Pursuant to a congressional request, GAO discussed the Farm Service Agency's (FSA) farm loan programs, focusing on: (1) GAO's January 1997 report which updated prior reports on the financial condition of FSA's farm loan portfolio; and (2) changes to the farm loan programs that were mandated by the Federal Agriculture Improvement and Reform (FAIR) Act of 1996.

GAO noted that: (1) its January report shows that a significant portion of FSA's direct farm loan portfolio continues to be at risk because it is held by delinquent borrowers; (2) as might be expected, a much smaller percentage of FSA's guaranteed loan portfolio is held by delinquent borrowers; (3) as of September 30, 1996, $3.6 billion, or about 34 percent of the total outstanding principal on direct loans ($10.5 billion), was held by delinquent borrowers; (4) this level of delinquency is an improvement over the $4.6 billion, or about 41 percent of the total outstanding principal ($11.4 billion), that was held by delinquent borrowers at the end of fiscal year (FY) 1995; (5) during FY 1996, FSA lost $1.1 billion of principal and interest by reducing or forgiving the debt of delinquent direct loan borrowers; (6) as of September 30, 1996, about $280 million, or about 4.4 percent of the total outstanding principal on guaranteed loans ($6.4 billion), was held by delinquent borrowers; (7) in comparison, at the end of FY 1995, delinquent borrowers held about $218 million , or 3.7 percent of the total outstanding principal ($5.9 billion); (8) much of the increase in guaranteed loan delinquencies is concentrated in a few states; (9) the FAIR Act made significant changes to FSA's lending programs; (10) these changes were aimed at strengthening the financial condition of the farm loan portfolio and improving the operation of the programs; (11) they include modifying or eliminating lending policies that added to FSA's risk and clarifying FSA's fundamental lending role and mission; (12) because the Department of Agriculture is in the process of implementing these changes, their impact will not be known for some time; and (13) however, GAO believes that they should go a long way to reducing the risk associated with the farm loan programs and to improving their operations.