This year, Congress is revisiting national agricultural policy and producing a piece of legislation known as the Farm Bill. As it does every five years when it is renewed, the scope of the bill includes overall policy on agriculture, conservation, nutrition and forestry.
Ensuring that America’s farmers have the access to credit that they need to thrive is an important part of agricultural policy. But this should not be an opportunity for the Farm Credit System to push for expansion of its lending authority or find ways to move away from its mission to support young, small and beginning farmers.
Reform Farm Credit is keeping a close eye on the progress of this legislation through the House and Senate. And as legislators look to strengthen American agriculture and ensure financial stability, they should consider some of the System’s most glaring issues.
- Mission Definition: The Farm Credit System was created more than 100 years ago when American agriculture was drastically different. There needs to be a serious discussion of the Farm Credit System’s mission statement and whether the System should be financing loans in rural America that have little to nothing to do with sustaining agriculture.
- Public Enforcement Actions: When the System – a government-sponsored enterprise – breaks the law or does something wrong, the public needs to know. The System’s regulator, the Farm Credit Administration, must publicly disclose when it takes corrective action against a Farm Credit institution. The public deserves to know if the System is not acting in good faith.
- In-house Appraisals: In 2010, Congress decided that financial institutions must seek appraisals of property from independent appraisers, citing potential conflicts of interest if an appraiser were to work for a financial institution directly. The Farm Credit System, curiously enough, is exempt from this requirement. Following this rationale, Farm Credit institutions are susceptible to misappraisal of properties because they retain their own appraisers. That’s unacceptable, and there’s no reason for Farm Credit to exploit an obvious loophole.
- Similar Entity Rule: Under this existing rule, Farm Credit institutions can extend loans to organizations – including large multinationals like Verizon and Rayonier Inc. – because they are “similar” to the rural telephone and utilities cooperatives that are eligible for loans. Any reasonable person can see that Verizon is to a rural telephone cooperative what a lion is to a house cat. Legislators should strongly consider whether this rule is in the spirit of the Farm Credit System’s mission.
- Real Estate Lending: The System’s eligibility requirements for a real estate loan are lax and could theoretically include most prospective buyers. To qualify for a loan, at least one of the following criteria must be met:
- The property must be at least 5 acres;
- The town where the property is located must have a population of 2,500 or less;
- The potential owner must have the intent to farm;
- The property must yield at least $500 in gross farm income.
This means that if someone in Manhattan intends to start an herb garden, they could be eligible for a Farm Credit real estate loan. That’s all it takes. Lawmakers need to tighten these requirements so that Farm Credit doesn’t abuse them – give them an inch, and they’ll take miles and miles.