Veto of Farm Loan Interest Rates Bill.

To the House of Representatives:

I return herewith, without my approval, H.R. 10530, entitled "An act to extend for two additional years the 3 1/2-per-centum interest rate on certain Federal land-bank loans, and to provide for a 4-per-centum interest rate on Land Bank Commissioner's loans until July 1, 1940."

Section 1 of the bill extends for two additional years beginning July 1, 1938, the 3 1/2 per cent interest rate on certain federal land bank loans.

Section 2 of the bill extends for approximately one year, that is, from July 22, 1939, to June 30, 1940, the 4 per cent interest rate on Land Bank Commissioner loans.

SECTION I. FEDERAL LAND BANK LOANS

The question presented by the proposed legislation is not whether Federal land bank borrowers will be required during the coming year to pay interest on their Federal land bank loans at the full rates specified in their mortgage contracts; the question is the amount of reduction that will be effected. Since the average contract rate of interest on outstanding Federal land bank loans is approximately 5 per cent, the emergency 4 per cent rate provided for under present law would mean an average interest reduction of 20 per cent to Federal land bank borrowers during the fiscal year 1939. It amounts to an average reduction of approximately 28 per cent in the case of those borrowers whose contract rates of interest exceed 5 per cent. Thus if this bill does not become law there will still be savings to borrowers amounting to from 20 per cent to 28 per cent.

The interest reductions granted to Federal land bank borrowers will have involved upon the expiration of the present provisions of law in July, 1939, a total cost to the Treasury estimated at approximately $143,500,000. If H.R. 10530 becomes law, the total cost to the Treasury to June 30, 1940, is estimated at $183,900,000.

The burden of interest charges on a typical farmer who refinanced his 6 per cent private loan with a Federal land bank in 1933 would appear to be less on the basis of present prices, and the emergency Federal land bank interest rate of 4 per cent provided for under present law less than the burden which was carried by the same farmer on his old loan during the period 1910-14 or during the period 1921-30.

As of March 31, 1938, approximately 86 per cent of all loans of the Federal land banks were in good standing as opposed to approximately 50 per cent delinquency when the emergency legislation was first passed.

SECTION 2. LAND BANK COMMISSIONER LOANS

A reduced rate of interest on Land Bank Commissioner loans was first provided for by the Act of July 22, 1937, which fixed the rate at 4 per cent for a period of two years from the date of its enactment. Under the provisions of H.R. 10530 the emergency 4 per cent rate would be continued from July 22,1939, to June 30, 1940. There would appear to be no substantial reason for establishing at this time a policy with respect to the interest rate on Land Bank Commissioner loans for the period beginning July 22, 1939.

The total cost to the Treasury of interest reductions on Land Bank Commissioner loans to the expiration of the date of the existing Act, July 21, 1939, is estimated at $16,500,000. If the 4 per cent rate is extended to June 30, 1940, an additional expense of $8,300,000 is estimated.

Adding the expense of interest reductions on Land Bank Commissioner loans to the estimated cost of such reductions on Federal land bank loans, the total cost to the Treasury upon the expiration of the provisions of existing law in July, 1939 would approximate $160,000,000. If H.R. 10530 becomes law, the total cost to the Treasury to June 30, 1940, on both Federal land bank and Land Bank Commissioner loans is estimated at $208,700,000.

For all these reasons, I am constrained to withhold my approval of the bill, H.R. 10530.