Federal Land Banks, National Farm Loan Associations, Etc.
( Originally Published 1918 )
The Federal Farm Loan Act was passed "to provide capital for agricultural development; to create a standard form of investment based upon farm mortgage; to equalize rates of interest upon farm loans; to furnish a market for United States bonds; to create government depositaries and financial agents for the United States; and for other purposes."
It created a Federal Farm Loan Bureau, a department of the United States Treasury, under general supervision of a board called the Federal Farm Loan Board of five members, the Secretary of the Treasury being chairman.
The Federal Farm Loan Board has power to organize and charter Federal Land Banks, and to charter Farm Loan Associations and Joint Stock Land Banks; and for that purpose to divide the continental United States (excluding Alaska) into twelve Federal Land Bank Districts.
Federal Land Banks. Each Federal Land Bank district shall contain a Federal Land Bank, with not less than $750,000 capital. These banks may apply to the Secretary of the Treasury for temporary deposits for their use.
Registrar. The Federal Farm Loan Board appoints a Farm Loan Registrar for each district, to receive applications for and make delivery of farm loans; to act as trustee for the bank issuing farm loan bonds; and to see that farm loan bonds delivered do not exceed the collateral held. He may accept United States government bonds, or cash, as a temporary substitute for mortgages withdrawn, and cause the cancellation and delivery to the makers, their heirs or assigns, of mortgages paid in full; and may order the transfer to his account as trustee, of all payments, or the proceeds thereof, on the principal of mortgages held as collateral against farm loan bonds.
Control. Each Federal Land :Bank is controlled by nine directors, six of whom are chosen by national farm loan associations, and are known as local directors; and three appointed by the Federal Farm Loan Board. At least one of these three must be an experienced farmer, actually en-gaged in practical farming.
No director shall be engaged in banking, nor in the business of making or selling land mortgage loans.
Capitalization. The capital of each Federal Land Bank must be not less than $750,000, in 150,000 shares of five dollars each.
Who May Hold Stock. The United States government, the government of any state, or the public, may subscribe these shares. Stock held by national farm loan associations may not be transferred nor hypothecated; and no dividends will be paid on stock held by the government.
Voting Power. Only stock held by farm loan associations or by the government is entitled to vote.
Powers and Duties of Federal Land Banks. To issue and sell, purchase and retire, at or before maturity, with the consent of the Federal Farm Loan Board, farm loan bonds.
To invest in qualified first mortgages on farm lands within its district.
To receive and deposit farm mortgages in trust with farm loan registrar, and authorize farm loan associations and agents to collect and remit sums payable under terms of such mortgages.
To acquire and dispose of real or personal property necessary for the transaction of business, and land acquired in satisfaction of debts, or purchased at sales under certain conditions.
To make interest bearing deposits with any member bank of the Federal Reserve System. To accept, without interest, deposits of securities or current funds from farm loan associations holding its shares.
To borrow money upon security.
To buy and sell U. S. Bonds.
To apply for, through Federal Farm Loan Board, and receive, temporary deposits from U. S. Treasury not in excess of $6,000,000 at any one time, upon certificates of indebtedness bearing interest at current rates, secured by farm loan bonds or other satisfactory security.
May act, under certain conditions, as financial agents of the government and receive government deposits, except receipts from customs; such funds shall not be invested in mortgage loans.
May grant reappraisals for purpose of additional loans permitted under certain conditions. May establish branches within district.
To declare dividends under certain conditions. To submit quarterly statements of condition to Federal Farm Loan Board.
NATIONAL FARM LOAN ASSOCIATIONS are chartered by the Federal Farm Loan Board upon the recommendation of a Federal Land Bank. They may be organized by ten or more persons, actual or prospective owners of farm land qualified as security for mortgage loans.
The articles of association must be submitted to the Federal Land Bank for approval, and must be accompanied by affidavits of ownership of land, and by stock subscriptions in the' Federal Land Bank for an amount equal to five per cent of loans desired. Minimum aggregate of loans, $20,000.
Officers and Directors. There shall be five directors, and these shall choose a secretary-treasurer (who need not be a shareholder), and elect a president, a vice-president, and a loan committee of three. No director, except the secretary-treasurer, shall receive any compensation unless allowed and approved by the Federal Farm Loan Board.
All except the secretary treasurer shall be residents of the district, and shareholders.
Borrowers shall (as above) subscribe for capital stock of the association to an amount equal to five per cent of the loan applied for. If the loan is granted, the borrower becomes owner of one share of stock for each $100 face of loan, to be paid off at par and retired, when the loan is fully repaid. Each share carries one vote. Maximum votes for any one member, twenty.
Capital stock thus subscribed for is held as collateral to the loan; accrued dividends payable to the borrower. Only borrowers may be members or shareholders.
A National Farm Loan Association desiring to borrow for one of its members, from a Federal Land Bank, shall subscribe for capital stock of such bank in an amount equal to five per cent of the loan desired, payment to be made in cash when the loan is granted, and the stock held as collateral for the loan. Dividends accruing upon stock so held will be paid to the association.
Loans to Individuals must not be less than $100 nor more than $10,000.
Capital may be increased for the purpose of securing additional loans. Reserves shall be in-vested according to rules prescribed by the Federal Farm Loan Board. In case of voluntary liquidation, reserves become the property of the Federal Land Bank.
Association Shareholders Are Individually Responsible, equably and ratably not one for another for all liabilities of the association, to the extent of the par value of their shareholdings in addition to the amount paid in for and represented by their shares.
Membership in an association is determined by a two-thirds vote of the directors, upon subscription for one share for each $100 of the face of the loan desired by the applicant.
An Association Has Power to indorse mortgages and assume liability for their payment; to receive and deliver funds against qualified first mortgages; to acquire and dispose of property necessary or convenient to the transaction of its business; to issue certificates against deposits of current funds bearing interest not less than four per cent a year, convertible into farm loan bonds at the Federal Land Bank of the district in any multiple of $25; to pay reasonable expenses, and if necessary assess members for that purpose in the proportion of stock holdings; or to borrow from the Federal Land Bank at six per cent; and to apply to the bank for loans not exceeding one-fourth of its holdings in the stock of the bank.
A Loan Committee of three shall be appointed by the directors to examine and appoint lands offered as security, but the bank need not be bound by their appraisal.
If any member of the committee, or any di-rector, be interested directly or indirectly in a loan, a substitute shall be appointed to act in that particular case.
Agents for Federal Land. Banks are appointed by the Federal Farm Loan Board to indorse loans made, and to collect and forward to Federal Land Banks, without charge, payments on loans indorsed.
In case a loan defaults, the agent is liable for its payment.
An agent is paid actual expenses and a commission not to exceed one-half of one per cent a year on the aggregate unpaid principal of loans in the bank for which he acts.
JOINT STOCK LAND BANKS
Organization. Not less than ten persons may organize a Joint Stock Land Bank. Charter must be granted by the Federal Farm Loan Board. There shall be not less than five directors.
Shareholders are individually liable, the same way and to the same amount as in the case of loan association shareholders. The government is not permitted to hold shares.
The Capital Stock shall be not less than $250,000, one-half paid in cash, the other half subject to call.
The Voting Power is the same as in National Banks.
Bond Issues cannot be made until the capital stock is fully paid up.
Powers and Limitations. A Joint Stock Land Bank may not issue nor obligate itself for outstanding farm loan bonds in excess of fifteen times the amount of its capital and surplus.
It shall not receive any deposits nor transact any business other than as specified in the Federal Farm Loan Act.
It shall not charge a rate of interest on farm loans exceeding by more than one percent the rate established for the last series of farm loan bonds issued.
It may make first mortgage loans on farm lands in the state where its principal office is located, or in some one contiguous state.
It may issue farm loan bonds only in the form prescribed by the Federal Farm Loan Board.
It shall demand or receive only the authorized commissions or charges.
LOANS must run not less than five nor more than forty years. Borrowers to pay all taxes and assessments. Interest not to exceed six per cent exclusive of amortization payments. Proceeds to be used as specified in application, otherwise the loan may be called in.
After Five Years from the date of a loan, the borrower may, on any interest day, pay the whole of it; or a part, in multiples of $25.
Purposes of Loans. To provide for the purchase of land for agricultural use.
For purchase of farm equipment, fertilizers, and for necessary livestock.
For buildings, or for other improvements.
To pay debts existing at the time of organization of the first national farm loan association in the county where the mortgaged land is situated, or for debts subsequently incurred for the purposes above specified.
No Loan shall exceed fifty per cent of the appraised value of the land and twenty per cent of the appraised value of permanent and insured improvements.
Maximum loans, $10,000; minimum, $100.
FARM LOAN BONDS
Farm Loan Bonds may be issued subject to the favorable report of the Farm Loan Board, in denominations of $25, $50, $100, $500, and $1,000.
They may be issued by Federal Land Banks, or Joint Stock Land Banks, against first mortgages or government bonds to be held as security by the Farm Loan Registrar, in series of not less than $50,000 for specified periods, with interest of not more than 5 per cent a year.
They may be paid up and retired at any time after five years from the date of issue, under rules prescribed by the Federal Farm Loan Board.
They are a legal investment for trust funds and security for public deposits. They are exempt from taxation.
They shall be issued through the registrar of the district.
Federal Reserve Banks may buy and them.
EXAMINATIONS Under direction of the Federal Farm Loan Board, all Federal Land Banks and Joint Stock Land Banks shall be examined at least twice each year.
Penalties. False statements; overvaluation of land; forgeries, deceptions or frauds of any kind; accepting or granting gratuities ; illegal commissions or other considerations; disclosure of the name of a borrower, subject the offender to fine or imprisonment or both.