19

8.—5

The terms of payment are on the amortization plan, running thirty-four and a half years, twenty years, fifteen years, or ten years, at the end of which period the loan is all paid off. On a 34-i - year loan the borrower is required to make payments which are equivalent to paying per cent, on his loan —that is, he must pay $32-50 every six months for each $1,000 borrowed. These semi-annual payments are called " amortization instalments," and they not only pay all the interest on the debt, but in 34j years pay off the entire debt itself. Beginning with the very first instalment, a part of each payment is applied on the principal, reducing the debt and stopping interest on the amount so applied. Inasmuch as the amount of interest becomes less as each succeeding instalment is paid, the portion of these instalments that is applied on the loan grows larger and larger with each successive payment, and consequently the debt is reduced with constantly-increasing rapidity. After the loan has run five years the borrower is permitted to make additional payments on the principal, or to pay up the loan in full on any interest date. The mortgage may be reduced at any time after the loan is closed by payment to the bank of part of the proceeds from the sales of timber, land, rights of way, or other property covered by its mortgage. Until the principal is all paid up the amortization instalments must continue to be paid promptly every six months. Application for loans are made to the Secretary-Treasurer of the local National Farm Loan Association operating in the district where the farm is located. The loans cannot be made direct by the land bank, but are made through these associations, which are co-operative organizations of ten or more farmer borrowers. Each borrower becomes a member of the association, and his loan must be recommended and guaranteed by the association. Associations have now been chartered to take in practically all of each land-bank district. As this is a co-operative system, each applicant is required to pay the cost of handling his application and making his loan. Part of the cost is required as an advance fee, varying according to the rules of the different associations, and the balance is taken out of the proceeds of the loan. The standard fee is 1 per cent. of the loan granted, $10 of which is usually required with the application, the balance deducted from the loan when closed. Cost of searching title, making abstract, and recording fees is a separate item. (Example : A applies for loan and pays $10 with his application. The bank grants him $3,000. His fee is $30, less the $10 already paid, leaves $20, which will be deducted from his loan when it is closed.) The expense of making a Federal loan is small, and, once paid, is paid for all time. The Federal loan need be made but once in a lifetime. Each borrower is required to buy stock in the association to the extent of 5 per cent, of the loan he receives. This stock is his property, and is held by the association as collateral to his loan. He receives such dividends on this stock as the bank is able to earn and distribute, and when the loan is fully paid up his stock is repurchased at its full par value. The stock bears a " double-liability " feature, inasmuch as he also must become liable in the event of loss for a further 5 per cent, of the value of such stock. Stock need not be paid for in advance. The amount is usually deducted from the proceeds of the loan. The farm may be sold subject to the Federal mortgage, but if sold subject to such mortgage the purchaser must also purchase the loan stock. " The farm-loan system provides a low-rate, long-time, easy-term mortgage loan to the farmer ; it is in fact designed to fit, and does fit, the credit needs of the farming industry in a peculiar way. It provides an especially desirable form of loan for the man who is just getting established." —(Quotation from Farm Loan Board's report.) The borrower is obliged to have some capital of his own, and cannot expect to obtain a farm by using only the capital obtained from a Federal loan. The Federal loan cannot be made for more than one-half of the value of the farm, and it must be made only on a first mortgage. In special cases the twelve Federal land banks are empowered to make loans through agents as well as through the associations, but the provision is made little use of.