Loans on farm lands were no doubt the earliest form of investment, since the first and principal occupation of civilization was agriculture. Originally such loans were made in a most primitive way. When the human race was young and acquiring its first taste of civilization, it was the practice of a landowner who prospered above his neighbor from the bounty of Mother Earth to make loans of seed or live stock on consideration that he receive in return a certain portion of the borrower's next season's harvest or a certain number of the offspring of the live stock loaned.

As civilization made progress, it was found far more convenient to settle for all obligations by the payment of gold and silver; but in those early and primitive days, when the commercial relations between men and races were carried on crudely, lenders of capital were satisfied to accept the pledges of borrowers as men of honor who agreed to pay their loans on a stipulated day, or forfeit their land, cattle, implements, or whatever they pledged to secure them.

Farm Mortgages

Out of such transactions grew the modern indenture. Bjr this is meant the mortgage or contract which today legally binds the borrower to reimburse the lender for a an with a stipulated rate of interest and empowers the holder of the mortgage to proceed by law, through foreclosure proceedings, to take possession of the pledged property and dispose of it in order to protect himself against any loss of capital and interest.

The phrasing of mortgages has undergone considerable change. There was a time when the holder of a mortgage could take possession of property upon default payment and keep it all. Now the law goes so far as to protect the borrower in maintaining his full rights in that equities may exist over a loan. That is to say, very dollar realized above the face of a loan, the accrued interest, and all costs involved by what legal proceedings are necessary to enforce payment, reverts to the borrower.

The mortgage today is a legal instrument devised to protect lenders of capital to the extent of their loans, interest due, and all costs, but no further. It does not give them any unfair advantages over distressed debtors.

The form of a typical mortgage is shown in Figure 1.

Not only are loans on agricultural lands the oldest of which we have any record, but they have also proved the most satisfactory. Of the world's available capital a very large, if not the largest, portion is either invested outright or loaned out in farm land and other real estate.

What makes loans so satisfactory when placed on the individual's home or farm is the fact that a man will go to extreme lengths and exhaust all his available resources to satisfy a mortgage and continue the prompt payment of interest as it falls due, rather than lose the place he calls his home. Next to the immediate members of his family, his home is dearest to him. This is why such loans are regarded as having, in addition to the physical assets pledged as securities, a moral asset - the pride of the individual in keeping a roof over his family.

Bank Loans

Our small interior banks are by far the largest lenders of capital on farm mortgages. Insurance companies come next and after them follows the private investor. That this should be the case is largely the outcome of a community of interest. Banks and private bankers in the small towns and villages which are the hubs for farming sections, must depend principally upon the tillers of the soil for their business. The deposits of the latter they in turn lend out to their customers on the only collateral the farmers can offer, their land, live stock, or crops.

These bankers also, knowing more intimately the value of the farm lands by which they are surrounded, feel a great deal safer about their loans when they are put out on such collateral. Yet their aggregate resources, and they are by no means small, have often proved insufficient to finance all the farm loans sought.

In the North, South, East, and West, everywhere in fact where there is a prosperous farming community, there are brokers who do nothing but make loans on farm mortgages, which in turn they sell to institutions and investors, for whom they act as agents for the collection of interest and principal when the mortgages mature. The banks frequently find it to their pecuniary advantage to let outside investors have part of their farm mortgages, for the oftener they are able to turn over their loanable funds, the more money they can make.

Insurance Company Loans

The large insurance companies, on the other hand, are impelled by two reasons in diverting part of their large resources to farm loans: (1) It is necessary to diversify their investments; (2) the legal rate of interest in different states varies to such an extent that it affords them the opportunity to increase their income yield on all their outstanding investments.