Thomas USAF

The USDA B&I Update as of March 23, 2009

On February

17, 2009 President Obama signed the American

Recovery and Reinvestment Bill which

adds approximately $2.9 billion to

the USDA B&I Budgets for 2009 and 2010. Later the President signed the

Agriculture Appropriation Bill for 2009. When these two bills are added together

there is approximately $3.9

billion for B&I loans or almost 300% of what B&I funded in the 2008 budget.

Good

news! There is more than ample

funds in the B&I loan program in 2009 and 2010.

Good

news! There also appears to be

ample funding in USDA's Energy loan programs - roughly $60 million in subsidies.

Good

news! USDA new regulations will

be effective June 1, 2009 and the new regulation will have a fast track 10 day

approval process in its Preferred Lender Program (PLP) and the Agency is

incorporating many of the recommendations made by those in the Industry and

Government.

Not so

good news! Even with $3.9 billion

in funding the funds have not

reached the states which are

still approving loans subject to funding. This keeps Lenders from closing loans

and keeps the economy from benefiting from the stimulus package.

Not so

good news! No one at USDA can

tell us when the funds will reach the field office so Lenders can close their

approved loans.

Not so

good news! No one at USDA can

tell us if the Agency plans to follow SBA's lead and increase

guarantees up to 90% and/or allow

stimulus funds to be used for

Borrower fees to the agency.

Finally,

USDA personnel need to understand that the financial crisis brought on by the

Government's takeover of Fannie Mae and Freddie Mac has raised

the investors' yields on Government Guaranteed Paper by 1 to 2%.Just

reference, Farmer's Mac's current par price of P-0.75% for 100% guaranteed

paper. This rate was P-2% to 2.25% in normal times. Therefore, Lenders must pass

this increased cost on to Borrowers by charging Borrowers higher interest rate

on loans. SBA is hopeful that TALF will solve this problem for their loans, but

so far I have not seen any USDA participation in TALF. If TALF solves the

secondary market problem for the purchase of Government Guaranteed loans, we

will again publish our weekly pricing matrix for USDA loans.

Mike Thomas. mike@usaf2.com     vasu@usaf2.com