Years of lending to farmers has given Mike Weasel the patience of Job in dealing with everything from pestilence to flood. But the sputtering effort to develop a national secondary market for long-term farm real estate loans has really tested him.
Mr. Weasel, a veteran farm lender who heads the ag loan pooling effort for Huntington National Bank, Springfield, Ohio, admits that, though he is a believer in the future of the loan market overseen by the Federal Agricultural Mortgage Corp., he is frustrated by a lack of progress in the seven-year-old effort.
Like other so-called mini-poolers who try to persuade bankers to sell their long-term loans into a secondary market, Mr. Weasel's dealings with Farmer Mac, as the government-sponsored enterprise is known, have yet to pay off.
"If it is so good, why has it failed miserably to meet my expectations every year?" he asks. "I keep setting myself up for disappointment."
The reasons for his unmet expectations have more to do with the loan cycle and the flawed structure of Farmer Mac. The agency dates from 1987 when it was created by a Congress eager to help illiquid banks deal with the farm crisis.
The biggest problem: Though Farmer Mac is charged with developing a secondary market, it does not directly control the flow of loans. Unlike Freddie Mac and Fannie Mae, Farmer Mac cannot buy loans directly from lenders. The agency must depend on a small group of insurance companies and securities firms that often find an economic incentive to hold - rather than securitize - the loans they obtain.
"I think the program is going to work, but it is somewhat held hostage by the poolers," said Jack Brown, president and chief operating officer at St. Louis-based Equitable Agri-Business, a leading pooler. "The legislation put all the control in the poolers' hands, and the pooler isn't paid enough to take the risks."
Farmer Mac officials agree that control needs to shift. But they say the real success of the secondary market will come only when the agency can offer lenders stronger economic reasons to sell loans.
"If we can get a program out there that is more competitive, Farmer Mac can be developed," said Henry Edelman, president and chief executive officer of the agency. "For insurance companies, they want to use the program as a safety valve, not as a primary source of income."
The story is different for small banks, Mr. Edelman said. They have a 50-basis-point advantage in withholding their farm loans from the secondary market, he estimated. "For community banks, the program gives them less income than if they hold the loan in portfolio," he said.
Few would dispute that Farmer Mac's programs are capturing a fraction of the potential market. The farm real estate loan market is estimated at $76 billion, with new business placed at $6 billion to $10 billion a year. Most believe that, once established, the secondary market would generate a steady $1 billion a year in securitizations.
Since 1992, Farmer Mac has handled five deals with principal value of $720 million.
Another impediment is the way farm lenders now make such loans. Most bankers write short-term real estate loans, but a secondary market is structured for long-term paper. Mini-poolers say short-term loans are now more profitable for banks and preferred by borrowers reluctant to lock into fixed rates.
Larry Daily, a farm loan officer at Paris, Ill.-based First Federal Bank, another mini-pooler, says he has pitched the program to as many as 600 banks in his Corn Belt territory, but there are few takers.
"Banks are just not using it," he said.
Huntington's Mr. Weasel agrees, saying he thrusts a 25-year graph of interest rates in front of customers to show that the higher upfront cost of fixed rates turns into savings as rates rise.
"When interest rates were low, I ran ads five times a week on the radio to educate producers, but there was very little response," he said. "Today, all I can do is point with hindsight to the volatility of rates."
Not everyone is running into problems. In the West, mini-poolers are finding wider acceptance of the program, which was rolled out with Yuba City, Calif.-based Feather River State Bank becoming the first mini-pooler.
Eric Smith, assistant vice president in the bank's Farmer Mac department, said Feather River had pooled just over $16 million in 1994, down from a high of as much as $25 million some years.
"The bankers out here are more interested in selling the loans than keeping them on the books," he said. "The ones in the Midwest are interested in the opposite."
The growth of Farmer Mac could be an issue in Congress this year. Lawmakers could be asked to consider a bill that would give the Farm Credit System power to operate a secondary market without Farmer Mac.
The Farm Credit banks, which own half of Farmer Mac's stock, have not yet decided whether to revive legislation that died last year. Regardless, Farmer Mac is expected to propose its own amendments to make the program more competitive.
Tom Clark, the agency's lobbyist, said a major component would be to let it be its own pooler, giving it the power to bypass insurance companies and deal directly with banks. The agency also wants to do away with a cumbersome provision that requires a 10% cash or subordinate debt position to be maintained by banks for every pool of loans.
However, the program's ultimate success could depend on attitudes in the nation's bread basket. "There is a real lack of education among the farmers and the borrowers," said Don Mattern, vice president for marketing at American Farm Mortgage, a national mini-pooler. "If they understood the benefits, they would start to demand it more."
But officials disagree over whose job it is to invest in awareness. Bankers say that Farmer Mac should promote the program, while Mr. Edelman says past efforts fell short because poolers failed to invest enough.
"A lender doesn't want to hear a theory from some geek from Washington," Mr. Edelman said, he wants "to hear about a real opportunity from a pooler. A few years ago, we pitched the program, and people would ask how they would get their hands on it, but then the mini-pooler would not be there."