Firm to help USDA track loans

USDA Rural Development

The Agriculture Department has found a way to keep track of loan transactions in a program for rural developers, enabling the agency to know — for the first time — the lenders, buyers and status of loans it backs.

The USDA Rural Development has entered into a memorandum of agreement with Colson Services Corp. to help with the agency's Business and Industry Guaranteed Loan Program. The program helps get financial backing for rural businesses by guaranteeing up to 90 percent on loans made by commercial lenders.

As the registrar and paying agent for the loans, Colson Services will keep a database of transactions and provide USDA with electronic reports.

"We actually become a repository of information. We would be able to provide electronic reporting to the USDA," said Suzanne Hansen, president of Colson Services, a subsidiary of JPMorgan Chase Bank.

The USDA currently has no record of the lenders, investors or the transactions taking place in the secondary market for the loans. No mandatory central agent has been established to handle loan settlement, certificate transfer and payment pass-through services, and the department hasn't been capturing such transactions.

"They don't know who the buyers are, who the sellers are. It's important for an agency to know that information because it helps them promote their loan program," Hansen said.

Colson will keep these records and periodically provide USDA with electronic reports. Once a buyer and a seller make a deal, Colson enters information such as dates, interest rates and the parties involved. The USDA can then request reports to judge the size of the secondary market, the number of transactions and the status of the transactions. Such information is important, for example, when the department reports to the Congress for funding, Hansen said.

The deal comes at no cost to the government, and Colson gets a cut of the interest from each loan. Colson provides a similar service for loans backed by the Small Business Administration.

The agreement is voluntary, and investors and lenders do not have to go through Colson for the transaction. Hansen said the department is in the process of making the agreement a formal contract.

"This agreement streamlines the monitoring and selling of business guaranteed loans on the secondary market and increases the opportunity for small rural lenders to participate in USDA Rural Development's business guaranteed loan program," undersecretary for Rural Development Thomas Dorr said in a statement.