Amortization schedule on $1,000 loan and service fee and annual insurance premium payments-Continued

'Insurance premium paid first of each year, beginning with date of mortgage.

NOTE. Equivalent interest rate (service charge and insurance added to interest payments) equals 3.26 percent.

Mr. PACE. Mr. Chairman, I am very much interested in the refinance feature of the existing law and I was wondering why you do not include that in this new title along with the insured feature. The way the bill is drawn, as I see it, the only refinancing is under the present existing law. What is to become of the plan under the new title?

The CHAIRMAN. It is a question for the committee. I did not feel at liberty to go beyond this. Senator Austin's wording only applied to that. As a matter of fact his wording was even more limited than that, and we broadened it to some extent but I did not feel at liberty to go any further without consulting the committee.

Mr. PACE. One further question: I notice it is provided that the lender can demand Government debentures after the mortgage has been in default 6 months. Now you and I know that in your section and my section farming operations are on a year basis.

The CHAIRMAN. This says not less than 6 months' default.
Mr. O'BRIEN. Yes.

Mr. PACE. It says if the mortgage is more than 6 months in default.
The CHAIRMAN. Yes. That is just the same as the present act.

Mr. PACE. In other words, the 6 months expires in my country, suppose, in April or May, and the fellow hasn't a chance in the world.

The CHAIRMAN. Under the variable payment plan he might be able to handle it.

Mr. ANDRESEN. He would have 18 months.

Mr. PACE. The Secretary could put him out. I think it is reasonable to have the lender wait for 1 year before he is entitled to swap his mortgage for Government bonds.

The CHAIRMAN. That may be a feature we want to discuss later. The committee wanted to get the explanation by Mr. O'Brien.

Mr. Hook. In case of default there is no equity of redemption given under the mortgage?

Mr. O'BRIEN. What?

Mr. Hook. Equity of redemption in the mortgagor?

Mr. O'BRIEN. Well, there is nothing to prevent the borrower from bidding in the sale if he wants to. This waives the Secretary's right to a deficiency judgment against the borrower in some circumstances. The CHAIRMAN. The committee will adjourn until 10:30 o'clock Tuesday morning.

(At 12:05 p. m. an adjournment was taken until 10:30 a. m., Tuesday, January 30, 1940.)

FARM TENANCY

TUESDAY, JANUARY 30, 1940

HOUSE OF REPRESENTATIVES,
COMMITTEE ON AGRICULTURE,
Washington, D. C.

The committee met, pursuant to adjournment, at 10:30 a. m. in the committee room, New House Office Building, Hon. Marvin Jones (chairman) presiding.

The CHAIRMAN. The committee will come to order, please.

While we are waiting on some gentlemen from the Department, Mr. O'Brien, the committee would like to ask some questions about this.

STATEMENT OF JOHN O'BRIEN-Resumed

Mr. O'BRIEN. I would like to make two observations about what I had to say at the last time.

The first is that I think Mr. Flannagan's question with respect to what would be left in the fund on the basis of one-quarter of 1 percent premium can be answered by some calculations, and I would like to have permission to insert that in the record.

The second is that with respect to the taxability of these mortgages and debentures which are issued as provided in the bill, I stated that they were exempt from taxation to the same extent as obligations issued under the Farm Loan Act. And that is right. I was mistaken, however, in saying that those obligations were subject to surtaxes by the Federal Government and inheritance taxes, under the statutes relating to obligations of the Federal farm-loan system. They are wholly exempt from taxation according to the provisions in that

statute.

I wanted to make those two corrections.

Mr. ANDRESEN. Does that include the inheritance tax?

Mr. O'BRIEN. There is a lot of law to the effect that they are subject to inheritance taxes, which says that they are not exempt from inheritance taxes and that the States can tax them just the same, but they are exempt from Federal estate taxes as compared with the State inheritance taxes.

I think that the whole question as to whether they are exempt or ought to be tax-exempt ought to be gone into, and I just wanted to correct an erroneous statement that I made.

Mr. ANDRESEN. And, as I understand you, mortgages held by the Secretary are not subject to the State taxes.

Mr. O'BRIEN. They are not. And that is true, of course, of mortgages held by the farm-loan system now.

This bill carries that principle so far as to exempt from taxation the mortgages in the hands of the persons who do the lending originally.

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You see, under the farm-loan system the land bank or any one of those banks has the mortgage in its possession. Under this system you may or may not have the mortgage in the Secretary's possession.

In the first place we have a regular insured mortgage. That mortgage will be in the possession of the original lender who has put up the money, and, as this bill now reads, that mortgage will be exempt from personal-property taxes and the income will be exempt from

income taxes.

Mr. ANDRESEN. What about the land that the Secretary may acquire from some man who has obtained a loan; is that exempt?

Mr. O'BRIEN. That land is subject to taxation.

Mr. ANDRESEN. That is subject to taxation?

Mr. O'BRIEN. That is subject to taxation, because the present Farm Tenant Act has a section in it taxing land held by the Secretary. The CHAIRMAN. Any further questions?

Mr. O'Brien, someone made an inquiry the other day about this provision for an insurance fund, or raised a question as to the requirement of paying more than one payment on that, making more than one payment at one time.

Mr. O'BRIEN. Do you mean so far as the Federal Government goes. or payment by the borrower?

The CHAIRMAN. By the borrower. I would like to have an explanation to that. On page 5, subdivision (e) it says that:

more

Provided, That the Secretary may require the payment of one or 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..

Would that permit him to require any number of payments at the beginning if he wanted to require them?

Mr. O'BRIEN. I so understand it would, but I would much prefer if you would ask the people in the Federal Housing Administration how they administer a comparable provision in their act. As I understand it, the conception of this provision as it would work here, it would be this, that there would be necessarily a premium charge by the Secretary and that if he wanted to put an additional premium charge on, in addition to that, that there would be an annual premium charge of one-fourth of 1 percent of the principal obligation of the mortgage then outstanding.

Now, as I have said

The CHAIRMAN. As I read it, the charge cannot be more than onefourth of 1 percent per annum; but as to that one-fourth of 1 percent, he might require the payment of any number of them at the time the loan was made, and it seems to me that there should be some legislation on that, say not more than two or something like that. I do not know that there ought to be more than one.

Mr. O'BRIEN. I do want to point out to you, Mr. Chairman, that there is a provision which is adopted from the Federal Housing Act under which the premium charge, which is not paid by the borrower, but is paid by the lender, and conceivably that system relating to premium charges paid by the lender would not work in case of premium charges paid by the borrower. I think that that is something that ought to be gone into.

The CHAIRMAN. I am rather inclined to think, and I would like to have some consideration given to that, and, of course, the committee can do what it likes about that; but I am rather inclined to think that