Grand Forks herald. [volume] (Grand Forks, N.D.) 1916-1955, 1922-01-05
de- NAULT SAYS
ERRORS RAISE
INTEREST RATE
Several Past Mistakes Inter.
fere With Plans on State
4 Bank Loans.

Bismarck, N. D., Jan. 5.-The bond
contract negotiated just before:
the Nonpar ,isan league administration
left office defects in the laws enact-
in 1919 governing the farm loan
business of the Bank of North Da-
kota and mistakes of the previous
administration, have combined &c
force a higher rate OF interest on
farm loans to be made through the
bank than the farmers should have
to pay, according to w. B. Default,
manager OF the bureau.
In establishing the rate Of interest
on The farm loans Mr.. Default and
his aids ran against these snags:
Instead of providing for I30-year
bonds from date Of issue the law of
Feb. 25, 1919. provided that the bonds
should not be for longer maturity
than 80 years from date of the pas
sage of the law. Therefore, after
the 25th of February. on which da:t
new business must be based, bonds
can be- issued for'only 26 years.
Instead of making 30-year loans
thu bank must make 26-year loans,
which results in a higher ,amortiza-
ticn payment. Tho law, it is neid,
of 80 years maturity from date Of is
sue. ..,
Rate Too High.
In making "a bond contract for 6
per cent bonds the old Industrial COM
mission paid a higher rate, Of inter-
est than is now demanded on the
money market, Mr.. Default says
The law provides that the interest
Ia e on the mortgages must be based
on the asst sale OF bonds. Therefore,
the interest rate must be based upon
the 6 per cent bonds. To this is add
ed a III principal, or amortization
payment, each year for rs years and
a Y per cert administration charge
making the total payment $50 pei
thousand dollars per year. The
should not be more than $40 on the
basis of the present money market
When farm loans first were made
by the Bank Of North Dakota the,
were made upon a S per cent bond
interest basis. When the bones rim
ally were sold they were sold at {
higher basis. There is, therefore .
deficit on he first loans which mus
be borne by the state or made up II
subsequent loans.
A mistake was made by the formel
administration in figuring the amor
ti7ation. It was pointed out in TIL,
oAHA1ob, . ASSLIIdu C 70. LepOTI 10 '1'
legislature last year that on tn,
ar,rrtization basis adopted b. tn
Bank of North Dakota it would r.
ouire "a years instead Of 81 in which
to complete the amortization OF +:
loan, Tho bank then chnngeh tne'
method to provide that the last nav
;ment. in tho, anth yaar.rwould be tn
amount Of five other years. Tht
makes avery hnavy charge on tn
last payment Of the loans which al
! ready have been made. 81.
Mr.. Default, however, has sue
ceeded in cutting the rate Of interes
on the loans by reducing the cha~g
for administrative EXPENSES Thi
charge was under the former amin
istration one per cent. Mr.. DeNaul
says hat a we'll organized loan bust
ness should be conducted upon a
administration charge of u oer CEN
! The new administration is able to Gu
he interest charge from * per cen
proposed by Mr.. Cathro to sc pc
cent
Mr.. Default has not been able t
:-ure the administration cost in tn
nst; as accounts have not been sn~
.ogated. He proposes to ~segrega+a a.
accounts in the future. SO that ther
nav be an exact accounting Of tn
INST of doin~ business of the FAIR
IAN deDartrent