Farm Loans

The Farmers House Administration's (FmHA) farm loan program has generated huge losses--$12.5 billion during fiscal years 1989-94. About 98 percent of the losses, or $12.2 billion, have occurred in the direct loan program. Additional substantial losses can be expected because delinquent borrowers held about 26 percent of the agency's $18 billion direct and guaranteed loan portfolio as of September 1994. Several factors have contributed to the direct farm loan program's financial vulnerability. First, FmHA's field offices have not consistently implemented lending, servicing, and property management standards intended to protect the government's interests. Second, some of FmHA's loan policies expose the program to losses. For example, a borrower can obtain a new loan despite being delinquent on another loan. A third source of problems is conflicting program objectives. FmHA's mission of providing temporary credit to high-risk farmers is often at odds with normal fiscal controls designed to minimize risk and financial losses. GAO urges FmHA and Congress to strengthen loan policies as well as clarify the agency's basic mission.