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Farmers Home Administration: Changes Needed in Loan Servicing Under the Agricultural Credit Act

RCED-90-169 Published: Aug 02, 1990. Publicly Released: Aug 02, 1990.
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Highlights

Pursuant to a congressional request, GAO reviewed the Farmers Home Administration's (FmHA) implementation of the debt servicing requirements under the Agricultural Credit Act of 1987.

Recommendations

Matter for Congressional Consideration

Matter Status Comments
In order to improve the quality of loans in the FmHA farmer loan program portfolio and the results of the FmHA debt servicing actions, prevent FmHA borrowers from repeatedly obtaining debt relief, promote fiscal accountability by FmHA borrowers, and limit the amount of debt relief provided to borrowers who receive primary loan servicing and net-recovery-value buy-out, Congress should amend the Agricultural Credit Act of 1987 (Public Law (P.L.) 100-233, January 6, 1988). This can be done by enacting provisions similar to sections 5 and 6 of H.R. 4077, which provide limitations on the net-recovery-value buy-out and restructuring options of the Agricultural Credit Act.
Closed – Implemented
GAO will process an accomplishment report on changes contained in the 1990 Farm Bill.
To make it clear that bad-faith borrowers cannot receive debt relief benefits and to discourage other borrowers from acting in bad faith, Congress should amend the Agricultural Credit Act of 1987 (P.L. 100-233, January 6, 1988). This can be done by enacting provisions similar to sections 2 and 5 of H.R. 4077, which require borrowers to act in good faith to be eligible to reacquire their farms through preservation servicing and to be eligible for net-recovery-value buy-out.
Closed – Implemented
GAO will process an accomplishment report based on changes contained in the 1990 Farm Bill.
Congress should amend the Agricultural Credit Act to require borrowers to act in good faith to be eligible to reacquire their farm homestead through preservation servicing.
Closed – Not Implemented
Closing this recommendation because Congress has not acted on it for over 2 years.
To provide FmHA with authority to consider all assets of delinquent borrowers under consideration for debt reduction and to reduce the cost of debt write-downs and write-offs, Congress should amend the Agricultural Credit Act of 1987 (P.L. 100-233, January 6, 1988). This can be done by enacting a provision similar to section 4 of H.R. 4077, which allows FmHA to consider all assets of a borrower, other than those necessary for family living or farm operating expenses, in determining the value of restructured loans.
Closed – Implemented
GAO will process an accomplishment report based on changes contained in the 1990 Farm Bill.
Congress should amend the Agricultural Credit Act to allow FmHA to take into consideration all assets of a borrower in determining the net-recovery-value buy-out amount.
Closed – Not Implemented
Closing this recommendation because Congress has not acted on it for over 2 years.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Agriculture The Secretary of Agriculture should direct the Administrator, FmHA, to revise existing regulations implementing the debt restructuring provisions of the Agricultural Credit Act to provide restructured borrowers with a 10-percent cash flow margin after servicing. This margin should provide restructured borrowers with the minimum ability to meet unplanned expenses and equipment replacements.
Closed – Implemented
GAO will process an accomplishment report based on changes contained in the 1990 Farm Bill.
Department of Agriculture The Secretary of Agriculture should direct the Administrator, FmHA, to: (1) alert county offices that borrowers may intentionally become delinquent in an attempt to qualify for debt relief under the act; and (2) notify farmer program borrowers that intentionally causing delinquencies could disqualify them for debt relief under the act.
Closed – Implemented
In April 1992, FmHA issued regulations which restircted debt relief to bad debt borrowers. Publication of these regulations accomplishes the intent of this recommendation.

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Topics

Agricultural programsDebt collectionDelinquent loansEligibility criteriaFarm creditFarm income stabilization programsFarm subsidiesGovernment guaranteed loansLoan defaultsLoan repayments