Farmers Home Administration: Farm Loan Programs and Proposed Changes

GAO discussed: (1) the Farmers Home Administration's (FmHA) farm loan programs; and (2) its views on the proposed Agricultural Credit Improvement Act of 1992. GAO noted that: (1) as much as 70 percent of the FmHA direct loan portfolio is at risk because it is held by delinquent borrowers or by borrowers whose debts have been rescheduled in response to past repayment difficulties; (2) some FmHA direct loan problems can be attributed to ineffective implementation of FmHA loan-making and loan-servicing standards and loan and property management policies that are in conflict with fiscal controls designed to minimize risk and financial losses; (3) lenient loan-making policies have further increased the government's exposure to direct loan losses; (4) FmHA estimated potential guaranteed loan losses of $1.2 billion even though FmHA paid commercial lenders about $300 million to cover loan losses during the past few years; (5) FmHA guaranteed loan policies also contribute to the government's exposure to financial loss, since about 44 percent of the guaranteed loan funds, in fiscal year 1988, were used to refinance existing debt; (6) as of September 30, 1991 FmHA estimated that it had about 3,100 farms in inventory that were acquired from borrowers who did not repay their loans but legislation has limited FmHA return on those properties and increased its holding costs; (7) FmHA roles and missions needed to be clarified to enable FmHA to be fiscally prudent and to provide high-risk borrowers with temporary credit until they secure commercial credit; and (8) it agrees with the provisions of the proposed legislation that FmHA roles and missions need better definition.