The rules established by the Federal Reserve Board on February 10, 1915, form an excellent guide to be followed by the investor in judging of the value of such investments. They are: National banks not located in central reserve cities may now legally make loans secured by mortgages on real estate within the following limitations : 1. The real estate security must be farm land.
.9... It must be improved.
3. There must be no prior lien ; in other words, the lend ing bank must hold an absolute first mortgage or deed of trust.
4. The property must be located in the same Federal Re serve District as the bank making the loan.
5. The amount of the loan must not exceed 50 per centum of the actual value of the property upon which it is secured.
6. The loan must be for a period not longer than five years.
7. The maximum amount of loans which a national bank may make on real estate under the terms of the Act shall be limited to an amount not in excess of one-third of its time deposits at the time of the making of the loan, and not in excess of one-third of its average time deposits during the preceding calendar year ; provided, however, that if one-third of such time deposits as of the date of making the loan, or one-third of the average time deposits for the preceding calendar year, shall have amounted to less than one-fourth of the capital and surplus of the bank as of the date indi cated; in such event the bank shall have authority to make loans upon real estate under the terms of the Act to the extent of one-fourth of the bank's capital and surplus as of the date of making the loan.
A further aid to this field of investment has just been provided film provision by Congress for a sys tem of Federal Land Banks, .modeled after the Fed eral Reserve banks. These banks are to make first mortgage farm loans, not exceeding $10,000 in amount, to farmers who are occupying their farms. The applicants must subscribe 5 per cent of their loans to the capital of the local farm loan bank. The loans must not exceed 50 per cent of the value of the land and 20 per cent of the insurable value of the improve ments. These land banks will have authority to raise money by the sale of tax-exempt farm loan bonds, which are to be quasi-government bonds, described as "instrumentalities of government." It is yet too early to say how this plan will work out. There are apparently some difficulties that may arise. It is a question as to how the scheme will apply to regions where farming is very uncertain. Other doubtful points are the attempt to establish one interest rate, namely, 6 per cent for the entire country, and the allowance of but thirty days for agents to make good defaulted loans.
3. Agricultural districts.—If the investor desires to go outside of his own neighborhood in search of satisfactory mortgages, the first step will be to de cide upon the agricultural districts which he con siders safe and attractive for loaning purposes. East
of the line of 20 inches of annual average rainfall there lies a broad belt of country extending from the Red River Valley on the north to the "black waxy soils" of Texas. This region does not entirely fi nance itself, and the distant investor is brought into touch with the opportunities that lie there thru mort gage brokers who offer a standardized service. West of this region the best loaning territory consists of distinct and circumscribed areas which enjoy special advantages of rainfall and topography in comparison with the region surrounding them. Typical of such areas are the Blackfoot Valley, the Judith Basin, the Gallatin Valley, the Bitter Root Valley and the Yel lowstone Valley in Montana. In Washington, con spicuously prosperous districts are the Palouse coun try, which extends into Idaho, the Big Bend country and the Walla Walla country. In Oregon there is the Willamette Valley, and in Idaho the Twin Falls district and the Idaho Falls district. Colorado pre sents the San Luis Valley and the Arkansas Valley. Utah contains the successful irrigation belt extend ing southward from Salt Lake City. California possesses the Sacramento Valley and the Imperial Valley.
4. Geography of interest rates.—Thruout New England, the Middle Atlantic states and the north eastern Middle States, including Iowa, mortgages purchased thru brokers may be expected to yield per cent. In Virginia, North Carolina and West Virginia, and the states around Iowa (Minnesota, Nebraska, Kansas and Missouri) the yield is 6 per cent. In the northern portion of the Great Plains (North Dakota and South Dakota) and the north ern and middle South (Kentucky, Tennessee, Georgia, South Carolina and Oklahoma) from to 7 per cent is the average. Seven to 8 per cent may be had in Mississippi, Louisiana and Texas, in the Rocky Mountain states, such as Montana and Colorado, and on the Pacific Coast. Eight per cent and over is characteristic of the frontier southern states, Arkansas, Florida and Alabama, and of the less developed West and Southwest, notably Wyo ming, Utah, Nevada, Arizona and New Mexico. The higher interest rates are due to several causes. They naturally attend a loan on land situated in frontier regions, or in states which are uneven in agricultural worth so that safety in loaning demands careful discrimination and an intimate knowledge of agricultural geography. One-crop methods of farm ing and burdensome legal requirements are other fac tors which tend to make the loaning of money less se cure and more involved, and which consequently tend toward a higher rate of interest.