H.R. 1872, Enhancing Credit Opportunities in Rural America (ECORA) Act
Overview: Sustaining Credit & Promoting Prosperity in Rural America
The purpose of the ECORA Act is to support American farmers and ranchers and residents of rural communities by creating a new, targeted tax incentive for agricultural real estate and rural residential lending. The Act would promote greater access to credit
and reduce borrowing costs for qualified borrowers as they adapt to an environment of weak commodities prices.
What the ECORA Act Would Do
The Act would benefit rural borrowers of agricultural real estate and rural home mortgage loans through lower interests rates and greater access to credit. Specifically, when community banks provide loans to farmers and ranchers secured by agricultural real
estate, the interest earned from such loans would be exempt from taxes. Likewise, this exemption would apply to single family home mortgage loans in rural communities with a population of 2,500 residents or less.
Need for Action
Agricultural production and the prosperity of farmers and ranchers is critical to the economy of many agricultural states. Approximately one in every five jobs in many farm states, for example, is directly connected to agriculture. However, low commodities
prices pose a serious threat to agriculture and the thousands of jobs connected to the sector. Furthermore, rural America has unique challenges not faced by urban residents due to less dense populations, outmigration, challenges in job creation, and housing
markets that are less uniform than in larger cities.
Net farm income (NFI) peaked in 2013 at about $124 billion and has declined precipitously since then. For 2018, NFI was recently projected to be only $66.3 billion, a 12 percent decline from 2017 and a 46 percent decline from the 2013 peak. The 2018 net
farm income forecast is substantially below the 10-year average of $86.9 billion. In fact, the change in state-level NFI (Avg. 2016-2017 vs. Avg. 2011-2013) in many states declined by 49-76 percent!
Just as important as addressing agriculture’s short-term needs, the ECORA Act will help ensure a stable long-term economy for thousands of remote and rural areas of our country. ECORA will allow rural community banks to assist farm and ranch borrowers who may
have trouble servicing existing debt by lowering their interest rates and qualifying for loans they might otherwise be unable to obtain.
The Act will also help community banks sustain the rural housing market. Rural mortgage lending is a challenge for lenders because rural properties are often mixed use, consisting of large or multiple parcels of land and varying ownership structures which
could include multiple family members. Community banks have long been a major source of credit for these borrowers due to their firsthand knowledge of the local market and economy. Community banks hold these loans in portfolio as the unique characteristics
of the properties and borrower qualifications make selling these loans into the secondary market impractical. Recent regulatory relief legislation will help make it easier for community banks to make and retain these loans in portfolio and be compliant with
the CFPB’s QM/ability-to-repay, escrow, and appraisal rules. With ECORA, home owners will be able to receive lower interest rates on mortgages, allowing many to refinance existing mortgages and many others to finance their first home and build their dreams
for the future.