Daily capital journal. (Salem, Or.) 1903-1919, August 05, 1916, Magazine Section, Image 10

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Rural Credits Law Is
To Help Farm Owners
t Tersons Expecting: to Buy and Cultivate Land May X
Get Long-Time Loans at Low Interest Rate
.Washington, August 5. The Federalism! busej on the security of mortgages
farm loan art, popularly called tho, on farmlands,
"rural credits law," vii signed by tlio j Bod to BupervU.
. . . , , . t,,Ii. l- These two systems are to bo under
,i Farm Loan Hoard in the Trftisurv IV
The primary purpose of tin act n j partmeut. composed of the (Secretary
to promote agricultural prosperity by! of the Treasury, as chairman cx-ot'fi-enabling
farmer to borrow ninney on ' oio, and four members appointed by the
fsrm-mortgnge swurity at a reasonable (President. Thin board na authority
rate of interest and fur relatively long, .to appoint appraisers, examiners and
periods of time. To atttuin this object, resist rnrs, who will be public officials,
two farm-mortgage systems are pro- j tinder the J-'odoral land bank system
vide J: ( U A aystem operating through i the act provides for Federal land
nrinnnl land bank, and (2) a system bank which make loans, for tlie first
operating through joint stock land 12 months exclusively through local
banks. i National farm loau associations corn-
To attract money to the farm loan j posed of borrowers. Those associations
firJ.I the sot iirovitlc a method where- shall be shareholders in the bauks and
by those who havo money to lend can i in that wy the members, who are the
find safe investment in the form of i borrower, will share in the profits of
debentures or bonds, of small and large jtho bank. The money for the loan is
denominations, issued uy the banks j to come partly from the aale by -the
The act provide for the creation of 12 Federal Land Bunks and
permits the establishment of any number of joint stock laud banks
for the purpose muktng loaus at a reasonable rule of interest,
for Ions periods of timo, on farm luunds.
A Federal Farm Loan Board has complete control over these bauks.
A. Federal It md Banks. . .
Twelve Federal l aud Hunks are provided, one in ench of 12 dis
tricts into which the country will be divided. These banks are em
powered to loan on first mortgage on fBrin hinds in amounts of
$100 to $10,000 for approved purposes. The loans are to be made
through farm loan associations and agents. No loan may be made
for more than 00 per cent of the vnlue of the land mortgaged and
20 per eeut of the valuo of the permauent insured improvements
upon It. , .
Rational Farm Loan Associations local organization composed ex
clusively of borrowers are authorized. Theso associations must bo
stockholders in tlie laud bunk in proportion to the amount their
members wish to borrow. F-ventuully all stork in the Federal Laud
banks will be owned exclusively by these associations.
A reasonable interest rate is established. The act prohibits the
Federal laud Hanks from charging more thau six per cent on any
mortgage or requiring tees not approved by the Fitrm Laad Board.
The borrowers will share in the net profits of the bank becnuse
they are stockholders. It is contemplated that ultimately the bur
rowers will bo the only stockholders.
Long term loans are provided by anthorixiug mortgage for periods
of froui five up to 40 years.
Hmull annual or semi-annual payments on the principal are made a
required feature of all mortgages.
B Jotut-Utoct Laud Bank.
Joint-slock land banks are authorized. They are corporations for
carrying uu the business of lending money on farm mortgage security
and issuing farm loan bonds. They are to be uader the supervision of
the Farm Loan Hoard, but the government will not Invest in them. Sub
ject to geographical limitations and subject to the BO per cent aud 20
per cent limitation, those banks can leutt to any individual any amount
they wish and for any purpose. They cannot charge an interest rate
exceeding 0 per cent and uch rate must not exceed by more than 1 per
cent the interest they have paid on their last Issue of bonds. Their mor
gages, however, must provide for amortizatioa payments. These bank
are prohibited, from charging, under nny pretext, fee or commissions
other than those authorised by the act.
hanks of bonds secured by first mort- before the loan is granted. This np-
gages on farm lauds. The aet defines praiser is required to investigate the
strictly the purposes for, and the con- solvency and chnractor of the pros-
ditioiia under which loans arc to do pec.tive borrower as well as the vnlue
mmle, and requires that the rate of of his land. When a loan is granted
interest chnrued on farm loans shall
not exceed ti per cent per milium.
Twelve Land Banks Provided.
The I'nited (States shall be divided
into 12 farm loan districts, and a Fed
eral land bank with a subscribed capi
tal stock of not less than $750,000,
t ho amount is forwarded to the bor
rower through tho loan association.
Funds for Purchase Provided.
The act specif ically define the pur
poses for which loans may be obtained,
these are:
(a( To provide "for the purchase of
each share 3 shall be established in land for agricultural uses,
each district. F.ach Federal laud bank (b) To provide for the purchase of
may establish branches in its district equipment, fertilizer and livestock
within .hi tiuys arrer me capital suh-r necossary tor tne proper ana reason
able operation oi the mortgnjrfd farm
is offered for sale it may be purchased
ut nar bv auvone. Thereafter, the
stock remaining unsold, shnll be bought
by the Secretary of the Treasury for
the I'nited State's. It is provided, how
ever, that the (ioverninent shnll not
receive any dividends on its stock. I'l
timutely, it is intended that all the
stock in the banks shall be owned by
the associations of borrowers,' and pro
vision therefore is made in the law
for transferring the original stock at
par to these associations.
The net provide for the creation of
local National farm loan associations
through which it is contemplated that
the Federal land banks shall make
their loans. In the event thnt a local
lona association is not formed in nny
locality within a year, the Federal
the term "equipment" to be defined by
tlie Federal Loan Board.
(c) To provide buildings and for the
improvement of farm lauds, the term
'improvement" to be defined by the
Federal Farm Loan Board.
(d) To liquidate indebtedness of the
owner of the land mortgaged, exist
ing at the time of the organization of
the first National farm loan association
established in or tor the county in
which the land mortgaged is sit
uated, or indebtedness subsequently in
curred for one of the purpose men
tioned in this Bcctin.
Loans may be made only en first
.mortgages on farm laud.
only those who own una cultivate
farm 'loan or are about to own and
Farm Loan Board may authorize a 1 cultivate uch land ore entitled to bor'-
Federal land bauk to make loans ou
farm land through approved agents.
Ten or more persons who own and cul
tivate farm land qualified as security
for a mortgage loau under the act, or
who are about to own aud cultivate
such land, may form such an association
provided the aggregate of the loaa-s de
sired bv the membership is not less than
Members to Take Stock.
Kneh member must take stock in his
association to an amount equivalent to
5 per cent of the amount he wishes to
borrow. This stock the association
holds in trust as security for the mem
ber's individual loan. The association.
Diversion is Curbed.
No one can borrow Bave for the pur
pose stated ia the act, and thoo who
after borrowing do not use the money
for the purposes specified in the mort
gage aro liuble to Save their loans
reduced or recalled. The secretary
treasurer of each association is re
quired to report nny diversion of bor
rowed money from the purpose stated
in the mortgage.
No individual can borrow more thaa
$10,000 on less than $100.
No loau may be made for more than
50 per cent of the vnlue of the laud
mortgaged and 20 per cent or tne vnuie
ia turn, when applying for money from;oi the permanent insured improvements
the bank, must subscribe for stock in on it.
the bank to an amount equivalent to 5 Tho loan must run for not less thau
per cent of the sum it wauts to obtain , five and uot more than 40 years,
for it members. Thi stock is held Every mortgage must provide for the
in trust bv the bauk as security for repayment of the loan under an
the loans it mnkes through the asso-1 amortisation plan by means ot a fixeit
ciation. If a prospective borrower lias: number ot annual or semi-annuai in-
ii, m.uiev Kith which to nav for his i stnlliiients sufficient to meet alt in-
association stock, he may borrow thelterest and pay off the debt by the
nrice of that stock a a part of the loan ud of the term of the loan, lae in
1 . . . I i . J rl, L a. L ....U
on his farm land
I'nder this plan, thea, every bor
rower mnst be a itockholder in his
local association, and every associa
stallntent required will he those pub
lished in amortisation table to be pre
pared by the Farm Loan Board.
The uauK i given power to proieci
tnl, the bank must set aside certain
reserves and meet alt its expenses.
Any balance or net profits can be dis
tributed as dividends to the loan asso
ciations or other stockholders. The
limn nutinoiu fi una Crnm thpil- Knnk divi
dends, after setting aside the required
r serves ana meeting expenses, can ue-
lna nmonltfin rltvirlnrwls in their
members. In this way the profits, if
any, will bo distributed among the bor
rowers and will, to that extent, re
duce the amount of interest actually
paid by them.
Fees and Commissions Restricted.
The Feders' land bauks are specifi
cally prohibited from charging in con
nection with making a loan any fee
or commissions which arc not author-i-cd
by the Farm Loan Board. The
authorized fees need uot be paid in ad
vance, but may be made part o'f the
K ir nas ueen auiu mm uu iuuhb ,v
be repaid on the amortization ptan,
This plan calls for a nuuiber of fixed
annual or sciui-nnuual payments, which
include not only all interest and charges
due the bank, but the principal, as well.
These payments are so calculated as to
extinguish the debt in a given number
of years. After five yaers the borrower
has the right ou any interest date to
make additional payments on the prin
..:..ai ;.. inn, nf -?fS nr nnv multiple
! thereof, thus discharging the debt more
The table given below illustrates how
a loan of $1,000, bearing interest at 5
-.,t n no 1,1 b retired in 20 Years
'by na annual payment of $80.24. A study
of the columns snow now irom year io
year the interest is reduced and the pro
portion of the payment which goes to
discharge the principal Htcadily in
creases. The final payment cancels th
'should have only its required minimum mitlee shall have anr interest in the
pand-up capital of $780,000, 'this plan propertv upon whicU he pa83eS-
; will provide eventually, if all the au- ' . L . .
! thorized bonds of the 12 banks are sold, , Current Expenses Provided,
'over $180,000,000 to lend on first mort-1 To provide funds for current ex
I gages on farm land. The banks, how-' penses, the loan association may retaia
'ever, enn increase their capitul stock ; as a commission from ench interest
(above the required minimum and so n-( payment not to exceed one-eighth of
Icrense the amount ot bonds they can ; one per cent semiannually upon th
sell, aud thus increase the total amount j unpaid principal of tho loan. This
of money available for loans on-farm commission is to be deducted from the
mortgages. j dividends payable to such farm loan
To make these bonds attractive to in-1 association by the Federal land bank.
vestois, the bonds, together with the 'if the commissions are not adequate,
ninrtOllOPa lllmil Which tllPV nrP tinSPd. on nn aouMlntlnn .I...... :.u
are exempted from Federal, state, muni- j assess members for current expenses,
cipul and local taxation and are made it mav borrow at 6 per cent from the
legal investments for fiduciary and. Federal loan bank to an -amount nob
trust funds. The capitul stock of the , to VXeeed in the aggregate one-fourth.
Federal land banks are exempt from ! of jt8 u n stock,
taxation. Fodcral reserve banks and' iaw requires both the land bauks
member banks of that system are cm- ,j ., i ..!,.
I J - 1 ...11 ""'" 'O
jponcreu lu iiuv uuu ecu mcsi.- uviiutj,
iThev are to be issued in denominations
of $20, $50, $100, $500 aud $1,000.
! District to Provide Directors.
I The temporary management of the
! Federal laud banks is to be in the
j hands of five directors appointed by
I the Federal Farm Loau Board. As soon,
however, as the subscriptions from the
loan association total $100,000, regular
directors are to be appointed as fol
! lows: Three district directors, resident
in the district, shall be appointed by
i the Federal Farm Loan Board to rep
' resent the public interest, and six local
directors, resident in the district, shall
be elected by the farm loan associations
who must be stockholders in the bank.
'The Federal Farm Loan Board shall
designate one of its appointee to act
provision for certain reserves befor
they can pay any dividends.
Iu sections where local conditions d
not make 'the formation of associa
tions practicable, the Farm Loan
Board may authorize the Federal land
bank to make loans through agents
approved by the board. These agenta
are to be banks, trust t ompanies, mort
gage companies or savings institutions
chartered by the state. They may re
ceive as compensation the actual ex
pense involved in transacting the loan
and in addition thereto a sum not to
exceed onehalf of one per cent per
annum on the unpaid principal of the)
loans made through them. "When th
Farm Loan Board decides that a lo
cality is adequately served by famt
loan associations, no further loau are
tion a stockholder In Its district can, i itseir u case or netautt uy recalling
bach stockholder in an association Is j the loan in whole or iu part or taking
liable for the acts of that association other necessary action,
up to twice the amount of his stock. Six Per Cent Interest Limit.
A member of a National farm loan No Federal bank is . permitted to
association, before obtaining a loan, (charge more than 6 per cent per an
must first fill out an application blank num on its farm mortgage loans, and
supplied to the loan association by Jin no ease shall the interest charged
the Federal Farm Loan Road. Thi , on farm mortgage exceed by more than
application blank and other necessary II per cent the rate paid on the laat
papers will then be referred to a loan j issue of the bond,
committee of the association, which For example if the bank pays only
must appraise the property offered a 1 4 per eent on an issue ot bonds, it
-.uritv. ritch application a is p
proved by the loan committee is then
forwarded to the Federal laud bank
and must be Investigated and reported
on by a talaried appraiser ot the bauk
cannot charge, more than 5 per ceut
for the next farm loan it makes.
Out of this margin of not to exeeed
1 per eent. together with euch amounts
as it cau earn ou it paid-in-cash capi
as chairman. The act requires that at j t be marte through agents.
lease one oi lue inree atsirict uireciurs
shall be experienced in farming and ac
tually engaged at the time of his ap-
After a Federal land bank has loaned
on first mortgage $50,000, it can ob
tain permission from the Farm Loan
Board to issue $30,000 in farm loan
bonds based on these mortgages, ell
siu-h bond in the open market, aad use
the money thu obtained to lend on
other mortgage.
Repeated Bond Issue Aim.
Thi process of lending on mortgages
and selling bonds in issues of $50,000
mav be repeated until bauds to the
ahmount of 20 times the bank's paid-up
capital are outstanding, if each banaj
Annual Interest Paid on Principal j
Fay. 5 Pet. Priacipal. Unpaid, i
$ 80.24 $ 50.00 $ 30.24 $!'!!.? 0
80.24 4S.4S 31.75 038.00
80.24 4G.K0 33.34 904.67
80.24 45.2.". 35.01 8b'9.6(i
0.24 43.4S 3ti.7(i S:)2M0
80.24 41.64 38.59 794.31
80.24 39.71 40.5.: 753.79
80.24 37.68 42.55 711.23
80.24 35.5G 4t.fi? 666.50 I
80.24 33.32 46.91 619.64 j
80.24 30.t 49.26 5.0.3tj
80.24 28.51 51.72 6H.G7
80.24 25.91! 64.31 464.36
80.24 23.21 C7.02 407.34
80.24 20.36 59.87 347.46
H).24 17.37 62.87 2S4.60
80.24 14.23 66.01 218.59
80.24 10.93 69.31 149.28
80.24 7.46 - 72.78 76.50
80.33 3.83 ' - 76.50
$1,604.89 $604.81 $1,000.00
pointment in farming operations within
the district. Any compensation paid
to the directors must bo approved by
the Federal Farm Loan Board.
Each loan association must have a
board of directors aad a secretary
treasurer. The director shall serve
joint-Stock Land Banks Permitted.
In addition to the system of 12 Fed
eral land banks and 'the National farm
loan associations of borrowers, the act
permits the establishment of joint stock;
land banks, and authorizes them to
carry oa the business of lending di
rectly to borrowers on farm mortgage
security and issuing farm, loan bonds.
These banks must have a capital of not
less than $250,000. Tjey are under th
i supervision of the Federal Farm Loan
Board, but the government does no
lend them any financial assistance.
The joint stock laad bauk is fre
from many of tlie conditions i imposed
on the federal land bank. - ' Subject
to the 50 and -20 per cent value limita
tion and the limitation as to territory,
the joint stock bind bank may lend
more than $10,000 -to a single individ
ual, and it is not -restricted to making
loan for the purpose specified in the
case of the federal laud bank
The joint stock bank, like the fed
eral land banks, cannot charge an in
terest rate on farm mortgages in ex
cess of six per cent, nor shall such
interest rate exceed by more than on
per cent -the rate of interest paid by
the bank upon its last issue of bonds.
A joint stock bank is limited itt its
'bond issue to 15 times its capital and
Among the -restrictions placed on
these bank under the act are (1)
without pay- The secretarj-treasurer , n of sWem of repayment
shal receive uch compensation a may M is prib in ot
;oe aetermmeo ov rae ooara or airec- loam, ,0 ftitTai tand banks,
itors. The association must appoint an ami (o) that thev shall in no case de
! appraisal committee for the purpose mana or receive." under any form or
! of valuing laud offered a security
for loans. M member of sucn com- (Caatiaas4 m Pag Tkxaa.)