Farm Loan Agency Says It May Require Multibillion-Dollar Government Bail-Out

The rapidly deteriorating Farm Credit System will require a multibillion-dollar bail-out by the federal government in 18 to 24 months unless the agricultural economy improves dramatically, the system’s regulatory agency declared Thursday.

The Farm Credit Administration, which oversees the quasi-public network of banks holding 35% of the nation’s farm loans, said it had begun talks with the Reagan Administration and Congress to work out a standby rescue package that might include:

--A direct infusion of government cash into the massive lending system, which in 1985 will suffer its first net loss since it was created during the Great Depression. Donald E. Wilkinson, governor of the Farm Credit Administration, refused at a news conference to specify the losses, but reportedly as much as 15% of the system’s $74 billion in loans, or $11.1 billion, is uncollectible.

Interest Soars to 15.5%

--A federally subsidized “buy-down” of farm loan interest rates, which have soared to 15.5% in some parts of the Farm Credit System as local lending outlets struggle to offset losses.

--Federal guarantees for loans obtained by farmers and for securities sold to investors to raise loan funds for the system.

--A new entity to buy up problem loans and, in an effort to halt sliding land values, to acquire foreclosed farms.

Wilkinson, in outlining the bail-out alternatives drafted by his agency’s board of directors, said it is difficult to put price tags on them. When a questioner noted that Rep. Cooper Evans (R-Iowa) had estimated that a bail-out might cost $10 billion to $20 billion, Wilkinson responded: “We think it will ultimately require multibillions of dollars.”

The Farm Credit Administration’s directors called also for legislation to strengthen the agency’s regulatory powers, including the power to order a halt to bad lending practices, to levy fines and to remove officers of institutions in the Farm Credit System.

“The (Farm Credit Administration) needs the same enforcement authorities as are held by other federal financial regulators if it is to protect the safety and soundness of the system’s institutions,” Wilkinson said.

The Farm Credit System includes 12 regional federal land banks that make mortgage loans; 37 regional intermediate credit banks that provide operating loans through hundreds of local production credit associations, and other banks that provide loans for farm cooperatives.

Cooperation Cited

Wilkinson announced also that he had been empowered by the agency’s directors to require relatively well-off banks in the system to transfer surplus funds to those having the most difficulty. A voluntary “loss-sharing” program was instituted earlier this summer to shore up faltering intermediate credit banks in Spokane and Omaha.

Wilkinson said that there had been good cooperation in those programs but that it was necessary to make the loss-sharing process mandatory, in case banks balked at participating in any future rescue efforts.

He said that the Farm Credit System has adequate reserves to cover losses for the next 18 to 24 months. But, he added, federal financial assistance will be needed after that unless “major new forces” halt sliding commodity prices, slumping farm exports and declining farm land values. Those factors have sharply reduced farmers’ incomes and, therefore, their ability to repay loans, especially in the corn- and wheat-growing regions of the Midwest.

Wilkinson noted that Agriculture Secretary John R. Block opposes any federal assistance until the Farm Credit System has “utilized as much of its own resources as possible.” However, he said, Block recognizes that a contingency plan must be developed “so that aid could be provided before irreparable damage is done to the credit delivery system.”

How Congress will respond to the pleas for help is uncertain, however. Eugene Moos, a top aide to the House Agriculture Committee, predicted that Congress will be reluctant to act quickly, especially after 95% of farmers obtained planting loans last spring despite President Reagan’s veto of a bill to provide “emergency” credit relief.

Perhaps more important, Moos noted, Congress already is having trouble trying to pare down a massive farm subsidy bill so it will meet deficit reduction requirements in the congressional budget resolution.