Joe Pierce doesn't hold a grudge when a farmer finds more favorable terms with a Farm Credit lender, but he isn't prepared to give up government-backed home loans as easily.
The Department of Housing and Urban Development is floating a proposed rule that would give Farm Credit System lenders the ability to participate in the Federal Housing Administration's mortgage program.
As described in the agency's proposed rule, credit has tightened for borrowers in small towns and Farm Credit could "provide an additional avenue for mortgage financing in rural areas." The proposed rule was introduced in late August; the comment period ends on Oct. 25.
To Pierce, who serves as the president and chief executive of the $472 million-asset Farmers State Bank in LaGrange, Ind., the controversial proposal crosses the line. "We've had several customers over the years take advantage of Farm Credit," he says.
"You know, that's great, because quite frankly, our customers benefit as a result," Pierce adds. "But when they are seeking to expand their lending into other areas where the only requirement is the ability to spell 'farm,' that doesn't seem to be appropriate."
Farm Credit lenders already have the ability to underwrite mortgages. But rules allow mortgages to make up 15% of those lenders' portfolios. Such loans have to be for "modest" homes and in areas with less than 2,500 residents. In 2010, Farm Credit lenders originated roughly 44,000 home loans.
HUD declined to comment for the story since the rule is in its comment period, but in a proposal the government agency says including Farm Credit lenders in the program could result in the origination of an additional 2,200 loans. (National Mortgage News reported on the issue last week.)
HUD said in its proposed rule that Farm Credit was omitted from the program previously because there was already an abundance of mortgage credit available.
"There was little need to include the Farm Credit Banks and Agricultural Credit Associations," the proposed rule reads. "However, the downturn in the mortgage lending market has prompted HUD to reconsider this omission. As lenders strive to increase capital reserves and tighten underwriting standards, and as private mortgage insurers retreat from some markets, the availability of financing for housing is reduced, particularly in rural areas."
Ken Auer, the president and chief executive of the Farm Credit Council, a Washington trade group that represents Farm Credit lenders, says he is not sure why bankers are bothered by the proposal, since it would not change the limitations Farm Credit lenders have.
"The system would have the same restrictions in making credit available. This would just be another tool for originators to utilize," Auer says. "We have a problem in the housing industry in this country and FHA has come to the conclusion that there is additional need for mortgage credit. This might help in a marginal way."
