WASHINGTON (2/4/14)--The Senate is expected to vote on the Federal Agriculture Reform and Risk Management Act of 2013 (H.R. 2642) this week, and the Credit Union National Association is watching the bill's progress as potential changes to U.S. Department of Agriculture Farm Service Agency (FSA) Guaranteed Loan Programs and crop insurance could impact credit unions.
H.R. 2642 was passed by the U.S. House by a 251-166 vote last week.
Credit unions participate in USDA guaranteed farm loans, and the House version of the Farm Bill contains language that would repeal borrower term limits in the program. According to the USDA, FSA guaranteed loans provide credit unions and other lenders with a guarantee of up to 95% of the loss of principal and interest on a loan. The government provides about $12 billion in credit through the program.
Farmers and ranchers apply to an agricultural lender, which then arranges for the guarantee. The FSA guarantee permits lenders to make agricultural credit available to farmers who do not meet the lender's normal underwriting criteria, and a certain number of the loans are targeted to beginning farmers and ranchers and minority applicants.
The guaranteed loans can be used for both Farm Ownership and Farm Operating purposes. Repayment terms vary according to the type of loan made, the collateral securing the loan, and the producer's ability to repay.
Under the program, some types of loans are repaid within 7 years, and the terms of others cannot exceed 40 years.
If these terms are not eliminated, thousands of farmers and ranchers could be forced out of the program, potentially making it more difficult for them to secure credit in the future.
The House version of the Farm Bill also eliminates almost $5 billion a year in direct payments to farmers whether they farm their land or not. Under the bill, farmers and ranchers in the new crop insurance program would be guaranteed that their revenue doesn't fall below 86% from the previous year, protecting farmers and ranchers from crop yield variations and commodity price fluctuations.
Crop insurance is important for credit union loans to farmers and ranchers for the same reason that flood insurance is important for credit union loans to properties in flood-prone areas. Both programs protect the underlying assets that collateralize the loans. Both types of insurance are not always affordable or even available in the private market, making the two programs vital to credit unions and their members, according to CUNA.