MAX THOMAS RT.2 BOX 213 FAX-(806) 842-3497 TO: DATE: HON. LARRY COMBEST U.S. REPRESENTATIVE, 19 TH CONGRESSIONAL DISTRICT FARM SERVICE AGENCY - AG CREDIT HEARING HELD IN LUBBOCK, TX - 2/21/97 DEAR CONGRESSMAN. THE PURPOSE OF THIS LETTER IS TO COMMENT ON TESTIMONY THAT WAS PRESENTED AT THE HEARING LAST WEEK. I AM 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 $50 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 PACKAGERS, LIKE MYSELF, TO GUIDE THEM THROUGH THE APPROVAL PROCESS. I 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/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. 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 TIMES AND ONLY NEEDED THE TERMS AND RATES OFFERED BY THE GOVERNMENT TO TURN HIS SITUA- FSA LOAN PROGRAMS DID AS MUCH TO SUBSIDIZE THE WEST TEXAS BANKING INDUSTRY AS IT DID IN MY FINAL COMMENTS, I WANT TO DICUSS THE ROLE OF "LOAN PACKAGERS" IN THE APPROVAL PROCESS OF THE GUARNTEED LOAN PROGRAM. I WILL ONLY SPEAK FROM PERSONAL EXPERIENCE, FOR I HAVE NO IDEA HOW OTHER PEOPLE PROVIDING THE SAME SERVICE CONDUCT THEMSELVES OR HANDLE BORROWERS AFFAIRS. THERE IS A REAL NEED FOR MY SERVICES IN THE WEST TEXAS AREA. I AM A FORMER BANKER AND HAVE WORKED WITH MOST OF THE LOAN OFFICERS THAT I DEAL WITH AT OTHER INSTITUTIONS WHILE EMPLOYED AS A BANKER. WE HAVE COMMON BACKGROUNDS AND TRAINING AND FOR THE MOST PART, AGREE ON HOW AG CREDITS SHOULD BE STRUCTURED AND MANAGED. I AM ALSO A LIFE-LONG FARMER AND UNDERSTAND THE FINANCIAL NEEDS OF MOST FARMERS AND HAVE THE ABILITY TO ANALYZE THEIR CURRENT SITUATION AND FORMULATE A PLAN OF RE-STRUCTURING THAT IS AGREEABLE TO HIM, THE BANK AND FSA. I HAVE WORKED VERY HARD TO BECOME KNOWLEDGABLE IN FSA REGULATIONS AND CONTINUE UPDATE THIS INFORMATION AS I GO ALONG. I FEEL THAT I HAVE DEVELOPED AN EXPERTISE IN THIS AREA OF AG FINANCE AND OFFER A VALUABLE SERVICE TO BOTH BANKS AND PRODUCERS. I FEEL THAT MY SERVICES ARE JUST AS IMPORTANT TO THE MY CLIENTS AS THEIR ACCOUNTANT'S SERVICES ARE IN PREPARING JUST ANOTHER VERY COMPLEX SET OF U.S. GOVERNMENT FORMS CALLED A "TAX RETURN". I HAVE NEVER HEARD LEGISLATORS MAKE COMMENTS ABOUT ACCOUNTANTS LIKE THE DISPARAGING REMARK CONGRESSMAN STENHOLM PUT FORTH ABOUT "PACKAGERS" AT THE THE HEARING. I THINK ALL OF YOU SHOULD RE-THINK A PACKAGER'S ROLE IN THE FINANCING PROCESS BEFORE SUCH BROAD STATEMENTS ARE PLACED ON THE RECORD. I FEEL THAT YOU WOULD FIND THAT MOST REPUTABLE PACKAGERS EARN EVERY BIT OF THEIR FEES AND MAKE THE PRODUCER MONEY BY FREEING HIS TIME AND EFFORT TO DO THE THINGS HE DOES BEST SUCH AS TILLING THE SOIL OR MANAGING THE HERD. HE COULD TAKE 40-100 HOURS TO COMPLETE THE APPLICATION OR PAY ME AN AVERAGE OF $750 TO COMPLETE IT FOR HIM. WHAT IS A FARMER'S TIME WORTH? I THINK MORE THAN MY FEE, CONSIDERING THAT I WILL ALSO BE ABLE TO PROCURE THE BEST POSSIBLE LOAN STRUCTURE UNDER THE GUIDELINES OF THE GUARANTY PROGRAM. IT IS ALSO IMPOSSIBLE FOR HIM TO KNOW ALL CURRENT AVENUES AVAILABLE TO HIM USING THE PROGRAM. FARMERS USE ALL SORTS OF PROFESSIONALS BESIDES PACKAGERS. IS IT 'A SHAME" THAT HE MUST EMPLOY AN ENTOMOLOGIST, A LAWYER, A CROP CONSULTANT OR AN ACCOUNTANT. I THINK ALL OF YOU WILL AGREE THAT MOST GOOD PRODUCERS WILL EMPLOY MOST ALL OF THE ABOVE IN ORDER TO ADVISE HIM IN THE COMPLEX BUSINESS WORLD THAT WE IN AGRICULTURE OPERATE. WHY IS IT THEN, "ASHAMED" THAT A PRODUCER OR BANKER SEEK AN EXPERT ON WHAT I CONSIDER THE FIRST AND MOST IMPORTANT STEP IN THE PRODUCTION CYCLE, SECURING THE PROPER CREDIT REQUIRED TO MAKE THE OPERATION A SUCCESS. I WANT TO THANK YOU FOR TAKING THE TIME TO READ THIS LETTER WHICH MAY SEEM THAT I HAVE AN AGENDA SEPERATE FROM THE GROUPS DISCUSSED ABOVE. IF I DO, IT IS ONE THAT ALL PRODUCERS RECIEVE THE VERY BEST POSSIBLE BENEFITS PROVIDED BY FSA LENDING PROGRAMS. IF YOU HAVE ANY QUESTIONS OR WOULD LIKE TO DISCUSS ANY OF THESE SUBJECTS IN GREATER DETAIL, I WILL BE HAPPY TO DO SO AT ANY TIME. THANKS, Max Thomas MAX THOMAS February 11, 1997 Dear Sir: I am a farmer in the Texas Panhandle who is opposed to the rules and regulations of the FSCA. There are many problems with their policies although I will just point out a few First of all, the time frame in which it takes to complete a guarantee required by most banks is very lengthy and time consuming. I have had problems in the past where it took four to six months to comply by all regulations at which time the bank can not loan operating money until all paper work is completed. Another problem is the FSCA is now requiring the farmer to hire a packager to work up The guarantee. costing as much as two to three percent of the loan applied for Also. FSCA charges one percent of total loan for very little work as far as the guarantee is concerned. because the packager has done all work for FSCA. I also have trouble understanding the purpose of the required classroom being very expensive and actually a total joke as for as educational. I see it as creating a job for governmental parasites. These people thrive on job's the government requires because they know they will get paid for the class not concerned in whether the classroom was educational or not. The certificate being given for just showing up at the class. If the classroom requirements are not meet within two years of the signing of the guarantee FSCA will not consider a new loan guarantee the next time applied for. I also understand not all borrowers are required to take the classroom which is predigidous. Conserned. Darrell West As a member of the Agriculture Community of Hockley County, I would like to compliment you on the work you have done representing the South Plains. Through the years I have not had a reason to confront your office with any problems, but now I do. The Farmers Home Administration office in Levelland is causing great concern to our area. The manager, Carla Fires, is seldom at her desk, and when she is, she expresses little concern for her clients. This attitude and lack of achievement is having a devastating effect on my Business as well as the area's economy. My request is that your office look into this situation as fast as possible to help relieve the financial stress the manager has created. I will get in touch with your Lubbock office soon to the developments. follow up on |