Farm Loans

The Consolidated Farm Service Agency's farm loan programs have generated huge losses--$12.5 billion during fiscal years 1989-94. About 98 percent of the losses, or $12.2 billion, has occurred in the direct loan program. Additional 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 30, 1994. Most of these delinquencies--$4.6 billion out of $4.8 billion--were in the direct loan program. Several factors have contributed to the direct farm loan program's financial vulnerability. First, the agency's field offices have not consistently implemented lending, servicing, and property management standards intended to protect the government's loan interests. Second, some of the agency's loan policies expose the program to losses. For example, a borrower may obtain a new loan despite being delinquent on another loan. A third, and perhaps more fundamental, source of problems is conflicting program objectives. The agency's mission--to provide temporary credit to high-risk farmers--is often at odds with normal fiscal controls designed to minimize risk and financial losses. GAO recommends strengthening loan policies as well as further clarifying the agency's basic mission.