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

course, is for its own protection and for the protection of new borrowers as well.

Senator BANKHEAD. In that way a point is reached where the bank will not make loans at all to members of that association?

Mr. BLACK. To new members, yes; unless they set up one of these 25 (b) compartments, so-called.

Senator BANKHEAD. Those have not been very successful?

Mr. BLACK. They are cumbersome; I would not say they have been unsuccessful. There have been quite a number of loans made that way, but those compartments are cumbersome.

Senator BANKHEAD. It eliminates joint-stock ownership, does it not?

Mr. BLACK. There have been a number of new associations. Senator BANKHEAD. I mean by that compartment arrangement. Mr. BLACK. Oh, yes; that, in effect, makes a new association whose liability is restricted just to those new loans.

Senator BANKHEAD. It is just a slab cut off from those other associations?

Mr. BLACK. That is right.

Senator BANKHEAD. It is small in comparison with the parent association?

Mr. BLACK. Yes.

Senator BYRNES (chairman of the subcommittee). It is more than that; isn't it? What effect does it have upon the members who have already borrowed?

Mr. BLACK. Well, those men who have already borrowed and whose stock is impaired have just lost the amount of their stock investment. These new borrowers who come in and set up a compartment do not in any way guarantee or assume any of the loss incurred by the old borrowers.

Senator BYRNES (chairman of the subcommittee). I am wondering whether the other borrowers would say, "Why was not this compartment arrangement started 6 months ago, before we got into this fix, and we would not be assuming all these losses?"

Mr. BLACK. Well, I suppose some of them do wonder that; but they entered under the old provisions and have their liability which they have had to assume.

Senator FRAZIER. This 5-percent stock purchase in the association is the cooperative feature of the land-bank loan, isn't it?

Mr. BLACK. Yes, it is so labeled.

Senator FRAZIER. So, 60 percent of them have ceased to cooperate, practically speaking?

Mr. BLACK. Well, they have lost the value of their stock in about that many cases; yes.

Senator FRAZIER. It is impossible for them to cooperate because their 5-percent surplus, so-called, for this cooperative has been impaired, and they haven't any chance to cooperate in it?

Mr. BLACK. Yes; that is correct. There is another feature of that that I shall touch on a little later, but a considerable amount of this stock has become separated from the loan-at least 20 percent of it, and in some districts as high as 35 percent.

Senator BANKHEAD. How is that? Through transfers or sales of property?

Mr. BLACK. A man who has become a borrower has, for example, sold his farm to a purchaser, and the stock has not gone along with the loan. The new purchaser has either refused to take the stock or has refused to pay anything for it. For any number of reasons, it does not follow the loan. The person actually owning the stock, who is officially a member of the association, carries the voting power, and so on, is not the person who is actually paying on the loan.

Senator BYRNES (chairman of the subcommittee). It seems to me, going back to your policy of establishing compartments, that it will result in some farmer-borrowers concluding that in view of the insolvent situation of the association, just as soon as about 10 borrowers have come into the compartment, they will insist on another compartment. Isn't that so? It seems to me that the farmer-borrower will say, "The association here is insolvent. Judging from that experience, it will occur in the future, and I do not want to have my stock impaired by the taking in of a hundred borrowers. There are only 10 farmers here, and I know they will pay, so I am satisfied to stop right here. I want you to form another compartment."

Then the danger of the impairment of his stock is restricted, isn't it? Mr. BLACK. Yes; it would be restricted; of course, his liability would be increased, too, perhaps, because there would not be very much stock in the compartment, and any loss among the 10, say, would throw the heavier proportional loss on his stock, so it would work both ways.

Senator BYRNES (chairman of the subcommittee). But the more borrowers you take in, the more the chance for loss is increased? Mr. BLACK. Yes.

Senator BANKHEAD. Did you state what percentage of the stock has been separated from the loans?

Mr. BLACK. At least 20 percent and in some districts as high as 35 percent.

Senator BANKHEAD. Do you mean that the average for the entire United States is about 20 percent?

Mr. BLACK. It would be a little above that.

Senator BANKHEAD. When a man sells land but holds stock, does he participate in the loan association?

Mr. BLACK. Oh, yes; he is the member, of course.

Senator BANKHEAD. Do you know whether in practice they continue to manifest an interest?

Mr. BLACK. Not appreciably; no.

Senator BANKHEAD. Does the man, then, who owes the debt to the bank?

Mr. BLACK. No; he is not even a member of the association. Senator BANKHEAD. The man who owns the land and owes the debt has become an outsider?

Mr. BLACK. Yes.

Senator FRAZIER. In 60 percent of these associations the 5 percent in stock that the farmers have taken and that they have lost is simply added to the amount of interest that they have paid on these loans? Mr. BLACK. That has been the effect of it.

Senator FRAZIER. That makes it a pretty high rate of interest? Mr. BLACK. It depends on the length or the term of the actual loan. Senator FRAZIER. Of course, the first rate of interest was too high, or something was wrong, and they could not make their payments, so they lost their 5 percent?