22 BULLETIIT 968, U. S. DEPARTMENT OF AGRICULTURE. 



they appraise conservatively, refuse to expand their loans because of 

 boom conditions, lend only up to half of the appraised value of the 

 land and one-fifth of the appraised value of the buildings, and are 

 especially cautious in lending on such security as orchards and wood- 

 land. In fact, as shown above, the average ratio of the loan to the 

 value of the land for all classes of buyers is only 37 per cent, while 

 for landless persons borrowing to buy land it is only 44.2. Moreover, 

 the Federal land banks refuse loans on the security of land for which 

 good title can not be given. The lender on second mortgage may 

 enjoy the benefit of this careful examination without extra expense 

 either to himself or to the borrower. Year by year, as the borrower 

 pays the amount required of him for interest and amortization, the 

 position of a person holding a second lien becomes more secure, and 

 there is no large final payment to be made on the first mortgage that 

 is likely to result in foreclosure proceedings or to embarrass the bor- 

 rower in meeting his obligations under the second mortgage. The 

 interest rate on Federal land bank mortgages is low and the amount 

 due as interest and payment on the principal is not large in propor- 

 tion to the total value of the farm. 



It is obvious that these conditions provide a far more favorable 

 basis for second-mortgage loans than was provided by the usual 

 types of first-mortgage loans on farm lands. It is not strange that 

 numerous borrowers and lenders have takjen advantage of this 

 favorable opportunity to negotiate second-mortgage loans, and it is 

 to be expected that regular private credit agencies may avail them- 

 selves to some extent of this opportunity. 



It is doubtful, however, whether we can rely on private enterprise 

 to develop extensive facilities for loans secured by second mortgages 

 on farm property. Unless some special motive exists for making 

 such a loan, such as desire to sell the land, it is not an attractive in- 

 vestment except at such a high rate of interest that it is likely to 

 prove a millstone around the neck of the borrower. It is difficult to 

 resell such mortgages in the general market unless indorsed by a 

 large and well-known credit agency. Consequently they can not 

 readily be made the basis of a profitable loan business in which the 

 lender employs his capital in making loans to be disposed of to in- 

 vestors, making his profit out of a relatively small margin multiplied 

 by the rate of turnover. In the case of first mortgages, trust com- 

 panies and mortgage loan companies can make considerable profit 

 by continually turning over their capital in this manner. It would 

 appear, therefore, that if adequate credit arrangements for bona fide 

 farmers who are attempting to buy farms with a small initial margin 

 of capital are to be provided, it w^ill be necessary to rely largely on the 

 Government to make such provision. 



