House Supports $6 Billion to Save Farm Credit System

The House on Tuesday overwhelmingly approved what could become the largest direct federal bailout ever, investing as much as $6 billion to rescue the nation’s primary agricultural lender, the Farm Credit System.

Although the system is federally chartered, its 37 banks and roughly 400 local lending associations are owned and controlled by the farmers who borrow from it. For most of its 71-year history, it has been a remarkable success story, but the worst farm slump since the Great Depression has brought almost a third of its banks to the brink of collapse.

“Let’s not kid anybody. This is a necessary bailout for a Farm Credit System that is in deep trouble,” Rep. Leon E. Panetta (D-Monterey), a member of the Agriculture Committee, said in an interview. “Without farm credit, you don’t have a Farm Belt.”

The Senate Agriculture Committee is struggling to agree upon a bill that is comparable to the one that passed the House on a 365-49 vote. The White House strongly opposes several aspects of the measure and has threatened a veto.

The issue of further aid to farmers is generating friction between lawmakers from rural areas and urban congressmen. Some question the need for such a dramatic move at a time when there are indications of improvement in the farm economy and other federal programs are being squeezed under pressure to reduce the federal budget deficit.

“We are spending too much public money on agriculture and not enough in other places,” Rep. Barney Frank (D-Mass.) complained.

However, with farm states playing a pivotal role in next year’s elections and the family farmer’s plight having a particularly strong emotional hold on the nation, the measure passed the House with relatively little criticism. House Speaker Jim Wright (D-Tex.) set the tone, telling reporters: “America depends to a large extent on our system of family farms.” He credited family farmers with making this the best-fed nation in the world.

The legislation offers to loan the system as much as it needs over the next five years--an amount estimated by the House Agriculture Committee at between $2 billion and $6 billion. It is clear that the assistance will go far beyond that minimum, with the bill appropriating $2.5 billion in emergency aid this year alone.

The credit system would begin repaying the interest-free loans in five years, but at a rate that would allow it to take decades to repay the amount borrowed.

The legislation also would make far-reaching changes in the structure of farm credit and give the federal government greater control and involvement in the system.

It would establish a new government-backed secondary market for farm loans--officially known as the Federal Agricultural Mortgage Assn. and dubbed “Farmer Mac”--that is in most ways similar to the markets for home mortgage loans. It would allow Farm Credit System banks and other commercial lenders to package their loans and sell them on the open market.

Frank described the secondary market, to which the Administration objects, as “just a way to channel more and more money into agriculture.” But supporters said it is needed to invigorate farm lending by giving small farm banks access to huge new sources of funds.

The bill also would throw several lifelines to financially pressed farmers. It would require system lenders to restructure loans rather than foreclose in cases in which foreclosure would be more expensive than trying to get farmers back on their feet.

It grants new rights to farm borrowers, including encouraging states to establish mediation programs through which lenders and borrowers could work out repayment plans. It also grants those rights to farmers who borrow from the Farmers Home Administration, which lends to farmers who cannot obtain credit elsewhere.

The system, which provides long-term loans for land purchases and shorter-term credit for seasonal expenses, turned a handsome profit during the farming boom of the 1970s. As land prices soared, it was allowed to make loans of as much as 85% of the value of the acreage offered as collateral.

When land values and farm prices plummeted in the 1980s, so did the system’s surplus. By last July, nearly one-quarter of its $51-billion loan portfolio consisted of shaky loans and its surplus had dwindled to $1.2-billion--insufficient to cover losses expected to exceed $3 billion by 1990.