will make possible under the leadership of the Administrator of the Housing and Home Finance Agency those gradual, progressive steps toward long-range reduction of our urban vulnerability which leaders in business and in government will be willing to take to improve the security of the Nation.

Senator BENNETT. Do you have any verbal comments to make otherwise?

Mr. SPEAR. Only if I can answer any questions you gentlemen might have. I would like to express my appreciation for your courtesy in moving us up to this morning's session.

Senator BENNETT. Thank you. I have no questions.

We will recess the hearings now until 2 o'clock. The meeting will be in the Interstate and Foreign Commerce Hearing Room. Thank you very much.

(Whereupon, at 11:55 a. m., the committee recessed to reconvene at 2 p. m., in room G-16, United States Capitol, the same day.)

AFTERNOON SESSION

(The committee reconvened at 2 p. m., in room G-16, United States Capitol, Senator Wallace F. Bennett, presiding.)

Senator BENNETT. Now, we have Mr. Henry C. Smith, who is Deputy Administrator of the Farm Home Administration, Department of Agriculture.

Mr. Smith, we got you up here a little sooner than might have been necessary, but you never can tell about these Senators, how long they are going to take to get over a particular subject.

STATEMENT OF HENRY C. SMITH, DEPUTY ADMINISTRATOR, FARM HOME ADMINISTRATION, ACCOMPANIED BY CHARLES C. BARNARD, BUDGET OFFICER, AND R. L. FARRINGTON, DIRECTOR OF CREDIT SERVICES, DEPARTMENT OF AGRICULTURE

Mr. SMITH. I have with me Mr. R. L. Farrington, Director of Credit Services, who will make a statement.

Senator BENNETT. All right, sir.

Will you identify yourself for the record, please?

Mr. FARRINGTON. My name is R. L. Farrington. I am Director of Agricultural Credit Services in the Department of Agriculture.

I am accompanied by Mr. Henry Smith, who is the Deputy Administrator of Farm Home Administration, and Mr. Charles Barnard, who is the Budget Officer of Farmers' Home Administration.

Ordinarily, this testimony would have been given by Mr. McLeish, who is the Administrator of Farmers Home Administration, but he is unavoidably out of town. That is the reason I am here.

We appreciate the opportunity to appear before you today, Mr. Chairman, and members of the committee, to discuss this bill. Here is my prepared statement.

Title V of the Housing Act of 1949 authorizes the Secretary of Agriculture to extend financial assistance to owners of farms to enable them to construct, improve, alter, repair, or replace dwellings and other farm buildings on their farms to provide them, their tenants, lessees, sharecroppers, and laborers with decent, safe and sanitary living conditions and adequate farm buildings.

Since the approval of the act on July 15, 1949, a total of $99,074,000 has been made available for loans and $1,050,000 for grants. This total of $100,124,000 compares to $385,000,000 authorized in the act, as amended, through the fiscal year 1954. From inception of the program to December 31, 1953, a total of 18,401 loans for $93,992,181 had been made to eligible farm owners. In addition, grants totaling $363,674 had been made to 785 farm owners, 108 of whom also received loans within the total of 18,401 reported above.

For the purpose of extending financial assistance under the act, section 501 defines a "farm" as a "parcel or parcels of land operated as a single unit which is used for the production of one or more agricultural commodities and which customarily produces or is capable of producing such commodities for sale and for home use of a gross annual value of not less than the equivalent of a gross annual value of $100 in 1944, as determined by the Secretary." Under this definition, many city workers living in suburban areas or on parttime farms are eligible for assistance and have applied for farm housing loans.

Senator BENNETT. May I interrupt you at that point. What would be the 1954 equivalent of the $400?

Mr. FARRINGTON. Mr. Barnard, could you answer that question, please?

Mr. BARNARD. I couldn't. I would like to supply that for the record. Senator BENNETT. We would like to have that in the record, but could you give us an approximate figure?

Mr. BARNARD. I would say approximately 525.
Senator BENNETT. Thank you.

Mr. FARRINGTON. Approval of loans to these individuals depletes the limited loan funds otherwise available for assistance to bona fide full-time farm owners whose housing needs generally are much more acute. It has been very difficult to administer the program under these conditions. The city workers living in suburban areas or on parttime farms are clearly eligible and usually have a source of income for repayment more stable than the full-time farm owner. If ample loan funds were available for all applicants, this would not be a major administrative problem, but with only limited funds, it has been difficult to direct the program toward assistance to bona fide full-time farmers.

Senator BENNETT. May I interrupt at that point. Do you have any idea of the amount of your total loans of $93 million that have been made to part-time farmers, or do you have any way of knowing that? Mr. FARRINGTON. I believe we have an approximate figure.

Mr. BARNARD. During the first few years of the program, Senator, it may have reached 30 percent, but since then we have been more successful in directing the program toward full-time farmers. I would say now it is no more than 5 or 10 percent.

Senator BENNETT. Thank you.

Mr. FARRINGTON. Section 503 of the act provides for the making of loans to farm owners whose income from the farm is not then sufficent to make anual payments on a loan for the necessary improvements, provided that adjustments in the farming practices, enlargement of the farm or other development would increase the repayment ability within a period of 5 years. Enlargement and development

loans are authorized under these circumstances. This section further provides that contributions in the form of credits on the loan account may be made for a period of 5 years if the borrower is unable to make full payment of the annual installment. Section 504 provides for the making of a loan or a combination loan and grant to applicants not eligible under sections 502 and 503 for minor repairs and improvements to dwellings and other farm buildings in order to remove hazards and make the buildings safe and sanitary.

Senator BENNETT. May I interrupt you again at this point. I would like to take you back to the earlier sentence which says, "This section further provides that contributions in the form of credits on the loan account may be made for a period of 5 years." Are those grants?

Mr. FARRINGTON. They are in effect grants; yes, sir.

Senator BENNETT. So they are not simply extensions of further credit, but the Government pays the amount due instead of the individual.

Mr. BARNARD. There is no actual additional outlay. The Government has already put it out. The borrower is given a credit on his account.

Senator BENNETT. You write it off?

Mr. BARNARD. Yes, sir.

Mr. FARRINGTON. This section also provides for enlargement and development loans "in order to encourage adequate family-size farms." Applicants seeking to enlarge or develop their farms into adequate family-size farms under either of sections 503 or 504 may secure assistance of this type through the provisions of title I of the BankheadJones Farm Tenant Act, as amended. Because of this conflict and the large number of applications for assistance by farm owners with income sufficient to make full repayment of the loan, the Farmers Home Administration in the latter part of fiscal year 1953 discontinued making loans under sections 503 and 504.

The Bankhead-Jones Farm Tenant Act, under which direct loans. are made and loans made by private lenders are insured, has as its specific objective the encouragement of family-size farms. A strengthening of title I of the Bankhead-Jones Farm Tenant Act through changes such as proposed in S. 1276 (83d Cong.) would in many ways serve the need for better farm housing and other farm buildings of applicants now applying for assistance under title V of the Housing Act of 1949. One of the principal reasons for the lack of loan volume under title I of the Bankhead-Jones Farm Tenant Act has been the reluctance of private lenders to provide capital at the existing interest rate of 3 percent to the lender. S. 1276 would largely correct this situation by increasing the rate to not to exceed 4 percent. An additional 1-percent insurance charge would continue to be charged the borrower and would be available to the Government for insurance and administrative expenses. The Department has two additional revisions in the Bankhead-Jones Farm Tenant Act that it is recommending, which, if enacted, will assist in rendering better service to family-type farmers for building improvements. These revisions are:

1. Elimination of the requirement that title I loans must be secured by first mortgages. This will permit the making of direct loans and insuring loans by private lenders on the security of second mortgages. This will result in more farmers being assisted with the same appro

priation for direct loans and will permit many private lenders an opportunity to retain their mortgage interest in the farms.

Senator BENNETT. May I ask again at this point, to make perfectly clear that title I loans under the Bankhead-Jones Act are direct loans made by the Federal Government?

Mr. FARRINGTON. Yes, sir.

Senator BENNETT. The private lender is not involved.

Mr. FARRINGTON. There may be insured loans, too.

Mr. BARNARD. There are two types. One is the direct Government 100 percent loan; and the second is a loan in which the private lender advances all of the money up to 90 percent of the reasonable value of the farm, and the Government guarantees the 90 percent.

Senator BENNETT. Now, if this proposed change were made, making it possible for home loans to be made under this title under second mortgages, I would assume most of those loans would be direct Government loans, assuming the existence of a private first-mortgage loan on the property to start with.

Mr. SMITH. Senator, at the present, in order to make a real estate loan, under title I of the Bankhead-Jones Farm Tenant Act, the Government must secure the loan with a first mortgage. This is true where the loan is being made for developing the farm by adding buildings or something of that nature.

Senator BENNETT. The effect is that the loan is made directly by the Government. The Government acquires the mortgage. If it is in the hands of a private lender, then it in effect makes the loan, becomes the source of the loan.

Mr. FARRINGTON. That's correct.

Mr. BARNARD. Unless it is an insured loan in which the private lender puts up the money.

Senator BENNETT. Then I don't understand the meaning of Mr. Smith's statement that at the present time the Government has to take over all first mortgages.

Mr. SMITH. That is the way the present Bankhead-Jones Farm Tenant Act is at the present time. But, the Department is proposing a revision in that which would permit the Department

Senator BENNETT. I see. And the Federal Government would make a second-mortgage loan?

Mr. SMITH. That's right.

Senator BENNETT. Is it contemplated the Federal Government would guarantee second mortgages in the hands of private lenders? Mr. SMITH. Yes, sir.

Senator BENNETT. That is an interesting step back into an experience of 25 or 30 years ago, that I thought we were getting away from in American real-estate lending.

Mr. FARRINGTON. Of course, it would be hoped that they would be good second mortgages. And, as I say, this is proposed as a substitute for the present authority of section V, which is pretty liberal in certain phases.

Senator BENNETT. Senator Sparkman, do you have any questions? Senator SPARKMAN. Yes, I myself am a little puzzled as to why you seek to go back to the Bankhead-Jones Farm Tenant Act, and away from title V, sections 501, 502, 503, and 504. I was under the impression that the new loan program had worked very well.

Mr. FARRINGTON. With the exception of these two sections, Senator, sections 503 and 504

Senator SPARKMAN. Yes. Now, as I recall, both of those were what you might call uneconomic loans.

Mr. FARRINGTON. Correct.

Senator SPARKMAN. One of them, if I remember correctly, was for the benefit of the farmer who had a farm. At the present time his farm was uneconomic, but by proper practices, could be made into an economic farm.

Mr. FARRINGTON. That's correct, sir.

Senator SPARKMAN. And the other was more or less of a temporary carryover, wasn't it, and never was used very much?

Mr. SMITH. That's right.

Mr. BARNARD. The section 504 loans are less than 2 percent of all loans.

Senator SPARKMAN. That's what I was thinking of. I recall when it was first brought up there was very strong opposition to that section. It barely passed on the vote, but it did because of its more or less emergency nature, but I was under the impression it never had been used very much.

Mr. SMITH. Two percent of the loans, since 1949 are of the section 504 type, and 4 percent of the loans made under the act are of the section 503 type.

Senator SPARKMAN. Yes.

Mr. SMITH. Which means the bulk of the farm housing loans made under the act are of the section 502 type.

Senator SPARKMAN. What is it of section 503?

Mr. SMITH. Four percent.

Senator SPARKMAN. As a matter of fact, I think there is justification for the section 503 loans. I would not be too strong for the section 504 loans. At that time, it was presented as a wholely emergency matter. I think that we have hit the best plan that we have ever had yet, to help provide for farm housing for farmers, under this program, rather than under the Bankhead-Jones Farm Tenant Act. And I think there are several reasons for it.

Frankly, I have not been able to bring myself to believe that the new proposal will work. First of all, I can't very well conceive of the private market taking second mortgages on farm housing. Do you believe it will?

Mr. FARRINGTON. We have thought so, Senator, if they were made. on a reasonably sound basis and insured, that there would be some outlet for them; yes, sir.

Senator SPARKMAN. There is another outlet of the program, the farm-tenant-purchase program of the Bankhead-Jones Act.

Mr. FARRINGTON. Yes, sir.

Senator SPARKMAN. In which you have an insurance plan. You never did get it off the ground, did you?

Mr. FARRINGTON. These gentlemen can give you the statistics on the volume of it, but the interest rate was too low to attract investors. Senator SPARKMAN. What was the interest rate?

Mr. SMITH. Four percent at the present time.

Senator SPARKMAN. That was 4 percent at the same time that the FHA was 4 percent.

Mr. SMITH. Three percent net the lender.