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Power Hour: FSA Guaranteed Loan Program in Trouble

February 11, 2013
By: Ed Clark, Top Producer Business and Issues Editor
 
 

USDA’s Farm Service Agency (FSA) Guaranteed Farm Ownership loan program is in trouble, resulting in a huge backlog of loans. Reason: Since the beginning of fiscal year 2012, there has been no funding authorization. At the beginning of fiscal year 2013, a backlog of $250 million in approved loans has been waiting for funding.

"The program is restricted by a program funding level of $1.5 billion per fiscal year," says John Blanchfield, senior vice president, American Bankers Association. "Congress should increase the program funding level to $3 billion."

Since the program is one of loan guarantees, loans are made by the private sector and FSA provides a guarantee to the lender against loss.

Demand for guaranteed loans have increased due to several factors, Blanchfield says, including an increase in the number of new farmers seeking to purchase land. Forty-five percent of program usage in fiscal year 2012 was used to acquire farmland.

"Even with a sharp increase in program use over the past five years, loan losses have been extremely low," Blanchfield says. According to USDA, annual losses over the past five years have averaged less than 0.3% of outstanding loans.

"These are not high-risk loans," Blanchfield says. "These loans are originated and serviced by private sector lenders and they perform as well as non-guaranteed farmland loans."

Strict underwriting procedures are followed by lenders using the program, he says. The average size of loans in fiscal year 2012 was $389,000. He notes that all lending activities under the program have been funded by a 1.5% fee charged to the borrower at the time of closing.

 

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