Besides the two-thirds vote of the directors, the granting of a loan requires the unanimous consent of the loan committee and the approval of some appraiser of the district. If any di rector or member of the committee be interested in a loan, the directors shall appoint a sub stitute to serve in his place. All loans shall be secured by first mortgages on farm land within the territory. None may be made except for purchasing or improving the mortgaged prop erty, for purchasing equipment, fertilizers or live stock reasonably necessary for its opera tion, or for liquidating indebtedness of the owner incurred for such purposes. But the purpose is immaterial, if the indebtedness existed be fore the association was formed. The amount in no case shall be less than $100 or more than $10,000, or over one-half the land's value, plus one-fifth the value of its insured permanent improvements. Payment shall be by annual or semi-annual instalments, including interest at a rate not to exceed the rate of the last series of farm loan bonds in the district, plus a charge for administration and profits at a rate not to exceed 1 per cent per annum on unpaid prin cipal, and such amounts to be applied on the principal as will extinguish the debt within an agreed period of not less than five nor more than 40 years. No prepayments are allowed until five years after the loan has been granted. After that, the borrower has the right to make payment in whole or in multiples of $25 at any regular interest date.
The borrower must cultivate the mortgaged property, pay all taxes, liens, judgments and assessments against it, keep its improvements insured and promptly pay his instalments or be liable to foreclosure. Defaults bear 8 per cent per annum. It is the duty of the secretary treasurer to collect the borrower's dues and to see that he observei all the conditions of the contract. The association pays for the stock in its Federal land bank with funds com ing from its own shares for which borrowing members have subscribed. But the association may obtain from its land bank the sum needed by any borrower to meet his obligatory sub scription for shares of the association, provided such sum, when added to the principal, shall not cause the loan to exceed the prescribed credit value of the mortgaged property. Pre liminary costs may likewise be added to the principal and obtained in the same way, pro vided such addition shall not increase the loan above any of the prescribed limits. The asso ciation may retain one-eighth of 1 per cent semi annually upon the unpaid principal of every loan, as a commission to be deducted from dividends belonging to it in its land bank. The stock held by the association in the land bank shall, like the shares held by the borrowers in the association, be paid up in cash and shall be paid off and retired upon full payment of the loans it represents.
Each of the 12 Federal land banks had an initial capital of $750,000, divided into five-dollar non-assessable shares. But this may, upon au thority of the Federal Farm Loan Board, be increased or decreased to any amount, provided it shall never be less than 5 per cent of the ag gregate of bonds in circulation. Most of it was subscribed by the Secretary of the Treasury for the United States, without right to dividends. But the retirement of all such government hold ings is to be gradually brought about by stock contributions of borrowers. Although any in dividual, firm, corporation or State may be a stockholder, only the Federal Farm Loan Board and national farm loan associations may vote. The board appoints for each Federal land bank three district directors, one of whom must be a farmer ; the national farm loan associations that hold stock as a result of the loan operations elect six local directors. These nine elect a president, a vice-president, a secretary and a treasurer. All directors must be residents of the district.
Each Federal land bank may acquire such property, real or personal, as may be necessary or convenient for conducting its business, and rent the same in part for revenues or otherwise dispose of it. Also the land bank may receive deposits from stockholders, borrow money at interest and give security therefor, buy and sell bonds of any other Federal land bank or of the United States and deposit its securities and its current funds subject to check with any member bank of the Federal reserve system. But its chief function is to buy mortgages on farm lands within its district through national farm loan associations, and to issue and sell its own bonds in order to raise funds for this pur pose. Should its district not be adequately served by such associations, it may then buy the mortgages upon the endorsement and guaranty of any bank, trust or mortgage company, or savings institution chartered under State laws and approved as an agent by the Federal Farm Loan Board. The outstanding mortgages so guaranteed by such an agent shall never exceed 10 times its own capital and surplus, while the mortgagors shall make a direct contribution to the stock of the Federal land bank in an amount equal to 5 per cent of their loans. A commis sion of one-half of 1 per cent per annum upon the unpaid principal may be given to the agent and deducted from dividends belonging to the mortgagor. The only mortgages allowed are of the kind described above, but no act in excess of powers shall invalidate any loan or mortgage.