borrower showing amount applied on incumbrances, abstract of title, recording fees, broker's commission, attorney's fees paid by borrower, deposited in fund to secure completion of building if a building loan, and check on due entry in record and reminder book of maturity dates, interest and principal, and insurance renewal dates.

Finally, in the case of a building loan, both in the application and in the deed of trust, due care under competent attorneys' advice should be exercised to provide that the funds borrowed and pledged to complete the building shall only be paid out on architect's or other competent certificates and such contractor's and owner's certificates as the mechanic's lien law requires, when and as it appears that such fund will wholly complete the building free of mechanic's liens.

REAL ESTATE LOANS ON FARMS

There is a very important class of loans on real estate that stands by itself, and that is real estate loans on farms. They should only be made in the first instance by or through an experienced organization adequately equipped to apply the following general rules:

Inspection should be made on every loan, with due inquiry as to the productive character of that particular farm, the condition and adequacy of its improvements, transportation facilities, ability and character of the farmer. Due limitation of such a loan to not over the loaning value per acre in the general locality, due limitation of consideration to any considerable extent of value of improvements, and the crops the farm raises, must be clearly designated. This requires rather intimate knowledge of the practice of lenders as to the locality concerned. An efficient organization for collection of interest should also be back of the loan, if possible. Otherwise the details as to insurance, preparation of papers and other matters are quite the same as in city real estate loans.

While there are fluctuations, usually in cycles of eight to ten years in the demand for real estate loans and the interest return safely to be secured, there is in the market for them a more uniformly sustained trade than in other securities. As already intimated, a man entering on the investment field may and should consider training for and doing business in other bonds and securities. But it is obvious that a sound training and experience in such real estate loans as have been described forms a valuable if not quite essential foundation for successful conduct of a wellrounded out business, and better equips one for dealing in every other kind of issue where real estate is a part of the security offered.

SELF-TEST QUESTIONS

1. Distinguish between the real estate mortgage and the real estate mortgage bond. Why did the latter come into use? Which of the two is likely to be the better investment? Why?

2. Distinguish between building bonds and ordinary corporation mortgage bonds.

3. What types of building bonds are excluded from the class of real estate bonds discussed by the lecturer, and why?

4. Compare and contrast real estate bonds with railroad, public utility, and industrial bonds, as to safety of principal, certainty of income, and marketability.

5. Discuss the factors to be considered in analyzing a real estate bond for investment purposes.

6. What factors should be considered in evaluating farm mortgages for investment purposes, and why?

XV

FEDERAL FARM LOAN BONDS

By B. C. HARDENBROOK

Vice-President, First Trust and Savings Bank, Chicago

Survey of the history of the agricultural credit situation prior to the passage of the Federal Farm Loan Act of 1916. Conditions prevailing which made legislation seem advisable. Organization and operation of the Federal Farm Loan System: Federal Land Banks; Joint Stock Land Banks. Discussion of investment characteristics. Intermediate credit bank bonds. An act providing machinery supplementary to the Federal Farm Loan System, to finance short-term credit requirements of agriculture.

FEDERAL FARM LOAN bonds, insuring, as they do, an ample supply of needed capital for the farmers, who compose the largest single economic factor in this country, are, therefore, of considerable importance in any discussion on investments. In considering this type of bond, it is desired to cover the following subjects:

1. Federal Farm Loan Bonds:

(a) Survey of the history of the agricultural credit situation prior to the passage of the Federal Farm Loan Act of 1916;

(b) Conditions prevailing which made such legislation seem advisable;

(c) Organization and operation of the Federal Farm Loan System:

(1) Federal Land banks;

(2) Joint Stock Land banks;

(d) Discussion of investment characteristics.

2. Intermediate Credit Bank Bonds:

(a) An act providing for machinery supplementary to the Federal Farm Loan System;

(b) Purpose To finance the short-term credit requirements of agriculture.

It is impossible here to give more than a brief summary of the Federal Farm Loan Act, as amended, covering, as it does, the entire field of agricultural credit. A short discussion of conditions prevailing prior to the passage of the various acts may be instructive.

Agriculture has long been the largest single industry in the United States. For many years in the early history of the country, the farming industry absorbed the energies of the entire people. There was very little, if any, manufacturing, and it might be said that the manufacturing era has only been a development of the last 50 years. In the early days, farm lands were cheap. Lands were easy to acquire and frequently produced the immediate wealth that our citizens desired. In many instances the cheapness of land resulted in our citizens becoming land poor. There were no adequate markets for the products of the farm, and the farmer was unable to pay taxes or buy the necessities which he could not produce. As the country gradually became settled, lands in the older communities advanced in value, and one who desired to engage in agricultural pursuits was forced to have capital, or credit, or both. Credit agencies existed but were not adequate to the needs of the farmer. Individual investors, estates, insurance and investment companies supplied capital from time to time. This kind of capital was for three- to five-year periods, and it was not always obtainable by the farmer when most needed. The rates of interest and commission charges were sometimes unreasonably high. At times there was an abundance of this capital; at other times there was none. The supply was dependent on capital seeking investment and had no relation to the necessity of the farmer for funds. Local banks in farming communities supplied funds for short periods of a few months to a year. This source, however, was not always available. At times such banks were not able to carry the farmer for as long a period as was necessary; sometimes these demands were too heavy at the peak load for the bank to carry.

This situation was recognized as early as 1890, and from that time down to 1916 efforts were made to arrive at some comprehensive system that would provide the necessary credit for farming operations. Studies of the credit needs of the farmer were made by committees of Congress and commissions appointed by the President which surveyed not only the conditions in our own country, but the conditions existing in Europe, and the result was the introduction of several bills in Congress during the period from 1912 to 1916. These bills were finally consolidated into the measure known as the Federal Farm Loan Act, which was passed by Congress and became a law July 17, 1916. This act remained on the statute book without amendment until 1920, and then was only amended in minor particulars necessary to assist in the practical working out of the act. It was again amended in 1923, and added to the act was the law creating the Federal Intermediate Credit banks and their affiliated institutions.

The amendment of 1923 changed the number of members of the Federal Farm Loan Board from five to seven. It also changed the method of electing directors of the Federal Land banks and enlarged the amount that could be loaned by a Federal Land bank to any one person from $10,000 to $25,000. It specifically provided, however, that preference should be given to loans of $10,000 and under. There were some other minor amendments which did not change the purposes of the act. In the consideration of the Federal Farm Loan Act we will discuss the act as amended.

FEDERAL FARM LOAN BANKS

Organization. A board to be known as the Federal Farm Loan Board was created by the act and consists of seven persons. The Secretary of the Treasury is ex-officio chairman of the board and the other six members are appointed by the President, by and with the advice and consent of the Senate. Of these six members, no more than three can