BUYING FARMS WITH LAND-BANK LOANS. 21 
this class to finance their purchases indicates that the Federal land 
banks provide 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 employed. 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 only to a 
mortgage held by 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 
