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S. HRG. 111–74 HEARING ON FARM CREDIT CONGRESSIONAL OVERSIGHT PANEL ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION HEARING HELD IN GREELEY, CO, JUNE 7, 2009 Printed for the use of the Congressional Oversight Panel ( smartinez on DSKB9S0YB1PROD with HEARING Available on the Internet: http://www.gpoaccess.gov/congress/house/administration/index.html VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00001 Fmt 6011 Sfmt 6011 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00002 Fmt 6019 Sfmt 6019 E:\HR\OC\A741.XXX A741 GREELEY, CO: HEARING ON FARM CREDIT S. HRG. 111–74 HEARING ON FARM CREDIT CONGRESSIONAL OVERSIGHT PANEL ONE HUNDRED ELEVENTH CONGRESS FIRST SESSION HEARING HELD IN GREELEY, CO, JUNE 7, 2009 Printed for the use of the Congressional Oversight Panel ( Available on the Internet: http://www.gpoaccess.gov/congress/house/administration/index.html U.S. GOVERNMENT PRINTING OFFICE WASHINGTON smartinez on DSKB9S0YB1PROD with HEARING 51–741 : 2009 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00003 Fmt 5011 Sfmt 5011 E:\HR\OC\A741.XXX A741 CONGRESSIONAL OVERSIGHT PANEL PANEL MEMBERS ELIZABETH WARREN, Chair SENATOR JOHN SUNUNU REPRESENTATIVE JEB HENSARLING RICHARD H. NEIMAN smartinez on DSKB9S0YB1PROD with HEARING DAMON SILVERS (II) VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 E:\HR\OC\A741.XXX A741 CONTENTS Page smartinez on DSKB9S0YB1PROD with HEARING Statement of Pamela Shaddock, Regional Representative for Senator Udall .... Opening Statement of Elizabeth Warren, Chair, Congressional Oversight Panel ..................................................................................................................... Statement of Damon Silvers, Deputy Chair, Congressional Oversight Panel .... Statement of Richard Neiman, Panel Member, Congressional Oversight Panel ..................................................................................................................... Statement of Michael Scuse, Deputy Under Secretary, Farm and Foreign Agricultural Services, United States Department of Agriculture .................... Statement of Marc Arnusch, Owner, Marc Arnusch Farms ................................ Statement of Mike Flesher, Executive Vice President, Farm Credit Services of the Mountain Plains ........................................................................................ Statement of Les Hardesty, Owner, Painted Prairie Farm, and Chairman, Dairy Farmers of America Mountain Area Council .......................................... Statement of Lonnie Ochsner, Senior Vice President, New West Bank ............. (III) VerDate Nov 24 2008 00:39 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00005 Fmt 5904 Sfmt 0483 E:\HR\OC\A741.XXX A741 1 6 10 14 18 26 31 41 47 smartinez on DSKB9S0YB1PROD with HEARING VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00006 Fmt 5904 Sfmt 0483 E:\HR\OC\A741.XXX A741 HEARING ON FARM CREDIT TUESDAY, JULY 7, 2009 U.S. CONGRESS, CONGRESSIONAL OVERSIGHT PANEL, Greeley, Colorado. The Panel met, pursuant to notice, at 10:03 a.m. in the County Commissioners Hearing Room, Weld County Centennial Center, 915 10th Avenue, Hon. Elizabeth Warren, Chair of the panel, presiding. Present: Professor Elizabeth Warren, Mr. Damon Silvers, and Mr. Richard Neiman. Ms. WARREN. The hearing of the Congressional Oversight Panel is called to order. Before we begin, I would like to note we have audio devices available in the corner to my left for those who need them. Welcome to today’s hearing before the Congressional Oversight Panel. I would like to thank the Weld County Commissioners for the use of their hearing room today. We appreciate it. Before we begin today, the regional representative from Senator Mark Udall’s office, Pamela Shaddock, is here and she would like to make a few remarks on the Senator’s behalf. Ms. Shaddock, if you could please. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF PAMELA SHADDOCK, REGIONAL REPRESENTATIVE FOR SENATOR UDALL Ms. SHADDOCK. Thank you, Chairwoman Warren. My name is Pamela Shaddock, and I am a regional representative for Senator Mark Udall. Senator Udall could not be here today. There are a number of important votes going on in Washington, D.C., but he did want me to read a statement on his behalf. Chairwoman Warren, as Colorado’s senior Senator, I welcome you and the Congressional Oversight Panel to Greeley. I am pleased that you will hear today from Colorado’s agricultural and banking communities regarding farm credit, an issue of critical importance in northeastern Colorado. I look forward to reviewing the Panel’s report that will result from this hearing and hope that it can offer recommendations that will help make Colorado’s agricultural industry emerge from our current economic challenges. Since being sworn in as a Senator six months ago, I have taken many actions to try to help the people of northeastern Colorado who have been hit hard by the agricultural and credit crisis. These actions are outlined in the written testimony I am submitting with the Panel today. (1) VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 E:\HR\OC\A741.XXX A741 2 smartinez on DSKB9S0YB1PROD with HEARING And Chairwoman Warren, if I may approach, I would hand to Mr. Neiman a set of copies of his testimony for your records. [The prepared statement of Senator Udall follows:] VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 E:\HR\OC\A741.XXX A741 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 E:\HR\OC\A741.XXX A741 Insert graphic folio 9 51741A.001 smartinez on DSKB9S0YB1PROD with HEARING 3 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 E:\HR\OC\A741.XXX A741 Insert graphic folio 10 51741A.002 smartinez on DSKB9S0YB1PROD with HEARING 4 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 E:\HR\OC\A741.XXX A741 Insert graphic folio 11 51741A.003 smartinez on DSKB9S0YB1PROD with HEARING 5 6 Ms. WARREN. Yes, of course. Ms. SHADDOCK. Thank you. Ms. WARREN. Thank you, Ms. Shaddock. The Panel would also like to thank Senator Udall and Senator Bennet and Congresswoman Markey and their staffs for their help with the hearing today. I appreciate the work of our own Congressional Oversight Panel staff, but without the local people to help, this simply would not be possible. So we are grateful to them for helping us come here. smartinez on DSKB9S0YB1PROD with HEARING OPENING STATEMENT OF ELIZABETH WARREN, CHAIR, CONGRESSIONAL OVERSIGHT PANEL Last fall, Congress established this panel to oversee the expenditure of funds from the so-called Troubled Asset Relief Program, what we have come to know as TARP. It is our duty to issue monthly reports to analyze and evaluate the Treasury Department’s execution of that program. Recently our mission was expanded by Congress. We were charged with writing a special report analyzing the state of commercial farm credit markets and the use of loan restructuring as an alternative to foreclosure by recipients of financial assistance under TARP. In considering restructuring models, we are to look specifically at the restructuring programs of the Farm Service Agency at the U.S. Department of Agriculture, the Farm Credit System, and the Treasury’s residential mortgage foreclosure mitigation program for banks. Not coincidentally, FSA, Farm Credit, and banks also make up the majority of the farm credit market. Right now, agriculture appears to be doing well in many areas of the country. The farm credit markets also appear to be doing relatively well in many places. Unfortunately, there can sometimes be more to learn in the places where things are not going so well. As we all know, Greeley and Weld County are facing tough times, and that is why we are here today, to gain insight from your situation. A local farm credit market can be stressed for any number of reasons, such as a lender leaving the market, natural disaster, or shock to the local economy. While we are not here to examine the specific causes that led to the stresses on Weld County farm credit markets, we do hope to learn from you about their impact. Specifically, we hope to learn better how a major shock to the farm credit system affects credit availability and loan restructuring. When the system experiences significant stress, what does that mean for borrowers? What challenges do they face in obtaining the credit they need to run their farms? What does it mean for farmers who need their loans restructured? Market shocks also have significant implications for lenders. How much flexibility do they have now to meet increased credit needs? How do they deal with increased needs for loan restructuring? The plain truth is that, like many bad situations, there are many victims. Today’s witnesses may not have caused the problems in Greeley, but they are left to deal with the aftermath. Today’s discussion of how they manage in a credit crisis will provide a case study for our report. VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00012 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 7 smartinez on DSKB9S0YB1PROD with HEARING For this hearing, we have invited key farm lenders, as well as borrowers, to testify about farm credit availability and farm loan restructuring. We invited these witnesses to get their perspectives on what is happening nationally, but especially what is happening in a locality that is facing pressure on both farm credit availability and farm loan restructuring. Their take on the local situation will help inform us about the national situation. Our witnesses today include Michael Scuse, who is the Under Secretary for Farm and Foreign Agricultural Services, U.S. Department of Agriculture; Marc Arnusch, who is the owner of Marc Arnusch Farms; Mike Flesher, Executive Vice President of Farm Credit Services of the Mountain Plains; Les Hardesty, owner of Painted Prairie Farm and Chairman of the Dairy Farmers of America Mountain Area Council; and Lonnie Ochsner, Senior Vice President of New West Bank. I want to thank each one of you for being here. I know that tensions are running high in the area, and we all sincerely value your willingness to step forward and to offer your perspective. I wish you were not facing these problems, but we appreciate your willingness to allow us to learn from you. I understand that some of you may want to speak when this is finished. As has been the practice of the Congressional Oversight Panel in each of its field hearings, we will make time available after we have concluded our examination of the witnesses. So there will be a chance for people to make their own personal statements at the end of this proceeding. So we will make sure that there is at least some time for that. The statements will have to be brief, but we do want to hear from local citizens. I will now yield my time to Damon Silvers who is the Deputy Chair of the Panel and the Associate General Counsel of the AFL– CIO. Mr. Silvers. [The prepared statement of Ms. Warren follows:] VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00014 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert graphic folio 16 51741A.004 smartinez on DSKB9S0YB1PROD with HEARING 8 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00015 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert graphic folio 17 51741A.005 smartinez on DSKB9S0YB1PROD with HEARING 9 10 smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF DAMON SILVERS, DEPUTY CHAIR, CONGRESSIONAL OVERSIGHT PANEL Mr. SILVERS. Thank you, Chairwoman Warren. Good morning. I am grateful, like my fellow panel members, for the help of Weld County and their hospitality and the help of our staff and the Colorado congressional delegation in making this hearing possible. I am also grateful—and I think we need to acknowledge the leadership of Senator Russell Feingold of Wisconsin who sponsored the farm provisions of the Helping Families Save Their Home Act of 2009, which directed our panel to examine the impact of the financial crisis on America’s farm families. We are here today to take testimony on the impact on farm families of the financial crisis and the programs under the somewhat long name of the Emergency Economic Stabilization Act of 2008, which most of us know by the term ‘‘financial bailout.’’ We are going to do so today by learning about the experiences of farmers and farm credit providers here in Weld County where the failure of a major farm lender, the New Frontier Bank, has made the issues of farm credit particularly urgent. Now, in particular, Congress has asked us to make recommendations to Congress, as our chair indicated, on how best to encourage the restructuring of troubled farm loans made by banks for the purpose of saving family farms. These issues, the issues of whether banks treat farmers fairly, are some of the most enduring issues in the history of our country. From the time of George Washington to the panics of the 1890s to the Great Depression and the farm crises of the 1980s, the leaders of our Nation have understood that one of the ways in which their leadership will be judged is by whether our financial system helps farmers grow the food that feeds the world or whether the financial system, in the words of one of our witnesses today, ‘‘lends farmers into foreclosure.’’ Today, I hope we are able to address four questions in particular. The first, what are the features of the Farm Credit System, in general—not so much here in Weld County, but in general—that insulated that system from so many of the destructive practices prevalent elsewhere in our credit system in the run-up to the crash? In particular, I am interested in the low levels of securitization in farm credit and the prevalence of lending based on income rather than assets. Secondly, how do the policies of the Farm Service Agency and the Farm Credit System address restructuring loans for farm families in trouble, and are there lessons to be learned from those agencies and structures both for addressing troubled farm loans in commercial bank portfolios and for the broader home mortgage crisis which is plaguing our country today? Third, what has the effect been on farm credit of the Federal Government’s aid to the banks? And in particular, what has been the effect on farm credit of the way that small banks have been treated differently from big banks? Finally, have we seen here in Weld County the large banks, the ‘‘too-big-to-fail’’ banks, step in and lend in the wake of the failure of a major lender, New Frontier, that was clearly not major enough to be rescued? VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 11 smartinez on DSKB9S0YB1PROD with HEARING We have heard a great deal about stress tests and bank recoveries. I read that the bonuses are flowing again on Wall Street. My belief, though, is that the real stress test is not the one conducted by the Treasury Department and the Federal Reserve but the one that is happening all over this country in communities like this one as business people, including farmers, seek credit. If credit is not available to small business people and to large business people, to builders and to farmers, then we have not fixed our financial system, and the resulting downward pressure on our economy will inevitably breed more banking crises and block economic recovery. So in a very real sense, the Panel is here today not simply to learn about the state of the farm economy and the family farmer, but to learn about whether the TARP, the bailout, the program Congress asked us to oversee, is actually working for all Americans. It is a particular pleasure and honor to see all of you here, to see this room full. It reminds us, I think, of this panel’s solemn obligation to oversee the financial bailout in the interests of the American people. I look forward to the testimony and I am grateful for the people of Greeley and Weld County for welcoming the Panel here today. [The prepared statement of Mr. Silvers follows:] VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00017 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00018 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 22 here 51741A.006 smartinez on DSKB9S0YB1PROD with HEARING 12 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00019 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 23 here 51741A.007 smartinez on DSKB9S0YB1PROD with HEARING 13 14 Ms. WARREN. Thank you, Mr. Silvers. The chair now recognizes panelist Richard Neiman. Mr. Neiman is the Superintendent of State Banks for the State of New York and has deep experience in the State bank lending area. And I now recognize Superintendent Neiman. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF RICHARD NEIMAN, MEMBER, CONGRESSIONAL OVERSIGHT PANEL Mr. NEIMAN. Thank you, Chair Warren. Good morning and thank you all for appearing before us in this hearing, an important hearing, particularly for those many residents who are also here in attendance. You know, we often speak of the financial crisis as if it were one event when, in 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 family farming, but it is also vital to me as a member of Governor David Patterson’s cabinet in New York. New York is actually the third largest dairyproducing 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 the 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 TARP program. 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 decisions. 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 and the Farm Credit System that offer examples of what stabilization initiatives can work and why. There are three main areas that I would like to look forward to exploring today during our dialogue. One, the effectiveness of the current foreclosure programs through the FSA and FCS, in particular, the success of features such as principal write-downs with shared appreciation, pre-foreclosure notices, and the use of credit review committees. Two, 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 forms such support should take. And three, 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 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00020 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 15 smartinez on DSKB9S0YB1PROD with HEARING but personalized approach that may have greater long-term success in avoiding default. I have experienced this dilemma in leading New York’s residential mortgage prevention task force. And I look forward to hearing your testimony and the dialogue today. Thank you very much. [The prepared statement of Mr. Neiman follows:] VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00021 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 28 here 51741A.008 smartinez on DSKB9S0YB1PROD with HEARING 16 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 29 here 51741A.009 smartinez on DSKB9S0YB1PROD with HEARING 17 18 Ms. WARREN. Thank you, Superintendent Neiman. Now, we will start with our witnesses. I am going to ask you, if you will, to keep your oral remarks to five minutes. Your statements will become part of the record, so we will have the whole thing even if it is longer than five minutes. And just to help us stay on time so that we have plenty of time for questions and then for comments afterwards, Mr. McGreevy down at the far end has got time cards. Ms. WARREN. Well, we have got to run a tight ship here. We want to be sure that we can hear from everyone. Thank you very much for joining us. Mr. Scuse, could I ask you to start? smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF MICHAEL SCUSE, DEPUTY UNDER SECRETARY, FARM AND FOREIGN AGRICULTURAL SERVICES, UNITED STATES DEPARTMENT OF AGRICULTURE Mr. SCUSE. Thank you, Madam Chair. Madam Chairperson and members of the panel, thank you for the opportunity to appear before you today to discuss credit conditions in America, focusing on the current status and operations of the farm loan programs at the Farm Service Agency. Reports from the Federal Reserve and other sources indicate that there is a tightening of credit for farmers and ranchers around this country. A combination of limited or negative returns in much of the livestock industry, reduced profit margins in crop production, and increased sensitivity to credit risk has caused many farm lenders to raise the credit standards, reduce the amount they are willing to lend in agriculture, or both. Many lenders report that increased scrutiny from regulators has caused them to raise credit standards significantly. Activity in FSA’s farm loan programs certainly indicates that less commercial credit is available to farmers at the present time. Farm loan programs demand is usually counter-cyclical to the general farm economy. When the farm economy is strong, farm loan activity is flat. During times of financial stress in the farm economy, the demand for farm program loans greatly increases. This makes sense since a basic requirement to qualify for the program is to be unable to meet the criteria for commercial credit. This year, the loan programs in Colorado and across the Nation are experiencing demand at substantially higher levels than in FY ’08. FSA has two basic loan programs: direct loans funded directly from the United States Department of Agriculture and guaranteed loans funded by local lenders with USDA acting as a guarantor. Guaranteed loans are used for financing of annual crop inputs, to refinance debt, or to purchase capital items like machinery. Farm ownership loans are used to purchase real estate and/or improvements to real estate. In Colorado as of May 30th, 2009, demand for direct operating loans was up 27 percent, and demand for guaranteed operating loans was increased by 47 percent. An usually high number of direct operating loan applications nationally are from new customers this year. As of May 26th, 45 percent—45 percent—of the direct operating loans approved in FY ’09 were for customers who did not VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 19 have existing FSA operating loans. They are new, 45 percent. Normally, the number is only about 20 percent. The quality of our portfolio has continued to improve due, in large part, to our modernization efforts, better customer service, and dedication of FSA employees. At the same time, we realize that given the increased financial stress in the agricultural economy and the increased workload resulting from a larger caseload, portfolio performance is likely to somewhat deteriorate in the future. We are committed to using all the authorities available to assist borrowers and will strive to minimize any deterioration in the performance portfolio. In FY ’08, losses in the direct loan program fell to their lowest level since 1986, just 1.7 percent. FY ’08 data is reflective of the last completed fiscal year as current rates are not available. Losses in FY ’08 in the guaranteed loan program were .3 percent, the lowest rate since we began monitoring the trend in 1985. Again, FY ’08 data is reflective of the last completed fiscal year. As with losses, the direct loan delinquency rates were at historic lows at 6.5 percent for FY ’08. FY ’08 data is reflective, again, of the last completed fiscal year. This is the result of steady and dramatic decreases from a 23.8 percent delinquency rate in FY 1995. The decrease was facilitated by expanded authority since 1996 to offset Federal payments, salaries, and income tax refunds to delinquent borrowers, in addition to our statutory and programmatic changes which have enhanced collection efforts. In the guaranteed program, the ’08 delinquency rate was 1.18 percent, again, the lowest since 1995. In conclusion, our farm program performance over the last few years has been outstanding with delinquencies and losses at alltime lows. However, under the challenging economic and financial environments agriculture faces today, it is almost inevitable that program delinquencies and losses will increase. Certainly there is the increased stress in the dairy, poultry, and hog industries. However, we are committed to use all available options to minimize any increases in program delinquencies and losses. We are fortunate to have many tools at hand to service our accounts and assist borrowers through difficult times. We have a wide array of loan servicing options available to assist borrowers in restructuring their financial situations when they are unable to make payments as scheduled. An orderly method of debt restructuring is a critical part of a lender’s ability to deal with adversity in their portfolio, and FSA can offer borrowers the following specific options. Primary loan servicing. Any FSA borrower in financial distress may apply for loan servicing and borrowers who become 90 days past due will be notified and reminded of all servicing options. Subordination. FSA is often able to subordinate its lien to a commercial lender to facilitate a borrower’s access to operating credit from other sources. Conservation contract. FSA borrowers with environmentally sensitive property may also apply to reduce their FSA debt through the conservation contract program by placing qualifying land under a conservation contract. VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00025 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 20 smartinez on DSKB9S0YB1PROD with HEARING Disaster set-aside program. Under DSA, eligible borrowers can skip one annual payment and move that payment to the back. FSA’s loan portfolio has shown tremendous improvement over the last 20 years and loan failures and losses have declined. However, more challenges lie ahead. Government resources are increasingly limited and the agricultural production landscape is definitely changing. We are experiencing unique conditions in the credit and banking sectors and, to a large extent, agriculture in general. These changes pose significant barriers and challenges to the groups that FSA farm loan programs are intended to assist. These issues create major challenges for the agency as well since the success of the program depends on those whom the programs are intended to serve. Because of our rural delivery system and experienced loan officers, the FSA farm loan programs staff is well positioned to continue the high quality delivery of existing programs and new initiatives to assist small, beginning, and minority and family farms. Thank you for allowing me the time to share the Department of Agriculture perspective as you address this extremely important issue that affects all of us in agriculture. Thank you. [The prepared statement of Mr. Scuse follows:] VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00026 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00027 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 37 here 51741A.010 smartinez on DSKB9S0YB1PROD with HEARING 21 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00028 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 38 here 51741A.011 smartinez on DSKB9S0YB1PROD with HEARING 22 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00029 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 39 here 51741A.012 smartinez on DSKB9S0YB1PROD with HEARING 23 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00030 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 40 here 51741A.013 smartinez on DSKB9S0YB1PROD with HEARING 24 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00031 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 41 here 51741A.014 smartinez on DSKB9S0YB1PROD with HEARING 25 26 Ms. WARREN. Thank you, Mr. Scuse. Mr. Arnusch, owner of Marc Arnusch Farms. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF MARC ARNUSCH, OWNER, MARC ARNUSCH FARMS MR. ARNUSCH. Thank you. Good morning. My name is Marc Arnusch, and I am a third-generation farmer and agribusinessman located in the small town of Prospect Valley. I own and operate a large diversified operation consisting of approximately 1,400 acres of irrigated farmland. Primary crops include sugar beets, grain corn, wheat, sunflowers, alfalfa, and onions. In addition to these crops, I operate four other ag-related businesses in my community. Our operation is large, complex, and very familiar with our banker and his ability to service our lines of credit. The evolution of my farming operation has not come without adversity. Early on in the beginning of my farming career, an act of mother nature began to shape the way I operate as a businessman. The date was July 13th, 1996 and Prospect Valley experienced the worst hailstorm I had ever seen. The storm destroyed nearly every field in Prospect Valley, but what it really exposed was the inability of producers in my community to withstand risk and it put to the test our ability to access credit needed to maintain our operations. It was apparent our small town bank would not be able to withstand the losses most growers were going to face, which prompted officials to seek out the assistance of the FSA Office and the guaranteed loan program. I too began the process of applying for the guaranteed loan program only to stop midway through it. It occurred to me that I could do all that was required, only to suffer a similar fate again. Nothing had changed. It was business as usual, but this time it came with a higher debt level. How did cheaper interest and high debt provide me an opportunity to sustain my production future? I chose a different path, one that limited risk, diversified my operation, and focused my efforts on marketing and cost management. I was asked in today’s oversight panel to talk about business plans and mine consists of five major objectives. Know the cost of production. Identify areas of risk and work to limit them. Take advantage of market opportunities. Diversify. But the most important was being realistic with financials. After identifying true costs of production and necessary credit needs, I examined what crops were working and which were not. Next, all crops were insured against loss of yield. This also enabled my operation to take a more aggressive market approach via cash forward sales and lessened the effect of losses through partial cost recovery. My operation began to diversify in order to withstand market turmoil and reduce the dependency on just row crop production. However, the most significant move was keeping realistic financials, ones predicated on being conservative, able to withstand the tests such as loss of crop revenue, devaluation of land, machinery, and other assets, or economic failure. VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00032 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 27 smartinez on DSKB9S0YB1PROD with HEARING Fortunately, my story has a good beginning. However, my community has not fared as well. Since the time of that hailstorm, 21 growers from Prospect Valley have either been forced from production agriculture, retired, or have outright quit. This also includes my father. In most cases, the loan-to-value ratio was too large to overcome which ultimately forced the liquidation of some very fine producers. Looking forward, the biggest challenge I face as an operator is having access to reliable credit at the size necessary to run the complexity of my operation. Operations are growing and with it are their lines of credit. Many operations in Weld County require operating loans in the millions, and this number is only going to increase. In order to meet this challenge, commercial banks need to have a level playing field when it comes to lending. Too often a community bank may be scrutinized or limited on a particular lending practice by bank regulators when a similar form is available through the Farm Credit System. The Farm Credit System is a valuable tool to borrowers and is important to the future of agriculture in the United States and certainly here in Colorado. However, community banks still play a significant role in this arena. In closing, there are a series of thoughts I would like to leave with you. Successful producers of tomorrow will be the ones who conserve, resist spending, and can control costs almost on demand. They will know their cost of production and understand their financial debt structure and will be intelligent when restructuring. Farms require financial management just like other business sectors of our economy, and when difficult market circumstances arise, those who have their house in order will most likely be the ones to succeed. Any loan program offered via the Government or commercial lending needs to emphasize the importance of business management. Without this vital component, the availability of credit may not make a difference. In fact, it may become the weight that sinks middle American agriculture just as it did in my hometown. Thank you for the opportunity to address the Panel with my thoughts and ideas, and I look forward to your questions. [The prepared statement of Mr. Arnusch follows:] VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00033 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00034 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 48 here 51741A.015 smartinez on DSKB9S0YB1PROD with HEARING 28 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00035 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 49 here 51741A.016 smartinez on DSKB9S0YB1PROD with HEARING 29 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00036 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 50 here 51741A.017 smartinez on DSKB9S0YB1PROD with HEARING 30 31 Ms. WARREN. Thank you, Mr. Arnusch. Mr. Flesher, Executive Vice President of Farm Credit Services of the Mountain Plains. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF MIKE FLESHER, EXECUTIVE VICE PRESIDENT, FARM CREDIT SERVICES OF THE MOUNTAIN PLAINS Mr. FLESHER. Madam Chairman, Mr. Neiman, Mr. Silvers, welcome to our community and let me just personally say thank you for your service to our country during a very unprecedented time of our history. My name is Mike Flesher. I’m Senior Vice President of Mountain Plains Farm Credit Services. We are a part of the nationwide Farm Credit System, which is a unique set of 95 cooperatives chartered by the Federal Government to provide credit and other related financial services to owners and to others consistent with the eligibility set out in the Farm Credit Act. Mountain Plains is owned by more than 1,300 farmers and ranchers here in Colorado. We have about $1.2 billion in total loans outstanding. Our cooperative structure keeps us focused on serving our farmer members while permitting us to share our profits with them. Over the past 5 years, we have returned over $42 million to our farmer borrowers in this area and the entire Farm Credit System has returned some $2.6 billion during that time. That money stays in agriculture and it contributes to the success of our members. The Farm Credit System continues to use its access to the national money markets to make credit available to agriculture in rural areas. The system provided almost $1 billion of new credit to agriculture in the first quarter of this year. Mountain Plains—we account for about $30 million of that amount during the first quarter. The following is what we are seeing regarding the local farm economy in our Mountain Plains territory. Cow/calf operations make up the largest segment of our portfolio, 23 percent. We anticipate these operators will experience average to slightly below average profitability this year. Hay crops, the second largest part of our portfolio, at 14 percent. The demand is strong. The price is good. The supply of dairy quality hay, though, is down due to some unusual rains that we have had in our area this year. Third in size of the portfolio segment is the dairy industry. This industry is experiencing historic losses due to low milk prices and high input costs. And we have contacted all of our dairy borrowers individually to discuss options for sustaining their business. We believe that communication is key to working with our customers. We also serve borrowers that produce stocker and feedlot cattle, corn, wheat, fruit and vegetables, as well as those involved in nursery and greenhouse operations, and all of those segments of the industry make up the remainder of our portfolio. We make use of the USDA’s Farm Service Agency loan guarantees to support our lending. These guarantees are an important tool that allow us to serve higher risk credits that might not otherwise meet our underwriting standards. This program is very important in helping us stay with borrowers in stressful times. VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00037 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 32 As economic stress increases in agriculture—and as you have heard here today it is increasing in agriculture, especially in certain segments—we stand ready to work with our customers as they deal with their individual challenges. For the past 20 years, since the mid-1980s, the Farm Credit System has operated with statutory borrower rights requirements. Troubled borrowers get notification on their standing and what they can they do to avoid foreclosure. For example, a borrower that is current on loan payments is protected against foreclosure. The lender cannot impose previously unscheduled principal reductions. If a borrower is demonstrating adverse financial and repayment trends, we notify the borrower of the right to apply for restructuring, and we provide them with the necessary materials to make that application. The borrower is provided an opportunity to fully review the status of their loan, to develop a plan and seek loan restructuring. This may include a combination of debt forgiveness, release of collateral, reamortization, refinancing, and/or deferral of payments. In the restructuring of a distressed loan, the least-cost analysis of restructuring versus liquidation must be implemented. If restructuring is denied, we must provide the customer with the rationale in writing and let them know that they can request a review of the decision by a credit review committee. Now, that committee must include at least one former board member and it may not include the loan officer that is involved in making the initial decision. And finally, should there be a foreclosure sale, the customer retains the right of first refusal to purchase or to lease their property. Now, our experience of more than 20 years of operating this type of very specific loan restructuring requirements has taught us a few things. First, it is very important that the basics of loan making be followed. Second, communication is critical. The better you know a customer and their farming operation, the better position you are as a lender to anticipate a problem. And finally, working with customers rather than being in conflict with customers makes for better business. Farm Credit serves agriculture in good times and in bad. The borrower rights have helped us keep focused on serving our marketplace when the environment is more bad than it is good. I will give you a recent of this. We had a long-term relationship with a three-generation farm family that has been successfully involved in raising row crops and feeding cattle. To diversify their operation, the family started a dairy heifer replacement program which was profitable for several years. And although this business was well managed, escalating input costs and the downturn of the dairy industry brought them financial stress, and those stresses have continued and grown. Instead of giving up on them, we reworked the credit. We advanced them new money to meet their operational needs to raise livestock and crops. Our goal is to help them return to profitability. What we have done for the borrower and what the borrower has done for themselves has given them an opportunity to stay in busi- VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00038 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 33 smartinez on DSKB9S0YB1PROD with HEARING ness during that extremely challenging down cycle. This farm family has a strong management team. They have implemented efficiencies that are serving them well now and will serve them even better when things do improve. It is only when our customer-owners thrive that we can be successful. At Farm Credit, we know that the economy, the markets, and the commodity prices are cyclical. This comes with 93 years of experience. Thank you for the opportunity to testify. I would be pleased to answer your questions. [The prepared statement of Mr. Flesher follows:] VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00039 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00040 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 58 here 51741A.018 smartinez on DSKB9S0YB1PROD with HEARING 34 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00041 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 59 here 51741A.019 smartinez on DSKB9S0YB1PROD with HEARING 35 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00042 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 60 here 51741A.020 smartinez on DSKB9S0YB1PROD with HEARING 36 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00043 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 61 here 51741A.021 smartinez on DSKB9S0YB1PROD with HEARING 37 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00044 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 62 here 51741A.022 smartinez on DSKB9S0YB1PROD with HEARING 38 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00045 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 63 here 51741A.023 smartinez on DSKB9S0YB1PROD with HEARING 39 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00046 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 64 here 51741A.024 smartinez on DSKB9S0YB1PROD with HEARING 40 41 Ms. WARREN. Thank you very much, Mr. Flesher. Mr. Hardesty, the owner of Painted Prairie Farm. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF LES HARDESTY, OWNER, PAINTED PRAIRIE FARM, AND CHAIRMAN, DAIRY FARMERS OF AMERICA MOUNTAIN AREA COUNCIL Mr. HARDESTY. Well, good morning and thank you. My wife Sherrill and I farm just north of town here, just outside of town. We farm about 300 acres of forage crops, and we milk about 650 cows. I think an overview of the dairy situation, the situation we find ourselves in today, really would start with the decreased worldwide demand, credit issues—that is what we are here about today—and high input costs. All of this is detailed in my report. I will not go into a lot of detail here. This has put our dairy farm families in a dire situation. The complicating factor has been the strong demand for U.S. dairy worldwide in the recent past, and consequently strong prices due to that demand. This has sent a false sense of security and increased debt levels into our industry. I would like to provide you with just a brief overview of the dairy industry to help put in perspective the magnitude of this situation. In 2008, 57,127 commercially licensed dairy farms produced about 190 billion pounds of milk from 9.33 million cows, generated a revenue of about $38 billion from milk. In addition, our farm families have another $110 billion invested in their facilities, their operations, their cattle, and their equipment. Wholesale dairy product prices are down by more than 40 percent, now under the cost of production for most, if not all, of our U.S. dairy farmers. Input costs are up, especially feed, as they are influenced by corn costs. The cost-price squeeze is like none that has ever been experienced for over a generation. Demand must come back soon for many of our dairy farmers to be able to have a chance at recovery. The credit crisis is serious as banks and lending institutions tighten the requirements and start to lose the willingness to participate in agricultural lending. The volatility of ag prices and profits is becoming more than most lenders care to bear. Reliable sources of ag credit are drying up. Ag loans have historically been asset-based with careful consideration given to positive and continued cash flow. Most dairies structure their loan portfolio into three types: longer-term money used typically for real estate; midterm used for facilities, cows, and equipment; and short-term or operating funds renewed annually and used to purchase feed. Currently all of our own personal notes are with a local bank. The planning process and consequent business plans of dairy operations really vary according to the stage of the business. You might have a growth-oriented business. You might have a stable business that is content with status quo, or you might have a business that is beginning to or preparing to exit. All three will formulate a different business plan, but in 2009, even the best laid business plan did not predict the severe downturn and length of pain that our farmers are experiencing. VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00047 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 42 smartinez on DSKB9S0YB1PROD with HEARING In the future, risk management tactics and forward pricing contracting will be required by lenders. This may add even more stress as dairies will now have to include margin call accounts to their loan portfolio. What can TARP do for dairy farmers? Require that institutions that have received funds to develop programs and commit resources to farm loans. We should develop new products specifically for rural America and assist rural lenders so that they can continue to lend. Secondly, dairy farmers are all about helping others. With so many people searching for new jobs today, food aid assistance programs are being utilized at alarming rates. If TARP funding was used temporarily to increase the CCC purchase price for cheese and nonfat dry milk, all of those products could go back immediately into food assistance programs. In conclusion, I do realize the daunting task that is at hand for this committee. I would ask that you keep the following statement in mind as you prepare your report. Agriculture is the backbone of America. It has helped us stand tall over the years. Without a vibrant rural economy, main streets across America will close indefinitely. Our country was built on agriculture. Farmers are the original recyclers and stewards of the land. We provide open spaces for our city cousins and safe, wholesome dairy products for our consumers. Without a strong U.S. dairy industry, our food needs will have to be more reliant on imports from countries that have food safety regulations that pale in comparison to ours. This committee needs to do all it can to keep America’s food producers viable during this cycle. Most importantly, thank you for listening and I look forward to your questions. [The prepared statement of Mr. Hardesty follows:] VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00048 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00049 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 70 here 51741A.025 smartinez on DSKB9S0YB1PROD with HEARING 43 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00050 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 71 here 51741A.026 smartinez on DSKB9S0YB1PROD with HEARING 44 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00051 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 72 here 51741A.027 smartinez on DSKB9S0YB1PROD with HEARING 45 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00052 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert offset folio 73 here 51741A.028 smartinez on DSKB9S0YB1PROD with HEARING 46 47 Ms. WARREN. Thank you very much, Mr. Hardesty. Mr. Ochsner from New West Bank. smartinez on DSKB9S0YB1PROD with HEARING STATEMENT OF LONNIE OCHSNER, SENIOR VICE PRESIDENT, NEW WEST BANK Mr. OCHSNER. I would like to thank the Panel for allowing me to share my thoughts as a locally owned and independent bank. The management team at New West Bank has a long history of agriculture lending experience. I was born and raised in this Weld County area on a farm, and I personally have 26 years of ag lending experience. Our CEO and bank President have 36 and 30 years, respectively. We all started our careers as ag lenders, and we have a total of six ag lenders in our operations. New West Bank currently has approximately 20 percent of our loan portfolio in ag loans, and we are actively seeking qualified agriculture borrowers that meet the industry lending standards. The bank has a diverse mixture of ag loans which includes operating lines of credit, intermediate-term financing for equipment, and ag real estate loans. To make a general statement about the state of the ag economy is a bit difficult since within the ag economy there are opposing economies at work. This has been true throughout history and will continue to be a dilemma that agriculture faces. As an example, when grain prices are high, the grain farmer benefits while the livestock producer is strapped with higher feed costs. When grain prices are low, the opposite impact occurs. Unfortunately, supply and demand, exports, and the weather, to name a few, are factors that play a big role in the volatility of these market swings. However, one of the most important factors of success is the economics of each individual ag operation, which are directly impacted by the debt level of that operation. Those operations with acceptable levels of debt and proper structure are much more capable of weathering these economic cycles. In general, crop products have been very profitable over the past several years. With good prices and good weather, these producers have experienced record earnings and profitability. The dairy industry has suffered a decline in milk prices over the past 12 months but saw record high prices for two years prior to that decline. This industry is able to expand more rapidly than many other ag sectors. Record high prices prompted rapid expansion, and consequently, milk production levels increased rapidly. Again, this is nothing new, and those operations with prudent debt levels are able to survive the lows and flourish during the highs. There have been dairy buy-out programs in the past that have taken excess cows out of production, and once again, there are too many cows in production at present. Cows that are coming out of production early will ultimately correct the problem, but this creates another opposing economic dilemma. More dairy cows going to slaughter have a negative impact on the beef cattle market. New West Bank’s dairy operations are definitely feeling the impact of low prices at present, but have been cautious with their debt levels and have expanded slowly and carefully, which has allowed them to survive this down cycle. VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00053 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 48 Current cattle prices are weakening, a result of the dairy cattle over-supply and liquidation. But in general, the rancher has been profitable over the past years. Today, the risk and volatility of the markets have unfortunately made cattle feeding a very volatile industry, and the family farmer is involved on a rather limited basis. Commercial feedlots and investor feeders are more the norm than are family-owned feedlots. New West Bank has only three remaining farmer feeders. These operators have been very cautious over the past few years by using price protection methods and sitting out of the market when the economics were not suitable. In summary, the ag operators in the northern front range and eastern plains of Colorado have experienced good profitability over the past 5 years. This is evidenced by very few liquidation sales and the high quality of agriculture loan portfolios of most of the ag banks in northern Colorado. At the present time, New West Bank does not have a crop farmer or dairy farmer or cattle producer whose loans are adversely classified under the FDIC’s risk classification. Based on this, our ag portfolio is as strong as it has been in years. As discussed, agriculture can be cyclical in nature, and as always, things can change rapidly. At present, New West Bank has not experienced a decline in credit quality or increased delinquencies in its ag loan portfolio. Annually each year, we discuss with our ag borrowers their financial progress, their overall risk in relation to the industry averages, and their ability to withstand potential adversity. It is not the bank’s practice to lend people into insolvency or bankruptcy. Unfortunately, the bank must say no on occasion, and not all operations remain viable for whatever reason, be it bad weather, low prices, low yields, or poor management. Clearly, the bank’s success is directly related to our borrowers’ success, so it is important for us to give good, solid counsel to our borrowers and for us to keep them in business as our customers. This, on occasion, requires the restructure of debt and possible assistance from the Farm Service Agency. However, the free market system must be allowed to work whether it is in the ag sector or any other sector of the economy. Strong operations survive and unfortunately some weak operations fail. Sometimes very honest, hard-working people fail, which is very disheartening. The biggest injustice is for a bank to lend people into insolvency when good counsel may have helped them exit while they still had equity they could have salvaged. When these producers with weak financial positions cannot demonstrate the ability to survive and are falsely kept in business by either aggressive lending standards or tax dollars, it creates a false economy within the entire industry. Weak and highly leveraged operations simply cannot borrow their way out of a problem. It has been recently suggested that one or two local banks would be able to better assist the distressed farm operators previously banking at New Frontier Bank if they were awarded TARP money. In my opinion, additional TARP money would have little or no impact in helping those distressed ag borrowers for the following reasons. VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00054 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 49 smartinez on DSKB9S0YB1PROD with HEARING It is a consensus among the banking community that after several months of attempting to assist New Frontier borrowers, that 90 percent of the ag borrowers from New Frontier Bank do not meet normal and prudent lending standards. Only 10 percent are considered bankable and many are insolvent. Many of these borrowers are good, honest, hard-working people who have been loaned into positions they now cannot get out of. Specifically, they have more debt than they can repay and their debt far exceeds the value of their assets. All the TARP money in the world will not change the credit quality of these loans and the worst sin of all would be to give TARP money to a bank that is already short of capital and ask them to lend to these very high risk borrowers. Secondly, the performance of the ag industry in general has been strong. I submit that most true agriculture banks are not in need of additional capital. The majority of these ag operations have been profitable, and those banks needing capital most likely were heavily involved in commercial real estate, spec construction, and land development. Thirdly, there continues to be an abundance of agriculture lenders locally and across the Nation that are willing and able to lend to qualifying ag credits. And lastly, the banking crisis we are facing as a Nation at present is not the result of a bad ag economy or bad ag loans. New Frontier borrowers are not representative of the industry at large. In conclusion, there is not a shortage of available ag credit for those operations with reasonable debt levels and who meet normal industry standards for creditworthiness in underwriting. TARP money will have little impact. TARP certainly may be warranted and justified for certain banks that are experiencing weak capital positions. I would suggest to this panel that you use the same sound judgment that good banks must use with their customers and selectively help those banks that can survive. A Government handout to weak and failing banks only creates a false economy within the banking industry and that comes at the taxpayers’ expense. Finally, I offer my condolences to those people impacted by the gross mismanagement of New Frontier Bank. Perhaps another congressional hearing should be conducted to determine how New Frontier Bank management and the regulators failed to protect the borrowers, the shareholders, taxpayers, and the community at large. Thank you for allowing me to comment. [The prepared statement of Mr. Ochsner follows:] VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00055 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00056 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert graphic folio 82 here 51741A.029 smartinez on DSKB9S0YB1PROD with HEARING 50 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00057 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert graphic folio 83 here 51741A.030 smartinez on DSKB9S0YB1PROD with HEARING 51 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00058 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert graphic folio 84 here 51741A.031 smartinez on DSKB9S0YB1PROD with HEARING 52 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00059 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert graphic folio 85 here 51741A.032 smartinez on DSKB9S0YB1PROD with HEARING 53 smartinez on DSKB9S0YB1PROD with HEARING 54 Ms. WARREN. Thank you very much, Mr. Ochsner. If you do not mind, we are going to have some questions just so we can learn a bit more while you are here. Can I start with you, Superintendent Neiman? Mr. NEIMAN. Thank you. I thought I would start by focusing on—a number of you have mentioned the restructuring/modification process, particularly Mr. Scuse and Mr. Flesher. I would like you both to expand on it. My understanding is that under the Farm Service Agency’s program, there are a number of protocols, including shared appreciation, that kick in only upon delinquencies. My understanding under the Farm Credit System—and I was quite impressed by the set of protocols that you outlined—even include pre-foreclosure notices. So I would like you both to comment, if you can, on the programs, as well as on the success rates of those modifications. Have I correctly interpreted those two programs, one, that they are dependent—under the FSA program, that it is dependent on the borrower being delinquent and under the farm credit system, the borrower who may be current but facing problems? Mr. SCUSE. As in my statement, if a borrower does fall into financial distress, they can receive lower interest rates. They can have their loans rescheduled and get up to a 5-year deferral of payments or, in extreme cases, get some of their debt reduced. Now, out of approximately 70,000 direct operating loans that FSA has in the United States, only about 170 per year actually go into foreclosure, and that number has been fairly steady over the last 3 years. Now, because of the financial distress in the agriculture community, there is a very good likelihood that that may increase, but we do work with the borrowers to try to limit those numbers. Mr. NEIMAN. So of the 70,000 operating loans, how many have availed themselves of this modification process? Mr. SCUSE. I do not have that number for you, but I will be more than glad to get it for you. Mr. NEIMAN. And do you track also re-default rates? That has been a major issue on the residential mortgage side. After modifications, there is still a high frequency of re-defaults. Mr. WALL. There are not a lot of re-defaults—— Ms. WARREN. If you could identify yourself just so we will have a record. It is fine. You are welcome to be—— Mr. WALL. I am Gary Wall, acting State Executive Director for Colorado for Farm Service Agency. Ms. WARREN. Thank you, Mr. Wall. If you could help us with the question. Mr. WALL. I can state for Colorado on the restructures, after the loan is restructured, there are not a lot of accounts that go delinquent again because it is based on cash flow and history. We look at the history of that operation to determine what the history has been over the past and their yields and their income and their expenses. So after you work through those numbers and get it down to what they can actually cash flow to write off debt, defer, or whatever, they seem to continue on after you do it. Ms. WARREN. Can I just ask because I just want to make sure I am following? VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00060 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 55 Mr. NEIMAN. Go ahead and follow up. Yes, please. Ms. WARREN. So you are using a combination. You are not only writing down the interest rates, you also sometimes are writing down principal. Is that right? Mr. WALL. We can write down principal. Correct. Ms. WARREN. So you have the option to do both of those until you get something—— Mr. WALL. The value of the security—for example, I have got a $100,000 loan and their security for depreciation is worth about $80,000. We can write off that $20,000. Ms. WARREN. I see. So you, I take it, do not have many loans that post-restructuring are under water in terms of negative equity, even though they might be cash flow manageable. Mr. WALL. Not in the last 5 years. In the past, there have been some that the equity went down because of different circumstances, yes. Mr. NEIMAN. And the interesting thing about that program, if I understand it, is that when you do write down the principal, there is a shared appreciation agreement so that the Government shares in the upside. Mr. WALL. If it is secured by real estate. If it is the security on chattels, which is the machinery and equipment, the equipment is worth what it is today. So if you write it down, that debt goes away. Ms. WARREN. There is no shared appreciation in most farm equipment. Right? Mr. SCUSE. Exactly. If there is an appreciation in real estate, then that value is shared. Mr. NEIMAN. So let me switch over to the Farm Credit System to understand the distinctions and the process. At the State level, we are familiar with a pre-foreclosure notice, and that could go out to borrowers early in the process. What is the success rate with that program? Mr. FLESHER. You are correct. Our approach can be two-pronged. Obviously, a delinquency may trigger our borrower rights program and notification that we consider the loan to be in distress, and then we begin the process of letting the folks know that they have the opportunity to apply for restructuring, and we provide them all the material for that. But delinquency is not required in order to begin that process. It may be, to use an example, we have a major hailstorm in a particular area of our territory, and we know that the crop loss is significant, possibly total. Well, obviously, that becomes a distressed loan, and then we begin the process early on of sitting down and trying to anticipate how that individual will be able to continue to service that particular loan. So we at times are reactive, but we at times are very proactive in the process as well. Our success rate has been quite good. In the Mountain Plains territory, in the past 18 months, we have only initiated one foreclosure action and we have restructured 17 loans, and that is over an 18-month period of time. I am pleased to tell you that all 17 of those restructures are performing today. Mr. NEIMAN. From the residential side, we have seen nationwide the difficulty in borrowers responding to these pre-foreclosure no- VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00061 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 56 tices. How would you characterize the response rate from agricultural loans in terms of either being proactive in reaching out to the bank or reactive in responding to your notices? Mr. FLESHER. Generally we find the borrowers to be proactive in sitting down with us. The process of applying for a restructure, Mr. Neiman, is not a one-sided dialogue. It is a negotiation. Our intent is to return the operation to profitability. We can do it on a leastcost basis. We want to see that loan restructured to return that operation to profitability. So even if a borrower does not respond back to us, the regulations give us the opportunity to initiate a recommendation with regard to restructuring a loan. Now, the customer may or may not accept that recommendation and may not be interested, and then, of course, we are left with the ultimate road to foreclosure. But even if we do not hear back from a customer, we have the ability to be able to sit down and to recommend a possible restructuring plan to help them with their situation. Ms. WARREN. Well, I was just going to ask do you want to ask Mr. Ochsner? Mr. NEIMAN. Yes. As a matter of fact, that was the lead-in to my next question. Are these protocols and restructuring processes unique to a cooperative association, or do you think that they can be adopted by commercial banks outside of the Farm Credit System? And maybe that is more directed to Mr. Ochsner. Mr. OCHSNER. Sure. I think there is somewhat of a misconception within the independent banking world that a good bank stays with that borrower until they no longer can survive, and that is a misconception. A good bank is giving counsel along the way. I think there are instances when you have a disastrous hailstorm where a good credit quality loan can deteriorate quickly. In general, there are warning signs, and I believe most of the smaller independent banks are involved in counseling those borrowers as the credit deteriorates and looks at different alternatives. The system in place currently with Farm Service Agency has been a big help for independent banks to utilize the existing loan programs that are there for both borrowers that are distressed and that have had deterioration in their ability to survive. Ms. WARREN. Could I ask a follow-up question with that? Mr. NEIMAN. Yes. Ms. WARREN. Because I would just like to stay with this for just a moment, Mr. Ochsner. That is, when you do a farm loan restructuring, about how long does it take? And I do not mean that in terms of months or weeks, but I mean it in terms of how many person-hours at each opportunity. I am really asking the question about the investment of resources required to do a restructuring. It may be appropriate for Mr. Flesher as well. But if you could just help us understand that a little bit. Mr. OCHSNER. Sure. In a smaller independent bank, the restructuring process is dynamic over the course of a week or two possibly as you meet with that customer, but it is not a lengthy process by any means. I would suggest that you look at the alternatives that are available and you approach those. Oftentimes, there are limited alternatives. If you choose the path to use Farm Service as an in- VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00062 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 57 strument to help you, then that can take, obviously, a little bit longer until you prepare the paperwork necessary for that process. Ms. WARREN. Mr. Flesher, can you help a little bit there? Mr. FLESHER. You know, the best answer I can give you is that it depends on the individual that you are working with. We have had some situations where the borrower was very proactive, was very quick to provide us all of the appropriate financial information that we needed in order to make a decision. Obviously, the time that we spent—the administrative costs—I mean, beyond legal fees and then, of course, if in fact we are going to restructure, we also look at costs of liquidation because that is a possible alternative as well. So in this least-cost analysis, the time that we spend is kind of factored in with part of that number. But it is important to understand that a lot of it is predicated upon the willingness of the borrower to want to sit down to negotiate a restructuring package that we are comfortable with and that they are comfortable with. Ms. WARREN. Right. Did you want to add? Mr. NEIMAN. I’ll just frame it just a little bit. There is a real question in home mortgage foreclosures and small business foreclosures. We are not facing a handful. We are talking huge numbers right now. And the question is whether or not servicers in many cases are adequately prepared to spend the time that is necessary for restructuring. I recognize something is different about restructuring loans, particularly when you are restructuring a loan for a farming operation, but perhaps more akin to small business restructuring. But I was really just trying to get a sense, when I am hearing from people, as I am at this table, who engage in successful restructuring—some sense of the time involved because it tells us something about what may be needed elsewhere in the economy where, at least right now, we may not be quite so successful in negotiating restructurings that are not ending up in re-defaults quickly. So if any of you actually have comments on that from having experienced on either side. Mr. Arnusch. Mr. ARNUSCH. Well, I think Mr. Flesher hit the nail squarely on the head. I think it all, in my mind, boils down to that communication between the individual applying for that loan or needing of that restructure and the bank’s willingness and ability to help them identify that in advance of these pre-delinquent notifications. From my perspective, by the time you receive a pre-delinquent notification, the problem is significant. In situations where a Farm Credit Service or an independent bank could help the individual identify those needs of restructuring to ease the cash flow issues, I think it all boils down to that communication and the ability for the lender and the lendee to be on that same page and understand the operation thoroughly. That in my mind is really the success that I talked about in my opening statement as far as being able to identify the ways and means to smartly restructure debt. Ms. WARREN. That is helpful. Mr. Silvers. Mr. SILVERS. I want to turn from the process of restructuring loans to the basic economics of the question I think that a number VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00063 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 58 of you have addressed. I am going to start with Mr. Flesher, but I would welcome other people’s comments after he answers. It is a major issue throughout the financial crisis that banks are holding assets which, if liquidated, are deeply insufficient to cover the loans they have made, and the process of liquidation does profound social damage. By social damage, I mean destruction of communities and neighborhoods. I do not think there is anything that makes the agricultural circumstances particularly different. In fact, as I listened to the testimony today, it occurs to me that the kinds of businesses Mr. Arnusch and Mr. Hardesty run are put of an auction block tomorrow morning in the context of, for example, the crisis of the dairy industry, and might fetch considerably smaller prices than they were thought to be worth as collateral, say, 2 or 3 years ago. And the implications of this are very profound if that is true because it changes the nature of the options facing a banker such as Mr. Ochsner. So, Mr. Flesher, I wonder if you could begin by talking about your sense of this question. From the perspective of the bank, the lender, is foreclosure of a troubled farm or agricultural business— I am not sure what Mr. Arnusch described as farm quite captures this—is that really the smart play in most instances? Mr. FLESHER. As I mentioned in my testimony, part of our process is sitting down and taking a look at a least-cost analysis in that process. Mr. SILVERS. And what do you find in that? Is there a rule of thumb here? In residential mortgages, there is kind of a rule of thumb, that foreclosures pull about 30 to 40 percent of the loan. That is what you realize. Is there any rule of thumb in agricultural lending? Mr. FLESHER. There is not because every agricultural operation is very different based on, obviously, their diversity, the size, the types of commodities that they are involved in. You know, when we sit down and take a look at an operation that is distressed, obviously, foreclosure is not the first thing on our mind. It is the last thing on our mind. We have a strong desire under our borrower rights program to be able to, as I said, return those operations to profitability. I think what is key in agricultural lending versus other types of lending that you have referred to—within agricultural lending, we build relationships up front. When we make loans initially with a customer, it must be, as I said in my testimony, a sound loan, just as if we restructure an existing loan that has become distressed. It still must be a sound loan. Wanting to extend credit beyond the means of an operator is not prudent for the customer nor for the lender. So when you talk about lending in agriculture, the relationship, the understanding of the inordinate risks involved in agriculture, which are very peculiar to agriculture, as compared to other types of lending, the ones you have referred to, all of those things are factored into our credit standards, into the decisions that we make, into the way that we structure our loans, as Mr. Hardesty referred to with regard to short, intermediate, and long-term credit and so forth. VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00064 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 59 So there really is no simple answer, Mr. Silvers, to your question other than, again, if we go into the process in a proactive way, wanting as our goal to be able to return the operation to profitability, then as I shared with you, in the past 18 months, there has only been one loan that we had to call to foreclosure. The other 17 we were able to restructure. Mr. SILVERS. I am a sort of simple person in certain respects. So I am going to push for a simple answer. It appears to me from what you have said that in general your approach to troubled loans is foreclosure is not the last resort because you are generous and charitable-minded folks. It is the last resort because generally there is a better outcome for the lender in some sort of restructuring if you can get the sort of communication that Mr. Arnusch and other witnesses referred to. That seems like a simple proposition. Is that proposition correct? Mr. FLESHER. I think so. Mr. SILVERS. You think so. I got a simple answer. Ms. WARREN. I think you are getting some agreement from Mr. Ochsner as well and Mr. Hardesty. Mr. HARDESTY. If I may add to that just briefly here, you talked about the asset value being diminished from two to three years ago. In the dairy industry, I would say it is diminished from six months ago. Many of our producers, if this crisis would have hit six months ago or six months from now, would not find themselves in the position that they are in today because of this extreme devaluation of assets. Our farmers do not want a bailout. They just want an opportunity to succeed, and by restructuring and doing some of those things, I think that affords them an opportunity. Ms. WARREN. Mr. Ochsner. Mr. OCHSNER. Mr. Silvers, to accurately answer your question, I would like to, first of all, differentiate between housing and the ag sector. I do not believe anyone saw the significant drop in housing values coming. Historically prudent lending would suggest that you margin a loan, whether it is an ag loan or a housing loan, and you loan a certain percentage. In the housing industry, we typically over history have not seen drops in the values, and so a higher percentage has been acceptable. However, in the ag industry, it is cyclical and good, prudent ag lenders have created a larger buffer, if you will, or a margin. In other words, if a cow is worth $1,500, they would loan 70 percent of that cow, knowing full well that cycles will occur where that cow may be worth $1,800, but still leaving that margin in place and utilizing a more stabilized value over time rather than wagging the tail up to a $2,500 value and then loaning 80 or 90 percent because the industry is experiencing great times. Mr. SILVERS. But, Mr. Ochsner, I am not sure you are addressing my question. Let me explain why. I do not disagree with your basic analysis that imprudent lending standards did a great deal of damage and that in a cyclical business such as agriculture that you want to have a significant capital cushion. I do think that housing is nowhere near as stable as you suggest it is, at least in many of our major markets. But that is not really here nor there for this conversation. I agree with that proposition. VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00065 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 60 The question is, what do we do now in relation to loans that may have been imprudently underwritten where the choices now are choices between restructuring and liquidation, where we cannot rewind the clock. Mr. OCHSNER. The options are limited. Mr. SILVERS. Do you disagree with Mr. Flesher’s observation ultimately that as a general proposition, you can get better value out of a restructuring than out of a liquidation? Mr. OCHSNER. It would depend on a case-by-case basis. Mr. SILVERS. I mean, obviously, there are circumstances that are hopeless, and there are circumstances where continuing down the road is just going to make it worse in the end. I agree with you there. But my question is looking across the totality of the ag lending environment, when you were faced with a situation that maybe you would like to hit rewind, but you cannot, is it the case in total, that there are more circumstances where restructuring would work out better for the lender than foreclosure? Mr. OCHSNER. I do not know that I can answer that definitively. I am a small business owner and I have to, as Mr. Flesher said, analyze the least-cost alternative. If foreclosure and liquidation is the least costly alternative, then unfortunately that may be the alternative. Mr. SILVERS. In your experience, is foreclosure generally the least-cost alternative? Mr. OCHSNER. Again, I cannot answer that. Mr. SILVERS. Well, surely you have—— Mr. OCHSNER. It is case by case based on the operations. My experience with the operations that I have dealt with—— Mr. SILVERS. Right. Yes, that is what I am asking. Mr. OCHSNER [continuing]. in which we have tried to apply prudent lending standards, we have not experienced foreclosure in very many opportunities at all. Generally, we restructure through Farm Credit or Farm Service Agency. So I guess the answer to your question is restructuring would probably be a more viable alternative. Mr. SILVERS. Thank you. Ms. WARREN. I want to follow up in a slightly different direction if I can on this, and this is a question about—I am not sure if the right way to frame this is a big bank/small bank question or if this is better framed as a standardization in lending models and standardization in dealing with distressed loans versus a kind of handcrafted model. But we have been having a series of field hearings. We have been to a lot of different places hearing about different kinds of problems. But I would welcome your thoughts and your comments on this. It seems to me, although I read very formal discussion of this, there seem to be two kinds of lending models that have emerged over the past perhaps dozen years or so. One that is very standardized. Let me know your ZIP code. Let me know your income, and I know how much to lend. And I must say it is not a notion that excessive lending does not help customers. The notion is the customer knows how much the customer should borrow and our job is VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00066 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 61 just to make as much that available as possible versus this kind of handcrafted lending that you talk about. And so I have two questions. First, do you see this divergence in lending? Maybe it is three questions. The second is how much in the ag lending market would you say falls into one category or the other? Is it really all in the handcrafted, what I was calling the smaller bank model? Is that where ag lending really is right now, or is a portion of it somewhere else? And any speculation on the consequences of that? I would welcome comments from anyone who seems to inclined to start. Mr. Ochsner, you seem ready to go on that. Mr. OCHSNER. I do not believe that there is a difference. I believe that sound underwriting is very much the same at the small, independent level as it is at the Farm Credit level. I would suggest that most small, independent banks use the same exact standards. Ms. WARREN. As, say, Wells Fargo or—— Mr. OCHSNER. Absolutely, yes. Ms. WARREN. Okay. Mr. Flesher. Mr. FLESHER. Madam Chairman, I believe that generally when you take a look at community banks and most regional banks across the country, they are more, shall we say, relationship-oriented and, by virtue of that, more hands-on in their customer relationship, their lending practices, their understanding of the businesses that they are lending money to. You take a look at, I think, some of the very large banks in this country, the ones that have been dubbed as ‘‘too big to fail,’’ I am not sure that the personal high-touch business model that Mr. Ochsner and myself are familiar with is one that has been readily embraced by those larger banks. Ms. WARREN. Go ahead, Damon. Mr. SILVERS. I would like to follow up on this theme of big and small banks and in a somewhat different way. I mean, I think this is a theme that we have seen in other credit markets. I think Mr. Ochsner’s description of having money to lend is not unusual in the community bank sector today of people who know their customers and are close to them, as Mr. Flesher described. But I am interested in two things. I want to begin with Mr. Scuse. You described a dramatic escalation in people coming to your agency for loans. How do you apportion the cause of that as between the deteriorating credit quality of farm borrowers and the withdrawal of credit from the agricultural market by financial institutions for whatever reason? What do you see as the balance there? Mr. SCUSE. I think it is both. I think you are seeing right now across the entire United States from coast to coast—it does not matter what type of agriculture you are in. I think there is a great deal of concern by the lending institutions as to the future of agriculture, if you look at what has happened to the dairy industry, again, the poultry industry, the swine industry, if you look at the decline in prices just in the last couple weeks in the commodity markets. So I think there is a great deal of concern out there from the banking industry, as well as a tremendous deterioration in the VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00067 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 62 equity in agriculture. So I think it is a combination of both, not just one or the other, but across the entire United States, it is pretty much both. Mr. SILVERS. Now, in this community, northeast Colorado, obviously, there has been the collapse of a major agricultural lender, perhaps a not particularly responsible one, but nonetheless, they are gone. We, being the United States, we have put a great deal of taxpayer money into a number of large banks of the type that Mr. Flesher was describing, some of which are—at least had been significant agricultural lenders, including Wells Fargo, which I believe is the largest agricultural lender in the United States. I am asking this of any of you, to the extent you know or have any information about this. To what extent are we seeing those banks which have been propped up by the United States taxpayer coming into this community and replacing the vanished credit capacity that we have had here? Ms. WARREN. Mr. Flesher? Mr. Hardesty, you were reaching for the mic. Mr. HARDESTY. I certainly cannot speak—I do not know how some of these large banks operate. Knowing the cast of characters in the dairy industry that happened to bank at New Frontier Bank, most if not all have been unable to obtain any other additional financing, and they have—reportedly—visited 8, 10, 15 banks and asking for loans. And so I would say that from more of a hearsay point of view, as far as the dairy industry is concerned, it has not happened. Mr. SILVERS. I would just follow up on a few things. I think there has been a suggestion by Mr. Ochsner that a lot of those folks are not going to be able to repay further loans. Is that a fair characterization of your testimony, Mr. Ochsner? Mr. OCHSNER. Yes. Mr. SILVERS. I would ask you, Mr. Hardesty, if you disagree with that characterization of those folks, and secondly, do you have any information more broadly? As our Nation’s banking systems become more concentrated, when we have a problem, serious problem with smaller banking institutions, are we seeing the big banks stepping up to address whatever there may be, small or big, depending on one’s assessment of the credit quality of the borrowers? Mr. HARDESTY. Personally I do not differentiate small to big. As an ag borrower, I want a relationship with my bank and my banker and the person that understands my needs. Period. I do not care if they are the smallest bank in town or the largest bank in town. As far as New Frontier and whether or not those loans are bankable, I do not know the circumstances in detail, but I really think it is almost a moot point because that water is under the bridge. FDIC is in the process of packaging those notes, and so that water has already traveled downstream. Ms. WARREN. We have one more. I am sorry. Mr. Arnusch. Mr. ARNUSCH. I do not know if I can accurately answer the question you are asking, but I can tell you that we are seeing a concentration in the lending sector for agriculture just as we are seeing the concentration of agriculture in general. VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00068 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 63 But I wanted to point out this too. We are also seeing a lot of our input suppliers to our industry, be it John Deere Credit, be it financing options through seed companies, and other large companies coming to the plate that have been nontraditional lenders in the past. In certain instances, we have even seen where companies like John Deere are even offering operating credits in limited amounts. And so I would suggest that maybe some of these larger firms outside of what we would consider large banks are trying to pick up the slack, but to say that large banks are not lending to agriculture, I cannot go that far. Mr. SILVERS. But you are seeing people in the trade credit business and, as you say, the nontraditional suppliers of credit expanding what they are willing to lend on. Mr. ARNUSCH. Absolutely. Sometimes it is somewhat of a sales enticement. Often they offer interest rates that are far below anything that farm credit or a commercial bank could offer, and so there is a hidden strategy there. However, it takes the burden off of me, cash flow operations and operations—— Mr. SILVERS. From your perspective, a deal is a deal. Mr. ARNUSCH. A deal is a deal so long as you agree with what you are buying. Mr. SILVERS. Thank you. Mr. NEIMAN. Having traveled across country for this hearing, I would not want to leave here today without clearly understanding recommendations from you all for legislative or regulatory change that we can make to Congress in our subsequent reports. In analyzing the residential mortgage issue, a number of the root causes and legislative responses at the Federal and State level were clear. We addressed breakdowns in the origination process, breakdowns in the securitization process, weak underwriting, lack of counseling for borrowers, lack of opportunities for modifications. Help me understand what we should be recommending to Congress. Clearly, I have heard of price supports for particular products, but are there other regulatory, structural responses with respect to the lending process? Because what I highlight on the residential side—many of those issues do not appear to exist on the agricultural side. So I would be very anxious to hear from all of you specific recommendations that we can consider in making our recommendations to Congress. Ms. WARREN. Mr. Ochsner, would you like to start? Mr. OCHSNER. Well, I may be the Lone Ranger here, but I truly believe we have had a strong economy up to the current point in time with certain dynamics like the dairy industry that have had their cyclical nature, which occurs. Quite frankly, I think the best thing you can do is leave the Government out of it and let the true capitalism take its course. Let the process happen, and the strong survive. Unfortunately, the weak fail. Sometimes those are very good people, but there will be another person that will come alongside the weak. They will pick them up. They will partner with them or they will buy them out, and they will have enough money to go home and retire rather than carry on this false support that ultimately cripples the industry, whether it is agriculture or banking or the Starbucks on the corner. And I really believe let us let capitalism work. VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00069 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 64 Ms. WARREN. Thank you. Mr. Hardesty. Mr. HARDESTY. Absolutely. In my testimony, I testified as Mr. Neiman correctly stated, that a temporary increase in the support of CCC purchase price would be a very, very minimal cost. On the cheese side, maybe $25 million is our estimate. On the powder side, I do not have that number with me. We could certainly obtain that number for you. But again, the severity of the dairy crisis is unprecedented. And certainly most of our dairy farmers are free marketers, but we passed the free marketing scenario four or five months ago, as we are nine months into this scenario. Ms. WARREN. Thank you. Mr. Flesher. Mr. FLESHER. Madam Chair, I think it is safe to say that communities similar to Greeley, Colorado all across this country cannot afford the huge regulatory failure that this community experienced. So that would be one recommendation. Secondly, I believe that—— Ms. WARREN. Please, I think Mr. Silvers wants—— Mr. SILVERS. Can you be a little bit more specific as to what you think the failure was and what should be done differently? Mr. FLESHER. I, obviously, do not have access to the reports issued by the regulators of the local community banks here, but in my discussions with other community banking leaders, I am strongly left with the impression that the standards required by one commercial bank were not upheld in another commercial bank. And that has led me, Mr. Silvers, to believe that that issue needs to be addressed. Again, I do not believe communities across this country can withstand this sort of thing on an ongoing basis. Mr. NEIMAN. I was also struck in your testimony when you said you have not changed or tightened your lending standards, and it is quite remarkable when we are aware of banks across the country who are increasing underwriting standards to such a point where there is a concern that they have gone too far. I think it is because of where they may have started from. So you may also want to comment on that as well. Mr. FLESHER. Thank you, Mr. Neiman, for bringing that to the hearing today because we are proud of the fact that we have not changed our credit standards. We are proud of the fact that even though we have received criticisms from time to time within our local communities that maybe our credit standards were too strict, too conservative, we feel like, based off of the degree of risk in the industry that we serve, that our credit standards are there to not just protect the institution, but are there to help the borrower as well. And so my second recommendation is that on a go-forward basis, all lenders need to better understand the importance of making solid loans from the beginning. And then thirdly, we are very proud of our 20-year history in the area of borrower rights, and I want this panel to know that the program is working for us and it is working for our customers because it creates a framework under which everyone understands what the rules are. The playing field is level. The customer understands their rights and responsibilities. The lender also under- VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00070 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 65 stands the borrower’s rights and responsibilities. So it creates a wonderful framework for us to help resolve situations. Mr. NEIMAN. Do you see that being transmittable to other commercial banks—— Mr. FLESHER. Mr. Neiman, that would be a policy decision of the U.S. Congress. We are very proud of our 20-year history and it is working for us. Ms. WARREN. Thank you very much. Mr. Arnusch. Mr. ARNUSCH. Well, many of my recommendations and thoughts and ideas have already been taken. But the point I would like to drive home too is, yes, half of the equation is certainly the lender, but the other half of the equation is the borrower. And agriculture is a changing and a complex industry and, with that, must be the evolution of our management strategies. There was probably no one more important to the success of my operation than my father and my family, but I can tell you I manage the day-to-day operations of my business so much differently today than my family did. In fact, I manage my operation differently than I did just three years ago. And until we recognize that it is an industry, I believe we will have future hearings such as this. It is an evolution process. It is a management process, and quite frankly, it is an education process. Ms. WARREN. Thank you very much, Mr. Arnusch. And Mr. Scuse. Mr. SCUSE. Thank you, Madam Chair. As a farmer who just 10 or 12 years ago was very, very critical of USDA and its lending policies, I can sit here and honestly say that there has been a dramatic turnaround in FSA, its loan programs and lending policies. We went from a delinquency rate just a few years ago of almost 25 percent to a delinquency rate today of just over 1 percent. I think we have some very good programs at USDA. We are working with those producers that our programs are designed and intended for. I think we have some great opportunities out there, and our programs in my opinion function in a way that they are intended to work. You asked me a question earlier this morning about the number of loans that we restructured, and I did not have an answer for you but I do now. We restructure approximately 2,400 loans out of the 70,000 per year. Mr. NEIMAN. Thank you for that follow-up, a quick follow-up. Ms. WARREN. Thank you very much. That is a very quick followup. Mr. SCUSE. Modern technology. Ms. WARREN. There we go. I love it. I want to thank all of the witnesses for sharing your time and your thoughts with us today. As I said, your whole statement will become part of the public record, as well as your oral statements and our dialogue here. We really appreciate your taking the time to do this. I want to say we also invited another very large financial institution to join us, and they would not. And I appreciate your coming VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00071 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 66 and doing this. It takes your time and your energy, and we are all grateful as part of this panel. This panel is now excused. Before we adjourn this hearing, however, we want to take time for members of the audience, if you wish to speak to us. The way we are going to do it is if you will take the podium over here and make a line just back from there behind the podium. I am going to ask that people keep their comments short. We are going to try to keep these to a minute each just so we can hear from the maximum number of people. And Mr. McGreevy will hold up a stop sign when it is appropriate. But we do want a chance to hear from everyone, and I want to be clear, what you have to say becomes part of the public record of this hearing. So we welcome your thoughts. So if you would identify yourself please, and we are here to hear your comments. Mr. GALLATIN. Thank you. My name is Loyal Gallatin. I am an owner of a construction company here in Greeley. So I am kind of a little bit out of the scope of your discussion here. However, this kind of highlights the situation that we are in as construction and small business people here in Greeley. We do not have these people as resources for financial assistance to restructure our loans. I have been to 24 financial institutions and have been denied 24 times. I do not understand that. All of my construction loans have gone since the FDIC took over New Frontier Bank. I did not default this institution. I did not. My loans were in good standing when this bank was seized by the FDIC. The FDIC is telling me you have 30 to 60 days to restructure this, your loans. The FDIC has told me themselves we know there is no money available for you to do that. So what do I do? I mean, in my case, are me and my family as a small business forced to file bankruptcy both on my business and personal and everything I have worked for is gone? I do not think that is true. I am kind of out of the realm here. I am not a farmer. I am not a dairyman, but I have just as much of an impact on this community as these gentlemen do. One of our representatives from Morgan County stated that she had six people that had a $40 million impact on the economy. That is six people. I am one person. I probably have a $6 million or $7 million impact on this community. So I just want you to know that it is just not all about ag, even though it is important. There is no doubt about it. There are others that are affected here as well. Ms. WARREN. I appreciate Mr. Gallatin. One of the points of the field hearings is to get at least some sense of the impact on communities and we recognize it goes far beyond those who are in the direct business of producing agriculture. Thank you very much. Yes, sir. Mr. MCALLISTER. Thank you, ma’am. Respected members and chairperson, I am Darrell McAllister. I am CEO of Bank of Choice of Greeley. Bank of Choice is a $1.2 billion bank. We are not Wells Fargo, but we are larger than the current bank here today. I think the question in northern Colorado is that banks and northern Colorado have adequate capital. With the closure of New Frontier Bank, $160 million in capital was vaporized. That is $1.6 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00072 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 67 billion in lending capacity. New West Bank, which is a very good quality, small bank here today, had as of their call report on 3/31 $7.4 billion—or excuse me—million in capital. You basically need more than 20 banks of their size to replace the capital that left this area. They said they have 20 percent of their loans in ag loans. As the call report showed, they have $70 million in loans. That would mean they have about $14 million in ag loans today. Our bank has refused to look at new loans because we just basically are not well capitalized enough. We are well capitalized, but not under the new standards that have taken it up to 12 percent. And we would wrap up too much of our capital. But we have turned down the chance to look at $15 million loans at this point in time just because we would be wasting our customer’s time. Without capital, it is hard to move forward. Capital is key. Without TARP funds for banks, does not make a bad loan good. Without capital, whether it is from TARP or other, attempts to lend in this community for many of the banks are impossible. Ms. WARREN. Thank you very much. I appreciate that. It is very important. Mr. SILVERS. Thank you for coming. Ms. WARREN. Yes, ma’am. Ms. SIDDELL. My name is Cindy Siddell. I am one of those thirdgeneration exiting farmer people who have sons actively involved and were impacted by Frontier Bank. I have some grandsons and grandson-in-laws actively involved in agriculture. In our family, each son, grandson, and sons who are in partnership have found and secured separate lines of credit, but they work together as a unified whole. My husband and I have been involved in agriculture for over 52 years and have been customers of the various ag lending entities over that period of time. And I would like to make the remark that the situation at Frontier Bank was predicated by the fact that a bank before them, Centennial Bank, sold out and that ag lending basis evaporated, vaporized. In its place, many of the other small banks were lending very cautiously, Bank of Choice and West. In that vacuum, New Frontier stepped forward and actively courted a number of the larger agriculture entities to get their business. And then we had this scenario of perhaps one very large operator in a very volatile dairy industry toppled, and the row of dominoes went down. So with that, I would like to conclude that most farmers and ranchers prefer to have that very intimate, knowledgeable relationship with their banker. They like to deal with the smaller independent banks. What the solution is I do not know, but we need more free credit. We need more banking organizations, perhaps the credit unions, to be freed up in the kind of loans that they can make so that those viable operators can continue to operate. Thank you. Ms. WARREN. Thank you, Ms. Siddell. Yes, sir. Mr. SPONSLER. Hi. My name is Mark Sponsler. I serve as the Executive Director for the Colorado Corn Growers Association and the Colorado Corn Administrative Committee, among other roles. But I want to be clear that I am not speaking on their behalf, but in VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00073 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 68 that role, it has put me directly in the middle of many of these types of meetings and I have been following the issue very closely. So I speak personally as an incurable agriculturalist who grew up in the Midwest and has been fortunate enough to spend more time in Colorado agriculture than in my home State of Iowa. But I want to emphasize some points that I heard today that I think really bear emphasizing, and one of those primarily was brought forward by Mr. Hardesty. And I very much appreciate the quest of Mr. Silvers to drill into the better of two options regarding foreclosure versus restructuring and specifically what he referred to as the profound social damage done by restructuring. As Mr. Hardesty said, these are unprecedented times in terms of the livestock industry, particularly dairy, for what is understood to be cyclical but the extremes of that cyclical cycle have bounded further than ever before in history. And I would ask that special consideration be given to the fact of these unprecedented times and the fact that unprecedented measures may be appropriate given the immense impact on both food security, national security, and safety that those products provide us. Thank you. Ms. WARREN. Thank you very much, Mr. Sponsler. I appreciate your coming. Yes, sir. Mr. REIMER. My name is Dean Reimer. Basically I have been a resident of Colorado all my life. And I am kind of from an ag background, but I am an investment counselor now basically. What bothers me is it seems like there is a lot of discrimination between large banks and small banks. I have been an investor in small banks. And I think a lot of it pertains to exactly who is servicing loans, especially in the mortgage area, and personal contact between bankers and their customers. And it seems like that there has been a failure of a lot of the government agencies, the SEC in particular, with oversight in a lot of these issues. All I am trying to say is that it seems like, to me, that the compensation and the nationalization, I guess you might say, of the large banks by the Government—and that is pretty much what they did. They are taking over major ownership of a lot of these institutions. That discriminates a lot against community small business and community banks and that sort of thing. And this does not have a lot to do with agriculture, but because that is more of a personal business. And the large banks, I do not think, want that business because they do not understand it. They just want large loans to large institutions. So all I am trying to say is I think the discrimination against smaller institutions, raising capital requirements like, for instance, is something when a distressed bank is in trouble that is completely wrong because all you are doing is causing a larger problem. Ms. WARREN. Thank you very much, Mr. Reimer. Thank you. One more. Ms. RODRIGUEZ. I want to go last. Ms. WARREN. Yes. Rosemary Rodriguez. That is right. Do we have anyone else who wanted to comment? Please, ma’am. VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00074 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 smartinez on DSKB9S0YB1PROD with HEARING 69 Ms. HURSTON. Hi. I am Deb Hurston, and my husband and I had a dream for years of setting up a farm, and we came to Colorado specifically for that from Georgia. I heard you ask for recommendations to take, and I did not hear a lot of recommendations. I heard a lot of self-proclamation, but I did not hear a lot of recommendations. And there is one recommendation that I will make. When the FDIC comes in and takes over a bank, particularly an ag bank, please do not do it as the timing was for this FDIC takeover because now I should be focused on my crop. I am crop. I am not dairy. I am crop. I should be focusing on my crop and getting my farm—making it profitable for the year. Instead, my focus is on refinancing the debt that I had with New Frontier. They are exactly right in that ag lending is different. I have been in lending for all my adult life, but ag lending is different. You have to take the time to build that relationship with that bank, and when the FDIC comes in and says you have this amount of time, it takes time to build a relationship with a bank in order for them to take your loan. So we are feverishly working with a community bank who is trying to do that. My other point is that if the FDIC has to sell my loan to somebody, they are not going to get 100 percent of that loan. We talked about residential, 30 to 40 percent as the rule of thumb. I do not know what it is with ag, but it is not 100 percent. So why is the FDIC putting us through filling out paperwork like this and going through all of these hoops when I am offering them 80 percent of the loan. I can fairly readily get the financing for 80 percent, and I am hitting all these roadblocks. So there needs to be something there in that regard. So the timing for a takeover is crucial. This is not a local Federal savings and loan. This is ag. They need to take that into consideration before they step in and do something like this because it does take a lot more time to build a relationship with a bank who will come in and take over your loan. Ms. WARREN. Thank you very much. I appreciate your coming, Ms. Hurston. Is there anyone else before we go to Ms. Corwin. Is this Mr. Bennett? Is that right? Mr. BENNETT. Yes. Ms. WARREN. So we will do Ms. Corwin and then Mr. Bennett. Ms. Corwin. Ms. RODRIGUEZ. My name is Rosemary Rodriguez. I am the State Director for Senator Michael Bennet. Meg Corwin is our regional representative. Ms. WARREN. Oh, I am sorry. Ms. RODRIGUEZ. She is in the room today and has worked with a number of folks in this area for quite a long time. But lately a great deal of her time is spent on dealing with the banking issues. Senator Michael Bennet is a member of the Banking Committee and he is a member of the Agriculture Committee. So we are definitely on his field today. He greatly regrets that he cannot be here personally but asked me to say a couple of things, and first of all, state the obvious, that times are tough right now in this country and in our State and especially here in northeastern Colorado. VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00075 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 70 smartinez on DSKB9S0YB1PROD with HEARING On his behalf, I want to thank the members of the TARP oversight panel for listening to the testimony today and to the people of this community. I would like to acknowledge the local residents who have taken their time to address this panel. Their voices need to be heard. This is an opportunity for you to learn more about the dire situation faced by people who depend on agricultural lending as we struggle through this deep and painful recession. The TARP does need oversight. These Coloradans can tell you firsthand what is broken now. Wall Street and the biggest banks in the world have gotten every benefit that Washington has had to offer, but rural America has not fared as well. The April 10th closure of the New Frontier Bank created an urgent need for credit that is felt throughout this local economy. Greeley is a proud community and it says something about how difficult things are that people are here today asking for your consideration. I hope you will return to Washington and convey our collective message. TARP should also be about rural America and working families, community banks, and average taxpayers, not just about big New York banks. Senator Bennet, Senator Udall, and Congresswoman Markey have reached out to various members and received a good response from a number of members that I have outlined in the written testimony. That is the past. At this point, we need to focus on how we move forward. You will be doing this community and this country a great service if you take what you have heard today back to Washington. The situation in Greeley is a perfect example of the program’s limitations, namely: one, it has mostly ignored the needs of community banks and credit unions; two, it has mostly ignored whole sectors of this economy that are critical to recovery, especially agriculture; and three, it has mostly ignored the direct needs of the middle class such as borrowers here today who paid on time and lost their loans through no fault of their own. Colorado families deserve better than this from their Government. Taxpayers such as the farmers and entrepreneurs in this community deserve a better return on their investments and so do our smaller banks. The livelihoods of Coloradans are at stake and the manner in which we resolve the situation will have a ripple effect throughout all of northern Colorado. One thing he learned during his two prior trips here in April is that the best ammunition he has as a Member of Congress is the individual stories that people here today have. Senator Bennet would encourage all of you to continue to work with Meg Corwin and share your stories so that we can take them back to Washington. If TARP cannot work for communities like this one, then what good is it? Thank you for coming. [The prepared statement of Mr. Bennet follows:] VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00076 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00077 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert graphic folio 128 51741A.033 smartinez on DSKB9S0YB1PROD with HEARING 71 VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00078 Fmt 6633 Sfmt 6602 E:\HR\OC\A741.XXX A741 Insert graphic folio 129 51741A.034 smartinez on DSKB9S0YB1PROD with HEARING 72 73 Ms. WARREN. Thank you again, Ms. Rodriguez. Thank you, Ms. Corwin, too. Mr. Bennett, I think is our last speaker for the day. Mr. BENNETT. Thank you very much. I am Ken Bennett. I am the District Director for Congresswoman Betsy Markey, and she too would love to be here today but she is working in Washington, D.C. right now. She asked that I relay to you her thanks for the work the panel is doing, witnesses, and all the attendees and the citizens paying attention to this serious issue. I know she has been very focused on this. She wrote a letter to Secretary of Agriculture Vilsack on this. She has spoken directly with the chair of the FDIC, and she has been working with Treasury to move towards solutions. We appreciate that you are taking the time to understand the seriousness of the issue, the impact that this has on our agriculture industry, the impact it has on hard-working American families, and as others have said, the ripple effect, the impact it has on the economy throughout our entire region here. She asked me to convey to you her appreciation to the panel for your investigation, for your questioning, for seeking effective ways of using our taxpayer dollars in helping us move forward on solutions. Thank you very much. Ms. WARREN. Thank you, Mr. Bennett. I appreciate it. So this hearing is about to adjourn. I just want to say how much we appreciate your coming, how much we appreciate those who came and testified. Thank you. Those who gave us public comment. Very valuable. And just those who came to be part of this process. What happened here today will become part of our report on farm credit, which will come out near the end of this month. In addition, what happened here today will also help inform all of our work in the Congressional Oversight Panel’s analysis of Treasury’s execution of the Troubled Asset Relief Program. So it becomes valuable not only for the specialized report on agriculture, but for all of our reports. I also want to say we are in communication with the FDIC, and we intend to follow up with the FDIC on what we have learned here today. We will have additional conversations both on a formal and an informal basis to make sure that what we have heard is communicated as clearly as possible back in Washington. So with that, again, the Congressional Oversight Panel offers its thanks for your hospitality and this meeting is adjourned. [Whereupon, at 11:57 a.m., the hearing was adjourned.] smartinez on DSKB9S0YB1PROD with HEARING Æ VerDate Nov 24 2008 00:33 Sep 03, 2009 Jkt 051741 PO 00000 Frm 00079 Fmt 6633 Sfmt 6611 E:\HR\OC\A741.XXX A741