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claim specialist he was less than complimentary at the way we serviced the loan and I did not appreciate his attitude through the whole process.

Hopefully, we have worked out an alternative plan with the borrower where we do not have to rely on the FmHA claim. Based on this loss claim experience, FirstBank Southwest does not ever intend to participate in the FmHA Guarantee Loan program for the following reasons:

1.) Inconsistency of advise received from each County office as well as the District office.

2.) The Deaf Smith County supervisor and District director treated us as if we have never serviced a farm production loan.

3.) The State office claims official took the attitude of guilty until proven innocent.

I hope this letter will help you in your testimony before the subcommittee and if you have any questions feel free to call.

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It is my opinion that FmHA has strayed from its original purpose of financing young farmers trying to get started ... to financing marginal customers who really shouldn't be in this business, i.e. becoming the "lender of last resort". I firmly believe if a loan is not good enough to be funded through a financial institution with depositors' money, it is not worthy to be financed at FmHA by taxpayers.

Our bank has limited its experience with FmHA by choice. This last year, we initiated a guaranteed loan on a customer that started in April and was finally closed in December.

FmHA charged excessive fees and was more concerned over the individuals' living expenses being out of balance by $312.00 than his wheat crop making only 9 bushel per acre yield.

We have FmHA borrowers that come through our doors stating that they need a "turn down letter from your bank so I can get my FmHA loan." This is time-consuming and non-productive to the bank and I feel it has added to the problem of keeping individuals in the farming business that probably shouldn't be there.

In closing, it might be beneficial if you would take a guaranteed loan application to the committee meeting and ask those people to fill it out. I like the people who work with FmHA, but I understand when they can find a better job why they move on.

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MAX THOMAS

RT-2 BOX 213
SLATON, TX 79364
PHONE - (806) 842 - 3488
FAX - (806) 842 - 3497

TO:

HON. LARRY COMBEST
U.S. REPRESENTATIVE, 19 TH CONGRESSIONAL DISTRICT
27-Feb-97
FARM SERVICE AGENCY - AG CREDIT HEARING HELD IN LUBBOCK, TX - 221197

DATE:

DEAR CONGRESSMAN,

THE PURPOSE OF THIS LETTER IS TO COMMENT ON TESTIMONY THAT WAS PRESENTED AT THE HEARING LAST WEEK IAM A FSA BORROWER, "LOAN PACKAGER" AND FORMER BANKER AND OVER THE PAST SEVERAL YEARS HAVE HAD THE OPPORTUNITY TO BE ON BOTH SIDES OF THE LENDING DESK AND. AS A PACKAGER OF BOTH INSURED AND GUARANTEED FSA LOANS, TO BE WEDGED IN THE MIDDLE OF THE BANKS AND FSA. I FOUND THE HEARING A DISAPPOINTMENT IN THAT VERY FEW UNBIASED FACTS WERE SET FORTH BY EITHER THE FSA EMPLOYEES OR THE BANKERS ABOUT THE CURRENT STATE OF THE FSA LENDING PROGRAMS AND THEIR PROCEDURE OF LOAN APPROVAL BUT RATHER EACH GROUP I FELT DID AN EXCELLENT JOB OF PRESENTING THEIR POSITIONS AND SEPARATE AGENDAS TO THE COMMITTEE. I WILL ATTEMPT IN THE NEXT FEW PARAGRAPHS TO GIVE YOU MY OBSERVATIONS OF BOTH FSA AND BANK EMPLOYEES IN CLOSING A FSA LOAN

I HAVE PERSONALLY PACKAGED OVER S50 MILLION OF GUARANTEED LOANS OVER THE PAST FIVE YEARS. THESE LOANS HAVE BEEN PREPARED FOR OVER FIFTEEN BANKS FOR OVER 200 BORROWERS IN FIFTEEN COUNTIES AND IN TWO STATES. I SAY THIS. SO THAT YOU WILL KNOW THAT I HAVE CONSIDERABLE EXPERIENCE IN DEALING WITH THIS LOAN PROGRAM. I HAVE DEALT WITH MANY BANKERS AND COUNTY SUPERVISORS OVER THE YEARS AND MOST HAVE BEEN VERY PROFESSIONAL LENDING OFFICERS THAT TRULY WANTED TO PROVIDE A LOAN STRUCTURE TO EACH BORROWER THAT HE COULD DEBT SERVICE IN A REASONABLE WAY. HOWEVER, THERE HAVE BEEN EXCEPTIONS ON BOTH SIDES AND THAT IS USUALLY WHAT YOU HEAR ABOUT. (NO REPORTER GOES TO THE AIRPORT TO COVER A SUCCESSFUL LANDING ONLY THE CRASHES.) THEREFORE, HEARINGS LIKE THIS ONE, TEND TO SET A NEGATIVE TONE FOR ALL SIDES THE ACTUAL WORKINGS OF THIS PROGRAM IS MUCH SMOOTHER THAN ONE WOULD GATHER BY LISTENING TO THE PRESENTATIONS AT THIS HEARING.

IN GENERAL I FEEL THAT COUNTY FSA AG CREDIT MANAGERS GIVE A VERY PROMPT RESPONSE TO ALL APPLICATIONS THAT ARE "COMPLETE". SOME MAY REQUIRE A MUCH MORE DETAILED APPLICATION THAN OTHERS BUT I HAVE NOTICED THAT A WELL DOCUMENTED APPLICATION IN A FORMAT SIMILAR TO FSA'S "FARM AND HOME PLAN" AND A CORRECTLY COMPLETED "FARMERS PROGRAMS APPLICATION WITH A FEW OTHER SUPPORTING DOCUMENTS WILL RESULT IN COUNTY APPROVAL IN LESS THAN ONE WEEK. HOWEVER, A "BOTTLENECK / RED TAPE" PROBLEM APPEARS TO OCCUR WHEN THE LOAN IS SUBMITTED FOR "OBLIGATION". A TYPICAL APPLICATION WILL TAKE APPROXIMATELY SIX WEEKS TO BE FUNDED ONCE IT LEAVES MY OFFICE, ASSUMING I HAVE MADE NO MISTAKES IN ITS PREPARATION. (I HAVE WORKED IN BANKS AND RED TAPE EXISTS AS MUCH WITHIN THEIR OPERATIONS AS IT DOES WITHIN GOVERNMENT.)

MISTAKES ARE USUALLY MADE IN TYPING OR MATHEMATICAL ERRORS WHICH CAN BE COR.

RECTED VERY QUICKLY AND CAUSE VERY LITTLE DELAY. OTHER MISTAKES ARE MADE DUE TO NOT
FULLY UNDERSTANDING FSA PROCEDURE AND THESE SOMETIMES CAUSE CONSIDERABLE TIME
DELAYS. I WISH THAT THERE COULD BE TRAINING FOR LENDERS AS THERE IS FOR FSA EMPLOYEES,
SO THAT SOME OF THESE PROCEDURE PROBLEMS COULD BE AVOIDED. HOWEVER, AT PRESENT,
THERE IS MINIMAL TRAINING AVAILABLE AND A LENDER ONLY LEARNS BY MAKING MISTAKES. THESE
PROBLEMS COME AT A TIME WHEN A BANK LOAN OFFICER'S ENTIRE AG. PORTFOLIO IS "PAST DUE" AND
HE IS WORKING 12-14 HOUR DAYS. TRYING TO BRING ALL LOANS CURRENT. THEREFORE, WHEN
A COUNTY SUPERVISOR INFORMS HIM OF HIS MISTAKES HE BECOMES QUITE HOSTILE AND PROBLEMS
WITH THE AGENCY SURFACE. I FEEL IF THE BORROWERS MUST HAVE TRAINING TO BORROW FROM
THE GUARANTEED PROGRAM IT MIGHT NOT BE A BAD IDEA TO REQUIRE BANKERS TO HAVE TRAINING
TO LOAN MONEY FROM THE PROGRAM. MOST OF THE BANKS AND BANKERS THAT I DEAL WITH
PUT FORTH VERY LITTLE TIME OR RESOURCES TOWARD THIS PROGRAM. MANY DEPEND ON PAC
KAGERS, LIKE MYSELF, TO GUIDE THEM THROUGH THE APPROVAL PROCESS. | ASSURE YOU THAT
MY SERVICES ARE NEEDED JUST AS MUCH BY BANKERS IN COMPLETING AN APPLICATION AS THEY
ARE BY THE PRODUCERS.

ONLY ONE BANK IN THIS AREA. AMERICAN BANK OF COMMERCE IN WOLFFORTH, TEXAS HAS A LOAN OFFICER SPECIFICALLY ASSIGNED TO SERVICE THE "GUARANTEED LOAN PORTFOLIO." MOST PROBLEMS THAT I HAVE SEEN, OCCUR WHEN A LENDER THAT IS NOT EXPERIENCED WITH THIS PROGRAM ATTEMPTS TO "RUSH" AN APPLICATION THROUGH THE PROCESS IN ORDER TO AVOID AN ADVERSE CLASSIFICATION FROM SOME BANKING AUTHORITY ( COC, STATE OR FDIC). MOST ARE NOT KNOWLEDGEABLE WITH THE PROGRAM AND ONLY WANT FSA TO ISSUE A GUARANTEE FOR A PROBLEM CREDIT THAT HAS BEEN (OR WILL BE) CLASSIFIED BY EXAMINERS. THEY ARE INTERESTED IN ACQUIRING THE GUARANTEE BUT LACK THE TIME AND I OR SKILL TO PREPARE THE APPLICATION. ALL OF MY CUSTOMERS HAVE COME TO ME THROUGH BANK REFERRALS, NOT FROM THE BORROWERS THEMSELVES SEEKING ME OUT. BANKERS HAVE ATTEMPTED TO COMPLETE AN APPLICATION AND HAVE BECOME FRUSTRATED WITH THE PROCESS AND THEN SOUGHT MY EXPERTISE. AN AVERAGE APPLICATION WILL TAKE ME APPROXIMATELY 10 WORKING HOURS TO COMPLETE, DEVOTING ALL MY ATTENTION TO THAT ONE BORROWER. A BANKER SIMPLY DOES NOT HAVE THE TIME TO GIVE THIS KIND OF INDIVIDUAL ATTENTION TO EACH LOAN THAT MAY REQUIRE A GUARANTY. SIMPLIFYING THE APPLICATION PROCESS MIGHT ENCOURAGE BANKERS TO MAKE MORE USE OF THE GUARANTY PROGRAM, BUT I FEEL THAT IT WOULD LEAD TO INCREASED LOSSES DUE TO BANKERS NOT TAKING THE TIME TO STRUCTURE CREDITS IN A WAY THAT THE BORROWERS CAN SERVICE THE DEBTS. THE CURRENT PROCESS FORCES A LENDER TO TAKE A HARD LOOK AT THE PRODUCER'S HISTORICAL PRODUCTION, INCOME AND EXPENSES. HE THEN IS MORE LIKELY TO OFFER TERMS ON LOANS THAT THE BORROWER CAN REALISTICALLY REPAY IF THIS PROCESS IS STREAMLINED GIVING BANKS FULL CONTROL, COUNTY CREDIT MANAGERS WILL NOT HAVE ENOUGH INFORMATION TO TAKE AN OBJECTIVE LOOK AT THE CREDIT PRESENTED FOR APPROVAL. MOST COUNTY SUPERVISORS ARE EXPERIENCED LENDERS AND CAN AND WILL HELP THE LENDERS WITH SUGGESTIONS THAT COULD BE BENEFICIAL TO BOTH THE LENDER AND THE BORROWER. THE AG CREDIT MANAGER IS OFTEN A MEDIATOR BETWEEN THE TWO PARTIES WHO COMES UP WITH A PLAN THAT WILL BE WORKABLE FOR ALL. THIS FUNCTION WOULD BECOME ALMOST IMPOSSIBLE IF THE MANAGER DID NOT HAVE ALL FACTS IN PLACE TO AID IN THIS TASK.

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THE COMMENTS THAT I FOUND MOST AMUSING, WERE THE BANKER'S COMMENTS, "FSA EMPLOYEES ARE POOR LENDERS BASED ON THEIR "CHARGE-OFF RATIOS." I HAVE ONLY TWO THINGS TO SAY ABOUT THIS POINT. ONE, MOST ALL FSA LOAN OFFICERS ARE HIRED BY BANKS WHEN THEY LEAVE THE AGENCY (WHY ARE BANKS HIRING ALL THESE POOR LOAN OFFICERS?). TWO. IF YOU STUDY THE COMPLETE LOAN HISTORY OF A BORROWER, YOU WILL FIND THAT ALMOST ALL BEGAN FARMING BY BORROWING MONEY FROM A BANK. ONLY WHEN THE PRODUCER BEGAN EXPERIENCING CASHFLOW PROBLEMS DID THIS SAME BANKER SPONSOR THIS BORROWER AT FSA IN ORDER TO COLLECT WHAT THE BANK PERCEIVED AS A PROBLEM LOAN. WHILE BANKING, I HAVE ON MANY OCCASIONS WENT, 'WITH HAT IN HAND". TO MY LOCAL FMHA OFFICE WITH A FARMER AND EXPLAINED TO THEM HOW THIS WONDERFUL PRODUCER AND BUSINESSMAN HAD JUST FALLEN ON HARD

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.

(150427)

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