Evening star., 1933-04-05
ECONOMIST LAUDS
FARM REF|NANC|NG
Applies Persuasion Rather
Than CompuIsion, Says
New York Professor.

finance farm mortgages is in line with
the general policy of the administration
to apply persuasion rather than COM
pulsion in solving the country's prob
lens, Dr. Bernhard OStrolenk, pro-
fessor of economics at the City College
of New York, asserted in signed
article written for the North American
Newspaper Alliance.
DR.. Ostrolenk is a recognized author
ity on agricultural finance and has lee
tured and written widely on this SUBJ
ject. He formerly was professor of ag-
ricultural finance at the University OF
Pennsylvania.
BY progressive issues of $4,000, ,000,-
900 of 4 per cent bonds" he explained
1.-The Federal land banks are to be put
in position to reflnance farm mort
cages at Az per cent. Under the pro-
posed bill Federal land banks would be
empowered to exchange Federal land
bank bonds for the unpaid principal OF
first mortgages.
/ This is not a scheme whereby the
Federal Government holds the umbrella
over mortgage holders. On the con-
trary, substantial blocks Of farm mort
cages will remain in private hands and
those wishing to take advantage of the
refinancing privileges will have to come
forward with substantial sacrifices.
Illustrates Argument.
Let us follow an example: Farmer
| Swanson has $4,000 mortgage on a
property which was appraised at S20,-
900 when the mortgage was granted,
say 10 years ago. Farmer Swanson S
interest on the mortgage at 6 per cent
is $500. This was reasonable mort
4 Il svxta ~,
when hogs were SO, corn $1.20 and
wheat $1.50. But now that hogs are So,
corn 20 cents, oats 10 cents and wheat
80 cents, the gross income during 1892
was scarcely more than $500, making
$500 payment for interest virtually
out of the question.
Let us assume that because OF 1885,
! 1882 prices Farmer Swanson has paid
no interest on his mortgage for the last
two years and has been unable to pay
taxes last year. The mortgage holder
may have a perfect right to foreclose.
But, obviously, at present prices for
agricultural commodities, the farm
could not be sold for the principal of
the mortgage. The mortgage holder, If
he foreclosed, merely would become an
unwilling farm owner with a possible
annual tax debt of $500, sum which
could scarcely be raised from rent.
Under the Roosevelt proposal Farm
er Swanson and the mortgage holder
may get together and agree that be-
cause the inequities of the depression
have made for substantial loss in
Farmer Swansons equity, it is only fair
that the mortgage holder also take
some loss. If the mortgage holder will
consent to write down his mortgage to-
say, $4,000 at Az per cent interest, the
Federal land banks will exchange the
mortgage for land bank bonds. The
mortgage holder will receive in place
OF frozen $4,000 6 per cent mortgage
OF doubtful value $4,000 worth of land
bank bonds bearing per cent. These
bonds are liquid, loans on them can
be made, principal and interest are
guaranteed.
Losses to U. s. Unlikely.
"This Is a real inducement to mort
gage holders to readjust farm debts
The bonds will be secured by mortgage,
which have been written down substan.
tally and which are not likely to in.
volve the Government in any losses.
Farmer Swanson, who will now pa,
S225 interest annually, instead of $60t
can take new hope in the situation anc
again become the thrifty, hard -working
owner, less exposed to the magnanimitl
OF the mortgage holder.
Obviously only those mortgage hold.
ers will consent to the write-down, in.
volved under this plan, who have mort.
cages that cannot be met by the farmer
at present price levels. Those mort.
cages that are low in relation to tn,
present income of the farmer will re-
main substantially in private hands.
THE Presidents proposal does no
involve reflnancing of the whole of tn,
$4,000, ,000,000 farm mortgages now out
| standing. The vast amount of thes,
mortgages will continue to remain with
private institutions and mortgage hold
ers who have hitherto financed tn,
farmers.
"Only distressed mortgages will b
transferred to the Government, mort
cages which holders will find it worth
while to write down substantially.
"The administration estimates tina
only $4,000, ,000, 900 of the $9, 500, 900 90,
mortgages will be taken over by tn
land banks, which may mean a write
down of substantially that amount o
the most distressed mortgages. It i
doubtful whether even that much vii
be necessary.
"The obvious advantages Of the bill
are that it does not involve any direc
subsidy by the Government to tn