FARM TENANT-MORTGAGE INSURANCE FUND, FARMERS HOME ADMINISTRATION This fund was established pursuant to section 11(a) and 12(e) (2) of the Bankhead-Jones Farm Tenant Act, as amended, which authorized the appropriation of not to exceed $25 million for the establishment of the mortgage insurance fund. The sum of $1 million was appropriated in the Department of Agriculture Appropriation Act, 1948, as the initial capital for this fund. The authority for insuring loans as contained in the Bankhead-Jones Farm Tenant Act is restricted to farm ownership loans under title I. Public Law 597, approved August 17, 1954, amending the Water Facilities Act of 1937, also authorizes the use of this fund for insuring loans for soil and water conservation purposes.

The $1 million appropriation is supplemented by initial and annual charges collected from insured loan borrowers and by such initial fees for inspection, appraisal and other charges in connection with farm ownership loans as the Secretary of Agriculture finds necessary. One-half of the initial and annual charges collected as the premium for insurance, and such amounts as are appropriated to the fund under section 11(a), are available for payments with respect to insured loans. In addition, section 13 (b) and (c) authorize borrowing from the Secretary of the Treasury and additional funds needed. Moneys not needed for current operations may be invested in direct obligations of the United States. The other one-half of the initial and annual charges, together with such fees for inspection, appraisal and other charges as the Secretary may determine in connection with farm ownership loans are available for administrative expenses in carrying out the insured loan programs. It is estimated that receipts derived from these sources during the fiscal year 1959 available for administrative expenses in 1960 will amount to approximately $1 million.

Assets of the capital fund, including receivables, are estimated to be approximately $14,497,000 at June 30, 1959. The investment of the Government on this date is estimated to consist of $3,400,000 in borrowing from the Treasury, $1 million in appropriations and $7,605,800 in retained earnings.

Public Law 85-748 included amendments to title I of the Bankhead-Jones Farm Tenant Act authorizing the use of funds in the Farm Tenant-Mortgage Insurance Fund to make loans which when aggregated in blocks would subsequently be sold on an insured-loan basis to private lenders. There must be reasonable assurance that the loans can be sold without undue delay in order to use this special authority. Not in excess of $5 million in such loans may be held in the fund at any one time.

The Department took action to strengthen the supply of funds for insured loans by increasing the return to the lender from 31⁄2 percent to 4 percent effective December 22, 1958. This increase of one-half of 1 percent in the interest rate will increase the participation of all lenders, expecially country banks who have always provided the major portion of funds needed.

Insured loan activity since 1948 and estimated for 1959 fiscal year is shown in the following table:

Loans insured by fiscal year

The number of farm ownership loans insured each year from the beginning of the program in October 1947 through 1950 showed a steady increase. The number insured in 1951, 1952, 1953, and 1954 decreased as a result of the lack of invest

ment capital due primarily to the low interest rate then in effect. Actual loans for 1955 and 1956 show a marked increase over 1954 as a result of (1) the enactment of Public Law 521, amended July 22, 1954, which amended the BankheadJones Farm Tenant Act to provide a flexible interest rate on insured loans, (2) the further amendment to this act by Public Law 273, approved August 9, 1955, providing that mortgages shall run to the Government instead of to the lender, and (3) the enactment of Public Law 597 extending the water facilities program to the entire Nation and authorizing the insuring of loans made by private lenders for soil and water conservation purposes. It is estimated that the increase in the interest rate on insured loans which provides a return of 4 percent instead of 31⁄2 percent to the lender will increase the volume of loans in 1959.

There are no employees paid from this fund. Fees and administrative expense charges made available by subsections (d) and (e) of section 12 of the BankheadJones Farm Tenant Act, as amended (7 U.S.C. 1005(b)), and section 10(c) of the act of August 27, 1937, as amended, are transferred to the "Salaries and expenses" account from which the costs of servicing the insured loan programs are met.

Mr. WHITTEN. Mr. Scott, I believe this is under your general jurisdiction, and we'll be glad to have your statement.

GENERAL STATEMENT

Mr. SCOTT. Mr. Chairman, we appreciate the opportunity of again talking to you and the members of the subcommittee about the current and prospective accomplishments of the Farmers Home Administration. The details of the agency's budget estimates will be presented by Mr. Hansen. I would like to discuss briefly the present work of the Farmers Home Administration and the projected activity for fiscal

1960.

LOAN VOLUME

The dollar volume of Farmers Home Administration loans in fiscal 1958 was approximately $330 million. This represents a decrease of approximately $26 million from the total 1957 lending. Through February of this fiscal year the loan volume was about $244,600,000. The significant development in the current lending activity is the increase in the number and amount of loans made by private investors which are insured by the Government. As of the most recent reports, insured loan activity for 1959 was more than double the amount insured during the same period in 1958. A general tightening of credit in the fall of 1958 resulted in some lenders withdrawing from the program. To offset this trend and to meet the up-to-date realities of the money market, the Farmers Home Administration, after thorough consideration, increased the interest rate on insured loans from 4/2 percent to 5 percent to the borrower. This results in a net return of 4 percent to investors in these loans since the Government retains 1 percent as a loan insurance charge. This action also permitted the agency to put into effect the provisions of Public Law 85-748 which permits making insured loans from the Farm-Tenant-Mortgage Insurance Fund for subsequent sale in blocks to private investors. This use of private capital will reduce the need for Treasury borrowing for direct loans.

LEGISLATIVE PROPOSALS

Now, Mr. Chairman, I want to bring to your attention, as a matter of information, legislative proposals. In doing this, I realize that this is not the committee which acts on organic legislation, but it seems to me that this is something you may be interested in.

ESTABLISHMENT OF FHA REVOLVING FUND

The Department has proposed legislation which would establish a Farmers Home Administration Revolving Fund covering most of the activities of the agency which are not now operated on a revolving fund basis. This would include direct farm ownership, farm operating, soil and water conservation and farm housing loans, as well as salaries and expenses. Except for activities of the Farmers Home Administration in connection with watershed protection loans and servicing of water conservation and utilization project accounts transferred to the Farmers Home Administration by the Soil Conservation Service, all activities would then be on a revolving fund basis.

The proposed revolving fund would permit presentation of the annual budget estimates of the Farmers Home Administration on a net expenditure basis. At present, receipts from principal and interest payments on loans are not reported in such a way as to offset the gross expenditures for loans and administrative expenses. The establishment of the revolving fund would correct this situation and would result in more properly reflecting the annual and aggregate expenditure of Government funds for these agricultural programs.

The revolving fund would be reported in the Department of Agriculture section of the annual budget on a net expenditure basis, with expenditures for loans, administrative expenses, and interest payments on borrowing from the Treasury being offset by repayments from borrowers of principal and interest on loans outstanding and by miscellaneous receipts. No change in the basic legislation or in the operation of the Farmers Home Administration is involved. There would be no essential change in the budget process, except that the budget estimates would be shown on a net expenditure basis and receipts would be available for current programs to the extent authorized by annual appropriation acts. In addition, the annual budget estimates would continue the usual budget schedules showing the actual and estimated obligations and receipts, as well as full disclosure of the financial aspects of the fund. Under a revolving fund, the 1960 budget submission would have shown estimated net receipts of $6,031,300 rather than estimated expenditures of $215,902,000 now shown in the 1960 column.

FINANCING OF PROPOSED REVOLVING FUND

The proposed revolving fund would be established by transferring to it all assets, liabilities, and net investments of the activities involved. The Congress would not need to authorize additional Treasury borrowings or appropriate additional funds as long as the revolving fund contained sufficient funds, or if receipts during the budget year would provide sufficient funds, to finance the programs in the amounts and within the limits prescribed by Congress for the particular fiscal year. If additional funds were needed to supplement the revolving fund, these would be obtained, as at present, by Treasury borrowing authorizations for loans or appropriations for administrative expenses under the existing statutory authorities. The proposed legislation makes no provision for appropriations to the revolving fund as such.

The control by the Congress would be the same as at present. The annual budget submission would include language proposing specific

obligation limitations for each loan program and for administrative expenses. Obligations could be incurred only in accordance with these limitations. We believe establishment of a revolving fund will improve the fiscal operations of the Farmers Home Administration and will reflect a more accurate picture of its expenditures

DISASTER-LOAN REVOLVING FUND

Now, a further item on our handling of the disaster-loan revolving fund as a matter of information for you.

Public Law 38 which abolished the Regional Agricultural Credit Corporation and established the disaster-loan revolving fund will have its 10th anniversary in April of this year. During the 10-year period, it is estimated that more than 300,000 loans totaling in excess of $550 million will be made. Without such assistance, many farmers would not have been able to continue in the farming business. The severe drought which affected wide areas of the country for a prolonged period in recent years resulted in large disbursements from the fund. In some cases, borrowers suffered successive crop losses. Many of these borrowers are now on the road to recovery and are repaying their indebtedness at a rapid rate.

The good financial condition of the fund tends to prove the wisdom and adequacy of the statutory authority for meeting this type of credit need. Operations to date are demonstrating that disaster relief loans can be extended during extreme emergency conditions on a businesslike basis without hugh losses to the Government. This favorable experience of saving thousands of farm families from loss of their property and homes with only moderate loan losses confirms the necessity for practical lending policies such as we have been observing. Our policies have been carefully designed to give maximum help to the farm family to continue their farming operations. We have resisted unnecessary refinancing of indebtedness. We intend to continue this policy. We aim to avoid letting this become a dumping ground for bad debts. Also, we don't want to take over the loan servicing work of other lending agencies. We have demonstrated conclusively that this emergency supplemental credit service will work well for the farm family and their creditors without the necessity of general refinancing.

ADMINISTRATION OF EMERGENCY LOAN PROGRAMS

In the administration of the emergency loan programs there continues to be some difficulty because of the 3-percent interest rate fixed by statute. Generally, all of the smaller farming businesses including well-rounded, family-sized units can be more adequately financed with regular operating loans on which the interest rate is 5 percent. In areas where emergency loans are available, usually there are operators whose credit requirements far exceed the $20,000 limitation on regular operating loans. When these borrowers are otherwise eligible we are obliged under existing law to make them a 3 percent emergency loan because there is no maximum amount for such a loan. This results in the large operator, often with substantial resources, getting a 3-percent loan while his neighbor with a smaller operation pays the regular 5-percent rate. This is an unfortunate situation, yet there is nothing that we can do about it under existing law.