Agricultural lenders hope to benefit from recently signed Farmer Mac legislation designed to make the agency's lending more efficient.
The law, which President Clinton signed Feb. 10, had a number of other farm-finance items tacked on, including an extended interest-assistance program for farmers and regulatory relief measures for the Farm Credit System.
Bankers had pushed for the changes, which they said will make access to credit easier for rural borrowers.
The legislation includes a controversial provision extending for three years the deadline for Farmer Mac, formally the Federal Agricultural Mortgage Corp., to meet minimum capital requirements. Other changes include letting the agency pool loans itself, instead of using a third party, and eliminating the requirement that lenders hold a 10% cash reserve against loans.
All this "should give Farmer Mac a new lease on life," said John Blanchfield, associate director of the Agricultural Bankers Division of the American Bankers Association.
The government created Farmer Mac in 1987 as a secondary market for mortgages secured by agricultural real estate and rural housing. However, the entity has not generated enough business to turn a profit.
"The key for Farmer Mac is they need to offer a competitive product," said Mark K. Scanlan, agriculture and rural America representative for the Independent Bankers Association of America. "When you have things like a 10% cash reserve, that makes it less attractive to banks."
Now, "I think a lot of bankers will take a close look at it who may have had an interest in this but didn't think it was a competitive product" he said.
Some observers had opposed the changes to Farmer Mac, saying that the demand for a government entity for such loans is questionable, and that the expanded powers could lead to financial problems as the entity tries to grow business.
In addition to the legislation's Farmer Mac provisions, many farm bankers have an eye on the provision that extends for five years the Agriculture Department's interest-assistance program on guaranteed farm loans, Mr. Blanchfield said.
Under the program, if a farmer's cash flow drops to a point where interest on a bank loan can't be paid, the bank can apply to the USDA for an interest rate subsidy from the Farm Service Agency, which enables the bank to cut rates to the customer.
The interest-assistance program was funded, but its legislative charter had run out, leaving some lenders in limbo over its availability for customers.
"We've got three loan applications that were waiting for this thing to get funded," said Chris Gavin, senior vice president of $110 million-asset Monmouth Trust and Savings Bank, Ill. "It makes credit available and it basically assists in making sure (borrowers) are profitable. It helps us to help our customers."
The law also includes several areas of regulatory relief for the Farm Credit System, including extending the maximum period between exams to 18 months from 12 months, said Stephen Blakely, vice president of public affairs for the Farm Credit Council, the system's trade group.
Farm lenders attention will now be focused on the 1995 Farm Bill, a version of which has been passed in the Senate. The House will address it when it reconvenes later this month.
