Farmers Home Administration:

Farm Loan Programs Have Become a Continuous Source of Subsidized Credit

RCED-89-3, Nov 22, 1988

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Pursuant to a congressional request, GAO reviewed the Farmers Home Administration's (FmHA) farm loan graduation policies and procedures to determine: (1) whether FmHA followed legislative mandates to graduate successful borrowers; (2) the extent to which FmHA was a long-term source of credit; and (3) the amount of government interest-rate subsidy and financial advantage FmHA borrowers received.

GAO found that: (1) many FmHA borrowers did not graduate to other credit sources because they lacked financial capability and few lenders expressed interest in refinancing their debts; (2) some FmHA county offices did not comply with all aspects of the graduation review process; (3) FmHA lacked a clear operational definition of graduation, preventing consistent policy and practice application; (4) FmHA could not monitor or judge the success of its graduated borrowers, since it did not maintain reliable information on the results of its graduation efforts; (5) many FmHA borrowers have remained in the loan programs for extended periods due to the depressed agricultural market and the lack of definition of the FmHA role as a temporary credit source; and (6) FmHA borrowers received loans that no other lender would provide and significant interest-rate subsidies at government expense.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To help ensure that FmHA borrowers with potential for graduation to non-FmHA financing are identified and graduated when their economic conditions permit, the Secretary of Agriculture should direct the Administrator, FmHA, to develop and convey to all FmHA units a precise operational definition of graduation and emphasize the importance of uniform application of that definition.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: FmHA has begun coordination to redefine graduation in FmHA Instruction 1951-F, section 1951.252(b). This definition will improve the graduation process and subsequent reporting accuracy. Also, priority has been placed on graduation by setting goals for field offices. GAO considers this recommendation to be a high-risk issue and addressed it in a report released in early 1992.

    Recommendation: To help ensure that FmHA borrowers with potential for graduation to non-FmHA financing are identified and graduated when their economic conditions permit, the Secretary of Agriculture should direct the Administrator, FmHA, to monitor county office compliance with graduation requirements.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: The monitoring system is now in place and reports are generated on a monthly basis. Also, agency internal reviews are being used to ensure compliance.

    Recommendation: To help ensure that FmHA borrowers with potential for graduation to non-FmHA financing are identified and graduated when their economic conditions permit, the Secretary of Agriculture should direct the Administrator, FmHA, to collect and summarize accurate data on results of the borrower graduation process and distribute such results to all appropriate management levels so that FmHA is kept informed of the progress made in graduating borrowers to non-FmHA sources of credit.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: The problem has been due to different interpretations of graduation by county offices. A more precise definition of the term should help resolve this problem. Also, data on graduation activity are being collected and made available to agency management on a monthly basis. GAO considers this recommendation to be a high-risk issue and addressed it in a report issued in early 1992.