Persons desiring to get in touch with any of these banks should address them in this style: "Federal Land Bank of Springfield, Springfield, Mass." Danks are equipped with all the necessary literature to accommodate inquirers. 5. The National Farm Loan Associations

The

A national farm loan association is a local corporation chartered by the Federal Farm Loan Board. Such a corporation consists of ten or more farmers whose applications for loans amount to not less than $20,000. A person who desires to make a loan should apply for membership in the nearest farm loan association. If there is no national farm loan association within easy reach, he should communicate with the Federal Land Bank of the district, which will advise him what to do. The national farm loan association is the door through which the farmer borrower enters into the benefits of the system. It is the co-operative agency through which loans are initiated, through which the application of their proceeds is supervised, through which collections are made, and generally through which the local interests of borrowers are served. Prospective farmers, tenants, or farm laborers, who are about to purchase land for their own use, may apply for membership in a national farm loan association and may become members when their loans are closed.

Membership is confined to stockholders, and borrowers only may be stockholders. A local loan association may increase its membership after it is organized and in operation. It may admit new borrowers, each of whom must subscribe to stock equal to 5 per cent. of his loan.

Each member of the local association has one vote for each $5 of stock up to 20 shares. A man who borrows $1,000 would necessarily have $50 worth of stock or 10 votes. But no one stockholder may have more than 20 votes no matter how much stock he may own. In the organization meeting each person has one vote irrespective of the amount he expects to borrow.

The secretary-treasurer is the executive officer of a national farm loan association, whose duty it is to act as custodian of its funds; to collect, receipt for, and transmit to Federal Land Banks payments of interest, amortization installments, or principal arising out of loans made through the associations, when requested to do so by the national farm loan association; to act as custodian of the securities, records, papers, certificates of stock, and all documents relating to the conduct of the affairs of the association; to make quarterly reports to the Federal Farm Loan Board; and, at the request of the board, to furnish information regarding the condition of his association; to assure himself that the loans made through national farm loan associations are applied to the purposes for which they were sought; to report any failure of any borrower to comply with the terms of his application; and to ascertain and report to the Federal Land Bank the amount of any delinquent taxes on land mortgaged and the name of the delinquent. He is the agent for the local association in its relations with the Federal Land Bank. He may receive compensation, the amount to be fixed by the directors of the local association, subject to the approval of the Farm Loan Board, but he may serve without salary if he will.

The amount of the bond required of a secretary-treasurer, if the total loans of a farm loan association do not exceed $50,000, should be $3,550. For each

$10,000 of loans additional, $600 should be added to the amount of the bond; but no bond for over $10,000, will be required. A bond with corporate security is demanded.

6. Terms and Conditions of Loans

The maximum rate of interest under the Farm Loan Act is 6 per cent. The rate of interest is the same in every land bank district, because the bonds of each bank are guaranteed by every other bank and are therefore equally secure. If, in the future, the interest rate is lowered, the present borrowers will be obliged to continue at the present rate until their loans have run for five years, when they may make new loans at the prevailing rate. The farmer pays his interest and principal payments in equal annual or semiannual installments throughout the entire period of the loan. He may pay all or any part at any interest-paying date after the mortgage has run five years. The stock that the farmer is required to buy of his local association is held by the local loan association as collateral security until the farmer pays off his debt. Then the money is returned to him. In the meantime his stock is entitled to receive its proportionate share of any dividends which the association may declare. The Federal Land Bank pays dividends to the association. After meeting certain requirements as to reserves, the association may declare dividends to shareholders of the whole or any part of the balance of its net earnings. Each national farm loan association. guarantees every loan made to its members and is responsible for installment payments due from its members as they mature. Should a loss occur on the foreclosure of a mortgage, the association will be called upon to meet the deficiency, and if the association has not the funds the members may be assessed an amount equal to the amount of their stock. In such a case the borrower may lose all of the association stock owned by him, and in addition thereto he may be liable for all or part of an additional 5 per cent. of the amount of his loan. Through bad loans or mismanagement only can an association become insolvent. No farmer may borrow more than $25,000 or less than $100. No national farm loan association may start with less than $20,000 in application for loans. If by drainage or clearing, a borrower increases the value of land on which he has secured a loan, he may then secure an increased loan to the extent of one-half of the added value. If a prospective borrower cannot raise the 50 per cent. of the purchase price of land, he may execute a second mortgage to some private lender, to mature while the amortized loan is being paid off, for the law does not allow the Federal Land Banks to lend on second mortgage. The local national farm loan association has a loan committee of three members to pass on the value of the land offered as security, which must agree upon the valuations. Then, after the report of the loan committee has been sent with the application for loans to the Federal Land Bank, the land will be visited and appraised by an appraiser appointed by the Federal Farm Loan Board. Up to 50 per cent. of the appraised value of the land plus 20 per cent. of the appraised value of the permanent insured improvements may be borrowed. The borrowed money may be spent to discharge existing indebtedness, for the purchase of land, and for the purposes specified in the law, such as the purchase of live stock, or for any kind of pro

ductive improvements, for fertilizer, for needed buildings, drainage, and for proper equipment. The borrower must pay for abstracts of title.

7. Amortization

Amortization is the term applied to the process of paying off an indebtedness by installment payments of a fixed amount, which includes interest and a part of the principal, throughout a period of years. All loans under the federal farm loan system are made on this plan and may run from 5 to 40 years, at the option of the borrower. A payment of the interest and 1 per cent. per year applied on the principal will wipe out the debt in about 35 years. The Farm Loan Board recommends 35 years in most cases because this term allows the debt to be paid off by annual or semiannual payments equal to 62 per cent. a year on the principal, but loans may be made for any period from 5 to 40 years. The borrower makes payments annually or semiannually; but the semiannual system has been adopted as the standard.

8. Farm Loan Bonds

The bonds of the Federal Land Banks, issued in denominations of $40, $100, $500, $1,000 and larger denominations, are free of all forms of taxation, including income and state and municipal taxes. The assets of all the 12 Federal Land Banks are behind the bonds of all banks. They have the further security that the payment of each loan is guaranteed by a farm loan association. Many of the associations are creating cash reserves against this contingent liability.

9. Joint-Stock Land Banks

The act provides that private individuals may organize joint-stock land banks, with capital stock of at least $250,000 each, and consisting of not less than 10 stockholders. One half of the capital stock must be paid up when the bank starts business and the other half is subject to call. The joint-stock land bank has the right to issue bonds after its capital is fully paid up, just as the Federal Land Banks do, and it may make loans at a rate 1 per cent. per annum above the rate which its last issue of bonds bears. Joint-stock land banks are not permitted to charge over 6 per cent. interest. A joint-stock land bank cannot take a second mortgage, and only first mortgages on farm lands and government bonds may be utilized as security for an issue of bonds. The Federal Farm Loan Board supervises the operation of joint-stock land banks, although these joint-stock land banks are private institutions intended for the investment of private capital, but they are inspected by the board examiners, and their appraisals are under the control of the Federal Farm Loan Board.

10. Federal Intermediate Credit Banks

By the Agricultural Credits Act of March 4, 1923,3 the Federal Farm Loan. Act was amended, by adding title II, authorizing the Federal Farm Loan Board to grant charters to 12 institutions styled "Federal Intermediate Credit Banks," in the same cities as the twelve Federal Land Banks. The purpose of such intermediate banks is to represent a permanent system of intermediate bank, to

8 42 Stat. 1454.

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handle farm credits for a longer period than ordinarily may be extended by banks of deposit and falling short of the long-term farm loan, with maturities of not less than six months nor more than three years.

They are empowered by sections 202 and 203 of the act:

(1) "To discount for, or purchase from, any national bank, and/or any state bank, trust company, agricultural credit corporation, incorporated live stock loan company, savings institution, cooperative bank, cooperative credit or marketing association of agricultural producers, organized under the laws of any state, and/or any other Federal Intermediate Credit Bank, with its indorsement, any note, draft, bill of exchange, debenture, or other such obligation the proceeds of which have been advanced or used in the first instance for any agricultural purpose or for the raising, breeding, fattening, or marketing of live stock;

(2) "To buy or sell, with or without recourse, debentures issued by any other Federal Intermediate Credit Bank; and

(3) "To make loans or advances direct to any co-operative association organized under the laws of any state and composed of persons engaged in producing, or producing and marketing, staple agricultural products, or live stock, if the notes or other such obligations representing such loans are secured by warehouse receipts, and/or shipping documents covering such products, and/or mortgages on live stock: Provided, that no such loan or advance shall exceed 75 per centum of the market value of the products covered by said warehouse receipts and/or shipping documents, or of the live stock covered by said mortgages.

(4) "To borrow money and to issue and to sell collateral trust debentures or other similar obligations with a maturity at the time of issue of not more than five years, which shall be secured by at least a like face amount of cash, or notes or other such obligations discounted or purchased or representing loans made under section 202: Provided, that no Federal Intermediate Credit Bank shall have power to issue or obligate itself for debentures or other obligations under the provisions of this section in excess of ten times the amount of the paid-up capital and surplus of such bank.

11. Decisions by the Farm Loan Board

(a) Meaning of "Actual Farmer."-An actual farmer is one who conducts the farm and directs its entire operation, cultivating the same with his own hands or by means of hired labor. An owner, to borrow under the Farm Loan Act, must be responsible in every way, financially and otherwise, for the cultivation of his land.

(b) Meaning of "Equipment."-Equipment consists of the property used in the conduct of a farm, such as teams, machinery, and many other articles.

(c) Meaning of "Improvements."-Anything in the form of beneficial structure, or any useful permanent physical change in the farm tending to increase productive value, such as clearing, tiling, draining, fencing, building, etc.

(d) Each borrower is required to furnish his own abstract and the applicant must stand the expense of preparing this abstract. An association has no right

5 Rulings and Regulations of the Federal Farm Loan Board, Circular No. 10, obtainable by request, addressed to Farm Loan Bureau.

to employ any of its corporate funds to pay for the preparation of abstracts for its members. This must be an individual charge, and if members of an association club together to have this work jointly done, they must do it as individuals and not as an association. Each borrower is free to make his own choice in the selection of an attorney or abstractor, subject to reasonable requirement of the Federal Land Bank.

(e) If one or all members of a partnership is or are engaged in the cultivation of the land mortgaged, they may borrow. Partners must join severally in executing the mortgage, and one should give the other authority to represent him in the farm loan association, as only one can have membership.

(f) Husband and Wife Executing Joint Mortgage.-Both husband and wife should sign the mortgage, but the one in whose name the title stands should be the member of the association.

(g) Sufficiency of Abstract. Any abstract of title sanctioned by ordinary business usage in the community will be sufficient under this act.

(h) One man, by owning two pieces of land, may become a member of two associations, but the total amount of his loans may not exceed $25,000.

(i) No association may designate territory in two states in which loans can be made.

(j) Basis for Appraising Lands.—The appraisement of a farm should represent the best judgment of the members of the loan committee as to the value of the land in question, the principal factor being the productivity of the land when used for agricultural purposes, but taking also into consideration the salability of the land and prevailing land prices in that community.

12. Publications Obtainable from the Federal Farm Loan Board

(a) Circular No. 2: How Farmers may Form a National Farm Loan Association.

(b) Circular No. 5: The "Farm Loan Primer" contains simple explanation of the Federal Farm Loan Act, made in the form of practical and useful questions and answers.

(c) Circular No. 7: "Killing off Mortgages." A description of methods of amortization and their benefits to borrowers.

(d) Circular No. 10: Rulings and Regulations of the Federal Farm Loan Board to July 1, 1923, in matters pertaining to the Federal Farm Loan Act. Text of the Law Providing for Federal Intermediate and Regulations of the Federal Farm Loan Board to

(e) Circular No. 15: Credit Banks, and Rules August 1, 1925.

(f) Circular No. 17:

Semiannual Installment 51⁄2 per cent. Amortization Tables for the Use of Farm Land Banks, Joint-Stock Land Banks, and National Farm Loan Associations.

(g) Circular No. 18: Semiannual Installment 6 per cent. Amortization

Tables.

(h) Circular No. 20 contains the text of the Federal Farm Loan Act as amended to January 1, 1925, exclusive of amendment providing for Federal Intermediate Credit Banks.