Equitable Interest Rates Are Needed for Farmers Home Administration Loans

Gao ID: RCED-83-157 August 12, 1983

GAO reviewed the Farmers Home Administration's (FmHA) policies, procedures, and practices for setting and revising interest rates on farm, home, and community facility loans.

Between June 1981 and March 1982, FmHA approved about 94,000 housing and farm loans, for which borrowers will receive subsidies or pay premiums, totalling $112 million over the life of their loans. GAO noted that, because subsidies will exceed premiums, FmHA program costs on these loans could be increased by as much as $94 million. GAO found that FmHA has not developed an adequate rate review or decisionmaking process to allow judicious use of its discretionary authority to set interest rates on housing and farm loans. Specifically, the cutoff point for changing rates was an estimate established without analysis. Further, FmHA application of its own guidelines has resulted in inconsistencies. GAO stated that the lack of criteria resulted in inequitable treatment of borrowers within the same programs, and it questioned the 25-year period FmHA uses to set rates on real estate loans and the use of the municipal bond rate to set rates on community facility loans.


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