448 ANNUAL REPORT OF THE ^ Off. Doc. 



else the system can never become purely mutual and thus ^rant loans 

 to its members at the lowest possible rate of interest. We have no 

 such spirit of altruism in this country as would make it reasonably 

 certain that foundation capital could be secured from private sources 

 without the pledge of dividends. Thus the only practical way of or- 

 ganizing the system is to ask the government of the United States to 

 advance temporarily the foundation capital, to be returned out of the 

 subscriptions to capital stock which will be made by the borrowers 

 under the plan of the bill. I am glad to be able to say that this 

 happy compromise has been accepted by those who framed this bill 

 and I express the hope that it will be equally acceptable to every advo- 

 cate of this legislation. This provision makes it possible to organize 

 a co-operative system which is owned and controlled by the borrow- 

 ers themselves and a system where all the net earnings go as dividends 

 to the borrowers in proportion to the face of their loans, thus giving 

 them service at actual net cost. 



These land banks do not have the power to negotiate loans directly 

 with the individual. It will be seen at once that a land district which 

 may compromise several states is too large a district to be assigned 

 to any one institution transacting a business which requires it to 

 gain an accurate knowledge of the value of many widely separated 

 tracts of real estate and become acquainted with the personal char- 

 acter of thousands of individual borrowers. 



In order to extend this organization and bring it close to the homes 

 and lives of the borrowers, the land bank is required to conduct its 

 business through local loan associations which are to be organized 

 by farm borrowers in every neighborhood of the nation. Ten or more 

 persons may organize such an association, each member, however, 

 owning land and desiring to become a borrower in the system. Every 

 member of the local association must subscribe for stock in the local 

 association equal to five per cent, of the face of his loan, and the local 

 association must make an equal subscription to the capital stock of 

 the land bank. Thus the capital of the land bank grows in propor- 

 tion to its volume of business, always bearing the ratio of one to 

 twenty, and except the original subscription of |500,000, all stock of 

 the land bank is held by the local association in trust for their mem- 

 bership. Whenever a member pays off his loan the land bank pays 

 back at par his subscription to the capital stock and cancels his 

 shares. This act severs his membership in the local association so 

 that none but borrowers can belong to the organization. All voting 

 power is held by the members of the local association. Thus the 

 whole system is democratic and is controlled by the men who are ac- 

 ually borrowing money from the land bank. The local association 

 passes upon the character of the borrower when he applies for mem- 

 bership in the association, and through its loan committee, makes an 

 appraisal of the land which is offered as a basis for his mortgage loan. 

 This appraisal and recommendation from the local association is for- 

 warded to the land bank together with an application for the loan. 

 The land bank sends an appraiser to re-appraise the land. The ap- 

 praiser is an officer of the government and his salary is paid by the 

 land bank. The report of this appraiser fixes the value of the land 

 as a security for a mortgage loan which cannot exceed 60% of the 



