Show v. J. J C B C B OF FINANCE I E FAEM LOAN BONDS I IBy 0 By HAROLD EAROLD F F. F GREENE t v. v Manager Bond Department Guaranty Trust Co of New Y York k r Through the federal farm loan Joan act two desirable ends havo o avo been sought ought for and are arc arcin I In a n. fair way to being ob- ob 4 In largo measure The ThC first I Is that farmers have havo been given an nn agency through h which they can obtain mort mortgage ag loans loans- at a t f fair lr rato of InI in- in Tho Tim second Is la that bon bonds s of an I unusual unusually high grade exempt from tax- tax atlon and backed not alono b by tho se security se- se e o of at rc real 1 property but also b by tho United States government arc constantly con- con constan stan stanly ly being put upon tho the market and SI offered to tho the average n Investor Tho The associations and banks Issuing tho the b tho the bonds ar are arc no now owned Jointly by government and Individuals but means havo been established whereby tho they will ultimately belong almost entirely Jf if not entirely to tho the farmers a of tho the country countr who will share In tho the banking profits of the plan Two types of or bonds bonda are arc provided pro for forb forby b by tho the terms torms of or the act and lOd In order that tho the distinction bel between them thorn may maybo bo be understood It Is necessary ary that the workings of at the tho act be explained Under Its terms continental united States exclusive of ot Alaska y i Is divided Into twelve districts which districts which ar arc not however co extensive with tho federal L reserve districts and districts and In each district a a. certain city is appointed as ns farm loan The Tho law provides that In each such lIuch city a 0 federal land bank with a a. minimum capitalization of be established Tho The orl original capital for tor establishing these banks was provided by the national government but the less as asI 4 governments government's share will grow I time goes on on and the farmers themselves them- them j selves take over o tho the organization Local control of or tho the farm torm loan banks Is obtained through associations known n as Farm Loan associations J which arc are organized b by tho the farmers themselves for their own benefit For each one ono hundred dollars borrowed Teach ach borrower must subscribe to five t dollars' dollars worth of or stock In the tho association tion and on this stock there Is double inability which affords aCCords added j- j to holders of farm loan bonds j i The association grants loans only on first mortgages on improved land Jand and only to Ito tho the extent of at fifty Ity per cent tot t or the value alue of or tho the land and twenty per peri i J cent of or the value of permanent Im- Im f pro Two appraisements are i 1 made Borrowers further must pay reach 4 each year not only Interest on th th loan 1 j I but an additional sum sm sufficient to toI I amortize the principal of the loan In a af f period between five and tort forty years J This operation la III very similar to that of or the ordinary building and loan as as- as J familiar In most American J 4 communities loan associations obtain 4 The Tho farm tarm their mone money from the federal land banks b by Indorsing guaranteeing and andr r pledging these flat mort mortgages ages or orT T limited United States bonds with tho the banks lAt I At tho the samo same time they must subscribe to the stock of or the bank a sum equal 1 to five per cent of or the amount of or their ito borrowings As their borrowings In- In J. J crease they will Ill of or course have greater great- great Jer er control o of the banks Upon these T mortgages as a basis basl and with the approval ap- ap ai roval of at the federal farm loan board the central governing body of or the whole system tho the federal farm loan banks ma may Issue bonds covering the amount of ot their own s. s In lit the thc event that no farm loan as- as have been or are likely to tobe tobo tobo bo be organized In any given locality banks trust rust c companies savings banks and mortgage a companies may act as agents for the federal land bank of at j tho thc district In the role rolo of ot Intermediary between borrowers and tho the bank In such cases 8 the agent Instead of or the association n Indorses and guarantees guar guar- the mortgage There Is a legal limit on the amount of at such Indorse Indorse- ments which an any institution may unu un- un ll u Such is the tho organization behind tho the farm loan bonds which are arc constantly coming Into the market Their security security securIty ity Is unusually strong trong First Is tho the thoi theS S i property rope h Itself Then comes tho the farm Than loan association with its double hat Ilax Ila- Ila x t or tho the agent whoso whose Indorsement appears ars and finally the capital and surplus of or tho tim farm loan bank There fa 8 I further protection In tho the growing sinking fund held b by the association a as all the original loans are arc gradually amortized Finally there thero Is the proVision pro pro- Vision Islon of tho the law that tho the bonds o of any farm arm loan bank are aro the joint liability of f c. all such banks both as to Interest and rind principal Tho The bonds are issued In Sn either coupon or registered form Corm Those that havo have been Issued mature In twenty years though a a. special provision says say that th they may mAV be redeemed at par after five years car Their denominations arc are 3 25 K 50 1100 00 and 1000 Their Interest rate rat cannot bo be more more than 5 cr Jer cent The prevailing rate up to the tho present nas been boen 4 41 H per cent The Tho bonds are arc called by the law Instrumentalities Instrumentalities instrumentalities mentalities 0 of the Unit United cd States government government gov JOV- and nd as such are arc exempt from from f federal state end and local taxes of at every ery sort ort except inheritance taxes They are legal Investments for tor all fiduciary Tind nd trust funds under federal jurl jurisdiction juris juris- diction anil for or virtually every l kinal or of orI I auch uch funds And nel for tor savings savinG's banks In Inmany Inmany inmany many states I 1 a- a Joint stock tock lind land banks bond bond- ar are bonds similar In almost every ery Jt Ur to federal farm loan bond bon c. c chief hl C Is that they aI arc ar Issued 1 I t hy I Joint land banks whose vho la 8 8 authorized d b by the federal feder l farm rm loan I act St Such ch banks b are not capi Id by nt but by individuals Is I or Their minimum capitalization J Is all of which bo paid up J before etore an any bonds are I and obligations may not be un Un- un- un in excess of fifteen times tho 1 j i. And surplus of or th thA IB bank I Is the tho same I In general their security as 3 that o of tho the farm loan bonds though tho the law provides pro that In In the caso case of or orth th th Joint stock banks bank loans bo ho made either cither r In the state In which the bank bankI I Is located loc or in one ono contiguous state stale te Provisions as an to Interest rates denominations nations and ta tax exemptions are aro the tho for Cor both typos of or bond bonds Their relation to the value of oC the land and Improvements on which the mortgage is Issued Is la the same Thc They are arc not all the of oC o 1 however er e the Joint liability banks hanks but of oC tho the Issuing bank alone The They arc nrc legal Investments In for COT fiduciary clat ciary funds under federal Jurisdiction and a number of states have o given I cn them the tho same status as federal farm loan bonds a an as Investments In for trust funds or savings banks |