Effect On The Rural Farmer
The most visible component of the Act were the loans to individual farmers and their families. Under the act, farmers could borrow up to 50% of the value of their land and 20% of the value of their improvements. The minimum loan was $100 and the maximum was $10,000. Loans made though the Act were paid off through amortization over 5 to 40 years.
Borrowers also purchased shares of the National Farm Loan Association. This meant that it served as a cooperative agency that lent money from farmer to farmer. This was heavily influenced by a successful cooperative credit system in Germany called Landschaft.
The next most visible component of the Act were the mortgage-backed bonds that were issued. The rate of interest on the mortgages could be no more than 1 percent higher than the rate of interest on the bonds. This spread covered the issuers' administrative costs, but did not lead to a significant profit. In addition, the maximum rate of interest on the bonds was 6 percent, ensuring that borrowing costs for farmers was often much lower than before the Act was passed.
The act furthered Wilson's reputation against trusts and big business. By providing small farmers with competitive loans, they were now more able to compete with big business. As a result, the likelihood of agricultural monopolies decreased.
While Wilson's commission suggested that short-term credit also be incorporated in any nationalized credit system, the Act lacked this crucial component. Due to increased competition and the need for agriculture machinery, a system for short-term credit was incorporated into the current system in Agricultural Credits Act of 1923.
Sponsored by Senator Henry F. Hollis (D) of New Hampshire and Representative Asbury F. Lever (D) of South Carolina, it was a reintroduced version of the Hollis-Bulkley Act of 1914 that had not passed Congress due to Wilson's opposition.
Read more about this topic: Federal Farm Loan Act
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