1132 A NATIONAL PLAN FOB AMERICAN FORESTRY 



with endorsement of the Federal Treasury. These means should be 

 used only if the public interests involved demand such action. 



AMORTIZATION RATES 



A rate of amortization that permits discharge of the loan from 

 earnings of the mortgaged enterprise saves refinancing charges and 

 provides a painless method of paying the loan. A loan obtained under 

 these conditions also protects the borrower from the grave risks 

 attending efforts to renew loans in times of depression or panic, and 

 protects the lender against shrinkage in asset value from the same 

 cause. A long amortization period is justified if the loan does not 

 exceed a very conservative percentage of appraisal value, the enter- 

 prise is in a field of permanent utility, and the interest rate is as low 

 as or lower than the earnings of the enterprise. It is certainly true 

 that many forest properties meet these specifications. With an inter- 

 est rate of 5 percent, amortization at one half percent will retire a 

 loan in slightly less than 50 years. A retirement period of 30 to 50 

 years seems appropriate for basic credit not exceeding 30 percent of 

 the appraised value of the real property. Junior financing beyond the 

 30 percent should be amortized within 10 years, or subjected to 

 renewals at the time of which the status of the loan can be reexamined. 



RELATIONSHIP OF FOREST LOANS TO AIMS OF 

 FEDERAL LAND BANK SYSTEM 



A fundamental aim of the Federal land bank system is to promote 

 effective use, in the public interest, of the agricultural land resources 

 of the country and to promote satisfactory social conditions. Effec- 

 tive use of forest lands must be considered closely related to this 

 purpose. For this reason it appears desirable to utilize the existing 

 machinery of the Federal land bank system for handling forest loans 

 rather than to create an entirely new agency. A further important 

 element in this relationship is the fact that much submarginal agri- 

 cultural land may be diverted to forest use. Facilitating the use of 

 such land for forestry purposes is expected to strengthen agriculture 

 and presumably the security behind farm loans. It appears unwise 

 to impose the function of making forest loans on the present land 

 banks, however, for the reason that these deal with land values 

 chiefly under restrictions that are inapplicable to forest loans. Forest 

 loans will require special types of appraisal and will require supervision 

 of a different technical nature. Therefore, it seems reasonable that 

 the function of providing forest credit should be placed in separately 

 organized institutions. 



OUTLINE OF SUGGESTED ORGANIZATION FOR 

 FOREST LOANS 



The following is suggested as a possible basis for organizing insti- 

 tutions to provide forest credit : 



1. The institutions should be under the control of the Federal Farm 

 Loan Board. This would keep supervising expense at a minimum 

 and insure experienced and competent administration. 



2. Not more than four adequately capitalized banks (possibly with 

 $25,000,000 capital stock each) should be created. This would be 



