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But of course, you've also got to have financing in order to make it run. There are some changes that have been going on and that's one of the reasons, I think, this hearing is important. To hear about what's happening and maybe talk about even some ways that we can improve it.

Mr. COMBEST. Well, thank you very much. We're glad to be here in your District.

Just let me take care of a couple of housekeeping matters. All statements that individuals may wish to make, certainly any of the witnesses, to be submitted for the record will be taken.

Additionally, we would invite any other interested individuals that have comments that they would like to make on the subject matter of this hearing to submit those. We'll certainly give a period of time for those to be received. Those could be either submitted directly to my office or they could be submitted directly to the Agriculture Committee.

This is an official committee hearing. It will be one in which testimony is taken and will be recorded and a record made. But we would welcome that, as in any committee hearing, either in the field or in Washington. It is impossible to have all of the people you would like to have testify. There's a great deal of expertise involved in agriculture in field hearings. So, obviously, we've had to make some decision about exactly what we would look for in the way of official witnesses. But I would invite any of you who wish to make comments for the record, to indicate to you they would be very welcome.

We'd like to invite our first panel, which is at the table. Again, we appreciate very much your coming from Washington.

Carolyn Cooksie is the Deputy Administrator for Farm Loan Programs, USDA Farm Service Agency, Farm Credit Division. She is accompanied by Mr. Jim Radintz, the Director for Loan Making Division, Mr. Velden Hall, the Director for Loan Servicing and Property Management Division. And also on this panel is Mr. Harold Bob Bennett, who is the Texas FSA Director. I will call you ASCS or SED or whatever, Harold Bob having been an old ASCS employee. It's hard for me to change my ways.

Your written statements will be made a part of the record. You may refer to those as much as you would wish or speak extemporaneously. I think that Ms. Cooksie and Mr. Bennett have prepared statements to offer.

Ms. Cooksie, I would certainly recognize you at this time. Again, thank you very much for coming to Lubbock.



Ms. COOKSIE. Thank you and good morning, Mr. Chairman and members of the subcommittee.

I do appreciate the opportunity to come to Texas. I am originally from Texas. I was born in Dallas, TX, as a matter of fact-Kentucky. Harold Bob says that doesn't qualify me for a Texan, but

Mr. COMBEST. Well, I think it does.

Ms. COOKSIE. Thank you so much. We'll have to work on Harold Bob with that.

I appreciate the opportunity to testify before you and the other subcommittee on the direct and guaranteed loan portfolios in FSA, and to address the effect that certain provisions of the Agricultural Credit Act of 1992 and the Agricultural Credit Improvement and Reform Act of 1996 have made, certainly on family farmers and ranchers across America.

First, I want to assure you and members of the subcommittee that Secretary Glickman and all of the FSA staff are committed to operating the loan programs in the most effective and efficient way possible. As you know, this is a difficult task because we have to strike a balance between helping farms who have been turned down by private lenders and being the lender of last resort, and at the same time, keep loan losses to the lowest possible level. The 1996 farm bill contains several reforms which allow us to do a better job of giving people opportunities while avoiding exposure to excessive loan losses. However, the administration and Secretary also believe that the 1996 farm bill went too far in several places in establishing a lifetime exclusion for borrowers who have received debt forgiveness, and we will be submitting legislation to correct this inequity. We look forward to working with you and the committee to implement the new provisions of the 1996 farm bill as well as fashioning an appropriate eligibility standard for borrowers who have received debt forgiveness in the past.

I would like to briefly highlight some accomplishments we've made over the last year. We're going to pretty much go by you and we've been asked to address certain things. We're going to pretty much go by that. But I think that it is also appropriate that we talk about the good, the bad, and the ugly in that we have made, in spite of everything, some accomplishments last year, in spite of reorganization, in spite of downsizing.

In 1996, FSA made over 17,000 direct loans totaling $832 million. We also, at the same time, issued 14,575 guarantees totaling $1.8 billion. The total of direct loans includes $176 million in disaster loans. That's the highest level of disaster loan activity that we've had since 1986. At the same time, the number of delinquent direct borrowers was reduced by 25 percent, and the amount of outstanding dollars delinquent was reduced by 24 percent. The delinquency rate was reduced from 23 percent of total direct loan borrowers to 18 percent. This was accomplished simultaneously with the largest reorganization USDA has ever seen. So, you can see that we did have some improved service, despite the additional work load and difficulties caused by reorganization, many of which we're still experiencing.I believe it is important to put things in perspective and to recognize that while we have some problems and we understand we have some major problems, that we are in some cases, in most cases, getting the job done. We are helping farmers.

On the status of the portfolio, on the delinquency-let's look at the direct loan portfolio first. At the end of the year, 1996, there was a $12,424 billion of principal and interest outstanding to a little over 116,000 borrowers. Of the outstanding balance, $2.36 billion, or 19.4 percent of the total, was delinquent. So, between December 1995 and December 1996, we reduced the delinquency by

and so,

24 percent or $734 million. So, in this area, we're making a progress. Realizing that we have a lot of progress to make, but I believe we are making some good progress in that area.

One of Secretary Glickman's main concerns about the direct loan portfolio is the delinquency. Understanding that because of the borrower that we service, which is we're the lender of last resort, that our delinquency levels are going to a little higher than a normal lender. But he's also very concerned about where we are, we've had to kind of refocus in the last year on the delinquency, which we've done. We've asked each FSA State Director in every State to develop a delinquency reduction plan, some of which are very ambitious. They have goals that they have to meet in the next year in reducing the amount of outstanding delinquent dollars. We believe that the firm, fair, and empathetic approach being employed to address delinquencies will improve borrower success and reduce loan delinquencies and losses.

On the guaranteed portfolio, at the end of last year in 1996, the outstanding FSA guarantees totaled $6.4 billion outstanding to 36,950 farmers. Of the balance outstanding, only 1.79 percent or $115.3 million was delinquent. The guaranteed program continues to be a fiscally sound program, even here in Texas, with one of the lowest loss rates of any Federal loan guarantee program. Program losses in fiscal year 1996 nationwide was only $44.9 million.

You asked about the implementation of the Certified Lender Program and the Preferred Lender Program. The Certified Lender Program which we implemented in 1993 has been working about 342 years. I am pleased to report that the CLP is working well. As of September 1996, there were 878 FSA CLP lenders across the country. Of the 2,543 lenders who made at least one loan guarantee, in 1996, only 21 percent were CLP lenders. But those CLP lenders accounted for 41.5 percent of the guaranteed operating loan volume in 1996.

So, to get an idea of how CLP lenders are performing, we looked at all guaranteed loans made over the last seven years, seven fiscal years. Lenders that now have CLP status hold almost half of the guarantees made during that period. More interesting is the fact that the loss rate for CLP lenders on this group is only 0.78 percent, about one-half of the rate of non-CLP lenders, a very respectable 1.47. So, I think that's a success.

Regrettably, the Preferred Lender Program, we have not yet implemented. We get caught up in problems with reorganization and then we had to get the farm bill regulations out and going. So, that has not been implemented. The regulations have been drafted. I think we're pretty much on track with those now so I think that in the next several months, we should have a program up and running. That is certainly a priority. Once implemented, I think that the Preferred Lender Program will be as successful as the CLP Program.

I'm glad to talk about the 1996 farm bill. I'm glad to talk about it because there are some, I think, misconceptions about what Farmers Home came up with or FSA came up and what the statute required us to do out of the farm bill. So, we're going to discuss some of the revisions of the 1992 act also.

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The 1996 act made numerous revisions to FSA farm loan programs. There are quite a few of them, so we're only going to talk about those that are going to have the greatest impact on the applicants and borrowers, and probably are of the greatest interest of the subcommittee.

The first one is loans to delinquent borrowers. If you are a delinquent borrower, whether you're a guaranteed borrower or a direct borrower, if you are delinquent you are no longer eligible for FSA loans. As of December 31, 1996 there were about 20,953 delinquent direct borrowers. On the guaranteed program, there are about 2,588 loans delinquent. However, if the borrower can pay the delinquency or restructure his loan so he can bring it current, his eligibility can be reinstated.

The other statute is a debt forgiveness which is the one that's most troublesome to me, I have to admit. The act limits FSA direct borrowers to one instance of debt forgiveness, if that debt forgiveness resulted in a loss to FSA. Debt forgiveness includes if you ever have written off a loan, or write down of a loan, a debt settlement of a loan, the discharge of a debt at bankruptcy, or the paying of a loss on a guaranteed loan resulting from one of these three conditions. There are approximately 12,000 active farm loan borrowers who have received debt forgiveness to date. This means, for example, that FSA may not be able to compromise, adjust, or settle these borrowers' debts if, at some point in the future they can not replay 100 percent of their FSA debt.

The next one is loans to applicants who receive debt forgiveness. Anyone who has ever received a write-off or a debt settlement is barred from ever receiving any further FSA assistance, direct or guaranteed, if a loss resulted to FSA from the debt forgiveness. Since 1989, we've had almost 70,000 farmers who have received some form of debt forgiveness from FSA. Many of them have gone on or off the books, but that's the count since 1989. Significantly impacted were the 588 former FSA borrowers operating farms under the lease-back buy-back agreements. Because unless they find a conventional lender, since they have had debt forgiveness, are no longer eligible for FSA credit. There is an exception for existing borrowers who received a write-down. There are approximately 12,000 FSA borrowers who are eligible for annual production loans, but will be unable to obtain any other FSA loan assistance. As you can tell, I'm still FSA/FmHA too. After 21 years, it's kind of hard for me to call myself something else.

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. There was a provision in the law that all borrowers would receive at least 3 more years of eligibility under a transition rule. At this time, computer system limitations because of reorganization prevent a determination of the number of borrowers who will be affected on April 4, 1999. System development is underway to identify those borrowers affected so they can be informed where they stand and how many more years of eligibility they have. Some borrowers will be affected by this revision at some point.

Limitations on guaranteed loans: There 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. It's important to note that a borrower only uses a year of eligibility if a direct or guaranteed loan is received. If he didn't get any loan that year, then he doesn't have to count that as a year of eligibility. Merely having a loan outstanding does not consume a year of eligibility. It's only if you received a loan in that year. Only guaranteed loan borrowers who received a loan in each of the 5 years after 1992 will be disqualified after October 28, 1997.

So, we are presently working on a computer system diligently, to try to identify who those borrowers are and to alert them to the situation of how many years of eligibility they have, as well as we have responsibility to alert the lenders. Right now, the only way a lender will know is if he calls up the county office and they'll have to manually look in the file. This is a result of the computer problems we're having over reorganization. But we're working on that because we think that's very important that the lender and the borrower know how many years of eligibility he has left.

There are many more program changes as a result of the farm bill, but in the interest of time, I think I've focused on the ones that have the most significant impact on the farmers in the country.

As I said earlier, the one that is most troublesome to me is the debt forgiveness one. The lifetime prohibition on loans to those who have received debt forgiveness without exception is excessively harsh. You know, there shouldn't be a revolving door for people who continually have debts forgiven and receive additional loans, but there should be some kind of debt forgiveness in there. So we have put, as I said, a legislative proposal forward to the Hill to try to get some relief on that. We look forward to working with you to develop a fair and responsible alternative to the current provision.

There are a couple of other issues that I'll just note briefly because I know there has been a lot of discussion on the Federal/nonFederal employee interchangeability and that is, the Federal/County office situation that we have and that we picked up during reorganization. As you know, all the former Farmers Home employees were Federal employees. Then when we integrated with ASCS, most of their employee base were county employees and that has caused, needless to say, some problems. But we're working on them.

I hear somebody back there that said "turf battle" and he's probably right. But we are trying to adopt a Agriculture Credit Team strategy for the delivery of farm credit programs. I think it is working in some places well. In some places it's not working as well and we're going to have to continue to work on that.

Another big issue, of course, is training and in this sense, we're talking about training of our employees. As I read the testimonies through the package, one of the things that you hear continually is that we need to have more personnel trained in agriculture credit and lending practices and that is true. So, we are diligently working on that.

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