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Ranchers.net

http://news.yahoo.com/s/nm/20080304/bs_nm/usa_banks_farmland_dc&printer=1

State bank regulator worried over farm land values By John Poirier
Tue Mar 4, 1:26 PM ET


A state banking regulator raised a warning flag about soaring agricultural land values on Tuesday, telling a congressional hearing that the U.S. farm land bubble could burst and unleash a fresh set of economic problems.

"If there has been too much leveraged or loaned against the inflated value of farm land, the bubble will burst, and we will once again experience an economic crisis similar to that of the 1980s," Iowa Superintendent of Banking Thomas Gronstal told the Senate Banking Committee.

Gronstal, who represented the Conference of State Bank Supervisors, was one of several regulators who testified about the subprime mortgage and credit problems that banks are facing.

"My fellow state supervisors and I are closely watching the agricultural sector," he said.

Gronstal warned that the current agricultural conditions appear similar to the conditions seen in the 1970s that led to the economic and financial collapse of the 1980s.

"The dramatic increase of farm land value in the last few years makes the agricultural sector look strong," Gronstal said. "In the future, should the price of corn, soybeans and other commodities decrease, the price of farm land would most likely also fall."

The average value of U.S. crop land hit a record high of $2,700 per acre in 2007, compared with $1,340 per acre in 1998, according to U.S. Agriculture Department data. The value of crop land in some key Midwestern states was much higher, with Illinois averaging $4,460 per acre in 2007, the data showed.

Gronstal also said that smaller or community banks have felt the impact of the declining U.S. housing market due to the subprime mortgage crisis.

State banking regulators are preparing to handle a rising number of bank failures. "Based on current information and conditions, we do not expect widespread failures," Gronstal said.

The state banking regulators group launched a nationwide mortgage licensing system in January 2008 to fight mortgage fraud and unify state license procedures for mortgage lenders and brokers. Seven states have begun using the system, and another four to six states are expected to join the licensing system each quarter, Gronstal said.

The licensing system tracks state-licensed mortgage companies and individuals across state lines.

"Honest mortgage bankers and brokers will benefit from the removal of fraudulent and incompetent operators, and from having one central point of contact for submitting and updating license applications," Gronstal said.
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