In response to a congressional request, GAO examined the Farmers Home Administration's (FmHA) loan policies and practices to determine: (1) whether FmHA used adequate criteria to make and service loans; (2) how FmHA loan policies affected borrower equity; (3) whether security for FmHA loans was adequate; and (4) the potential impact of FmHA-proposed loan criteria on existing borrowers.
Matter for Congressional Consideration
|Congress may wish to reconsider whether the continuation and debt-restructuring policies are the best means of assisting already heavily indebted farmers.|
Recommendations for Executive Action
|Department of Agriculture||1. The Secretary of Agriculture should direct the Administrator, FmHA, to develop regulations, in consultation with appropriate congressional committees, that improve the cash-flow analysis used in loan-making decisions by incorporating an allowance to cover contingencies and equipment replacement.|
|Department of Agriculture||2. The Secretary of Agriculture should direct the Administrator, FmHA, to develop regulations, in consultation with appropriate congressional committees, that protect the government's financial interests by requiring that, when servicing loans, county supervisors obtain security of equal or greater value than the serviced loan's outstanding principal or the best security interest available on all of the borrower's assets.|
|Department of Agriculture||3. The Secretary of Agriculture should direct the Administrator, FmHA, to provide adequate credit analysis training to county supervisors. The training should stress the importance of preparing required year-end analyses of farm operations for all borrowers, including actual performance data, and the development of realistic farm operating budgets for nondelinquent borrowers.|
|Department of Agriculture||4. The Secretary of Agriculture should direct the Administrator, FmHA, to pursue the development of more comprehensive loan-making criteria that assess an applicant's financial solvency, profitability, liquidity, and repayment ability prior to making new loans. After FmHA develops new criteria and studies the effects on borrowers, as required by the Agricultural Credit Act, FmHA should, in consultation with appropriate congressional committees, determine where to draw the line between those financially troubled farmers who could be helped and those who could not be helped with FmHA financial assistance. This will improve the financial condition of the FmHA loan portfolio and assist borrowers by providing them with a more realistic assessment of their financial condition before they accept additional credit.|