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

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Congratulations on being selected to testify before congressman Combest and the Agricultural Sub Committee.

I would appreciate you conveying my thoughts on the FmHA guaranteed loans. I believe the intent of the FmHA was to help farmers who could not obtain bank finan

With the inception of the guaranteed loans this took a lot of pressure off of the FmHA.

The theory behind the guaranteed loans is good. However, the application process is cumbersome and almost always requires outside help in the preparation of the forms. As with most government agencies you are required to give the same information in 6 different places. Most bank personnel that I am acquainted with do not have the time to properly fill out this volume of paper, much less being able to interpret the often gray regulations. Additionally, I would like to add that the settlement process is slow and awkward. I have known instances whereby it has taken almost 2 years to collect on the guarantee. The regulations are so overwhelming that if the agency so desires to renege on the guarantee there is almost always an out for them.

Certainly guaranteed loans would be an attractive program for our community, but due to time and paperwork involved and the horror stories regarding collection we have not actively pursued them. I would be in favor of any positive efforts to help streamline and make the process more effective for the farmer and the banker. This is a program that could be vital to our area and the entire agricultural sector.

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Stephen N. Sherrill
Vice President

SU'VRY

110 VAIN
PO BOX 130
SURIY TEXAS 79066
ohre S06, 2461

06. 248.21:

DE ELS

OCLCLC

PBOX 090 DUHANDLE. TEILS-2060

Phone: 506

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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 turned 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 FmHA loss

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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.

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

Sincerely,

con muce

John Sherrod,
President

JCS/ks

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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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