Guaranteed Farm Loans by the Farmers Home Administration

GAO discussed the Farmers Home Administration's (FmHA) guaranteed farm loan policies and practices, focusing on the implications of its shift from direct government loans to government guaranteed loans from private lenders. GAO noted that: (1) previous and ongoing studies have consistently identified the FmHA loan programs as a high-risk area within the federal government, particularly from the standpoint of exposure to financial risks; (2) some commercial lenders shifted loan risks from lenders to the federal government by using guaranteed loans to bail out financially stressed borrowers; (3) FmHA did not adequately oversee loan making and servicing activities; (4) FmHA had little assurance that lenders adequately assessed borrowers' financial conditions before approving loans; (5) FmHA guaranteed some loans that did not meet its credit-quality standards; (6) lenders and FmHA did not always obtain periodic financial statements from borrowers or perform required collateral inspections; (7) lenders and FmHA did not pursue recovery of losses after liquidation or after FmHA paid lenders for loan losses; (8) FmHA reported such loan program weaknesses as continued nonconformance with credit-quality standards and failure to ensure borrower eligibility; (9) few direct loan borrowers switched or could switch to guaranteed loans because of their poor financial conditions; and (10) the Department of Agriculture's corrective actions to previous GAO recommendations regarding the FmHA loan programs were not fully responsive.