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AMEND BANKHEAD-JONES FARM TENANT ACT Mr. COFFEE. And do you not think that pressure is going to jncrease and grow in importance?

Dr. ALEXANDER. I think the pressure is not going to come from that source, Mr. Coffee.

I remember a little town in Mississippi where we have one of these local committees and, where they have a bad tenancy problem. When I was down there I went out to the committee with a group of business men from that town, and they were so convinced that the thing was sound for their county that they would very much like to have it expanded. I think the pressure will come, primarily, from people of that type.

Mr. COFFEE. Well, I will agree, Dr. Alexander, that the pressure will come from various sources, naturally. Every farm tenant will be interested in obtaining one of these loans. Only a very few can be financed. If we expand the program it will open up the opportunity to sell more land to the Government.

Dr. ALEXANDER. I think, Mr. Coffee, there are a great many people who feel that to the extent that there is danger rising in this country, it results from unrest and anything we can do wisely to allay that unrest as a matter of national policy helps to overcome that danger. If these people you are talking about being organized, become owners of small farms, or if they have equity in a piece of land, it would do much to set at rest the agitation.

Mr. COFFEE. Dr. Alexander, I am sure that we all agree with the objective, to encourage farm tenants to own their farms. It would be very desirable to have all of them own their farms and to own homes. I am very much interested in that, but the question is, can the Government afford it? Can we justify a policy of lending 100 percent of the valuation of farms sold to tenants and having the Government guarantee the loans in the light of the experience of the Federal lank banks which have lost millions of dollars lending 50 percent of the value of the farms?

Dr. ALEXANDER. I do not think that conclusion necessarily follows. I do not think we ought to go into it on a wholesale scale and undertake to do the thing within the next year or two, but I do think the provision to expand the program, as proposed by the bill, is sound.

And, perhaps if this device that is set forth in this amendment, works out satisfactorily, you may find that it will not involve the large expenditures that you are talking about.

Mr. COFFEE. Do you not think that this program will eventually supplant and replace the Federal land banks, if you provide for 3percent money on a 100-percent valuation basis, when the Federal land banks must charge 31/2 percent on a 50-percent valuation?

Dr. ALEXANDER. I would not object if you can get the interest rate down to 3 percent.

Mr. COFFEE. I would be glad to see that, too, but certainly the cheaper rate is going to replace the higher. And, it will replace the system that is used in loaning at the higher rates.

Dr. ALEXANDER. I suppose if the Congress finds a better way to handle it than they have in the past they will put such system into practice.

Mr. COFFEE. That is the occasion for my question now, to determine what is the proper procedure of financing these farm mortgages,

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whether we should do it under the system proposed or use the Federal land banks.

The CHAIRMAN. Mr. Kleberg, you had a question.

Mr. KLEBERG. Dr. Alexander, rigit along the line of thought developed by Mr. Coffee: What do you think of the frame of mind of a man living on a farm next to a farm Niat has been financed by another agency, not the tenant purchase program, and this farmer had paid on his farm and had financed it to the best of his ability and is just about to lose the farm and is faced with the possibility of having to go on relief or trying to keep the farm, and he calls on you and you are not able to help him under the present law. What do you think would be the frame of mind of that man who is confronted with that predicament?

Dr. ALEXANDER. Under this bill, Mr. Kleberg, as amended, we could help him.

Mr. KLEBERG. You could ?
Dr. ALEXANDER. Under the amendment we could do that.
Mr. KLEBERG. That is the reason I asked the question.
The CHAIRMAN. Mr. Flannagan,

Mr. FLANNAGAN. Just one question, Doctor, in connection with the information that is to go into the record.

You were asked how much money is involved in the loans made by the Government in Denmark to the farmers. You stated you did not have those figures available, but you would undertake to put them in the record.

I wish you would also put in the record the losses, if any, the Government of Denmark has sustained by reason of making those loans.

Dr. ALEXANDER. Yes. (Included in data on Denmark previously inserted.)

Mr. ANDRESEN. And will you also put in the record a statement of the States in which farms have been purchased under your administration, the number of farms and the expenditures in each State!

Dr. ALEXANDER. Yes. (Previously inserted.)
Mr. ANDRESEN. And what the rates have been?

Dr. ALEXANDER. Yes. (Three percent, as shown in previous testimony.)

Mr. MURRAY. And the overhead ?

Dr. ALEXANDER. The overhead was fixed at 5 percent in the original bill.

The CHAIRMAN. We desire to thank you, Doctor. Dr. ALEXANDER. Mr. Oppenheimer is here to explain the provisions of the bill.

STATEMENT OF MONROE OPPENHEIMER, CHIEF, FARM SECURITY

DIVISION, OFFICE OF THE SOLICITOR, DEPARTMENT OF AGRICULTURE

The CHAIRMAN. We will be glad to have you make an explanation of the provisions of the bill, Mr. Oppenheimer.

Mr. OPPENHEIMER. This bill provides a method of expanding the present tenant purchase program pursuant to the authorization in title I of the Bankhead-Jones Farm Tenant Act.

From the standpoint of the borrower, the type of farm that can be purchased and the amount that can be paid for the farm, the bill incorporates by reference all of the limitations in title I of that act. In other words, before any borrower can be helped to get a mortgage loan which would be insured under this act he has to be approved by the local county committee. Similarly the farm which is purchased with the proceeds of insured loans must be approved by the local county committee of three farmers.

These loans can be amortized over a period not to exceed 40 years, and the interest rate is similarly fixed at 3 percent. Those provisions are set forth in section 12 (c) which refer back to the appropriate sections of title I.

The difference in approach, so far as the borrower is concerned, is that in addition to the 3-percent interest payable on these loans under title I the borrower is required to pay one-fourth of 1 percent annually on the unpaid balance of principal, which under the provisions of the act is to be placed in a so-called farm tenant mortgageinsurance fund for the purpose of meeting losses which might accrue under the insurance provisions.

After a borrower has been approved by the local county committee and the farm selected and the purchase price approved by the county committee the Secretary of Agriculture is authorized to insure a mortgage, to consummate the deal with the private lender who will supply the funds to the borrower. In the event the owner himself desires to carry an insured mortgage instead of receiving cash, he would present the mortgage for insurance and the Secretary would insure the payments of both principal and interest on the full amount of the mortgage, under a provision which is very similar to that in the National Housing Act.

In the event that the mortgage should go into default at some subsequent time, then the Secretary of Agriculture would be authorized to issue debentures to the lender in exchange of the mortgage, a procedure likewise somewhat similar to that established in the National Housing Act.

The Secretary would be required, under the provisions of this act, to act as a collecting agent for the lender and transmit to him payments as the installments on the loan or pay.

Mr. Pace. Right at that point, why would it not be better, instead of the borrower making payment to the Secretary to make the payments directly to the lender?

Mr. OPPENHEIMER. It is my understanding that the sponsors of the bill—I did not initiate the plan-determined that it would be impossible to get an interest rate low enough to serve the purposes of the act and still require the creditor to incur the expenses incident to servicing the loan.

In this connection, the interest rate

Mr. PACE. Let me interrupt you again. In many of these cases there are going to be sales from one neighbor to another and why is it going to be necessary for the Department of Agriculture or the Secretary to step in and undertake to make the collections, when the next-door neighbor, at much less expense than the Government, can make the collection. The borrower can come in and make the payments direct to the lender instead of having to send the money to the Secretary in Washington and go through the trouble of having a record made, have the Secretary cash the check and send a Government check back to the lender.

It occurs to me that feature of the bill is rather unnecessary until a default has actually occurred, when the lender can call on the Secretary because he has guaranteed payment.

Mr. OPPENHEIMER. It was my understanding that it was not contemplated by the sponsors of the bill that a typical situation would be one in which the creditor would be a next-door neighbor of the mortgagor but you would have a typical situation in the local bank

Mr. Pace (interposing). Well, in 99 percent of the cases it would be a local transaction.

Mr. OPPENHEIMER. Yes; but it is my understanding that in connection with mortgages insured under the National Housing Act, an allowance was found necessary to cover expenses of bookkeeping, sending out notices, and other expenses incident to servicing the loan, and the banks could not do that without some compensation. And with a maximum rate of 3 percent it would not be attractive enough a rate to the individual lender if he had to incur whatever expense was necessary to do that servicing.

I do not know of my own knowledge what banks in general would regard as an appropriate overhead charge for that expense, but I should judge by F. H. A. experience, in which they have attempted to get the interest rate to city borrowers as low as possible, the spread of 11/2 percent is generally regarded as not exorbitant.

Mr. Pace. That would be rather high. Do you know of a bank in this country that would not grab up a guaranteed tax-exempt 3percent investment today?

Why should they charge any such rate for servicing a loan, as much as 112 percent. That would be a high charge for servicing an ordinary loan, when all they do is put a notice in the mail once a year.

Mr. OPPENHEIMER. I do not have information on that of my own knowledge.

Mr. PACE. I do.

The CHAIRMAN. Even though the loan is from local people usually they have the local banks send out the notices. In the ordinary transactions the individual is in not much position to do the collecting

Mr. OPPENHEIMER. That is right.

The CHAIRMAN. And in many instances, even though the purchaser is in the same county, they might be in different parts of the State. That is an interesting question, but I doubt whether it would work under a system of loaning for the individuals to do their own collecting without having many complications.

Mr. COFFEE. That brings up a question, Mr. Oppenheimer, as to the collections on the mortgages. What, in your opinion, would be the cost to the Government of administering and collecting these accounts?

Mr. OPPENHEIMER. I do not have any information on that. I might explain that I simply assisted in drafting the bill, and I do not have a great deal of personal knowledge as to the administration of the program

Furthermore, with respect to the cost of servicing a loan, the 11/2percent figure to which I referred is the difference between what is provided as the 3-percent-interest rate contemplated here and what

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AMEND BANKHEAD-JONES FARM TENANT ACT

I believe to be the lowest interest rate the F. H. A. has secured, that is, 412 percent to date, and I merely meant to suggest that such a spread might be needed on the part of the banks to take care of servicing the loans, because the F. H. A. mortgages are likewise insured by the Government both as to principal and interest.

I do not know personally what the actual overhead is.
Mr. Pace. Are you familiar with the commodity crop loans?
Mr. OPPENHEIMER. No; I am not.

Mr. PACE. They cut this overhead charge down to one-half of 1 percent and the banks have no difficulty in collecting for that.

Mr. OPPENHEIMER. I do not have any actual knowledge as to the overhead figures.

The CHAIRMAN. I do not know that it would be necessary for the collection to come to Washington. Loan companies frequently make loans to home owners and have local agents to do the collecting, and the funds are simply deposited in a bank.

I think it would be a very simple matter to have a central collection point, and I think it would be better for the purchaser himself, even though the lender and the purchaser are in the same county, to have a central point to which payments could be made. I do not think it would be a particularly expensive plan to have the local bank or some local agency to do it.

Private lending companies usually have some point where payments can be made. This would not require a lot of machinery, and even though the transaction may be made in the same county, it might be that the borrower would not know where the mortgage was, or exactly where to send the payments.

Mr. PACE. Of course, he would get a notice.
The CHAIRMAN. Yes.
Mr. PACE. Telling him where to send the payment.

The CHAIRMAN. Yes; but suppose he gets a notice and does not know whether the agency sending the notice has the paper.

I am just thinking out loud about it. It might be that some alternative provision of that type could be inserted.

Mr. FERGUSON. Mr. Chairman, I think the committee should give some consideration to the question of consolidating all of these security agencies, the lending agencies into one head.

We now have three or four agencies in the field making loans to farmers; farm credit loans, Federal land bank loans, production credit loans, all of them dealing with the same general type of problem. If we would consolidate all of these different agencies operating in this same field, of making these loans, the cost of this activity could be reduced about one-fifth of the cost if it is done by separate agencies.

I would like to see this committee make some attempt at consolidating all of the agencies of the farm credits extended to agriculture under one head which would enable us to provide funds to get competent agents.

They are now sending out agents to carry on this work at a salary of $1,800 a year in counties where they are servicing a quarter of a million dollars' worth of loans, and that is a job that the officials of a million-dollar institution take care of. He is supervising the purchase of farms in the Farm Tenant Act; another agent in the same county will have the production credit loans; and an inspector

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