similar to the Hollis-Bulkley bill which was passed and approved. At the same time many of the states were making laws to remedy the farm credit system. They provided for the organization of land mortgage associations also the appropriation of money by the state to be used for farm loans. All of these included provisions for amortization. As a general summary, three distinct kinds of legislation were proposed, namely: 1. Government aid; making long-term loans. e On July 17, 1916, President Wilson signed the Federal Farm Loan Act, thereby settling for a time a question that has given rise to no small amount of legislative interest. As a piece of legislation it is exceedingly complicated. The act contemplates the establishment of an indefinite number of new institutions to supplement, but not to supplant, the numerous agencies now engaged in the business of making farm loans. In the first place, it provides for the creation of a Federal Farm Loan Bureau in the department of the Treasury under immediate supervision of a Federal Farm Loan Board consisting of the Secretary of the Treasury and six other members to be appointed by the President. This board divided the country into twelve districts not one of which may contain a fractional part of any state, and established in each district a Federal land bank having a capital stock of not less than $750,000. Shares were issued in convenient denominations of $5 and were open to the subscriptions of individuals, firms, corporations, and the State or Federal Governments. Beneath this superstructure, the law authorized the formation of national farm loan associations. These may be formed 〆 in any Federal land bank district, subject to the approval of the Federal Farm Loan Board, and the land bank directors, by ten or more natural persons who are the owners or about to become the owners of land qualified as security for mortgage loans, and who desire loans in the aggregate of not less than $20,000. An association thus formed must invest 5 per cent of the amount of each loan in the stock of the Federal land bank within its district. The stock has a par value of $5 a share. Its management will be in the hands of a board of five directors who together with all officers except the secretary-treasurer will serve without compensation unless the payment of salaries is approved by the Federal Farm Loan Board. Only borrowers can become members and have one vote for each share of stock owned up to twenty shares. After an association has received its charter from the Federal Farm Loan Board, it can make long-term loans within its district up to 50 per cent of the value of farm land and 20 per cent of the value of permanent insured improvements at a rate of interest not to exceed 6 per cent; commission of 1 per cent allowed.1 Such loans may be made only for the following purposes: (1) To provide for the purchase of land for agricultural purposes; (2) to provide "equipment" and "improvements" as defined by the Federal Farm Loan Board; (3) to liquidate mortgage indebtedness existing at the time when the first national farm loan association is organized in or for the county containing the mortgaged land. The borrower is required to subscribe for stock in his association up to 5 per cent of the amount of his loan, to cultivate the land offered as security, and to repay the principal in annual or semi-annual installments. The 1 The original act forbids commissions but by an amendment to Sec. 11 of the Act, Apr. 20, 1920, farm loan associations are allowed to charge commissions not to exceed 1 per cent of the loan applied for. longest term for which a loan may run is forty years and its size may vary from $100 to $25,000. In order to give further protection to the farm mortgage companies already in existence and to make room for private enterprises in the new system, another system of land credit was provided by the Act. It is provided that any ten or more natural persons may form a jointstock land bank under a Federal charter with power to make land mortgage loans and to issue farm loan bonds. Such banks must have a capital stock of at least $250,000. They can make mortgage loans and issue farm loan bonds under the same conditions and restrictions as imposed on Federal land banks with the following exceptions: (1) the territory within which they may operate is limited to the state in which the principal office is located and one contiguous state; (2) loans may be made on the security of farm land for any purpose and were without restrictions upon the amount to be loaned to a single borrower until the Federal Farm Loan Board requested the jointstock banks to limit the amount of their loans to a single borrower to a maximum of $50,000; the board has recently ruled that loans must be for agricultural purposes and the size of individual loans are limited to $37,500 for banks of $250,000 capital stock; (3) the borrower is not required to purchase stock or to cultivate the mortgaged land; (4) the joint-stock land banks may issue bonds only up to fifteen times their capital and surplus; (5) the bonds must be readily distinguished from the bonds of Federal land banks otherwise the jointstock banks operate under the same requirements as the Federal land banks. Thus the Federal Farm Loan Act represents a drastic attempt to solve the farmers' land credit problems. Its specific purpose is of a three-fold nature; to improve 1 Loans of $25,000 are authorized by amendment of March 3, 1923, but preference is given to loans of $10,000 and less. offer stack Banks current methods of granting loans, to reduce the wastes growing out of excessive administrative and commission charges, and as far as possible, to equalize interest rates on land mortgage loans. This is by no means a small program nor can the full effects of the Federal farm loan system be anticipated. CHAPTER IV THE FEDERAL FARM LOAN SYSTEM1 The Federal Farm Loan Act is the outgrowth of social, political, and economic pressure favoring the equalization of the opportunities to use capital for agriculture with other industries. The purpose of the Act is set forth in the preamble as follows: An Act to provide capital for agricultural development, to create standard forms of investment based upon farm mortgage, to equalize rates of interest upon farm loans, to furnish a market for United States bonds, to create Government depositaries and financial agents for the United States and for other purposes. The country has been divided into twelve districts and a Federal land bank established in each district. The boundaries of the districts and the location of the banks were determined with due regard to the farm mortgage credit needs of agriculture. Federal Farm Loan Board The supervision of the Federal farm loan system is under the control of the Federal Farm Loan Board, with the principal place of business at the Federal Farm Loan Bureau in the Department of the Treasury at Washington, D. C. The Board consists of seven members. Six members? are appointed by the President with the advice and consent of the Senate and the Secretary of the Treasury is a member ex-officio. Not more than three of the appointed members can be from one political party, and 1 The amendments to the Federal Farm Loan Act of March 3, 1923, have been briefly inserted in this chapter. 2 Appointed members were increased from four to six by amendment of March 3, 1923. |