No. 6. DEPARTMENT OF AGRICULTURE. 449 



appraised value. The land bank sends the money to the association 

 and the association pays it over to the borrower. Likewise the bor- 

 rower makes his several payments to the local association which for- 

 wards the money thus paid to the laud bank. 



The local association is but an agent acting for the land bank to 

 secure accurate and intimate knowledge of the land values and per- 

 sonal character. Each borrower insures his own loan to the extent 

 of five per cent, of the amount of the loan. We liave every element 

 of safety; local knowledge, mutual liability, and self interest. The 

 land bank, as the mortgages accumulate, deposits them in amounts 

 not less than $50,000 with an officer of the Farm Loan Board called 

 the registrar. These mortgages are lield in trust by the registrar 

 as special security against an issue of bonds. The Farm Loan Board 

 causes an appraisal to be made of these mortgages and issues permis- 

 sion to the land bank to issue bonds. There must always be an 

 amount of unpaid mortgages on deposit with the registrar equal to 

 the par value of bonds outstanding; and as mortgages are paid off, 

 either in whole or in part, these sums must be reinvested in farm 

 mortgages, or farm loan bonds must be purchased in like amounts 

 and cancelled. 



The success of any mortgage system must depend upon the ready 

 sale of bonds. Not only are the loanable funds secured by the sale 

 of bonds, but the rate of interest on farm mortgages is fixed by the 

 rate of interest on the bonds. The whole system of mortgage banking 

 is devised to enable the farmers of the nation to pool their assets, 

 and by issuing bonds, to borrow money at low rates of interest. A 

 successful system will thus not only secure money for farm borrowers, 

 but it will develop a safe investment for the surplus earnings of the 

 nation. It seeks to cause money held for investment to flow towards 

 the farms and thereby develop a mutual financial relationship between 

 industrial centers and agricultural territory. This requires an at- 

 tractive credit instrument. Every bond issued by a land bank is 

 freed from all forms of national and local taxation ; it is secured by a 

 first mortgage on improved real estate which is worth at least twice 

 as much as the face of the bond. It is further secured by the capital 

 stock of all the local associations in that land district. It is also 

 secured by the capital stock and reserves of the land bank which 

 issued it ; and finally it is secured by the assets of every other federal 

 land bank in the United States. The value of such a bond cannot be 

 doubted. As long as the rains fall and the sun shines, as long as the 

 promise of a seed time and a harvest continues, and so long as man 

 must derive his food and clothing from the soil, such a bond will 

 stand as the safest investment on earth. 



The land bank is permitted to charge borrowers one per cent, higher 

 rate on mortgage than the bank pays on its bonds. This represents 

 the income of the bank out of which expenses are to be paid, reserves 

 builded, and dividends declared. It may be in actual practice that 

 this margin will prove to be too high and will be much reduced. This 

 point. is not of much importance one way or the other. If the in- 

 come of the bank is greater, the dividends i)aid to the borrower will 

 be higher, because all surplus earnings must be distributed to the 

 borrowers. Loans are made for only certain purposes, within certain 

 specified amounts, and for certain periods of time. These limitations 

 are written in the bill in order to kill speculation. 



29—6—1915 



