I wish to make it clear that nothing in the proposed legislation touches in any way on the cooperative features of the production credit associations or the banks for cooperatives.

So far as I know all of the influential men in the Department of Agriculture are thoroughly and completely sold on the soundness of cooperative principles. Their allegiance to this principle has been made manifest again and again but we do not like to see the cooperative principle used in the guise of false whiskers to deceive the farmers.

Mr. ANDRESEN. Mr. Secretary, the success of any loan organization depends upon the financial ability of the borrower to repay the loan, does it not?

Secretary WALLACE. Of any local association?

Mr. ANDRESEN. Of any loan organization, it depends upon the financial ability of the borrower to repay the loan, and my colleague suggests the willingness of the borrower to repay the loan, and I accept that amendment.

Secretary WALLACE. I have found that farmers generally have as great a willingness, if they are financially able, to repay their loans as any other class of citizens.

Mr. ANDRESEN. I think that is true with most people, but sometimes they are not able, as has been the case with many thousands of farmers during the past 7 or 8 years.

Secretary WALLACE. Yes.

Mr. ANDRESEN. Now if the farmer is to be in position to repay the loan he must have an income from the things he produces to be able to repay the loan.

Secretary WALLACE. That is the reason I suggested, as a criterion of land appraisal, "probable future productive value."

Mr. ANDRESEN. Well, you have referred in your statement to excessive loans on land as being highly undesirable.

Secretary WALLACE. It is no favor to the farmer to have an excessive loan.

Mr. ANDRESEN. I agree with you. Now, at just what point would you consider a loan, a mortgage to be excessive, when you come to figure the valuation of a farm?

Secretary WALLACE. When it is beyond the probability of its future productive value.

Mr. ANDRESEN. At the present time the Federal land bank loans 50 percent of the value of the land and 20 percent of the value of buildings.

Secretary WALLACE. And the Commissioner loans are 75 percent. Mr. ANDRESEN. And that is based upon the normal income and

productivity, I believe, of the land. Do you consider that is an excessive loan under present conditions?

Secretary WALLACE. I do not know what is meant by the word "normal". That is the reason why I have suggested the use of the phrase "probable future productive value."

Mr. ANDRESEN. And the future is rather uncertain. Do you look forward to higher productive values for agriculture in the future than we have had in the past?

Secretary WALLACE. Well, I would not want to be indicted as one of the crystal gazers who appeared before another House committee yesterday.

Mr. ANDRESEN. I was wondering if you cared to express an opinion that we might have higher incomes for the farmers. That has been the understanding, at least of this committee of the Congress, all during the past 7 years, that we were endeavoring to secure a higher income for the farmer.

Secretary WALLACE. I am sure that every Member of the Congress and every member of the executive department has united in trying to bring that to pass.

Mr. ANDRESEN. What determines the interest rate, or what determines the size of the loan to be made on a farm? It would be foolish for us to legislate here for what might happen in the future if we do not anticipate higher productive income for the farmer.

Secretary WALLACE. I think a lending institution has to be governed by probabilities rather than by hopes.

Mr. ANDRESEN. Well, if you have certain probabilities in mind that you could give this committee we would certainly like to have them, anything that indicates the farmer would get a higher income.

As a matter of fact, the refinancing operations in the years 1933, 1934, and 1935 had particularly in mind that the farmer would receive higher income and could repay the loans, but experience shows that on Commissioner loans 29 percent have become delinquent, and just about that much of the Federal land-bank loans, which clearly demonstrates to me that something is wrong with farm income, otherwise we would not have had these delinquencies.

Secretary WALLACE. You are quite right. There has been something wrong with farm income ever since 1921.

Mr. ANDRESEN. Well, I want to discuss that far back with you, "since 1921," and at least to 1930 the farm income was considerably above what it is today.

Secretary WALLACE. In purchasing power, the purchasing power for the things the farmer has to buy, the farm income during the past 7 years will stand a very favorable comparison with the record of the twenties.

Mr. ANDRESEN. That might be but I believe the farmers will question your conclusion.

Secretary WALLACE. And if the Republicans wish to broadcast. any more of the things they have been broadcasting about farm income, and what it was during the twenties, if they will take into account the higher cost of what farmers had to buy in the twenties I will be glad to have them do so.

Mr. ANDRESEN. Well, I am not trying to inject politics as you have indicated a desire to do here, for I do not look upon the agricultural problem as one of politics.