26 BULLETIN 968, U. S. DEPAETMEXT OE AGEICHLTUKE. 
ciple. Instead of seeking to avoid all risk, such a system would care- 
fully estimate the risks incurred and spread this risk over a large 
number of loans widely distributed in different sections of the 
country, charging enough extra on the interest rate to earn the actu- 
arial value of the risk assignable to the particular loan. Such 
charges could be graded for different degrees of risk. The larger 
the credit desired the higher the per cent of charge to be added to 
the basic interest rate. The charge might also be varied according 
to the section of the country, being made higher, for instance, in 
regions where frequent drouths occur. 
It is obvious that such a basis for credit could not be safely adopted 
by any agency with only a small volume of loans nor by one whose 
loans were confined to a single section of the country. For the last- 
mentioned reason it could not well become a basis for a local system 
of credit, but might be feasible for an agency doing a large business 
on a nation-wide scale. 
If such a system were developed to supplement the Federal farm- 
loan system it would be necessary to offer its privileges only to those 
cases in which the first mortgage is held under the Federal farm- 
loan system, for the element of risk on the second mortgage would be 
greatly reduced if both first and second mortgages were controlled by 
the same agency. Holders of second mortgages have always been 
faced by the danger of arbitrary foreclosure of the first mortgage, 
with the resulting destruction of the second-mortgage equity. Many 
first-mortgage loans are made with the expectation of renewal. If, 
however, the holder refuses to renew, he may foreclose and force 
a sale of the property. This may occur even though the farm busi- 
ness is to all intents and purposes solvent. If the same person or 
agency holds both mortgages he can exercise discretion in protecting 
the second-mortgage equity. 
It is also possible that second mortgages can be made a more effec- 
tive method of promoting home ownership by providing convenient 
terms of repayment. TVhile it would probably be the part of wis- 
dom, as suggested above, that the borrower be required to pay off 
the second mortgage in a shorter period than the maximum allowed 
for first mortgages under the Federal Farm Loan Act, yet it should be 
possible to spread the payments over a considerable period. Such 
payments could be made periodic and on the amortization plan, with 
privilege of repaying larger amounts on due notice. Mortgages are 
sometimes given in connection with the purchase of farms on which 
considerable devehypnient work must be done before they can be 
put on a paying basis. TThile the work of development is progress- 
ing, a mortgage holder could render the farm owner great assistance 
by deferring all payments, as far as possible, until a paying basis 
