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L 18/ 1965

HEARING

BEFORE THE

SUBCOMMITTEE ON CONSERVATION AND CREDIT

OF THE

COMMITTEE ON AGRICULTURE

HOUSE OF REPRESENTATIVES

EIGHTY-NINTH CONGRESS

FIRST SESSION

ON

H.R. 2469

FEBRUARY 17, 1965

Serial B

Printed for the use of the Committee on Agriculture

U.S. GOVERNMENT PRINTING OFFICE

41-Ttr, WASHINGTON: 1965
COMMITTEE ON AGRICULTURE

HAROLD D. COOLEY, North Carolina, Chairman

W. R. POAGE, Texas, Vice Chairman

E. C. GATHINGS, Arkansas

JOHN L. McMILLAN, South Carolina

THOMAS G. ABERNETHY, Mississippi

WATKINS M. ABBITT, Virginia

PAUL C. JONES, Missouri

HARLAN HAGEN, California

FRANK A. STUBBLEFIELD, Kentucky

GRAHAM PURCELL, Texas

JAMES H. MORRISON, Louisiana

ALEC G. OLSON, Minnesota

SPARK M. MATSUNAGA, Hawaii

MASTON O'NEAL, Georgia

THOMAS S. FOLEY, Washington

JOSEPH Y. RESNICK, New York

LYNN E. STALBAUM, Wisconsin

ELIGIO DE LA GARZA, Texas

JOSEPH P. VIGORITO, Pennsylvania

JOHN C. MACKIE, Michigan

ROLLAND REDLIN, North Dakota

BERT BANDSTRA, Iowa

STANLEY L. GREIGG, Iowa

CLAIR A. CALLAN, Nebraska

MRS. CHRISTINE S. GALLAGHER, Clerk

HYDE H. MURRAY, Assistant Clerk

JOHN J. HEIMBURGER, General Counsel

ROBERT C. BRUCE, Assistant Counsel

FRANCIS M. LEMAY, Staff Consultant

PAUL B. DAGUE, Pennsylvania

PAGE BELCHER, Oklahoma

CHARLES M. TEAGUE, California

ALBERT H. QUIE, Minnesota

MRS. CATHERINE MAY, Washington

DELBERT L. LATTA, Ohio

RALPH HARVEY, Indiana

PAUL FINDLEY, Illinois

ROBERT DOLE, Kansas

LAURENCE J. BURTON, Utah

PRENTISS WALKER, Mississippi

RESIDENT COMMISSIONER

SANTIAGO POLANCO-ABREU, Puerto Rico

SUBCOMMITTEE ON CONSERVATION AND CREDIT

W. R. POAGE, Texas, Chairman

E. C. GATHINCIS, Arkansas

FRANK A. STUBBLEFIELD, Kentucky

JOHN L. McMILLAN, South Carolina

STANLEY L. GREIGG, Iowa

CLAIR A. CALLAN, Nebraska

SANTIAGO POLANCO-ABREU, Puerto Rico

II

RALPH HARVEY, Indiana

CHARLES M. TEAGUE, California

ROBERT DOLE, Kansas
CONTEN TS

H.R. 2469, a bill to amend the Consolidated Farmers Home Administration

Act of 1961 in order to increase the limitation on the amount of loans Page

which may be insured under subtitle A of such act 1

Freeman, Hon. Orville L., Secretary of Agriculture, letter of February 17,

1965 9

Statement of:

Bertsch, Howard, Administrator, Farmers Home Administration_ 5

Graham, Harry L., legislative representative, National Grange 13

Johnson, Reuben L., director of legislative services, National Farmers

Union 14

Lynn, John C. American Farm Bureau Federation 15

Redlin, Hon. Rolland, a Representative in Congress from the State of

North Dakota 3

Stalbaum, Hon. Lynn E., a Representative in Congress from the State

of Wisconsin 2

III

INCREASE LOAN LIMITATION—FARMERS HOME

ADMINISTRATION

WEDNESDAY, FEBRUARY 17, 1965

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON CONSERVATION AND CREDIT

OF THE COMMITTEE ON AGRICULTURE,

Washington, D.C.

The subcommittee met, pursuant to notice, at 10:10 a.m., in room

1310, Longworth House Office Building, Washington, D.C., Hon.

W. R. Poage (chairman of the subcommittee) presiding.

Present: Representatives Poage, Gathings, Greigg, Callan, Teague,

Harvey of Indiana, and Dole.

Also present: Martha Hannah, staff; Hyde H. Murray, assistant

clerk; and Robert C. Bruce, assistant counsel.

Mr. POAGE. The committee will please come to order.

This is the first meeting of this subcommittee this year. I want to

commend our new members. I do not see too many of our old

members present. I see we are outnumbered by the new members.

We appreciate it and we are glad you are here, gentlemen.

It was just reported to me that both Mr. Stubblefield and Mr.

McMillan are out of town with the Tobacco Subcommittee which is

holding hearings in other parts of the country.

We have a rather burdensome agenda this morning.

Our first bill is H.R. 2469, to increase from $200 to $450 million

limitation on the amount of real estate loans which may be insured

by the FHA.

(The bill, H.R. 2469, introduced by Mr. Poage, follows:)

[H.R. 2469, 89th Cong., 1st sess.]

A BILL To amend the Consolidated Farmers Home Administration Act of 1961 in order to increase the limitation on the amount of loans which may be insured under subtitle A of such Act

Be it enacted by the Senate and House of Representatives of the United States of

America in Congress assembled, That section 308 of the Consolidated Farmers

Home Administration Act of 1961 is amended by striking out the figure "$200,-

000,000" and inserting in lieu thereof the figure "$450,000,000".

Mr. POAGE. This is legislation which this committee reported

favorably last year but which we did not get finally passed that year.

It passed the House, but was simply not acted on in the Senate last

year.

It is an extension of the existing programs which have worked, I

think, right well for a good, long time. This program of guaranteed

loans has built up a profit of, I believe, something like $14 million

during the period of its operation which, I think, runs from 1949 to

the present.

It does enable the Farmers Home Administration to carry on the

very helpful program with a minimum of burden to the taxpayers.

1
2 INCREASE LOAN LIMITATION

This is probably the most effective way that we know of for enabling

the FHA to advance these funds without any strain on the Treasury.

Now, we have witnesses on this. I see that our colleague, Mr.

Stalbaum, is with us and wants to be heard.

Would you like to be heard before the Department expresses their

views or would you rather wait?

Mr. STALBAUM. I would just as soon go on now, if there is no

objection.

Mr. POAGE. Without objection.

STATEMENT OF HON. LYNN E. STALBAUM, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF WISCONSIN

Mr. STALBAUM. Mr. Chairman and members of the committee, I

appreciate this opportunity to duscuss H.R. 2469, a bill which would

increase this authorization for the Farmers Home Administration from

$200 to $450 million.

I wholeheartedly support this bill because it will in some measure

help close the serious credit gap that has dogged the small Wisconsin

family farmer for many years.

In fact, one of my predecessors, Congressman Johnson, I note, was

an author of a similar bill at an earlier date.

The vast majority of Wisconsin's 127,000 farmers are of the small

family farmer type where the average acreage is 170, average annual

net income during the last 3 years a little over $3,000. Bear in mind

this is an average and does not include deduction for family living

expenses.

Many farmers in my State and my district, of course fall far short

of this average, not because they are not hard working or because

they are incompetent, but instead because they are boxed in on too

small a farm and because they lack available credit to enlarge their

operations and to modernize their facilities and equipment.

These small farmers do not want to be forced out of business and

try to find nonexistent jobs in the cities or to look for jobs for which

they are not trained. They just want credit, the kind of credit they

can get from the Farmers Home Administration through this type of

program.

In fiscal 1964 there were nearly 37,000 people in rural Wisconsin

who made use of the Farmers Home Administration loan services compared to only 20,000 such persons in 1960.

Farmers Home Administration last year made or insured loans—

this is a combination of the two—of more than $17.5 million in Wisconsin, a 158-percent increase over 1960.

Wisconsin's rural borrowers repaid nearly $10 million in principal

and interest on loans in 1964 as compared with a little over $6 million

in 1960.

This proves two things: One, that there is an increasing demand

for low-cost rural credit at reasonable rates; and two, that when such

credit is available, farm families and rural people know how to use it

and are good credit risks based on their record of repayment.

Along with the acceptance of this program, as shown by this activity I mention is the fact, as Mr. Poage has pointed out, that this is

not Government financing or, to put it more precisely, it is not financing with Government money. Money comes from private lending
INCREASE LOAN LIMITATION 3

sources, and all interest paid by the farm borrower except for onehalf of 1 percent, which establishes an insurance fund, goes to the

private lender.

Thus, this program is not attempting to compete with private types

of financing; rather, it is a sound part of the private capital structure

which we have here in America in the rural areas.

To show its acceptance, I can point out that the funds available

under the present $200 million limit are soon used up, and all subsequent applications are denied and, as one of the men from the Department will testify, I believe, there is only some $15 million left at

this time to carry on the rest of this fiscal year.

Last year in Wisconsin there were 422 such FHA-insured farmowneiship loans totaling $6.4 million. This was all that was available under

the $200 million limit. Banks in Wisconsin last year held in excess of

$11 million of this type of note.

As of January 31 of this year Farmers Home Administration has

already made over $5.4 million in such loans in my State. There were

572 applications still on hand, more than were approved all of last

year, and it is expected there will be another 600 applications before

June 30.

To finance all of this would require another $13 million or roughly

$18.5 million in total, three times the amount that was available to

the FHA in Wisconsin last year for this purpose, and I might point

out that even the increase from $200 million to $450 million as advocated in this bill, would not permit the complete financing of all the

applicants in Wisconsin if they got their pro rata share of the increase.

In other words, they have applications for three times the amount

they loaned last year when they reached their limit, and this would

be only slightly more than double the allowances that can be made.

In addition, $2.3 million in insured loans were made in Wisconsin

for community water systems and community recreation development. Much more of this type of credit will be needed in the years

ahead.

In short, the Farmers Home Administration insured-loan program

18 an excellent one and has an excellent- and outstandingly successful

record. It provides urgently needed credit with a minimum of cost

to the taxpayer because loans are repaid with interest, and the money

basically is provided from private sources. The only cost to the

Government is administrative and supervisory.

The returns to the individuals and to the communities where such

insured loans are made are tremendous. In my judgment, gentlemen,

increasing the insured loan limitation to $450 million is the absolute

minimum to fulfill the credit needs of rural America.

I sincerely hope this committee recommends its approval.

Thank you very much, Mr. Chairman.

Mr. POAGE. Thank you very much.

We have a statement from Hon. Rolland Redlin which we will insert

in the record.

(The statement referred to above follows:)

STATEMENT OF HON. ROLLAND REDLIN, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF NORTH DAKOTA

Mr. Chairman, adequate low-cost credit at reasonable terms of repayment is

indispensable to the maintenance and strengthening of farm family agriculture

in this Nation.
4 INCREASE LOAN LIMITATION

The small family farmer who needs to enlarge his acreage to become more

efficient or who needs to adjust his farm operation to take efficient advantage of

technological and marketing changes is doomed unless he can obtain sufficient

credit. The young farmer who wants and who should get into agriculture is

most often foreclosed from doing so because of lack of credit.

With land market prices steadily increasing from the pressure of absentee land

investors, with prices of machinery, equipment, and facilities rising year after

year, the need for more and more farm credit becomes greater.

Mr. Chairman, passage of H.R. 2469 which would increase the annual authorization for insured loans by the Farmers Home Administration from $200 million

to $450 million is urgent.

Ever since this administration took office in 1961, Farmers Home Administration has insured farm loans up to the limit of its authorization and it has been

completely inadequate to meet the minimum demands for such credit.

To prove this point let us examine the farm ownership loan situation as it

now exists:

In the first 6 months of this fiscal year 1965, Farmers Home Administration

has obligated some $94 million in insured farmownership loans. In December

1964, there were still some 12,000 loan applications on file which, if developed,

would require an additional $204 million. This means that if the Farmers Home

Administration stopped accepting farmownership loan applications as of last

December, it would have loan requests for more than $298 million—or $98 million

more than the present legal limitation for all farmownership, water system,

and recreation development loans.

But this is not all. At the rate of loan application filing since December of

last year, Farmers Home Administration will end up with an additional 15,000

farmownership loan applications totaling more than $235 million by June 30,

1965.

In other words, Farmers Home Administration will have a total of some $553

million just in farmownership loan requests during this fiscal year-23 times as

much as the present authorization permits.

This national problem of inadequate credit is reflected in my own State of

North Dakota.

Last year, fiscal 1964, under the $200 million national limitation, Farmers

Home Administration was able to make 443 insured farmownership loans for a

total of $8.8 million.

As of January 31, 1965—in just 7 months of this fiscal year—Farmers Home

Administration has already insured farmownership loans for a total of $6.9

million.

As of the same date, they still had 800 loan applications on hand. Out of these

applications and those that will be received before June 30 the agency could

insure loans totaling some $13 million. That means, if minimum credit needs in

North Dakota are to be met, a total of nearly $20 million would be needed for

fiscal 1965—nearly 2% times as much as was loaned and available a year ago under

the przsent limitation.

But the insured loan program of the Farmers Home Administration covers

more than farmownership loans—it also includes insured loans for community

water systems, various conservation projects, and recreational development.

With the new and necessary emphasis of this administration to revitalize rural

America, to shift land to new uses, to make rural communities more attractive,

to raise standards of living, to meet the growing urban demand for more recreation areas, the demand for this kind of credit is accelerating by leaps and bounds.

Prior to 1961, the volume for this type of community development loan from

Farmers Home Administration was less than $1 million a year. Last year it was

more than $34 million. Next year and the years after, the demand and the need

will be even greater. This will be true in North Dakota as elsewhere.

To give you some idea of the present and potential need for credit for community water system loans in a small State like North Dakota, we have now over

52,000 homes without indoor toilet facilities and without piped in water supply.

Practically all these homes are in the rural area—individual farms and small

communities.

Mr. Chairman, from these figures it is only too obvious that this legislation is

needed at once. An insured loan imposes no burden on the Federal Treasury,

no additional burden on the taxpayer, because these loans are repaid with interest.

The only expense is for carrying the insurance, for necessary administrative purposes, and for the much needed technical supervision which Farmers Home

Administration personally gives to the borrowers. The relative cost of this is

nominal.
INCREASE LOAN LIMITATION 5

Mr. POAGE. Now we will hear from Mr. Howard Bertsch, the

Administrator of the Farmers Home Administration. I believe Mr.

Bertsch has a communication for us.

Mr. Bertsch, we will be glad to hear from you.

He is the Administrator of the Farmers Home Administration and

with him is Mr. Higbee, who is the Deputy Administrator.

STATEMENT OF HOWARD BERTSCH, ADMINISTRATOR, FARMERS

HOME ADMINISTRATION; ACCOMPANIED BY FLOYD F. HIGBEE, DEPUTY ADMINISTRATOR; LAWRENCE BROCK, ASSISTANT

ADMINISTRATOR (INSURED LOAN FUNDS); AND HOWARD V.

CAMPBELL, DIRECTOR, FARMERS HOME DIVISION, OFFICE OF

GENERAL COUNSEL

Mr. BERTSCH. Thank you, Mr. Chairman. I have with me also

Larry Brock, former Member of the Congress, who is the Assistant

Administrator in the Farmers Home Administration for relations with

private investors.

Mr. Howard Campbell, the Director of the Farmers Home Division

of the Office of General Counsel, is here.

As you said, Mr. Higbee, the Deputy Administrator is on my right.

My colleagues and I do appreciate this opportunity to appear before

this committee and discuss H.R. 2469, the bill which would increase

the annual authorization of the Farmers Home Administration for

making insured real estate loans from $200 million to $450 million.

As you gentlemen know, in the insured loan program we use funds

that have been made available by private investors to make certain

types of loans. We insure the repayment of the loans and carry on

all of the loan-making and loan-servicing functions.

We started making loans in this manner in 1947. Through the

years, and especially since 1961, various steps have been taken to

improve this type of financing until today we believe it is one of the

smoothest running operations in the entire Federal credit system.

The response from the banking community and from other investors

has been excellent. The losses have been minimal. The demand is

steadily increasing.

The types of loans that can be financed in this manner have expanded through the years. H.R. 2469 affects three major loan types:

farmownership loans, rufal community water system loans, and loans

to bring about shifts in the use of land.

For the sake of clarity I will discuss each of the three types

separately.

FARMOWNERSHIP LOANS

Farmownership loans are used to improve and develop family-type

farms, to buy land, and to refinance debts. These loans were first

authorized in the thirties. They were the first type to be made on

an insured basis.

The demand for this type of credit is greater today than it has even

been before.

There are several reasons:

First, the Consolidated Farmers Home Administration Act of 1961

broadened this program. Previously it had been limited to financing

44-768-65--2
6 INCREASE LOAN LIMITATION

a narrow band of family-size farms. The 1961 act expanded this type

of credit to the full range of family farms. The 1961 act also substantially increased the amount that could be loaned on any one farm.

Second, young farmers need this sort of credit to take over the farms

that are being placed on the market by their retiring elders.

Third, established farmers need such credit to enlarge and update

their operations in the endless drive to overcome today's narrow profit

margins by continually increasing their efficiency.

Fourth, many farmers need our credit to work their way out of

financial difficulties. Sometimes their troubles stem from purchase

contracts that contain terms and conditions they cannot meet.

In many cases they need to use some of their equity in real estate

to restructure on manageable terms short-term debts incurred for

long-range improvements.

The demand for this type of credit is reflected in the overall figures

on farm debt. Since 1960 the real estate debt of farmers has climbed

from $12.1 billion to $18.8 billion—a 55-percent increase in a 5-year

span.

The pressure for this form of credit also shows up in the applications that are accumulating in our county offices.

We entered the current fiscal year with some 13,000 applications on

hand. During fiscal 1964 the insurance authorization permitted the

making of loans to only 50 percent of the applicants qualifying for

loans.

During the first 7 months of this fiscal year we insured a total of

$107.8 million in farmownership loans. This was the largest amount

ever insured in a similar period. Our estimate of need isa sizable

figure. Yet we know that in terms of the need that will exist in the

months ahead it is conservative. The need for many farmers to

enlarge their holdings continues. The average age of farm operators

is rising, increasing the requirements for establishing young farmers.

The cost-price squeeze continues.

We have every reason to believe that the demand for farmownership

loans will be greater a year from today than it is today.

SOIL AND WATER LOANS

• In addition to farmownership loans we finance soil conservation,

drainage, irrigation, and farmstead water development with individual

insured loans. This phase of insured loan activity is relatively small

in the total picture though exceedingly important to the farmers who

use this type of credit. In an effort to limit my comments to the main

issues I will not elaborate on this credit need.

I should like to talk about rural community water systems.

Rural community water system loans are used to develop and

improve water systems in rural areas including small towns with

less' than 2,500 population.

The demand for this type of credit is also increasing.

Part of the increased demand stems from the fact that the Consolidated Farmers Home Administration Act of 1961 broadened the

program by permitting loans to groups of rural people in open country

or in towns of less than 2,500 for the development of water systems

without regard to the number of farm families that shared the water

supply.
INCREASE LOAN LIMITATION 7

Part of the demand rises from the fact that the engineers of the

Farmers Home Administration have found a way to build dependable

rural water systems at a cost so low, systems can be financed today

•which heretofore were not economically feasible. But the main demand comes from the cumulative effect of a long unfulfilled and widespread need for this type of community facility.

More than 30,000 rural areas are today without a modern water

system. As more and more of the people in these areas hear about

what their neighbors have accomplished in the way of bringing water

into their homes the demand for this credit assistance will increase.

During the first 7 months of this fiscal year we insured a total of

$18.7 million in rural water system loans. This compares to less

than $1 million used for this purpose during the entire 1960 fiscal year.

Here again our estimate of need would be a sizable figure.

In addition to rural water system loans we finance soil conservation

drainage, and irrigation facilities on a group basis. This phase of

the insured loan activity is relatively small and so does not warrant

detailed explanation at this particular time.

I should give some attention to the loans for shifts in land use,

however.

Insured loans are also made to groups of rural people to shift land

into better use including recreation and grazing. This is a relatively

new credit service. Loans to shift land use were first authorized in

the Food and Agriculture Act of 1962.

The demand for credit to shift land into rural recreation centers

stems from rural leaders who know if their community is to prosper

it must have recreation facilities that will (1) make the community

more attractive as a place in which to live and work and raise families,

(2) attract outsiders who have money to spend and are in search of

recreation facilities, and (3) encourage those who have left these rural

communities to return.

The demand for credit to shift land into grazing areas comes from

farmers whose incomes are shrinking and who to stay on the farm

must have some way to expand their agricultural activities. They

see large ranches being placed in the auction block and see the advantage of banding together in an association to acquire the needed

land resources.

During the first 7 months of this fiscal year we insured a total of

$6.8 million in loans to groups of farmers and other rural people to

bring about desirable changes in the use of land.

FARM MESSAGE

We were, of course, very pleased with the President's comments

in his farm message regarding the insured loan program. He pointed

in several instances to the need for strengthening family farms and

recommended an increase in the annual authority of the Farmers

Home Administration to insure loans.

In general what the President had to say about strengthening rural

America is what we have been saying, or at least inferring today.

Rural America to be strong must be composed of the maximum

number of family farms and prosperous rural communities. The

insured loan program builds this type of rural economy. And the

insured loan program, in our judgment, has other merits, too.
8 INCREASE LOAN LIMITATION

This type of financing substitutes private capital for capital provided by the U.S. Treasury. This type of financing creates customers

for local credit institutions. This type of financing uses private

funds to serve a public purpose and does so in a manner that guarantees

the return of the invested funds.

We have been and are engaged in a wide variety of credit measures

to strengthen the rural segment of our national economy.

In our opinion no measure is more vital to the welfare of rural

America than the additional financial assistance that would be provided if the principles contained in H.R. 2469 were adopted. This

bill proposes no new programs; it extends tried and tested measures.

We find merit in this proposed legislation.

Thank you, Mr. Chairman.

Mr. POAGE. Thank you, Mr. Bertsch.

I understand you have a communication which has not come to

the committee officially. I ask you to tell us whether or not we will

have a favorable report on this bill.

Mr. BERTSCH. Yes, Mr. Chairman. Only late last night was the

official report on this legislation cleared in the Bureau of the Budget

and signed by the Secretary of Agriculture. I sent the original of

the letter and a copy to you. We have some additional copies here

for the benefit of the other members of the committee.

Mr. POAGE. It proposes, as I understand it, three amendments.

Mr. BERTSCH. This report is a favorable report on H.R. 2469. It

does suggest three amendments which we think are important amendments.

The first amendment is to facilitate operations under the increased

insurance authority. As you know, at the present time we may hold

in our insurance fund not in excess of $25 million of loans at any one

time which are made from the fund for block sale to investors. There

is a lag of 2 to 4 weeks between the time that we issue a check from

the fund and get the note back to insure and sell.

Because of this lag we have been operating fairly close to the

$25 million limitation which now applies. Obviously, if we operate

at a greater volume of business such as is proposed in this legislation,

we would need more turnaround room in this operation, so that we

recommend an amendment to the act increasing from $25 million to

$50 million the amount of loans made from the fund we may hold at

any one time in the fund. This does not cost any money. It is

just an authorization for us to accumulate more paper in the fund

so that we can accommodate investors who would like to invest large

amounts of money at any time.

The other two amendments are related one to the other, and their

purpose is to give greater flexibility in meeting the conditions of a

changing money market.

At the present time, as you know, the Secretary of Agriculture may

enter into an initial repurchase agreement with the investor so long

as that repurchase agreement is not less than 3 years. Also the Secretary by statute is required to retain from the interest charged the

borrower, which is 5 percent, one-half of 1 percent for a loan insurance

charge.

We recommend in these other two amendments that the reference

to the 3-year minimum length of time which the initial repurchase

agreement may cover, be stricken, and also that it be optional with
INCREASE LOAN LIMITATION 9

the Secretary as to whether or not he retains that half of 1 percent

for deposit in the insurance fund.

This would give us maximum flexibility with respect to the length

of the repurchase agreement and would permit passing on to the lender

some part of that one-half of 1 percent when the money market conditions require it.

This just gives us greater flexibility in dealing in the money market

as it may exist from time to time.

(The letter of the Secretary of Agriculture, dated February 17,

1965, follows:.)

Hon. HAROLD D. COOLEY,

Chairman, Committee on Agriculture,

House of Representatives, Washington, D.C.

DEAR MR. CHAIRMAN: This is in reply to your request for a report on H.R.

2469, a bill to amend the Consolidated Farmers Home Administration Act of 1961

in order to increase the limitation on the amount of loans which may be insured

under subtitle A of such act. H. R. 2469 proposes an increase from $200 to $450

million in the annual authorization for the insurance of loans by the Farmers

Home Administration.

We favor the objectives of the bill.

The proposed increase from the $200 to $450 million in the aggregate amount

of loans that may be insured annually under this act would be required to enable

the Department to assist an additional number of eligible applicants for loans

authorized under subtitle A of the Consolidated Farmers Home Administration

Act of 1961, Public Law 87-128, as amended. Farmownership loans are made to

assist family farmers to buy, enlarge, or develop farms and to refinance debts.

Soil and water conservation loans are made to individual farmowners or tenants

to assist them to improve, protect, and properly use their farmland. Soil and

water conservation loans are also made to public and quasi-public bodies and

nonprofit associations for the development and use of water and to carry out soil

conservation practices and shifts in land use that serve farmers, ranchers, and

rural residents.

Additional loan purposes for farmownership and soil and water loans were

authorized in 1962 by Public Law 87-703. Farmownership loans were authorized

for recreational enterprises on family farms and for fish farming. Important

new authorizations were also provided to enable the Farmers Home Administration to make or insure loans to associations for shifts in land use, including the

development of recreational facilities. Greater emphasis has been placed on

making loans for forestry purposes since that time.

Applications for insured farmownership and soil and water conservation loans

to individuals were received during fiscal 1964 at the rate of 3,198 per month, and

loans were made at the rate of 1.235 per month. Initial farmownership loans

averaged about $16,965. The demand for insured loans for all purposes in fiscal

1964 resulted in a total commitment of the $200 million authorization by early

May of 1964. In fact, the insurance authorization only permitted the making of

loans to approximately 50 percent of the applicants qualifying for loans.

There were 14,837 applications for farmownership and individual soil and water

loans on hand June 30, 1964, and this number increased to 16,324 by December 31,

1964. During that period loans were made at over 1,200 per month.

Under Public Law 87-128, a source of credit has been made available to small

rural communities in the United States which do not have an adequate and safe

water supply. In closely settled rural communities, it is difficult and costly to

obtain and develop sources of water supply free from contamination or pollution.

In addition to the 15,000 rural towns which do not now have domestic water

systems, there are many thousands of fairly heavily settled rural areas in which

the use of individual family shallow wells create the hazard of contaminated

domestic water supply which can be remedied either by obtaining water from

deep wells or the development of a group domestic water system.

The Farmers Home Administration has found that the new water development

legislation has created tremendous demands for loans throughout the entire

Nation as reflected by the number of applications now on hand. In 1960, soil

and water conservation loans to associations were made in only 10 States; in

DEPARTMENT OF AGRICULTURE,

Washington, D.C., February 17, 1965.
10 INCREASE LOAN LIMITATION

fiscal 1963, they were made in 34 States; and in fiscal 1964, such loans were made

in 39 States. These loans have averaged about $120,000 each. During the first

half of this fiscal year, 167 loans have been made for $19 million and there are applications now on hand for soil and water loans to associations totaling approximately $118 million.

These loans are available only to individuals and organizations which cannot

secure the necessary financing from other credit sources. Credit is usually not

available for establishing a new water distribution system by a nonpublic agency.

Even where a new system is undertaken by such public bodies as small rural towns

and rural water districts they are unable to provide the needed revenue required

by commercial-type investors. Hence, if rural areas are to be served with satisfactory water supplies and distribution systems which are essential factors in

maintaining our rural health and economy, it will be largely through the credit

available under Federal programs.

Of significant importance in addition to the new authorizations to serve small

town and rural communities is the authorization to make or insure loans to associations for shifts in land use. Generally, such shifts in land use will result in a

reduction in the production of crops that are in surplus supply. This will enable

small towns and nonprofit organizations to obtain loans through the Farmers Home

Administration for the purpose of developing recreational facilities, such as community swimming pools, little league baseball fields, fishing lakes, and many other

facilities for healthful outdoor recreation which can be enjoyed by families living in

the community and surrounding urban areas. The demand for shifts in land use

appears to be increasing rapidly as rural communities which have long been in

need of revitalization seek to provide important public improvements. A lack of

credit for such improvements has plagued rural areas for many decades.

An increase in the authorized amount of insured loans will reduce the need for

direct Government loan funds for farrnownership and soil and water loans. During fiscal 1964, the obligation of direct funds was discontinued for several months

while the $200 million of insured loan authority was available. Under current

money market conditions an increase in the insured loan authorizations would permit meeting the credit needs of more of the applicants for farmownership and soil

and water loans with insured funds and would thus effect a savings in sums authorized to be obligated for direct loans. 

However, 

to effectively operate the proposed

increased program of insured loans, we propose that the present limit of $25 million

of loans made from the fund and not disposed of at any one time be increased to

$50 million. To accomplish this result, section 309(f) (1) of the act should be

amended by striking the figure "$25,000,000" and inserting in lieu thereof the

figure "$50,000,000."

The proposed increase from $25 million to $50 million in the limitation on the

amount of loans that may be made out of the insurance fund, but not sold and

insured at any one time, is necessary to prevent undue delays in closing loans for

eligible applicants. Under the present $200 million annual authority to insure

loans approximately $15 million of the $25 million limitation is encumbered at

all times. This encumbrance is the result of a time lapse between the date the

insurance fund issues loan checks and the date the notes for such loans are received

by the insurance fund. This time lapse is required for closing of loans in the

field offices. After the notes are received by the insurance fund they are sold

to investors as soon as possible, thereby keeping the loans in the fund at any one

time below the present $25 million limitation. The proposed increase in the

annual loan insurance authority from $200 million to $450 million if enacted

would cause the amount of loans that would normally be in the insurance fund

to exceed the $25 million limitation because of the time required between issuance

of checks and receipt of notes for sale. Therefore, unless the limitation is increased, loanmaking activities will be delayed. It would also be desirable to be

able to accumulate some notes in the insurance fund so that large orders from

investors could be filled more expeditiously. The change to $50 million would

not permit additional loans to be made above the annual legislative ceilings and

it would not add any additional cost to the Government.

We also recommend that section 308 be amended in clause (a) by striking out

"except that no agreement shall provide for purchase by the Secretary at a date

sooner than three years from the date of the note;" and by striking out clause (b)

and inserting in lieu thereof "(b) may retain out of payments by the borrower a

charge at a rate specified in the insurance agreement applicable to the loan."

Also, section 309(e) of such act should be amended by striking out, "such portion

of the charge collected in connection with the insurance of loans at least equal to

a rate of one-half of 1 per centum per annum on the outstanding principal obli-
INCREASE LOAN LIMITATION 11

gations and the remainder of such charge" and inserting in lieu thereof "all or a

portion, not to exceed one-half of 1 per centum of the unpaid principal balance

of the loan, of any charge collected in connection with the insurance of loans;

and any remainder of any such charge."

These changes are necessary to assure a continuing availability of private

funds for the making of insured loans or the purchase of loans made out of the

fund to be sold and insured, because of fluctuations in the investment market.

Under these changes the yield to the investor could be made comparable to the

yield of other obligations on the market. By varying the amount retained by

the Secretary out of payments by the borrower, the amount payable to the investor could be increased without sale of the loan at less than the balance due

on the obligation at the time of the sale. The amount to be retained would be

determined by the Secretary at the time of loan closing or original sale out of

the fund and could be varied upon resale of the loan after repurchase by the

Secretary pursuant to the repurchase agreement in the insurance endorsement.

The period of nonredemption by the Secretary would be left to the discretion of

the Secretary as a further aid in the sale and insurance of loans.

The flexibility proposed in the foregoing changes is essential in order to enable

the Secretary to adjust the rate of return to the lender and the period of nonredemption in accordance with the changing conditions of the money market

and thus attract the investment of private funds in these insured loans.

The need for funds for salaries and other administrative expenses will be increased for fiscal year 1966. In order to provide for processing loan applications

and servicing the increased number of insured loans which would be authorized

under the proposed increase of $250 million, additional personnel will be needed

throughout the United States.

The Bureau of the Budget advises that there is no objection to the presentation

of this report from the standpoint of the administration's program.

Sincerely yours,

ORVILLE L. FREEMAN.

Mr. POAGE. Would the Secretary guarantee repurchase in something less than 3 years?

Mr. BERTSCH. The purpose of this is to make it possible for him to

negotiate repurchase agreements of longer than 3 years.

Mr. POAGE. That I know.

Mr. BERTSCH. And the reference to 3 years rather sets a pattern for

private investors. It gives them a goal.

Mr. POAGE. It is obvious that if you make it less than 3 years, it

seems to me if you make it less than 3 years, if you make it 1 year or

6 months:for that matter, you, in effect, making the loan, the Government is making a loan, if interest rates go up. If interest rates

go down, of course, the investor keeps it. But if interest rates go up

the Government has made the loan and it becomes a Government

rather than a guaranteed loan, and it seems to me there is a good deal

of danger in letting that thing go for less than 3 years.

Mr. BERTSCH. Well, the important flexibility that is needed is in 

Mr. POAGE. Above 3 years.

Mr. BERTSCH (continuing). Negotiating at whatever the money

market will take.

Mr. POAGE. I know that.

Mr. BERTSCH. When we take paper into the fund which is surrendered by an investor, we do have the authority to resell it for any

negotiated period that we choose. This would give us that authorization in the first instance.

Mr. POAGE. That takes care of the matter which I did not

understand.

Mr. HARVEY. Would you repeat that last statement?

Mr. POAGE. He says that when he takes paper back into the fund,

you put up the money and they guarantee that they will buy it from
12 INCREASE LOAN LIMITATION

you at the end of the 3 years, and they take it back from you at the

end of 3 years, and he can then turn around and sell that paper again

at another rate of interest, so that that would really keep it in the

guarantee fund rather than the Government putting out the money.

Mr. BERTSCH. Right.

Mr. POAGE. That is the way I understand it. That is what I was

overlooking.

Mr. HARVEY. Has this insurance, one-half of 1 percent, which you

have used for insurance purposes accumulated any sizable amount?

Mr. BERTSCH. We have, Congressman Harvey, accumulated a total

of $14,183,000 in the insurance fund through September 30, 1964,

from the collection of this one-half of 1 percent.

Mr. HARVEY. Well, are you saying, then, in other words that

having accumulated this $14 million-plus that you feel that you have

a little elbow room now and that giving you more flexibility in the use

of this one-half of 1 percent will not endanger the fund that you have

set aside for losses; is that what you are saying?

Mr. BERTSCH. This is precisely correct; yes, sir.

Mr. POAGE. Are there any other questions of the witness? If not,

thank you very much. We are very much obliged to you, Mr.

Bertsch.

I do not suppose any of your associates wants to make any statement.

Mr. BERTSCH. Not unless you have questions that I cannot answer.

Mr. POAGE. No. I think we might make this clear. This is a

rehearing of the same thing that we had last year, and since we have

representatives of the Farm Credit here on another matter I do not

think there is any use of going over anything which has been gone over.

Mr. GATHINGS. Mr. Chairman, may I ask one question of Mr.

Bertsch before he leaves?

Mr. POAGE. Certainly.

Mr. GATHINGS. I just wondered about the cropland retirement,

whether or not there has been an appreciable amount of acreage

retired under the third phase of your program here that you seek to

extend and for which you are asking financing, and that is the shift

of land provision.

Mr. BERTSCH. I am sorry, Congressman Gathings; but I do not

have at hand or in my mind the exact number of acres that have been

retired. Since we have insured only $6.8 million of loans, obviously

it is not going to affect the total acreage and crops in the Nation a

great deal.

Mr. GATHINGS. That is my understanding. The amount of land

that went into retirement for recreational purposes and the like, just

what percent would you say was productive land, what percent was

land on which crops had been grown?

Mr. BERTSCH. I would say a very high percent. You see, we can

rather direct this to productive land that is in crop production.

If a nonprofit association in a local community wishes to build a

recreation complex, a recreation facility, they come to us and file

application, and then we can help guide them to place this facility

on land that is in substantial production of crops that are in long

supply, and we follow this practice. So, because of this, I would say

that while this has had a relatively minor impact obviously on the

total question of acres being farmed in this country considering the
INCREASE LOAN LIMITATION 13

relatively modest amount of money involved, it has resulted per dollar in a substantial retirement of producing cropland.

Mr. GATHINGS. Thank you.

Mr. DOLE. Mr. Chairman, I am just wondering if we might have for the record the number of acres involved and what crops are being produced thereon.

Mr. BERTSCH. I am sure we can provide that, Congressman Dole, and we would be glad to.

(The information referred to follows:)

It is estimated that 62,000 acres of land producing crops which are in surplus supply have been retired to date as a result of loans to nonprofit associations in- volving shifts in land use. Crops such as wheat, corn, cotton, and feed grains had been produced on this land.

Mr. BERTSCH. If I may add this--

Mr. POAGE. If there are no further questions 

Mr. BERTSCH. May I take one moment to address a point to Congressman Dole?

Mr. POAGE. You may. But I would like to suggest to the witnesses

that I used to practice law a long time ago, and I learned never to

argue with the court when it is ruling with you.

Mr. BERTSCH. Quit when you are ahead. I was only going to point out it was our engineer in Kansas who developed this constantflow principle of distributing water which has reduced so substantially

the cost of establishing these community ;water systems, and we are

very proud of him.

Thank you.

Mr. POAGE. Thank you Mr. Bertsch.

Our next witness is Mr. harry L. Graham, of the National Grange.

STATEMENT OF HARRY L. GRAHAM, LEGISLATIVE REPRESENTATIVE, NATIONAL GRANGE

Mr. GRAHAM. Mr. Chairman, I am going to, in the interest of time, just read a little from the statement that we have prepared on this subject, and file the total statement after the

Mr. POAGE. Without objection it will all be included in the record.

Mr. GRAHAM. We will file that as a part of the testimony consider- ing the next bill.

We would commend the ranking majority member of this committee, who serves as the chairman of the subcommittee, for having introduced or reintroduced H.R. 2469.

It seems desirable and financially prudent to increase the insurance

authority by a proportional amount to cover the unsold paper and

notes in transit. An increase of this authority from $25 to $50 million would appear to be justified.

Sound money mangement also demands some flexibility in terms

of interest rates. When money is in short supply, the selling of FHA

paper is obviously more difficult than when it is in relatively long

supply. We would recommend that the Secretary be given some

optional authority to allow this to fluctuate within the one-half of

1 percent of the interest rate which is reserved for the administrative

costs of the Farmers Home Administration.

I did not know that the budget message was going to say what it

has said, but we are saying basically the same thing. We were going
14 INCREASE LOAN LIMITATION

to suggest to this committee that in our judgment it would be well to

consider the companion bill introduced in the Senate which basically

covers the budget recommendations.

We would emphasize that the suggestions do not change the basic

purposes of the bill introduced by Congressman Poage and are simply

suggestions for the proper implementation of this very desirable

legislation, which has our complete support, as it had our support last

year.

Mr. POAGE. Thank you very much, Mr. Graham.

Are there any questions?

It not, we are very much obliged to you, Mr. Graham.

Our next witness is Mr. Reuben Johnson, of the National Farmers

Union.

STATEMENT OF REUBEN L. JOHNSON, DIRECTOR OF LEGISLATIVE

SERVICES, NATIONAL FARMERS UNION

Mr. JOHNSON. Thank you very much, Mr. Chairman. It is a real

honor for me to be back here another year, the first time before a

subcommittee or before the full committee in the 1965 period.

I would like to take this opportunity to acknowledge the presence

here as members of the House Agriculture Committee and of this subcommittee the Honorable Clair A. Callan and the Honorable Stanley

Greigg, who come from two adjoining farm districts in the Midwest.

We welcome them to membership in this great committee.

Mr. Chairman, I am going to take your advice literally here about

not pursuing an argument here that may not be needed. I would like

to ask, therefore, your permission to make our statement a part of the

record.

Mr. POAGE. Without objection it will be granted.

Mr. JOHNSON. We are for this bill.

Mr. POAGE. Thank you very much, Mr. Johnson.

Are there any questions of Mr. Johnson?

There being none, we are very much obliged to you.

Mr. JOHNSON. Thank you very much.

(The statement of Mr. Johnson follows:).

STATEMENT OF, REUBEN JOHNSON, DIRECTOR, LEGISLATIVE SERVICES, NATIONAL

FARMERS UNION

Mr. Chairman and members of the subcommittee, I am Reuben L. Johnson,

director of legislative services, National Farmers Union. I appear today here in

behalf of Mr. James G. Patton, president, National Farmers Union, and the

700,000 members of National Farmers Union. Farmers Union supports this bill

under consideration by the subcommittee.

The following brief comments will further explain the views of our organization.

H. R. 2469: Section 308 of the Consolidated Farmers Home Administration Act

of 1961 sets a limit of $200 million on the amount of real estate loans which may be

insured by the Farmers Home Administration. The purpose of this bill introduced

by Chairman Poage of the subcommittee is to increase this limitation to $450 million. The Farmers Home Administration has been active in expanding its

operations relating to loans for farmownership, rural community water systems,

shifting land utilization, farm housing, and refinancing of debts. The additional

funds to be made available on enactment of H. R. 2469 may be used for all of the

above loans. These loans are made at 5 percent interest with the provider of the

funds receiving 4% percent. In this connection, Mr. Chairman

'

the president of

the Amalgamated Clothing Workers of America, AFL—CIO, recently made

available to the Farmers Home Administration $15.5 million for insuring loans
INCREASE LOAN LIMITATION 15

under section 308. The rapidly expanding need for capital in rural and farm areas

fully justifies expanding this phase of lending activities of the Farmers Home

Administration.

Mr. POAGE. Our next witness is Mr. John C. Lynn, of the American

Farm Bureau Federation.

STATEMENT OF JOHN C. LYNN, AMERICAN FARM BUREAU

FEDERATION

Mr. LYNN. Mr. Chairman, we have another witness to appear on

the other bill.

We, too, were unaware of the change in the budget message, and

our statement reflects the recommendation of the President with

regard to this. However, we are in support of the principles of this

bill. We would hope that in the judgment of the committee we do

not have to go to the full $450 million and if we did not, we would

like that better. However, we are for the adequate amount of money

necessary.

Mr. POAGE. Thank you very much, Mr. Lynn.

You may extend your remarks. Without objection that will be

granted.

Are there any questions?

If not, thank you.

(The prepared statement of the American Farm Bureau Federation

follows:)

STATEMENT OF THE AMERICAN FARM BUREAU FEDERATION

The American Farm Bureau Federation has long supported the agricultural

credit program of the Farmers Home Administration (FHA). We feel that sound

farm credit is one of the great areas of need of farmers and ranchers. We are well

aware that the need and demand for FHA loans is far greater than current yearly

authorizations.

We support the intent of H. R. 2469 which would expand the authority of FHA

insured loans. However, in light of the present budgetary situation, we would be

inclined to support the President's budget message recommendation of increasing

the authority for insured loans by $100 million.

We, of course, support this expanded lending authority on the assumption that

loans will continue to be made on the existing basis to farmers and ranchers who

are unable to obtain sufficient credit elsewhere to finance their actual needs at

reasonable rates and terms.

We urge FHA to exercise continued diligence in fulfilling this obligation.

We note that on March 31, 1964, of the $600 million in outstanding loans only

$1.7 million of these loans had been foreclosed. This is an outstanding record.

In expanding the insured loan authority of the FHA, we hope that the constructive past performance of extending insured loans to farmers and ranchers

will be continued and improved where possible.

We want to commend the chairman and members of this committee for their

periodic review of the activities of the FHA. We feel that this review is both

necessary and vital in order that the activities of FHA be kept abreast of farmers'

needs for farm credit.

Mr. TEAGUE. Mr. Chairman, I suppose it is in support of the

legislation?

Mr. POAGE. I suppose so. I do not know. I suppose it is. I do

not know whether anybody has appeared against it. I know of

nobody who has. If there is anyone who wants to appear against

this bill, we would be glad to hear you.
16 INCREASE LOAN LIMITATION

Is there anyone who wants to make any further statement on the

bill?

If not, I think that will conclude the hearing on this bill and we are

very much obliged to those of our friends who have been present to

present their views on this legislation.

The committee will take it up in executive session later on.

(Whereupon, at 11 a.m. the subcommittee recessed and proceeded

to other business.)

0