Fire flood and drought; Refinance, Foreclosure and Farm debt mediation

Fire flood and drought can bring the best of farmers unstuck.

Farmers have to cope with fire, flood and drought as part of a fairly unpredictable weather pattern. They can happen any time at the drop of a hat, without notice. For cropping they can be catastrophic but even for grazing they can bring a farm to its knees.

There is no doubt that good strategies need to be in place because as soon as you move out of one challenge you know that you are on your way to the next one. Farming is a business and business strategies are required. Problem is that these events are unpredictable and expensive, so how can they be dealt with? In particular how can they be dealt with in relation to something most farms experience but which is almost entirely incompatible with farming a farm loan?

When we negotiate loans for farmers we require lenders to allow flexibility in their loan documents to allow for any of these events. There was a time when bankers were the farmers’ friend. The banker would gently guide the farmer down a path of sensible and affordable lending. That was because the banking was government regulated and  systems used to be mainly manual, so life worked best for both the bank and the borrower if loan terms were met.

Then some bankers convinced politicians who did not know much about such things, to de-regulate banks. “This will create competition which will benefit all bank customers”, the bankers told the unsuspecting politicians. Bankers are as clever as all get out. Once they were de-regulated they set about building up their loan books by paying bank managers and staff commissions and bonuses on the basis of how much money they loaned out. As you can imagine they lent money like a man with 10 arms. Out it went as fast as they could sign up borrowers. Some banks loaned money in Swiss Francs which sent the debts skyrocketing when the exchange rate changed.

But the bankers discovered that this was no bad thing. Most of the debts were still recovered but the borrowers took longer to pay and some fell behind in payments – debt default. Computers were maintaining many bank records by then and sending out threatening letters as well as imposing interest rate penalties on borrowers who were late paying. No bank staff were involved.

The farmers could not argue with the computers so they just paid up. This worked well for the banks. Suddenly their loans were out for longer and they were earning a higher rate of interest. The debt often accumulated so the bank earned interest on overdue interest on overdue interest. This, over time, turned million dollar bank profits into billion dollar bank profits and executive salaries went to a million dollars a month.

In advertently banks had discovered a new phenomenon – The Debt Trap. If farmers were loaned money they could not afford to service and repay, the variable weather conditions including fire, flood and drought on top of commodity price changes and government policies, made their debt situation worse and they had to borrow more money to pay the interest and farm expenses. They often went repeatedly into loan default in the process.

Bankers knew that the one thing farmers never want to do is to sell the farm. Many see it as a personal disgrace or failure because the farm has been in the family for generations. The farm from which I have just retired was started by my great-grandfather in 1865, so there is a bit of history there. That resistance to selling makes the farmer work ever harder day and night to keep the big bank wolf from the door. Farm debt problems are not new. The 2nd cousin from whom I bought my cattle property had dealt with them when he took over from his father during the depression.

The debt mostly grows and grows, falling a bit in good seasons and rising a lot in bad ones.  That constitutes debt default, even if the bank allows it. The wise farmer will call banking debt advisors as soon as they notice farm debt problems and before they face deteriorating banking relationships. That is the easiest time to work out the best debt solution for the borrowers. Otherwise, eventually debt reaches about 80% of market value of the farm and at that time, after maybe a decade of receiving interest, the bank decides to sell the farmer up and take its money. After years of hard work that is heart-breaking for the farm family.

But it does not have to be. What the farmer needs is debt relief. Before a bank can sell a farmer up there must be a debt mediation between the farmer and the bank. We got into this field of bank debt negotiation thanks to the many Rural Financial Counsellors who worked with their farm clients as far as they could, but were not in a position to really crack the whip or hit the bank hard where it would hurt most. They were counsellors used to hearing people’s griefs and helping those people come to solutions themselves. But preventing foreclosure by a bank that holds a mortgage over the farm and has let a farmer breach the loan terms for years, takes a good bit more than a sympathetic ear. It takes time to find out what the bank has done wrong and then strategies to convert that bank abuse of its customers into getting the bank to write off debt, big debt, to compensate the farmers for the wrong done to them.

Greg’s widowed mother was financially abused by one of the Big 4 Banks and they eventually lost their home over a guarantee she had signed without any legal or financial advice at all. That was even before de-regulation. So he understood how banks worked. But in his Chartered Accountancy practice he acted for farmers in NSW, ACT and  in WA from the south to the Kimberleys and in the NT. Then he ran his own Merino sheep property in the Central West of NSW and cattle in the Southern Tablelands. By the time banks were de-regulated he was ready to take them on, launching his Moneygrams, now “AussieLoanApps” to help farmers obtain loans that took account of seasonal factors, commodity prices and government policy. It amazed him the advantages he could negotiate for farmers just by taking time and checking out what was on offer, as farmers do when buying sheep or cattle in the saleyards or at a stud sale.

One of his first Moneygram clients saved $300,000 on his loan interest. A farmer who the bank was trying to sell up, consulted GBAC and they had the bank write of debt to the extent of $5 million. He received refinance from another bank at $5m less.

Banks are very skilled at making super-profits out of customers, but farmers are very resilient and used to adversity. When the bank acts tough, the farmer needs to bring in the bulldozer like GBAC Advisory who don’t muck around. This will give the bank as good as they get plus some. Farmers deserve a fair go in a business that is so weather dependent that loan contracts have to be matched to revenue as they can be very easily. The silliest thing the politicians ever did was to sell PIBA and CDB to private enterprise.

When borrowing, farmers do well to avoid the bank paid brokers and use When fighting the bank or seeking refinance they should go with GBAC Advisory which has about 50 years experience at looking after farmers and their finances.

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