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WEDNESDAY, JANUARY 24, 1940
HOUSE OF REPRESENTATIVES,
Washington, D.C. The committee was called to order at 10:30 a. m., Hon. Marvin Jones (chairman) presiding.
The CHAIRMAN. Gentlemen of the committee, at the last regular session the Senate passed an amendment to the Farm Tenant Act to provide for operation along lines somewhat similar to the Federal Housing program, and in looking over it there are some phases that seem to overlap the regular act; there is one place that conflicts to some degree, at least.
With the help of the drafting service and the Farm Security Administration we have worked up some provisions that it is thought would accomplish the purpose.
This particular print has not yet been submitted to the Budget and therefore the representatives, Dr. Alexander and others who are here from the Farm Security Administration who are handling the tenant administration, will not be able to make official comments on the bill but they can give us their analysis of it, and also report on the operations of the present act.
I asked Dr. Alexander to come up here, and also those who assisted in drafting the bill.
Dr. Alexander, we will be glad to hear from you.
Mr. FULMER. Do I understand, Mr. Chairman, the bill has not yet been passed on by the Budget ?
The CHAIRMAN. No; it has not as yet. However, it will be submitted to the Budget in the regular course. It was felt that we ought to have some hearings in order to get the reactions to the proposed amendment.
(The committee print of the proposed bill is as follows:)
[Committee Print, January 22, 1940]
A BILL To promote farm ownership by amending the Bankhead-Jones Farm Tenant Act
to provide for Government-insured loans to farmers; to encourage sale of farms held by absentee owners to farm tenants; and to enable tenant farmers to become owners of farm homes through long-term low-interest-rate loans on farms, and for other purposes
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Bankhead-Jones Farm Tenant Act is amended by inserting therein a new title to follow immediately after title I thereof and to read as follows:
"TITLE IA-FARM-TENANT MORTGAGE INSURANCE PROVISIONS
"FARM-TENANT MORTGAGE INSURANCE FUND
“Sec. 11. (a) There is hereby, created a fund, to be known as the 'farmtenant mortgage insurance fund' (hereinafter referred to as the 'fund'), which
shall be used by the Secretary of Agriculture as a revolving fund for carrying out the provisions of this title with respect to mortgages insured under section 12 and to mortgages accepted for the account of the fund under section 13. There shall be covered ino such fund not exceeding 5 per centum of the sums appropriated for the fiscal year ending June 30, 1941, pursuant to the authorizations for appropriations made by section 6, as the Secretary may deem it advisable to cover into such fund.
“(b) Moneys in the fund not needed for current operations shall be deposited with the Treasurer of the United States to the credit of the fund or invested in direct obligations of the United States or obligations guaranteed as to principal and interest by the United States. The Secretary may, with the approval of the Secretary of the Treasury, purchase, with money in the fund, in the open market debentures issued under section 14. Debentures so purchased shall be canceled and not reissued.
"(c) All amounts credited to the fund shall be available for making payments authorized under this title.
"(d) The Secretary shall include in his annual report a complete statement with respect to the status of the fund.
“(e) There are hereby authorized to be appropriated to the fund for each fiscal year, beginning with the fiscal year ending June 30, 1941, such sums as when added to the sums covered into the fund under subsection (a) of this section will be adequate to carry out the provisions of this title.
“INSURANCE OF MORTGAGES
"SEC. 12. (a) Until June 30, 1943, the Secretary is authorized, upon application of a mortgagee under a first mortgage eligible for insurance under this title, to insure such mortgage and to make commitments for the insurance of any such mortgage prior to the date of its execution.
“(b) The aggregate amount outstanding at any one time of principal obligations on all mortgages insured under this title, on all mortgages with respect to which commitments to insure have been made, and on all mortgages accepted for the account of the fund and not disposed of under section 13 shall not exceed $350,000,000. Of such aggregate amount not more than $50,000,000 shall be outstanding prior to July 1, 1941, and not more than $150,000,000 shall be outstanding prior to July 1, 1942. With respect to any fiscal year, the amount available for insurance, commitment, and acceptance of mortgages under this title shall be distributed among the several States and Territories on the basis provided in section 4 in the case of loans under Title I.
"(c) In order for a mortgage to be eligible under this title:
“(1) The person obligated to pay thereunder shall be a person who would be eligible under section 1 (b) for a loan under Title I;
“(2) The farm mortgaged shall be one with respect to which, under section 1 (c), a loan could be made under Title I;
“(3) The mortgage instruments shall comply with section 3 (b) ;
“(4) The principal obligation (and fees and other charges chargeable under subsection (d) of this section) shall not exceed the reasonable value of the farm and necessary repairs and improvements thereon, as certified by the county committee pursuant to section 16 ;
“(5) The mortgage instruments shall contain a covenant to pay the premium charges fixed under subsection (e) of this section, and a covenant to pay to the Secretary, as collection agent for the mortgagee, the amounts due under the mortgage; and
“(6) The mortgage instruments shall be accompanied by an agreement by the mortgagee (not binding upon the Secretary) that he will accept the benefits provided by section 14 in lieu of any right of foreclosure which he may have against the property and any right to a deficiency judgment against the mortgagor on account of the mortgage.
“(d) The Secretary shall require the payment of such initial fees for inspection, appraisal, and other charges, as he finds necessary and such amounts may be included in the principal obligation of the mortgage, and the payment of such delinquency charges and default reserves as he finds necessary.
“(e) The Secretary shall fix and collect from the mortgagor such premium charges for the insurance of mortgages under this title as he finds necessary. Such premium charge shall be one-fourth of 1 per centum per annum of the principal obligation of the mortgage outstanding at any time, without taking into account delinquent payments or prepayments: Provided, That the Secretary may require the payment of one or more premium charges at the time the mortgage is insured at such discount rate as he may prescribe, but not in excess of the interest rate specified in the mortgage. In the event that the principal obligation of any mortgage accepted for insurance is paid in full prior to its maturity date, the Secretary, in his discretion, may require payment by the mortgagor of an adjusted premium charge in such amount as the Secretary determines to be equitable, but not in excess of the aggregate amount of the premium charges which would have been payable if the mortgage had continued to be insured until its maturity date; and, in the event that the principal obligation is paid in full and a mortgage on the same property is accepted for insurance at the time of such payment, the Secretary may refund to the mortgagor all, or such percentage as he determines to be equitable, of the current unearned premium theretofore paid.
“(f) The Secretary shall promptly remit to the mortgagee under any mortgage insured under this title any sums collected by him as agent for the mortgagee. The Secretary shall promptly advise any such mortgagee of any default by the mortgagor.
"(g) Any contract of insurance executed by the Secretary under this section shall be conclusive evidence of the eligibility of the mortgage for insurance, and the validity of any contract of insurance so executed shall be incontestable in the hands of any holder thereof from the date of the execution of such contract, except for fraud or misrepresentation of which such holder has actual knowledge.
“(h) The Secretary may, at any time, for good cause shown and under such terms and conditions as he may prescribe, consent to the release of the mortgagor from his liability under the mortgage or the credit instruments secured thereby, or consent to the release of parts of the mortgaged property from the lien of the mortgage.
“ACCEPTANCE OF MORTGAGES FOR ACCOUNT OF FUND
"SEC. 13. (a) If the Secretary finds that, at any time, in any State or Territory the aggregate principal obligations of insured mortgages on farms in such State or Territory which will, during the fiscal year, be presented for insurance will not equal the amount allocated to such State or Territory under section 11, the Secretary is authorized to make loans to farm tenants on the security of farms in such State or Territory. Such loans shall be made for the account of the fund, under mortgages of the same terms as are prescribed by section 12, and to borrowers and on the security of farms certified by the County Committee. Such loans may be made with interim debentures issued under this section or with the proceeds of such debentures. Such debentures shall have the same incidents as debentures issued under section 14, but shall have such maturities, bear such rates of interest, and be issued in such manner as may be prescribed by the Secretary with the approval of the Secretary of the Treasury. Any mortgages so accepted for the account of the fund shall, as soon as a market therefor is found, be sold by the Secretary, with the approval of the Secretary of the Treasury, and the proceeds used to retire a corresponding amount of interim debentures, in which event such mortgages shall become subject to all of the provisions of this title as fully as though they had been originally insured pursuant to section 12.
“(b) The Secretary of the Treasury is authorized to purchase any interim debentures issued pursuant to this section, and for such purchases may use as a public debt transaction the proceeds from the sale of any securities hereafter issued under the Second Liberty Bond Act, as amended, and the purposes for which securities may be issued under such Act, as amended, are extended to include any such purchases. All redemptions, purchases, and sales by the Secretary of the Treasury of such interim debentures shall be treated as public debt transactions of the United States.
"PAYMENT OF INSURANCE
"SEC. 14. (a) In any case in which the mortgagor under a mortgage insured under section 12 is in default for more than six months, the mortgagee shall be entitled to receive the benefit of the insurance as hereinafter provided, upon assignment to the Secretary of (1) all the mortgagee's rights and interests arising under the mortgage so in default; (2) all claims of the mortgagee against the mortgagor or others, arising out of the mortgage transaction; (3) all policies of title or other insurance and all surety bonds and other
guaranties and any and all claims thereunder relating to the mortgage or to the mortgaged property; (4) any balance of the mortgage loan not advanced to the mortgagor; and (5) any cash or property held by the mortgagee, or to which he is entitled, as deposit made for the account of the mortgagor and which has not been applied in reduction of the principal of the mortgage indebtedness; and upon transfer to the Secretary of (6) such originals or copies of records, documents, books, papers, and accounts relating to the mortgage transaction, as the Secretary prescribes. Upon such assignment and transfer, the Secretary shall issue to the mortgagee debentures having a total face value equal to the value of the mortgage. Any difference between the value of the mortgage determined as herein provided and the aggregate face value of the debentures issued, not to exceed $50, shall be adjusted by the payment of cash out of the fund by the Secretary to the mortgagee. For the purpose of this subsection, the value of the mortgage shall be determined, in accordance with rules and regulations prescribed by the Secretary, by adding to the amount of the original principal obligation of the mortgage which was unpaid on the date of default, the amount of all unpaid interest and the amount of all payments which have been made by the mortgagee for taxes, special assessments, and water rates, which are liens prior to the mortgage, and insurance on the property mortgaged, and by deducting from such total amount any amount received on account of the mortgage after such default. If the collections from any mortgagor who is making variable payments are less than the current periodic payment due under the insured mortgage, which deficiency is not covered by previous prepayments, and such mortgagor is not in default in his variable payments and has complied with all the terms and conditions of the insured mortgage, the Secretary, in lieu of issuing debentures, as hereinabove provided, for the full amount of such mortgage, shall pay to the mortgagee the amount of such deficiency, less the amount of any such prepayments, which payment shall be advanced out of the fund for the account of the mortgagor. Such advance shall be repaid to the fund out of the first available collections received from the mortgagor, with interest thereon at the rate fixed in the insured mortgage.
“(b) The Secretary shall have power to issue debentures for the purposes of this section which shall be in such form, demoninations in multiples of $50, subject to such terms and conditions, and include such provisions for redemption, if any, as may be prescribed by the Secretary with the approval of the Secretary of the Treasury, and may be in coupon or registered form.
"(c) The debentures issued under this section to any mortgagee with respect to mortgages insured under section 12 shall be executed in the name of the fund as obligor, shall be signed by the Secretary by either his written or engraved signature, and shall be negotiable. Debentures issued with respect to any mortgage shall be dated as of the date the mortgage was acquired by the Secretary. They shall bear interest from such date at a rate determined by the Secretary, with the approval of the Secretary of the Treasury, at the time the mortgage was offered for insurance, but not to exceed 3 per centum per annum, payable semiannually on the 1st day of July of each year, and shall mature three years after the 1st day of July following the maturity date of the mortgage in exchange for which the debentures were issued. Such debentures shall be fully and unconditionally guaranteed as to principal and interest by the United States, and such guaranty shall be expressed on the face thereof. Such debentures shall be lawful investments, and may be accepted as security for all fiduciary, trust, and public funds the investment or deposit of which shall be under the authority or control of the United States or any officer or officers thereof. Mortgages insured under section 12 or accepted under section 13, together with the credit instruments secured thereby, and debentures issued under this section, and the income from such mortgages and debentures, shall be exempt from the same taxes as obligations issued by Federal Land Banks under the Federal Farm Loan Act, as amended.
"(d) In the event that the Secretary fails to pay upon demand, when due, the principal of or interest on any debentures issued under this section, the Secretary of the Treasury shall pay to the holders the amount thereof, which is hereby authorized to be appropriated, out of any money in the Treasury not otherwise appropriated, and thereupon to the extent of the amount so paid the Secretary of the Treasury shall succeed to all the rights of the holders of such debentures.
“(e) In any case in which the mortgagor violates any covenant or condition of his mortgage, the Secretary may require the mortgagee to assign such mort
gage, together with the incidents thereto, in exchange for debentures issued under this section.
"PROCEDURE WITH RESPECT TO MORTGAGES IN DEFAULT
"SEC. 15. (a) Upon accepting the assignment of any mortgage the Secretary, or upon default under a mortgage held for the account of the fund shall ascertain whether or not the mortgagor desires to remain in possession of the mortgaged property. If the mortgagor does not desire to remain in possession of the mortgaged property or if the Secretary is unable to make the findings prescribed by the next sentence, the Secretary may proceed to foreclose the mortgage. If the mortgagor desires to remain in possession of the mortgaged property and if the Secretary finds that the mortgagor (1) has made reasonable efforts to meet all defaulted payments and to comply with the other covenants and conditions of his mortgage and (2) will probably be able to meet such defaulted payments before, or within five years after, the maturity date, the Secretary shall enter into an agreement with the mortgagor providing for the payment of such defaulted payments together with interest thereon at such times not later than five years after the maturity date as the Secretary may deem to be within the probable future means of the mortgagor.
Should any mortgagor with whom the Secretary has entered into any such agreement thereafter fail to meet any payments the Secretary may proceed to foreclose the mortgage.
"(b) Notwithstanding subsection (a), no foreclosure proceedings shall be instituted on any mortgage if the mortgagor conveys to the Secretary full title to the mortgaged property and has paid, or agrees to pay, upon terms and with security satisfactory to the Secretary, on account of interest and principal installments on the indebtedness secured by the mortgage, an amount equal to the fair rental value of the mortgaged premises while occupied by him, together with any diminution in the value of the mortgaged property resulting from his wilfull or negligent act or omission. In determining such diminution in the value of the mortgaged property, there shall be deducted the fair value, as of the date of such conveyance to the Secretary, of any improvemen made by the mortgagor upon the mortgaged property. The Secretary shall prescribe rules and regulations governing the procedure for determining such rental value and diminution in the value of the mortgaged property, and determinations made in accordance with such rules and regulations shall be binding and conclusive upon the mortgagor. Upon the failure or refusal of the mortgagor to pay or agree to pay the amount so determined, the Secretary is authorized to foreclose the mortgage.
"(c) Any property acquired by the Secretary pursuant to subsection (a) shall be sold to farmers upon such terms as the Secretary may deem advisable. If, pursuant to section 51, the Secretary bids for and purchases any property foreclosed under subsection (a), the net amount realized from the sale of any such property and in collecting such claims, after deducting all expenses incurred by the Secretary in handling, dealing with, and disposing of such prop erty and in collecting such claims, exceeds the face value of the debentures issued and the cash paid for the assignment of the mortgage upon such property plus all interest paid on such debentures, then so much of such excess as does not exceed the total amount of the payments made by the mortgagor upon the purchase price of such property shall be paid to the mortgagor of such property, less any amounts owing to the Secretary under section 3 (e) of title I or otherwise.
“Sec. 16. (a) The county committee established under section 42 shall
"(1) receive listings of farms in the county from any persons desiring to sell such farms to farm tenants;
“(2) receive applications from farm tenants desiring to finance the acquisition of farms by means of mortgages insured by the Secretary under this title and advise such farm tenants of the available listed farms; and
“(3) examine and appraise farms which farm tenants desire to acquire by means of mortgages insured under this title.
“(b) If the committee finds that an applicant is eligible to receive the benefits of this title, that by reason of his character, ability, experience, and training, he is likely to carry out successfully undertakings required by him under