Farmers Home Administration:

Use of Loan Funds by Farmer Program Borrowers

RCED-90-95BR: Published: Feb 8, 1990. Publicly Released: Feb 8, 1990.

Additional Materials:


John W. Harman
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Pursuant to a congressional request, GAO submitted information on borrowers' use of Farmers Home Administration (FmHA) loan funds, focusing on: (1) four major types of farmer program loans during fiscal year 1988; (2) the extent to which farmers used loan funds to refinance existing debts; and (3) lenders' views on using FmHA loan guarantees.

GAO found that farmers mainly used: (1) direct farm ownership loans for purchasing property and refinancing; (2) direct farm operating loans for farm operating expenses, refinancing, and livestock and machinery purchases; (3) guaranteed farm ownership loans for refinancing purchases and farm property, special equipment, or facilities purchases; and (4) guaranteed farm operating loans for farm operating expenses and refinancing. GAO also found that: (1) some commercial lenders used an FmHA guarantee to refinance existing debts; (2) guarantees improved lenders' security and portfolio quality; (3) lenders generally initiated the process of obtaining loan guarantees for borrowers; and (4) refinancing indicated that lenders were using guaranteed loans to enhance their loan security on existing debts.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: There is a similar recommendation in a more current and comprehensive report, RCED-92-86.

    Matter: Congress should consider the use of funds as it deliberates on how FmHA fulfills its mission as the lender of last resort to the nation's farmers in the upcoming debate on the 1990 farm bill or other FmHA-related legislation. Issues that should be considered include the extent to which assistance continues to be used by FmHA and commercial lender existing customers versus new customers, and the level to which such assistance is used to refinance existing debts versus new credit purchases.


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