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Mr. McLEAISH. That is correct.

Mr. POAGE. Either that it be taken in the name of the bank or the mortgage be assigned to the bank, in which event it is of record, just as the original mortgage would be of record. It is assigned to the bank.

Mr. McLEAISH. Yes. The main security the bank looks at has been the guaranty of the Government on the note. That is the main thing they look at.

Mr. POAGE. The bank, then, is not making a guaranteed loan. It is a Government loan. I am probably quibbling.

Mr. SMITH. There is no difference in the way the program will work if this amendment is passed and the way it has been working since 1946 when this insured authority first became available. The Farmers' Home Administration always has been selecting the applicant, working up the loan docket, deciding on what farm the loan will be made, and the lender furnished the money. That procedure still is contemplated under this amendment.

But there is a mechanical change here. Instead of the mortgage running to the lender who furnishes the money the mortgage would run to the Government as its security in insuring the loan. That is the only change contemplated.

Mr. HOPE. You have just streamlined the operation; have you not?
Mr. McLEAISH. That is right.
Mr. HOPE. The actual procedure and the effect is just the same.

I remember very well when we passed this act originally, what Mr. Pace attempted to do was to set up for farmers the same type of program we had for homeowners in the cities, but it seems to be that what you are doing now is an improvement on that procedure and the method of operation.

Mr. McMILLAN. This proposal does not require a real-estate mortgage; does it?

Mr. McLEAISH. You say it does not?
Mr. McMILLAN. Does this have any effect on the types of loans ?
Mr. McLEAISH. No change with regard to the general policy.

Mr. Dixon. Did I understand you to say that the mortgage is made to the Government but the note to the bank ?

Mr. McLEAISH. The note will be made to the bank.

Mr. DIXON. When the examiner examines the paper of the bank, you say then that he would classify this note as a collateral note and not a real-estate note?

Mr. McLEAISH. That is what the Comptroller of the Currency has told us, sir, the Deputy Comptroller.

Mr. Dixon. That would make the whole plan more flexible because the bank cannot pile up long time real-estate mortgages, and that would send more relief to the farmers.

Mr. McLEAISH. That is right. It would let the local banker participate to a greater extent.

Mr. DIXON. The bank examiners would give the banks a clean bill of health.

Mr. McLEAISH. That is correct.
The CHAIRMAN. Mr. Watts?

Mr. Watts. The proposition sounds good to me. The bank merely accepts the guaranteed note which the borrower executes, and the Government guarantees the payment of it.

Mr. McLEAISH. That is right.

Mr. Watts. The only liability so far as the mortgage is concerned is in the event the borrower fails to pay the note. Then the Government has the mortgage to secure it.

Mr. McLEAISH. That is right. In other words, it is really a step ahead. Under the present deal with the lender holding the mortgage and the note guaranteed the Government would have to pick up the note and then have the mortgage transferred back to the Government, and then foreclose, if foreclosure were necessary.

With this thing, all that is necessary is that the lender has a note, the Government has a mortgage. The Government can take back the note and the Government would have the note and mortgage both. It is simplified.

Mr. WATTS. The Government can step in and pay the lender off? Mr. McLFAISH. That is right.

Mr. WATTS. And then brings suit for foreclosure of the mortgage on the basis of the guaranty?

Mr. McLEAISH. That is correct.

Mr. WATTs. Does this in any way involve any change in the interest rates on any of the loans?

Mr. McLEAISH. No, sir. It doesn't change any of the basic provisions of the transaction with the borrower. In other words, the interest rate remains the same. We are limited by law as to the interest rate.

The CHAIRMAN. Mr. King ?

Mr. King. Mr. McLeaish, two short questions. What is now the approximate total of loans ? Mr. Smith. Approximately $100 million.

Mr. King. I understand it costs in excess of $25 million a year just to administer this program?

Mr. McLEAISH. That is correct.

Mr. King. This bill which essentially is merely providing for simplification of procedures would help hold down that administrative cost?

Mr. McLEAISH. Either hold down the administrative cost or allow us to make more loans with the same administrative costs.

In answer to your first question, all types of loans we made last year were close to $300 million. That is not only this type of loan but all loans.

Mr. King. What is the difference between the $100 million and the $300 million?

Mr. McLEAISH. $100 million I think Mr. Smith had reference to, insured commitments.

Mr. King. Money extended by the entire administration was $300 million ?

Mr. McLEAISH. That is right.

Mr. King. Do you have any idea as to what portion of this $300 million the Government will ever get back?

Mr. McLEAISH. According to my accountants we will get it all back. The only thing we will fail to collect, perhaps, will be the interest. That is according to my estimates.

Mr. King. According to present records which are always changed by changes and expansions of loans?

Mr. McLEAISH. That is right.

Mr. King. You really don't know how much loss there is actually?

Mr. McLEAISH. On this type of loan we are talking of here, the farm ownership loan, collections have been 99.6 percent of maturities. In other words, they are paid off when due.

Mr. King. That is as of the $100 million ?
Mr. McLEAISH. Yes.
Mr. King. Where the risk involves the $200 million amount?
Mr. McLEAISH. That is right.
Mr. King. Anyway, this helps minimize the administrative cost?
Mr. McLEAISH. Yes, sir.
The CHAIRMAN. Mr. Johnson?

Mr. JOHNSON. It seemed to me that the note and mortgage would have to be made out to the same individual. You couldn't have the note made out to one person and the mortgage the other.

The CHAIRMAN. How about that?
Mr. McLEAISH. We have had our lawyers advise us on that, sir.

Mr. LAIRD. In your statement you make this retroactive on notes that you already have processed?

Mr. MCLEAISH. That would be to insured mortgages already made; yes.

Mr. LAIRD. In this provision you make it so you can recall those mortgages ?

Mr. McLEAISH. What we would do in that case is to have the original holder of the mortgage assign it back to us.

Mr. LAIRD. It would seem to me this paper is more attractive than the paper secured by the mortgage.

Mr. McLEAISH. Yes, sir, particularly to a local banker.
Mr. LAIRD. Wouldn't you be able to get a better rate on that?
Mr. McLEAISH. We have that in mind.
Mr. LAIRD. You will be able to get a better rate?
Mr. McLEAISH. Yes, sir.
Mr. LAIRD. And in the long run it will save money for the borrower!
Mr. McLEAISH. Save money for the borrower.

Of course, we have a ceiling of 4 percent to the banker now. We are operating at three and a half. We would have to float with,

Mr. LAIRD. That is an important consideration. You are making the better paper available to the lender.

Mr. MCLEAISH. Making something close to a Government bond available to the lender now out of this provision.

The CHAIRMAN. Mr. Hope?

Mr. HOPE. You have a differential of 1 percent, do you, to take care of the insurance and cost of the operation?

Mr. McLEAISH. That is correct, 1 percent as fixed in the statute. Mr. HOPE. From your experience so far the 1 percent will take care of the insurance as well as the operating cost? Mr. McLEAISH. It has done very

well

up Mr. HOPE. Do you anticipate there will be no cost to the Government in this type of loan?

Mr. McLEAISH. Half of 1 percent doesn't exactly take care of the administrative cost except when you consider it as an adjunct to all of the other operations of the agency. It is a contribution.

Mr. HOPE. Does your present experience bear out the thought that this will pay its own way?

Mr. MCLEAISH. Come very close to it, Mr. Hope.

.

to now.

The CHAIRMAN. Do you have different rates of interest applying to different loans made at different times? Do you have some 5 percent loans and 3 percent loans?

Mr. McLEAISH. Under this particular statute? We have different rates as of now.

The CHAIRMAN. I know that you do on your different types of loans. Mr. McLEAISH. Yes.

The CHAIRMAN. When you reduce the FHA loans to 3 percent in the future, you would still have some at 5 percent and some at 3? Mr. McLEAISH. Four percent is as high as we can go. The CHAIRMAN. I mean 4 and 3?

Mr. McLEAISH. As loans have been made under the statute, we could go to two and a half percent; that is way back in the past.

The CHAIRMAN. Land purchase loans?

Mr. McLEAISH. Yes. Some have been made at 3 percent, being 4 percent to the borrower, adding the 1 percent on to the 3. At the present time we are making loans at three and a half percent to the lender plus the 1 percent, which makes four and a half percent which the borrower pays.

The CHAIRMAN. Any further questions?

Mr. JOHNSON. Under that polícy the bank would be getting 1 percent less than what the Government gets. Is that right?

Mr. McLEAISH. That is correct.
The CHAIRMAN. Thank you very much.

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