When a farmer borrows money he is required to buy stock of his local association equal to 5 per cent of his loan. This stock is held by the local loan association as collateral security until the mortgage is paid, when the money is returned to him, or he may use it as the last payment of his debt. The local association uses the money which the borrower pays for his stock to buy stock in the federal land bank; this is done to increase the land bank's capital in order that it may make more loans. The law provides for the automatic increase of the capital of the bank because each local farm loan association must buy stock in the federal land bank equal to 5 per cent of the loans it procures for its members. Now, since each land bank is permitted to lend twenty times its capital to the members of the association, it will be seen that the loaning capacity of the bank is increased twenty thousand for each one thousand dollars added to its capital, the ratio between the capital and the loaning capacity always remaining the same. Accordingly, there is no limit to the capacity of the land bank to meet the needs of the borrower so long as it can sell its bonds. If the loans are conservatively made, no losses can reasonably occur which would at any time depreciate the value of the bonds.

Terms and conditions of loans made by federal land banks. The restrictions placed on federal land banks in making loans are definitely set forth in section 12 of the farm loan act as follows:

"Sec. 12. That no federal land bank organized under this act shall make loans except upon the following terms and conditions:

"First. Said loans shall be secured by duly recorded first mortgages on farm land within the land bank district in which the bank is situated.

"Second. Every mortgage shall contain an agreement providing for the repayment of the loan on an amortization plan by means of a fixed number of annual or semi-annual installments sufficient to cover, first, a charge on the loan, at a rate not exceeding the interest rate in the last series of farm loan bonds issued by the land bank making the loan; second, a charge for administration and profits at a rate not exceeding one per centum per annum on the unpaid principal, said two rates combined constituting the interest rate on the mortgage; and third, such amounts to be applied on the principal as will extinguish the debt within an agreed period, not less than five years nor more than forty years: Provided, that after five years from the date upon which a loan is made additional payments in sums of $25 or any multiple thereof for the reduction of the principal, or the payment of the entire principal, may be made on any regular installment date under the rules and regulations of the Federal Farm Loan Board: And provided further, that before the first issue of farm loan bonds by any land bank the interest rate on mortgages may be determined in the discretion of said land bank, subject to the provisions and limitations of this act.

"Third. No loan on mortgage shall be made under this act at a rate of interest exceeding 6 per centum per annum, exclusive of amortization payments.

"Fourth. Such loans may be made for the following purposes and for no other:

"(a) To provide for the purchase of land for agricultural use.. "(b) To provide for the purchase of equipment, fertilizers and live stock necessary for the proper and reasonable operations of the mortgaged farm; the term "equipment" to be defined by the Federal Farm Loan Board.

"(c) To provide buildings and for the improvement of farm lands; the term "improvement" to be defined by the Federal Farm Loan Board.

"(d) To liquidate indebtedness of the owner 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 indebtedness subsequently incurred, for purposes mentioned in this section.

"Fifth. No such loan shall exceed 50 per centum of the value of the land mortgaged and 20 per centum of the value of the permanent, insured improvements thereon, said value to be ascertained by appraisal, as provided in Sec. 10 of this act. In making said appraisal the value of the land for agricultural purposes shall be the basis of appraisal and the earning power of said land shall be a principal factor.

"A reappraisal may be permitted at any time in the discretion of the federal land bank, and such additional loan may be granted as such reappraisal will warrant under the provisions of this paragraph. Whenever the amount of the loan applied for exceeds the amount that may be loaned under the appraisal as herein limited, such loan may be granted to the amount permitted under the terms of this paragraph without requiring a new application or appraisal.

"Sixth. No such loan shall be made to any person who is not at the time, or shortly to become, engaged in the cultivation of the farm mortgaged. In case of the sale of the mortgaged land, the federal land bank may permit said mortgage and the stock interests of the vendor to be assumed by the purchaser. In case of the death of the mortgagor his heir or heirs, or his legal representative or representatives shall have the option, within sixty days of such death, to assume the mortgage and stock interests of the deceased.

"Seventh.

The amount of loans to any one borrower shall in no case exceed a maximum of $10,000, nor shall any loan be for a less sum than $100.

"Eighth. Every applicant for a loan under the terms of this act shall make application on a form to be prescribed for that purpose by the Federal Farm Loan Board, and such applicant shall state the objects to which the proceeds of said loan are to be applied, and shall afford such other information as may be required.

"Ninth. Every borrower shall pay simple interest on defaulted payments at the rate of 8 per centum per annum, and by express covenant in his mortgage deed shall undertake to pay, when due, all taxes, liens, judgments or assessments which may be lawfully assessed against the land mortgaged. Taxes, liens, judgments or assessments not paid when due, and paid by the mortgagee, shall become a part of the mortgage debt and shall bear simple interest at the rate of 8 per centum per annum. Every borrower shall undertake to keep insured to the satis

faction of the Federal Farm Loan Board all buildings, the value of which was a factor in determining the amount of the loan. Insurance shall be made payable to the mortgagee as its interest may appear at time of loss, and, at the option of the mortgagor and subject to general regulations of the Federal Farm Loan Board, sums so received may be used to pay for reconstruction of the buildings destroyed.

"Tenth. Every borrower who shall be granted a loan under the provisions of this act shall enter into an agreement, in form and under conditions to be prescribed by the Federal Farm Loan Board, that if the whole or any portion of his loan shall be expended for purposes other than those specified in his original application, or if the borrower shall be in default in respect to any condition or covenant of the mortgage, the whole of said loan shall, at the option of the mortgagee, become due and payable forthwith: Provided, that the borrower may use part of said loan to pay for his stock in the farm loan association, and the land bank holding such mortgage may permit said loan to be used for any purpose specified in subsection fourth of this section.

"Eleventh. That no loan or the mortgage securing the same shall be impaired or invalidated by reason of the exercise of any power by any federal land bank or national farm loan association in excess of the powers herein granted or any limitations thereon.

"Funds transmitted to farm loan associations by Federal land banks to be loaned to its members shall be in current funds, or farm loan bonds, at the option of the borrower."

Powers of federal land banks. The powers of federal land banks are summarized in Sec. 13 of the law as follows:

"Sec. 13. That every federal land bank shall have power, subject to the limitations and requirements of this act

"First. To issue, subject to the approval of the Federal Farm Loan Board, and to sell farm loan bonds of the kinds authorized in this act, to buy the same for its own account, and to retire the same at or before maturity.

"Second. To invest such funds as may be in its possession in the purchase of qualified first mortgages on farm lands situated within the federal land bank district within which it is organized or for which it is acting.

"Third. To receive and to deposit in trust with the farm loan registrar for the district, to be by him held as collateral security for farm loan bonds, first mortgages upon farm land qualified under section 12 of this act, and to empower national farm loan associations, or duly authorized agents, to collect and immediately pay over to said land banks the dues, interest, amortization installments and other sums payable under the terms, conditions, and covenants of the mortgages and of the bonds secured thereby.

"Fourth. To acquire and dispose of

"(a) Such property, real or personal, as may be necessary or convenient for the transaction of its business, which, however, may be in part leased to others for revenue purposes.

"(b) Parcels of land acquired in satisfaction of debts or purchased at sales under judgments, decrees, or mortgages held by it. But

no such bank shall hold title and possession of any real estate purchased or acquired to secure any debt due to it, for a longer period than five years, except with the special approval of the Federal Farm Loan Board in writing.

"Fifth. To deposit its securities, and its current funds, subject to check, with any member of the Federal Reserve System, and to receive interest on the same as may be agreed.

"Sixth. To accept deposits of securities or of current funds from national farm loan associations holding its shares, but to pay no interest on such deposits.

"Seventh. To borrow money, to give security therefor, and to pay interest thereon.

"Eighth. To buy and sell United States bonds.

"Ninth. To charge applicants for loans and borrowers, under rules and regulations promulgated by the Federal Farm Loan Board, reasonable fees not exceeding the actual cost of appraisal and determination of title. Legal fees and recording charges imposed by law in the State where the land to be mortgaged is located may also be inIcluded in the preliminary costs of negotiating mortgage loans. The borrower may pay such fees and charges or he may arrange with the federal land bank making the loan to advance the same, in which case said expenses shall be made a part of the face of the loan and paid off in amortization payments. Such addition to the loan shall not be permitted to increase said loan above the limitations provided in section 12."

Restrictions on federal land banks. The following restrictions which the law places on federal land banks are definitely set forth in Sec. 14.

"Sec. 14. That no federal land bank shall have power

"First. To accept deposits of current funds payable upon demand except from its own stockholders, or to transact any banking or other business not expressly authorized by the provisions of this act.

"Second. To loan on first mortgages except through national farm loan associations as provided in section 7 and section 8 of this act, or through agents as provided in section 15.

"Third. To accept any mortgages on real estate except first mortgages created subject to all limitations imposed by section 12 of this act, and those taken as additional security for existing loans.

"Fourth. To issue or obligate itself for outstanding farm loan bonds in excess of twenty times the amount of its capital and surplus, or to receive from any national farm loan association additional mortgages when the principal remaining unpaid upon mortgages already received from such association shall exceed twenty times the amount of its capital stock owned by such association.

"Fifth. To demand or receive, under any form or pretense, any commission or charge not specifically authorized in this act."

Agents of federal land banks. After the act has been in effect for a year federal land banks are authorized to make loans on farm lands through agents approved by the Federal Farm Loan Board whenever