Exhibit 1-2

Of the 8,144 borrowers the following represents a breakdown by amount of debt owed:

Of this,

The 65 million dollar accounts owe $118,736,267. $89,054,478 is delinquent with 64 of the 65 million dollar accounts delinquent.

We have 362 Direct Loans to Socially Disadvantaged (SDA) borrowers. These borrowers have 651 loans with a total of $38,187,439 principal + interest (P+I) owed. There are 132 borrowers delinquent with a delinquent amount owed of $2,053,442.

We have 312 beginning farmer borrowers. These borrowers have 498 loans with a total of $31,298,598 P+I owed. There are 65 of these borrowers delinquent with delinquent amount owed of $982,515.

Limitations on direct operating loans: This was a revision to the original “graduation requirement" contained in the Agricultural Credit Improvement Act of 1992. A borrower now has 7 years of eligibility. Any year in which a loan is made constitutes a year of eligibility. All borrowers received at least 3 more years of eligibility under a transition rule. At this time, system limitations prevent a determination of the number of borrowers who will be affected on April 4, 1999. System development is under way to identify those borrowers affected, so they can be informed. Some borrowers will be affected by this provision at some point.

Limitations on guaranteed loans: This was also a revision to provisions of the Agricultural Credit Improvement Act of 1992. A guaranteed loan borrower has 15 years of combined direct and guarantee loan eligibility. Any year in which a loan is made constitutes a year of eligibility. All guaranteed loan borrowers received at least 5 more years of eligibility, dating from October 28, 1992 under a transition rule. It is important to note that a borrower only uses a year of eligibility if a direct or guaranteed loan is received. Merely having a loan outstanding does not consume a year of eligibility. Only guaranteed loan borrowers who received a loan in each of the 5 years after 1992 will be disqualified after October 28, 1997. We are presently working to identify the borrowers

affected to alert them to this situation.

I want to again point out, Mr. Chairman, there were many more program changes in the 1996 Farm ill that will prevent son: applicants from receiving FSA farm loans, but in the interest of time I have focused on those with the most significant impact.

Needed Improvements

Early in my statement I noted the Administration': commitment to address a particular provision of the 1996 Farm Bill which we believe needs fine-tuning. The lifetime prohibition on loans to those who have received debt forgiveness without exception is excessively harsh. We agree there should not be a “revolving-door" for people to continually have debts forgiven and immediately receive additional loans. However, eliminating any future possibility of a loan is excessive for those individuals who received debt forgiveness. Every lender we know of has a policy that allows people to re-establish creditworthiness by building a history of meeting their obligations and conducting their credit affairs in an acceptable manner. We look forward to working with you to develop a fair and responsible alternative to the current provision.

Other Issues

Mr. Chairman, there are three other issues I would like to briefly address related to the delivery of farm credit.

FEDERAL/NON-FEDERAL EMPLOYEE INTERCHANGE ABILITY

The USDA Reorganization Act of 1994 authorized the transfer of Federal employees to FSA to be used interchangeably with non-federal county office employees in USDA Service Centers. In an effort to maintain service nearly every State adopted an Ag Credit Team strategy for the delivery of farm loan programs. This Team approach pooled available personnel and automation resources in several locations within a State. Teams usually provide service to

several counties, ranging from serving only 1 county to as many as 15 counties. Using this method of delivery, personnel in the field have had to adapt to different operational methods. This approach worked well for Fiscal Year 1996. In fact, nationally, the delinquency rate was reduced in the direct lending program and more loans were actually made in Fiscal Year 1996

than in Fiscal Year 1995.

TRAINING

To ensure that the training provided FSA employees develops effective Ag Credit Officers who will enhance program integrity, a revitalized, exhaustive national training program has been developed and a manual is currently being written. The target date for availability of the training manual is April 1. This program will ensure that trainees are given consistent direction in every State. It is anticipated that the program will provide over 300 new Ag Credit Officers from within FSA ranks over the next two years and provide County Executive Directors with sufficient knowledge to manage and support farm loan program delivery in every USDA service center in the country.

FSA is also continuing to train employees with credit background on commodity and conservation programs. This training of all personnel will enable us to fully utilize all our staff for essential workload regardless of what area of responsibility the workload encompasses. Our goal is to create a participatory work environment that allows all employees to realize their full potential, and that increases in our overall productivity, without any waste of human resources.

FSA has worked diligently to effectively address current circumstances in the farm loan program and has developed effective strategies for the future. An example of these strategies is our national delinquency training. We are confident that these efforts will be fruitful and our clients will reap the benefits of enhanced service at the local office.

Foreclosure on Civil Rights

Finally, last December the Secretary temporarily halted foreclosure sales on delinquent farm loans until a determination can be made on each case as to whether there is any evidence of discrimination or inconsistency in program delivery. These foreclosure sales will be delayed until the files have been reviewed for compliance with all program requirements as well as compliance with the Equal Credit Opportunity Act and USDA civil rights procedures and regulations. The sales will resume upon completion of the review on individual cases where the review plainly demonstrates that there are no issues regarding discrimination or inequitable treatment. The review is proceeding smoothly.

Concluding Remarks

Mr. Chairman, in closing, I want to re-emphasize the progress made since October 1, 1996. This has been an extremely difficult time for FSA employees. They have had all of their regular duties, plus reorganization, 1996 Farm Bill implementation, and Production Flexibility Contract sign-up to contend with. As I mentioned earlier, FSA processed a high volume of loans and helped many, many farmers this past year. I know that the members of the next panel have