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About The commoner. (Lincoln, Neb.) 1901-1923 | View Entire Issue (Aug. 1, 1916)
'vy eip ,i' '! vTrf8fSl'fwKwi1wv';" The Commoner 12. VOL. 16, NO. 8 i - fvr3 it. Ifev I Digest of the Rural Credits Act An outstanding achievement of tho present democratic administration was tho onactmont of tllo now rural credits law. Tho toxt of tho now bill Is too long for reproduction In these pages. Headers of Tho Commonor will find tho follow ing summary, as prepared by tho ofllco of In formation of tho United States department of agrlculturo, an excellent explanation of tho va rious features of tho now law. Ed. Tho Federal Farm Loan act, popularly called tho "Rural Credits Law," was signed by tho President and bccamo a law on July 17, 1916. Tho primary purposo of this act is to promote agricultural prosperity by onabling farmers to borrow money on farm-mortgage security at a reasonable rata of interest and for relatively long periods of timo. To attain this object, two farm-mortgago systems are provided: (1) A systom operating through regional land banks; and (2) a system operating through Joint-stock land banks. To attract money to tho farm loan field, tho Ret provides a method whereby those who have monoy to lend can And safe investments in tho form of debentures or bonds, of small and largo denominations, issued by tho banks and based on tho security of mortgages on farm lands. Thoso two systoms are to bo undor tho gen eral supervision of a Federal Farm Loan board In the treasury department, composed of tho secretary of tho treasury, as chairman ox-offlcio, and four members appointed by tho President. This board has authority to appoint appraisers, oxaraincrs, and registrars, who will bo public officials. THE FEDERAL LAND BANK SYSTEM Undor tho federal land bank systom tho act provides for federal land banks which make loans, for tho first twelve months, exclusively through local national farm loan associations composed of borrowers. These associations shall be shareholders in tho banks and In that way tho members, who are tho borrowers, will Bharo in tho profits of tho bank. Tho money for tho loans is to como partly from tho capital of tho banks and partly from tho sale by the banks of bonds secured by first mortgagos on farm lands. Tho act defines strictly tho purposes for, and tho conditions under, which loans aro to bo made, and requires that tho rato of interest chargod on farm loans shall noC exceed 6 per cent por annum. TWELVE FEDERAL LAND BANKS Tho United States shall bo divided into 12 farm loan districts, and a federal land bank with a subscribed capital stock of not less than $750, 000, each share $5, Bhall bo established in each district. Each federal land bank may establish branches in its district. Within thirty days after tho capital stock is offered for sale it may bo purchased at par by anyone. Thereafter, tho Btock remaining unsold shall bo bought by the socrotary of the treasury for the United States. It is provided, however, that tho government shall not receive any dividends on its stock. Ultimately, it is intended that all tho stock in tho banks shall be owned by the associations of borrowers, and provision therefore is made in the law for transferring tho original stock at par to theso associations. NATIONAL FARM LOAN ASSOCIATIONS The act provides for the creation of local na tional farm loan associations through which it is contemplated that the federal land banks shall make their loans. In the event that a local loan association is not formed in any locality within a year, tho Federal Farm Loan board may au thorize a federal land bank to make loans on farm land through approved agents. Ten or more persons who own and cultivate farm land qualified as security for a mortgage loan under the act, or who aro about to own and cultivate 5? h, 1?,nd may form Bucn an association, pro vided tho aggregate of the loans desired by the. membership is not less than $20,000. Each member must take stock in his association to an amount equivalent to 5 por cent of tho amount he wishes to borrow. This stock the association holds in trust as security for tho member's in dividual loan. The association, in turn, when applying for money from the bank, must sub scribe for stock in tho bank to an amount equiv alent to 5 per cent of the sum it wants to obtain for its members. This stock is hold in trust by the bank as security for tho loans It makes through the association. If a prospective bor rower has no money with which to pay for his association stock, he may borrow tho price of that stock as a part of the loan on his farm land. Under this plan, then, every borrower must bo a stockholder in his local association, and every association a stockholder in its district bank. Each stockholder in an association is li able for tho acts of that association up to twico tho amount of his stock. HOW LOANS ARE OBTAINED A member of a national farm loan association, before obtaining a loan, must first fill out an application blank supplied to the loan association by tho Federal Farm Loan board. This appli cation blank and other necessary papers will then bo referred to a loan committee of tho as sociation which must appraise the property of fered as security. Such application as is ap proved by the loan committee is then forwarded to tho federal land bank and must be investi gated and reported on by a salaried appraiser of the bank before the loan is granted. This ap praiser is required to investigate the solvency and character of the prospective borrower as veil as the value of his land. When a loan is granted the amount is forwarded to the borrow er through the loan association. CONDITIONS UNDER WHICH LOANS MAY BE OBTAINED FROM FEDERAL LAND BANKS. The act specifically defines the purposes for which loans may bo obtained. These are: "(a) To provide for the purchase of land for agricultural use. "(b) To provide for the purchase of equip ment, fertilizers and live stock necessary for the proper and reasonable operation of the mort gaged farm; tho term 'equipment' to bo defined by tho Federal Farm Loan board. "(c) To provide buildings and for the im provement of farm lands; the term 'improve ment to be defined by the Federal Farm Loan board. "idxl ,To ,li(uIdat0 indebtedness of the own er of the land mortgaged, existing at the time of the organization of the first national farm loan association established in or for the county in which the land mortgaged is situated, or indebt edness subsequently incurred for one of the nur peses mentioned in this section." onLfarm S. b made Dly n first morteages Only those who own and cultivate farm land entity tolrroT "" CUWVat0 SUcU Ianfl "9 No one can borrow save for the purposes stated in the act and those who after borrowing do not use the money for the purposes specified in the mortgage are liable to have their loans reduced or recalled. The secretaryttreasurer of each association is required to report any diver- slaLSnro?tgamgOes0y frm th orhaVndU$100Can " mre than 10'600 cen?ol0ahneTueb WSST& X&2K ZlTo fZrmXUtt0t the -rmSieS Every mortgage must provide for tho o SEA"? & "Z&& the loan. Tho installments reauired i5n i0t SSS5 5rniffiS!j toTff p cas?oVd in in part or taking other necessary action r THE INTEREST RATE PAID BY THE BORROWER lliB No federal land bank is permittori tn i, more than 6 per cent per annum ll6 -per cent te toSS TLTit For example, if the bank navs oniv a on an issue of bonds, it can 11 ll 4 per cent than 5 per cent for the next 11 i Chare moT Out of this margin of not to Snia?5 ifc makes' together with Biwh amountaf I? JL1 P6r ent' its paid-in cash canliwL i can earn on certain reserves and mee al f?8t Pt aal balance or net profits can hi a& epe;nses- Any aends to the Zg holders. Tho loan associations, from timt t. dividends, after getting aside 'KM serves and meeting expenses, can deX Pe" elation dividends to their members. In tilasso the profits, if any, will be distributed amonVJSy borrowers and will, to that extent, redSSf S amount of interest actually paid by them RESTRICTION ON FEES AND COMMISSIONS Tho federal land banks are specified iv , hibited from charging itt connection wUmaT ing a loan any fees or commissions whinh not authorized by the Farm Loan board authorized fees need not be paid in advance bu? may be made part of the loan. but AMORTIZATION PLAN OF REPAYING LOANS It has been said that all loans are to be repaid on the amortization plan. This plan calls for a number of fixed annual or semi-annual nL ments, which include not only all interest and charges due the bank, but the principal as weH These payments are so calculated as to extin guish the debt in a given number of years Aftnr" five years the borrower has the right on any ! terest date to make additional payments on the principal m sums of $25 or any multiple thereof thus discharging the debt more quickly f ThiVnanbe gI?en .bc!W illustrates how a loan of $1,000 bearing interest at 6 per cent would ?snr94 GdAin f2?, yeaJSMby an,annal payment of J 80.24. A study of the columns shows how from year to year the interest is reduced and the proportion of the payment which goes to dis charge the principal steadily increases. Tho u. X"J"" wauucia mtJ UtJUL. Annual Total Periods annual payment Interest Paid at 5 per , on cent principal 1. , 2. , 3. . 4 . 5. . 6. . 7. . 8. , 9;. . 10. . 11. . 12. . 13. . 14... 15. . 16. . 17. . 18. . 19. . 20. . Total ...$80.24 ... 80.24 ... 80.24 ... 80.24 ... 80.24 . . . 80.24 ... 80.24 ... 80.24 ... 80.24 ... 80.24 ... 80.24 .., 80.24 ... 80.24 . .. 80.24 . .. 80.24 . .. 80.24 . .. 80.24 . .. 80.24 . .. 80.24 . .. 80.33 1,601.80 $50.00 48.48 46.90 45.23 43.48 41.64 39.71 37.68 35.56 33.32 30.98 28.51 25.93 23.21 20.36 17.37 14.23 10.93 7.46 3.83 604.89 ? . $30.24 31.75 33.34 35.01 36.76 38.59 40.52 42.55 44.68, 46.91 49.26 51.72 54.31 57.02 59.87 62.87 66.01 69.31 72,78 76.50 1,000.00 Amount of prin cipal still unpaid $969.76 938.00 904.67 869.66 832.90 794.31 753.79 711.23 666.56 619.64 570.39 618.67 464.36 407.34 347.46 284.60 218.59 149.28 76.50 FUNDS AVAILABLE FOR LOANS After a federal land bank has loaned on first mortgage $50,000, it can obtain permission from the Farm Loan board to issue $50,000 in farm loan bonds based on these mortgages, sell such bonds in the open market, and use the money thus obtained to lend on other mortgages. This process of lending on mortgages and selling bonds in issues of $50,000 may be re repeated until bonds to the amount of twenty times the bank's paid-up capital are outstand ing. If each bank should have only its required minimum paid-up capital of $750,000, this plan will provide eventually, if all the authorized bonds of the 12 banks are spld, over $180,000, uuu to lend on first mortgages on farm land. The banks, however, can increase their capital stock above the required minimum and so increase the amount of bonds they can sell, and thus increase tno total amount of monoy available for loans on farm mortgages. . To make these bonds attractive to investors, tno bonds, together with the mortgages upon which they are based, are exempted from fed eral, state, municipal, and local taxation and are made legal investments for fiduciary and trust funds. The capital stock of the federal iana banks is also exempt from taxation. Fed eral reserve banks and member banks of that system are empowered to buy and sell these JJS They are to be issued in denominations of $20, $50, $100, $500, and $1,000. ORGANIZATION OF BANKS 7oTihS te.mPrary management of the federal lana banks is to be in the hands of five directors appointed by the Federal Farm Loan board. As soon, however, as the subscriptions from the loan associations total $100,000, regular directors are to be appointed as follows: Three 'district airectors, resident in the district, shall be ap pointed by the Federal Farm Loan board to rep- a . ' IlK,