The Emergency Farm Mortgage Act

Early Loan Structure

Before the creation of the Farm Credit Administration, The Federal Farm Loan Act of 1916 had established 12 Federal Land Banks that operated in 12 districts around the country. They enabled farmers to expand their land by providing long-term credit. The act also created National Farm Loan Associations, which employed agents for the land banks. A portion of each loan purchased stock in the association, which granted individual farmers ownership in that association. The Great Depression strained this arrangement, however, and as the collapse of the banking system forced lenders to foreclose on mortgages, hundreds of thousands of farmers were threatened with the loss of their farms.

To address the plight of the farmers and try to save the farms, Congress in 1933 passed the Farm Credit Act and the Emergency Farm Mortgage Act. The Emergency Farm Mortgage Act extended repayment plans and offered emergency financing to individuals currently delinquent on their loans. The Farm Credit Act established the Farm Credit System, a group of cooperative lending institutions that provided short-, intermediate- and long-term agricultural loans. President Franklin D. Roosevelt signed an executive order that placed agricultural credit organizations under the Farm Credit Administration.

With the passage of the Emergency Farm Mortgage Act, Congress funneled $200 million to the Land Bank Commissioner to refinance farmers' debts through first and second mortgages. In addition to refinancing options, the act also provided for an interest rate reduction on Federal Land Bank loans. Both programs were administered by the newly created Farm Credit Administration, which also was tasked with supervising the farm credit agencies that made the loans under the emergency act. From the passage of the act until 1935, the land banks held more than 48 percent of the total farm mortgage debt. The emergency program successfully cut $38 million of interest from the farmer's loans and prompted many of their creditors to reduce the farmers' debts to increase their ability to get mortgage loans and access to cash. The act saved hundreds of thousands of farm families from losing their farms.

By 1968, the government capital used to establish the Farm Credit System was repaid and the farmer-borrowers, once again, wholly owned the cooperative institutions that comprised the Farm Credit System. But times had changed, in the 35 years that had passed since the establishment of the system, and the FCA determined that its role, and that of the FCS, should be expanded to include commercial fisherman and rural homeowners. The Farm Credit Act of 1971 gave the FCA the authorization for this expansion.