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Mr. MADDEN. Yes.
Mr. WOODRUM. What do you mean by rush of business?

Mr. MADDEN. I mean that we had 10 times as much business as before.

Mr. WOODRUM. You had inquiries and cases that had to be investigated?

Mr. MADDEN. Yes; people were actually sitting in our regional offices, in the lobby of the building where the regional office was located and waiting for their turn to tell their troubles and ask our regional people to go out and investigate and see what they could do to adjust them. Actually, that business increased by tenfold. developed from April 12 so that in June it was 10 times as great as it was before.

NUMBER OF CASES RECEIVED DURING APRIL, MAY, AND JUNE, 1937

Mr. WIGGLESWORTH. Can you put in the record a statement giving the figures to show how many cases you have had since April?

Mr. WOLF. Yes, sir. During the months of April, May, and June, 1937, we received a total of 2,825 charges and petitions. On July 1 we had pending 2,084 cases.

Mr. Ludlow. Do you construe the law to mean that when a call comes in you have to respond, if it is a bona fide call?

Mr. Madden. Yes. You cannot do anything less, really. You cannot tell what there is in any of these calls until you have interviewed the people and investigated it. There is no other way to tell what is in it. There is not any way in which you can analyze these things and say that you can tell by looking at this one, for instance, that it is bad and we will pay no attention to it, and that this one has merit and that we will investigate.

Mr. Ludlow. How far do you have to get into a case before you can tell that it is worth further investigation?

Mr. MADDEN. Very often an interview in the office is sufficient to satisfy our people that the case has no merit, so that we can say, that is the end of that.

But very often it is necessary to go out and talk to an employer and get his story. Then, too, often it is a case that goes beyond that and becomes a matter of interviewing witnesses and getting the thing fully developed.

DEFICIENCY CAUSED BY INCREASED TRAVEL EXPENSE

Mr. WOODRUM. To whom is this money due?
Mr. Madden. I suppose is is principally due to railroads.

Mr. WOLF. A good deal of it is due to railroads; all of this money has to do with the actual holding of hearings. The big increase came in the reporting of hearings and the travel attendant on hearings.

Mr. WOODRUM. Do you have any break-down or statement of these items that are not taken care of?

Mr. Wolf. The special items are the railroad bills, because they are the slowest in coming in. We have a break-down of where the increases came. For instance, on the particular items of expense there were special election clerks, special trial examiners, travel, reporting, and printing of notices of elections and ballots, all of these

things involving emergency work. There was an increase between May and June of a little more than $17,000.

There was no possible way, on the basis of past experience, to determine or know what was going to happen.

Mr. Woodrum. How did you arrive at the sum of $15,000, as being the amount that you overspent?

Mr. WOLF. We know the amount of these railroad bills which will come in because when the traveler makes out his voucher he sends us a duplicate railroad receipt, and on that is marked the amount of the railroad fare.

We believe that all our bills are in except the railroad bills, and even as to those railroad bills that are not in we know what they are going to be.

Mr. CANNON. What is the average length of a trip that you take on this work?

Mr. WOLF. It depends on how many things a person has to cover at once. When the staff is small and inadequate as it is at the present time, if a person leaves the Chicago office to handle cases in Iowa he may handle ten or twelve cases in various cities in Iowa before returning to Chicago. Mr. Cannon. How often do you go by plane?

Mr. WOLF. Very rarely; only in those cases where time will be saved and the expense of the plane is not greater than the railroad fare, plus Pullman.

Mr. CANNON. This item is for railroad fare alone; it does not include any other additional traveling expense?

Mr. Wolf. Most of the other traveling expense has been paid. In other words, we have about $25,000 in railroad expense still outstanding, and we have some money with which to pay that. Mr. CANNON. All of these trips are made in Pullman cars?

Mr. WOLF. All of the trips are made by Pullman. Those trips are all in conformity with the Government regulations for travel.

Mr. Taber. It seems to me you ought to have an organization that would be able to tell you whether you were spending more money than you have. I cannot understand at all why you would go ahead and spend this money without knowing you were incurring a deficit.

Mr. Wolf. We hope that if the appropriation is increased and we have sufficient staff to handle the work we will be able to do that. I can tell you, because I know, personally, that our accounting staff and all the other people who do this work have worked almost every night during June until 10 or 11 o'clock. I can tell you that the stenographers in our regional offices are working 60 or 70 hours a week, and we knew that we had no right to demand that of them, but we could not help ourselves.

Mr. TABER. I cannot see why this committee ought to start the practice of clearing up deficits on things where they are straight appropriations for help and disbursement for travel. I think it is a very bad practice.

Sometimes we have to do those things on damage claims; but for straight salaries and operating expenses, we ought not to get into that practice.

What kind of claims are these?
Mr. MADDEN. As I said, most of the unpaid bills are railroad bills.
Mr. TABER. For fares?

Mr. MADDEN. Yes; and the reason for that, of course, is that the railroads submit their bills for travel based on these Government vouchers, and the Government voucher is really a credit. You are traveling on the credit of the Government, and the railroads are rather slow about sending in their bills. So what has happened is that the other things have been paid as they came in, and the unpaid bills are mostly due to the railroads.

WEDNESDAY, AUGUST 4, 1937.

FARM CREDIT ADMINISTRATION

STATEMENT OF W. I. MYERS, GOVERNOR, FARM CREDIT ADMINIS

TRATION; ACCOMPANIED BY F. F. HILL, DEPUTY GOVERNOR; E. H. LeMASTERS, DIRECTOR OF FINANCE AND RESEARCH, FARM CREDIT ADMINISTRATION; AND W. J. SNOW, JR., COMPTROLLER, FARM CREDIT ADMINISTRATION

PAYMENTS TO FEDERAL LAND BANKS AND THE FEDERAL FARM MORTGAGE

CORPORATION

Mr. WOODRUM. We have before us in House Document No. 329 two items, for payments to Federal land banks and to the Federal Farm Mortgage Corporation on account of the reduction in interest, amounting in total to $40,050,000, these estimates being made necessary by the passage of the act of July 22, 1937.

GENERAL STATEMENT

Mr. Myers, will you tell us something about this estimate?

Mr. Myers. Under the provisions of Public, No. 209, Seventy-fifth Congress, the interest rate on Federal land-bank loans outstanding June 30, 1937, is reduced to 3% percent for all interest payable on installment dates occurring during the fiscal year 1938 and to 4 percent for all interest payable on installment dates occurring during the fiscal year 1939. In the case of Land Bank Commissioner loans, the interest rate is reduced to 4 percent for all interest payable on installment dates occurring during the 2-year period July 22, 1937, to July 21, 1939.

We are now beginning the fifth year during which Federal land-bank borrowers have been granted reduced interest rates on their loans As in the past, it will be necessary that an appropriation be made for the purpose of reimbursing the banks for the interest of which they will be deprived under the provisions of Public, No. 209, Seventy-fifth Congress.

The average interest rate on the $2,052,318,799 of Federal land-bank loans outstanding on June 30, 1937, was approximately 5.05 percent. Giving recognition to loans which will be closed during the fiscal year 1938, as well as to loans which will be repaid, it is estimated that $31,700,000 will be required to reimburse the Federal land banks for the reduction in the interest rate to 3 percent.

On June 30, 1937, Commissioner loans, which are owned by the Federal Farm Mortgage Corporation, amounted to $830,576,939.

These loans were made in accordance with the provisions of the Emergency Farm Mortgage Act, approved May 12, 1933, and the Federal Farm Mortgage Corporation Act, approved January 31, 1934. Commissioner loans were made at an interest rate of 5 percent on the security of first and second mortgages on farm lands, chattels, and crops, in amounts up to 75 percent of the appraised normal value of the property mortgaged. The repayment plan provides that during the first 3 years payments of interest only may be required if the borrower is not in default with respect to any other condition or covenant of the mortgage.

At the outset, funds in the amount of $200,000,000 were allocated by the Reconstruction Finance Corporation to the Land Bank Commissioner for the making of such loans. Upon the enactment of the Federal Farm Mortgage Corporation Act, January 31, 1934, the mortgages taken by the Land Bank Commissioner prior to that date and the balance of the $200,000,000 fund were transferred to the Corporation. The Land Bank Commissioner was authorized to continue to make loans on behalf of the Corporation from funds obtained through the issuance of the Government-guaranteed bonds of the Federal Farm Mortgage Corporation. As of June 30, 1937, Federal Farm Mortgage Corporation bonds outstanding amounted to $1,422,190,900. The average interest rate thereon was slightly in excess of 3 percent.

Having established the Federal Farm Mortgage Corporation and authorized it to enter into contracts and incur obligations, it is assumed that it is not intended to impair its integrity or its ability to fulfill its corporate purposes. A 20-percent reduction in the Corporation's gross income from mortgage loans (interest rate reduced from 5 to 4 percent) without provision for reimbursement would seriously affect the financial position of the Corporation. Even though it is true that the bonds of the Corporation are guaranteed by the Federal Government, nevertheless such action would undoubtedly raise the question in the minds of many investors as to the effect on the Corporation's operations and whether its operations might not be affected in a similar way and to an even larger degree in the future. As a matter of fact, a few inquiries of this type have already been received. Such action would also raise a doubt as to whether the regularly published statements of condition of the Corporation can be relied upon as indicating, other factors considered, the probable future operating results of the Corporation.

As previously stated, the average rate of interest on outstanding bonds of the Federal Farm Mortgage Corporation is slightly in excess of 3 percent. With an interest rate charged borrowers of 4 percent, the Corporation will have an interest margin of only 1 percent with which to pay operating expenses and absorb losses. Twenty years of Federal land-bank operations have clearly demonstrated that a 1percent margin between the cost of borrowed funds and the interest rate charged borrowers on the unpaid balance of loans is the minimum margin under ordinary conditions on which an adequately capitalized institution engaged in a Nation-wide farm mortgage business can expect to operate even when its loans are limited to first mortgages not exceeding 50 percent of the appraised value of the mortgaged property. In the case of the Federal Farm Mortgage Corporation, between 60 and 65 percent of the amount of all loans are secondmortgage loans. A substantial percentage of these loans were made

in amounts such that, together with prior liens, they amount to approximately 75 percent of the appraised normal value of the property. Many first-mortgage Commissioner loans are 75 percent loans made on farms which because of some physical or economic hazard would not qualify as security for Federal land-bank loans. In addition to the element of risk, the majority of Commissioner loans are small with the result that administrative costs are relatively high in relation to the amount of the average loan.

As of June 30, 1937, the Corporation held mortgage loans in the amount of $830,576,939. Of this amount $310,849,819, or 37.4 percent, were first-mortgage loans and $519,727,120, or 62.6 percent, were second-mortgage loans. Of the first-mortgage loans held by the Corporation $68,581,393, or 22.1 percent, were delinquent; and of the second-mortgage loans $129,320,402, or 24.9 percent, were delinquent. The trend in delinquency is shown by the following figures: Percent of amount of Commissioner loans delinquent as of June 30: 1934.

4. 7 1935.

19. 1 1936.

21. 4 1937

23. 8 In interpreting the foregoing data as to delinquencies, recognition must be given to the fact that Land Bank Commissioner loans are not seasoned as yet, the average age of these loans being only slightly more than 2 years and no principal has matured on over 90 percent of them.

During the period from February 1, 1934, when the Corporation began operations, to June 30, 1937, it has been able, after paying bond interest and operating expenses and providing for specific valuation reserves, to carry only $27,368,788 to reserves for losses on mortgage loans. As previously stated, the Corporation held mortgage loans as of June 30, 1937, in the amount of $830,576,939. It seems clear that the reserve for losses on mortgage loans of $27,368,788 plus future earnings likely to be available to absorb losses may not prove sufficient, even on the basis of a 5-percent loan rate, to absorb the losses which the Corporation will incur.

NEED FOR REIMBURSEMENTS ON ACCOUNT OF REDUCTION IN INTEREST

RATES ON MORTGAGES

In view of all the considerations involved, it would appear to be sound procedure for the Government to make appropriations to reimburse the Corporation for the losses it would otherwise suffer by reason of the reduction in the interest rate on Commissioner loans. Giving recognition to loans which will be closed during the period from July 22, 1937, to July 1, 1938, as well as loans which will be repaid during this period, it is estimated that $8,350,000 will be required to reimburse the Federal Farm Mortgage Corporation for the reduction in interest rate to 4 percent.

Mr. TABER. How much, in percentage, is that reduction?
Mr. MYERS. It is 1 percent on the principal of loans.
Mr. TABER. You mean this is a principal payment?
Mr. MYERS. No, the interest is figured on the principal.
Mr. TABER. What is the rate of interest?

Mr. MYERS. Five percent, reduced by statute to 4 percent on the Commissioner's loans.

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