FARM MORTGAGES 1. History and importance.—It has been estimated recently by the Federal government that approxi mately $3,500,000,000 in farm mortgages upon the agricultural lands of the United States is in exist ence. Of this sum the life insurance companies hold $660,000,000, the savings banks and trust companies $542,000,000, and foreign investors $250,000,000, leaving over $2,000,000,000 as the share of American private investors. These figures are a sufficient an swer to the question of how farm mortgages rank as a seasoned form of investment, and as to how satisfac tory the terms of the investment with respect to yield and security are to the borrowing and investing pub lic. Mr. C. M. Harger has said: The farm mortgage is about the only security on the mar ket which presents to the investor a concrete and definite picture of what is behind it. The average investor, who is not dealing in a large way with securities, likes to visualize his security. With the modern application for a loan be fore him, telling as it does the story of the applicant, and a full description of the land, he can form a mental represen tation of just what it is that stands behind the note. This is the strongest appeal of the farm mortgage, and out of it grows a confidence that begets sound sleep.
In the eighties the railroads engineered an ill-con sidered rush to settle that portion of the prairie states where the rainfall averages twenty inches. This movement was financed, in ' part, by means of farm mortgages. The farm practice attempted was not suited to the locality, so that, when the crash which was inevitable occurred, a blow was given to the reputation of western farm mortgages from which it took a generation to recover. There can never be another abandonment of a great agri cultural region such as this was, however, for the last American frontier has vanished, and the gov ernment can no longer give away free land of standard grade in the humid portion of the country. The long decline of commodity prices which. ruined so many farmers ceased in the middle nineties, and since that time a rapid upward turn of prices has established agricultural prosperity upon a firm basis.
The Bank Examiner of Vermont reported in 1915 that in six years of service be had seen the farm mort gage holdings of Vermont banks increase from $27,000,000 to $43,000,000. In this period his duties called for an examination of these securities twice each year, and he found that the total loss did not exceed $12,000, practically all of which was thru the dishonesty of one agent in the West.
2. Investments for corporations.—The life insur ance companies have long been wholesale buyers of farm mortgages. The estimated amount held in 1916 was $693,940,000, or about 20 per cent of all farm mortgages. The "Etna Life, the Massachusetts Mu tual, the Northwestern, the Connecticut Mutual, the National of Vermont, the Mutual Benefit and the Union Central, have each over 25 per cent of their as sets invested in this type of mortgage. The propor tion of funds so invested by some of these companies is over 50 per cent. State banks uniformly place a por tion of their reserves in farm mortgages; while for savings banks it is estimated that from 55 to 60 per cent of the assets are loaned on farm or city real estate. The Federal Reserve banks are authorized to invest in farm mortgages by section 24 of the Fed eral Reserve Act, which reads as follows: Any national banking association not situated in a central reserve city may make loans secured by improved and un encumbered farm land, situated within its Federal reserve district, but no such loan shall be made for a longer time than five years, nor for an amount exceeding fifty per centum of the actual value of the property offered as security. Any such bank may make such loans in an aggregate sum equal to twenty-five per centum of its capital and surplus or to one-third of its time deposits, and such banks may continue thereafter, as heretofore, to receive time deposits and to pay interest on the same.