Agricultural Credit Act of 1987
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
4 Agricultural and Mechanical Collegesmore 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.