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(1) The application is too redundant and complicated. Many of the forms for the application should be scrapped or consolidated. The application should provide enough information for the FSA personnel to make the decision to underwrite the loan and to comply with the Federal laws and statutes and no more!

(2) The turnaround time for the guarantee application is too slow and unpredictable. An application will seldom reach its 2 week required turnaround time, but instead expectations of the lenders range from 4 weeks to 8 weeks, depending on the FSA County Office. Sometimes a factor for this delay is the fact that lending personnel in the FSA offices are either sent to training during the busy season or are taking their vacation time so they don't lose it at the end of December. The lenders must then wait for their return to get their application approved. In addition, there is a tiered loan authority for local, regional and State directors. Due to this, a loan on the top tier is passed through too many steps and sometimes can take up to and over 10 weeks for loan approval and closing.

(3) The required education for the farms looks good on paper in theory, but in reality is very costly, time consuming, and the education is inconsistent from class-to-class. Very few of our farmers talked to feel like they have benefitted from this education. It is my opinion that the education requirement should be rescinded completely. However, if the education is going to be a requirement, then either offer it through the FSA free or through the State Extension System. In either case, no required education seminar should be over 1 day in length and no more frequently than every 6 months.

(4) Put a system in place to insure that all of the FSA offices view applications, approve renewals and modifications, deal with claims, and any other procedures consistently. There should only be one method of operation, not one for each FSA office.

(5) The claim process in unreliable, unpredictable and excessively lengthy. Lenders do not trust this program, and most of this comes from this area. The program is worthless if you can't get a claim paid timely. FSA needs to determine if the lender applied the same prudence that it does on its direct loans. If it did, then pay the loan promptly.

(6) FSA has a requirement that each lender notify them for their approval each time a guaranteed debtor borrows additional funds anywhere, anytime, over a small threshold. For example, if a customer buys a pickup, tractor, or even farm supplies using the farm plan, then that customer and the bank is out of compliance even though the bank had no control or knowledge of this transaction. This is unfair to the institution and should be rescinded. This requirement should be between FSA and the debtor and not involve the institution for accountability.

(7) Not directly related to the guaranteed lending process, but equally important issues affecting the future of agricultural credit are the issues of the Conservation Reserve Program renewal and the FSA right to offset. CRP should be renewed

for both economic and environmental needs with those whose land is already in the program given the first opportunity to renew their contracts. This would be a common sense approach. Due to consolidation which

created the Farm Service Agency, FHA gained the right to offset from the old ASCS office. That power should never be exercised over a lender who has the first lien on the farm operating line for any reason. This has already been done to our bank once this year, which has caused us to reconsider all Farm Program payments in our farmers cash flow projections. No other financial institution in our country has the right to this extent and neither should the Government.

I hope that this testimony is not misunderstood because this Nation needs a good agriculture guaranteed program. It provides a method for young farmers to get into farming. It gives farmers the option to do business with their smaller community banks due to the exemption of the guaranteed portion of the loan amount on the bank's lending limit. It gives bankers a means of offering more liberal terms to farmers than it could without the guarantee. This will benefit in times of disaster as FSA direct money becomes more scarce, but most of all, it protects the existence of the family farm which in turn, insures the existence of rural America.

It is always easy to point out problems without any solutions, but in this case I think the solution is clear. FSA should underwrite all guaranteed loans and realize that they are no longer the lender. When SBA did this, their turnaround time was drastically reduced, their labor force could do more with less, and their claim process gained the bankers' trust, which made the transition process from direct lending to guaranteed lending much smoother than otherwise would have been possible. Adopt many of the SBA guaranteed lending policies rather than making the same mistakes twice. After all, a farm loan is just a business loan. And finally, someone in authority should always be available for applications, claims, questions, or anything else every business day.

Thank you for your concern. It is my hope and my prayer that in another 6 years, I'm not using this as another exhibit for another Congressional hearing.

I've got a couple more things I'd like to say real quick, and I realize my time's up.

I wanted to clarify these two collateral files. This is a common example of an average of the collateral files in Security Bank Idalou. This is a farm line that's got not only farm business, but it's got ranching on it. There's probably more involved in that line because we're dealing with wheat, corn—this one is up in the Castro County area. And this one is a cotton line. And so, what they fail to tell you is when you start it here, yes, that may be an application. But you come in with another application, you do another one, and the required documentation that you have to keep up with. That is a common collateral file.

We always can open our collateral files and look down and pick our FHA loans out without ever looking at the files. I would invite anyone to come to the bank after is and spot check them. I'm sure the FSA borrowers would approve that for that purpose. So, I wanted to clarify that.

I heard that Ms. Cooksie had mentioned the right to offset and the views that they would not do that. But as I mentioned, that was done to me earlier, and actually, it was two cases instead of one. There's a question over who had first lien. But neither one of

us who were arguing who had first lien got the money. FSA got the money.

Congressman Stenholm had mentioned that the packaging was required and I did want to mention that it's not required by law but it is required due to the complication of the package itself. I can honestly say that none of my customers who file an SBA guaranteed loan go out and hire packagers anymore. They used to, back when SBA's package was complicated.

FSA had mentioned on the applications that they have to do the requirements as far as the little statement that says, "Well, I didn't bribe a Congressman or someone else to get this loan,” and then a statement on environmental—all those statements? Those statements are canned statements. Those should require a signature. If that's the thickness of the package that's causing us concern, nobody is going to have a problem just going through and signing that I didn't do any of that stuff. But the redundancy is the real problem.

With that, I know these gentlemen have a lot more to say so I'll yield to them and yield to you all for your questions.

Mr. COMBEST. Thank you very much, Mr. Mauldin.

[The prepared statement of Mr. Mauldin appears at the conclusion of this hearing.]

Mr. COMBEST. Mr. Wright.


Mr. WRIGHT. Thank you kindly, Mr. Chairman and members of the committee. Thank you for taking time to come down here today and to listen to us.

Some of the things that I will have I know are redundant and I know that you don't need to be told, but I would hope that maybe some of your colleagues on the subcommittee will be reading and hearing the testimony and that they'll be seeing some of the problems that we have.

I am senior vice-president of agricultural lending at American Bank of Commerce of Wolfforth, Lubbock and Austin. We are a $200 million-plus locally owned bank with an agricultural loan portfolio of just over 30 percent of our total borrowings. I was born and raised on a cotton farm here in Lubbock, TX. I farmed for 8 years. I've been involved with agriculture lending since 1982. Agriculture is my background. It is also my lifeblood. Agriculture is the main economic factor of Lubbock, TX and the surrounding 67 counties. This area produces 20 percent of the cotton produced in the United States and is a major player in the export market.

Now, I'll tell you this just to show how important agriculture is to this region and to this nation. This area is also very vulnerable to weather conditions. All cotton producers in the United States are subjected to price fluctuations, insect problems. There's other types of weather problems that they suffer in different parts. But in the High Plains of west Texas, as you well know, we can go from 70 degrees to 25 degrees in just a few minutes. It can snow at 9 o'clock in the morning and we could be having a sand blow at 4 o'clock that afternoon. You can have a 2-bale crop August 1, and be totally wiped out in just a matter of minutes by a sudden hail

storm. Hopefully, this will provide you with some idea of why the USDA or the FSA lending programs are so important to our area.

The American Bank of Commerce is an FSA Certified Guarantee Lender. As of February 13, 1997, we had outstanding loans under the 90-10 guarantee program of $10,291,559 and we have several loans that are pending which will increase this total. This represents almost one-fifth of our total agriculture loan portfolio of ABC Bank. As you can see, the Certified Lender Program is very important to us as a bank, as well as our customers. It allows us to help that producer who has suffered a loss due to weather and other factors and give him time to overcome that problem. Even though it is still a paper burden—and I will have to agree with Mr. Mauldin. Our files will look just exactly like this in our guaranteed program. That is very, very representative of that. Even though there is still a paper burden, we're willing to try to help our customer.

We have one loan officer that is dedicated to the FSA paperwork and will be training—we hired a new loan assistant and we'll be training that loan assistant in some of the reporting procedures. We've also had some problems in some counties in getting a response in the time allowed by the Certified Lender Program. It is amazing to me in the 15 years that I've been involved with agriculture lending that no one county has the same rules and regulations to follow, either the bank or the lender is held fast to certain perceived rules.

In most cases, the loan officer that is assigned to the guaranteed loans knows the regulations better than the county FSA employees. Our frustration is that when we work so hard to do what is required, then the FSA lenders feel they can do whatever they want and whenever they want. Now, there are several counties that we have no problems with and it is a pleasure to work with them. We understand that the problems at the county, at the district, at the State level, these people are working hard to change this. We recognize that this is coming from the top. This is coming from Washington. This is coming from the USDA. That's one reason I don't have a problem in calling Jimmy Clark and Congressman Combest. I'm not trying to get these folks in trouble. We try to get to the source of the problem.

You asked for suggestions for improvement. We understand that FSA is working under Government guidelines and we know that Government has no common sense. There are banks and other lending institutions that take advantage or abuse the guaranteed program. But don't take it out on those of us who are doing it right. Turn the Guaranteed Lending Program over to the bankers, the people who are trained and know how to loan money. Monitor the loans, the loan losses. Any bank that abuses the program would be limited or out of the program for a specific time period. Under the Certified Lender Program, FSA is certifying that the lender is capable, willing and has the resources to lend money under the guarantee basis. The certified lender is certifying that they have abided by the rules and the regulation. The FSA staff is to do a 90-day review after the loan is closed to check and see if the lender did the proper documentation.

Let us do our job the way we know how to do it. Please guide the FSA to do their job in an efficient manner. Why would anyone pull their loan officers out for a week of training during the middle of loan season? Why would anyone detail a loan officer to south Texas to work housing loans during the middle of the loan season? Why would anyone detail a loan officer from east Texas to west Texas to work loans they have no idea about? Our crops start going in the ground in late April, early May and people can't wait that long for money to begin their land preparations. The suppliers, the dealers are all extending credit to these guys, based on whether FSA is going to approve or make that loan. If the decision is not made until June or July, we've got other people who are hurt.

The FSA Guaranteed Program is a very good program and it can help producers who have stumped their toe to get back on their feet, while allowing us as commercial banks and other lenders the opportunity to help their customers.

As I close, let me express my sincere appreciation to the committee for allowing me to show you how important it is, as Congressman Combest has said, that we have an infrastructure of the USDA loan programs, Farm Credit system, and other commercial banks to meet the future needs of our agricultural producers. My family is dependent on it as well as yours.

Now, as you leave today, I've inserted a thing I'd like you to take with you and look at. In 1896, William Jennings Bryan said it best. “Burn down your cities and leave our farms, and your cities will spring up again as if by magic. But destroy our farms and the grass will grow in the streets of every city in the country." As long as the North American farmer can supply our food at a price that allows us to spend the greatest part of our income for our cars, our TVs, our recreational items, our high standard of living can continue. But when our farmers can no longer produce this low-cost food and fiber, or when they have no economic incentive or ability to produce this, truly again, “The grass will grow in the streets of every city of the country.'

Thank you very much. Mr. COMBEST. Thank you, Mr. Wright. [The prepared statement of Mr. Wright appears at the conclusion of the hearing.] Mr. COMBEST. Mr. Townsen. STATEMENT OF DON TOWNSEN, FIRST NATIONAL BANK,

SPEARMAN, TX Mr. TOWNSEN. Thank you. I appreciate it. I'm Don Townsen, president of First National Bank in Spearman, TX. Spearman is about 90 miles north of Amarillo, up in the Northern Panhandle. I've been an agricultural lender and a FHA guaranteed lender since 1974. I have just closed, on February 3, probably my last FHA guaranteed loan unless some drastic changes are made. The only reason I closed that loan is because we started on February 6, 1996. He spent over $5,000 in application fees and in packaging and travel, and I felt compelled to do it with him.

One of the things about FHA lending and this customer, this customer had an FHA guaranteed loan that was a 7-year loan. It matured in early 1996. We made the applications, not because he was

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