Mr. SCOTT. Yes.

(The information referred to will be furnished.)

·Insured farm ownership loans under title I of the Bankhead-Jones Farm Tenant Act, prior to passage of the Housing Act of 1949

Includes all of the 1950 fiscal year. The Housing Act was approved July 15, 1949, and the first farm housing loan made Nov. 17, 1949.

As of March 31, 1955, the payments made by indebted borrowers exceeded the amortization schedule for these borrowers. Of the indebted borrowers, 4,189 were ahead of schedule in the amount of $1,406,370; 2,919 were on schedule; and 1,668 were behind schedule in the amount of $625,684. About 10 percent of the total borrowers who received insured loans were paid in full as of March 31. Mr. RAINS. Section 2 of the bill says:

No new loans shall be made under section 503, and no new loans or grants shall be made under section 504 of the Housing Act of 1949 after date of enactment of this act.

What does that leave you with if you enact that into the law? Mr. McLEAISH. I am going to let Mr. Barnard answer that. I understand under 503 we never did make many loans under that.

Mr. RAINS. That is correct. I know you didn't. In fact, the only ones I know of were made down in the State of Georgia. That never was very active.

What about 504?

Mr. BARNARD. Mr. Rains, that wasn't very active, either. We made 762 loans under section 503, out of about 19,000 total loans. We made 156 under section 504. Actually, the section 503 loan is practically the same thing as the title I farm ownership loan Mr. McLeaish is talking about.

Mr. RAINS. You don't know how many applications you had?

Mr. BARNARD. During the 5 years we operated the program we got about 70,000 applications, for the whole 5 years. They didn't come in by types, or by sections of the act.

Mr. RAINS. Mr. McLeaish, all of the poultry loans are made under title V, aren't they, for poultry houses?

Mr. McLEAISH. Most of them were; yes, sir.

Mr. RAINS. I wonder if you would submit also for the record the number of applicants for title V loans during the last 2 years, and the amounts they requested, and the number of loans granted?

Mr. McLEAISH. Can you furnish that?

Mr. BARNARD. Yes, sir. We don't have the amounts they requested, but I could estimate that.

Mr. RAINS. I think that is all, Mr. Chairman.

(The information referred to will be furnished.)

Number and amounts of applications and number and amounts of loans made during the 1953 and 1954 fiscal years under title V of the Housing Act of 1949

The CHAIRMAN. Mr. Brown.

Mr. BROWN. Will you explain the difference between the direct and insured program?

Mr. McLEAISH. Under this housing proposal there would be no difference in the making of the loan or the interest rate between the two. Now, to give you an idea; the authorization for these housing loans in the first 5 months were about $360 million. Yet the appropriations from Congress were $99 million in 5 years.

Now, that is our thinking, that if there is a greater demand-and it is rather hard to estimate a year ahead what your demand is-for housing loans, and we get into the program, we would like to do it as completely as we can.

Mr. BROWN. How many loans did you make last year?

Mr. McLEAISH. 2,700 farm housing loans in 1954.

Mr. BROWN. Are you recommending an increase in the interest rate? Mr. McLEAISH. We are recommending an increase to 5 percent, a permissive increase.

Mr. BROWN. Why are you going up on the interest rate?

Mr. McLEAISH. We found we can get money at 312 percent now. We can get private capital. In other words, we are getting the private capital at 312 percent, and we are putting the additional 1 percent into the insurance fund.

Mr. BROWN. That is all, Mr. Chairman.

The CHAIRMAN. How much money have you disbursed in the last year in disaster loans?

Mr. BARNARD. Last year, Mr. Spence, we loaned about $94 million for all these various types, special production livestock, emergency and economic emergency. This year so far we have loaned about $85 million.

The CHAIRMAN. What proportion of applicants for disaster loans. have received loans?

Mr. BARNARD. Well, there has never been any shortage of money for disaster loans; and to the extent that an applicant can qualify; and it looks like a reasonably good loan: the applicant could get one. There has never been any question about not being able to take care of them if they otherwise qualify.

The CHAIRMAN. There must have been a good many that don't qualify. I have known of a good many who have applied for the loans and have been refused. It seems after a disaster it puts a man in a position where he might not be able to qualify as one might qualify who had not been the victim of a disaster.

Mr. SCOTT. Mr. Chairman, all of these disaster loans are being administered in a very sympathetic way. We are keeping in close touch with the programs. Just recently we were reviewing the experience in one of the States that has had a series of drought years, and it was evident that we were making these disaster loans to folks to continue to carry on their farming operations. Succeeding years of drought had prevented them from making expected payments, but we were continuing to go right back in there each year and stay with these good people and help them. It is recognized that the Congress expected us to take a realistic view on these loans, and that is exactly the way it is being administered.

Mr. BROWN. Disaster loans are the same rate as the other loans? Mr. Scort. Yes, sir.

The CHAIRMAN. It seems to me that that program ought to be administered right sympathetically, because the disaster itself makes a man probably less able to qualify, and we should try to relieve him from the effects of the disaster. Therefore, I think it should be administered with some sympathetic consideration.

Mr. SCOTT. Mr. Chairman, you are correct in that, and I believe that these loans are being administered in a very sympathetic and understanding manner.

The CHAIRMAN. Mr. Davidson?

Mr. BROWN. May I ask one more question?

The CHAIRMAN. Mr. Brown.

Mr. BROWN. I can't understand why you are raising the rates on disaster loans. I am more sensitive about that than any other particular thing in your department.

Mr. SCOTT. We recognized that was a very debatable decision. As I indicated earlier in my testimony, we debated that for a 2-year period. We thought we were proceeding correctly, in trying to eliminate in this way some abuses that were getting in the program. We realize it is debatable.

The CHAIRMAN. Mr. Davidson.

Mr. DAVIDSON. In answer to Mr. Brown's question; I just want to clear up one thing:

You said that there was no difference in the interest rate between the insured and the direct loan. Well, now; how about that 1 percent which goes into the insurance fund?

Mr. McLEAISH. When I say there is no difference, I mean in the cost to the borrower. Actually we get the money from the private sources at 312 percent. We get a 1 percent insurance charge which makes a total to the borrower of 412 percent. On the direct appropriated funds, the rate is fixed at 412 percent.

Mr. DAVIDSON. I see.

What I want to ask you is this: On your direct loans what are the terms that you put in the mortgage agreement? What is the period of time of the loan?

Mr. McLEAISH. On the farm ownership loan, it is 40 years.

Mr. DAVIDSON. Is there any provision for amortization?

Mr. McLEAISH. Yes. We set up an amortization schedule of equal annual payments over the 40 years, which will take care of the interest and the principal.

Mr. DAVIDSON. That is a constant payment loan?

63137-55--10

Mr. McLEAISH. Payable once a year.

Mr. DAVIDSON. Does the man pay the same amount every year as he pays his amortization and interest? That is what we call a con

stant loan.

Mr. McLEAISH. It is a constant payment loan, yes.

Mr. DAVIDSON. If it was a 40-year loan the amortization would run something in the neighborhood of 1 percent, wouldn't it?

Mr. McLEAISH. Yes.

Mr. DAVIDSON. He would pay 41⁄2 percent for a direct loan plus 1 percent amortization or about 512 percent annually on whatever the principal amount of the loan was?

Mr. McLEAISH. Is that about right?

Mr. BARNARD. Four and a half percent is the total charge to him on the unpaid balance.

Mr. DAVIDSON. That would make no provision for the amortization? Mr. BARNARD. When Mr. McLeaish talked about amortization he meant that we used the regular amortization table of 40 years at 412 percent that produces an annual payment of so much for both principal and interest.

Mr. DAVIDSON. Then your interest charge is really not 412 percent, inclusive of the insurance. It is less than that because a part of that payment goes toward amortization?

Mr. BARNARD. That is right.

Mr. McLEAISH. That is right. In other words, the interest rate is actually 312 percent.

Mr. DAVIDSON. It is less than that, because if your interest is 311⁄2 percent, and your insurance is 1 percent, making a total of 42 percent, and that is what you ask the man to pay constantly each year, there is no provision for amortization. If you have a provision for amortization some place in that 42 percent that I have just added up for you, you have got something which amounts to amortization, or the retirement of the loan. Isn't that so?

Mr. McLEAISH. That is added to the 412. What we do is take a table which includes amortization, plus the 412 percent interest over a 40year period in order to make it a constant payment.

Mr. DAVIDSON. Then it is more than 41/2 percent?

Mr. McLEAISH. His total payment of principal and interest would be more than 412 percent.

Mr. DAVIDSON. So that the income-tax people would let him deduct 312 percent because that is a deductible item for payment of insurance, the amount he would pay for insurance is deductible but that portion he pays annually to retire his loan would, of course, be a capital or equity investment; is that right?

Mr. McLEAISH. That is correct.

Mr. JONES. Will the gentleman yield so I can direct a request to the chairman?

Mr. DAVIDSON. Yes, sir.

Mr. JONES. Mr. Chairman, since I was the original author of title V of the Housing Act of 1949, I would like to appear and testify in behalf of a bill which I have pending before the committee at a convenient date of the committee.

Mr. BROWN (presiding). We would be very glad to hear you, Mr. Jones. We know you are one of the outstanding Members of Congress,

and inasmuch as you are located in an agricultural section of the country we will be glad to hear from you.

Mr. DAVIDSON. I would be glad to yield up this witness and have Mr. Jones testify now if he had that in mind?

Mr. JONES. No; but I expect to cover in the testimony that I shall present to the committee the history of this lending activity, and bring to the committee some of the points that I feel must be stressed. Mr. BROWN. All right.

Mr. Clerk, will you notify Mr. Jones when he may appear?
Mr. JONES. Thank you.

Mr. DAVIDSON. Just one more question.

In connection with these direct disaster loans, do you, among other things, take into consideration aside from the validity of the loan from a financial standpoint, the need of the individual in making the loan? Is that one of your considerations?

Mr. SCOTT. That is the principal consideration. The security, etc., is recognized and expected to be secondary, and we take what liens are available. When we have a farmer who is determined to stay on, if we given a little help we certainly try to do that in every deserving

case.

Mr. DAVIDSON. In other words, you take into account whether this disaster was insured, etc.?

Mr. McLEAISH. That is right; we would.

Mr. DAVIDSON. The last question is, in many of these cases these loans would become secondary liens, or, rather, second mortgages?

Mr. McLEAISH. Some of them third mortgages.

Mr. DAVIDSON. The position of the Government as a guarantor holds no special preference under the law; does it?

Mr. McLEAISH. No. Not under the disaster programs.

Mr. DAVIDSON. Or any program of a direct loan.

Mr. McLEAISH. The Bankhead-Jones Farm Tenant Act, the veteran does get preference on our funds. There is no preference to anyone else.

Mr. DAVIDSON. If a farmer, be he veteran or civilian, has a first mortgage and possibly, as you say, a second mortgage, and then this direct loan from the Government, or even insured loan, becomes a third mortgage, he holds no particular preference under the law; does he? Mr. McLEAISH. No, sir.

Mr. DAVIDSON. Have you ever had one of these loans that you have made, secured by a mortgage, wiped out by the foreclosure of a first or second mortgage?

Mr. McLEAISH. Yes. We have had some, and we are in danger of having some now.

Mr. DAVIDSON. Can you supply for the record, or do you have present now the number of those loans which have been either directly made by the Government, or which are insured by the Government, which have been wiped out as liens by reason of foreclosure of prior loans or mortgages?

Mr. BARNARD. I don't think we have at Washington, Mr. Davidson, the figures that you are talking about. We have the figures that we call liquidations, that might be a voluntary conveyance on all operating-type loans. We don't have in Washington and it would be difficult. to get just the disaster loans.