Combest Presses USDA Farm Loan Reform

Mar 12, 1998

WASHINGTON, D.C. - Agriculture Department failure ti enact needed reforms in USDA farm loan programs has received criticism from Larry Combest (R-TX), Chairman of the Agriculture Subcommittee on Forestry, Resource Conservation, and Research.

While USDA revealed plans during a Wednesday agriculture subcommittee hearing to restore loan eligibility for borrowers with past debt relief, Subcommittee Chairman Combest raised concerns that the Agriculture Department may have gone too far in relaxing credit standards.

Under Secretary for Farm and Foreign Agriculture Gus Schumacher, Jr. testified that Secretary Dan Glickman's official proposal would allow for two cases of debt forgiveness in addition to an exemption should debt forgiveness be necessitated by weather disaster, family medical crisis, or as settlement of a civil rights case.

Combest indicated that he would prefer to narrow credit provisions to permit borrowers with past write downs to qualify only for loans guaranteed by USDA, but exclude them from direct lending. Under guaranteed loans, private lenders know they face potential exposure for 10 percent of the loan as they review an applicant with past write-downs.

"For some time, I have called for USDA review of appropriate adjustments to the lending program. USDA's proposal however, may go too far in relaxing credit standards. We need a middle ground to allow truly credit-worthy borrowers to qualify for USDA loans while ensuring the integrity of the loan program," Combest said of the hearing.

USDA Under Secretary Schumacher also confirmed that the Department continues at work on standards for the Preferred Lender Program for guaranteed loans. Six years ago, Combest authored legislation streamlining and simplifying the Preferred Lender Program. However, USDA still has yet to finalize regulations to make the loan processing system conform to congressional direction. Combest expressed his disappointment with USDA's target of 1999 for implementation of the new rules.

"I am disappointed that the Department is just now working on regulations for a program that was authorized in 1992 legislation. Time is way past due for streamlining this and other lending programs," Combest said.

Congress had enacted statutory changes to farm credit provisions in response to the farm recession of the mid-1980s. Excessive loan losses and write off of past debt focused criticism on provisions of the Consolidated Farm Rural Development Act (ConAct), though principally on the Agricultural Credit Act of 1987. Subsequent reports from The General Accounting Office criticized the USDA loan servicing provisions for allowing delinquent borrowers to avoid foreclosure and receive new and restructured loans, on which they again became delinquent and subject to foreclosure. In some cases, this process occurred on more than one occasion.

Congress responded with 1996 Farm Bill provisions that curtailed the rescheduling or re-amortizing of loans unless the borrower paid a portion of the interest due on the loan. The Secretary was also prohibited from making new loans to delinquent borrowers for any direct or guaranteed loan, as well as making or guaranteeing loans to borrowers receiving past debt relief.

Combest represents Texas' 19th Congressional District which includes the Panhandle, South Plains, and Permian Basin.

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