RELIEF TO FARM LOAN BORROWERS WEDNESDAY, JANUARY 21, 1931 HOUSE OF REPRESENTATIVES, COMMITTEE ON BANKING AND CURRENCY, Washington, D. C. The committee met in the committee room, Capitol Building, pursuant to adjournment, at 10.30 o'clock a. m., Hon. Louis T. McFadden (chairman) presiding. The CHAIRMAN. The committee will come to order. Mr. Hare, we shall be glad to hear from you at this time. STATEMENT OF HON. BUTLER B. HARE, A MEMBER OF CONGRESS FROM THE STATE OF SOUTH CAROLINA Mr. HARE. Mr. Chairman and gentlemen of the committee, I assume the committee is considering at this time only those bills having for their purpose the extension of time for the payment of interest on mortgages held by Federal land banks and joint-stock land banks. I have four bills before the committee, one to amend the intermediate credit bank act so as to permit the intermediate credit banks to loan money directly to farmers The CHAIRMAN. What is the number of that bill, Mr. Hare? Is that 11233? Mr. HARE. No, that is H. R. 9181. Mr. STEGALL. I have not seen the last bill you are talking about. Is it before this committee? Mr. HARE. Yes. Mr. BRAND. There are not two Hare bills here. The CHAIRMAN. Yes; 11233 and 16300. Mr. HARE. The bills I have before the committe are as follows: H. R. 9181 provides for an amendment to the intermediate credit bank act permitting intermediate credit banks to lend money direct to farmers for production and marketing purposes; H. R. 11233 would amend the Federal farm loan act so as to require Federal land banks and joint-stock land banks, in case of emergency, to withhold foreclosure proceedings for a period of two years after default; H. R. 16038 provides an amendment to the Federal reserve act which would require the Federal reserve banks and the Secretary of the Treasury to use the profits or franchise tax accruing to the Treasury of the United States in insuring deposits to the extent of 50 per cent in any member bank of the Federal reserve system in case of failure; and H. R. 16300 would require Federal land banks and Joint Stock Land banks to accept their own bonds in pay 44207-31- -3 29 ment of amortization premiums or in satisfaction of the mortgage itself. I assume, however, Mr. Chairman, that the committe is considering at the present only those bills that relate to the suspension of payments due on farm mortgages, if I am correct in this assumption, I shall direct my remarks to H. R. 11233. If the committee desires to hear from me on the other bills, I shall be glad to do so at its earliest convenience. The CHAIRMAN. That is your pleasure, Mr. Hare-whatever you decide. Mr. HARE. I first invite attention to H. R. 11233, and in order that my remarks may follow the purport of the bill, I am going to read a provision which would amend the existing act: That subsection (b), pargarph 4 of section 13 of the Federal farm loan act, is hereby amended to read as follows: Provided, That where a mortgage held by a Federal land bank or a jointstock land bank has been in full force and effect for three years or more, foreclosure of such mortgage shall not be made until two years have elapsed following default of amortization payment, except in case of death of mortgagor, or in order to prevent irreparable waste or depreciation in value of mortgaged property. I might say that this bill was introduced March 31, 1930, nearly a year ago, and, of course we could not anticipate at that time the urgent necessity for the passage of such a bill within 12 months following. However, there was at that time an emergency in various sections caused by various catastrophes, such as excessive storms, hail, drought, etc., and this bill was designed to give the banks a right to extend the time of payments where they had been in full force and effect for three years or more. My idea was that if a mortgage had been carried for three years in good faith and a misfortune, over which the mortgagor had no control, arose, the land bank or the joint-stock land bank would have the right to extend the time of payment for at least two years, because if three full payments had been made and two years' extension were allowed, the bank would be in practically the same position with reference to the mortgaged property and the security as it was at the time the mortgage was taken. In other words, the bank would be no worse off and the mortgagor would have a chance to hold his farm and preserve his home. I have in mind now a farmer who, with the aid of his family, does practically all of his farm work. He had the misfortune of having several cases of typhoid fever in his family-six cases as I recall, in 1928, during the months of April and May, when it was necessary to pitch the crop. As a consequence, he had a crop failure. The fall came and there was no way in the world for him to make his payments and yet the bank said that there was no way by which the time could be extended. Now, that was a misfortune. There was an emergency, and I feel that the bank ought to have had the right, if it did not have the right under the law, to extend the time of those payments. Then we have cases where farmers are unable to pay on account of the fact that their crops have been destroyed by storm, hail, or some other misfortune, which is usually quite local and could not be considered a misfortune of any magnitude. Such a class of farmers would be cared for by this bill, and then it would take care of those who suffer on account of what we call acts of God, where there are extreme droughts or storms covering a wide area. It has been said that the banks have the authority under existing law to extend the time, but I have found there is a great difference between the law, a regulation, and a practice. In my section it has not been the practice. In 1927 I know of a large farmer who had made a good crop. He had $2,000 for which he had no particular use. He turned it over to the bank with the request that it be applied on the principal of his mortgage. In 1928 we had such excessive rains-amounting to probably 70 or 75 inches in his locality—as a result he produced only three bales of cotton, although he had been accustomed to making 140 to 150 bales annually. He requested that the $2,000 that was applied to the principal on his mortgage the year before, be now applied to the payment of his amortization premium. The bank refused to do it. He borrowed money on his personal note to pay the interest. In 1929 we had another year of excessive rainfall and instead of making his customary 140 to 150 bales of cotton, he made 16. It was impossible, under those circumstances, to meet the payments. His mortgage was foreclosed, his home was sold, and the bank is now paying taxes on the land. This last year, in that same community, we made an unusually good cotton crop, and if the time for payment had been extended this man would have been able to pay at least one if not both years in which he was in arrears, and could have gone on with his payments in the future. As it is, he is bankrupt and homeless. The bank has the land with the taxes to pay, and, from a financial standpoint, the institution itself is in much worse condition than it would have been if it had the right or authority to extend the time for the two years provided for in this bill. One question that presented itself when the bill was introduced was whether or not the bank, the Federal Farm Loan Board, or the Secretary of the Treasury would have the right to take care of the interest on bonds representing loans that would be extended. There is a provision embodied in other bills before this committee that would take care of this situation, and I might say that if the Secretary of the Treasury does not have the right to advance the interest on these bonds under existing law then that provision is indispensable. It is absolutely necessary. But, under section 32 of the original act I concluded and I contend now that the Secretary of the Treasury already has the right to advance the interest on the bonds where payment has been extended by the banks, and, with the permission of the chairman, I will read this section, because it is short. That the Secretary of the Treasury is authorized, in his discretion, upon the request of the Federal Farm Loan Board, to make deposits for the temporary use of any Federal land bank out of any money in the Treasury not otherwise appropriated. Such Federal land bank shall issue to the Secretary of the Treasury a certificate of indebtedness for any such deposit, bearing a rate of interest not to exceed the current rate charged for other Government deposits to be secured by farm loand bonds or other collateral, to the satisfaction of the Secretary of the Treasury. Any such certificate shall be redeemed and paid by such land banks at the discretion of the Secretary of the Treasury, Mark you, gentlemen, these certificates upon which advances have been made by the Secretary of the Treasury to the individual land banks, will be repaid at the discretion of the Secretary of the Treasury. The aggregate of all sums so deposited by the Secretary of the Treasury shall not exceed the sum of $6,000,000 at any one time. My interpretation- Mr. BRAND. What is that you are reading from? Mr. HARE. The original Federal farm loan act, page 28, section 32. My interpretation of that provision is that under existing law the Secretary of the Treasury, upon the petition or request of a Federal land bank or a joint-stock land bank, may advance money to the individual bank sufficient to pay the interest on bonds outstanding against such bank where payments on mortgages have been suspended; that is to make temporary advances, and I submit that two years would be a temporary advance. The only thing that gives me any particular concern in the interpretation of that particular phase of the act is whether, under present conditions, and under a demand that might be made by individual banks, $6,000,000 would be a sufficient fund to cover the various requests. Mr. SEIBERLING. I should like to ask one question right here. Mr. SEIBERLING. Do you know how much has been advanced? Mr. SEIBERLING. I think that is very important. Mr. HARE. I think so myself, but I assume the information can be furnished by representatives of the Farm Loan Board, who are present. Mr. STEAGALL. What is the question? Mr. SEIBERLING. How much has been advanced at the present time? Mr. STEAGALL. They have not advanced any. Mr. SEIBERLING. I should like to have the record show that. Mr. HARE. That is the law, as I understand it, and if the Secretary of the Treasury has the right under the original act to make such advancements to take care of the interest on these bonds, I can not see the wisdom of enacting further legislation for that purpose. For that reason the provision embodied in the other bills is not found in H. R. 11233. However, if the committee feels that this provision should be embodied in the legislation that is being pressed at this time, and if this bill in its wisdom, should be considered favorably, I think that provision should be added as an amendment. Personally I do not think it is necessary. Mr. STEAGALL. Do you think that the advancement of $6,000,000 to all the land banks and the same to be fixed as an outstanding obligation against said banks, would add anything to the credit or that the amount advanced would be sufficient to enable the banks to grant these extensions? Mr. HARE. It would do this Mr. STEAGALL. Pardon me. You see, the difficulty about granting extensions is that officials of the banks insist they must maintain voted mortgages as security back of their bonds and if you merely lend them some sum of money which is to stand as a charge against them and to be secured by bonds, it would be just the same as if they borrowed by selling more bonds to the investing public, it seems to me. Mr. HARE. I am unable to say definitely, but in view of the information just furnished by the gentlemen from Alabama (Mr. Steagall), to the effect that the Treasury Department has not made an advance to any of these banks in any sum whatsoever, I feel that $6,000,000 would go a long way in paying the interest on the bonds affected by the extension of the time of the payment on the mortgages represented by such bonds. I do not know whether or not it would be sufficient but if it is not sufficient I think the bill should provide for an amount sufficient to take care of the bonds. Mr. STEAGALL. If you will permit me, the bill I have introduced provides for the advancement of $5,000,000 to each land bank against which they are not required to maintain any mortgage security, but is simply an advancement to them to be added to their reserves, and there is no charge against the bank in any sense except that they are liable for its reimbursement out of the net earnings of the bank to be paid one-fifth a year out of those earnings. Mr. HARE. I hope the gentleman will understand that my remarks are not intended in any way to disparage the value or efficiency of the bill he has introduced, for it may meet the situation better than the one I am advocating. Mr. STEAGALL. I understand that. I am only attempting to express what seems to me the chief difficulty in the administration of these banks, and that is, that they must go forward or at least they seem to think they must go forward with their foreclosures, else they will not be maintaining up to date mortgages against their outstanding bonds. There is one of the problems. We have got to put some money in there. Do you Mr. SEIBERLING. I should like to ask one more question. know whether any applications have been made by any banks for these extensions? Mr. HARE. I do not know. I am not familiar with the actual operations of the Federal land banks or the Federal Farm Loan Board. I have read only from the original act, and my interpretation of the original act is such as to fit in and meet the condition that you are endeavoring to correct under the proposed legislation, and I want to say to the gentlemen of the committee and to those who have introduced bills, that I have no particular pride of authorship in H. R. 11233. I am simply interested in relieving a condition that is well recognized by all and I am simply submitting these remarks and this information for the consideration of the committee. Mr. SEIRERLING. Mr. Chairman, I asked a question and did not have an opportunity to get an answer. There is a gentleman from the Farm Loan Board here who can answer that question, I think. I should like to know whether any application has been made for any advances. Mr. BESTOR. There has been no application made by any bank for any advances. Mr. HARE. May I conclude |