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Debt Settlements: FmHA Can Do More to Collect on Loans and Avoid Losses

RCED-95-11 Published: Oct 18, 1994. Publicly Released: Oct 18, 1994.
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Highlights

GAO reviewed the Farmers Home Administration's (FmHA) debt settlements, focusing on: (1) how well FmHA protects government interests during debt settlements; and (2) additional FmHA loans to borrowers whose previous debts were forgiven.

Recommendations

Matter for Congressional Consideration

Matter Status Comments
To strengthen FmHA loan-making standards, Congress should amend the Consolidated Farm and Rural Development Act to prohibit direct loans and loan guarantees to borrowers whose accounts were previously settled through debt settlements except in cases in which these borrowers were unable to repay their loans through no fault of their own. Congress should require the Secretary of Agriculture to: (1) establish guidance describing the circumstances under which the exception would apply; (2) closely supervise the borrowers who receive new loans under this exception; and (3) require these borrowers to move to commercial credit within a specified time period.
Closed – Implemented
The Federal Agriculture Improvement and Reform Act of 1996 prohibits direct and guaranteed loans to borrowers whose previous accounts were settled through debt settlement.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Agriculture To provide FmHA field office officials with incentives to better protect the federal government's interests during the debt settlement process, the Secretary of Agriculture should direct the Administrator, FmHA, to establish goals for maximizing recoveries on outstanding loans being resolved through debt settlements.
Closed – Implemented
The agency believes that it has implemented the intent of the recommendation through the creation of task forces aimed at resolving delinquent debt while maximizing returns to the federal government. It does not appear that the agency will adopt performance goals that would encourage field offices to maximize recoveries as they settle debts.

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Topics

Collection proceduresDebt collectionDirect loansFarm creditFinancial managementGovernment collectionsGovernment guaranteed loansLoan defaultsLossesRisk management