Farmers Home Administration's Economic Emergency Loan Program

Congress considered an extension of the Economic Emergency Loan Program, scheduled to terminate in May, 1980. The Program provides guaranteed or direct loans to farmers and ranchers who have a reasonable prospect for success with the assistance of a loan and who need the credit to maintain a viable operation. To be eligible, farmers must have been refused credit at reasonable terms from normal credit sources due to national or areawide economic stresses or unfavorable relationships between costs and prices. A GAO review of the Program found that guaranteed loans were not popular with lenders. Bankers had not made commitments to participate in the guaranteed loan program and were referring borrowers to the Farmers Home Administration (FmHA) for direct loans. The Program was used when other assistance programs were limited or not available. The legislation governing the Program did not allow loans for the purpose of purchasing or leasing additional land, and no direct use of the Program for this purpose was found. However, GAO noticed instances where farmers had contracted to buy additional land immediately before applying for a loan under the Program. Tests to determine whether credit was available elsewhere were not uniformly applied. The payback ability of early borrowers under the Program had not been established and indications were that delinquency might be a problem. The ability of the Program to graduate borrowers to other credit sources was questionable. GAO felt that the results of the review suggested that Congress might want to encourage FmHA to seek greater bank participation in guaranteed loans and decide whether it wishes to continue having the Program be an extension of other existing programs. Congress might express itself on whether it wants to preclude the circuituous use of the Program for purchasing or leasing additional land. Finally, Congress might reexamine the possibility of tightening the requirement for seeking credit elsewhere and keep apprised of delinquency rates and graduations experienced.