USDA Sanctions 10 Lenders Over Delinquent Loans in OneRD Program
The U.S. Department of Agriculture (USDA) has taken a firm stance against noncompliance and irresponsible lending practices. In a recent announcement, the USDA has barred 10 lenders from its OneRD rural development loan guarantee program. This decision is attributed to an alarming increase in delinquent loans traced back to these lenders.
The USDA’s stringent action comes in response to the sanctioned lenders being responsible for approximately $620 million in delinquent USDA-backed loans. Among these lenders are several prominent community banks and credit unions, including Celtic Bank, Byline Bancorp, and the recently failed Community Bank & Trust – West Georgia.
Zero Tolerance for Noncompliance
“The Trump Administration has absolutely no tolerance for the irresponsible and noncompliant actions of these lenders,” said Agriculture Secretary Brooke Rollins. She emphasized that these lenders have been banned from participating in USDA guaranteed lending programs. This action underscores the USDA’s commitment to maintaining the integrity and quality of its lending programs, which have been instrumental in supporting farmers and rural development.
History and Evolution of USDA Lending Programs
The USDA’s lending programs were first established during the New Deal era, with the aim to provide direct loans to farmers and sharecroppers. Later, the Rural Development Act of 1972 enabled the USDA to guarantee rural development loans made by private lenders. This led to the creation of the OneRD program in 2020, designed to simplify the application process.
Despite its relative infancy, the OneRD program has seen significant growth in recent years, with the dollar volume of active loans in the OneRD portfolio exceeding $12 billion. However, alongside this growth, the program has also seen an increase in delinquent loans, with problem OneRD loans topping $1 billion.
Sanctions and Future Implications
As per the USDA’s statement, almost half of OneRD’s delinquent loans were linked to the 10 sanctioned lenders. The department has made it clear that these lenders will not be eligible for loan note guarantees under any circumstances. This decision raises several questions regarding the possibility of future disqualifications, and whether sanctioned lenders will have the opportunity to appeal. As of now, the USDA has not responded to related queries.
Despite the sanctions, some lenders, like the Genisys Credit Union, are hoping for further discussions with the USDA. The CEO of Genisys, Jackie Buchanan, expressed disagreement with the allegations and the USDA’s decision, hinting at the intention to seek an informal review of the situation.
It’s important to note that many of these sanctioned lenders are also active participants in the Small Business Association’s 7(a) loan guarantee program. This includes Celtic, the sixth-largest 7(a) lender, and Ready Capital, a nondepository lender based in New York. Interestingly, the SBA has also grappled with credit quality issues in the 7(a) program, leading to increased loan fees and tighter underwriting standards.
Concluding Remarks
The USDA’s decision to sanction these lenders sends a clear message about the importance of credit quality and adherence to lending standards. While the future of these lenders remains uncertain, the case serves as a reminder of the importance of responsible lending practices for the sustainability of lending programs and the financial well-being of borrowers.
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