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Mr. KLEBERG. I am wondering whether the farm credit administration, generally, has taken cognizance of the general banking situation in so far as the number of depositors in the banks are concerned and their extending loans now made to the farmers which could not be made in the so-called "period of depression"? In other words, it seems to me that the borrowers are likely to have the benefit from this whole scheme.
Gov. MYERS. I think so. For one thing, there is more money available through the refinancing of the debt, and a large part of the refinancing money has gone back to these banks and opened up channels of credit.
Mr. KLEBERG. That is the point I had in mind.
Gov. MYERS. And has helped the farmers and also helped the community through the liquidation of frozen assets.
Mr. KLEBERG. That is the point I am referring to.
Gov. MYERS. And back of that the banks are long on cash and short on good investments, that is, investments which will pay a fair return. We believe that the use of these good bonds we propose will afford an opportunity for banks in many localities to invest their money in bonds which will bring a fair return and still be safe. These bonds, furthermore, can be used by a bank, if it has any difficult problems of its own with the Federalf Reserve bank.
Mr. KLEBERG. I would like to ask one further question as to what the percentage of the Government is with reference to the mortgage loans--I am referring to mortgages on farms--what percentage went back to the local community where the mortgage was held?
Governor MYERS. I do not have the figure. They are somewhat less than the insurance companies. I do not know exactly.
Mr. KLEBERG. Would you be able to determine that later on?
Governor MYERS. I would like to say this, however: We have refinanced much more mortgage indebtedness than other forms of indebtedness. Our biggest effort has been made to help refinance these mortgages so as to help the farmer borrow what he needs and to help him work his way out.
Mr. KLEBERG. One other question I would like to ask.
Mr. KLEBERG. Right in line with the original question and your statement. Is it not perfectly true that this question of borrowing does have something to do with the bond question of the local municipality, the county, and the State or whatever subdivision there is, which has to depend upon the local community for raising of taxation in order to meet the bonds? Is it not a fact that these bond issues will help bring greater prosperity to the agricultural section and that the refinancing program on this basis will result in extending greater credit on a long-time basis, and that the exchange of bonds for mortgages, held by creditors will have the direct effect of raising the value of the farm to the farmer, the result of getting a better price for his produce, and thereby be a direct benefit to the local communities which have to depend upon taxation for their revenue?
Governor MYERS. I think there is no question but that refinancing a pressing debt on the farm, especially a short-time debt, will improve the position of the municipal obligations which have to depend on taxation for their support.
Mr. KLEBERG. That is the point I was endeavoring to make.
Mr. GILCHRIST. Governor Myers, I come from Ohio and I was interested in the questions that were asked you about scaling down the debts and in particular reference to the Federal land bank scaling down its debt. Of course, the joint-stock land banks are not owned by the borrower. That is a different set-up. We have had a good deal of difficulty in the question of scaling down debts, but since we are making it possible for them to get money, would it not be possible for some program to be worked out whereby the joint-stock land banks could share in this burden of scaling down the debts? It seems to me that since this bill apparently will make the loans easier and much more money available, I suggest that as long as that is possible it would seem that we could try to find some means to force them to scale down their bonds to a reasonable point in order that the new loans could be made and that they could be paid either in cash or in bonds, Government bonds guaranteed by the Government.
Your suggestion a while ago in answer to another question was that the Federal land bank bonds could not be scaled down because the Federal land banks were owned by the borrowers.
Governor MYERS. Yes.
Mr. Gilchrist. Now, as long as we are giving them something cannot they be forced to be a little more lenient? In other words, we are giving them something here by making money more available. I am suggesting that simply because I have had a good deal of difficulty on that particular sort of loan up in my country. I do not know how you could limit it. Of course, there ought to be some ratable scaling down but they naturally, having first-mortgage security, will insist and do insist in a great many cases in getting their full amount from what is paid out.
Governor MYERS. Some of the joint stock land banks, although I do not know whether or not this includes a large majority of them, have been very fair. Others have been most difficult to deal with. I think this does not change the procedure at all as far as these loans are concerned, for the plan is to make the loans on a better basis and to make these bonds guaranteed by the Government. It is not intended to alter the loaning procedure so I think this does not change their position from what it is at the present time.
Mr. GILCHRIST. It will be helpful to the joint-stock land banks. Governor MYERS. In that they had rather have bonds than cash? Mr. GILCHRIST. The whole system will be helped in that there will be made available more funds and the joint-stock land banks will be receiving the benefit in that they will be getting payments on their loans.
Governor Myers. Mr. Chairman, you are a constitutional lawyer and perhaps you can answer that better than I.
The CHAIRMAN. I would not like to undertake that; you have your lawyer here, have you not? Governor Myers. Yes. Mr. Scott W. Hovey.
. STATEMENT OF MR. SCOTT W. HOVEY, GENERAL COUNSEL,
FARM CREDIT ADMINISTRATION
Mr. Hovey. We have had certain suggestions of that sort under consideration and it might be very desirable if there were some way to force the joint stock land banks to scale down their mortgages, but legislation of that character, I believe, would be unconstitutional Mr. GilchRIST. Would it be unconstitutional in cases where you are giving the joint-stock land banks the advantage of additional securities; that is, the mere fact that we are giving them an advantage under this bill could not they be made to scale down their mortgages in consideration for that?
Mr. Hovey. But we are not giving them anything in this bill except what is being given to all creditors of the farmers. The jointstock land banks do not come into the picture in making these land bank loans or Land Bank Commissioner loans in any way except as creditors of the farmers and they do not receive any of the bonds of the new corporation; they were not given that authority. It may be that I have misunderstood your question, but as I say, I do not think a compulsory scale-down of their loans could be accomplished.
Mr. GILCHRIST. The fact still remains that they are given an advantage through this bill, and through the arrangement for prepayment of their loans, before maturity. Do you not think it would be constitutional in that case to put some limitation upon their rights to get money at this time in advance of the time when the mortgage was really due?
Mr. Hovey. I think that if we put in the act a limitation to the effect that we could not refinance the joint-stock land bank loans, or that they could only be refinanced in the event there was a ratable scaling down by them as creditors—that is your suggestion?
Mr. GILCHRIST. Yes.
Mr. Hovey. I think that possibly would do more harm to the farmer than good, because he is interested in having the joint-stock land bank
Mr. GILCHRIST. I am not making a suggestion that we compel them to do so. I am just more or less wondering if that plan could not be worked out, through some legal means whereby the reduction could be made ratably all the way down the line.
The CHAIRMAN. Anything else?
Mr. MARSHALL. I have just one question, Mr. Chairman. To what extent have the joint-stock land banks cooperated under the legislation passed last spring to enable the farmer to get money to
Mr. Hovey. Mr. Goss could answer that better, perhaps.
Mr. MARSHALL. I am asking that question because I had a good deal of correspondence regarding it, asking if they had any funds available to relieve the farmer who was not in position to borrow and I was wondering what they had done.
Mr. Goss. The legislation passed was for the purpose of enabling them to make loans in order that they may be able to borrow money, to meet their taxes, delinquent taxes and interest, and there have been about a million and a half, that is, borrowers for the purpose of meeting those obligations.
Mr. Hovey. You will recall that the bill provided that in order to take advantage of it, they, the banks, would have to agree to reduce the interest rate, not only on the mortgages which were offered by them but on all the mortgages which they held; and to make certain agreements in regard to deferring foreclosure.
Mr. MARSHALL. Have any of them done that?
Mr. Hovey. I believe they have not, to the best of my knowledge.
Mr. FULMER. To what extent have any of the joint-stock land banks benefited under this law?
Mr. Hovey. Only to the same extent to which any other creditor has. They do not come into the farm mortgage corporation in any way; their bonds may not be exchanged for its bonds.
Mr. FULMER. In the passage of the bill during last session a good many thought it was making it possible that they could borrow a certain amount of money to be helpful in liquidating their accounts to the banks.
Now, these banks have taken advantage of their position, in my State, at least, to make it hard on the farmer; in other words, they have foreclosed on the mortgage, taken over the land and refused to reduce the mortgage; bought in the bonds, and in some instances have actually made a profit out of the transaction. I have had a number of cases come to my attention where they have had a lot of trouble with these kinds of transactions, where farmers have attempted to deal with the joint-stock land bank in trying to refinance their indebtedness with the Federal land bank.
Mr. Hovey. Mr. Fulmer, I believe the funds that they have used in buying their bonds are the funds that they have obtained from the Reconstruction Finance Corporation, which is one of the sources of funds, and not those made available to the joint-stock land banks in the bill of last May, the one which permitted them to extend leniency to the borrower in the matter of delinquent taxes and interest and things of that sort, on assignments of which they might borrow provided they agreed to the certain limitations stated therein. The compulsory scale down is a matter which perhaps could be handled in the making of Commissioner's loans under the 75 percent limit, which are available now.
Mr. Fulmer. Under that policy they would go to work and close out the mortgage and resell the land, perhaps at a sacrifice, and use the money to buy the bonds at a reduced price, with the amount received from the land and the amount received on the bonds, the difference between the price paid and the actual value of the bonds, and in some instances they have actually made a profit out of the transaction because they held a first lien or mortgage on the property.
The CHAIRMAN. There is nothing in this bill which would keep you from making every effort to get them to agree to these limitations?
Mr. Hovey. No.
The CHAIRMAN. And to make their restrictions a little less severe than they were last year?
Mr. HOVEY. That is right. I believe the present act, passed last spring, does not permit them to take advantage of it because of the interest rate on their outstanding bonds.
Mr. Fulmer. I can give an illustration of what just took place in the case of a man who had a land-bank loan in the amount of $13,000, that is, made application for a land bank loan of $13,000 and an additional Commissioner's loan, and the joint-stock land bank refused to accept this, and at this time if that land were sold at a private or a public sale it would not bring more than $10,000. They refused, and proceeded to foreclose the mortgage and that is what they obtained; they had every opportunity to receive a fair value for their loan, because it was a splendid farm and the value was there.
The CHAIRMAN. It may be they will be more considerate following the decision of the Supreme Court recently.
Mr. Hovey. I think so.
Mr. BOILEAU. I would like to ask one question about scaling down these debts. About what percentage of the farmers' debts have been scaled down; have you any information on that?
Governor MYERS. The compilations which we have show that of all the Land Bank Commissioner's loans approximately one sixth of the amounts were scaled down and that scaling down was accomplished in about 17 percent of the cases.
Mr. BOILEAU. Seventeen percent of the loans in the Commissioner's loans?
Governor MYERS. Yes.
Mr. BOILEAU. Do you have any figures as to the aggregate amount of the debts actually scaled down in the farmers' loans? Governor MYERS. We could get the figures for the record.
We have the figures for each loan, showing the scaling down, if any.
There is, however, another important phase. The interest rate on the mortgage which is refinanced is about a fourth less. The borrower receives the advantage of that reduction also.
Mr. Boileau. That is, the interest rate under the new mortgage?
Governor MYERS. Where the debts were refinanced the interest rates were scaled down.
Mr. BOILEAU. Yes.
Governor MYERS. That is, the reduction amounts to about one fourth of the interest previously paid.
Mr. Boileau. Your figures do not include the amount of interest, in this scaling down, do they?
On the $210,000,000 loaned from May 1 to December 31, 1933, the scale-downs amounted to approximately $4,000,000.
In addition to the reduction of the borrowers' indebtedness through scale-downs, substantial savingsin annual interest payments are being made through the refinancing of the indebtedness. Reports from the 12 banks indicate that this saving amounts to approximately $2,700,000 per year on the indebtedness refinanced by land-bank and Land Bank Commissioner's loans during the 8 months, May 1 to December 1, 1933.
Governor MYERS. No; that scaling down is on the principal.
Mr. Hovey. Except to this extent, that the creditor has reduced or canceled the amount of accrued interest in some cases.
Mr. BOILEAU. Yes.
Mr. Hovey. And in that event it would be a part of the debt scaled down.
Governor MYERS. Yes; but I was just speaking of the amount of the debt scaled down.
Mr. BOILEAU. Yes.
Mr. Boileau. The oill provides for that and I was just wondering if it would be possible, Mr. Chairman, to have that included in the report, showing the amount acutally scaled down on these loans.
The CHAIRMAN. Could you submit that?
Governor MYERS. Yes; we can get that information. Of course, the loans that have been closed have been those which are more easily