Ag Policy Blog

Banks Push Back on Paying Off SDA Loans Early

Jerry Hagstrom
By  Jerry Hagstrom , DTN Political Correspondent
Bank groups have told USDA that they would lose money if the department moves ahead with a plan to pay off guaranteed loans to socially disadvantaged farmers. A USDA official told DTN Political Correspondent Jerry Hagstrom that the bankers' demands are astonishing. (DTN image)

Bank groups are urging Agriculture Secretary Tom Vilsack to pay banks more money when paying off the USDA guaranteed loans made to socially disadvantaged farmers, but Vilsack does not have that power, a USDA official told DTN Political Correspondent Jerry Hagstrom in an email.

The bankers wrote Vilsack last month that USDA should recognize lenders' costs of funding and servicing loans and ensure lenders are made whole by being compensated for lost income due to these loan payoffs.

The New York Times ran an article about the situation Wednesday, but a USDA official said in an email to The Hagstrom Report:

"The demands outlined in the story are astonishing. USDA's obligation under the law is to pay off the qualifying loans of socially disadvantaged farmers. We don't have authority to go beyond that."

In the letter, the American Bankers Association, Independent Community Bankers of American and National Rural Lenders Association, wrote to Vilsack that the "sudden, abrupt pay off of any category of guaranteed loans could have adverse consequences if not implemented in a manner that minimizes disruptions to lenders," in USDA's programs. The letter stated, "USDA should ensure lenders are made whole by being compensated for lost income due to these loan payoffs. Second, purchases of USDA loan guarantees in the secondary market should be paid for lost premium values and the loans' multi-year payment streams being halted."

The bans said there was at least one "large community bank" that has a portfolio of loans to socially disadvantaged farmers of more than $200 million. The bankers stated in their letter that paying off those $200 million in loans "will have a significant impact on the bank's balance sheet, capital position and income statements alarming bank regulators. Such a loss will also undoubtedly reduce the bank's ability to retain employees."

The bankers suggested in their letter that paying off the loans in advance of their terms would likely result in bankers less willing to participate in USDA guaranteed loan programs in the future.

DTN highlighted last week that USDA is still working through loan payments for socially disadvantaged farmers. https://www.dtnpf.com/…

New York Times article: https://www.nytimes.com/…

Bankers letter to USDA: https://www.icba.org/…

Jerry Hagstrom can be reached at jhagstrom@nationaljournal.com

Follow him on Twitter @hagstromreport

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