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30–426 PDF 2006

S. HRG. 109–800

TO REVIEW UNITED STATES DEPARTMENT OF

AGRICULTURE FARM LOAN PROGRAMS

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JUNE 13, 2006

Printed for the use of the 

Committee on Agriculture, Nutrition, and Forestry

(

Available via the World Wide Web: http://www.agriculture.senate.gov 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

SAXBY CHAMBLISS, Georgia, Chairman 

RICHARD G. LUGAR, Indiana 

THAD COCHRAN, Mississippi 

MITCH MCCONNELL, Kentucky 

PAT ROBERTS, Kansas 

JAMES M. TALENT, Missouri 

CRAIG THOMAS, Wyoming 

RICK SANTORUM, Pennsylvania 

NORM COLEMAN, Minnesota 

MICHEAL D. CRAPO, Idaho 

CHARLES E. GRASSLEY, Iowa 

TOM HARKIN, Iowa 

PATRICK J. LEAHY, Vermont 

KENT CONRAD, North Dakota 

MAX BAUCUS, Montana 

BLANCHE L. LINCOLN, Arkansas 

DEBBIE A. STABENOW, Michigan 

E. BENJAMIN NELSON, Nebraska 

MARK DAYTON, Minnesota 

KEN SALAZAR, Colorado

MARTHA SCOTT POINDEXTER, Majority Staff Director 

DAVID L. JOHNSON, Majority Chief Counsel 

VERNIE HUBERT, Majority Deputy Chief Counsel 

ROBERT E. STURM, Chief Clerk 

MARK HALVERSON, Minority Staff Director 

(II) 

(III)

C O N T E N T S 

Page

HEARING(S):

To Review United States Department of Agriculture Farm Loan Programs ..... 1

Tuesday, June 13, 2006

STATEMENTS PRESENTED BY SENATORS 

Chambliss, Hon. Saxby, a U.S. Senator from Georgia, Chairman, Committee 

on Agriculture, Nutrition, and Forestry ............................................................. 1

WITNESSES 

Panel I 

Keppy, Glen, Associate Administrator for Programs, Farm Service Agency, Washington, DC, accompanied by: Carolyn Cooksie, Deputy Administrator for Farm Loan Programs ................................................................ 2

Panel II 

Everson, Dennis A., President Agribusiness Division, First Dakota National Bank, Yankton, South Dakota .......................................................... 13

Krub, Karen, Farmers’ Legal Action Group, Inc., St. Paul, Minnesota ....... 17

Senter, Elisabeth B., National Association of Specialist, FSA and National Association of Federal Managers, Gregory, South Dakota ............. 15

APPENDIX 

PREPARED STATEMENTS: 

Harkin, Hon. Tom ............................................................................................ 26

Everson, Dennis A. ........................................................................................... 27

Keppy, Glen ....................................................................................................... 38

Krub, Karen ...................................................................................................... 50

Senter, Elisabeth B. ......................................................................................... 60

QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD: 

Coleman, Hon. Norm ........................................................................................ 74

(1)

TO REVIEW UNITED STATES DEPARTMENT OF 

AGRICULTURE FARM LOAN PROGRAMS 

TUESDAY, JUNE 13, 2006

U.S. SENATE, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY, Washington, DC. 

The committee met at 10:05 a.m., in room SR–328A of the Russell Senate Office Building, the Honorable Saxby Chambliss, Chairman of the committee, presiding. 

Senators present: Senators Chambliss, Coleman, Thomas, Talent, 

Crapo, Harkin, Nelson, Salazar, Baucus. 

STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. SENATOR 

FROM GEORGIA, CHAIRMAN, COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY 

The CHAIRMAN. This hearing will now come to order. Good morning. 

Our hearing is going to examine the Farm Service Agency’s Farm 

Loan Programs. The Federal Farm Loan Programs are an important source of temporary credit to help farmers get into the business or recover from a natural disaster or other setback. 

The purpose of this hearing is to ensure that programs are operating in a safe and sound manner and that FSA is providing strong 

financial management, all the while meeting the needs of producers. There have been $3.8 billion in lending authority each year. 

It’s also imperative that this Committee conduct the necessary 

oversight to ensure the program is well managed and protects 

farmers. 

Since 1996 Congress and the Administration have worked to improve farm loan programs. Just 5 years ago they were taken off the 

Government Accountability Office’s high risk list. 

Years of well-intentioned but financially unsound policies and 

practices—some directed by Congress, I admit—landed them on 

that list. A serious effort that began with the 1996 farm bill has 

been successful. I sincerely hope we never again see a time when 

farm loan programs are considered high risk. 

I would also like to express my appreciation to the Farm Credit 

Council and the Independent Community Bankers of America for 

being willing to submit testimony for this hearing. Due to time constraints we’re not able to accommodate everyone who wished to testify. Please be assured that all submitted testimony will be given 

the same consideration as that offered orally today. 

We’re going to have two panels this morning. Our first panel consists of Mr. Glen Keppy, Associate Administrator for Programs for 

2

the Farm Service Agency here in Washington. He is accompanied 

by ms. Carolyn Cooksie, Deputy Administrator for Farm Loan Programs. 

Mr. Keppy, Ms. Cooksie, welcome to you this morning. We appreciate you coming and taking the time to shed some light on what’s 

been happening at USDA relative to these very valuable programs. 

We look forward to your testimony. And I will turn the floor over 

to you at this time. 

STATEMENT OF GLEN KEPPY, ASSOCIATE ADMINISTRATOR 

FOR PROGRAMS FOR THE FARM SERVICE AGENCY, ACCOMPANIED BY CAROLYN COOKSIE, DEPUTY ADMINISTRATOR 

FOR FARM LOAN PROGRAMS 

Mr. KEPPY. Thank you, Mr. Chairman. 

Members of the Committee and Staff, thank you for the opportunity to review the current state of the Farm Service Agency’s 

Farm Loan Programs at the Department of Agriculture. This is my 

rookie hearing on the Hill as Associate Administrator for Programs 

at FSA. And unlike my playing days on the field with the Pittsburgh Steelers and Green Bay Packers, I’m pleased that we’re not 

opponents and hope there won’t be any hard hits. 

The CHAIRMAN. You didn’t ride a motorcycle here, did you, Mr. 

Keppy? 

[Laughter.] 

Mr. KEPPY. No, I didn’t. I did learn something. 

FSA’s Farm Loan Program is a success story. We make direct 

and guaranteed farm ownership and operating loans to family size 

farmers and ranchers who cannot otherwise obtain commercial 

credit from a bank, Farm Credit System, or other lenders. Our current portfolio includes $5.4 billion in direct loans and $8.7 billion 

in guaranteed loans. 

The quality of our portfolio has improved significantly. Here are 

just a few of our highlights. 

Losses in our direct loan program have dropped down to 3.6 percent. That’s the lowest level in 20 years. Losses in our guaranteed 

loan program are less than one-half of one percent. That’s the lowest in 10 years. The delinquency rate for direct loans is 9.3 percent, 

and 1.67 percent for guaranteed loans—again the lowest in 10 

years. 

Last year we graduated 3,611 borrowers out of FSA loans and 

into commercial credit. The direct loan case load to beginning and 

SDA farmers has more than quadrupled from 1995 to 2005. The 

guaranteed loan caseload has more than doubled from 1997 to 

2005. 

FSA continues to help minority farmers in proportions greater 

than the demographic percentages of the total farming population. 

And we remain committed to small farmers in America. 

Research at the University of Arkansas studying FSA direct loan 

originations during fiscal year 2000 and 2003 found that 92 percent 

of direct loan originations went to small farmers who had less than 

$250,000 in gross sales. They also determined that 78 percent of 

FSA’s direct loans originated between 1994 and 1996 have already 

been paid off. 

Our rear-view mirror is filled with success stories. 

3

But our attention is clearly focused on the challenging curves up 

ahead. 

Term limits in the present statute place quantity restrictions for 

direct operating loan borrowers. That means 7000 borrowers have 

1 year of eligibility and 11,000 borrowers have 2 years left. 

Direct farm ownership and operating loan limits were capped at 

$200,000 more than 20 years ago. No adjustment in two decades. 

Considering the rising cost of farmland, energy, and other operating expenses, can farmers fully finance their credit needs today? 

The Federal work force is getting older. As many as 25 percent 

of the current FSA loan officers will be eligible to retire within 3 

years. 

Through modernization, the focus on farmers and meeting farm 

loan program objectives, each enhanced by the hard work and dedication of FSA employees, we have made great strides in performance improvement. Using our new farm business plan FSA borrowers are now processed through a real time web based system. 

We have reduced direct and guaranteed loan application processing 

time by almost 22 percent. And we have developed the Farm Loan 

Program risk assessment program, which provides risk-based oversight to the areas of potential concern within our portfolios and can 

now easily be identified. 

Thanks to having the rural delivery system coupled with the 

dedication and hard work of an existing team of experienced loan 

officers, FSA is well positioned to continue the high quality delivery 

of loan program initiatives to qualified American farmers. 

We look forward to working with this committee so that together 

we might strengthen the livelihood of family farmers while ever improving reliability of rural America. 

Thank you for your attention. Because I’m a rookie and I have 

a veteran sitting next to me here, Carolyn, we will answer questions back and forth. Thank you. 

[The prepared statement of Mr. Keppy can be found on page 38 

in the appendix.] 

The CHAIRMAN. We recognize the expertise in Ms. Cooksie. We’re 

pleased to have you here. 

I know you’ve only been on the job for a few short weeks. I’ll 

have to say that what you just reported to us and what’s in your 

testimony is good news, particularly for folks like me who, frankly, 

have been very skeptical about the ability of the Federal Government to make direct loans. We’ve always had a default rate that 

far exceeds the default rate in the private sector. And there are 

some valid reasons why there should be a higher rate on direct 

loans in the private sector. 

But this is the tax-payers’ money. And you tell us now that the 

default rate is down to 9.3 percent. That’s about 3 percent better 

than what we saw 5 years ago. And when the loss ratio is down 

to 3.6 percent, that’s pretty significant and it does mean that we’re 

doing a much better job both in making the loans plus collecting 

the loans. 

So I’m pleased to see that kind of progress. 

This also says that the current farm bill is working because 

farmers are able to generate income from the market that allows 

4

them to pay the loans back, which obviously we’re always glad to 

see. 

First of all, in Section 5301 of the 2002 Farm Bill there was a 

provision that I included in that Farm Bill that requires two studies of the direct and guaranteed loan programs. Both of these studies should have been delivered to us by now. One of them was due 

only last month. But we haven’t received either one of them. When 

can we expect these studies? 

Ms. COOKSIE. Mr. Chairman, good morning. 

We have draft copies of the studies and we can hopefully give 

them to you shortly. One of the problems that we had with the 

study, the first one covered a period of May 13, 2003 to May 13, 

2004. When we started the study we realized that having only 1 

year to do a study, you’re not going to get any meaningful information out of 1 year because most of the loans are due on an annual 

basis and they would be coming due during that period of time. 

And then the second study is over another year period, a couple 

of years, 3–year period. What was decided to do was to go out with 

two studies again and do a study over a 5–year period into 2005. 

So we started 2000 to 2004. This resulted in a longer time for completion. 

The other problem we had, of course, is due to budget constraints. We’ve had to do that particular study in- house. So it just 

took longer than it should have. 

But we have a draft of the two reports, the combined reports. 

We’ve seen the draft and passed the draft back and forth. We’ve 

had to go through the department clearance. Hopefully, within the 

next 45 days or so you should be getting a copy of the report. 

The CHAIRMAN. Thank you. 

Mr. Keppy, in your testimony you discussed how NSA is using 

or transitioning to electronic and web-based systems for loan processing and financial analysis. Would you please describe the types 

of internal and external controls in place to fix sensitive borrower 

and agency information? I don’t ever want to see or hear that this 

agency has a problem like the Department of Veterans’ Affairs. 

That’s the reason for my question. 

Mr. KEPPY. I couldn’t agree more with you. 

The first thing that the new technology does is does away with 

paper copies. And I think the safeguards are in place to make sure 

that the electronic transactions are safeguarded against, as much 

as humanly possible, against the kind of thing that we’ve seen happen. The loan officer will have a much better understanding of the 

situation that the borrower has gone through, his strengths and his 

weaknesses. 

This will be available 24/7. So it’s something that desperately is 

needed to make sure that we’re operating in the kind of situation 

that we need to be today. 

The CHAIRMAN. I note that you have a lot of experience in FSA 

today relative to the making of loans under our different programs. 

But I know also that there will be a drain on that experience over 

the next several years. 

Do you have a human capital management plan in place to ensure that FSA employees receive the necessary training and the 

5

agency has a pool of talent to call upon for its management positions? 

Ms. COOKSIE. We do have a human capital management plan in 

place. We work it every day. No. 1, we have a two- year training 

program for any trainee who comes into the agency as a loan officer. They have to go through the training through this training 

program. It takes 2 year as a matter of fact, I think many associations will tell you. 

Human capital is one of our biggest issues right now. And you 

saw between 25 and 28 percent of our loan officers over the next 

few years are eligible for retirement. Our stats show they’re not 

working much past retirement. 

With the human resource budget that we’ve had, which has gone 

down, it’s really a problem for us that we are able to keep our employees because it takes years to train a loan officer. We don’t have 

the resources to put them in the pipeline as early as we need to 

to take care of retirement and attrition. 

But under the new capital plan one of the things we’re doing now 

under the leadership of Bill Glasser, who is the Administrator, we 

have 30 FTEs which we got in the appropriation bill last year. And 

we’re going to use those as FTEs until the person gets trained; 

then they’ll be absorbed into their ceiling, and then we will roll 

that back out to other states to use. That’s not a lot of FTEs given 

the human capital needs that we have and for attrition. But it’s 

certainly a step in the right direction. 

We’ve got a recruiting plan for when we do have positions. We’ve 

got diversity plans for when we do have positions. We do have diversity in our hiring so we do have a pretty extensive human capital plan. The CHAIRMAN. That’s the average time to complete a settled loan that goes into foreclosure? How does that compare to the 

private sector? 

Ms. COOKSIE. I doubt that it does compare to the private sector. 

The 1961 statute gives the farmers tremendous appeal right. They 

can appeal anywhere from three to 5 years. I don’t think we probably do compare to the private sector on servicing because we just 

have a lot of statutory requirements and rights that the farmer 

has, and that as far as I’m aware, nobody else in that lending market offers. 

So I’d say we’re a lot lengthier than the average lender out there. 

The CHAIRMAN. How long has that process been in place? 

Ms. COOKSIE. 1950? Before I took the job in 1996. It’s been at 

least 20 years. 

The CHAIRMAN. It’s something maybe we ought to look at next 

year as we move into the farm bill. 

Ms. COOKSIE. I think there are places where we need to look at 

to see if it makes sense in today’s world to keep it in there. 

The CHAIRMAN. While we’re talking about that, I know we have 

a $200,000 cap. Is that something that in the opinion of USDA 

we’re going to need to take a look at? 

Ms. COOKSIE. Absolutely. That has not changed in over two decades. 

Farming has changed tremendously; prices have changed tremendously. 200,000 in some of the production out there will not 

give very much. So there’s no doubt that we need to look at that. 

6

The CHAIRMAN. What analysis has FSA done on the proposed fee 

increase for the guaranteed loan program and how much more will 

borrowers pay on the average? 

Ms. COOKSIE. We did a pretty extensive analysis on what it 

would mean to the farmer and how much the percentage—the halfpercentage rate increase would mean. And we did it based on an 

average loan size, 8 percent interest. 

We did a 5–year term on an operating loan and a 20–year term 

on a real estate loan. And for an operating loan the increased payment will be $464,000, averaged about $185 pre farmer. For real 

estate, based on an average loan amount of 297,000 it’s going to 

be about $136. The line of credit which they will pay every year 

is slightly different. The first year it will be about $738 for 1 year, 

and from two to 5 years it will be a little over a thousand dollars. 

So we did a pretty sensitive analysis of what that would mean 

as an end-result to the farmer. 

The CHAIRMAN. Is it your intention that these programs be funded exclusively through fees in the future? 

Ms. COOKSIE. We’ve been told that that is what the department 

thinks the result will be at some point. 

The CHAIRMAN. According to media reports a recent lawsuit and 

settlement in Oklahoma of the interest rate charged to a farmer in 

violation of FSA’s average agricultural loan customer rules could 

force commercial banks to leave the guaranteed loan program. Do 

you think this is a real concern? 

Ms. COOKSIE. I am concerned. Any time one of our lenders has 

this kind of a problem we are concerned. 

We think that the overwhelming majority of the more than 2400 

lenders that we deal with through the guarantee program are 

charging the correct interest rate and are not going to have a problem. But we are concerned about what’s going on in Oklahoma. I 

hope that the end result is that if we see that bankers are not willing to use the program I think that could be an interim result of 

it. 

The CHAIRMAN. The University of Arkansas study that’s been 

mentioned on the effectiveness of the direct loan program indicates 

that FSA is reaching beginning and socially disadvantaged farmers. Please describe the Agency’s outreach effort to capture these 

farmers. 

Ms. COOKSIE. We’ve really gone through a tremendous effort enrolling socially disadvantaged applicants, which is by definition 

women and minorities all over the country. We’ve done a couple of 

things. 

One of the things we’ve done is we’ve given the states goals for 

SDAs. They have to reach certain goals every year, and that’s part 

of their performance plan. Each state has a number based on national averages that they’re supposed to reach. And we tie that 

really closely with their annual performance plan. We monitor the 

treatment of SDA applicants more than we do most anybody else. 

The states capture at least, or report to us on 50 percent of the 

withdrawn and rejected applications that they get in the SDA category. We initiate responses that provide all applicants with written confirmation of all applications. We really have done an all-out 

effort to do outreach, and the numbers are up tremendously. 

7

The CHAIRMAN. Very good. 

Senator HARKIN.

Senator HARKIN. Mr. Chairman, thank you very much. I apologize for being a little late. 

I want to welcome Mr. Keppy here, a long time friend and a 

great family farmer in Iowa, and one of our leaders in pork production. Of course, Iowa leads in pork production. And he’s been a 

long-time leader in that area and I’m just delighted to see you and 

welcome you here to your first appearance before this Committee. 

I’ll just ask that my statement be made of the record. 

[The prepared statement of Hon. Tom Harkin can be found on 

page 26 in the appendix.] 

The CHAIRMAN. Without objection. 

Senator HARKIN. I just want—One thing I want to bring up here 

with you, Glen and Ms. Cooksie, is the idea of what happened 

when we move more and more money—Maybe we’ve already asked 

this question—but when we move more and more into the guaranteed loans for operating lines of credit. What’s going to happen? 

How many farmers will be unable to cash-flow these higher loan 

rates? 

We’re talking about more fees, higher fees. Has FSA estimated 

the number of producers who will be unable to cash-flow at these 

higher loan fees? And, on the other hand, in the course of that will 

the FSA be able to assist these borrowers through either subsidized 

guarantees or direct loans? In other words, how many—Do you 

have any estimate of how many, because of these higher fees, will 

not cash-flow? 

Ms. COOKSIE. I don’t think that we can estimate how many are 

not going to be able to cash-flow. As you know, the farmers come 

in and every year their plan changes. So it’s hard to figure out 

until they get in and they give us a business plan for us to figure 

out what their cash-flow is. 

But having said that, I think the first year, especially on the line 

of credit, it’s not going to be that tremendous. 

What I have a concern about is the out years on the line of credit 

and the fact that on the line of credit they have to pay that guaranteed fee every year, which is going to be a tremendous burden on 

farmers. So I think the first year they’ll probably be able to make 

it and they’ll be able—I just gave some figures before you came in 

on lines of credit on the average loan. The first year it will be about 

$738, and in the out years it will be over $1100 a year. 

But in dealing with the farmers and their cash-flow and margins 

that we deal with, that does make a huge difference to some farmers, that amount of money. So some of them, I think this first year 

they’ll be OK. In the out years I think some of them may have a 

problem. And we will have to see if the guarantee does not cashflow if we can absorb them into the direct loan program. 

The CHAIRMAN. If I can interrupt just a minute. Tell us what you 

mean by that. You talked earlier about the two to 5 year operating 

loan. How does the normal operating loan work for a farmer that 

comes in. Is it a 1–year loan? Does he get a loan every year? Two 

to five years? Explain how that works. 

8

Ms. COOKSIE. Some of them only have to get operating loans 

every year. Some of them are one, five, and seven years, depending 

on the operation and their production cycles. 

The CHAIRMAN. What you’re saying to Senator Harkin is that if 

somebody has a 5–year operating loan, let’s say, and it’s $200,000 

a year, even though they come in and they present basically the 

same plan every year or maybe some small variation of the same 

plan every year, they’re going to pay that fee all of those years, not 

just the first year. 

Ms. COOKSIE. If they have a continuing line of credit with us, 

yes. 

Senator HARKIN. It wouldn’t have to be a new loan; it’s the same 

number every year. 

[Pause.] 

I’ll have to think about that. 

The other thing is I read your testimony, Glen, about the performance of the guaranteed and the direct loans. It was good. It 

looks very nice, very good. It raises a question. 

Is FSA turning away some marginal farmers, smaller farmers, to 

keep losses so minimal? In other words, are we playing it too safe? 

Mr. KEPPY. I’m going to turn that over to Carolyn. But my answer would be yes, we use prudent information in the discussion. 

But we are doing what we can to make sure that the people that 

need these loans are getting them. 

Carolyn, you’ve got some facts and figures. 

Ms. COOKSIE. I think the answer to that is that I’m not sure. It 

is a struggle because it is a balancing act between which farmers 

you can help and which ones you can’t. 

Before credit reform when we had tremendous loss rates and the 

interest rates were higher, there wasn’t that much impact on the 

program itself. After credit reform our delinquency rate and our 

loss rate started to reflect that. So if we have high delinquency 

rates and high interest rates it hurts every farmer in the country 

who wants access to this program because we don’t have the money 

for their loans. 

On the other hand, in this program low interest rates and loan 

loss rates aren’t the only things you have to worry about. So it’s 

a balancing act. 

I think we aren’t turning away farmers who clearly need the program in connection with cash-flow. Because of the statute we can’t 

turn them away. But it is a balancing act that we go through all 

the time. 

Now if you think about that, quite frankly, on the one hand we 

see the lower number and we work toward that. On the other hand 

we worry that sometimes we don’t reach all the farmers that we 

need to reach. But on the other hand, there’s a margin there that 

you have to say no. 

Senator HARKIN. What kind of data do you have to show over the 

last several years the percentage who have applied and are turned 

down? 

Ms. COOKSIE. We have that data. 

Senator HARKIN. Could you supply me that data? I’d certainly 

like to look what it’s like over the last ten years or so. 

9

Ms. COOKSIE. We have data on how many applied and how many 

were rejected and how many were withdrawn. 

Senator HARKIN. It would be interesting if you would break that 

down by state. 

Ms. COOKSIE. We’ll do it for you. 

Senator HARKIN. One last thing. We had some crop losses last 

year in southeast Iowa, a pretty tough drought situation down in 

your area and a lot of farmers applied for emergency loans and 

were not qualified. And a lot of them were turned away. And there 

was a lot of conversation about that. 

Again data: Do you have data on the number of emergency loan 

applications that were denied over the last several years? 

Ms. COOKSIE. I think we do. We have data on each application 

as they file it. And we can break that down into emergency loans, 

yes. 

Senator HARKIN. One last thing. Ms. Krub’s testimony—she’s on 

the next panel—I’ve read her testimony. She claims that FSA has 

a lax attitude on borrower’s rights. She states in her testimony 

that: ‘‘Agency decisionmakers are increasingly missing statutory 

deadlines for making determinations on loan applications and loan 

servicing requests.’’

I want to get your response to that. 

Ms. COOKSIE. I’m a little surprised to hear that. Our application 

process times are overall down 22 percent. 

Senator HARKIN. Are down? 

Ms. COOKSIE. 22 percent overall. 

The statutory deadline for processing the application is 60 days. 

The regulations that we put out to the field offices basically tell 

them they have 30 days. We’re doing it in about 12 and a half right 

now. 

So we’re well below not only the statutory deadline but well 

below the regulatory deadline. We work on it every year. As a matter of fact, that’s one of our goals that we give to the field offices 

at of the performance plan, how long it takes to process an application. 

Senator HARKIN. You’re saying you have it down to 12 days? 

Ms. COOKSIE. 12 and a half days, national average. 

So I think we’ve made great strides in that. Are there isolated 

instances of almost everything? Because of our portfolio, which is 

so large, probably so. There are anomalies out there all the time. 

But our national averages don’t show it. 

We pretty much know when people are missing deadlines and we 

can monitor that, and we do monitor it, not only on our application 

processing times but we’re getting ready to do it on things like the 

951(s) and all the other sorts of items out there. 

I think we are getting much better at that. And I don’t see overwhelmingly nationwide we’re missing deadlines. 

Senator HARKIN. Thank you very much. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Salazar. 

Senator SALAZAR. Thank you very much, Chairman Chambliss, 

and Ranking Member Harkin. 

Let me just say at the outset that I appreciate the work that the 

Farm Service Agency does. I remember a long time ago when I was 

10

a beginning farmer going to the FHA and receiving a loan that allowed me to get a 320 acre operation down in southern Colorado, 

and working with the agency director and going through the process of the whole application. And you continue to do good work to 

help people get started. 

I have three questions. One is in the area of direct emergency loans, in terms of the $500,000 in direct emergency loans. 

But if you look at what’s happening across the country in agriculture, particularly in my state today, I think we’re going to see 

many farmers, in large part because of the weather and related circumstances we find ourselves in in Colorado—we went through the 

driest year on record about 5 years ago and this year was going to 

be second to that year—so we’ve been having lots of problems, I 

can tell you. I was wondering where the Agency, what you expect 

to happen during this farming season relative to applications for 

direct emergency loan assistance, and whether you are prepared to 

respond to these requests. 

Ms. COOKSIE. We are absolutely prepared. No. 1, we had a carryover from several years ago, fully enacted funding to take care of 

most of the ones this year. 

When a state gets emergency requests and they’re overwhelmed 

by the volume we have what we call our jump team to go into 

states to help process applications that they can’t handle in a timely manner. So I think we’re poised to handle emergency applications that we have even if we have somewhere where we have a 

great influx of them all at one time. 

Senator SALAZAR. When you talk about the carryover from the 

past, what leads you to the conclusion that we have enough money? 

Ms. COOKSIE. We’ve got right around $140 million right now, 

somewhere in that ballpark, that we can extend this year. 

Senator SALAZAR. $140 million for emergency loans? 

Ms. COOKSIE. Emergency loans nationwide. 

Senator SALAZAR. And from your point of view that will be 

enough to cover the requests that will come in during the summer 

and fall? 

Ms. COOKSIE. Yes. Our fiscal year ends September 30th, so we’re 

in good shape for this fiscal year. September 30, then we start another budget year. Most of that money that is not used this year 

is carried over to the next fiscal year. So we’ll just carry it over. 

I think we have adequate funds to handle the requests. 

Senator SALAZAR. Following up on a question that Senator 

Chambliss asked on the loan limits, I think in your testimony you 

talked about the $200,000 ownership loan limit as well as the 

$200,000 direct operating loan limit. 

What’s your recommendation of what kind of adjustment we 

should make with respect to those limits? 

Ms. COOKSIE. We are looking at that right now. The Secretary 

as you know, has spent hearing sessions on farm bill items so we’re 

in the process right now of figuring out what those items are and 

what recommendations are going to be on that. We’re either going 

to recommend that each level like OL and FO get bumped up or 

we will ask for some overall level. 

And you don’t just say you have this much for operations, this 

much for ownership. It’s a combination of both. But I don’t think 

11

a decision has been made yet on how much the recommendation is 

going to be. 

Senator SALAZAR. In your testimony you also describe the subjectivity related to the definition of family farmer. I think you speak 

about it by saying that we need to move away from the more subjective definition of a family farm and develop more objective definitions related to the farmer’s filing with—the annual tax return 

and the like. 

Explain what the problem is here that you’re trying to address 

there and what the recommendation is that you are trying to move 

to as a more objective determination. 

Ms. COOKSIE. The simple answer is that we’re just trying to figure out what the heck a family farm is so that statutorily we may 

call it a family farm. And we don’t know what that is. It’s different 

where I’m from in Kentucky than it would be from Georgia or Montana. It depends. 

So one of the problems that we’re having is to confirm a little bit 

figuring out what that actually is and trying to quantify that so 

that we can make sure that we’re within our defined definition in 

the statute of the family farm. 

But we found out about a year ago, we tried to do a proposed 

rule on the definition of a family farm. We got 1600 comments and 

they were all different in what they thought a family farm was. It 

was a problem and it continues to be one. Until we have a definition we’ll have to struggle with that. 

Senator SALAZAR. What would your proposal be relative to how 

we should define a family farm as we look at the rewrite? 

Ms. COOKSIE. I found out from the proposed rule that I don’t 

really have a proposal. I just know that we don’t have a conclusion 

on what a family farm is nationwide. Senator SALAZAR. Mr. Keppy, 

do you have a response to that question on how we define a family 

farm? 

Mr. KEPPY. In the pork-producing world anybody that has one 

more sow than I is a large farmer. 

[Laughter.] 

Mr. KEPPY. That’s an issue that good luck on because it’s going 

to be tough to come up with. But I am willing and we are willing 

as a Department to work with the people on the Hill to come up 

with a workable definition. 

Senator SALAZAR. Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Talent. 

Senator TALENT. Thanks, Mr. Chairman. I appreciate your holding hearings and the ranking member, and I appreciate your service. 

Let me go on a little bit on your proposed changes. Let me just 

say right up front, I’ve seen guaranteed loan programs work well 

in a lot of different contexts. And I’m very concerned that your proposal is going to have the effect of marginalizing the program; just 

basically so reducing access to it that it would defeat the purpose 

of it. So let me get to the heart of that. 

You are proposing increases in fees of 150 percent, to I guess as 

much as three or four times what they now are. I sent a letter to 

you all signed by a number of senators pointing out the problems 

and asking you why you were doing that. And I got the response 

12

that you were responding to a budgetary necessity because of the 

problems with the operating deficit. 

Are you all saying that this is a budget-driven kind of change? 

Ms. COOKSIE. Absolutely we would say it’s budget- driven. 

Senator TALENT. Let me just say to you then, Congress determined in the last farm bill that we wanted to move in this direction 

to take pressure off the direct loan program to help sustain the 

family farming sector. The guaranteed loan program reflects I 

think that statutory judgment about how best to balance the needs 

of the farming community for a hedge against low commodity 

prices, disasters, et cetera, with the concerns to protect the taxpayer as well. 

When you make a proposal for a change of this magnitude it 

seems to me that the effect of it is to defeat the balance Congress 

was trying to structure. Your job is to execute the laws, not to try 

and change the laws in the guise of a budgetary proposal. 

Do you have any comment? 

Ms. COOKSIE. We only charge presently a 1–percent fee. The proposed rule that’s out right now changes both operating and farm 

ownership by half a percent. So it will go from 1 percent to one and 

a half percent. Then we put in a new line of credit. 

Senator TALENT. It’s pretty devastating, really. 75 basis points 

per year for operating lines of credit. I presume that this was on 

instruction from the Office of Management and Budget. 

Let me say, Mr. Chairman, I chair the Small Business Committee. We encounter this every year. Only we have the foresight 

to put into the statute that they couldn’t make these changes without Congressional approval. I would just strongly urge the Committee that that’s a change we need to make in the next farm bill. 

I might also suggest, Mr. Chairman, that since it’s clear to me that 

in this whole area of guaranteed money— not just the farms but 

small business—that the Office of Management and Budget is driving the policies. We ought to have them down here. These folks 

can’t answer these questions. And they’ve been very honest and I 

appreciate their candor. It’s a budget-driven thing. It’s not something they would have done except they were told to d it. 

We ought to get representatives from OMB down here who are 

driving this and ask them what they’re doing to protect the American farmer because they’re the ones that set the policy. 

I appreciate this hearing but I think this is a great idea. 

What is the default rate on guaranteed loans? The default rate 

is 1.4 percent. What was it last year? 

Ms. COOKSIE. The default rate is 1.7. 

Senator TALENT. Oh. That’s the delinquency rate, which is comparable to private lenders. 

This is a program that is working. Again, I’m not trying to take 

it out on you. You’re the ones that have to be in front of us. But 

this program is working. And if they’re going to take the safety net 

away from farmers I don’t think there’s any way they can do it by 

rule. 

So I’ve seen this over and over again over the years. We ought 

to get OMB down here and let them explain it. We ought to find 

out if whoever is driving this has ever even been on a farm. Sometimes I wonder about that. 

13

Thank you Mr. Chairman. 

Thank you, guys. 

The CHAIRMAN. You make a good point. 

And the issue relative to the size of the loans is another policy 

by OMB. And I think the fact that we’ve had a lot of these numbers in place for a couple of decades is an indication we need to 

review the overall program. 

Senator TALENT. I understand where these officials are coming 

from, Mr. Chairman. What I’ve said reflects my frustration that 

these decisions are being made by people who generally don’t come 

before the Committee and can have a devastating effect on this 

program, which is working; which, frankly strikes the right balance. So I certainly will work—and we have a lot of senators who 

signed the letter that I sent the Department to ensure that this 

doesn’t happen without Congressional approval. 

If we can’t trust the executive branch to follow the law we need 

to put additional safeguards in the law. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Those decisions are also being made by folks who 

have no idea whether or not a peanut grows on a tree or which end 

the cash is on. 

Thank you very much for your participation this morning. You’ve 

been very helpful. We look forward to staying in touch as we move 

forward over the next several months. Thank you. 

Our next panel will come forward. 

Dennis Everson, President, Agribusiness Division of the First 

Dakota National Bank in Yankton, South Dakota; Betsy Senter, 

National Association of Credit Specialists, FSA, and National Association of Federal Managers, from Gregory, South Dakota; and Ms. 

Karen Krub of the Farmers’ Legal Action Group, Incorporated, in 

St. Paul, Minnesota. 

[Pause.] 

Thanks to each of you for being here this morning. We look forward to your testimony and your response to questions. 

Mr. Everson, we’ll start with you. 

STATEMENT OF DENNIS EVERSON, PRESIDENT, 

AGRIBUSINESS DIVISION OF FIRST DAKOTA NATIONAL BANK 

Mr. EVERSON. Thank you, Mr. Chairman, members of the Committee. I’m pleased to be here representing the American Bankers 

Association. Again I am Dennis Everson, president of the Agribusiness Division of the First Dakota National Bank in Yankton, 

South Dakota. 

We’re a community bank in Yankton. We have about $623 million in total assets with about 202,000 operating loans in our portfolio. In addition, we service about $333 million of loans that we 

actively participate in the secondary market with. 

The FSA guaranteed farm loan program has enabled 46,000 

farmers and ranchers to have 62,500 loans with an outstanding 

principal balance of $8.9 billion at the end of fiscal 1905. Every 

year approximately $2.2 billion of new credit is advanced under the 

FSA guaranteed loan program in the form of approximately 10,300 

new loans. The average loan size is $212,000 in fiscal 1905. 

14

I am pleased to report to you that banks make more loans under 

the FSA guaranteed loan programs than anyone else. Today there 

are 3,222 participants and lenders that participate in the FSA. Of 

that number 93 percent are banks. 

Considering the fact that FSA guaranteed loans were made to 

those farmers and ranchers having some sort of credit deficiency, 

the losses incurred in the program has been very modest. This is 

a great success story that does not get told enough. Loan losses are 

low because banks make the credit decision and banks are responsible for servicing the loan from cradle to grave. 

The success of guaranteed loan programs is due to the dedication 

of bankers and FSA personnel who are focused on constant program improvement. We are concerned about several recent proposals and other developments that we believe will negatively impact the future programs used by banks. 

One, ABA opposes increasing the fees on the FSA guaranteed 

loan. We believe that increasing loan fees in the FSA guaranteed 

loan program is inconsistent with the goals of the program, which 

is to help those farmers and ranchers that need some additional 

support for their borrowing. ABA’s recommendation: We oppose increasing the fees on FSA guarantees. Further, we request level 

funding for the FSA guaranteed loan program at a level that would 

allow annual guaranteed loan making in the area of 2.5 to three 

billion range, consistent with the annual demand over the past few 

years. 

In addition, we support legislative language that would prohibit 

USDA from raising fees without Congressional authorization. 

The second issue, use of the term ’average agricultural loan customer interest rate’ should be abandoned. ABA’s recommendation: 

This provision should be repealed. Market forces should determine 

the price of credit. 

As the regulations currently stand, any bank that writes a guaranteed loan today is exposed to additional lender liability because 

no one can define who is an average agricultural loan customer. 

This provision does not protect borrowers. Instead of making more 

credit available, more lenders will stop using the program to avoid 

lender liability. 

Third issue: Borrower term limits are significant obstacles to 

credit access for farmers and ranchers. In the mid–1990’s Congress 

sought to limit the amount of time the borrower would be eligible 

for either direct or guaranteed credit from FSA. The 2002 farm bill 

suspended borrower term limits. The ABA supported the suspension. 

When the 2002 legislation expires, term limits take effect again 

and the results would be devastating to those farmers and ranchers 

who still need additional support that an FSA guarantee provides 

them. 

ABA’s recommendation: Language imposing borrower term limits 

should be repealed. The last issue: The definition of family farm 

must be revised. FSA has attempted to define a family farm many 

times for purposes of determining loan eligibility. All of these attempts have failed. ABA’s recommendation: FSA should adopt the 

definition that can be objectively measured, not subjectively measured. We recommend the definition of a family farm be limited to 

15

two criteria: One, the majority of the credit needs of the borrower 

are met under the FSA guaranteed loan limits; two, the entity 

being financed files a Federal farm tax return. 

In summary, the FSA guaranteed farm loan program is an important tool that banks use to provide credit to the broadest array 

of farmers and ranchers. Without it a significant segment of the 

farm/ranch population will have a difficult time finding credit. We 

have made great strides in making this program work more efficiently for everyone, and we hope we can continue to make additional improvements. 

Thank you for this opportunity to express the views of the American Bankers Association. I will be happy to answer any questions. 

[The prepared statement of Mr. Everson can be found on page 27 

in the appendix.] 

The CHAIRMAN. Thank you very much. 

Ms. SENTER.

STATEMENT OF ELISABETH B. SENTER, CONFERENCE CHAIR, 

FEDERAL MANAGERS ASSOCIATION, USDA NATIONAL ASSOCIATION OF CREDIT SPECIALISTS,—FARM SERVICE AGENCY 

Ms. SENTER. Chairman Chambliss, distinguished members of the 

Senate Committee on Agriculture, Nutrition and Forestry, I sit before you today as a former president of the National Association of 

Credit Specialists of FSA and the chair of Federal Managers of 

USDA Policies. 

On behalf of the 1700 managers and the larger Federal manager 

community, let me take a moment to present our organizations 

views today. We appreciate your leadership in assuring the stability of farm loan programs. I am currently a farm loan manager 

in Winner, South Dakota, where I provide making and servicing of 

a diverse loan portfolio serving farmers and ranchers. As loan manager I work daily with a variety of customers who do not qualify 

for direct loans from private lenders for legitimate reasons but still 

have a viable operation worthy of Federal support. 

Since the passage of the 2002 farm bill the farm loan program 

continues to meet the needs of rural farming communities around 

the country. Between the authorization of bridge loans, changes to 

the beginning farmer down payment program, reduction in bureaucratic tape and the increase of low document loans, the agency has 

done well by the actions of the Congress on the 2002 farm bill. 

As the measure is set to expire at the end of the year, Congress 

is in a critical position to address some issues we believe would 

strengthen the program. For starters, term limits on direct and 

guaranteed loans present an unrealistic timetable for customers to 

move away from Federal assistance. 

I work with a family in South Dakota that began farming 6 years 

ago and has 1 year of direct operating loan eligibility remaining. 

As of today, it looks like they will not harvest any spring grain and 

will incur a significant financial setback due to dry weather in our 

area. With only 1 year of FSA loan eligibility remaining it is not 

likely they will be able to prosper enough between now and then 

to meet commercial lending standards. Eliminating the term limits 

would give this family and similar families around the country 

16

more time to get on their feet and build an economically sustainable farm or ranch. 

To further assist farmers and family size farmers and ranchers, 

we believe the loan limit of 200,000 is outdated. This level for direct operating and farm ownership loans was established more 

than 20 years ago and does not meet the needs of modern day operations. By increasing the loan limits to $300,000 we will be able 

to offer more meaningful financing. 

Earlier this year the president proposed an increase in guaranteed loan fees in his budget proposal for USDA in fiscal year 2007. 

These fees would be charged to the commercial lenders, who would 

then pass the costs directly on to the customer. This seems to contradict the purpose of the program’s effort to help financially needy 

farmers to obtain money for their operations. 

While these three reforms would help address some of our concerns with the technical aspects of the farm loan program, there 

are larger issues threatening the stability of our overall operations. 

The impending retirement tsunami within the Federal Government threatens to rob the farm loan program of its most valuable 

asset: human capital. According to an FSA study 28 percent of loan 

officers will be retirement- eligible as of 2008, while 50 percent of 

the supervisory employees will be eligible in the same timeframe. 

What’s more, it takes 18 to 24 months to train a loan officer. 

In Michigan if all the employees who are currently eligible to 

leave retire 11 counties of the 83 counties would have no loan officer present. Within 2 years 46 percent of the State of Michigan has 

the potential to have no loan officer coverage for FSA. 

Perhaps the most challenging obstacle our agency faces is the 

state of our information technology hardware and software. Outdated computers, servers and applications at times force us to send 

customers home without service because our operations are down. 

Every year budgets seem to reduce our funding for information 

technology and adversely impact our ability to work well with our 

customers. 

We believe that the farm loan program portfolio is in good financial standing. However we foresee a potentially dangerous storm 

brewing, a combination of questionable economic conditions, unknown weather patterns, human capital deficiencies, technology 

failures, and bureaucratic hindrances on the horizon, a preventable 

scenario that could be harmful to the rural American agricultural 

industry. 

We believe elimination of term limits, increase of loan limits, 

keeping the current fee structure for guaranteed loans, paying 

greater attention to growing attrition rates, and improved agency 

resources in IT could head off a potential disaster before it reaches 

critical mass. 

We encourage you in your capacity to address these issues and 

help us provide the best service for farmers and ranchers in rural 

America. 

Thank you again for the opportunity to appear before you. I’ll be 

pleased to answer any questions you may have. 

[The prepared statement of Ms. Senter can be found on page 60 

in the appendix.] 

The CHAIRMAN. Thank you. 

17

Ms. KRUB.

STATEMENT OF KAREN R. KRUB, FARMERS’ LEGAL ACTION 

GROUP, INC. 

Ms. KRUB. Thank you, Mr. Chairman and Committee members. 

I appreciate the opportunity to testify here today and to bring to 

the Committee’s attention concerns of farm loan program borrowers 

about the program’s operation. 

I’m a senior staff attorney with Farmers’ Legal Action Group in 

St. Paul, Minnesota. And I’d like to take a minute to describe 

FLAG and explain how we come to know about borrowers’ experiences in the Farm Loan Program. 

FLAG is a non-profit law center that provides legal education, 

training, and support to family farmers and ranchers and their 

lawyers and advocates across the country. Over the past two decades FLAG has worked to improve the accessibility of USDA’s credit and disaster programs and to help farmers understand their 

rights and obligations in those programs, and also the administrative review processes under those programs. 

As part of this work FLAG has monitored and extensively commented on changes to the FLP. FLAG has prepared various legal 

education materials about the FLP and has distributed them to 

thousands of farmers and ranchers across the country. 

FLAG attorneys also field hundreds of calls and letters from 

farmers and ranchers every year. Through these conversations we 

have learned much about farmers’ actual experience with FLP and 

have identified serious concerns with the agency’s implementation 

and administration of the Farm Loan Programs. And I will highlight a few of those concerns here. 

The first concern is whether the Farm Loan Programs are being 

implemented in such way to meaningfully increase the availability 

of loans to credit-worthy farmers and ranchers who are otherwise 

unable to obtain financing. One aspect of this is the pervasive 

sense among borrowers that we talk with that there is simply no 

small money to be had, that the larger loans are consuming all of 

the limited program funding. 

There are also concerns that banks are shifting existing borrowers to the guaranteed loan program so that the program’s funding is depleted without actually increasing the number of farmers 

who have access to credit. 

Second, the agency’s current proposal to gut the Farm Loan Program regulations and rely instead on internal directives to administer the program and to return broad discretion to the local office 

personnel is a fundamental step backwards for the agency and for 

borrowers. 

It is essential that clear information about the handling of loan 

applications and servicing requests remain part of the rule so that 

every applicant and borrower is treated appropriately. 

Similarly, limited discretion for agency staff under the direct 

loan program has a historical context that must not be forgotten. 

Borrowers are justifiably wary of policy changes that would reopen 

areas of discretion that have been narrowed to address prior abuse. 

18

Third, direct loan borrowers affected by the devastating hurricanes in 2005 are very concerned about the double- payment that 

will be coming January 1st. 

The agency’s actions in the wake of the hurricanes last fall to 

quickly provide debt relief to borrowers was admirable. However, 

rather than using the model of the successful existing program, 

Disaster Set Aside, through which disaster affected farmers can 

defer the loan payment to the end of the loan term, the agency 

opted to defer the borrowers’ loan payments for just 1 year so that 

borrowers are looking at a double- payment this January 1st. 

Not surprisingly, borrowers who went through the hurricanes 

haven’t had sufficient time to recover enough to be able to handle 

a double-payment just 6 months from now. 

There are obstacles faced by applicants and borrowers in the programs to exercise and see the benefits of the administrative appeal 

rights that they have. There continue to be serious problems with 

the agency not properly notifying applicants and borrowers of their 

appeal rights and not implementing the decisions when borrowers 

are successful. 

Finally, I’d like to take a moment to address some of the comments that Ms. Cooksie made about the 951(s) aspect of loan servicing. The 12 and a half days she was talking about for the turnaround time is with respect to applications; that was not responding to loan servicing requests. She said she was still getting those 

numbers. 

Also the 1951-Sloan restructuring was from the 1987 Ag Credit 

Act, that is when it came into play. It doesn’t in fact require different types of servicing than a commercial lender might do. It’s 

loan consolidation, extending the term of the loan, changes in interest rates. These are things a commercial lender might do. What the 

Ag Credit Act does is that it requires FSA to consider these things 

if the borrower asks them to before accelerating and foreclosing. 

At a minimum, the Act’s requirement says that the right the borrower has is that if the government would be no worse off restructuring rather than foreclosing then the agency should restructure. 

I wanted to clarify that. 

Thank you. 

[The prepared statement of Ms. Krub can be found on page 50 

in the appendix.] 

The CHAIRMAN. Thank each of you for your testimony. 

Mr. Everson, from your perspective as a banker, how is the farm 

sector doing this year? Are there any parts of the country that concern ABA and your members at this point? 

Mr. EVERSON. Very much so, Mr. Chairman. The Midwest, it’s no 

secret that the drought is a huge issue for us at this point, certainly in the area my bank services loans in. 

A bigger issue is all the input cost increases that we’ve seen this 

year, including fuel and fertilizer as well as escalating land prices. 

I had a strategic planning session with my staff just a week ago, 

and one of the things that is a major objective next year is, let’s 

get geared up on the FSA guaranteed portion. 

We know we have a lot of borrowers that are going to need us 

this year unless conditions change, both economically and weatherwise. 

19

The CHAIRMAN. In your testimony you urge continued suspension 

of the term limits. Yet farm loan programs exist to provide temporary sources of credit. 

Shouldn’t we figure out some method by which farmers can graduate to private sources? And, of course, that’s what we intended to 

do by the term limits. But talk to us a little more about that. 

And Ms. Senter, I would ask that you address this, too, since you 

directly responded to that in your testimony. 

Mr. EVERSON. Certainly. 

First of all, the term limits that are in place, again, as I said, 

need to be suspended. I think it’s difficult as it is many times to 

come up with a subjective measuring stick, if you could: How long 

is too long? 

Because I have a lot of young borrowers and sometimes—I call 

the young borrower 45 years old with two sons going into the business. Consequently we do graduate a lot of borrowers. We have 

been involved in that in our process in our bank. But there are 

some borrowers with a significant increase in capital requirements 

in the business today that will continue to need guaranteed lending 

specific to their respective cases. 

Again it might be a very young borrower, maybe another operator who had several children who are wishing to return to the 

farm. So it’s very difficult to become objective in determining what 

that would be. 

The CHAIRMAN. Ms. Senter. 

Ms. SENTER. I would have to say, Senator, that I think that the 

graduation policy or the graduation regulations that we have in 

place, as Carolyn Cooksie mentioned, is working. We’ve graduated 

over 3000 borrowers. I think those rules are in place. 

I don’t think that the term limit should be used as a graduation 

tool because there are customers that maybe have some problems 

or have maybe a risky operation that require Federal assistance 

just a little longer than maybe would be on the average. But these 

customers are worthy customers and they need our support. 

Also what we’ve noticed, too, is the dollars that are coming back 

from farm program payments are going down. Interest rates are 

going up, fuel costs are going up. We’ve had a lot more interest 

from the banks and from the customers also that are interested in 

our credit because of these risk situations. Interest rates going up 

at the banks makes a big difference. 

The CHAIRMAN. What about loan levels, Mr. Everson? Does ABA 

have anything relative to what we should do with regard to loan 

levels? 

Mr. EVERSON. With respect to the direct program, Mr. Chairman 

The CHAIRMAN. Yes. 

Mr. EVERSON. I don’t believe that we have a recommendation in 

that area. 

But given what we’ve heard this morning I agree totally that the 

farming sector has changed dramatically and those limits need to 

be increased. As of this time we have not crafted a proposal as to 

what that may be. 

The CHAIRMAN. Ms. Senter, as an FSA credit specialist, you do 

have a unique perspective on farm credit issues. In your experiVerDate 0ct 09 2002 10:45 Feb 20, 2007 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 C:\DOCS\30426.TXT SAG2 PsN: SAG2
20

ence, what would you describe as being a typical farm loan customer? 

Ms. SENTER. A typical farm loan customer in my area of South 

Dakota might be very different than the east coast or west coast. 

But I think when you’re talking about sales of $250,000 or less, it 

might be in that vicinity in my ticular area. East coast, west coast, 

the scenarios might be totally different. 

We found, you know, that agriculture is changing. It’s diversifying into a lot of different crops and different areas that we’re not 

familiar with in our area. We are wheat, cattle, maybe some corn 

area. But it’s so diverse that it makes it difficult to be rock solid 

in your definition of what that size is in our area. 

I talked to a customer recently. I said ’What is the typical cattle 

ranch? How many cows is that?’ It might be 300 cows in a big family size operation. In order to be profitable with the cost of family 

living and fuel and other things it takes about that much. 

The CHAIRMAN. What’s the average cast load per credit specialist, and is that too much, too little, or about right? 

Ms. SENTER. I think what we’ve seen is we’ve seen the case load 

probably 150 to 200 customers maybe. I’d say maybe more than 

100, 150. This varies across the country. 

What we notice, too, is that employees may be in different places, 

that we have shortages in one area and maybe we’re a little long 

in other areas. But agriculture has changed where we may be dealing with maybe a little larger operator, maybe less operators than 

we did before. 

But with our credit and the way we are structured we have to 

work very closely with the banks in order to make these operations 

successful. 

The CHAIRMAN. In her written testimony Ms. Krub expresses 

concerns about FSA’s streamlining initiative because it would not 

provide farmers a reliable method of accessing information and it 

would give more authority to the local office employees. 

Would you care to comment on that? 

Ms. SENTER. Like I said, Ms. Cooksie has led us into the streamlining project. And I think the intent was to reduce the regulation. 

A lot of our regulation was directly out of the Conn Act. It was 

hard for customers maybe to interpret that. 

The change in regulations might be a little difficult for customers. But I do think that that information is probably accessible. 

Maybe it’s a little hard to get to on the Internet. I haven’t personally tried that. But I think that will be available to the customers. 

The CHAIRMAN. Ms. Krub, some of the concerns you raise, such 

as providing farm loan program advice to borrowers, seem to be 

easily resolvable. 

Is your organization working with the FSA on issues like this? 

Ms. KRUB. We certainly try to. 

The response that Ms. Cooksie made to Senator Harkin’s question earlier about the failure of the agency to respond within their 

own timeframes for loan servicing requests, when she referred to 

the anomalies and ‘‘things happen’’ those seem to be the kind of responses that we get, whisch aren’t terribly meaningful to the individual farmer who has any experience of it. 

21

We have not had any luck agency-wide with getting the national 

office to address this, which is one reason why I wanted to bring 

them to the attention of this committee. 

The CHAIRMAN. Regarding your concern about national appeals 

decisions, why does FSA appear to have trouble implementing 

them? 

Ms. KRUB. I don’t know why. I just know it’s certainly not in 

every situation. I can give you an example. 

There’s a farmer in North Carolina who submitted a loan servicing request in 2003 who has since been through three National 

Appeals Division hearings and has been successful in every hearing. With every determination that came from NAD, the agency requested additional financial information. The farmer has within 

the timeframe set provided all the information and still does not 

have a resolution. 

You know, the borrower community interpretation of that is if 

FSA doesn’t like the decision they sometimes just won’t implement 

it. And when NAD was created, that [NAD] staff is very explicit 

about this when we raised this concern with them, they don’t have 

any enforcement authority. The farmer’s only recourse is to file a 

Federal complaint. That’s beyond the capability of almost everybody who is a direct loan borrower. 

The CHAIRMAN. Senator Talent. 

Senator TALENT. How would you all describe the effect of the proposed increases in the guaranteed loan program on the program? 

Would it be marginal, would it be substantial, devastating, or 

somewhere in between those? 

Would you like to describe that? Mr. Everson, maybe you could 

start. 

Mr. EVERSON. I’d be happy to. 

In the calculations we have done the increase—we have talked 

about a lot of dollars today, but not how it might increase—but 

let’s look at it on a percentage basis. We’re going to increase the 

cost of that interest cost to that customer in a range of somewhere 

between 100 to 200 percent, depending on the type of loan that 

they’re making application for in the guaranteed loan program. 

That’s substantial in light of already escalating interest rates in 

the market. 

The other thing that I think is very important to understand 

here is that we talk about these charges relative to the claims that 

are seen today within the system. What happens if there are more 

claims in the future? Those fees could increase substantially beyond even what we’re looking at today, which would take that 1– 

to 200 percent, perhaps 300 percent, which again seems like we’ve 

got a really very efficient program that doesn’t exist. 

Senator TALENT. Would you say that the effect would be to very 

substantially reduce the loan portfolios and the number of farmers 

able to take advantage of them? 

Mr. EVERSON. Yes, I would say it would be substantial. 

Senator TALENT. Just to get at the purposes of the guaranteed 

loan program, I was jotting down a few considerations. And see if 

you agree with this: 

It seemed to me that this information was intended by the Congress to provide capital for the younger farmers in response to the 

22

problems with aging among family farmers, given the importance 

of farms to the rural economy, the need to sustain the values of the 

land and the country, and the need which the Office of Management and Budget never seems to recognize: to sustain the system 

that has provided the safest and most abundant food supply in the 

history of mankind. 

Congress made a judgment that it was worth a small subsidy 

every year in order to get these benefits. Would you agree that 

those are the benefits of the guaranteed loan? 

Ms. SENTER. Yes, I would have to agree with that. 

I think, speaking about the guarantee fees in general, I think the 

whole concept would be devastating because you have to understand that the customers that are moving—a lot are moving from 

direct financing from our agency to hopefully be a commercial 

banking customer totally. And you’re charging them a 1–percent 

fee, which most people can ignore that. When you start charging 

.75 basis points on every year, I did some quick calculations—and 

I think some of our members did—I saw this was more than $2000 

for the term of the load, more than $6000 for an average loan. 

That’s a significant increase to customers that are struggling and 

trying to move to commercial credit. 

The other thing is that we found that in areas that are affected 

by disasters, Federal Crop Insurance, the averages are working 

their way down, so there’s no safety net there. So then you couple 

that with a bank that’s going to charge this customer an additional 

fee, how are you going to pay some of these fees and continue to 

operate? The banker might say we can’t do it without a guarantee; 

therefore we’re not able to help you. 

Senator TALENT. The thing that bothers me, the program reflects 

the judgment that there is a layer of prospective borrowers out 

there who really do have performing loans. They have loans that 

are good loans, but for a lot of reasons—a lot of them having to do 

with regulations— you guys can’t make the kind of loans based on 

character, maybe, that 20 years ago you could have made. And this 

guaranteed loan program enables you to do it within the limits by 

which you’re regulated by your agencies. 

In other words, you couldn’t make these loans without getting 

heat from your other regulators. But you can on a guaranteed 

basis. And the very fact that the loss rate is so low to me reflects 

that the program is working and accomplishing the objectives. 

I know, Mr. Chairman, you think I am beating a dead horse 

here. But I feel strongly about this. I’ve seen it in other contexts. 

I’m glad we had the opportunity to raise this issue here. 

Thank you, Mr. Chairman. 

The CHAIRMAN. You raised that point, and Senator Harkin and 

I were talking off the record here about this. And this is something 

we obviously need to look at as we go through the appropriations 

process. I think the House has already taken some action on this 

issue. And we need to look at whether or not we need to do the 

same. 

Senator TALENT. It’s not for the Office of Management and Budget to overturn—we gave them authority over a piece to make sure 

that the program operated properly, not so they can reverse a judgment that Congress made in the last farm bill. 

23

I really think that’s what’s going on here. 

The CHAIRMAN. Thank you very much for being here this morning. Thanks for your valuable testimony. We look forward to continuing the dialog with you right through the next farm bill. 

With that, this hearing will be adjourned. 

(Whereupon, at 11:15 a.m., the hearing was adjourned.) 

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A P P E N D I X

JUNE 13, 2006

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