Farmers Home Administration: Implications of the Shift From Direct to Guaranteed Farm Loans

RCED-89-86 Published: Sep 11, 1989. Publicly Released: Sep 11, 1989.
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Highlights

Pursuant to a congressional request, GAO reviewed the Farmers Home Administration's (FmHA) progress in implementing its congressionally authorized shift from direct to guaranteed farm loans and the overall impact on farm credit availability, focusing on: (1) the impact of the shift on borrowers, private lenders, and the government; (2) borrowers' financial conditions; and (3) whether program problems contributed to losses on guaranteed loans.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Agriculture To help control losses and improve management of the guaranteed farm loan program, the Secretary of Agriculture should direct the Administrator, FmHA, to develop, in consultation with Congress, and implement more comprehensive guaranteed-loan-approval criteria that assess an applicant's financial solvency, profitability, liquidity, and repayment ability prior to approving loan guarantees.
Closed - Not Implemented
A more current, comprehensive report on FmHA (RCED-92-86) contains a similar recommendation.
Department of Agriculture To help control losses and improve management of the guaranteed farm loan program, the Secretary of Agriculture should direct the Administrator, FmHA, to establish in regulations the type and amount of security required for a guarantee and, if crops are accepted as the only security, require that crop insurance be obtained.
Closed - Not Implemented
A more current, comprehensive report (RCED-92-86) contains a similar recommendation.
Department of Agriculture To help control losses and improve management of the guaranteed farm loan program, the Secretary of Agriculture should direct the Administrator, FmHA, to establish a range of loan guarantee percentages based on loan risk, with the higher guarantee percentages going to lower-risk loans.
Closed - Not Implemented
A more current, comprehensive report (RCED-92-86) contains a similar recommendation.
Department of Agriculture To help control losses and improve management of the guaranteed farm loan program, the Secretary of Agriculture should direct the Administrator, FmHA, to enforce FmHA requirements for lender servicing of guaranteed loans and place greater emphasis on establishing the extent to which lenders' negligent servicing caused loan losses before determining the amounts to be paid as loss claims.
Closed - Implemented
A more current, comprehensive report (RCED-92-86) contains a similar recommendation.
Department of Agriculture To help control losses and improve management of the guaranteed farm loan program, the Secretary of Agriculture should direct the Administrator, FmHA, to establish in regulations procedures for recovering from defaulted borrowers amounts the government paid to lenders for guaranteed loan losses.
Closed - Not Implemented
No action to date--highly unlikely that action will be taken.
Department of Agriculture The Secretary of Agriculture should direct the Administrator, FmHA, to provide: (1) county supervisors with training in credit analysis to better acquaint them with what constitutes adequate financial data on which to base a guaranteed loan-approval decision; and (2) guidance and training to state, district, and county officials that would enhance the monitoring of lenders' guaranteed loan-servicing activities, especially guaranteed loan liquidations.
Closed - Implemented
Consistent with the GAO recommendation, FmHA has been providing credit analysis training during fiscal year 1991. GAO plans to submit an accomplishment report recognizing these actions by October 1992.

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