Plan Targets 20% of Farm Debtors
A new farm relief law will keep about 16,000 heavily indebted farmers in business, but nearly 65,000 other borrowers from the Farmers Home Administration still face liquidation or foreclosure, the agency said Monday in proposing rules for reshaping loan policies.
Farmers Home--the lender of last resort in the farm community--said it expects to lose $8.7 billion marking down or writing off debts.
Although most of these losses already have been incurred by FmHA, the agency said in a report, accelerated procedures in the new law will compel the Treasury to fund the losses several years earlier than previously anticipated.
Congress enacted the 1987 Agricultural Credit Act amid widespread complaints that Farmers Home was cracking down too hard on many delinquent borrowers instead of giving them a chance to survive the worst economic crisis in the Farm Belt since the Great Depression. FmHA was directed to rewrite regulations to give borrowers a greater opportunity to restructure or spread out payments and still hold on to their land.
Proposed regulations for determining whether farmers can qualify for debt relief under the new law were published Monday in the Federal Register. Interested parties have 30 days to suggest changes in the rules before they become final.
A House Agricultural Committee aide said the proposed regulations--throwing a lifeline to about 20% of the FmHA’s severely delinquent borrowers--appear to follow Congress’ intent in passing the law.
“Some in the hard-hit Midwest who wanted a very liberal interpretation of the act will not be completely happy,” said the senior aide, who requested anonymity. “There are others in the more prosperous areas who will probably think the regulations are too liberal. But on balance, I haven’t heard anybody really complain.”
Even though the new statute still allows putting substantial numbers of debt-ridden farmers out of business, that may not happen for some time. Since last May, the FmHA has been prohibited by U.S. District Judge Bruce M. Van Sickle of Bismarck, N.D., from carrying out liquidations or foreclosures. The judge held that the agency had given targeted farmers insufficient opportunity to explore ways to keep themselves afloat.
Overall, FmHA’s farm loan portfolio totals about $26 billion to 242,000 borrowers.
In a report accompanying the proposed regulations, the agency said 118,000 of those borrowers are far behind in repaying $9.6 billion in loans.
The report estimated that 37,000 of the delinquent borrowers would be able to resolve repayment problems through normal servicing procedures. The remaining 81,000 would be entitled to consideration for debt reductions, or writedowns, under the new relief law.
However, the agency figured that only 20% of the 81,000--or 16,200--would actually qualify for debt relief. The other 64,800 probably would be subject to close-outs.
The agency said borrowers who qualify for writedowns are likely to have these characteristics:
- A large part of their total debt is with FmHA.
- The FmHA loans are “greatly undersecured,” or there is no net value in the security for FmHA.
- A substantial part of the borrower’s income is from off-farm jobs.
Costs of writing down FmHA debt for the estimated 16,200 qualified borrowers were estimated at a net of $2.1 billion.
Farmers Home is often called the last-resort lender because loans are made only to those who cannot qualify at banks or other commercial sources.
FORCLOSING ON FARMERS Total farm loan borrowers, 242,000 Borrowers in good standing 124,000 Delinquent borrowers able to resolve problems through normal servicing 37,000 Delinquent borrowers eligible for consideration of restructuring with writedowns 81,000 81,000 Likely facing liquidation or foreclosure 64,800 Likely to qualify for writedowns 16,200