7 1 "(e) Any farm loan deferred, consolidated, rescheduled, 2 or reamortized under any authority of the Secretary under 3 this title other than under subsections (b) and (c) of this sec4 tion shall, notwithstanding any other provision of this title, 5 bear interest on the balance of the original loan, and for the 6 term of the original loan at a rate not in excess of the rate of 7 interest on the original loan.". 8 9 10 ADMINISTRATION OF GUARANTEED FARM LOAN PROGRAMS SEC. 7. (a) The Consolidated Farm and Rural Develop 11 ment Act (7 U.S.C. 1921 note) is amended by adding at the 12 end thereof the following new section: 13 14 title: 15 "SEC. 349. Notwithstanding any other provision of this "(a) The Secretary shall establish, in each State office of 16 the Farmers Home Administration organized by the Secre17 tary under the authority of section 331(a) of this title, a 18 Guaranteed Farm Loan Program Unit (referred to in this sec19 tion as 'the Unit'). The Unit shall operate and administer 20 within the area for which the State office is responsible the 21 programs for guarantees of farm-type loans for farm owner22 ship purposes under subtitle A, farm operating purposes 23 under subtitle B, and disaster emergency purposes under sub24 title C of this title, and economic emergency purposes under 25 the Emergency Agricultural Credit Adjustment Act of 1978. HR 1190 IH 8 1 Such programs may not be operated or administered by 2 county or district offices of the Farmers Home Administra 3 tion. "(b) The Secretary shall ensure "(1) that each Unit has sufficient staff to carry out its responsibilities promptly, efficiently, and effec 4 5 6 7 tively; 8 9 10 11 12 13 14 15 16 "(2) within the limits of authorizations therefor, make available to each Unit funds adequate to meet the demands in the area for which it is responsible for loan guarantees for each of the purposes enumerated in section (a) of this section; and "(3) that the Unit informs all private agricultural lenders in the area for which it is responsible of the existence of such loan guarantees and how they may be utilized by lenders and borrowers.". 17 (b) The Secretary shall issue regulations to implement 18 the provisions of subsection (a) of this section which shall 19 include adjustments of the administrative structure of the 20 Farmers Home Administration necessary to accommodate 21 such provisions. 22 (c) The provisions of subsection (a) of this section shall 23 become effective ninety days after enactment and shall apply 24 to applications for guarantees filed and guarantee commit25 ments made on and after such effective date. HR 1190 IH I believe it appropriate to put that problem into perspective. I have brought a couple of simple illustrations with me today to illustrate the background and situation we find ourselves in. I think the best way to do that is to begin with the decade of the seventies. At the beginning of the seventies, the total farm debt amounted to about $54 billion which is distributed as you see it on this chart to my left. During the decade of the seventies that debt was very rapidly run up by the commercial and farm credit systems to the point that in 1983, we expect the total outstanding debt to farms for real estate and nonreal purposes to total some $215 billion against assets and value of $1.07 trillion, or a debt to asset ratio in the farming community as a whole of about 21 percent. While overall that debt to asset ratio is very favorable in a business perspective, there certainly are a number of producers who are faced with much more leveraged position and are under much greater financial stress. The early seventies were characterized by commercial and farm credit system lenders relying heavily on a very rapid escalation of real estate values. In many instances, inadequate attention was paid to whether or not repayment ability existed or whether cash flow on a current year basis was actually present. Loans were readily refinanced or extended because of rapidly escalating real estate values. The net effect was that by 1977-78, there was beginning to occur a tightening up of the farm credit lending from commercial and farm credit sources. At that time, however, the Economic Emergency Act was passed, which made a major change in the way the Farmers Home Administration operated. That was reflected in a rapid runup, as shown on this chart beginning in 1977-78. The first peak you see really directly relates almost to the "60 Minutes" program of several years ago at which time Congress very carefully reviewed and I think, Mr. Chairman, was to be commended and made some very appropriate changes to that particular act which tightened up and made more appropriate use of the funds that were available. There was some falloff as a result of those changes. Then because of a disastrous year in many respects on some cropping areas, the total lending went on up and peaked in about 1981 at $7 billion, most of that, $5.5 billion, being a direct result of disaster lending of various types. As the economic emergency program ceased operation, there was a significant drop off. In addition to that, general good cropping conditions reduced the amount of disaster designations made during that period. At the current status we can look at what situation we find all farm lenders in today. The chart you have before you reflects total lending by all the categories of lenders which are outstanding. I think there are some pertinent points to reflect upon in this chart. The total delinquency rate based on the latest figures available to us for real and nonreal is 3.9 percent. In the case of the PCA's, the latest figures we have at USDA, and Mr. Fredrickson will be able to verify those, is 2.7 percent. In the case of land banks, the current figure is 2.5 percent. In the case of Farmers Home Administration, we have 11 percent of the total 18-811 0-83--2 OPENING STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESENTATIVE IN Mr. Chairman, I commend you for holding hearings on farm credit early in the 98th Congress. I think all of us welcome the chance for action on this front, which for many farmers this time of year is as critical as low prices. No one can doubt the seriousness of the problem. It is quite true that about half of all farmers are debt-free, but a purely numerical approach doesn't tell the whole story. The Farm Credit Administration recently reported that large farms, those on which the bulk of our food and fiber supply is produced, have a debt-to-asset ratio approaching 40 percent-double that for the farm sector as a whole. I find many problems in talking with my farm constituents-problems ranging from the simple availability of credit, to its timing. Where we as legislators can take action to address these problems, we ought to. That is why I am proud to be a cosponsor of your bill, Mr. Chairman, the Emergency Agricultural Credit Act of 1983. I hope it will be the vehicle for some honest discussion today of just what options are open to us, and what their consequences may be. I think all of us-the private lending sector, the Farm Credit System, the Administration, the Congress, farmers and their organizations—share a fervent wish to see credit conditions improve, and I do not think we have time for the luxury of trying to pin the blame on each other. We will disagree on some things, and that's fine. But let's admit that since time is short, it's better to face realistically the consequences of our own policies, and make some adjustments if we need to, than to worry about who'll be blamed or praised. It's farmers who need "credit," not us. I do have some specific concerns which farmers in my district are telling me about: There are long delays in finding out whether producers qualify for operating loans, particularly from FmHA. Much of this is due to staffing and workloads. The $100,000 operating loan ceiling causes problems, particularly for borrowers who may be delinquent on some previous loans. Since the ceiling refers to the total amount of indebtedness to FmHA, in many cases the amount that can be lent is just not enough to cover the costs of operating. The lack of a really effective loan guarantee program hurts. The avenues open to producers would be considerably broader if FmHA and the private sector were able to work out a better means of making loan guarantees. One of the chief complaints I hear from banks is the sheer volume of paperwork and red tape involved. These and other concerns which will emerge during the course of this hearing are of vital interest to farmers and ranchers. We won't solve them all by legislation. But it's useful to talk about them today-and it's even more useful if all of us, Congress and Administration alike, remain flexible and willing to work together. I hope nobody's feet are set in concrete yet-or at least that the concrete has❜t begun to harden. Mr. BEDELL. Mr. Naylor, we appreciate your being here. Please summarize or read your prepared statement. STATEMENT OF FRANK W. NAYLOR, JR., UNDER SECRETARY, SMALL COMMUNITY AND RURAL DEVELOPMENT, U.S. DEPARTMENT OF AGRICULTURE, ACCOMPANIED BY CHARLES SHUMAN, ADMINISTRATOR, FARMERS HOME ADMINISTRATION Mr. NAYLOR. I must admit, I got trapped out of town and found it very interesting trying to get a flight back into Washington. We finally managed by a very circuitous route to get back here. I am pleased to be before the subcommittee this morning and appreciate the difficulty which the members have had getting back in order to hold this hearing. Mr. Chairman, I do not have a prepared statement this morning. But with your permission, I think it perhaps appropriate at the beginning of this hearing to give some background to the current credit situation we see ourselves in today with regard to Agriculture. I think that is particularly appropriate. As we look at the last 60 to 90 days there has been a good deal of public and media attention focusing on the problem. I believe it appropriate to put that problem into perspective. I have brought a couple of simple illustrations with me today to illustrate the background and situation we find ourselves in. I think the best way to do that is to begin with the decade of the seventies. At the beginning of the seventies, the total farm debt amounted to about $54 billion which is distributed as you see it on this chart to my left. During the decade of the seventies that debt was very rapidly run up by the commercial and farm credit systems to the point that in 1983, we expect the total outstanding debt to farms for real estate and nonreal purposes to total some $215 billion against assets and value of $1.07 trillion, or a debt to asset ratio in the farming community as a whole of about 21 percent. While overall that debt to asset ratio is very favorable in a business perspective, there certainly are a number of producers who are faced with much more leveraged position and are under much greater financial stress. The early seventies were characterized by commercial and farm credit system lenders relying heavily on a very rapid escalation of real estate values. In many instances, inadequate attention was paid to whether or not repayment ability existed or whether cash flow on a current year basis was actually present. Loans were readily refinanced or extended because of rapidly escalating real estate values. The net effect was that by 1977-78, there was beginning to occur a tightening up of the farm credit lending from commercial and farm credit sources. At that time, however, the Economic Emergency Act was passed, which made a major change in the way the Farmers Home Administration operated. That was reflected in a rapid runup, as shown on this chart beginning in 1977-78. The first peak you see really directly relates almost to the "60 Minutes" program of several years ago at which time Congress very carefully reviewed and I think, Mr. Chairman, was to be commended and made some very appropriate changes to that particular act which tightened up and made more appropriate use of the funds that were available. There was some falloff as a result of those changes. Then because of a disastrous year in many respects on some cropping areas, the total lending went on up and peaked in about 1981 at $7 billion, most of that, $5.5 billion, being a direct result of disaster lending of various types. As the economic emergency program ceased operation, there was a significant drop off. In addition to that, general good cropping conditions reduced the amount of disaster designations made during that period. At the current status we can look at what situation we find all farm lenders in today. The chart you have before you reflects total lending by all the categories of lenders which are outstanding. I think there are some pertinent points to reflect upon in this chart. The total delinquency rate based on the latest figures available to us for real and nonreal is 3.9 percent. In the case of the PCA's, the latest figures we have at USDA, and Mr. Fredrickson will be able to verify those, is 2.7 percent. In the case of land banks, the current figure is 2.5 percent. In the case of Farmers Home Administration, we have 11 percent of the total 18-811 0-83--2 |