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on property acquired with farm loans and the level of insurance that borrowers needed to have had as a condition for obtaining an emergency loan.

Establishes a maximum indebtedness level of $500,000 for disaster emergency

loans.

Allows FSA to (1) contract with commercial lenders to service the farm loan portfolio (2) use private collection agencies to assist in collecting delinquent

amounts.

Requires borrowers to pay at least a portion of the interest on their loans as a
condition for having the terms of their loans rescheduled or reamortized. In
particular, borrowers who are unable to make their farm loan payments, but
who are not 90 days past due, can hav the terms of their farm lo
rescheduled or reamortized if they pay a portion of the interest that is due on
the loans. The Secretary of Agriculture is to establish the level of interest
payments that borrowers need to make.

The FAIR Act also clarifies FSA's basic lending mission by, among other things, emphasizing that its assistance is to be temporary. Additionally, the act builds upon other legislation enacted earlier in the 1990s that emphasized helping beginning farmers and ranchers get started and progress in farming or ranching. The act also reinforces past congressional emphasis on shifting farm lending from direct loans to guaranteed loans. More specifically, the act, among other things, does the following:

Sets term limits for the receipt of direct farm ownership and operating loans. A person must have operated a farm or ranch for at least 3 years to be eligible to obtain a direct farm ownership loan. A borrower can obtain direct farm ownership loans during a 10-year period that starts when the person first obtains a farm ownership loan. A borrower can obtain direct farm operating

loans during 7 years; these may be consecutive, nonconsecutive, or a
combination of consecutive and nonconsecutive years.

Encourages the graduation of direct loan borrowers to conventional credit by allowing a 95-percent guarantee on loans made by commercial lenders to refinance the existing direct loans that borrowers have.

Increases the guarantee percentage allowed on loans made by commercial lenders to beginning farmers and ranchers who participate in a farm ownership loan program that is targeted to them.

Targets farm properties that are in FSA's inventory for sale to beginning
farmers and ranchers. If a beginning farmer or rancher does not offer to
acquire the property at current market value within 75 days of FSA'S
acquisition, then the properties are to be disposed of competitively.

The changes in the FAIR Act address many of the problems that we have reported on in the past. While it is too early to gauge their impact on the financial condition of the portfolio, we believe that, if properly implemented, they will reduce the financial risk associated with the farm lending programs. We plan to continue to monitor and report on the USDA's progress in implementing the FAIR Act's credit provisions.

This concludes our prepared statement.

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I understand that there will be testimony in Lubbock on February 21, 1997, before the subcommittee on agriculture. If I understand correctly, part of that testimony will be in reference to the various FmHA programs, including the guaranteed loan program. First State Bank, has been using FTHA guaranteed loans for farm operating. equipment, and livestock loans for about 20 years. During that time we have had only a minimal number of claims against the guaranties. Thoge claims were paid with no problems whatsoever. The paperwork associated with the guarantee process is considerable and time consuming, but not impossible to someone familiar with ag lending. I believe the application process could be streamlined. Cooperation from our past county supervisors and present county supervisor, Mike Beck, has been very good. All have been knowledgeable and good to work with. The only problem we have ever experienced was on a loan that was in excess of our county supervisor's approval limit. This loan, which went to the district supervisor, was in process for over four months. This long delay cost First State Bank a good potential customer and caused the customer to put his plans on hold.

I believe the FmA guarantee program is worthwhile and important for our many marginal ag producers. FmHA has been good to us and we hope the program continues. If we can be of further assistance, please contact us.

Sincerely,

7 Milo

Mike Schnell
President

MS/ r?c

P.O. BOX 247

Spearman, 1X 79081

806 / 659-5565

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You have asked me to provide a letter of our experiences with FmHA guaranty loans.

Currently FirstBank Southwest has three FmHA guaranty loans, two of which just
completed their first year of the three year Loan Note Guarantee plan and the third loan is
in loss claim status. First, I will address the two current Loan Note Guarantees. One is
through the Deaf Smith County office and the other is through the Castro County office.
The application was submitted and closed in 60 days through the Castro County office
and the supervisor was very cooperative however, it took 120 days through the Deaf
Smith County office and the County supervisor as well as the District supervisor were
less than cooperative. Also, there were several inconsistencies in information required
from the two offices (ie: 356 vs. 360 basis interest accrual, differences in the way each
office wanted cash flow items categorized.)

The loan in loss claim status was a Loan Note Guarantee (through the Parmer County
office) which started in 1992 and was annually renewable with the final maturity date of
3/15/95. After trying to work with the borrower and FmHA to restructure the debt, to no
avail, FirstBank Southwest filed a loss claim 1/10/96 and received a letter from the
county office on 1/31/96 informing me of their receiving the loss claim and sending me a
checklist to be completed. On or about 2/5/96 the County supervisor came to the bank.
picked up the checklist and delivered the claim forms to the District office. After
approximateļy 30 days I called the County supervisor to inquire about the status of the
claim, he said he would call the district office. Later that day he informed me that the
district director told him that she was too busy to work the claim and it would be 30 days
before she would have a chance to review the claim. Sometime thereafter it was
submitted to the State office. I continued to check on the status, through the County
supervisor and the State office informed him that it was in line to be worked. On 9/3/96 I
received a call asking for a lot more information (ie:detailed analysis of each transaction
on the notes for three years). As it finally tumed out, FmHA reduced our claim by 46%
because we advanced for tractor and land payments that were not included in the original
cash flow submitted in 1992 , however they were included in subsequent years cash
flows.

I realize that we may have made some mistakes, but we have serviced farm production
loans for many years and feel. based on our track record, that we are very knowledgeable
concerning farm production loans. Additionally, the first time I talked to the FmHt loss

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