Farm Loans

Information on the Status of USDA's Portfolio Gao ID: T-RCED-97-78 February 21, 1997

This testimony discusses the farm loan programs administered by the Agriculture Department's Farm Service Agency. GAO (1) summarizes its January 1997 report (GAO/RCED-97-35), which updated earlier reports on the financial condition of the Service's farm loan portfolio, and (2) discusses changes to the farm loan programs that were mandated by the Federal Agriculture Improvement and Reform Act. Overall, GAO notes that a significant percentage of the Service's direct farm loan portfolio continues to be at risk because it is held by delinquent borrowers.

GAO noted that: (1) its January report shows that a significant portion of FSA's direct farm loan portfolio continues to be at risk because it is held by delinquent borrowers; (2) as might be expected, a much smaller percentage of FSA's guaranteed loan portfolio is held by delinquent borrowers; (3) as of September 30, 1996, $3.6 billion, or about 34 percent of the total outstanding principal on direct loans ($10.5 billion), was held by delinquent borrowers; (4) this level of delinquency is an improvement over the $4.6 billion, or about 41 percent of the total outstanding principal ($11.4 billion), that was held by delinquent borrowers at the end of fiscal year (FY) 1995; (5) during FY 1996, FSA lost $1.1 billion of principal and interest by reducing or forgiving the debt of delinquent direct loan borrowers; (6) as of September 30, 1996, about $280 million, or about 4.4 percent of the total outstanding principal on guaranteed loans ($6.4 billion), was held by delinquent borrowers; (7) in comparison, at the end of FY 1995, delinquent borrowers held about $218 million , or 3.7 percent of the total outstanding principal ($5.9 billion); (8) much of the increase in guaranteed loan delinquencies is concentrated in a few states; (9) the FAIR Act made significant changes to FSA's lending programs; (10) these changes were aimed at strengthening the financial condition of the farm loan portfolio and improving the operation of the programs; (11) they include modifying or eliminating lending policies that added to FSA's risk and clarifying FSA's fundamental lending role and mission; (12) because the Department of Agriculture is in the process of implementing these changes, their impact will not be known for some time; and (13) however, GAO believes that they should go a long way to reducing the risk associated with the farm loan programs and to improving their operations.



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