Legislation that authorized $4 billion in a financial assistance for financially vulnerable institutions of the Farm Credit System (FCS) and protected many farmers whose loans fell delinquent.
Due to the 1980s farm crisis, which was brought on by tight credit and plummeting farm land prices, the FCS experienced deep financial problems. The Agricultural Credit Act required the FCS to establish a new Farm Credit System Assistance Board to take over bad loans and supervise financial assistance to system banks for the next five years (1987-1992). This board would allow these troubled institutions to issue preferred stock eventually purchased by the Farm Credit System Assistance Corporation. Troubled institutions could apply for this assistance when borrower stock, which makes up most of their capital reserves, failed to cover financial losses. The assistance board imposed several conditions on the institutions receiving these loans; it had power over debt issuance, interest rates on loans, and business and investment plans.
The act also required the Farmers Home Administration (FmHA) to modify delinquent loans to the maximum extent possible to avoid losses to the government. It required the secretary of agriculture to provide notice to each FmHA borrower of all loan-service programs available. If foreclosure happens, priority for purchasing goes to previous owners. The secretary also releases income from household and operating expenses for farmers who apply for loan restructuring.
The law mandated that the federal land bank and federal intermediate credit bank in each of the system’s 12 districts merge. The 12 districts reorganized to allow for no fewer than 6 districts. This restructuring and consolidation allowed for more efficiency. Finally, the act created a secondary market for agricultural real estate and certain rural housing loans, establishing a Federal Agricultural Mortgage Corporation (Farmer Mac) within the FCS. System banks could package their agricultural real estate loans for resale to investors as tradable, interest-bearing securities. The Agricultural Credit Act of 1987 saved the FCS and made it financially sound in the 1990s. The FCS has continued to perform efficiently through 2003 and has received high marks from auditors.
