Farmers Home Administration:

Loan Servicing Benefits for Bad Faith Borrowers

RCED-90-77FS: Published: Nov 29, 1989. Publicly Released: Nov 29, 1989.

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Pursuant to a congressional request, GAO provided information on Farmers Home Administration (FmHA) delinquent borrowers that acted in bad faith and who received benefits, or would be eligible to receive debt modification benefits, under the Agricultural Credit Act of 1987.

GAO found that: (1) the act directed FmHA to modify the debts of borrowers that were 180 or more days delinquent through the use of such restructuring options as loan consolidation, rescheduling or reamortization, interest rate reduction, or outstanding principal and accumulated interest deferral, set-aside, or write-down; (2) borrowers that did not qualify for restructuring could buy out their debt based on an adjusted value of the collateral; (3) the act also provided preservation loan servicing options to borrowers that had their property foreclosed, including the right to purchase or lease the land back from FmHA and the right to purchase their farm homestead; and (4) delinquent borrowers that acted in bad faith were only eligible for buy-out consideration and preservation benefits. GAO also found that the reasons that borrowers acted in bad faith included: (1) selling or otherwise disposing of collateral without FmHA approval; (2) repaying other lenders more than required and becoming delinquent on their FmHA loan; (3) abandoning collateral; and (4) having resources available that they could have used to repay their FmHA loan, but did not.

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