The Farmers Home Administration's Economic Emergency Loan Program Could Be More Effective

CED-80-84: Published: Mar 28, 1980. Publicly Released: Mar 28, 1980.

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The economic emergency loan program was authorized by the Emergency Agricultural Credit Act. A review of the loan files in 10 States indicated that the main purpose of the loans was to increase the borrowers' current cash flow and assist with current operations. Loan proceeds did accomplish these purposes but it was too soon to tell if the temporary loan program should be continued.

Indications were that the delinquency rate on this program may be a problem and that only a small percentage of the loans were guaranteed. Discussions with Farmers Home Administration (FmHA) officials and bankers in a wide range of communities indicated that banks are referring borrowers for insured loans, since the banks generally prefer to handle short-term farm operating loans or consumer type loans at higher rates and shorter terms than those used in the guaranteed loan program. Information obtained in the review indicated that economic emergency loans were made because regular farm ownership or operating loans were limited or not available, or the loan amount exceeded the maximum limits for individual loans under regular loan programs. In some cases, economic emergency loans refinanced very recent land purchases because of limited farm ownership monies. Much of the economic emergency loan proceeds were used to refinance existing indebtedness on other loans, such as bank loans and Federal Government loans.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Agriculture should direct the Administrator, FmHA to (1) keep apprised of delinquency rates and graduations to private credit since there were indications of a potential delinquency problem, (2) emphasize more bank participation in guaranteed loans, (3) explore whether the economic emergency loan program should continue to be, in effect, a supplement of the existing farm ownership and operating loan programs or whether raising the limits on those programs or having one combined program to cover the purposes of the present farmer loan programs would better meet the farmers' needs, (4) seek guidance from the congressional legislative committees on how long land should be held before it can be refinanced under this program, and (5) tighten agency regulations on credit elsewhere to bring them in line with the requirements of the farm ownership and operating loan programs. The economic emergency loan program should be reexamined by FmHA with in a year, with particular attention given to the effects on farmers' payback ability and overall financial situation, so that controls and guides may be established for future use to ensure that those who have the basic financial foundation can succeed.

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