year loans on real estate is equally sound if handled with conservative banking judgment.

A true farm mortgage is one that is to be repaid from the earnings of the land. Nevertheless, farm loans so-called have been made in the United States with no thought of repayment out of earnings. The financial needs of farming are different from those of any other industry. The farmer is unable, in any but extraordinary cases to market bonds of his own upon the security of his farm. If he has to repay a loan in three to five years, the farmer naturally hesitates to build improvements or increase his capital which would make his farm a more productive unit, because the earnings of the farm in so short a period of time could not take care of the necessary loan. The wise banker realizes the fact that the farmers in his community must prosper before he, or his bank, can prosper-keeping constantly in mind the importance of the country to the town, the interlocking of interests, and the consequent need of cooperation if both are to progress. The banker who can efficiently handle a system of loaning to farmers as a side line to his banking business will find that the one helps the other, and also that he helps the people of his community.

National banks doing farm mortgage business have noted marked changes in the last ten years, especially in the fact that the loans have greatly increased not only in numbers, but also in amount.

How National Banks Make Mortgage Loans

In a personal interview with B. F. Harris (now deceased), President of the First National Bank of Champaign, Illinois, the author gained an insight into the method of making loans on farm land to farmers in Champaign County. The First National Bank of Cham

paign, Illinois, through the "Harris Agency and Loan Corporation," which is within its walls, is very active in the farm mortgage business. The actual process of making a farm mortgage loan is simple. The man desiring the loan may or may not be actually engaged in farming at the time of applying for a loan. His name is learned, if not already known, together with his character, reputation as a farmer and citizenship. And the use to which the money is to be put must also be ascertained. If the man is not known, he must sign papers giving particulars satisfying the desires of the banker as to the wisdom of making the loan to him. Because of the known productiveness of the soils, the general type of farming, and the good character of most of the farmers, Mr. Harris is willing to extend as much as $125 an acre on the best land in the county, providing other conditions favor the loan. As a rule, the term does not exceed five years. The rate of interest due to the nature of the security runs about 1 per cent lower on farm loans than on those on city property-the rate charged being 6 per cent and in addition, a 2 per cent commission.

Naturally, the bank cannot know the wisdom of extending a loan to a man without first learning the particulars of the land offered as collateral therein lies the work of the appraiser whose duty it is to evaluate at a fair price the land and its improvements. In this, he is guided by the following statements:

Though land is imperishable and cannot vanish, something more than imperishability is required to insure its making a return on funds invested in it. Fundamentally, the farm must not only have the potential qualities for productiveness, but must actually be producing to be a valuable basis for a security. A physical appraisement of a farm must include:

1. The number of acres and the general usage to which each part of the land is put; the acreage fenced, and if irrigated, the character of the water rights.

2. The character of the soil, subsoil, and drainage.

3. The size, kinds, and value of the farm equipment, buildings and other improvements.

4. The value of live stock and farm equipments.

5. The character of the roads and the distance to the nearest railroad transportation.

6. A financial statement of the borrower showing his assets and liabilities.

7. The general character of the neighborhood.

8. The value of the land, exclusive of buildings. It is upon the report of this appraisement that the banker is able to estimate the amount he will be willing to extend the borrower. Mr. Harris emphasized the fact that the character of the man is the most important factor. The moral risk is larger here than in many other securities, as the surety of production is dependent upon one individual and the weather.

A certificate should be attached to each real estate loan made under the provisions of Section 24 of the Federal Reserve Act, which, when filled out, will bear the following information: Date of present writing; loan number; amount; name of maker, date of transaction; date the loan was discounted; date of maturity; description of land and its improvements; the lien which secures the loan; information whether there is a prior lien; the number of the Federal Reserve district in which the land is located; fair estimates of the value of the land and improvements; total value of property; and a statement that the amount of the loan does not exceed 50 per cent of the actual value of the property by which it is secured.

The First National Bank of Champaign, Illinois, has been making loans to farmers for fifty-eight years. The

largest increase in the number of loans has been in the last ten years—and of the last ten years, the last three have shown the spectacular variation, in the increased size of the loans.

National banks have little trouble in getting a market for the mortgages; most of them go to the large life insurance companies. In Illinois in 1916, insurance companies held $55,000,000 in mortgages. Few of these are bought locally. The care which the insurance companies and conservative bankers have exercised in the examination of mortgage areas, should be the basis used by the investor for the first general selection of these securities.

CHAPTER IX

STATE BANKS AND FARM MORTGAGES

State banks have been of far greater service to American agriculture than statistics indicate. The volume of farm mortgages carried by individual state banks is not large but the aggregate is a huge sum. In 1921 the United States Department of Agriculture made a survey of the farm mortgage loans by banks: of the 13,580 reporting banks, 4,206 were national banks and 9,334, "other than national." Obviously most of these "other than national" were state banks, and these banks reported $536,162,407 loans on farm mortgages. Since the reporting banks other than national are less than half of the state banks in the United States it would appear that their farm mortgage loans may mount up close to a billion dollars. Many of these state banks prefer the state charter to a national charter because of the larger privileges of making loans on real estate. Also, many state banks have within their walls a farm mortgage corporation which carries on, exclusively a real estate mortgage business. Moreover, the mortgage loans which state banks have in their vaults may be only a small amount of their business in this field. Many state banks act as agents for insurance companies, trust companies and investment houses in the making of mortgage loans. In small towns a large number of mortgages are placed by the banks and then sold to customers. The local banker is the best qualified agent for this kind of business in the rural community. The state bank has more latitude to serve the rural community than the national bank.