WASHINGTON - A
representative of The Farm Credit
Council told congressmen today
that the Farm Credit System “is
clearly on record that loan
restructuring is the preferred
alternative for working with
troubled borrowers. Foreclosure is
the last alternative and the least
preferred.”
Also in his testimony befofe a
House Agriculture subcommittee,
Douglas D. Sims, chief operating
officer of the Farm Credit Banks of
St. Louis, cited a pricing
philosophy resolution recently
adopted by Fram Credit leader
ship that would enable system
institutions to bring interest rates
to more competitive levels.
“The system must operate with
a view to long-term profitability.
We’re not just preparing ourselves
to receive federal financial help.
That means we’ve got to get in
terest rates back to competitive
level,” he told the lawmakers.
Sims, who is a member of the
Washington-based Farm Credit
Council’s legislative committee, a
trade assocation for the farmer
owned lending system, said,
“Contrary to what you often read,
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New directions given to keep farm borrowers
the decision to foreclose on a
farmer is not a decision easily and
quickly made by any of our far
mer-board members of any Farm
Credit System institution.”
He said, “It is on this basis that
the Farm Credit System-its banks
and associations- are making the
commitment to administer
troubled loans with the objective of
utilizing loan restructuring
measures, including participating
in federal or state-funded interest
rate buy-down programs and
FmHA loan guarantees, as
preferred alternatives to
foreclosure.”
Sims said this commitment was
one of several important
resolutions unanimously adopted
recently by the Farm Credit bank
presidents and recommended by
the system directors to the board
of the Farm Credit Corporation of
America, the umbrella policy
making body of the Farm Credit
System. The FCCA board ap
proved all the resolutions on April
3.
Sims made his remarks in
testimony before the House
Agriculture Subcommittee on
Conservation, Credit and Rural
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Development which held a hearing
today on general agricultural
credit conditions and on credit
related legislation.
While restructuring of loans is
the preferred alternative,
decisions to do so must be made on
a case-by-case basis, Sims said.
Key elements essential for a
decision to restructure are:
The borrower has acted in
good faith to manage his business'
affairs.
, The borrower can present a I
plan which demonstrates realistic
prospects for returning to financial
viability.
The restructuring would
minimize losses which must have
be home by other farmer
borrower-stockholders of the bank
or association involved.
On the subject of interest rates,
Sims told the House subcommittee
that Farm Credit leadership
adopted a resolution to put into
effect a new pricing philosophy to
make its interest rates com
petitive. Currently the system sets
rates on its average cost of funds
which includes recently sold
securities and bonds sold months
or years ago- rather than on the
present lower rates. Consequently f
Farm Credit interest rates have
been running higher than its
competitors in many instances.
Sims pointed out to the
congressmen that no interest rate
changes can be made by a Farm
Credit district without approval of
the Farm Credit Administration
(FCA).
Sims said, “To achieve long
term profitability the Farm Credit
System must price products and
services to its customers on a
locally competitive and dif
ferential basis, considering risk
and costs incurred on each loan.”
He said, “Like any other
financial institution, we must be
able to competitively serve our
best farmer and cooperative
borrowers and pursue marketing
strategies which will attract new
credit-worthy farmers, teachers
and cooperatives.”
Sims said that because of FCA’s
recent directive concerning capital
sufficiency, “every institution in
the system now has questions
about the extent to which FmHA
programs and other restructurings
can be undertaken, or whether any
state interest buy-down programs
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can be used.”
Other resolutions approved
included one that stated the system
would seek quick implementation
of the Farm Credit Amendments
Act of 1965.
Last year Congress passed the
Farm Credit Amendments Act
which was designed to provide an
improved means for Farm Credit
to manage its losses and mobilize
its capital, to establish the Farm
Credit Administration as an arm’s
length regulator, and to put in
place a backup mechanism for
seeking federal assistance if the
system’s best efforts to manage its
financial problems are un
successful.
Another resolution calls for
development of a business plan to
return the system to long-term
profitability.
The Farm Credit System, which
makes approximately one-third of
all the agricultural loans in the
country, is owned by its farmers
borrowers, and funds for its loans
are raised on Wall Street through
the sale of Farm Credit System
securities. No federal dollars are
involved. In 1985, the combined
banks and associations of the
Farm Credit System reported a net
operating loss of |2.7 billion. This is
the largest loss ever reported by a
financial institution.
Sims said, “Our 1985 financial
results mirrored another
devastating economic year suf
fered by many of our borrower
owners.”
The Farm Credit System’s of
ficers and directors have a “very
strong commitment to operate the
system on a businesslike basis but
with the expectation that we will
deal with compassion toward those
who have no reasonable prospect
for financial viability,” Sims said.
He said that “farmers and their
lenders are faced with the most
difficult situation that have faced
since the Great Depression. The
challenge before the system is to
work through the most troubled
loans, loan by loan, in an attempt
to help as many of our far
mer/borrowers through this dif
ficult transition as we possibly can
while striving to maintain the
system as a sound, dependable,
and competitively viable provider
of credit and related services to
U.S. agriculture for the future.”
Voufh Fonsfiy Camp
CREAMERY - The Mon
tgomery County Soil Conservation
District is offering a scholarship to
attend a season of the Youth
Forestry Camp to be held at Stone
Valley Engineering Camp in
Huntingdon County, July 22 to 25.
Young people, ages 11 to 13, with
an interest in learning about forest
resources may apply for the
scholarship. In order to participate
in the program, an applicant must
receive a Youth Forestry Camp
Scholarship.
The sponsor’s scholarship is $BO
of the registration fee and the
student’s tuition is $35. The fee
covers meals, lodging, insurance
and program materials.
Youth Forestry Camp offers
youth an opportunity to learn about
forest resources. The purpose of
the camp is to serve as an in
troduction to basic forest
management skills, the forest
products industry and careers in
the field of forest resources.
The camp program consists of
four days of classroom and field
exercises during which campers
are exposed to various aspects of
forest management. Instructors
are professional foresters
volunteering their time and ex
pertise.
For more information and an
application for the scholarship,
contact Nancy M. Kadwill, Box 20,
Route 113, 1015 Bridge Road,
Creamery, PA 19430] Phone is 489-
4315. Application deadline is May
23.