Farmcredit.com



Below is an updated draft of the policy recommendations to reflect comments that we received from the workgroup from our last call. If you have any additional edits or comments please feel free to send them to me at Duncanson@ or bring them up on our next working group call on Tuesday August 25th at 1pm ET. Thank you. Loan Guarantee Limits:The guaranteed limit of $1,776,000 is often too low to help lenders effectively use FSA loan guarantees for many large farm businesses. The FSA guaranteed loan amount should be raised to $3.5 million (+/-), for both farm ownership and operating loans.Increase the overall funding/appropriations for the guaranteed Farm Ownership and Operating loan programs. This needs to be done to reflect the current structure and challenges facing agriculture, as well as to ensure that funding is available throughout the year to meet the increase in demand for these important programs. Increase the Down Payment Loan Program loan limit to $600,000, consistent with the changes made in the 2018 Farm Bill, for direct farm ownership and operating loans. Guarantee Fees: The FSA loan guarantee fee of 1.5% impedes use of the program, especially for small and beginning farmers and ranchers. This obstacle could be reduced with a sliding fee scale over a range of guarantee percentages (70-90%) Also consider loan guarantee fee discounts for beginning farmers and ranchers.It is important to consider recognizing this cost in addition to other fees incurred by borrowers for environmental and archeological analysis.Eligibility and Definition of Family Farms for FSA Loan Programs: The family farm definition is limiting, especially in enterprises such as dairy and livestock. Family farm structures have become more complicated, with multiple operating structures (LLCs, trusts, corporations, partnerships, etc.) owned by different members of the same farm family. FSA should update their family farm definition and provide more flexibility to accommodate the growing complexity of family farm structures and intergenerational family farms, as well as the increased size of family farms. Integrators struggle to provide the three-year contracts required by FSA. Flexibility is needed with this requirement.Preferred Lender Program (PLP): PLP status should be elevated at FSA, similar to the SBA PLP lender relationship. Allow PLP lenders greater autonomy, greater flexibility and less oversight on loan guarantee origination and administration. These changes will reduce FSA staff workload and allow them to focus on non-PLP lenders. Establish an automated approval process for PLP lenders. Eliminate many of the review requirements by FSA staff for PLP lenders.Allow PLP lenders to make the initial loan and guarantee decision without waiting for the conditional commitment from FSA.Allow PLP to maximize the FSA guarantee amount by determining the total percentage guaranteed on a sliding scale (70% - 90%). This would allow the lender to use all of the guarantee limit on larger loans.Example: $3.9 M gross loan @90% = $3.5 M … or … $5.0 M gross loan @70% = $3.5 M. Some FSA offices require a “full blown” application even with Preferred Lenders versus requiring the FSA-2212 and the third-party narrative for Preferred Lenders.? Time & Effort: Working with FSA participation and/or FSA guarantee programs is very time consuming. It often takes at least twice as long as a non-FSA participation deal. FSA needs to streamline this process to decrease wait times. Complicated permitting and evaluation requirements often cause long delays. These requirements should be streamlined or eliminated, when possible. Archeological evaluations add significant delays and costs, in addition to limiting the actions the borrower can take prior to closing.Update and streamline the environmental review process. The current process makes it difficult to utilize construction participations. FSA applications may be submitted to several state agencies, and their response time creates significant delays. This process needs to be modified or eliminated to improve response times.Consistency Across FSA: Interpretation of FSA rules and policies varies between FSA offices. Turnaround time varies significantly between offices, states and FSA personnel. FSA may not have adequate resources to handle an increased use of the guaranteed programs.Utilization of available technology varies between FSA offices.Improve the consistency in treatment of PLPs across FSA offices. Many lenders work with multiple FSA offices, even on the same loan. Work needs to be done by FSA to bring a more uniformity to the approach and processes across state offices. FSA should consider streamlining their process so that lenders have a dedicated point of contact in each state for loan applications and servicing issues. Working with state-based ag finance assistance programs varies across offices. FSA should give more flexibility to state offices to work with programs specific to their states. Loan Servicing & Underwriting Issues: Additional flexibility is needed within FSA requirements related to loan servicing and underwriting, such as partial releases, inspection requirements, appraisals and loss claims.Debt coverage requirements are difficult to meet in the current economic environment and more flexibility should be added.FSA Farm Ownership programs require 150% collateral. As a result, FSA has put liens on personal vehicles, recreational vehicles, homes, etc. to meet this collateral requirement. These restrictions prevent potential borrowers from using these beneficial programs. FSA should provide more flexibility with partial releases and other servicing requests. Inspection requirements can be cumbersome when servicing or refinancing existing loans.Appraisals completed prior to receiving FSA approval should be acceptable. Insignificant ground disturbance should be allowed within the 12 months prior to securing an FSA guarantee.Provide lenders with a higher degree of confidence that loss claims will be processed and paid within a specified time period that aligns with lender recovery process requirements.Beginning Farmers and Ranchers (BFR): The FSA Beginning Farmer programs provide great combined interest rates, allow private sector lenders a senior collateral position and have been useful in helping to start many BFRs on a path to success. Additional improvements could be made to this program to better serve a larger array of beginning farmers.Discount the guarantee fee for BFRs.Eliminate the “test for credit,” “graduation” and “experience” requirements to reduce the obstacles of working with FSA on BFR loans. For example: Beginning farmers have cash savings that could be deployed as working capital, but FSA requires cash to be used for a down payment. ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download