Franklin D. Roosevelt photo

Veto of H.R. 6763.

July 09, 1937

To the House of Representatives:

I return herewith, without my approval, H.R. 6763, entitled '"An Act to extend for one additional year the 3 1/2 percent interest rate on certain Federal land-bank loans, to provide a 4-percent interest rate on such loans for the period July 1, 1938, to June 30, 1939, and to provide for a 4-percent interest rate on Land Bank Commissioner's loans for a period of two years."

Section 1 of the bill extends for two additional years the policy originally adopted as an emergency measure in 1933 under which borrowers from the Federal land banks are allowed to pay interest on their loans at rates lower than those provided in their mortgage contracts.

Section 2 of the bill broadens the field of loans on which interest reductions are granted by providing that for a period of two years interest may be paid at the reduced rate of 4 percent on loans made by the Land Bank Commissioner.

SECTION 1, FEDERAL LAND BANK LOANS

At present, through the sale of bonds to the investing public, new loans are being made by Federal land banks at the lowest rate that has ever been made available to farmers generally in this country, namely, 4 percent per annum. A decrease in farm mortgage interest rates has been brought about through the refinancing operations of the Federal land banks and the Land Bank Commissioner. The average rate of interest on the private loans refinanced by the Federal land banks in 1933 and subsequent years has been 6.3 percent. Consequently, those farmers who refinanced their private loans in 1933 and 1934 by converting them into 5 percent Federal land bank loans cut their annual interest charges more than 20 percent, while those who have refinanced at the present 4 percent rate have obtained a permanent reduction in excess of 40 percent. I believe, therefore, that there is no justification for continued Government subsidy of Federal land bank interest rates below the unprecedentedly low rate these banks are now offering farmer-borrowers on a business basis.

Furthermore, the ability of farmers to pay interest at the rates provided for in their mortgages with the Federal land banks has been very substantially improved, due to an increase of more than 100 percent in the level of farm prices since the emergency period of 1932-33. In December, 1936, the index of farm prices as reported by the Department of Agriculture stood at 126, as compared with 55 for the month of March, 1933, and an average of 100 for the pre-war period August, 1909, to July, 1914. The gross farm income as estimated by the Department of Agriculture also rose from $5,337,000,000 in 1932 to $9,530,000,000 in 1936.

As an illustration of the lightening of the interest burden during the past four years through improvements in farm prices and the refinancing of farm debt, the following instance may be cited: The quantity of farm products required to meet the annual interest charge on a 6.3 percent private loan refinanced as a 5 percent Federal land bank loan in 1933 is now only 63 percent of the quantity required during the five pre-war years 1910 to 1914. The greatly increased debt-paying capacity indicated in the foregoing figures is borne out by the record of actual payments on Federal land bank loans. Approximately 85 percent of all loans of the Federal land banks were in good standing at the end of 1936, as opposed to approximately 50 percent delinquency when the emergency legislation was first passed.

The reduction of the rates of interest on Federal land bank loans to 3 1/2 percent for the fiscal year 1938, and to 4 percent for the fiscal year 1939, as required by the bill for loans made through national farm loan associations would, it is estimated, necessitate payments from the Treasury in the amount of approximately $31,700,000 for the former year and $21,200,000 for the latter, a total of $52,900,000. The effect of such an arrangement is that part of the individual borrower's interest is paid for him by the United States. In other words, it constitutes a gift to individual borrowers from the Federal Treasury.

As indicated by me in my letter of June 8, 1937, addressed to 'the Committees of Congress then considering this legislation, the whole question involves the rate of interest charged by Government agencies and relates not only to farm loans, but also to moneys lent by the Home Owners' Loan Corporation, the Reconstruction Finance Corporation, the Public Works Administration, and other agencies.

The foregoing considerations have led me to the conclusion that further reductions in the interest rates payable on Federal land bank loans are not justified.

SECTION 2. LAND BANK COMMISSIONER LOANS

The farm loans made by the Land Bank Commissioner on behalf of the Federal Farm Mortgage Corporation bear an interest rate of 5 percent per annum. In view of the circumstances under which these loans are made, it cannot reasonably be said that a 5 percent rate of interest is excessive. Comparison with Federal land bank loans may serve to illustrate this point. A majority of the loans made by the Land Bank Commissioner are secured by second mortgages. Federal land bank loans may only be granted on first mortgage security. A Land Bank Commissioner loan may be made for an amount which, taking into account any prior liens, equals 75 percent of the value of the property, including both land and buildings. A Federal land bank loan is restricted. by law to a sum not exceeding 50 percent of the value of the land and 20 percent of the value of the improvements. Land Bank Commissioner loans are frequently granted upon farms which because of some physical or economic hazard would not qualify as security for a Federal land bank loan. Finally, Land Bank Commissioner loans lack the element of cooperative responsibility through stock ownership by borrowers of their national farm loan associations upon which the Federal land bank system is built. In view of the added factors of risk present in the average Land Bank Commissioner loan, I feel that the 5 percent interest rate charged on these loans compares favorably with the present 4 percent rate of the Federal land banks. I have been unable to find any system in which second mortgage loans have been made available to farmers generally on a basis as low as the present 5 percent Land Bank Commissioner loan rate.

The contemplated reduction in interest rates on Commissioner loans from 5 percent to 4 percent under the bill would reduce the annual income of the Federal Farm Mortgage Corporation, which owns these loans, by an amount of approximately $8,350,000. No provision is made for a corresponding reimbursement of this sum by the Treasury to the Corporation. Losses suffered by the Federal Farm Mortgage Corporation ultimately fall upon the United States as the sole holder of the Corporation's capital stock. More than this, the payment of principal and interest on all bonds issued by the Corporation is guaranteed by the United States.

Any reduction in the interest rate on Commissioner loans will place the Federal Farm Mortgage Corporation in such a position that there is a definite possibility that it may not be able to meet its obligations from its own income. . . . [See APP Note.]

The passage of this bill was not contemplated in the preparation of the Budget for the fiscal year 1938. As the Congress is well aware, I am definitely seeking the balancing of that Budget. To this end, I have called upon the heads of all Government departments, establishments, and agencies to set up reserves of not less than ten percent of all funds available for the fiscal year 1938, except such funds as are not susceptible to such treatment. Approval by me of the bill under consideration, involving as it does an additional draft upon the Treasury in excess of $30,000,000 during the fiscal year 1938, would be totally inconsistent with my purpose to bring about a balancing of the Budget for that year.

For all of these reasons I am constrained to withhold my approval of the bill, H.R. 6763.

APP Note:  The elipsis (. . . ) at the end of the paragraph is in the original Public Papers and is not explained.

Franklin D. Roosevelt, Veto of H.R. 6763. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/208641

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