the people on the farm. We cannot afford to put new farmers out there with the economy the way it is. It is very difficult.

But by working with the individual, we may not get every dollar that is owed us back, but we certainly are going to get a farm family that is out there that is very sincere in trying to pay us back, and in some cases they do pay back the dollars that you do writeoff.

Senator CONRAD. There are other factors that have to be entered in here. What is the attitude of the people? What has their past track record been? How cooperative have they been? But this notion that it is somehow just wrong to have debt forgiveness as part of a structure is just a roadblock.

We are going to have to proceed with Mr. Cecil Huff, a dairy farmer and cochair of the Credit Committee of the National Save the Family Farm Coalition. If you would proceed with your statement, Mr. Huff.

STATEMENT OF CECIL HUFF, DAIRY FARMER, COCHAIR OF THE CREDIT COMMITTEE OF THE NATIONAL SAVE THE FAMILY FARM COALITION, AVA, MO

Mr. HUFF. Thank you, Mr. Chairman.

I might say that the Save the Family Farm Coalition has 38 grassroot farm and rural organizations in 28 States at this time. You do have a good bill that you have introduced, but the coalition would like to strongly urge you and the members of the committee to look at a comprehensive package that would provide debt relief and borrower's rights to all lenders, not only the Farm Credit System and FmHA but other commercial lending institutions as well as owner financed property.

In the Food Security Act of 1985, it was clear that Congress wanted more than what this Administration has been able to provide in the implementation of that language. After hearing Vance Clark's testimony here today, they not only failed but they did it with malice and aforethought.

Among other things that we have seen in the 1985 farm bill that needs to be strengthened is the requirement to restructure debt instead of foreclose, provide greater access to loan servicing options, and to provide for redemption of homestead after foreclosure and strengthen the appeals process.

I have also been a past county supervisor within the Farmers Home Administration before returning to my family farm, and I can tell you the appeals process is very lacking. It is similar to the fox and the chicken house. Congress also tried to further democratize the FmHA by having two out of three county committee members elected. We think that this should be opened up to FmHA borrowers and the process should be lengthened out so it can get true representation from the county, as far as nominees to run.

It is evident that the Farmers Home Administration is not committed in the same way Congress is to maintaining and rebuilding an efficient family farm agriculture. It is evidenced by the testimony today, the language in your bill, and any bill dealing with FmHA farms will have to tighten up discretionary authority in light of the attitude of the Administration in power.

I would not be above or beyond calling for civil and criminal penalties to go along with that, too. On the item of debt restructuring, the credit committee of the coalition has done a lot of work, and even though you have good language on this credit, we found out in our work on debt restructuring that we have done on the Harkin-Gephardt bill that it is very important that you define cost of foreclosure. What we found out is lenders, particularly in the Farm Credit System, are dealing with two figures. They have the current market value figure, and they have the recovery costs, recovery value to that. And that recovery value can be 50 percent less than the current market value, and you say how could that be? It would be simple. You figure the cost of maintaining a nonperforming asset, that is, interest, so much land inventory, you are going to have to maintain it probably 2 years by the estimates I have seen in the Wall Street Journal. That is 10 percent interest rate, 2 years, 20 percent loss right there.

Senator CONRAD. In Mr. Clark's testimony this morning, I do not know if you noticed, he talked about $7.8 billion in nonperforming loans. At 7 percent interest we are talking about losing $500 million a year right there, not counting your built-in loss-that part of the loan which will never be repaid because 75 percent of those loans are delinquent by more than 3 years.

Mr. HUFF. Exactly.

Senator CONRAD. So, FmHA has already lost, aside from the face value, which is estimated by USDA to be $2.6 billion, $500 million a year in interest per year in the interim 3 years. That is $1.5 billion. We are up to $4 billion right there.

Mr. HUFF. That he is trying to say that your bill would result in the ultimate loss, when actually those accumulations are the result of bad management on Vance Clark's part. If those debts had been restructured at the proper time, those losses would not have accumulated.

I could not resist that temptation after he gouged the farmers saying we were bad managers. Another cost that should be reflected in the cost of foreclosure is not only the cost of maintaining a nonperforming asset, but what will that asset do over the next 3 to 5 years, or even 2 years.

Senator CONRAD. Have you seen the provisions that are in Senator Boren's bill?

Mr. HUFF. Oh, yes, and I am very well pleased with them.

Senator CONRAD. We are thinking about, based on our own staff analysis and based on the comments you are making here today, adopting those same provisions. It would seem to make sense to graft those provisions into this approach so that we had a more clear definition. I think you are right.

Mr. HUFF. It actually represents the reality of what the lenders are facing out there in the real world. It is bad business to foreclose this property because you cannot turn it over. You cannot turn it into cash. I do not think we have bottomed out on the farm crisis. I do not think land prices can increase nationwide, not when we are looking at 7 million acres in inventory property and more coming in, and very little going out.

Senator CONRAD. Well, the Economic Research Service, their own Agency, said we are going to lose another 10 percent of land value

this year.

Mr. HUFF. Yes. Iowa was 17 percent last year. So I am very well pleased if you would include the cost of foreclosure language that is in S. 57. I think it is fine language.

Another issue is the inventory property issue. If it had not been for Jim Massey and others, that would already be doubling daily more than what it is, or increasing daily more than what it is. I know the coalition's position is that we need to look at this land inventory as a national resource, a way that we can rebuild the family farm structure and as Gene Severens pointed out, that is definitely not the intent of the Farmers Home Administration people right now.

They have a very interesting study, in which he divulged in part of his testimony today, that virtually proves that those properties are not going back to the family farmers. They are going to ineligible persons, which by FmHA definitions are not family farmers.

One way to correct part of that would be to automatically classify all land in FmHA inventory as suitable property, and the burden of proof would be upon the Secretary of the Department of Agriculture to prove that it is surplus property, thus allowing it to be sold to ineligible borrowers.

The coalition feels the first right of refusal language must be expanded. In using the criteria that had been spoken here today, previous owner gets first right, and then a member of the family, and then third priority should be given to a new farmer or new beginning family farmer, or local farmer in the area, and within those priorities, the coalition feels very strongly about providing for the minority farmers, black farmers, who have suffered the farm crisis 10 times worse than what the white farmers have suffered.

A third issue which the coalition is committed to working on is that after farmers that are forced into chapter 12 bankruptcy because their lenders would not negotiate with them, and they do get an approved chapter 12 bankruptcy plan, oftentimes they are unable to secure the necessary credit to continue under that approved chapter 12 bankruptcy plan. We would like specific instructions to the Farmers Home Administration to provide credit for approved chapter 12 bankruptcy plans.

A fourth issue involves the FmHA's ability to attach Government payments in their debt collection efforts. In essence, what this will do is starve out an FmHA borrower. If they go in and attach Government payments, and those Government payments are to be made, were made for the purpose of reimbursing that farmer for his true cost of production, and that cost of production is represented in the form of his production expenses, operating expenses and family living expense. And they should not be allowed to attach those until they have liquidated their security agreement because it will, in effect, starve the family out.

In conclusion, I would like to say that the issues being discussed here today are very fundamental: whether Congress is going to be committed to building the family farm structure or work toward its demise, much as the Administration seems to be. I am very well pleased with what I have heard here today as far as the Senators

and their questioning and their understanding of the problem, and willingness to deal with it. The one thought I would like to leave with you is this quote from agriculture expert Franz Schurmann that "history issues a stern warning. Countries that have abandoned their farmers have suffered disasters. Soviet agriculture still has not recovered from the 1930's decimation of an entire class of productive peasants. * The argument for some new farm policy is simple but elusive: somehow any country's well-being and security are bound up with a viable population of farmers. As much as the rest of the world is learning this lesson of history, we are rapidly forgetting it."

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It is ironic to me that the Reagan administration uses such high level of rhetoric against communism, where in my opinion, when I scrape away all the technical issues here and look at this it is really a land control issue, who is going to control the land. And when we look at countries in the Soviet Union and in Central America where the seeds of communism were sown long ago, and it resulted in a loss of the land by many into the hands of a few. Those are the seeds of communism that I fear are being sowed by the administration while on one hand they condemn it; on the other hand, their policies are sowing the seeds of it, in my opinion. Senator CONRAD. Thank you very much for your testimony. [The prepared statement of Mr. Huff follows:]

Mr. Chairman, members of the Committee, my name is Cecil Huff and I am a dairy farmer and a FmHA borrower from Missouri. I am Cochair of the Credit Committee of the National Save the Family Farm Coalition. I speak for thirty eight grassroots farm and rural organizations from twenty eight states. I want to thank the Committee for this opportunity to speak to you on reform of the Farmer's Home Administration.

I want to commend you for your interest in resolving the continuing problems with FmHA. However, I must start out by stating that the Coalition strongly urges the members of this Committee to pass nothing less than a comprehensive package that provides the needed debt relief and rights to borrower's of all lenders--FHA, FCS and commercial banks.

severe

In the 1985 farm bill, Congress made its position clear by passing a strong reform package that provided FmHA officials with broad authority to use all means available to work with its borrowers facing financial difficulties due to the past five years of a farm economic crisis. As you have undoubtedly been hearing from your constituents and from the witnesses today, the Farmers Home Administriation has failed miserably in its implementation of the policies passed in 1985.

Among other things, the statutory changes you passed in 1985 allow FmHA to resturcture debt instead of foreclose, provide greater access to loan servicing options, provide for redemption of homestead after foreclosure, and strengthen the appeals system. Congress also tried to further democratize FaHA by having 2 of 3 county committee members elected and moved to assure that FmHA's large and growing land inventory be returned to the previous owner and other family farmers.

In these policy areas and others, it is clear that FmHA has ignored or aggresively circumvented your intentions laid out in the 1985 law. FmHA's disregard of Congress' wishes has meant unnecessary hardship for thousands of farm families. This is a serious problem that must be addressed quickly. Now, more than ever before, we need an FmHA that is truly working to help its borrowers keep their farms during the continuing economic crisis. We desperately need an agency that is committed, in the same way Congress is, to maintaining and rebuilding an efficient family farm agriculture.

That is why the groups of the National Save the Family Farm Coalition strongly support the legislative proposal, S. 1179, brought together by Senator Conrad. This legislation is a golden opportunity for Congress to aggresively counter the attempts by FmHA officials to get around its responsibility to maintain and build a family farm system of agriculture. This bill builds on what was passed in 1985. It tightens the language so that FHA officials have no choice but to fully comply with the wishes of Congress.