Superintendent Richard H. Neiman's Opening Comments at Congressional Oversight Panel Hearing on Farm Credit
Opening Statement - Richard H. Neiman Member, Congressional Oversight Panel
July 7, 2009
Good morning, and thank you for appearing at this hearing of the Congressional Oversight Panel on farm credit issues.
We often speak of the financial crisis as if it was one event, when it fact it is a cascade of multiple market dislocations that impact every corner of the American economy. The current meltdown did not originate in the agricultural sector, but as the recession continues its reach is being felt in the farming community.
I am particularly concerned about deteriorating trends in the dairy industry. This is one of the farming activities hardest-hit by current market conditions. That is critically important to you here in Greeley, an area with a proud tradition of dairy farming, but it is also vital to me as a member of Governor David Paterson’s Cabinet in New York. New York is actually the third largest dairy-producing state in the nation. So what is happening here in Greeley is happening back home as well, and your testimony can provide the insights needed to stabilize this industry and agriculture nationwide.
As part of our mandate, the Panel has been asked to consider whether a loan restructuring program for farm credit should be developed in the context of the Troubled Asset Relief Program (TARP). This Panel and Congress are looking for your hands-on experience of trends in agricultural lending, which makes all the difference in designing effective policy responses. Learning to prepare for and adapt to economic volatility is nothing new to you in the agricultural sector- farming is highly cyclical by nature, and there are existing programs through the Farm Service Agency (FSA) and the Farm Credit System (FCS) that offer examples of what stabilization initiatives can work and why.
There are three main areas that I look forward to exploring during our dialogue today-
Existing foreclosure prevention programs. The effectiveness of current foreclosure programs through the FSA and FCS, in particular the success of features such as principal write-downs with shared appreciation agreements, pre-foreclosure notice requirements, and the use of credit review committees;
Whether there is a need for additional federal support. The extent to which there is or is not a gap in the federal response structure to farm credit defaults, whether there is a need for additional federal support to complement existing foreclosure prevention programs and the form such support could take; and,
Family farm issues. The overlap between residential and agricultural real estate issues, especially for the many farms in which the family home is also pledged as collateral.
In designing an effective foreclosure prevention program, there is a tension between the need for a streamlined approach that can be implemented quickly on a large scale, and the more time-consuming but personalized approach that may have greater long-term success in avoiding re-default. I have experienced this dilemma in leading New York’s residential foreclosure prevention task force.
There are no easy solutions to resolving this tension, but we can strive to find the best fit along this continuum of options. For homeowners, time of was of the essence and many loan products were standard, leaning more toward expedited modifications and the Obama Administration’s Making Home Affordable template.
Farm credit may have more in common with commercial real estate lending, however, which is another sector in distress that could benefit from the ideas generated here today. Commercial real estate loans tend to be customized, with more complex underwriting factors, and this adds to the challenge of designing the right universal program.
And of course no foreclosure prevention initiatives will stabilize markets in the end if they discourage banks from participating in TARP, when they would otherwise benefit from that capital support. Good policy intentions also need to make good business sense- we’re not looking to add a burden to lenders, but to realize best practices.
I thank you in advance for your contribution to developing those best practices and protecting America’s agriculture industry.