22 BULLETIN 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 
bj 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 will be necessary to rely largely on the 
Government to make such provision. 
