1092 
ffftt RURAL NEW-YORKER 
September 3, 1921 
UsteTiorsfe s?en3e in biding 
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FLINT & WALLING MFG. CO. vSiNP / 
Dept, Y 
Kendallville, Indiana 
A Primer of Economics 
By John J. Dillon 
Part XXXX 
The Federal Farm Loan act became a 
law in 1916. The purpose of the law 
was to create an institution to loan 
money on farm mortgages. The system 
is a bureau in the Treasury Department 
of the United States Government. In 
general outline, it is under the supervi¬ 
sion of a Federal Farm Loan Board. It 
divides the United States, exclusive of 
Alaska, into 12 districts, and establishes 
a Federal Land Bank in each district. 
Ten or more farmers living in sub-divi¬ 
sions of these districts may form nation¬ 
al farm loan associations, and through 
these associations individual farmers may 
secure money on farm mortgages. Loans 
are not made by the Federal Land Banks 
direct to farmers. The banks operate 
only through the associations, but the 
banks are authorized to make loans 
through agents, which must be incorpor¬ 
ated banks, trust companies, mortgage 
companies or savings institutions chart¬ 
ered by the State in which it has its 
principal office. The 'act also author¬ 
izes the organization of joint stock land 
banks which may be organized by private 
capital. Congress appropriated $100,000 
to pay the original organization expense, 
and authorized subscription to the stock 
of the Federal Land Banks in sufficient 
amounts to insure the organization of 
the 12 banks. 
The Federal Farm Loan Board con¬ 
sists of five members, including the Sec¬ 
retary of the Treasury, who is a member 
and chairman ex-officio; anti, four mem¬ 
bers appointed by the President. One of 
the members is designated by the Presi¬ 
dent as the Farm Loan Commissioner, 
who is the executive officer of the board. 
The Federal Farm Loan Board ap¬ 
points a farm loan registrar in each 
land bank district; also one or more laud 
bank appraisers for each land bank dis¬ 
trict. and as many land bank examiners 
as it deems necessary. The members 
of the hoard, the registrars, and land 
bank examiners are public officials and 
paid by the United States. The salaries 
of appraisers are paid by the banks, but 
the amount of the salaries is fixed by the 
Federal Farm Loan Board. The board 
lias authority to employ such help as it 
needs, including attorneys, experts, clerks, 
and laborers, and this expense is also 
paid by the United States. Officials who 
act in the capacity of trustees are re¬ 
quired to supply bonds, and a system of 
reports and examinations and publicity 
are provided to safeguard the whole sys¬ 
tem. 
The. capital stock of each farm loan 
bank is divided into shares of $5, and 
may be held by individuals, national farm 
loan associations, firms, corporations, a 
State government, or the United States. 
Before beginning business, it must have 
subscriptions for. at least, $750,000 of its 
capital stock, but the law provides that 
if the minimum of, $750,000 is not sub¬ 
scribed within 30 days, then it becomes 
the duty of the Secretary of the Treasury 
to subscribe the balance on behalf of the 
United States, and the Secretary of the 
Treasury is authored in the act to pay 
for the stock so subscribed by him out 
of moneys in the treasury. Stock held 
by the United States receives no dividend, 
but all other stock shares alike in divi¬ 
dends. Each national farm loan associ¬ 
ation and the United States are entitled 
to one vote for each share of stock, but 
other holders of stock in Federal Land 
Banks are not entitled to vote. Pro¬ 
vision is made for (lie gradual retire¬ 
ment of the stock held by the Govern¬ 
ment and the refunding of its invest¬ 
ment. 
The Federal Land Banks are author¬ 
ized and managed temporarily by a board 
of five directors appointed by the Federal 
Farm Loan Board. After the National 
Farm Loan Association has subscribed 
for $100,000 of the stock of the Federal 
Land Bank, the officers and directors of 
the bank are elected, and the new board 
takes over the management of the bank. 
The new board and its successors consist 
of nine members. Six are elected by the 
National Farm Loan Association and 
three, to be known as district directors, 
are appointed by the Federal Farm Loan 
Board and represent the public interest. 
For the election of directors, each nation¬ 
al farm loan association nominates one 
candidate for director. These nomi¬ 
nations are sent to the Farm Loan Com¬ 
missioner, who selects a list of 20 per¬ 
sons who received the largest number of 
votes. This list is mailed to each nation¬ 
al farm loan association. A vote is cast 
by the associations for as many candi¬ 
dates on the list as there are vacancies 
to be filled. The candidates receiving the 
largest number of votes are elected as 
directors of the Federal Land Bank of 
the district. 
No person but borrowers on farm land 
mortgages may be members or stock¬ 
holders of the National Farm Loau As¬ 
sociations. When the loans are paid the 
borrower ceases to be a member. Ten or 
more persons who desire to borrow money 
on farm mortgages may unite to form a 
National Farm Loan Association. It 
shall have five directors, elected in the 
same manner as national banks elect 
directors. It shall have a president, a 
vice-president, a loan committee of three 
members and a secretary-treasurer who 
shall be the only paid officer, and con¬ 
duct the business of the association. The 
application for corporate charter must be 
made to the Federal Land Bank. If the 
applications are approved by the Federal 
Farm Loan Board the charter is granted, 
and the association is then ready for 
business. When the National Farm'Loan 
Association makes application for a loan 
for a member it must subscribe for stock 
in the Federal Land Bank to the amount 
of 5 per cent of the amount loaned, and 
this is paid at the time the loan is 
granted. This stock is held by the Fed¬ 
eral Land Bank as collateral for the loan. 
The shares of the National Farm Loan 
Association are $5 each, and the farmer 
making application to the association for 
a loau must subscribe for stock in the 
association to five percentum of the loan. 
This stock is pledged for payment of the 
loan. Of course, before the loan is made, 
an appraisal of the farm is made, and the 
application, after investigation, is ap¬ 
proved by the loan committee. All mort¬ 
gages must be amortized so that the an¬ 
nual payments in excess of interest shall 
liquidate the mortgage in not less than 
five nor more than 40 years. The rate 
of interest shall not exceed 6 per cent. 
The mortgage must be for no less than 
$100 and not more than $10,000. Loans 
are made only to persons engaged in cul¬ 
tivation of the land mortgaged or about 
to become so engaged. The loans are 
made on the basis of 50 per cent of the 
value of the land and 20 per cent of the 
value of the permanent insured improve¬ 
ments. No loau is made except on first 
mortgage. 
The joint stock land hanks authorized 
by the act are more direct and less com¬ 
plicated in management. They may be 
formed by any number of natural per¬ 
sons, not less than 10, but the Govern¬ 
ment. of the United States is not author¬ 
ized to subscribe for their stock. No 
joint stock land bank can be organized 
with capital stock of less than $250,000, 
and one-half the amount must be paid in 
cash before the charter is issued. The 
full amount must he paid in before it is 
permitted to issue bond's. The joint 
stock land banks are also under the gen¬ 
eral supervision of the Federal Farm 
Loan Board, but it makes loans direct' to 
farmers, and escapes much of the com¬ 
plication and detail of the Federal Land 
Banks and the National Farm Loan As¬ 
sociation. Several of the banks have been 
organized, and their rapid development 
has been one of the features of the system. 
Both the Federal Land Banks and the 
joint stock land banks are permitted to 
sell bonds up to 15 times the amount of 
their capital. These bonds and the in¬ 
come from them are exempt from Federal, 
State and local taxation. The bonds 
must be approved by the Federal Farm 
Loan Board, and first mortgages equal to 
the face value of the bonds must be de¬ 
posited to insure payment of the bonds. 
All of the Federal Land Banks are re¬ 
sponsible for the payment at maturity of 
tlie Federal Land Bank bonds in the case 
of default by any one of them. The pro¬ 
ceeds of these bonds and the cash capital 
of the banks furnish the money to finance 
the mortgages. The Federal Land Banks 
dispense it through fhe National Farm 
Loan Association. The joint stock land 
banks loan it direct to the farmer. 
The very conservative basis of the 
mortgage, together with the strict super¬ 
vision of the Federal Farm Loan Board, 
the great basic industry involved, and the 
exemption from all taxation make the 
bonds a most attractive form of invest¬ 
ment. The development of the system 
has, however, been delayed by a suit 
which was brought to test, the constitu¬ 
tionality of the law. While the issue was 
undetermined, no bonds could be sold, 
and the banks could not function. The 
United States Court has recently sus¬ 
tained the legality of the act. and the 
way is. now clear to develop the system. 
The initial act was necessarily conserva¬ 
tive and rigid. When once fully under 
way it is hoped that the act may be 
liberalized with safety. In its present 
form it involves considerable delay and 
expense. The amount of the loan on ap¬ 
praisal of 50 per cent of land value and 
20 per cent of insured improvements is 
too little to help anyone except those who 
are able to hold large equities iu the 
farms themselves iu addition to other im¬ 
provements and equipments. There is 
a need of help to farmers of smaller re¬ 
sources. 
On October 31. 1920, the assets of the 
12 Federal Land Banks were $376,399,- 
471, and their capital $24,550,051. The 
original subscription to the capital stock 
by the Government was $8,892,120, but 
$2,059,450 has been retired. 
There are 25 joint stock land banks 
doing business, with capital stock o2 
$7,951,000 and assets of $99,865,634. 
