The head of the Farmers Home Administration (FmHA), "greatly disturbed" that some farmers have received spring planting loans in violation of strict new rules, has threatened to cut off loan money to states that ignore the new federal policy.
The tougher policy, adopted by the Reagan administration last winter, could mean that tens of thousands of FmHA clients who cannot get credit elsewhere will be forced out of farming this year for lack of funds to see them through the planting season.
In a message sent last week to all state FmHA directors, administrator Vance L. Clark ordered them to "cease and desist" from authorizing operating loans for farmers who cannot meet the agency's tighter loan guidelines.
Clark also warned that state directors who did not abide by his order would force him "to share with your members of Congress the reason that their state will no longer be allowed further direct loan funds."
In an interview yesterday, Clark said he would have "no alternative" but to cut off funds to states that continue to follow the previous, less restrictive lending policies. "I haven't had to do that yet," he said, "and we are in pretty good shape -- 75 percent of our loan money is out now, but we're hanging in." Clark's letter said FmHA review teams found that in six of 10 states, loans were being granted in violation of a new rule requiring that a farmer be able to repay all his outstanding debt -- not just his current loan debt -- from his 1986 crop income before he can receive help from FmHA.
Until the agency abruptly changed course last winter, its "continuation" policy allowed operating loans to any farmer who could show a reasonable chance of repaying his debt to the government, irrespective of any other debt he might have owed.
FmHA holds about 12 percent of the nation's farm debt, with loans to more than 230,000 farmers, most of whom cannot obtain credit elsewhere. Farm leaders have argued that FmHA should continue its policy of leniency to help cushion hard-pressed farmers from the impact of new farm legislation that is aimed at cutting commodity prices to make U.S. exports more competitive.
In the interview, Clark identified the six states as Alabama, Georgia, Illinois, Minnesota, Missouri and South Dakota -- all states where the farm debt crisis generally is acknowledged to be acute because of low prices, falling land values and high interest rates.
"I am not convinced that those were valid, because we work from a lot of computer data," Clark said. "We're double checking -- it's not that widespread. But I wanted to get their attention and it apparently worked."
But, he added, the new policy was dictated by a need to "tighten it down" on farmers who continue to take on additional debt that they may not be able to repay. "It keeps compounding and compounding," Clark said. "It doesn't help that farmer to continue him on that course."
"We in no way can continue to book loans through our direct insured funds for borrowers who just will not make it," the FmHA chief's letter said.
Clark complained yesterday, and at a House Agriculture credit subcommittee hearing last week, that the new FmHA loan policy is being undermined by "old-timers" in the agency "who don't believe in the policy . . . . It's damned hard for them to say 'no' to a farmer. It's much easier to say 'yes.' "
Clark also agreed with a suggestion by Rep. Cooper Evans (R-Iowa) that Congress should create a special FmHA outpost in Nome, Alaska, where recalcitrant agency employes could be exiled for ignoring the new loan policy.
At the hearing, Clark singled out South Dakota and Missouri as states where at least 20 percent of the FmHA cases did not "cash-flow" -- meaning that projected income was insufficient to repay the farmer's debt. He also blamed commercial bankers for keeping farm-loan interest rates high and for refusing to take part in a loan guarantee program run by FmHA.
"Your state is one of the worst for high interest rates," Clark, a former Bank of America executive, told Rep. Thomas A. Daschle (D-S.D.). "Your bankers don't want to give up 2 percent . . . . Something terrible is happening in that state. To me, it's unconscionable. They're turning their backs on the farmers."