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Mr. THORNBERRY. I understand.
Mr. RADINTZ. Right.

Mr. THORNBERRY. We'll be anxious to see that because, as you know, that's been a topic of conversation.

Ms. Cooksie, what's your thought on some sort of offset for folks who have delinquent loans from taking it out of their Government payments before they get them?

Ms. COOKSIE. I think with the new Debt Collection Act, we've had to take a look at it. I think that we have to look at it honestly. There are some abuses of the program where we have people who owe the Government. On one of side of the hall, they owe the Farm Loan Program. Then they go on the other side of the hallway and pick up an offset payment, and never the twain shall meet. So, I think we have to look at that.

I think we have to be very careful that we don't bankrupt these borrowers, and that we work with the banks that they are working with. And that we look at it on a case-by-case basis and that we don't have a blanket policy that is so tight that we run farmers out of business. But I think we do have an obligation to make sure that we are looking at those payments, to make sure that we're getting some part of the payment if we are entitled to it. If we are not entitled to it, we also have responsibility to make sure that the farmer keeps it.

I think we have to have regulation out there. But I also think that it can not be so tight and so tied down that we're going to run farmers out of business, that their banks won't deal with them. So, I think there has to be a policy, but I think we've got to be very careful about the policy.

Mr. THORNBERRY. Are you all going to have a specific proposal or regulation along that line?

Ms. COOKSIE. Yes, we are.
Mr. THORNBERRY. OK, what-

Ms. COOKSIE. There's a regulation that is due out, what, in maybe a month or so?

Mr. HALL. Probably about 60 days. Ms. COOKSIE. Yes, in about 60 days. It's been held up because of all the debate over it. But I think the misunderstanding is that people don't understand that we're going to look at it very carefully. We're not going to take blanket payments. That we're just going to take everybody's payment and not understand that they have other bills that they have to pay or other obligations to banks. I think it's important that we do that.

Velden, did you want to comment?
Mr. HALL. Yes, could I add something to that?

The way that the regulations are being drafted is that we're talking about those seriously delinquent bars first. If it's current, you know, there's no problem. But if they get seriously delinquent, then we're going to ask the farmer to come in and see if we can't work up some kind of repayment plan, to see if they have the resources to take care of that delinquency. If they do, then we would not be taking the offset. But for some reason if they can not be able to work out some repayment schedule, then the Government would consider the offset.

Mr. THORNBERRY. Thank you, Mr. Hall.

Mr. COMBEST. Pardon me.

I could continue for hours, but I'm not going to do that. We'll try to balance this somewhat.

Ms. Cooksie, that area is something too, we would very much like to work with you on. I think we're going to be spending a lot of time together in the next couple of years. I appreciate very much the fact that our first subcommittee hearing was here and that you would travel down here.

I also appreciate your comments and your opening statement about that you were interested in hearing from others and how they work with you. I had hoped that maybe at one point, we may want to even, you know, call you back to address some specifics and I don't know that we're going to have to do that in time. But there may be questions that we still have, and others that are prompted, that we may want to correspond with you for the record, in writing.

Ms. COOKSIE. That's fine.
Mr. COMBEST. We appreciate that very much.
Ms. COOKSIE. I'd be happy to do it.

Mr. COMBEST. Thank all of you on the panel for your information and attentiveness. We will let you move to some more comfortable chairs. We have tried to save the first two rows here for witnesses.

At this time, I would invite Mike Mauldin from Security Bank, Idalou, TX, here on behalf of Texas Bankers Association; Mike Wright, ABC Bank, Wolfforth, TX; Don Townsen, First National Bank in Spearman, TX; Joe Hodges, Midland American Bank in Stanton, TX; and Bill Harmon, of the Lubbock Production Credit Association, to please come to the table.

As introduced, they're in a line from Mr. Mauldin to the north, and we'll just take the testimony right down the line, if that's agreeable with the witnesses and works with your schedule.

Mr. Mauldin, welcome and please proceed.
STATEMENT OF MIKE MAULDIN, SECURITY BANK, ON BEHALF

OF TEXAS BANKERS ASSOCIATION
Mr. MAULDIN. Thank you, Mr. Chairman.

First off, I appreciate the opportunity to address each one of you all. It's good to come before a common sense bunch of Congressmen. I know that in the past, that all your voting record has pretty well represented that. I appreciate your comments addressing the panel before us and I hope that we can shed some light on some of the issues that have come up.

I'm here on behalf of the Texas Bankers Association, Security Bank Idalou and Security Bank Ralls.

On June 17, 1991, I gave an oral testimony to a panel of Congressmen hosted by Congressman Larry Combest regarding the problems that bankers and farmers were having with the then Farmers Home Administration Guaranteed Loan Program. I have attached a copy of that testimony, marked exhibit A for your review. Since that date, there have been some changes that were supposed to make the process better, but for the most part the problems that we faced then are still the problems that are being dealt with today.

The areas that in my opinion should be addressed are:

(1) The application is too redundant and complicated. Many of the forms for the application should be scrapped or consolidated. The application should provide enough information for the FSA personnel to make the decision to underwrite the loan and to comply with the Federal laws and statutes and no more!

(2) The turnaround time for the guarantee application is too slow and unpredictable. An application will seldom reach its 2 week required turnaround time, but instead expectations of the lenders range from 4 weeks to 8 weeks, depending on the FSA County Office. Sometimes a factor for this delay is the fact that lending personnel in the FSA offices are either sent to training during the busy season or are taking their vacation time so they don't lose it at the end of December. The lenders must then wait for their return to get their application approved. In addition, there is a tiered loan authority for local, regional and State directors. Due to this, a loan on the top tier is passed through too many steps and sometimes can take up to and over 10 weeks for loan approval and closing.

(3) The required education for the farms looks good on paper and in theory, but in reality is very costly, time consuming, and the education is inconsistent from class-to-class. Very few of our farmers talked to feel like they have benefitted from this education. It is my opinion that the education requirement should be rescinded completely. However, if the education is going to be a requirement, then either offer it through the FSA free or through the State Extension System. In either case, no required education seminar should be over 1 day in length and no more frequently than every 6 months.

(4) Put a system in place to insure that all of the FSA offices view applications, approve renewals and modifications, deal with claims, and any other procedures consistently. There should only be one method of operation, not one for each FSA office.

(5) The claim process in unreliable, unpredictable and excessively lengthy. Lenders do not trust this program, and most of this comes from this area. The program is worthless if you can't get a claim paid timely. FSA needs to determine if the lender applied the same prudence that it does on its direct loans. If it did, then pay the loan promptly.

(6) FSA has a requirement that each lender notify them for their approval each time a guaranteed debtor borrows additional funds anywhere, anytime, over a small threshold. For example, if a customer buys a pickup, tractor, or even farm supplies using the farm plan, then that customer and the bank is out of compliance even though the bank had no control or knowledge of this transaction. This is unfair to the institution and should be rescinded. This requirement should be between FSA and the debtor and not involve the institution for accountability.

(7) Not directly related to the guaranteed lending process, but equally important issues affecting the future of agricultural credit are the issues of the Conservation Reserve Program renewal and the FSA right to offset. CRP should be renewed for both economic and environmental needs with those whose land is already in the program given the first opportunity to renew their contracts. This would be a common sense approach. Due to consolidation which created the Farm Service Agency, FHA gained the right to offset from the old ASCS office. That power should never be exercised over a lender who has the first lien on the farm operating line for any reason. This has already been done to our bank once this year, which has caused us to reconsider all Farm Program payments in our farmers cash flow projections. No other financial institution in our country has the right to this extent and neither should the Government.

I hope that this testimony is not misunderstood because this Nation needs a good agriculture guaranteed program. It provides a method for young farmers to get into farming. It gives farmers the option to do business with their smaller community banks due to the exemption of the guaranteed portion of the loan amount on the bank's lending limit. It gives bankers a means of offering more liberal terms to farmers than it could without the guarantee. This will benefit in times of disaster as FSA direct money becomes more scarce, but most of all, it protects the existence of the family farm which in turn, insures the existence of rural America.

It is always easy to point out problems without any solutions, but in this case I think the solution is clear. FSA should underwrite all guaranteed loans and realize that they are no longer the lender. When SBA did this, their turnaround time was drastically reduced, their labor force could do more with less, and their claim process gained the bankers' trust, which made the transition process from direct lending to guaranteed lending much smoother than otherwise would have been possible. Adopt many of the SBA guaranteed lending policies rather than making the same mistakes twice. After all, a farm loan is just a business loan. And finally, someone in authority should always be available for applications, claims, questions, or anything else every business day.

Thank you for your concern. It is my hope and my prayer that in another 6 years, I'm not using this as another exhibit for another Congressional hearing.

I've got a couple more things I'd like to say real quick, and I realize my time's up.

I wanted to clarify these two collateral files. This is a common example of an average of the collateral files in Security Bank Idalou. This is a farm line that's got not only farm business, but it's got ranching on it. There's probably more involved in that line because we're dealing with wheat, corn—this one is up in the Castro County area. And this one is a cotton line. And so, what they fail to tell you is when you start it here, yes, that may be an application. But you come in with another application, you do another one, and the required documentation that you have to keep up with. That is a common collateral file.

We always can open our collateral files and look down and pick our FHA loans out without ever looking at the files. I would invite anyone to come to the bank after this and spot check them. I'm sure the FSA borrowers would approve that for that purpose. So, I wanted to clarify that.

I heard that Ms. Cooksie had mentioned the right to offset and the views that they would not do that. But as I mentioned, that was done to me earlier, and actually, it was two cases instead of one. There's a question over who had first lien. But neither one of us who were arguing who had first lien got the money. FSA got the money.

Congressman Stenholm had mentioned that the packaging was required and I did want to mention that it's not required by law but it is required due to the complication of the package itself. I can honestly say that none of my customers who file an SBA guaranteed loan go out and hire packagers anymore. They used to, back when SBA's package was complicated.

FSA had mentioned on the applications that they have to do the requirements as far as the little statement that says, "Well, I didn't bribe a Congressman or someone else to get this loan,” and then a statement on environmental-all those statements? Those statements are canned statements. Those should require a signature. If that's the thickness of the package that's causing us concern, nobody is going to have a problem just going through and signing that I didn't do any of that stuff. But the redundancy is the real problem.

With that, I know these gentlemen have a lot more to say so I'll yield to them and yield to you all for your questions.

Mr. COMBEST. Thank you very much, Mr. Mauldin.

[The prepared statement of Mr. Mauldin appears at the conclusion of this hearing.)

Mr. COMBEST. Mr. Wright.

STATEMENT OF MIKE WRIGHT, ABC BANK, WOLFFORTH, TX

Mr. WRIGHT. Thank you kindly, Mr. Chairman and members of the committee. Thank you for taking time to come down here today and to listen to us.

Some of the things that I will have I know are redundant and I know that you don't need to be told, but I would hope that maybe some of your colleagues on the subcommittee will be reading and hearing the testimony and that they'll be seeing some of the problems that we have.

I am senior vice-president of agricultural lending at American Bank of Commerce of Wolfforth, Lubbock and Austin. We are a $200 million-plus locally owned bank with an agricultural loan portfolio of just over 30 percent of our total borrowings. I was born and raised on a cotton farm here in Lubbock, TX. I farmed for 8 years. I've been involved with agriculture lending since 1982. Agriculture is my background. It is also my lifeblood. Agriculture is the main economic factor of Lubbock, TX and the surrounding 67 counties. This area produces 20 percent of the cotton produced in the United States and is a major player in the export market.

Now, I'll tell you this just to show how important agriculture is to this region and to this nation. This area is also very vulnerable to weather conditions. All cotton producers in the United States are subjected to price fluctuations, insect problems. There's other types of weather problems that they suffer in different parts. But in the High Plains of west Texas, as you well know, we can go from 70 degrees to 25 degrees in just a few minutes. It can snow at 9 o'clock in the morning and we could be having a sand blow at 4 o'clock that afternoon. You can have a 2-bale crop August 1, and be totally wiped out in just a matter of minutes by a sudden hail

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