Controversy mounts over federal farm loan policy

Consider the plight of Kenneth Allison. After farming for 12 years in northern Missouri, Mr. Allison found himself several years delinquent on loans from the federal Farmers Home Administration (FmHA). That year, 1977, an FmHA county supervisor proposed a solution:

If Allison increased his hog herd, he would have more cash coming in and could begin repaying his debts. The supervisor proposed another FmHA loan to build a farrowing house to raise piglets. Reluctantly, Allison agreed.

On Jan. 20, 1980, the farrowing house was ready for operations. But within two weeks, a new county supervisor was recommending that Allison sell off his farm. The reason? His debts were too high.

''I knew he was being had, but I didn't know what to do about it,'' recalls Dale Reesman, a general practice lawyer in nearby Boonville. So, after appealing the decision unsuccessfully to FmHA, Allison went to court and last year won a temporary injuction against foreclosure of his farm or property.

''I'm just a-waitin' is all,'' he says in a telephone interview.

Allison is not alone in complaining about FmHA.

''It seems,'' says one bewildered Missouri farmer, ''like they don't want us out here.''

The controversy over FmHA has reached Congress and the courts.

In February, a United States District Court judge in North Dakota ruled in favor of farmers and said FmHA had to change its foreclosure procedures, giving farmers 30 days' notice and telling them they may contest the decision and request deferral. FmHA must evaluate those deferral requests, the judge ruled.

And, while Congress was pushing for more direct loans to farmers, FmHA liberalized its policies and made available just over half of a disputed $600 million in direct loans. The agency had been trying to distribute all but $50 million of the total in guaranteed loans - which are made through private banks and usually involve a higher interest rate.

FmHA was one of many factors that contributed to the farmers' problems, concedes Frank Naylor, undersecretary at the United States Department of Agriculture for small community and rural development. But he places the blame squarely on FmHA loan policies under the previous administration.

''That was a policy direction: Make loans,'' Mr. Naylor says. ''The agency was even out soliciting loans.

''More important, there wasn't the staff or the capacity to supervise and give counseling to the borrowers.'' County supervisors, already overworked, were ''buried,'' he says.

''Our opponents accuse us of tightening down excessively. What we really did is we said: Wait a minute. This kind of credit, as credit of last resort, won't work unless you expend the time to sit down with borrowers, supervise them, counsel them, and be sure the funds were used effectively. We're just not going to throw money at the wall.''

Critics charge, however, that the new policy could cripple midsize family operations.

''Are we going to lose a whole bunch of them?'' Naylor asks. ''Conceivably, that's possible, but, in fact, it is not likely to happen. What you're seeing commercial banks (and other farm lending institutions) do is restructure their loans.''

That may mean selling off a piece of machinery or plot of land, he says. But ''most will make it, if they will be reasonable businessmen and use reasonably sound practices, which most of them do.

''There are some, though, that are just simply so overextended and some with debt-to-asset ratios well beyond one to one, for example, that nothing you could realistically do will make it possible for them to continue operation,'' he adds. ''When we finally take action, as lender of last resort, I mean there is just nothing you can do for that case. In fact, you are probably doing the individual a great disservice by continuing (to make loans available).''

Naylor says government loans are not the best solution to farm disasters:

''When you've already lost it, lending money out is not a very good solution. . . . We're still persuaded that some sort of risk-management, and specifically in our view the crop insurance program, is the solution.''

He says he hopes Congress will pass legislation next year ''something to the effect (that) where crop insurance is generally available on a commodity, we would not offer a disaster lending program and that we would move to risk management through insurance. It's clear that people are beginning to believe that that's the government's disaster program. And they're beginning to take advantage of it.''

But what is the solution for farmers like Allison who already have been hurt by FmHA's excesses in the past? It's an issue likely to surface in the debate over the 1985 farm bill.

''In the '70s, government lenders, (and) everybody was saying you've got to expand to survive,'' says David Ostendorf, director of Rural America's Midwest office in Des Moines. ''Now that the situation has changed, it's time to blame the farmers for what the government (advised).''

In Allison's case, FmHA is again trying to foreclose on his farm. Last month, he received a 30-day notice, Mr. Reesman says, and another court fight is likely.

''There's a basic unfairness in pushing the money at them and then, after three bad years, trying to take it back in one year,'' he says.

Should farmers in trouble with FmHA look for another line of work? Naylor says some probably should.

A Missouri farm wife disagrees:

''What else will we do?'' she asks, looking her interviewer straight in the eye. ''Farming is all we know.''

You've read  of  free articles. Subscribe to continue.
QR Code to Controversy mounts over federal farm loan policy
Read this article in
QR Code to Subscription page
Start your subscription today