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Measures most frequently urged to meet the problems of absentee landlordism include: 1. Laws prohibiting the ownership of land by aliens; 2. A higher tax rate for non-residents.

Laws making it illegal for an alien to own land within a state have been enacted in a number of states. However, such laws have usually been circumvented by the acquisition of citizenship papers and fictitious residence in this country; such aliens becoming naturalized simply on account of the prohibition against alien ownership of farm land. There is the further difficulty that such a provision might be held objectionable under the federal constitution.

The proposal to tax citizens at different rates according as they are resident or non-residents within the state might also be objectionable under the federal constitution as being contrary to inter-state comity.

The purpose of both of these proposals is, of course, to break up large holdings for the use of actual farmers, who will own and operate the land upon which they live. It has been pointed out that this purpose could be just as readily secured under a graduated land tax; and that a classification as between operators and non-operators of agricultural lands could be made by any state without being objectionable under the federal constitution.

Under such a classification, land held for speculative purposes or large holdings held for occupation by tenants, could be taxed at a higher rate than land which is operated and improved by the owner.

III. SYSTEMS OF RURAL CREDITS:

FIRST MORTGAGE

SYSTEMS: FEDERAL FARM LOANS.

Since the enactment of the Federal Farm Loan Act July 17, 1916, a considerable number of National Farm Loan Associations have been organized within this State. By October 31, 1919, a total of 1,768 loans, aggregating $6,841,475.00 had been placed on Illinois farm lands through these Federal cooperative associations. The total for the entire United States, on the same date showed 103,672 separate loans aggregating $271,317,816.00. The total number of loans and aggregate amounts for states contiguous to Illinois for the same period were as follows: Indiana 2,440 loans and $8,234,700.00; Michigan 2,802 loans and $5,093,200.00; Wisconsin 1,884 loans and $1,455,800.00; Minnesota 3,256 loans and $9,921,100.00; Iowa 2,522 loans and $17,766,350.00; Missouri 2,682 loans and $7,223,050.00; and Kentucky 1,442 loans and $3,691,200.00. Contrasted with these Delaware had only 12 loans in all aggregating $24,500.00, the smallest number as well as the smallest aggregate for any State, while Texas had the largest number of loans as well as the largest aggregate for the same period amounting to 10,643 loans with an aggregate of $29,999,156.00.

The Joint Stock Land Banks, also provided for in the Federal act made additional farm loans amounting to $47,633,775.83 for the entire United States. Adding this amount to the total loans made through the Farm Loan Associations for the entire country, gives a sum total of $318,951,591.83 placed on farm loans under the Federal Farm Loan Board in a period slightly more than three years since it was established.

The present federal farm loan act is distinctly limited to first mortgage loans. Such loans involve little risk and therefore permit a low rate of interest and provide a safe basis for the issue of the farm loan bonds. The amortization plan of the federal law further tends to lower the amount of interest actually paid, and this process of paying off the indebtedness by installment payments of a fixed amount, which includes interest and a part of the principal, throughout a period of years, thus provides a regular source of capital for the payment of the farm loan bonds.

Briefly summarized, the purpose of the federal farm loan act is to provide capital for agricultural development and to create standard forms of investment based upon farm mortgages; or more specifically, as summarized by the Federal Farm Loan Board, "To lower and equalize interest rates on first mortgage farm loans; to provide long term loans with the privilege of repayment in installments through a long or short period of years, at the borrower's option; to assemble the farm

credits of the nation, to be used as security for money to be employed in farm development; to stimulate cooperative action among farmers; to make it easier for the landless to get land; and to provide safe and sound long-term investments for the thrifty."

The entire system of farm loans under the Federal Farm Loan Board involves two methods of cooperative action: first, cooperative associations of borrowers, operating by means of the farm loan associations and the 12 federal land banks; second, cooperative associations of lenders, operating through the joint stock land banks.

National Farm Loan Associations.

The national farm loan associations are organized and controlled by the borrowers: each is made up of 10 or more farmers and it is through these local units that the borrower enters into the benefits of the system. These cooperative units furnish the machinery for borrowing and investing, for voting, and for protection against loss.

A national farm loan association may be formed by persons desiring to borrow money on farm mortgage security by entering into articles of association under the farm loan act. Membership in an association is limited to natural persons who are actual farmers and who are the owners, or about to become owners of farm land. This includes prospective farmers, tenants, or farm laborers who are about to purchase land. The prospective borrowers hold an organization meeting and elect from their members a board of five or more directors, and this board elects a loan committee of three, a president, vice president, and a secretary-treasurer, who is a bonded officer. The secretary-treasurer may or may not be a member of the association. These prospective borrowers, 10 or more in number, then make application in writing to the federal land bank of the district for loans to the aggregate amount of $20,000 and for a charter to do business. They must sign and acknowledge articles of association and forward them to the federal land bank. The federal land bank then sends its appraiser to inspect the land offered as security for the loans applied for, and, if satisfactory, the loans are authorized when the charter is granted to the association. The bank then advances the money through the secretary-treasurer of the local association. In the application signed by borrowers each must indicate how much money he desires and must list the value of the land to be mortgaged as security; but no person may borrow more than $10,000 nor less than $100, and in no case may the loan exceed 50 per cent of the value of the land mortgaged, and 20 per cent of the value of the permanent insured improvements.

Upon the granting of the charter the individuals signing the application become a body corporate, and the farm loan association thus organized has the right to do the business authorized by the farm loan act and to have succession indefinitely. When once organized it may take in new members from time to time and thus serve an entire community continuously.

Whenever any national farm loan association desires to secure a loan on first mortgage for any of its members from the federal land bank of its district, it is required to subscribe for capital stock of the land bank to the amount of 5 per cent of such loan; this subscription is to be paid in cash upon the granting of the loan by the land bank. Such capital stock is to be held by the land bank as collateral security for the payment of the loan, but any dividends accruing and payable on such capital stock while it is outstanding are to be paid to the farm loan association. Such stock may be paid off at par and retired in the discretion of the directors of the association and with the approval of the Federal Farm Loan Board, and the stock must be paid off and retired upon full payment of the mortgage loan. In such case the national farm loan association is required to pay off at par and to retire the corresponding shares of its stock which were issued when the land bank stock was issued. The capital stock of the federal land bank may not be reduced to less than 5 per cent of outstanding farm loan bonds issued by it.

Any person whose application for membership is accepted by a loan association is entitled to borrow when funds are available unless the federal land bank of the district or the farm loan board determine otherwise. Any borrower may, at his option, pay for his stock from the proceeds of the loan, provided the total amount of the loan does not exceed the maximum limit of $10,000. Any sum thus borrowed from the federal land bank through the association is to be made a part of the face of the loan and paid off in amortization payments.

Subject to rules and regulations prescribed by the Federal Farm Loan Board, any loan association is entitled to retain a commission not exceeding one-eighth of one per cent semi-annually from each interest payment upon the unpaid principal of any loan indorsed by it. Any amounts so retained as commissions are to be deducted from dividends payable to the federal farm loan association by the federal land bank. Any loan association may make application to the federal land bank of the district for loans not exceeding in the aggregate one-fourth of its total stock holdings in the bank. The land banks have the power to make such loans and to charge interest not exceeding 6 per cent per

annum.

Shareholders of every loan association are held individually liable, equally and ratably, and not one for another, to the extent of the par value of the stock owned by them, in addition to the amount paid in and represented by their shares.

After a charter has been granted, any natural person owning, or about to own qualified land, may become a member of an association upon approval of the directors and upon subscribing to stock to the extent of five per cent of his proposed loan.

Whenever an application for a mortgage loan is made to a loan association it must be referred to its loan committee. This committee examines the land, makes an appraisal and a detailed written report, and no loan may be approved by the directors of the loan association unless the committee's report is favorable. The written report and approval of the loan committee are then submitted to the directors of the land

bank, together with the application for the loan. The land bank is required to refer the application and the report to the land bank appraiser for investigation, and no loan may be made by the bank unless the written report of the appraiser is favorable. Land bank appraisers are required to make such examinations and appraisals and conduct such investigations concerning farm loan bonds, and first mortgages as the Federal Farm Loan Board may direct.

Capital stock of national farm loan associations. The shares in national farm loan associations have a par value of $5.00 each. Each shareholder is entitled to one vote on each share of stock held by him at all elections of directors and in deciding all questions at meetings of shareholders, but the maximum number of votes which may be cast by any one shareholder is limited to 20. It is evident that this limitation on voting power places all members who borrow more than $2,000 on an equality of voting strength, regardless of any larger loans which they may carry.

Only borrowers on farm land mortgages are permitted to be members or shareholders in the loan associations. Every applicant for a loan must apply for membership and subscribe to stock in the association to the extent of 5 per cent of the desired loan, and this subscription must be paid in cash upon the granting of the loan. If the application for membership is accepted, the loan granted, and the stock paid for, the applicant becomes the owner of one $5 share of capital stock in the loan association for each $100 of the face of his loan or any major fraction thereof. Upon full payment of the loan such capital stock is retired: meanwhile it is held as collateral security by the association, but the borrower receives any dividends accruing and payable while it is outstanding. The amount of capital stock is to be increased by the association from time to time for the purpose of securing additional loans for its members and providing for the issue of shares to borrowers in accordance with the provisions of the act, but any such increases must be stated in the quarterly reports to the Farm Loan Board.

Powers of national farm loan associations. Every national farm loan association has the power to indorse and thereby become liable for the payment of mortgages taken from its shareholders by the federal land bank of its district; to receive funds advanced by the land bank and to pay over such funds to the borrowers. It may further issue certificates against deposits of current funds and convertible into farm loan bonds when presented at the federal land bank of the district in the amount of $25 or any multiple thereof; such deposits when received, are forthwith to be transmitted to the land bank and be invested by it in the purchase of farm loan bonds issued by a federal land bank or in first mortgages under the act. The association is further empowered to own such property as may be required for the transaction of its business.

Farm loans made through national farm loan associations. The following statement compiled from data supplied by the Federal Farm Loan Bureau shows the number of loans made by the Federal land banks through the national farm loan associations since the enactment of the federal law, and up to October 31, 1919, inclusive. Totals

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