Page 2. FmHA Reform and Modernization

SECTION 4. COUNTY COMMITTEES.

This section reforms the election procedures for FmHA County Committees by requiring a 45 day period for the submission of nominations and at least a 30 day period after nominations are submitted before elections can be held.

Because of current procedures, very few eligible voters even aware of elections which determine county committee members.

are

SECTION 5. APPEALS PROCEDURE.

This section requires that appeals of FmHA administrative decisions be held before hearing officers appointed by the Secretary and that such hearings be conducted in accordance with Administrative Law.

In

In most federal agencies, independent appeals officers rule against the agency in 20 to 40 percent of the cases. contrast, only 2 to 5 percent of FmHA appeals are successful. It is a basic premise of American democracy to give citizens a fair hearing of their complaints. To do so requires independent appeals officers.

SECTION 6. COMPLIANCE WITH STATE LAW AND PRIORITIES FOR
DISPOSAL OF ACQUIRED PROPERTY.

This section requires FmHA to participate in programs of credit resolution required under State law prior to the initiation of any collection activity.

Credit mediation services have been extremely successful in Iowa and Minnesota and have reduced the rate of Chapter 12 bankruptcy filings substantially over states without effective credit mediation.

Section 6 also sets up a priority status among potential purchasers of acquired FmHA property. The former owner is given first right of refusal followed by a preference for his immediate family.

For members of recognized Indian tribes, other members of the tribe are given next preference followed by the Tribal government or corporation.

Page 3. FmHA Reform and Modernization

SECTION 7. FARM LEASEBACK PROGRAM.

In addition, the former owner has first right of refusal to rent the acquired property.

Under Section 7, FmHA is given authority to sign rental contracts or sales contracts for the land and homestead with the owner before FmHA actually acquires the property. These contracts become part of the legal documents through which delinquent borrowers convey the land back to FmHA.

SECTION 8. INCOME RELEASE.

This section requires FmHA to issue regulations setting national standards for release of living expenses and farm operating expenses to farmers who are involved in liquidation or foreclosure proceedings.

Current practices allow vast differences between states and even within states. Because of the lack of a national standard, FmHA can literally starve out a family if they so desire.

SECTION 9. HOMESTEAD PROTECTION.

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This section allows farmers to retain the "homestead" the home and surrounding farm buildings through purchase or rent.

SECTION 10. STATE POLICY BOARDS.

This section establishes State FmHA Policy Boards to review and report to the Secretary and the Public on the effects of Federal FmHA policies and determine the amounts of direct and guaranteed farm ownership and operating loans needed for the farmers of the State.

These elected state policy boards will provide an

alternative view of state needs and of the effects of FmHA policies in the various States.

STATEMENT OF HON. VANCE L. CLARK, ADMINISTRATOR, FARMERS HOME ADMINISTRATION, U.S. DEPARTMENT OF AGRICULTURE

Mr. CLARK. Good morning, thank you, Mr. Chairman and members of the committee. I appreciate the opportunity to be with you. today to discuss the activities of the Farmers Home Administration and our continuing efforts to help those farmers unable to obtain credit on regular commercial terms.

Your invitation, Mr. Chairman, asked that I address the issue of reform and modernization of the Farmers Home Administration. I assume that you are referring to the provisions of S. 1179, which you sponsored, Mr. Chairman. We appreciate your interest and regret that we respectfully disagree and must register our opposition to S. 1179.

We strongly oppose S. 1179, because it would impair our ability to service a farm loan portfolio totaling $28.3 billion, and ignores the servicing tools already available to us and in widespread use throughout the Agency.

Those tools are helping us deal with delinquent farm loans totaling $7.6 billion. Our progress may be slow at times, but we are making progress, significantly so, in terms of helping those farmers in need and in reducing the overall delinquency. S. 1179 would stop this progress and would provide, in effect, a $7.6 billion giveaway of public funds.

We do not need to do that, nor does the American taxpayer expect us to. On the contrary, we need to continue providing the special assistance as needed, farmer by farmer, depending on individual circumstances.

For example, in the 1986 fiscal year, we extended some form of special service in almost 100,000 instances to our 275,000 farm borrowers. This consisted of 43,000 loans rescheduled or reamortized; 2,500 loans deferred; 25,000 loans subordinated to other lenders to allow new and additional credit to be extended; and 28,000 loans refinanced at the lower, more favorable, limited resource interest rate, at an average interest rate, I might add, of 4.5 percent for operating loans and 5 percent for farm ownership loans.

Two new features, adopted during the lending season last year, provided additional assistance. The Food Security Act of 1985 interest buy-down option enabled us to guarantee more than 1,500 additional farm loans, about 10 percent of our total guaranteed operating loans. Our own Agency launched "Operation Assist," and made it possible for more than 500 farmers to obtain loans totaling almost $43 million. Under Operation Assist, you will recall, county supervisors, if their allocated direct operating loan funds are exhausted, personally escort eligible farmers to the local bank or other lender to assist in obtaining a guaranteed loan.

I am happy to report that, so far this year, we have reached almost 53,000 farmers with those extra special efforts: almost 22,000 loans rescheduled or reamortized; 800 loans deferred; almost 15,000 subordinations; and more than 15,000 refinanced at the limited resource interest rates. Altogether, 64 percent of the direct operating and ownership loans carried the limited resource rates of

4.5 percent and 5 percent respectively. Both of those bargain rates have been in effect this entire lending season.

Interest rate buydowns have exceeded 2,300 loans for $275 million, and subsidies of $16 million. Buydowns account for about 18 percent of all guaranteed loans this year.

Operation Assist has enabled more than 1,300 farmers to obtain loans totaling $110 million so far this fiscal year. Both of these special features are producing real benefits for farmers who might not have been able to continue otherwise.

Mr. Chairman, the evidence clearly shows that Farmers Home is addressing the needs of those farmers who cannot compete in the regular credit markets for their financing. We are meeting our mission as a lender of last resort, and doing it in a prudent manner. Our Agency, however, is not the only source of USDA financial assistance for farmers. Our sister Agency, the ASCS, through as many as 16 different programs, provided almost $26 billion to American agriculture last year, some of it in the form of direct payments instead of loans. I understand this year's totals will be a similar amount.

As you can see, this administration's commitment to agriculture is strong. And while fully supporting that sector, we should also keep in mind that we need to carefully examine the problems of our farmers and not raise false expectations. Their problems, as with those of others, need to be brought to some resolution in a reasonable time.

Perhaps some of the perceived need for a major revision in FmHA procedures has come about from recent press reports purporting to show that the Agency is in the process of foreclosing on 78,000 farmers, or has been stopped from foreclosing on 78,000 farmers. Nothing could be further from the truth.

There never have been any such plans in my time at Farmers Home, and there are no such plans now. What you have been reading is, at best, a misunderstood view of normal delinquent loan servicing. Most delinquency problems are resolved without reaching the point of foreclosure. We are not out to do the American farmer in.

Last spring, about 42,000 farm borrowers were sent letters reminding them of their delinquency and the need to consider ways to resolve that delinquency. Those ways included deferral, rescheduling, and refinancing at limited resource interest rates, among others. More than one-half of those delinquencies have been resolved. We are still working with some others. Still others, about 4,600, have voluntarily entered bankruptcy, apparently taking advantage of the new chapter 12 provisions.

This spring, the same servicing mailing went to fewer than 15,000 farm borrowers. We are unable to give a complete report because we do not have all the details in yet, but we do know that more than 2,400 of this year's delinquencies have been resolved already.

As for S. 1179, we believe it would not allow us to strike a proper balance between meeting the legitimate needs of the American farmers we serve and the public interest in the prudent stewardship of public funds. We strongly oppose its passage.

That completes my prepared statement, Mr. Chairman. I would be happy to answer any questions you might have.

Senator CONRAD. Mr. Clark, there seems to be a difference of perception, a rather radical difference. You see things as being quite good, if I could summarize your testimony. When I go out into the field, and along with my colleagues, we went through five States this spring, and more recently I have just conducted some 40 meetings in 30 towns and cities of my State.

The overwhelming response that we receive is that there are problems with FmHA. How would you account for the difference between what the people who are FmHA borrowers tell us and what you tell us as FmHA Administrator? How would you account for the difference?

Mr. CLARK. Well, Mr. Chairman, I think your presence in those States certainly brings out those borrowers of Farmers Home and perhaps other lending institutions who are so hopelessly overburdened with debt, and are looking to you as one last gasp, if you will, for survival.

You are not talking to the ones who have been serviced. I think you ought to see if you can get to those who are surviving and are making it because of our servicing actions.

Senator CONRAD. Would you describe this as a time in agriculture when people are doing well, by and large?

Mr. CLARK. I do not think I used that word. No. There is still a lot of stress and strife out there, and that certainly makes our burden greater.

Senator CONRAD. Let me just say this to you. As one Senator who has a constituency to serve, when half of my case load involves FmHA, and fully half of my case work in the State of North Dakota involves one Agency of the Federal Government, when half of my mail relating to agriculture involves FmHA, it would seem to me that is a signal that there is a problem. Is your sense that there simply is no problem?

Mr. CLARK. I have not used that term, Senator. Certainly there is a problem out there. But we cannot salvage and save every American farmer in your State or any other State. We have to realize there has to be some failures out there.

Senator CONRAD. I do not think anybody is saying we have to save every farmer. Number one, we do not have the resources to do that. But on the other hand, we ought to make the full effort that can be made to save those that have a chance to survive if they are given some help. I am sure we would agree on that.

Let me turn to the point of your statement that surprised me, and I frankly have trouble understanding. Perhaps you can help me understand. You indicate that you have $7.6 billion of delinquent loans. Is that correct?

Mr. CLARK. That is correct.

Senator CONRAD. That is your current delinquency in the farm portfolio. You indicate that if S. 1179 were passed that there would be a $7.6 billion giveaway of public funds.

Now maybe you can explain to me why that is the case when we are saying write-down the loans only in those cases where you would get more than by going to liquidation or foreclosure? Why would we lose the whole $7.6 billion?