The Birmingham age-herald., 1916-03-08


 cannot exist because of the lack of a suf- ficient volume of business to carry even the minimum capitalization of s25,0C0. and where the state banks of small capi- tai logically justify their high interest rates by heavy overhead charges.
 For the credit problem of such commun- ities, tkere seem to be two possible solu- tions. One would be to permit the na- toral banks to establish branches. But this would involve difficulties which many believe are insurmountable. The other would be legislation providing for the formation of personal credit unions to work on the principles of cooperation that have proved so helpful in European countries, as, for example under the Raiffeisen system in Germany.
 In the country as a whole the vital forces making for the success of coop erative credit, such as community life as it exists in Europe, with similarity of ideas, habits, desires. and methods of living, are lacking. But there are doubt jess a good many sections where condi- ticns would lend themselves to the sue eessful esta blishment of that kind of a system.
 NEED CHEAPER MONEY
 The other phase of the problem, involv- ing longtime loans on mortgage security is suggested by the case of man in Arkansas who recently wrote to the Wcrld s w Ork as follows:
 'sThe big help that I need is some per cent money. I have chance to quit the mercantile business and gc to farm ing, but would need S25,000 to s3O, 900 to get loose and go at it. But do you know, we have to pay 8 and 10 per cent down here? 1 could give ample security on good farm lands-among them two sections of rich river bottom-but the prohibitive interest rate keeps me from hy hearts desire"
 This noanic diffiolltinS fo them selves when we apply to his case the standards in accordance with which the bulk of the money that IS supplied to farmers on mortgage security is lent at the lower rates of interest Briefly, such standards are Q a fertile and pro- ductfve body of farm land developed to yield income not only sufficient to SUD- rort the people required to cultivate the interest, insurance, and depreciation of Improvements: @ a proportion of debt secured by first lien not to exceed 50 per cent of the income value of the farm; and (9) the kind of personal characteris- tics in the borrower himself which experi- ence in every line of business has shown to contribute to success and thus to re- duce to the minimum what is called the moral hazard"
 For mortgages conforming to these standards, there is always competition among the big lenders of capital like the trust companies and insurance institu- tions, resulting naturally in minimum cost of distribution. It is found, there fore, that in those states where the larger proportion of such mortgages originate. and where the average of land values is highest, the average interest rate is lowest For example, Illinois, Indiana, Minnesota, Texas. Oklahoma, South Dakota, North Dakota Ohio and Georgia are the only states showing in- c1Jr f .tcroer security in excess of $100oO,ooo each. In only two of those states. Texas and Georgia, is the average rate on such loans above per cent
 But the agricultural department sta- istics show that the farm mortgages held by the big investing institutions make up only about one-fifth of all farm mortgages outstanding. The remaining four-fifths are those which, failing to meet the more exactipg standards of the big investors of trust funds, must find their market among individual investors. With com paratively few exceptions, these mort Eages, like the one which the Arkansas correspondent would undoubtedly be pre- pared to make are neither seriously de- ficient in margin above land value. nor characterized by a high degree of moral risk. They originate for the most part. however, in the less developed sections of the country, where the average of land values is low, where the supply Of local capital is inadequate, and where there is on that account much competi- tion among borrowers.
 High interest rates due to such causes obviously cannot be lowered by legisla- tion. But there are other causes which legislation can remove.
 MORTGAGES HARD TO SELL
 In comparison with other classes of securities, the farm mortgage as it is now handled here, is at great disad- vantage in reaching the wide market among individual investors. The fact that it is personal obligation not only adds greatly to the difficulties of the negotiat- ing barker in convincing the prospective purchaser of its investment merit, even in the most favorable circumstances, but it also practically destroys its con- ventibility. The mortgage is seldom found in convenient denomination. And as rule. it's terms give to the borrower the option of paying all or part before maturity thus making the investment subject to what frequently proves troutl e. some disturbance.
 It is pretty generally agreed that to re- move these obstacles there should be leg islation providing for the organization of land mortgage banks under federal charters, to be regulated and supervised in much the same way as the national EdnkS.4 IueS0 IuOlt6dSe UdUhS dS pTO- posed would have sufficient capital-pos- sihly as much, as $500O00 each-to com mand the utmost confidence among inves- tors of all classes, and would be en- dowed with the dual privilege of O ne- gotiating, buying, and selling individual farm mortgages and @ issuing their own bonds against the collateral security of farm mortgages.
 Experienced farm mortgage bankers are practically unanimous in favoring legis- lation of this kind. In giving expression to their views not long ago through their national association, they suggested three important conditions for the operation of the land mortgage banks. CD that they territorial scope, either in securing mort gages or selling mortgages and bonds thus obtaining the advantage of unre- stricted markets for their securities; @ that the provisions for the conduct of the hanks should include the qualifications for the mortgages eligible for purchase or negotiation; and (O that where the mortgages are purchased by the banks from negotiating agents and are not negotiated direct they should be purchased only from such individuals, partnerships, or corporations as shall qualify under the provisions of the fed eral act, and which shall be duly in spected and passed upon periodically by the proper authorities.
 In other words, the mortgage bankers believe that tSc new institutions should utilize the services of existing agencies
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 To ReOrganize Company
 Opelika. March 7.-(Special.) )-Tonigh ht the charter members of Company I. the