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Kansas Farm Loan Programs Guaranteed Lender Informational Meeting

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1 Kansas Farm Loan Programs Guaranteed Lender Informational Meeting
Farm Service Agency Kansas Farm Loan Programs Guaranteed Lender Informational Meeting Please place your phones on mute. If you do not have a mute option on your phone: Press *6 on any phone (including cellular phones) to Mute.

2 FSA Loan Funds for FY 2012 At one time or another you have experienced a red, yellow or green funding day with Farm Service Agency. Red is only temporary as loans are approved subject to funds being made available or we are given the green light “go” for the type of assistance. Yellow is the waiting list. If funds are not readily available, they are placed on an appropriate list according to the type of credit requested. When a loan request is approved by the appropriate loan approval official it is submitted to the FSA State Office to have funds obligated. Requests are funded by *** ***direct loans = date received application in office ***guaranteed loans = date complete in office

3 Forecasting the Funding for Fiscal Year 2012
“The USDA Farm Service Agency delivered over $720.3 million in federal program payments and loans to Kansas farmers and ranchers during FY 2011.* Kansas agriculture benefits greatly from the tireless efforts of our dedicated employees and locally elected County Committees.” Adrian J. Polansky State Executive Director *Farm Loans $131,300, …… FY 2011 ending 9/30/11 Farm Loans $162,556, …… FY 2010 ending 9/30/10 Farm Loans $147,683, …… FY 2009 ending 9/30/09 Farm Loans $ 91,497, …… FY 2008 ending 9/30/08 Farm Loans $101,451, …… FY 2007 ending 9/30/07 Farm Loans $ 89,002, …… FY 2006 ending 9/30/06

4 2011 Agenda for Guaranteed Loan Program Training
Changes to Program in 2011 Proposed Changes for 2012 Increasing Participation in the Socially Disadvantaged [SDA] Guaranteed Loan Program Loss Claim Deficiencies Common Findings in Preferred Lender Reviews Loan Servicing ie: LOC requirements, Status Reporting, Interest Assistance Claims GovDelivery – an Electronic News Service

5 Guaranteed Loan Limits – Fiscal Year 2011
The dollar limit of guaranteed loans is adjusted annually, each September, based on the percentage change in the Prices Paid by Farmers Index, as compiled by USDA. Effective 10/1/2011 ~ $1,214,000 Total combined outstanding direct and guaranteed FO, OL & SW balances cannot exceed $1,514,000 and if there is an EM involved, combined balances cannot exceed $2,014,000.

6 Interest Assistance Program for Fiscal Year 2012
Effective November 22, 2011 Federal Register Notice has announced that FSA will no longer accept applications, until further notice, for guaranteed loans with interest assistance (IA) because of a lack of program funding. There is no impact on guaranteed applications without interest assistance or on existing interest assistance agreements.  The FR notice doesn’t invalidate existing IA agreements – claims will be paid as agreed and all eligible servicing options can be pursued. Amendment 15 to 2-FLP Handbook was issued on 12/5/11 adding the verbiage that IA is not available to the applicable paragraphs.

7 Guaranteed Loan Fee: 1.5% Effective October 1, 2011 any loan approved will have a 1.5% fee charged on the guaranteed portion. This increase in the guaranteed fee is the first since the inception of the guaranteed loan program in 1974 when we provided guarantees on economic emergency and livestock emergency loans was when FSA loan programs included guaranteed Operating, Line of Credit and Farm Ownership loans. The emergency type loans were subsequently removed.

8 Guaranteed Loan Fee: 1.5% Guaranteed fees are collected from the lender but may be passed on to the applicant. Certain loan situations are exempt from collecting a fee and are found in 2-FLP Handbook at Paragraph 247 A. Guaranteed loan transactions that are not charged a fee are: Loans with Interest Assistance Loans where the majority of the funds are used to refinance FSA direct loan debt Loans to farmers involved in the direct downpayment program

9 Guaranteed Loan Fee: 1.5% Keep in mind when requesting a loan that the lender needs to request an amount as closely to the amount needed for the applicant’s credit needs. Determine: *Capital purchases *Amounts to refinance *Loan fees that will be included A loan request does not need to be in whole dollars and may be down to the nearest $1.00. Ex: Purchase Drill - $25,011; Refinance Bank debt - $132,568; Loan Fees - $2,500 = $160,079 x 90% x 1.5% = $2, guarantee fee. Lender’s Promisorry Note must match Conditional Commitment and Loan Guarantee to be issued.

10 15-Year Operating (OL) Term Limits
The suspension of the OL Term Limits was not continued at the end of calendar year Thus many FSA borrowers have been affected. For Kansas, a total of 213 borrowers have used their 15-year term OL eligibility. Another 149 were in the 1-2 year category. Term Limit eligibility can be found in the 2-FLP Handbook at paragraphs 108 L and M. In October, past and present borrowers along with lenders were notified of potential eligibility issues with the term limitations nearing 1 or 2 years left for customers. A loan guarantee cannot be issued after 12/31/11 if a loan was approved and is not closed unless all lender actions and FSA conditions of the loan have been completed. The lender will be advised that the Conditional Commitment issued will be “null and void”.

11 15-Year Operating (OL) Term Limits
Lender should work with the local FSA County Office to assist in direct OL (D-OL) eligibility. A key date is whether or not the borrower had D-OL’s on the books prior to 4/4/1996. Guaranteed OL’s (G-OL) do not count against the borrower’s D-OL eligibility but D-OL’s do count towards the 15-year term limit in receiving OL assistance, including LOC advances. Note: There is no term limit for guaranteed farm ownership (FO) loans. A borrower that has used up years of eligibility with the direct FO program may qualify for a guaranteed FO loan [after meeting other eligibility requirements] at any time. A direct FO borrower has a term limit to receive FO loans in a total of 10 years after the closing of his first FO loan.

12 Shared Lien Positions Between FSA Guaranteed Loan and Lender’s Non-Guaranteed Loan
All guaranteed loans will be secured by the best lien obtainable provided that any chattel secured guaranteed loan must have a higher lien priority (including PMSI) than an unguaranteed loan secured by the same chattels and held by the same lender. What does this mean to the lender? If the lender holds an unguaranteed loan with a first lien on the same collateral proposed as primary security for a guaranteed loan, they must subordinate its lien position to the FSA guaranteed loan. Junior lien positions are acceptable only if the total amount of debt with liens on the security, including the debt in junior lien position, is less than or equal to 85% of the value of security. Note: Subsequent guaranteed loans made by the same lender with the same security will not be considered junior in this limitation and will be treated as having an equal lien position with existing outstanding loans. Previously, Kansas Policy was specifically stating and outlining 1st , 2nd and 3rd lien positions; however, when situations warrant when security is shared with equal lien positions between the lender’s loans and the FSA guaranteed loan, neither loan will be considered junior. In these situations, the lender will provide a written agreement, agreeable to FSA, outlining how proceeds will be distributed if security is liquidated. If an agreement is not provided, then when any equally shared security is liquidated, the net proceeds shall be divided pro rata based on the amounts loaned. Example: When the net proceeds are divided pro rata, if the lender makes a $700,000 guaranteed loan in conjunction with a $300,000 unguaranteed loan and the security is subsequently liquidated resulting in $800,000 net proceeds, $560,000 would be applied to the guaranteed loan and $240,000 to the unguaranteed loan.

13 Subordinations of Direct Loan Security when a Guaranteed Loan is made
FSA may subordinate its security on a direct loan when a guaranteed loan is being made only in the following circumstances: When the lender will advance funds and perfect a security interest in crops, feeder livestock, livestock offspring or livestock products (can be for a 5-year LOC) when the lender requesting the guarantee needs the subordination of the Agency’s lien position to maintain its lien position when servicing/restructuring when the guaranteed loan made will be to refinance debt of another lender FSA’s position on the real estate security will not be adversely affected

14 Proposed Changes Being Reviewed by the National Office
Allow the State Executive Director “exception authority” to release significant income generating property if certain conditions are met. -Currently regulations read that if loans are secured with “all assets” – security, other than significant income generating property will not be released outright with no consideration. Allow the State Executive Director “exception authority” to approve a subordination on additional security if certain conditions are met. -Currently regulations require the lender to request a subordination of basic/additional security for any purpose that is not allowing another lender to refinance existing prior liens. NOF – Atlanta November meeting Guaranteed proposed changes – Allow Exception Authority from the State Office for: Release of significant income generating property if certain conditions are met. Currently, if loans have all assets securing all loans – security, other than significant income generating property, will not be released outright with no consideration (unless the L:AV is less than or equal to 75% after the release – based on a current appraisal and excluding normal income values). NOF realizes that there are other conditions involved and will be revisiting this partial release requirement (2-FLP Para 280 B) – look for changes. At the current time Kansas reviews the “risk” and whether or not other collateral is available to secure a marginal loan. Even tho the lender may cross-collateralize loans with all security – FSA may not require such on the Conditional Commitment, thus easing the “partial release” requirement tied specific Notes. Approve subordinations on additional security if certain conditions are met. Currently regulations require the lender to request a subordination of basic/additional security for any purpose that is not allowing another lender to refinance existing prior liens. NOF has been entertaining a lot of requests to subordinate “additional security” which typically results in the subordination being given. NOF will revisit how the lender can subordinate guaranteed loan security and give this authority to the SED. Other Examples they are looking into: O/G Subordinations and release of mineral income. Look for changes to 2-FLP Para 278 B. Added note not on slide: Proposed Interest Rate Rule: Interim rule should be published by end of year Proposes to eliminate “average agricultural customer” Links rate to risk based pricing or a specific index

15 Increasing SDA Participation in the Guaranteed Loan Program
Guaranteed Lender Training

16 USDA Secretarial Initiative
On April 21, 2009, Secretary of Agriculture, Thomas J. Vilsack issued a memorandum entitled “A New Civil Rights Era for USDA.” The memorandum outlined 14 actions “to ensure fair treatment of all employees and applicants and improve our program delivery to every person entitled to our varied services.”

17 USDA Secretarial Initiative
The first action was the completion of an external analysis of the delivery of FSA, NRCS, RD, and RMA programs, including FLP. The results of this analysis, referred to as the Cultural Transformation, Inclusion and Accessibility Report, are available at: Assessment-Final_Report.pdf Note: Report Exhibits are not accessible at the current time.

18 Cultural Transformation, Inclusion and Accessibility Report
For Farm Loan Programs, the Report indicates: in general, the SDA participation rate in the direct loan program was at or above the percent of SDA “principal operators” reported in the 2007 NASS Census of Agriculture. With the exception of Asians, and Native Hawaiians and Pacific Islanders, the guaranteed loan program has a substantially lower SDA participation rate

19 Increasing SDA Participation in the Guaranteed Loan Program
What is SDA? -- Socially Disadvantaged Applicant (or Farmer) An individual or entity who is a member of a socially disadvantaged group. For entity applicant, the majority interest must be held by SDA individuals. For married couples, the SDA individual must have at least 50% ownership in the farm business and make most of the management decision, contribute a significant amount of labor, and generally be recognized as the operator of the farm. A group whose members have been subject to racial, ethnic or gender prejudice because of their identity as members of a group without regard to their individual qualities. These groups consist of: American or Alaskan Natives, Asians, Blacks or African Americans, Native Hawaiians or other Pacific Islanders, Hispanics and women.

20 Increasing SDA Participation in the Guaranteed Loan Program
Information you need to know: According to NASS data, SDA principal operator numbers have substantially increased since 2002. Currently FSA loan funds are targeted for SDA participants. As emphasis on SDA’s increases, the more important accurate recording of demographics becomes. Perception from SDA farmers ~ they are reluctant to attempt to obtain loans from commercial lenders. It has been found that Leaders of African American and Native American farmer groups, in particular, have stated lenders are not interested in financing SDA farmers and therefore; the guaranteed loan program does not meet their needs.

21 Increasing SDA Participation in the Guaranteed Loan Program
Information you need to know: Many SDA farmers find it difficult to meet the financial standards set by commercial lenders. Guaranteed loans are made on commercial rates and terms. The higher interest rates and shorter loan terms make it more difficult to develop a feasible plan for repayment. External commercial banks make 70% of FSA guaranteed loans; however, in the southern and mid-Atlantic states where the majority of African American farmers are located, there is minimal bank participation in the program. Commercial lenders may be reluctant to make loans to Native Americans when enforcement of lien instruments is under the jurisdiction of tribal courts.

22 Increasing SDA Participation in the Guaranteed Loan Program
As a lender, what can you do? Encourage applicants to complete demographic information to be counted and to take advantage of targeted loan funds. Albeit the information to complete is voluntary but important data required for proper funding placement. FSA collects demographic information of customers from that voluntary information section of the guaranteed application. -You may also participate in FSA’s Market Placement Program so you know when SDA applicants are to be potential customers. The FSA County Office staff is willing to assist in expanding your loan portfolio to assist in extending credit to SDA Farmers and Ranchers.

23 Increasing SDA Participation in the Guaranteed Loan Program
Market Placement Program: Besides determining the participation rate, demographic information enables some applicants to take advantage of special targeted funds. Market Placement is designed to assist qualified direct loan borrowers and new direct loan applicants to obtain guaranteed loan assistance from commercial lenders. Helps lenders increase their customer base and expand their portfolio. Can help SDA applicants overcome the perceived inaccessibility of commercial lenders.

24 Increasing SDA Participation in the Guaranteed Loan Program
FSA’s Role in the Market Placement Program: Evaluate current direct borrowers and all new direct applicants Determine if borrower or applicant meets lender qualifications based on underwriting standards of participating lenders Provide lenders with: Completed guaranteed application Farm business Plan Narrative Suggested servicing plan Appraisal

25 For Your Information The United States Government has established a claims process to make available a monetary settlement to farmers who alleged discrimination by the USDA based on being African American, Black, Native American, Female or Hispanic. The Native American class action lawsuit known as Keepseagle v. Vilsack, can be found at The Women and Hispanic class action lawsuit can be found at The African American / Black farmer lawsuit known as Pigford II can be found at Native American settlement agreement website is: “The end date” – Dec. 27, 2011. The Class includes all Native American farmers and ranchers who: Farmed or ranched or attempted to farm or ranch between January 1, 1981 and November 24, 1999; and Sought, or attempted to seek, a farm loan from the USDA during that period; and Complained about discrimination to the USDA orally or in writing on their own or through a representative, such as a tribal government, during the same time period. Excluded are claims of Class Members who either: Experienced discrimination only between January 1 and November 23, 1997; or Complained of discrimination only between July 1 and November 23, 1997. The Women and Hispanic case (Garcia v Vilsack and Love v Vilsack) is at The class includes women and Hispanics that believe that the USDA improperly denied farm loan benefits to them between 1981 and 2000 because they are Hispanic, or because they are female, they may be eligible to apply for compensation. They may be eligible if: 1. They sought a farm loan or farm-loan servicing from USDA during that period; and 2. the loan was denied, provided late, approved for a lesser amount than requested, approved with restrictive conditions, or USDA failed to provide an appropriate loan service; and 3. They believe these actions occurred because they are Hispanic or female. Additionally, has information for the African Americans settlement (Pigford v Vilsack) or now known as Pigford II – which was extended under the Obama administration ~ that claim process ends on 5/11/12.

26 Stop – Go back – Remember this – Don’t forget that….
Moving into some loan servicing issues – LOC requirements Status Reporting And IA renewals Also will be discussing Annual lender file reviews that the National gathered and compiled from Preferred Lender reviews; however, those same findings are found for Standard Eligible and Certified lenders. Stop – Go back – Remember this – Don’t forget that….

27 Line of Credit (LOC) Renewals
Loan Servicing Requirements Line of Credit (LOC) Renewals SEL will submit: - Request to advance for next operating year - Balance Sheet - Income/Expense statement for previous year (Tax Return) * - Projected Cash Flow - Narrative summarizing previous operating year progress -Discuss disposition of collateral (recent farm visit) CLP will submit: -Determine need for annual analysis based on the financial strength of borrower and document the file -Loans secured by chattels, CLP will have the same documentation in their file as an SEL -CLP will provide written summary/analysis of the operation to FSA -Provide annual certification stating that a cash flow has been developed and is feasible and all security has been accounted for (recent farm visit) PLP typically doesn’t submit anything to the COF; however, their file must contain adequate documentation in line with their CMS. Last year, Kansas advised lenders that in an effort to assist our guaranteed SEL’s to accommodate their borrowers in prepaying for expenses for the upcoming operating year, we encouraged FSA loan managers/officers to accommodate a streamlined process in authorizing LOC advances for the upcoming operating cycle. Which is: As long as the SEL has provided FSA with a feasible cash flow and has documented changes to the operation, along with a current balance sheet, the loan approval official will document the file accordingly which puts FSA in a position to authorize the lender to advance on next year’s LOC. The approval official will notify the lender by letter or . The County Office will need to follow up in the spring to obtain the previous year’s income/expense statement and/or tax return and the lender’s previous year narrative summary, etc. to complete the analysis requirement.

28 Interest Assistance Renewals
Loan Servicing Requirements Interest Assistance Renewals All lenders (pre-6/8/07) IA dated agreement will submit: - Balance Sheet - Income/Expense statement for previous year (Tax Return) * - Projected Cash Flow (with and without IA) – without IA supports the need for continued 4% subsidy - A copy of the IA needs analysis portion of the application form - Narrative summarizing previous operating year progress -Discuss disposition of collateral (recent farm visit) - FSA-2222 “Request for IA Payment” - Supporting documentation regarding disbursements/payments to the loan for the previous period (loan history bank ledgers) All lenders (post-6/8/07) IA dated agreement will submit:

29 Loan Servicing Requirements – Semi-Annual Status Reports
Status Reporting All Lenders will provide semi annual status reports for the period ending: *March 31st ~ reports due by April 30th *September 30th ~ reports due by October 31st For LOC loans, the amount of advances will only be reported for the previous 6 months through the report ending date. These forms (FSA-2241) are mailed from the Finance Office. Unless you are participating in online “LINC” reporting, then LINC administrators are notified via when the reports are available. Note: when a loan is reported behind schedule on the semi-annual status report – the lender will follow-up with FSA-2248 “Default Status Report” and complete an updated report every 60 days until the loan is paid current or other remedy to the delinquency.

30 Loan Servicing Requirements – Default Status Reporting
As stated in Block 13 of the default status report, reporting must be done every 60 days until the delinquency is remedied. Codes 8, and are forms of resolving the delinquency and reporting ceases once that is reported. Lender should complete #15 in detail or provide a separate letter stating movement towards resolving the delinquency. When an Estimated Loss Claim is paid (code 6 or 7) – the lender is still required to submit the default status report and the P & I amounts need to agree with amount of claim paid for FSA accounting purposes. The lender may annotate in Block 15 actual P&I paid. When moving into liquidation, be sure to check boxes.

31 USDA Lender Interface Network Connection (LINC)
FSA’s online system automatically creates status reports for the semi-annual reporting period and those loans are displayed on the status reports mailed to the lenders. Lenders are required to update loan information for loans on those reports and mail them back to the FSA County Office. If lenders choose to participate in LINC, the information will be updated electronically. Using LINC will allow lenders to have the capability of updating borrowers’ accounts with regard to status and default status reports, instantly which saves mailing time and eliminates the possibility of lost documents and reduces paper. If you would like to begin reporting online, please contact your local County Office – Farm Loan Programs for additional information or Shelly Wolf in the Kansas FSA State Office at

32 Loss Claim Deficiencies
1. Lenders are not submitting an estimated loss claim within 150 days of the missed payment due date. $0.00 claims should be submitted. 2. Lenders do not submit proper documentation for prompt loss claim payments. Lenders should submit detailed documentation justifying charges and expenses involved in liquidation of security and the accounting of chattel security with regard to items sold, proceeds received, fees involved, etc. 3. Lenders not submitting loan ledgers and/or accounting of use or loan funds and payments. 4. If the same lender has several guaranteed and non-guaranteed loans secured by the same chattels, lender and FSA needs to ensure that liquidation/sales proceeds are applied as extra payments and in order of lien priority. 5. Late payment fees and default interest charges are being shown on ledgers. These are not covered under the guaranteed and should be tracked on separate ledgers. 6. Appraisals are not within 12 months for highest and best use and are being used to determine market value and to calculate loss claims. Also, it should be noted that all lenders (regardless of lender type) must prepare a liquidation plan within 150 days. Keeping track of chattel security during farm visits is crucial when liquidation comes. All M&E and Cattle must be accounting for, regardless of $0.00 value received because of lien position.

33 Preferred Lender File Review Findings
1. No documentation of farm visit before loan closing. 2. Files do not contain evidence of environmental compliance. 3. Evidence of hazard insurance could not be located. 4. Debts in excess of $1,000 were not verified. 5. Appraisals not always being completed on subsequent guaranteed loans secured by real estate. 6. Loans secured by the same real estate are cross collateralized but mortgages securing the individual guarantee not always filed. 7. Cash flow indicating need for Interest Assistance was questionable. 8. Loans being made to ineligible individuals or entities. 9. Lack of ledgers showing disbursements and repayment on lines of credit. 10. Annual Farm inspections are not being completed or not being documented. 11. Files did not contain annual/current financial statements. 12. Estimated loss claims are not being filed.

34 Farm Visits and Environmental Due Diligence
A farm visit is required for all applicants/borrowers prior to the application being submitted to FSA from all lender types. The farm visit should be discussed in the loan narrative. If the request is not taking real estate as primary security, some questions may by N/A. Real Estate taken as security must have an FSA-851 “Environmental Risk Survey” completed.

35 GovDelivery – “FSA Electronic News Service”
Farming and ranching is a 24/7 industry. Farmers and Ranchers in Kansas will have a more efficient timely option for receiving important FSA program eligibility requirements, deadlines and related information. FSA is offering free online communication through our GovDelivery electronic news service. News will be sent via right to your home or office and later enhancement will be to a smartphone. We are encouraging lenders to sign up for GovDelivery, as well. Farm Loan Program news; ie: interest rate changes, cash planning prices, loan program changes, guaranteed lender news will be delivered this way. To sign up go to: and click on: >Newsroom >Subscriptions >Enter address -GovDelivery is an subscription management system designed specifically for the public. -It allows FSA to provide our customers with alerts and text messages. (future enhancement) -GovDelivery is a free service to our agency. -GovDelivery is a web-based software that allows KS FSA to manage content and contents. -GovDelivery will be used for ing important information ie: newsletters and program updates. -GovDelivery will also serve as a vehicle to distribute news releases to producers.

36 2-FLP Handbook will no longer be provided in hard copy format to lenders. The handbook is available on the FSA website and contains TOC hyperlinks. Adobe makes it easy to search for procedure using the find feature. Suggest lenders bookmark the handbook and sign up for updates.

37 Happy Holidays to you and yours!
Thank you for your attendance! Please direct any questions regarding this informational meeting or an item that was not addressed that you have a concern about to: Arlyn Stiebe, Farm Loan Chief – And/or: Shelly Wolf, Guaranteed Farm Loan Specialist – Happy Holidays to you and yours! Farm Service Agency

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