The status of Farm Loans
Recently, I’ve heard many people discuss banks and their lack of lending to Americans. This does seem to be true in certain lending environments however,loans are still accessible for farmers and agricultural industries. 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 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.
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 for refinance purposes or to purchase agricultural property. To learn more check out our Farm Loans.