WASHINGTON -- Bankers and thrift executives on Thursday urged Congress not to expand the lending powers of the Farm Credit System.

Of particular concern to some lenders is a proposal that would allow the system, which now has $65 billion in assets, to offer more home mortgages than permitted today.

"This increased home lending authority will severely hurt the competitive position of privately owned and operated depository institutions that are already serving the home mortgage market," said Billy Don Anderson, president of Valley Federal Savings Bank, Sheffield, Ala.

"No one has demonstrated that the need for home lending is not now being met or that the Farm Credit System is ready or able to serve those areas," added Mr. Anderson, who was representing the Savings and Community Bankers of America.

The Rural Credit and Development Act of 1994, sponsored by Rep. Eva M. Clayton, D-N.C, is intended to focus the resources of the Farm Credit System on rural development.

"With 250 Farm Credit institutions and more than 1,400 branch offices, the System can be utilized as a conduit for bringing private investment from Wall Street to our rural "Main Streets," Rep. Clayton said during Thursday's hearing before the House Agriculture subcommittee on environment, credit and rural development.

"This can be accomplished at no cost to the Treasury," she added.

The Clayton bill, which is given little chance of passing this year, would permit the Farm Credit System to increase the percentage of its portfolio that goes to residential lending to 20%, up from 15%.

It would also permit the system to make housing loans in communities of up to 20,000 persons, compared to the current population limit of 2,500.

A Question of Enhancement

"This would permit the system to make housing loans in many suburban areas and urban communities," said James F. Hart, president of the Hand County State Bank of Miller, S.D.

"Making housing loans in urban and suburban areas does not enhance rural development," he added.

Moreover, he said, the bill would have the effect of "shrinking the system's portfolio of agricultural lending."

Mr. Hart spoke on behalf of the Independent Bankers Association of America.

However, Bill Weber, president of the Farm Credit Council -- an affiliate of the Farm Credit System -- told the panel that "rural America needs help" and "the Farm Credit System can help."

"This bill is not the solution of all of rural America's problems," Mr. Weber said. "But neither can the commercial banks do it all."

However, the American Bankers Association said the bill provides nothing for rural communities that isn't being handled already by the private sector.

Instead, the lending programs in the bill are already provided "by a wide variety of lending institutions which are currently subjected to strict regulatory guidelines governing safe and sound lending practices with proper taxpayer protections," said Jeff Plagge, president of First National Bank of Waverly, Iowa.

Mr. Plagge is chairman of the ABA's Agricultural Bankers Division.

Bob Nash, undersecretary of Agriculture for small community and rural development, said the administration believes "the private sector has the principal role in funding development and creating the jobs that are essential for the economic health of rural America."

Mr. Nash also expressed concern that the bill would reduce the Farm Credit System's emphasis on farmers and ranchers.

However, he did not take a position on the Clayton bill, saying the administration's review of the legislation is at a preliminary stage.

The bill would also allow Farm Credit System members to buy loans from commercial banks and other lenders. However, the loans would have to be instruments permissible for system members.

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