[Congressional Record Volume 141, Number 206 (Thursday, December 21, 1995)]
[Senate]
[Pages S19138-S19140]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 FARM CREDIT SYSTEM REFORM ACT OF 1996

  Mr. SANTORUM. I ask unanimous consent that the Committee on 
Agriculture be discharged from further consideration of H.R. 2029 and 
that the Senate proceed to its immediate consideration.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The clerk will report.
  The legislative clerk read as follows:

       A bill (H.R. 2029) to amend the Farm Credit Act of 1971 to 
     provide regulatory relief.

  The PRESIDING OFFICER. Is there objection to the immediate 
consideration of the bill?
  There being no objection, the Senate proceeded to consider the bill.


                           Amendment No. 3109

              (Purpose: To provide a complete substitute.)

  Mr. SANTORUM. Mr. President, I send a substitute amendment to the 

[[Page S19139]]
  desk and ask for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The bill clerk read as follows:

       The Senator from Pennsylvania [Mr. Santorum], for Mr. Lugar 
     for himself and Mr. Leahy, proposes an amendment numbered 
     3109.

  Mr. SANTORUM. I ask unanimous consent that the reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (The text of the amendment is printed in today's Record under 
``Amendments Submitted.'')
  Mr. LUGAR. Mr. President, I rise in support of H.R. 2029, the Farm 
Credit System Reform Act of 1996. The bill makes changes to the 
authorizing legislation for the Federal Agricultural Mortgage 
Corporation [Farmer Mac] to afford it a final opportunity to establish 
a successful secondary market for agricultural loans. Its future is 
seriously threatened and without this corrective legislation, the 
benefits it offers farmers, ranchers, and rural homeowners may be lost. 
Farmer Mac was established to encourage a stable and highly competitive 
lending environment for rural America, an environment that must be 
preserved.
  The bill also provides changes to the underlying statute for the 
cooperative Farm Credit System [FCS] to provide relief from outdated 
and unnecessary regulations. These changes will give FCS more 
flexibility in its operations and allow it to provide competitive loan 
rates and improved service. The bill also extends the U.S. Department 
of Agriculture's interest rate reduction production on guaranteed farm 
loans. This program is an important tool used to transfer direct loan 
borrowers to guaranteed loans, eventually leading to borrower 
graduation from Federal support. Finally, the bill will authorize a new 
foundation to facilitate creative solutions to soil and water 
conservation problems. This foundation will be funded primarily through 
private donations.
  Farmer Mac is responsible for providing farmers, ranchers, and rural 
homeowners with access to a stable and competitive supply of credit for 
mortgage loans. It is a privately owned and operated corporation 
created by Congress in 1988. Farmer Mac is known as a Government 
sponsored enterprise, similar to Sallie Mae and Fannie Mae, which 
employ private capital to establish business operations charged with 
specific responsibilities to carry out public policy. Farmer Mac, which 
began operations after the enactment of the Agricultural Credit Act of 
1987, raised $21 million in private capital from banks, insurance 
companies, and Farm Credit institutions to fund the development and 
operation of a secondary market. No Federal funds were invested in the 
original capitalization of Farmer Mac and no Federal funds have ever 
been appropriated to support any facet of its operation. In fact, 
Farmer Mac pays the Farm Credit Administration annual assessments to 
cover the cost to the Government of regulating the secondary market.
  Farmer Mac must make a profit to support its operations or its 
capital base will eventually be exhausted. Should the capital base 
erode--it is currently down to about $11 million--the original 
investors would lose their investments and the secondary market would 
terminate. Termination of Farmer Mac would deny rural Americans access 
to competitive long-term fixed rate mortgages at a time when budget 
reductions and changes in Government housing and agricultural policy 
will place increased pressure on farmers, ranchers, and rural 
homeowners to reduce expenses to remain competitive.
  The successful Fannie Mae and Freddie Mac residential mortgage 
secondary markets were used as the structural design for Farmer Mac. 
However, certain distinctions were made that have become obstacles to 
Farmer Mac's success: First, the requirement that Farmer Mac operate 
its program through poolers, and Second, the requirement that every 
Farmer Mac loan be backed by a minimum 10-percent subordinated 
participation interest. The bill repeals both of these obstacles. Nine 
poolers have been certified since 1990. However, the poolers have only 
submitted six pools of qualified loans, totaling $790 million, for 
guarantee under the program. The limited participation has prevented 
the program from generating enough income to support its cost of 
operation. Under H.R. 2029, Farmer Mac will now be permitted to 
purchase and pool loans itself, and the 10-percent cash reserve 
requirement is eliminated. The removal of these impediments will make 
Farmer Mac's structure essentially identical to other successful GSE's.
  In addition, the legislation: extends the time period before the Farm 
Credit Administration may promulgate risk-based capital regulations to 
3 years after the date of enactment; provides a time triggered 
transition period to increased minimum and critical capital 
requirements; requires Farmer Mac to increase its core capital to at 
least $25 million within 2 years or curtail its operation; and provides 
procedures for the Farm Credit Administration to liquidate Farmer Mac's 
operation in the event it fails to establish a successful secondary 
market.
  It has become apparent that after almost 6 years of operation, Farmer 
Mac's statutory structure will not work. This important piece of 
legislation gives Farmer Mac everything it needs to succeed for the 
sake of rural Americans.
  The bill also removes undue regulatory burden placed on the Farm 
Credit System and provides the System greater flexibility in its 
operations to offer its borrowers competitive loan rates and improved 
service.
  This portion of the legislation provides that FCS borrower stock and 
borrower rights requirements do not apply for 180 days to loans 
designated for sale to the secondary market; allows FCS associations to 
form administrative entities; provides for rebating to System banks 
excess amounts in the Farm Credit System Insurance Fund after 8 years 
of interest earnings accumulate on top of the System's secure capital 
base; provides procedures for allocating to System banks and to other 
institutions holding Financial Assistance Corporation [FAC] stock 
excess amounts in the Farm Credit System Insurance Fund until $56 
million is repaid; provides authority to prohibit or limit golden 
parachute payments to System executives; and repeals the requirement 
for establishing a new board of directors for the Farm Credit System 
Insurance Corporation and retains the current board structure.
  The FAC stock provisions lay to rest a long standing controversy in 
the Farm Credit System. Beginning in 1984, the System came upon hard 
times due to the credit crisis in farming and System associations were 
required to purchase FAC stock for the amount of unallocated retained 
earnings exceeding 13 percent of their total assets to assist in 
rescuing the floundering system. The associations which had a high 
level of capital in relation to their loan volume were affected most. 
Many associations believe that they and their borrowers were required 
by the Agricultural Credit Act of 1987 to carry a disproportionate 
share of the System's self-help burden. The substantial depletion of 
capital resulting from the assessment caused associations to increase 
interest rates to their customers. The assessment was challenged by 21 
production credit associations shortly after the enactment of the 1987 
legislation. However, the U.S. Court of Appeals affirmed the authority 
of Congress to impose the assessment in June 1992. Legislation in 1988 
and 1989 permitted the return of $121 million to the FAC stockholders 
of the more than $177 million collected from System institutions.
  Many in Congress believe that the assessments and mandatory purchase 
of FAC stock represented a commitment to the future of the Farm Credit 
System. It was the inherent responsibility of System institutions to 
join the Federal Government to bail out the System in exchange for 
continued agency status for their debt securities. The compromise 
included in this bill permits the repayment of $56 million to the 
remaining FAC stockholders and terminates the Financial Assistance 
Corporation trust upon full repayment of that sum. I support this 
compromise and I am pleased that this controversy has been amicably 
resolved.
  Preserving and making more efficient a system that provides rural 
America access to stable and competitive credit is of the utmost 
importance. Farmer Mac can make an important 

[[Page S19140]]
contribution to this goal. This legislation is a final congressional 
effort to make Farmer Mac viable. Legislative restrictions may have 
hobbled the institution until now. If the new authorities do not prove 
sufficient, it will be time to declare Farmer Mac a failed experiment. 
The bill before us provides for orderly procedures in this event.

  I urge my colleagues to support this important piece of legislation.
  Mr. LEAHY. I rise at this time to engage the gentleman from Indiana, 
the chairman of the committee, in a colloquy.
  Mr. LUGAR. I would be pleased to engage the Senator in a colloquy.
  Mr. LEAHY. It is my understanding that the legislation before us 
today includes provisions designed to provide relief to institutions of 
the Farm Credit System from the paperwork, costs, and other burdens 
associated with unnecessary and archaic regulatory requirements placed 
on such institutions under current law. It is also my understanding 
that similar legislation to provide regulatory relief to the commercial 
banking industry is also under consideration by the Congress.
  Mr. LUGAR. The Senator is correct.
  Mr. LEAHY. It is also my understanding that the legislation before 
the Senate includes amendments to title VIII of the Farm Credit Act of 
1971 to modernize, expand, and make other improvements in the Federal 
charter and authorities of the Federal Agricultural Mortgage 
Corporation so that this entity, commonly known as Farmer Mac, can 
better provide credit to agricultural borrowers through commercial 
banks and other lenders.
  Mr. LUGAR. The Senator is correct.
  Mr. LEAHY. It is my further understanding that this legislation 
includes an agreed-upon compromise to address once and for all the 
issue of the return of the remaining 32 percent of the one-time self-
help contributions paid by Farm Credit Systems banks and associations 
to help capitalize the Financial Assistance Corporation. The 
institutions that were assessed these contributions were designated as 
holders of stock in the Financial Assistance Corporation, commonly 
referred to as FAC stock. Is it not true that this stock, in and of 
itself, has no value, and that the holders of this stock have no legal 
claim, either now or in future, against any party in association with 
this stock, beyond any that may arise as a result of the specific 
provisions of the bill before us today?
  Mr. LUGAR. The Senator's understanding is absolutely correct.
  Mr. LEAHY. I am disappointed that the bill before us today does not 
include amendments to the remaining titles of the Farm Credit Act of 
1971 to provide similar modernization, expansion, and improvements to 
the Federal charter and other authorities of the remaining institutions 
of the Farm Credit System. These banks and associations of the Farm 
Credit System provide a needed source of credit to the farmers, 
ranchers, their associations, and cooperatives across rural America. 
The System also provides financing for agricultural exports, rural 
water and waste, and other rural enterprises. Does the chairman have 
any plans to comprehensively review the authorities of these other 
institutions regulated under the Farm Credit Act of 1971 with an eye 
toward providing for the similar modernization, expansion and 
improvement of their Federal charter and other authorities?
  Mr. LUGAR. Yes, it is my intention next year to work with the 
gentleman from Vermont and other interested Members to conduct a 
comprehensive review by the Committee on Agriculture, Nutrition, and 
Forestry of the authorities of the institutions regulated under the 
Farm Credit Act of 1971, other than Farmer Mac, consistent with the 
jurisdiction of the committee. The stated goal of this review will be 
to develop legislation to provide for the modernization, expansion, and 
improvement of their Federal charter and other authorities of the 
institutions of the Farm Credit System. Such legislation, if warranted 
by our review, could provide for enhanced agricultural, business, and 
rural development financing across the United States.
  Mr. LEAHY. I thank the Senator for his cooperation on the bill before 
us today and look forward to working with him next year on the 
important Farm Credit System modernization legislation he has just 
described.
  Mr. SANTORUM. Mr. President, I ask unanimous consent that the 
amendment be agreed to and the bill be deemed read a third time and 
passed, and the motion to reconsider be laid upon the table.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  So the amendment (No. 3109) was agreed to.
  So the bill (H.R. 2029) was deemed read the third time and passed.
  So the title was amended so as to read: An Act to amend the Farm 
Credit Act of 1971 to provide regulatory relief, and for other 
purposes.

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