BUYING FAKMS WITH LAND-BANK LOANS. 21 



this class to finance their purchases indicates that the Federal land 

 banks jDrovide more favorable conditions for the purchase of farms 

 by those having but a small proportion of the purchase price than 

 prevailed before the development of the Federal land bank system. 

 This is true because the system makes it more practicable to lend on 

 second mortgages than under the arrangements for farm-mortgage 

 credit usually provided by private enterprise. 



Prior to the development of the Federal farm loan system men 

 who had money to lend were slow to put it out on second-mortgage 

 security, and, broadly speaking, lending on second mortgage has 

 never been well organized or extensively emploj^ed. As shown by 

 this and other studies, a large majority of such loans are made by 

 persons who are selling the land mortgaged and are willing to grant 

 unusually favorable terms to effect a sale, or by relatives or others 

 who are inclined on personal grounds to lend under easier conditions 

 than are afforded by regular credit agencies. Probably a large pro- 

 portion of the remainder of second-mortgage loans are handled by 

 local individual money lenders or by country banks. Compara- 

 tively a small percentage of such loans are made by large organiza- 

 tions operating over a wide territory. 



In part, this failure to develop second-mortgage credit on a com- 

 mercial basis has been due to the prevailing system of first-mortgage 

 credit as afforded by private agencies. With the short-time first- 

 mortgage loan there is always considerable danger that foreclosure 

 may take place, with resulting extinction of the equity of the holder 

 of the second mortgage. Even were this danger not present, the 

 necessity of repaying the first mortgage within so short a period 

 greatly limits the borrower in safely assuming a margin of indebted- 

 ness above the first mortgage to be repaid in an equally short period. 

 This limitation is increased in many sections by high rates of interest 

 and commission and by conditions of renewal. 



Most men who have money to lend do not care to put it out on 

 second-mortgage security under ordinary conditions. Doubtless they 

 are well justified in this conservatism when the second mortgage is 

 preceded by a first mortgage that represents a large part of the sale 

 value of the property, when that first mortgage bears so high a rate 

 of interest or is repayable in such a way as to make it quite possible 

 that the holder of the first mortgage may have to foreclose in order 

 to make the borrower live up to its terms, or when the title to the 

 farm is questionable. But the position of the holder of a second 

 mortgage is far more secure when his mortgage is second onlv to a 

 mortgage held b}' a bank of the Federal farm loan system. These 

 banks are very careful in placing their loans, which are almost cer- 

 tain to be for less than half of the value of the farm, inasmuch as 



