Congressional panel takes local testimony on ag lending

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GREELEY – A panel assessing the Troubled Asset Relief Program heard from local agricultural and banking representatives as well as community members Tuesday in Greeley.

The Congressional Oversight Panel — including Elizabeth Warren, a professor at Harvard Law School; Richard Neiman, superintendent of banks for the state of New York; and Damon Silvers, associate general counsel of the AFL-CIO — convened a field hearing in Greeley to learn how a crisis situation has affected the availability of agricultural credit and the prospects for restructuring debt to avoid foreclosure on family farms.

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The hearing, held in the Weld County Commissioners room, was attended by various members of the agricultural, business and political communities. The panel will use the information garnered at the hearing to develop a report required by the Helping Families Save Their Homes Act of 2009. The act calls for an analysis of the commercial farm credit market and how institutions that have received TARP funds are working with and responding to those demands.

The panel heard from two local agricultural producers — Marc Arnusch, owner of Marc Arnusch Farms, and Les Hardesty, owner of Painted Prairie Farm and the Cozy Cow Dairy. Arnusch testified that prudent business practices are needed to survive economic downturns such as this. He pointed out that lenders are only half of the equation when it comes to agricultural credit and that producers need to hedge for dire times and evolve their business practices.

Hardesty detailed the perfect storm currently plaguing the dairy industry. After several years of record growth, the dairy industry was smacked with decreased worldwide demand, increased cost for feed and the credit crunch. Hardesty told the panel that the TARP fund could be used to stabilize milk prices by purchasing dairy products that would then go to food assistance programs.

The panel heard about existing programs available through Farm Credit Services and the Farm Service Agency from Michael Scuse, the USDA’s deputy undersecretary for farm and foreign agricultural services, and Mike Flesher, the executive vice president of Farm Credit Services of the Mountain Plains. At the behest of the panel, both described the success of loan restructuring programs for ag borrowers. The panel often asked if parallels could be drawn between agricultural lending and residential home lending, but the witnesses explained that the situations are very different.

More than one witness pointed out that prudent lending is always key in the agricultural industry, given its volatile nature. The issue for some local borrowers is that they were given loans that they would not be able to pay back, explained Lonnie Ochsner, senior vice president at New West Bank. He specifically cited New Frontier Bank, closed by banking regulators on April 10, which had a large agricultural loan portfolio.

“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,” Ochsner testified. “Many of these borrowers are good, honest, hard-working people who have been loaned into positions they now cannot get out of.”

Ochsner’s recommendation to the panel was for the government to “let capitalism work,” which several community members applauded.

Another local banker had a different opinion on the matter. Darrell McAllister, president of Greeley-based Bank of Choice, spoke during the community comment portion of the hearing. He asked that TARP funds be given to local banks so they could lend it in the community. He explained that the capital lost when New Frontier Bank closed has left a lending gap that would take 20 New West Banks to fill.

“Our bank has refused to look at new loans because we’re not well-capitalized enough above the new standards,” he explained, adding that the capital gap is about $160 million.

Panel Chairwoman Warren thanked all attendees, adding that a “very large financial institution” was asked to be a part of the hearing but would not participate. The report is due out later this month.