hardship. You can readily see that there are cases where borrowers have paid installments as long as 15 years. Such mortgages may be amply secured and the mortgagor a good citizen, highly desirable as a borrower, but under existing conditions the bank can not use his mortgage for any purpose so long as the payments are

in arrears.

If the machinery provided in my bill is written into the law, the officials of the bank would then be able to deal with such a case in a common-sense way, just as is done by commercial banking institutions and others and to carry forward the unpaid installments over a period of years and thus be able to treat the mortgage at its just and fair valuation in conducting the affairs of the bank. I need not argue to the members of this committee, I am sure, the necessity for some sort of legislation that will relieve the farmers who are borrowers from the Federal land banks. I know of no problem confronting us more important nor one the solution of which requires more immediate attention than this. For the present I shall not say more. I think before taking any action, the committee should invite the Federal Land Board to come before us and furnish us such information as they may desire. I have no doubt this would prove helpful to us in our action here and in presenting the facts to the House in connection with any bill we may see fit to report. Without objection, I suggest that we meet again at 2.30 this afternoon, and in the meantime invite the farm loan commissioner, Mr. Bestor, to come before us this afternoon.

(Thereupon the committee took a recess until 2.30 o'clock p. m. of the same day.)

AFTER RECESS

The committee met at 2.30 o'clock p. m., Hon. Henry B. Steagall (chairman) presiding.

The CHAIRMAN. Gentlemen, we are ready, I suppose, to hear Mr. Bestor on this bill, No. 4741. I did not enter into a discussion of this bill at our informal meeting this morning, and I shall not do so just at this time, in order that we may accommodate ourselves to Mr. Bestor's situation and hear him and the others of the Federal Farm Loan Board, if desirable; and just now, I am going to introduce to you gentlemen of the committee, who are new and do not know Mr. Bestor, who is the head of the Federal Farm Loan Board. who will now be glad to furnish information in connection with this bill.

Mr. Bestor, I may say, in that connection, that what we have in mind merely for you to do is to give us a picture that will reflect the condition of each of the Federal land banks; and I suppose that indicates to you, as fully I could, just what we have in mind, in order that the committee may know the situation with which we are attempting to deal, and what we are trying to do by this legislation: and we will let you now proceed in your own way, and then propound our questions, if that is desirable to do so, from time to time, if it will not interrupt you.

STATEMENT OF PAUL BESTOR, FARM LOAN COMMISSIONER

Mr. BESTOR. Mr. Chairman and gentlemen of the committee, in connection with this bill (H. R. 4741) introduced by the chairman of the committee, as suggested by the chairman, I will will try to give you as briefly as possible, and as clearly as possible, a picture of the situation in the 12 Federal land banks.

Mr. GOLDSBOROUGH. In that connection, will you add to your statement a matter in which many members of the committee are very deeply interested, and that is, just what will probably directly be done with the proceeds of this fund, if the bill becomes a law?

Mr. BESTOR. I will attempt to do that, Mr. Goldsborough. It might be helpful, in considering this, Mr. Chairman, the fact that I have brought along some copies of the farm loan act, because it is a rather specific act, and it might be helpful to the com

mittee

The CHAIRMAN. I suggest, Mr. Bestor, that you supply each member with copy of the Federal farm loan act, because some of the new members may not have it at hand.

Mr. BESTOR. I also have printed copies of the statement of condition of the banks as of September 30, 1931. I am not sure that the committee will want it, but it gives a general picture as of that date. It is not as complete information as the board is ready to furnish the committee, but it does have some information that will help you in getting the full picture.

The CHAIRMAN. I suggest that you let it be distributed to the members of the committee.

Mr. BESTOR. This bill, gentlemen, proposes to amend three sections of the farm loan act-section 5, section 23, and section 24.

Section 5 is amended so that it-if I may read from this-as follows:

It shall be the duty of the Secretary of the Treasury on behalf of the United States, upon the request of the board of directors of any Federal land bank de with the approval of the Federal Farm Loan Board, to subscribe from time to time for capital stock of such bank in an amount or amounts specified such approval or approvals, such subscriptions to be subject to call in whole in part by the board of directors of said bank upon thirty days' notice with the approval of the Federal Farm Loan Board. The Secretary of the Treasry is hereby authorized and directed to take out and pay for shares having an aggregate par value equal to the amounts so called; and to enable the Secretary of the Treasury to pay for stock issued hereunder there is hereby suthorized to be appropriated the sum of $100,000,000. Shares of stock issued pursuant to this paragraph shall be paid off at par and retired in the same anner as the original capital stock of said bank after said original stock tstanding, if any, has been paid off and retired: Provided, however, That stock issued from time to time pursuant to this paragraph may, in the disretion of the directors and with the approval of the Federal Farm Loan Board, be paid off at par and retired in whole or in part; and that said bard may require such stock to be paid off at par and retired in whole or part out of available resources of said bank. The proceeds of all repayments on account of stock issued pursuant to this paragraph shall be held in the Treasury of the United States and shall be available for the purpose of pering for other stock thereafter issued pursuant to this paragraph.

The other amendments, Mr. Chairman, have to do with the rerres, and, if satisfactory, I will first cover the main provision of

the bill.

The CHAIRMAN. That will be entirely satisfactory, because I apprehend there will not be anybody who would object to the provisions of the bill respecting the matter of accumulating reserves. Mr. BESTOR. Members of the committee who served on the committee last year will recall that a number of measures were introduced affecting these land banks. At that time, the board felt that although the situation was somewhat serious in some of the banks it had not reached the point where we would be justified in recommending an appropriation by the Government for the purpose of strengthening the capital structure or reserves of the Federal Land Banks.

I think you will recognize that since that time there has been a very decided change in the general situation, particularly in the matter of commodity prices. I picked up this publication on my desk in regard to the agricultural situation, which shows that the prices on cotton November, 1930, were 9.6; 1931, 6.1; corn, November, 1930, 66.3; November, 1931, 36.6, and so on down the line; and that drop in commodity prices is reflected in the condition in the Federal farm land banks.

Now, as to the actual situation, without going into detail, which the committee may desire us to go into later, on November 30, 1931, the 12 Federal land banks, which, as you all know, were organized on the cooperative plan, held approximately 408,000 first mortgage loans, in the aggregate amount of $1,171,699,700. Aside from their capital, the money so invested was obtained primarily from the sale of tax-exempt bonds, of which $1,172,478,700 were outstanding on November 30, 1931. The interest on these bonds, as you know, must be paid semiannually, under the law; and the interest rate charged the farmer borrower in the continental United States may not exceed by more than 1 per cent per annum the rate borne by the issue of the bonds and the banks making the loan.

It is really out of this limited spread that the banks pay operating expenses, absorb losses, and build reserves.

The reports of the 12 Federal land banks, as of November 30, 1931, showed that 76.5 per cent of the unpaid principal of the outstanding loans was not delinquent on installment; only 12.1 per cent was delinquent less than 90 days; and 11.4 per cent was delinquent 90 days and more. Mr. Chairman, if you remember the 90-day delinquencies last year, were 3.8 per cent and they now constitute 11.4 per cent. While that does not constitute a large percentage, it does represent a tremendous increase during the 12 months' time. As to these loans, 90 days' delinquency does not necessarily mean that the loans will go to foreclosure. A very small percentage is going to foreclosure at the present time, and many of them will be paid; but we can not tell how many. Under present commodity prices, it would be difficult to predict how many of these men are going to be able to meet their installments.

The CHAIRMAN. The total delinquencies are how many?

Mr. BESTOR. The total delinquencies, Mr. Chairman. are 23.5 per cent, but 12.1 per cent are delinquent less than 90 days, and 76.5 per cent are not delinquent.

The CHAIRMAN. 23.5 per cent? I wanted to get that.

Mr. BESTOR. But 76.5 per cent of the loans are not delinquent. That seems to me to indicate that the system has been built up on a pretty sound basis if it can stand as well as it has the present depres

sion.

Now, as to what this bill does provide―

The CHAIRMAN. While you are on that particular phase of the matter, unless you prefer to do it at a later time, or in a different connection, I would suggest that you give us some figures with respect to each of the banks.

Mr. BESTOR. Mr. Chairman, we would like to do that and can do it a little later.

The CHAIRMAN. If you prefer. It occurs to me that you probably would rather do it in executive session. I am sure that the committee would not object to that. At any rate, we will discuss that later on. Mr. BESTOR. The bill provides for $100,000,000 available in the form of a revolving fund for subscriptions to the capital stock of the Federal Land Banks, and should accomplish a number of things. Primarily, it should stabilize the market value of the bonds and enable the banks to obtain money, so they can lend it to the farmer at a reasonably low rate of interest. It is worthy of note that the banks have outstanding at the present time nearly $170,000,000 in 3 per cent bonds. Three years ago they were able to sell bonds at 4 per cent. If the banks can obtain new funds for making new loans to farmers at a much lower rate than the high-rate bonds, it can also refund its higher-rate bonds and the farmers will get the benefit of it through the increased earnings in the banks, and it would enable the banks to carry on their business.

The CHAIRMAN. Let me ask a question there: Under the provisions are the bonds outstanding-do the banks have the right to redeem them at any time, or at any time after a cerain period? What is the provision?

Mr. BESTOR. Most of those bonds were 10 and 30 bonds. That means they could be called after 10 years, and mature in 30. Some were sold on the 10-20 basis. Most of them mature in 30. A very small block of bonds is outstanding, which were sold, you will remember, just about a year ago a year ago this month-that were two 3-year bonds, callable in two years, and maturing in three years. A block of $20,000,000 was sold. At that time it was impossible to sell the longer bonds at anything like a reasonable price.

The CHAIRMAN. What did you sell those bonds at?

Mr. BESTOR. Those were 412 per cent bonds, sold at par plus ac

crued interest.

The CHAIRMAN. Yes; and let me say this to you, Mr. Bestor, in case you make any answer that is inaccurate, as to figures, there will e no objection to your correcting it before this record is made final, but I want to ask you, in connection with that, when this $20,000,000 bond issue was had.

Mr. BESTOR. It was in December, 1930.

The CHAIRMAN. That was the last bond issue?

Mr. BESTOR. That is right.

The CHAIRMAN. How long prior to that before the next preceding

Mr. BESTOR. That was before I came on the board. My recollec tion is that the last sale preceding it was in November, 1928.

The CHAIRMAN. How much was the sale in November, 1928! Mr. BESTOR. I would have to give you those figures later, Mr Chairman.

The CHAIRMAN. How much was the sale in 1928?

Mr. BESTOR, I would have to give you those figures later, Mr Chairman?

The CHAIRMAN. You may supply that later. I want to know how they sold in 1928.

Mr. BESTOR. Were they 's or 414's, Mr. Williams, do you remember?

Mr. WILLIAMS. I think there were two scales, one of 414 per cent and another of 4 per cent bonds.

Mr. BESTOR. It was a comparatively small sale, Mr. Chairman and they were either 4's or 414's: $15,000,000 sold in November 1928, 414's. They were 10-30 bonds. In June, 1928, there were $25,900,000 4 per cent bonds sold.

The CHAIRMAN. And the only sale since 1928 was the $20,000,000 short-term sale!

Mr. BESTOR. That is right. There has been no general sale since that time. The banks, it is true, have been able to lend some money. The collections on the principal payments have been so large they have been able to meet the legitimate demand in most districts. They have loaned $39,900,000 in 1931 up to November 30, which is approximately the same amount that was loaned last year.

The CHAIRMAN. In connection with what you are now saying, I suggest that you give us some understanding of the bond market in general, and how it has run: what the quotations have been.

Mr. BESTOR. We have a chart here, Mr. Chairman, of the whole situation, the whole picture, which would give it as graphically as possible.

Bonds at 42 per cent, which constitute a large volume of the outstanding bonds of the Federal land banks, dropped, during the summer of 1931, to a low of about 74 in September, bid price. Then they began to come up and reached their high point about a month ago, of 90. Then, due possibly to the general bond situation, and the economic condition that has been general over the country, they began dropping again until yesterday 4%'s were quoted at a bid price of about 78. This chart shows the consolidated line of Federal land bank bonds, five issues of bonds, market prices during the last two years.

This chart does not give the market prices, but it does give the yield comparable to municipal issues, and you can see what happened to them recently, you can see the bulge. Right at the present time they are practically at their low point, for about two years. It can be seen that, at the present time, it would be impossible for the Federal land banks, under those conditions, to sell a bond which would permit a farmer to get his money at a reasonable rate.

This chart here shows the per cent of par of three bonds, 5 per cent bonds, 42 per cent, and 4 per cent bonds. Five per cent is the top bond, and then the 4% per cent bond, and then the 4 per cent bond, and you can see how the lists fluctuate.