In countless conversations over the past couple of months I hear one question often, “Are farm loans still available?” The answer is yes, money for farm loans is just as available as it was before the so called “credit crunch.” Don’t get me wrong, the credit crunch is definitely affecting a lot of Americans right now, just not the agricultural markets so much. The credit crunch hurts people who are looking for residential and commercial loans more than anyone. Agriculture still seems to be going fairly strong right now and so the availability for farm loans is strong as well. You just have to know where to look.
We have seen an influx in customers deriving from rural banks who have denied their loan, even denied by lending relationships they’ve had for decades. Some agricultural banks are being spooked by small variances in their customers financials, small variances we are used to seeing and have no problems with. Most often, we are able to bring these customers in and serve them with a loan product better than they previously had. We love creating new lending relationships and we love having the ability to help our borrowers by providing a low cost farm loan. The last thing we want to see is a customer who can’t get the loan they need.
So, I decided to write a press release/article on the subject to help educate farmers and ranchers who are being turned away from their traditional banking relationships. We want farmers and ranchers to know there is an alternative to your one or two local banks and the alternative is almost always better. I hope the following article is helpful. Enjoy! Oh, and if you would like to speak with someone at Farm Plus Financial please feel free to call us toll free at 866-929-5585 or start your farm loan application online now.
Over the last several months, the economic situation in the United States has been steadily declining. However, while the economy may be suffering, money is still accessible for farmers and agricultural industries. In a recent primetime address concerning the state of the economy, George W. Bush claimed, “if you own a business or a farm you would find it harder or more expensive to get credit.” While it may be harder for Americans to borrow money for commercial and residential purposes, agricultural lending remains strong and interest rates are near historic lows.
The recent economic crisis has dramatically weakened many sectors of the American economy. One sector that continues to show strength, however, is agriculture. With a high demand for many types of commodities, agricultural real estate prices show increasing performance, with some areas producing double digit appreciation year after year. Given this remarkable agricultural strength, many financial institutions will make it a point to lend their money for farm and ranch purposes.
Subprime mortgages are largely to blame for the current economic crisis. Financial institutions that have invested in these dangerous loans have suffered heavy losses, losses that have depleted the capital available to loan to ordinary Americans. Many of the banks that risked money in subprime loans have been purchased by larger companies or, even worse, have filed for bankruptcy protection. For those of you unfamiliar with subprime mortgages, they are generally loans made to a borrower with a weaker credit profile than that of a prime borrower. Although there is no standardized definition, in the US subprime loans are usually classified as those where the borrower has a credit score below a certain level, below a score of 660. Because of this weaker profile, subprime borrowers have a higher likelihood of default than prime borrowers do. Subprime mortgages were securitized and sold on the secondary market to investors like Lehman Brothers, Bear Stearns, Washington Mutual, and IndyMac Bank, to name a few. The difficulties of many of these large scale banks and financial institutions are well known, but now even smaller community banks across the country are feeling the economic pinch; banks such as Superior Bank of Hinsdale, Illinois, Main Street Bank of Northville, Michigan and Mutual Bank of Park City, Utah.
In wake of the market turmoil many banks have rewritten underwriting guidelines and, in some cases, have frozen lending capital until America’s markets stabilize. Farmer Mac, on the other hand, is making positive, proactive moves during this recession. Charted in 1988, Farmer Mac (Federal Agricultural Mortgage Corporation) was created to provide relief to farmers in a time of double-digit interest rates. This government program guarantees the loan portion a financial institution would otherwise assume 100% risk of. A loan Institution that utilizes Farmer Mac’s guarantee program will have the ability to offer low interest rates and fixed terms to their customers. This enables the farmer or rancher to cut loan costs and increase the bottom line, ultimately ensuring that many agriculturalists will not see the effects of the “credit freeze.” Because of the financial strength and stability of Farmer Mac and the program’s persistence in product development, many financial institutions whose lending practices focused on farm and ranch operations have been fortunate enough to survive a tidal wave of bank closures and losses. One can only speculate what the future will hold, but many economists believe the agricultural community will continue its path of perseverance.
On August 11, 2008, Farmer Mac announced that core earnings for the quarter ending June 30, 2008, had increased 28% over the comparable quarter in 2007. Furthermore, they announced a record guarantee portfolio of $9.8 billion. In addition to this information, Farmer Mac’s president, Henry D. Edelman, stated, “We are pleased with our continued strong performance, as evidenced by our second quarter core earnings. To date, the credit issues that have arisen in the housing and consumer sectors of the economy have not affected the agricultural economy in general or Farmer Mac’s guarantee portfolio in particular. Historically low default rates were also quoted at just .11 percent. With continued growth, record loan volume, solid leadership and record low default rates you can rest assured Farmer Mac will be here today and tomorrow to help financial institutions provide outstanding loan products to their customers, the farmers.
How to get a Farmer Mac loan:
Farmer Mac loans are secured by agricultural real estate. Farmers and ranchers can obtain one of these loans by requesting a loan through a Farmer Mac lender. You may use a Farmer Mac loan to refinance your current loans for a better rate and term or to purchase agricultural property. To learn more contact Farm Plus Financial online using our contact form or call us toll free at 866-929-5585.
Written by: Josh Mitchey, Business Development Manager, Farm Plus Financial
Edited by: Justin Ellison, Dept. of History, University of Indiana