and the even more disproportionate amounts of "surplus" farmland going up for sale is very suspect, and the local or state justification of the classification decisions (when available) is frequently illogical and, in our opinion, illegal. % OF INVENTORY SOLD TO INELIGIBLE BORROWERS, (Oct.- Dec. 1987) It is not clear who the buyers of these "surplus" farms are, but even ere the buyers are "family farmers," they are, by definition, a completely cferent class of buyers than those intended by the 1985 farm bill amendment to the law governing FmHA sales of inventory farmland [Consolidated Farm and Rural Development Act (CONACT), Section 335; 7 USC 1985]. Section 335 requires, wherever possible, that inventory property be sold for program purposes to FmHA-eligible, family-size operations. FmHAeligible borrowers are, by definition, unable to get credit elsewhere and, therefore, are an entirely new class of borrowers who would not be buying land but for the availability of suitable FmHA farmland and FmHA financing terms (the regular FO rate is currently 8.25%, the limited resource rate is 5%). This statutory scheme segments the land market and successfully isolates the impact of sales of suitable property from the general land market and assures little adverse impact on the values of farmland for sale on the general market. Until recently, there has been a moratorium on the sale of FmHA farmland because it would adversely affect farmland values. This moratorium was in effect in most midwestern states, but has now been lifted. Based on interviews and the results of Freedom of Information Act requests, we predict that future FmHA inventory data will show the same pattern of massive and sudden reclassification of inventory land as "surplus" as has happened in other parts of the country. For example, in Nebraska, out of 15 farmland sales in FY 1987 (through mid-March), all but one (94%) have gone to ineligible borrowers. In Arkansas, a state FmHA directive urges local officials to reclassify farmland as surplus and "once a farm is declared surplus you should immediately prepare for sale. In Indiana, data shows that even land classified as suitable to be held for sale to FmHAeligible borrowers, it is being sold to ineligible, cash-paying buyers anyway. NOTE: This information alert is adopted from the Center's "Analysis of Sale of FmHA Inventory Farmland: Most FmHA Land Sales Bypass 1985 Law" (February 1987). Write the Center for a copy if you would like more information. The Atlanta Lournal THE ATLANTA CONSTITUTION James M Cox, Chairman 1950-1957-James M Cox Jr, Charman 1957-1974 Today's editorial page was prepared by the editorial board of The Atlanta Constitution. PAGE 14-A, MONDAY, MAY 25, 1987 Strange doings at Farmers Home Out in Nebraska, two farm families have filed a lawsuit against the Farmers Home Administration, claiming the agency is ignoring the law and offering much of its foreclosed land to outside investors rather than family farmers. But if the courts think agency practices in Nebraska are strange, wait until they see the figures for Georgia. As of March, 45 percent of the agency's Nebraska inventory was classed as suitable for resale to eligible farmers (rather than outside investors). In Georgia, however, a meager 19 percent of the 36,071 acres in the Farmers Home inventory is earmarked for resale to eligible farmers. The remaining 81 percent will go to the highest bidders, such as timber companies. Yes, something is fishy here. In 1985, Congress passed legislation which instructed Farmers Home to give farmers with limited resources the first crack at buying land the agency had acquired through foreclosure or liquidation. True, this puts the agency to some trouble and likely means lower prices. But never mind: The agency's mandate is not commercial; it is to help farmers who cannot get help elsewhere. The question in Georgia is this: How can 81 percent of the agency's land land once used as collateral by family farmers be classified as unsuitable for resale to family farmers? The official answer: Much of this land was collateral for emergency loans in drought years, and the standards for these are looser than for other farm loans. Thus, the foreclosed land was not necessarily farmed and may not be suitable for resale to farmers. It's a dubious reply. Congress clearly meant for land acquired from emergency loans to stay in the hands of family farmers if possible. Georgia's ratios suggest that Farmers Home is trying to evade that wish. Why would it? Consider: Before land can be resold to eligible family farmers, the farmer who lost it first has an opportunity to lease it for three years. If he fails to buy it back in that time, it will be bid upon by other farmers of limited means. But - if the land is classified as unsuitable for the program, Farmers Home may dispose of it more quickly, and it may take the best bid from well-heeled outside investors. In other words, it's more profitable and easier to bypass ordinary farmers and sell to the big-money crowd. Is this what the agency is doing? It seems so. Congress (as well as the courts) must get to the bottom of this and put a stop to any funny stuff. Senator CONRAD. Next we will hear from Sarah Vogel, the assistant attorney general of the State of North Dakota, and one of the people who brought us here today. STATEMENT OF SARAH M. VOGEL, ASSISTANT ATTORNEY GENERAL, STATE OF NORTH DAKOTA Ms. VOGEL. Thank you. It is good to be here. I am here on behalf of Attorney General Nicholas Spaeth of North Dakota, Attorney General Hubert H. Humphrey III of Minnesota, Tom Miller of Iowa, and Neil Hartigan of Illinois. We basically favor the entire bill. The two sections that we view as the most important are debt settlement and the administrative law judge provision. I will also touch on some of the other parts of the bill. We view the debt settlement section as the most important. It is simply the key to financial survival for many farmers, and businesses in towns that provide services to farmers. It is also a key element in the continuing ability of counties to provide roads and essential public services. FmHA's debt settlement has an integral effect on the future health of rural America. We do not view this provision as a giveaway at all. This morning Mr. Clark testified, that if this bill were adopted it would result in a loss of $7.6 billion to USDA. USDA's own statistics belie Mr. Clark's claim. Mr. Clark is claiming that the entire amount of every loan that is threatened would be lost by enactment of this bill. In fact, the March issue of USDA's "Agriculture Outlook," estimates that FmHA has already lost $2.67 billion. Senator CONRAD. I do not know if you heard the rest of his testimony which indicated 75 percent of the $7.6 billion of troubled loans is 3 years or more in arrears. So those of us who have been creditors know that if you have loans which are 3 years or more in arrears, your chance of collecting are at ground zero. So the reality is that they have already lost virtually all of the $7.6 billion. It is a question whether there is going to be a recognition of that loss. Ms. VOGEL. I do not know whether it is virtually all. I think that the collateral value remains and your bill would only require a writedown to the collateral value. According to USDA in the March 1987 "Agriculture Outlook," the estimated total debt at risk is $7.6 billion, but also estimated that the amount that will be lost is $2.67 billion. Given the fact that money is lost-and I think it is—Farmers Home is engaging in a very expensive foreclose-and-liquidate policy that is very harmful to taxpayers, businesses, counties, schools, and other elements of rural society. I have attached as an exhibit to our prepared statement a worksheet, attachment A, that was used in North Dakota which discusses the expenses of acquisition and resale. It is called "Worksheet for Accepting Inventory Property,' and it gives a number of the expenses that FmHA anticipates will be incurred when it acquires real property. The example uses a $222,000 hypothetical property. The form estimates it will cost FmHA $98,000 to hold that farm for 2 years after consideration of devaluation, real estate broker fees, commissions, and other necessary expenses. Now it strikes me as an economic matter that if you have a farm with a debt of $150,000, that is worth only $100,000, the farmer that is on that land would be happy to pay $115,000. Sentimental value has monetary value. An investor, on the other hand, is going to want that property for $80,000. He is going to want to obtain a bargain. Farmers Home Administration is claiming moreover that it cannot find a market for the acres of farmland that they already have. FmHA is overlooking the farmer that is on the land. I have not met one farmer ever that really wants to leave his farm. The “voluntary” liquidation is not really voluntary. We also believe that preventing FmHA from putting additional land on the market, as Gene Severens was talking about, would help shore up agriculture bankers, and help shore up the Farm Credit Services. USDA has estimated that $4 billion of the losses that will be suffered by agricultural lenders is due to land devaluations. To quote the same article in USDA's March "Agriculture Outlook," "Had land prices not declined in the 1980's, lenders' losses on agricultural loans in the Midwest would be approximately 60 percent lower. This statistic points out the importance of land price stabilization to farmers and lenders.' If Farmers Home proceeds with its foreclose-and-liquidate policy, millions more acres of farmland will hit the market. FmHA cannot farm this land and therefore it will sell it. These sales will have the effect of increasing losses at Farm Credit Services and agricultural bankers. We cannot afford that. We also believe that the farmers who are with Farmers Home are worth saving. Mr. Clark's testimony implied that FmHA's view is, "we will forgive debt, but only if that existing guy is gone and we never ever have to deal with him again." This policy in effect puts all the blame on the farmer. We disagree. By law, FmHA borrowers are necessarily higher indebted because they started farming more recently or are recovering from disasters. I have charts in our prepared statement which indicate that the year the farmer started farming is a major indicator as to whether he is in distress or not. Of farmers who started before 1960, only 9 percent are in trouble but 35 percent of farmers who started in the 1980's are in trouble. Considering FmHA borrowers' debt to asset ratios and the fact that they are generally struggling farmers, the 35 percent delinquency rate is an indicator of good performance. And when one considers that 25 percent of the Nation's commercial farmers with little or no debt cannot cash-flow, then the FmHA delinquency rate is even more commendable. There is no reason to be punitive against FmHA borrowers: they are generally diligent and good farmers. While I was sitting here this morning, I was thinking back to March 1983, when I filed a predecessor lawsuit to Jim Massey's, lawsuit. The Assistant U.S. Attorney said the lawsuit should be dismissed because the farmer's position was hopeless. He said the farmers could not survive and they are all going to go down. Dwight Coleman was the lead plaintiff, and he sued John Block and Charles Shuman. Now in 1987, Dwight Coleman is still on his |