Reagan Urged to Aid Farm Credit System : Iowa Governor Says Lender Will Be ‘Underwater’ by End of 1985

Iowa Gov. Terry Branstad, saying the nation’s largest farm lender will “be underwater” by the end of the year, urged President Reagan on Thursday to endorse a bail-out of the Farm Credit System.

Branstad, a Republican and governor of a state severely squeezed by the current farm fiscal crunch, said information due to be released next week on the $74-billion lending system will show its first annual loss since the 1930s and indicate that its capital will be gone within three months.

“We’re going to find out before this year’s over that its capital and resources are gone,” Branstad told reporters outside the White House, where he and other GOP governors met with Reagan on economic issues. “They’ll be underwater.”

Bail-Out Sought

The private, cooperatively owned system of 36 regional banks has admitted that falling farmland values and poor commodity prices have left many of its customers unable to keep up their loan payments and that a multibillion-dollar bail-out will be needed within two years.

Others, including the congressional General Accounting Office, say even that admission understates the extent of the system’s troubles. Congressional hearings will be called soon after the system’s third-quarter report is issued next week, and system officials are expected to unveil their plan for a federal bail-out.

Among options being discussed are a $10-billion line of federal credit that would be used to buy problem farm loans, an interest rate buy-down for troubled farmers and a corporation to warehouse foreclosed farmland and isolate it from the market to keep values from plummeting still further.

Economic Emergency

Branstad, who declared an economic emergency in his state two weeks ago because of a growing rate of loan defaults and business failures, said he still found skepticism among Administration officials about the need for federal help for agriculture, including a Farm Credit System bail-out.

“I think after this information comes out next week, it’ll be abundantly clear” that such help is needed, Branstad said.

He said that while Reagan made no commitment on the credit issue, “he indicated awareness and concern for the situation.” Branstad said Reagan had promised him another meeting on farm credit.