Bankers and the Farm Credit System are back at it, lobbying Congress to gain a competitive edge.
Bankers are pushing legislation introduced by Sen. Chuck Hagel, R-Neb., and Rep. Ron Lewis, R-Ky., that would exempt from federal tax the interest income earned on farm and rural home loans in communities of less than 2,500 people.
"It is certainly a piece of legislation that we think would help out rural community banks and puts them on a more equal footing with the tax-advantaged Farm Credit System," said Ballard W. Cassady, the president and chief executive officer of the Kentucky Bankers Association.
In a press release, Sen. Hagel said the bill is designed to "level the playing field for rural banks by removing the disadvantages they face when competing with the government-sponsored Farm Credit System for agriculture loans."
Farm Credit System lenders do not pay federal taxes on the income they make from long-term farm real estate loans. Bankers say this exemption gives system lenders an unfair advantage when pricing loans to farmers.
But the Farm Credit System is pushing changes of its own, arguing for a provision in a broader farm bill that would allow them to make home loans in communities with populations up to 50,000. Currently they may lend only in towns with populations up to 2,500.
Kenneth E. Auer, the president of the Farm Credit Council, a trade group representing most of the nation's roughly 100 Farm Credit System lenders, said the goal is to update the Farm Credit Act and give the system the tools it needs to serve rural America.
"We are not seeking to lend to anyone, any time, anywhere for anything," he said.
Farm Credit lenders have attracted some heavy-hitting help. Both the National Association of Realtors and the National Association of Home Builders are backing the change, and have sent letters to the ranking members on both the House and Senate Agriculture committees urging them to expand the system's lending authority. Agricultural borrowers in towns with populations between 2,500 and 50,000 are unfairly prevented from borrowing from the system, the two groups argued in their joint letter.
"It is vital for those families in rural America who otherwise would be denied an opportunity to realize the American dream of homeownership because of a lack of readily available, reasonably priced credit," the letter said.
Mr. Auer said the two groups approached Farm Credit lenders asking them to make loans in larger communities.
"Both groups believe there is a need for additional competition in the rural credit markets," he said.
Mark K. Scanlan, the director of agricultural finance at the Independent Community Bankers of America, said private-sector banks are already meeting credit needs in rural areas.
He said 76.1% of households in nonmetropolitan areas own their own home, compared with 66.3% of metropolitan households, according to data from the Department of Agriculture.
"So for someone to suggest there is a lack of credit options in rural America borders on lunacy," Mr. Scanlan said.
He also said the Farm Credit System grew 14.3%, to $154.7 billion of assets, at the end of fiscal 2006.
"They've obviously got plenty of authority to grow their size and assets," he said.
