GAO

United States General Accounting Office

Report to Congressional Committees

January 2001 FARM SERVICE

AGENCY

Updated Status of the

Multibillion-Dollar

Farm Loan Portfolio

GAO-01-202

Page 1 GAO-01-202 FSA’s Farm Loans and Losses

United States General Accounting Office

Washington, D.C. 20548

January 10, 2001

The Honorable Tom Harkin

The Honorable Richard G. Lugar

Committee on Agriculture,

Nutrition, and Forestry

United States Senate

The Honorable Larry Combest

The Honorable Charles W. Stenholm

Committee on Agriculture

House of Representatives

The Farm Service Agency (FSA), a lending agency within the U.S.

Department of Agriculture (USDA), provides, among other things, financial

assistance to farmers and ranchers who are unable to obtain commercial

credit at reasonable rates and terms.1 FSA does so by providing (1) direct

government-funded loans and (2) repayment guarantees on farm loans

made by commercial lenders. For a guaranteed loan, a commercial lender

must certify that it will not make the loan unless it receives an FSA

guarantee.

During the 1990s, we issued a series of reports highlighting the substantial

financial risk associated with FSA’s farm loan programs and multibilliondollar portfolio. In summary, we reported that FSA faces the conflicting

tasks in operating its farm loan programs of providing temporary credit to

high-risk borrowers so they can stay in farming until they are able to secure

commercial credit and of ensuring that the taxpayers’ investment is

protected. We also reported that FSA had evolved into a continuous source

of subsidized credit for many thousands of borrowers, experienced a high

rate of defaults on loan repayments, and incurred billions of dollars of loan

losses. The causes of the agency’s problems included program policies—

some of which were congressionally directed—that contributed to

financial risks and the need for clear direction on the basic purposes of the

farm loan programs. In the 1996 Farm Bill,2 the Congress, among other

things, made fundamental changes to the programs’ loan-making,

1

FSA administers the farm loan programs that historically were operated by the former

Farmers Home Administration. In this report, we refer to these loan programs as FSA’s

programs.

2

The Federal Agriculture Improvement and Reform Act of 1996 (P.L. 104-127, Apr. 4, 1996).
Page 2 GAO-01-202 FSA’s Farm Loans and Losses

loan-servicing, and property management policies and provided direction

for many other aspects of FSA’s basic lending mission.

This report provides an updated overview of the changing financial

condition of FSA’s farm loan portfolio as of September 30, 2000.3

Specifically, this report discusses (1) the outstanding principal owed on

direct and guaranteed farm loans, including the amounts owed by

delinquent borrowers, at the end of fiscal year 2000 and how those values

differ from those at the end of fiscal years 1995 through 1999 and (2) the

losses incurred by FSA on direct and guaranteed farm loans in fiscal year

2000 and how those amounts compare with the losses in fiscal years 1995

through 1999.

Results in Brief FSA had more than $16.6 billion in outstanding farm loans as of September

30, 2000; direct loans accounted for slightly more than half of this amount

and guaranteed loans for slightly less than half. Of the $16.6 billion, about

$2.1 billion was owed by borrowers who were delinquent on repaying their

FSA loans; most (87 percent) of this problem amount was owed on direct

loans. Overall, although the total amount of these problem loans remains

high, this financial position reflects improvement in FSA’s direct farm loan

portfolio in recent years as well as a continuation of a relatively healthy

guaranteed farm loan portfolio. Specifically, since the end of fiscal year

1995, the amount of outstanding principal owed by borrowers who were

delinquent on direct loans, and the percentage of debt owed by such

borrowers, declined each year—from $4.6 billion, or about 41 percent of

the outstanding principal, in fiscal year 1995 to $1.8 billion, or about 21

percent of the outstanding principal, in fiscal year 2000. In addition, the

amount of outstanding principal owed by borrowers who were delinquent

on guaranteed loans was less in fiscal year 2000 ($282 million) than at the

end of the 3 prior fiscal years, but it was slightly higher than the amounts

owed by such borrowers at the end of fiscal years 1995 and 1996 ($218

million and $280 million, respectively). Also, the percentage of debt that

delinquent borrowers with guaranteed farm loans owed was 3.5 percent in

fiscal year 2000, which is lower than the percentages in fiscal years 1995

through 1999.

3

In our last report on these programs, Farm Service Agency: Information on Farm Loans and

Losses (GAO/RCED-99-18, Nov. 27, 1998), we provided an overview of FSA’s direct loan

portfolio at the end of fiscal year 1997.
Page 3 GAO-01-202 FSA’s Farm Loans and Losses

Farm loan losses incurred by FSA during fiscal year 2000 totaled about

$486 million; direct loans accounted for most (88 percent) of this amount.

Specifically, FSA wrote off about $428 million of direct loans through its

various processes for resolving delinquencies. The losses that FSA

experienced on its direct farm loans in fiscal year 2000 were lower than the

losses in each of fiscal years 1995 through 1999, when loan losses averaged

$778 million per year. The agency also made $57.8 million in loss payments

to commercial lenders on guaranteed loans during fiscal year 2000. The

total losses on guaranteed farm loans in fiscal year 2000 were slightly lower

than the losses in fiscal year 1999, but higher than the losses in each of

fiscal years 1995 through 1998. On average, guaranteed loan losses were

$47 million per year during fiscal years 1995 through 1999.

We provided a draft of this report to USDA for review and comment. FSA

officials, including the Deputy Administrator for Farm Loan Programs and

the Director of the Loan Making Division, agreed with the material

contained in the report.

Background FSA provides various types of direct and guaranteed farm loans to the

nation’s farmers and ranchers. For example, direct farm ownership loans

are made for buying farm real estate and making capital improvements.

Guaranteed farm ownership loans are made for the same purposes and for

refinancing existing debts. Also, direct farm operating loans are made for

purposes such as buying feed, seed, fertilizer, livestock, and farm

equipment; paying family living expenses; and, subject to certain

restrictions, refinancing existing debts. Guaranteed farm operating loans

are made for the same purposes but without restriction on refinancing

existing debts. Additionally, emergency disaster loans are direct loans

made to farmers and ranchers whose operations have been substantially

damaged by adverse weather or other natural disasters. The Consolidated

Farm and Rural Development Act, as amended (P.L. 87-128, Aug. 8, 1961), is

the basic authority for the farm loan programs.

When a borrower does not repay his or her direct farm loans, FSA has

various tools to resolve the delinquency, including (1) restructuring the

loans, which may include reducing (writing down) some of the outstanding

debt, so that the borrower can continue in farming; (2) allowing a borrower

who does not qualify for restructuring to pay an amount based on the value

of collateral security, which is less than the outstanding debt and results in

FSA’s forgiving (writing off) the balance; and (3) reaching a final resolution

of the debt that may or may not include a payment by the borrower, which
Page 4 GAO-01-202 FSA’s Farm Loans and Losses

also results in debt forgiveness. When a borrower defaults on a guaranteed

loan and a commercial lender incurs a loss, FSA reimburses the lender for

the guaranteed portion of the loss.

Various pieces of legislation in recent years have had a significant impact

on the operation of FSA’s farm loan programs. Specifically, the 1996 Farm

Bill made a variety of changes to the lending and servicing policies of FSA

that were intended to reduce the risks associated with the farm loan

programs. For example, the Farm Bill included provisions that (1) prohibit

borrowers who are delinquent on FSA direct or guaranteed farm loans from

obtaining additional direct farm operating loans, (2) generally prohibit

borrowers whose past defaults resulted in loan losses from obtaining new

direct or guaranteed farm loans (although an exception provides that a

direct or guaranteed farm operating loan for paying annual farm or ranch

operating expenses may be made to a borrower whose restructuring

resulted in debt forgiveness), and (3) limit borrowers to one instance of

debt forgiveness on direct loans. The Farm Bill also requires borrowers to

have, or agree to obtain, hazard insurance on the property that they acquire

with farm ownership and operating loans, and requires applicants, as a

condition for getting an emergency disaster loan, to have had hazard

insurance on property that was damaged or destroyed.4 In addition, the

1996 Farm Bill provided direction for many other aspects of the agency’s

basic lending mission. For example, the Farm Bill emphasized that farm

loan assistance is temporary by providing that borrowers can receive direct

farm ownership loans during a 10-year period that starts when they first

obtain farm ownership loans and that borrowers can obtain direct farm

operating loans during a total of 7 years, which may be consecutive or

nonconsecutive years. The Farm Bill also encouraged the graduation of

direct loan borrowers to conventional credit by allowing a 95-percent

guarantee on loans made by commercial lenders to refinance the existing

direct loans that borrowers have, which is an increase from the usual

guarantee of 90 percent.

Other more recent legislation has eased some lending restrictions. First,

Public Law 105-277 (Oct. 21, 1998) provides additional exceptions to the

Farm Bill’s general prohibition of new loans to borrowers who caused FSA

to incur loan losses. Specifically, this act provides that a guarantee is only

4

The Secretary of Agriculture is to establish the levels of insurance that borrowers need to

obtain on property acquired with farm loans and the level of insurance that borrowers

needed to have had as a condition for obtaining an emergency loan.
Page 5 GAO-01-202 FSA’s Farm Loans and Losses

prohibited on a loan to a borrower who caused loan losses (1) after April 4,

1996, the date of the Farm Bill or (2) on more than three occasions on or

before the date of the Farm Bill. The act continued allowing direct and

guaranteed farm operating loans to restructured borrowers and also allows

such loans to borrowers who are current on payments under confirmed

bankruptcy reorganization plans. In addition, the act allows an emergency

disaster loan to be made to a borrower who (1) caused not more than one

loan loss on or before the date of the Farm Bill and (2) has not caused a

loss after the date of the Farm Bill. Furthermore, the act specifies that an

emergency disaster loan cannot be denied to a borrower who does not have

sufficient collateral to secure the loan if the borrower can show the ability

to repay the loan. Second, Public Law 106-31 (May 21, 1999) removed a

loan-making provision that said an applicant for a guaranteed loan needed

to have an income level that provided for a margin to fund the replacement

of capital items. Third, Public Law 106-224 (June 22, 2000) specifies that the

limitation on the number of years in which borrowers can receive farm

operating loans—7 years for direct loans and a total of 15 years for direct

and guaranteed loans—does not apply from the enactment date through

the end of December 2002. Fourth, Public Law 106-387 (Oct. 28, 2000)

allows making an emergency disaster loan to a poultry farmer to cover the

loss of a chicken house on which the farmer did not have hazard insurance

at the time of the loss if certain conditions are met.

FSA’s Farm Loan

Portfolio Has Generally

Improved in Recent

Years, but Many

Delinquent Loans

Remain

The outstanding principal owed on FSA’s direct and guaranteed farm loans

totaled more than $16.6 billion as of September 30, 2000. Direct loans

accounted for about $8.7 billion of the total amount, and guaranteed loans

accounted for almost $8 billion. Borrowers who were delinquent owed

slightly more than $1.8 billion, or 20.9 percent, of the outstanding direct

loan debt and about $282 million, or 3.5 percent, of the outstanding

guaranteed loan debt.5 (See table 1.)

5

If a borrower was delinquent on any farm loan, the principal on all farm loans held by the

borrower was totaled to calculate the amount owed by the delinquent borrower.
Page 6 GAO-01-202 FSA’s Farm Loans and Losses

Table 1: Outstanding Principal and Amount Owed by Delinquent Borrowers, Direct and Guaranteed Farm Loans, September 30,

2000

a

Percentages are based on whole numbers.

b

The total number of borrowers includes some borrowers who are counted more than once

because they have both direct and guaranteed loans. Also, the total amount owed by

delinquent borrowers does not add because of rounding.

Source: GAO’s analysis of information in FSA’s farm loan automated databases.

Both the total outstanding principal owed on direct farm loans and the

amount owed by borrowers who were delinquent were lower at the end of

fiscal year 2000 than at the end of fiscal year 1999. Also, as figure 1 shows,

the amounts owed have declined each year since the end of fiscal year

1995.

Dollars in millions

Outstanding principal Owed by delinquent borrowers

Percentage owed by delinquent

borrowersa

Loan program Amount

Number of

borrowers Amount

Number of

borrowers

Percentage

of debt

Percentage

of borrowers

Direct loans $8,659.0 96,887 $1,812.4 13,930 20.9 14.4

Guaranteed loans 7,967.1 40,679 281.9 1,863 3.5 4.6

Totalb $16,626.1 137,566 $2,094.2 15,793 12.6 11.5
Page 7 GAO-01-202 FSA’s Farm Loans and Losses

Figure 1: Outstanding Principal and Amount Owed by Borrowers Who Were

Delinquent on Direct Farm Loans, End of Fiscal Years 1995 Through 2000

Note: The percentage of outstanding principal owed by delinquent borrowers was as follows: 40.7

percent in 1995, 34.2 percent in 1996, 28.2 percent in 1997, 26.4 percent in 1998, 23.5 percent in

1999, and 20.9 percent in 2000.

Source: GAO’s analysis of information in FSA’s farm loan automated databases.

The total outstanding principal owed on guaranteed farm loans was higher

at the end fiscal year 2000 than at the end of fiscal year 1999, and the

amount owed by borrowers who were delinquent was lower. However, the

amount owed by borrowers who were delinquent increased slightly from

fiscal year 1995 to fiscal year 2000—$218 million, or 3.7 percent of the

outstanding principal, in fiscal year 1995, to $282 million, or 3.5 percent of

the outstanding principal, in fiscal year 2000. (See fig. 2.)

Dollars in billions

0

2

4

6

8

10

12

1995 1996 1997 1998 1999 2000

End of fiscal year

Outstanding principal

Owed by delinquent borrowers
Page 8 GAO-01-202 FSA’s Farm Loans and Losses

Figure 2: Outstanding Principal and Amount Owed by Borrowers Who Were

Delinquent on Guaranteed Farm Loans, End of Fiscal Years 1995 Through 2000

Note: The amount and percentage of outstanding principal owed by delinquent borrowers were as

follows: $218 million, or 3.7 percent, in 1995; $280 million, or 4.4 percent, in 1996; $300 million, or 4.6

percent, in 1997; $325 million, or 5.0 percent, in 1998; $363 million, or 5.0 percent, in 1999; and $282

million, or 3.5 percent, in 2000.

Source: GAO’s analysis of information in FSA’s farm loan automated databases.

Dollars in billions

0

2

4

6

8

10

1995 1996 1997 1998 1999 2000

End of fiscal year

Outstanding principal

Owed by delinquent borrowers
Page 9 GAO-01-202 FSA’s Farm Loans and Losses

Information on Farm Loans

Owed by Delinquent

Borrowers at the End of

Fiscal Year 2000, by Type of

Loan

Although all types of direct and guaranteed farm loans had outstanding

principal owed by delinquent borrowers at the end of fiscal year 2000, some

types accounted for much more problem debt than others. On direct loans,

for example, natural disaster emergency loans accounted for the highest

amount of principal owed by borrowers who were delinquent, about $811

million; 44.1 percent of the outstanding principal on these emergency loans

was owed by delinquent borrowers.6 Farm operating loans were second in

terms of the amount of principal owed by delinquent borrowers—$569.4

million; 20 percent of the outstanding principal on these loans was owed by

delinquent borrowers. On guaranteed loans, farm operating loans

accounted for the highest amount owed by delinquent borrowers, more

than $165 million; 3.8 percent of the outstanding principal on operating

loans was owed by delinquent borrowers. Guaranteed farm ownership

loans had about $115 million, or 3.2 percent of the outstanding principal

owed by delinquent borrowers. (See table 2.)

Table 2: Outstanding Direct and Guaranteed Farm Loans and Portion Owed by Delinquent Borrowers as of September 30, 2000,

by Loan Type

6

Natural disaster emergency loans are inherently riskier than the other types of farm loans

that FSA makes because they are made to help farmers recover from losses rather than to

generate new income.

Dollars in millions

Outstanding principal Owed by delinquent borrowers

Loan type Amount

Percentage

of total Amount

Percentage

of total

Percentage owed by

delinquent borrowers

Direct loans

Ownership $3,482.4 40.2 $135.7 7.5 3.9

Operating 2,846.9 32.9 569.4 31.4 20.0

Natural disaster 1,838.8 21.2 810.8 44.7 44.1

Othera 490.9 5.7 296.5 16.4 60.4

Total $8,659.0 100.0 $1,812.4 100.0 20.9

Guaranteed loans

Ownership $3,581.9 45.0 $114.9 40.8 3.2

Operating 4,380.7 55.0 165.4 58.7 3.8

Otherb 4.5 0.1 1.5 0.5 34.2

Total $7,967.1 100.0 $281.9 100.0 3.5
Page 10 GAO-01-202 FSA’s Farm Loans and Losses

Note: percentages are based on whole numbers. Also, totals may not add because of rounding.

a

Other direct loans are economic emergency and recreation loans, which FSA no longer

makes, and soil and water loans.

b

Other guaranteed loans are economic emergency loans, which FSA no longer guarantees.

Source: GAO’s analysis of information in FSA’s farm loan automated databases.

Information on Farm Loans

Owed by Delinquent

Borrowers at the End of

Fiscal Year 2000, by State

Borrowers in a relatively small number of states accounted for a

disproportionate share of the total delinquent debt in FSA’s direct and

guaranteed farm loan portfolio at the end of fiscal year 2000. For example,

borrowers in the 10 states (a group that includes one territory) with the

highest amount of delinquent direct loan debt owed about $1.1 billion, or

58.3 percent, of the total delinquent debt ($1.8 billion). Overall, borrowers

in these 10 states owed $3.4 billion, or 39.5 percent, of the total outstanding

principal owed on FSA’s direct farm loans. Texas accounted for the highest

amount owed by delinquent borrowers—almost $300 million. The next

three were Mississippi, Puerto Rico, and California; each had $101 million

to $118 million owed by delinquent borrowers. The remaining top six states

were Oklahoma, New York, North Dakota, Minnesota, Georgia, and

Louisiana; each had about $49 million to $98 million owed by delinquent

borrowers.

On guaranteed loans, borrowers in the 10 states with the highest amount of

delinquent debt owed about $145 million, or 51.4 percent, of the total

delinquent debt ($282 million). Overall, borrowers in these 10 states owed

about $4.1 billion, which is 51.4 percent of the total outstanding principal

owed on FSA’s guaranteed farm loans. Texas accounted for the highest

amount owed by delinquent borrowers—about $36 million. The next three

were Nebraska, Minnesota, and Oklahoma; each had $13 million to $14

million owed by delinquent borrowers. The remaining top six states were

New York, Iowa, North Dakota, Wisconsin, Kansas, and Illinois; each had

$10 million to $13 million owed by delinquent borrowers.

Appendix I provides additional information on the states that had the

highest amounts of principal owed by borrowers who were delinquent on

direct and guaranteed farm loans at the end of fiscal year 2000.
Page 11 GAO-01-202 FSA’s Farm Loans and Losses

Loan Losses Declining,

but Still Substantial

FSA’s losses on direct and guaranteed farm loan totaled about $486 million

during fiscal year 2000. Most of these losses—88 percent—involved direct

farm loans. Specifically, as table 3 shows, the agency incurred losses of

about $428 million on direct loans and $57.8 million on guaranteed loans.

Table 3: Direct and Guaranteed Farm Loan Losses, Fiscal Year 2000

a

Average losses are based on whole numbers.

Source: GAO’s analysis of information in FSA’s farm loan automated databases and reports.

The losses that FSA experienced on its direct farm loans in fiscal year 2000

were lower than the losses in each of fiscal years 1995 through 1999. On

guaranteed farm loans, the losses in fiscal year 2000 were slightly lower

than the losses in fiscal year 1999. However, the $57.8 million that was lost

in fiscal year 2000 is more than the losses in each of fiscal years 1995

through 1998. (See fig. 3.)

Loan program

Total loss amount

(dollars in millions)

Number of

borrowers

Average loss

amounta

Direct loans $428.0 2,307 $185,503

Guaranteed loans 57.8 595 97,216

Total $485.8 2,902 $167,401
Page 12 GAO-01-202 FSA’s Farm Loans and Losses

Figure 3: Losses on FSA’s Direct and Guaranteed Farm Loans, Fiscal Years 1995

Through 2000

Note: The losses on guaranteed farm loans were as follows: $32 million in 1995, $36 million in 1996,

$56 million in 1997, $50 million in 1998, $61 million in 1999, and $58 million in 2000.

Source: GAO’s analysis of information in FSA’s farm loan automated databases and reports.

Information on Farm Loan

Losses in Fiscal Year 2000,

by Type of Loan

Some types of direct and guaranteed farm loans had much higher losses

than others during fiscal year 2000. On direct loans, for example, natural

disaster emergency loans accounted for the highest amount of losses—

$223.8 million, or 52.3 percent of total losses (about $428 million). Farm

operating loans were second in terms of losses on direct loans—$108.3

million. On guaranteed loans, about $58 million was lost during fiscal year

2000. A large part of these losses—about $49.5 million, or 85.6 percent—

involved farm operating loans. (See table 4.)

Dollars in millions

0

200

 00

 00

 00

1000

1200

1 00

1995 199 199 199 1999 2000

Fiscal ear

 irect loans

Guaranteed loans
Page 13 GAO-01-202 FSA’s Farm Loans and Losses

Table 4: Direct and Guaranteed Farm Loan Losses During Fiscal Year 2000, by Loan

Type

a

Percentages are based on whole numbers.

b

Other direct loans on which there were losses were economic emergency, recreation, and

soil and water loans.

c

Other guaranteed loans on which there were losses were economic emergency loans.

Source: GAO’s analysis of information in FSA’s farm loan automated databases and reports.

Information on Direct Farm

Loan Losses in Fiscal Year

2000, by Type of Servicing

Action

Delinquent borrowers (1) who were restructured with debt write-down or

(2) who did not qualify for restructuring and were allowed to make a

buyout payment to FSA, which was based on the value of their loansecurity property, accounted for 2 percent of the direct farm loan losses

that FSA experienced in fiscal year 2000. Almost 98 percent of the $428

million in losses that FSA incurred in fiscal year 2000 involved delinquent

borrowers whose farm loans were resolved through the agency’s debt

settlement process.7 (See table 5.)

Dollars in millions

Loan type Amount Percentage of totala

Direct loans

Ownership $44.3 10.3

Operating 108.3 25.3

Natural disaster 223.8 52.3

Otherb 51.6 12.1

Total $428.0 100.0

Guaranteed loans

Ownership $8.2 14.2

Operating 49.5 85.6

Otherc 0.1 0.2

Total $57.8 100.0

7

The debt settlement process essentially represents the final resolution of unpaid loans.

Debt settlements generally occur after loan-security property has been liquidated and

frequently result in no payments being made to the agency by the borrowers at the time of

settlement.
Page 14 GAO-01-202 FSA’s Farm Loans and Losses

Table 5: Direct Farm Loan Losses During Fiscal Year 2000, by Type of Servicing

a

Average losses are based on whole numbers.

Source: GAO’s analysis of information in FSA’s farm loan automated databases and reports.

Information on Farm Loan

Losses in Fiscal Year 2000,

by State

Borrowers in a small number of states also accounted for a

disproportionate share of the total losses that FSA experienced on its

direct and guaranteed farm loans during fiscal year 2000. Specifically,

borrowers in the 10 states where the highest amount of direct loan losses

occurred accounted for approximately $326 million, or 76.1 percent, of the

total losses ($428 million). Texas accounted for the highest amount of

losses—almost $110 million; California was second with about $95 million;

and Mississippi was third with $32.5 million. The other top seven states

were Louisiana, Arizona, North Dakota, Oklahoma, New York, Minnesota,

and Arkansas; each had more than $8 million to $20 million in losses.

On guaranteed loans, borrowers in the 10 states where the highest amount

of losses occurred accounted for about $41 million, or 70.4 percent, of the

total losses ($57.8 million). Texas accounted for the highest amount of

losses—about $11 million; Louisiana was second with about $6.5 million;

and Oklahoma was third with more than $5 million. The other top seven

states were Mississippi, Georgia, Tennessee, North Dakota, Arkansas,

Minnesota, and Indiana; each had more than $1 million to about $4 million

in losses.

Appendix I provides additional information on the states that had the

highest amounts of losses on direct and guaranteed farm loans during fiscal

year 2000.

Loan servicing

Total loss amount

(dollars in

millions)

Number of

borrowers

Average loss

amounta

Restructured with

write-down

$7.5 56 $133,946

Recovery value

buyout with write-off

2.6 26 99,035

Debt settled with

write-off

417.9 2,225 187,811

Total $428.0 2,307 $185,503
Page 15 GAO-01-202 FSA’s Farm Loans and Losses

Agency Comments We provided USDA with a draft of this report for review and comment. We

met with FSA officials, including the Deputy Administrator for Farm Loan

Programs and the Director of the Loan Making Division. The agency

officials agreed with the material contained in the report. Furthermore, in

commenting about the legislative changes to the farm loan programs that

have been enacted since the 1996 Farm Bill, the Deputy Administrator

expressed concern that easing some lending restrictions may adversely

affect the financial condition of the farm loan portfolio in future years. We

agree with this assessment.

Scope and

Methodology

To prepare this report, we obtained and analyzed information in FSA’s

direct and guaranteed farm loan computerized databases, which included

the levels of outstanding and delinquent loans and losses.8 FSA uses these

databases to manage its farm loan programs. We also obtained and

reviewed various financial reports on the agency’s farm loan portfolio and

losses and discussed the farm loan programs and portfolio with FSA

officials, including the Deputy Administrator for Farm Loan Programs and

the Director of the Loan Servicing and Property Management Division. We

did not verify the accuracy of the information contained in the agency’s

databases or reports. We performed our work during November and

December 2000 in accordance with generally accepted government

auditing standards.

We are sending copies of this report to the appropriate Senate and House

committees; interested Members of Congress; the Honorable Dan

Glickman, Secretary of Agriculture; Mr. Keith Kelly, Administrator, FSA; the

Honorable Jacob J. Lew, Director, Office of Management and Budget; and

other interested parties. We will also make copies available to others upon

request.

8

Some of the information contained in this report may differ from previously reported

information because of adjustments to the financial data in FSA’s databases.
Page 16 GAO-01-202 FSA’s Farm Loans and Losses

Please call me at (202) 512-3841 if you or your staff have any questions

about this report. Key contributors to this report were Charles M. Adams,

Jerry D. Hall, and Patrick J. Sweeney.

Lawrence J. Dyckman

Director, Natural Resources and

Environment
Page 17 GAO-01-202 FSA’s Farm Loans and Losses
Page 18 GAO-01-202 FSA’s Farm Loans and Losses

Appendix I

Information on Farm Loans in the States With Apendxies

the Highest Amounts of Delinquencies and

Losses ApendxiI

This appendix provides information on the Farm Service Agency’s (FSA)

direct and guaranteed farm loans in the states1 that had the highest

amounts of debt owed by delinquent borrowers as of September 30, 2000.

Also, information is provided on direct and guaranteed farm loan losses

experienced by the agency in the states where the highest amounts of

losses occurred during fiscal year 2000.

Direct and Guaranteed

Farm Loan Portfolio,

September 30, 2000

Nationally, FSA had about $8.7 billion in outstanding direct farm loans as of

September 30, 2000; of that amount, delinquent borrowers owed more than

$1.8 billion, or 20.9 percent. Borrowers in nine states and Puerto Rico

accounted for a high portion—58.3 percent—of the total outstanding

principal owed by all delinquent borrowers. (See table 6.)

Table 6: Ten States With the Highest Amount of Outstanding Direct Farm Loans Owed by Delinquent Borrowers as of September

30, 2000

a

Percentages are based on whole numbers.

Source: GAO’s analysis of information in FSA’s farm loan automated databases.

1

For convenience in presentation, we categorize Puerto Rico as a state in this appendix.

Dollars in millions

Outstanding principal Owed by delinquent borrowers

Percentage owed by delinquent

borrowersa

State Amount

Number of

borrowers Amount

Number of

borrowers

Percentage of

debt

Percentage of

borrowers

Texas $776.2 6,481 $299.0 2,251 38.5 34.7

Mississippi 277.3 3,307 118.0 861 42.6 26.0

Puerto Rico 269.7 3,459 109.8 1,197 40.7 34.6

California 280.3 1,579 101.3 410 36.1 26.0

Oklahoma 378.3 4,915 98.4 840 26.0 17.1

New York 297.7 2,443 89.4 490 30.0 20.1

North Dakota 419.1 3,900 81.0 537 19.3 13.8

Minnesota 349.7 3,871 62.2 504 17.8 13.0

Georgia 172.1 1,808 49.1 343 28.5 19.0

Louisiana 203.8 2,432 48.8 499 24.0 20.5

10-state total $3,424.1 34,195 $1,057.0 7,932 30.9 23.2

National total $8,659.0 96,887 $1,812.4 13,930 20.9 14.4
Appendix I

Information on Farm Loans in the States

With the Highest Amounts of Delinquencies

and Losses

Page 19 GAO-01-202 FSA’s Farm Loans and Losses

In addition, FSA had almost $8 billion in outstanding guaranteed farm loans

as of September 30, 2000, of which delinquent borrowers owed about $282

million, or 3.5 percent. Borrowers in 10 states accounted for slightly more

than half—51.4 percent—of the total outstanding principal owed by all

delinquent borrowers. (See table 7.)

Table 7: Ten States With the Highest Amount of Outstanding Guaranteed Farm Loans Owed by Delinquent Borrowers as of

September 30, 2000

Note: Borrowers in these 10 states accounted for slightly more than half of (1) the total outstanding

principal owed by all borrowers and (2) the principal owed by all delinquent borrowers. As a result, the

percentage of debt held by delinquent borrowers in these 10 states was approximately the same as the

percentage owed by all delinquent borrowers—3.5 percent.

a

Percentages are based on whole numbers.

Source: GAO’s analysis of information in FSA’s farm loan automated databases.

Dollars in millions

Outstanding principal Owed by delinquent borrowers

Percentage owed by delinquent

borrowersa

State Amount

Number of

borrowers Amount

Number of

borrowers

Percentage of

debt

Percentage of

borrowers

Texas $474.4 2,556 $35.8 220 7.5 8.6

Nebraska 450.9 2,284 13.8 89 3.1 3.9

Minnesota 452.8 2,343 13.4 96 2.9 4.1

Oklahoma 382.2 1,630 13.2 76 3.4 4.7

New York 172.3 823 12.9 67 7.5 8.1

Iowa 564.9 3,457 12.8 101 2.3 2.9

North Dakota 389.0 1,698 11.5 67 3.0 3.9

Wisconsin 530.4 2,182 10.8 59 2.0 2.7

Kansas 283.2 1,692 10.5 83 3.7 4.9

Illinois 393.2 2,154 10.4 62 2.6 2.9

10-state total $4,093.2 20,819 $144.8 920 3.5 4.4

National total $7,967.1 40,679 $281.9 1,863 3.5 4.6
Appendix I

Information on Farm Loans in the States

With the Highest Amounts of Delinquencies

and Losses

Page 20 GAO-01-202 FSA’s Farm Loans and Losses

Direct and Guaranteed

Farm Loan Losses in Fiscal

Year 2000

Nationally, FSA experienced about $428 million in losses on direct loans in

fiscal year 2000. Borrowers in all states and in Puerto Rico caused these

losses. However, borrowers in 10 states accounted for more than threequarters of the total loss amount—76.1 percent. (See table 8.)

Table 8: Ten States With the Highest Amount of Direct Farm Loan Losses in Fiscal Year 2000

Note: Most of the losses experienced by FSA in these 10 states, as well as in other states and Puerto

Rico, occurred through the agency’s debt settlement process. Specifically, 1,256 of the 1,308

borrowers who caused losses in these 10 states in fiscal year 2000 had their delinquent farm loan

accounts resolved through debt settlements. In addition, 969 of the 999 borrowers who caused losses

in the other 40 states and Puerto Rico had their accounts resolved through debt settlements.

a

Average losses are based on whole numbers.

Source: GAO’s analysis of information in FSA’s farm loan automated databases and reports.

In addition, FSA had $57.8 million in losses on guaranteed farm loans in

fiscal year 2000. Loan losses occurred in 42 states and in Puerto Rico.

However, borrowers in 10 states accounted for a significant portion of the

total loss amount—70.4 percent. (See table 9.)

State

Total loss amount

(dollars in millions) Number of borrowers Average loss amounta

Texas $109.6 336 $326,226

California 94.6 94 1,006,228

Mississippi 32.5 123 264,408

Louisiana 20.4 172 118,486

Arizona 14.9 59 252,260

North Dakota 14.6 136 107,597

Oklahoma 13.0 144 90,576

New York 9.1 79 115,482

Minnesota 8.6 70 123,451

Arkansas 8.2 95 86,102

10-state total $325.6 1,308 $248,932

National total $428.0 2,307 $185,503
Appendix I

Information on Farm Loans in the States

With the Highest Amounts of Delinquencies

and Losses

Page 21 GAO-01-202 FSA’s Farm Loans and Losses

Table 9: Ten States With the Highest Amount of Guaranteed Farm Loan Losses in Fiscal Year 2000

a

Average losses are based on whole numbers.

Source: GAO’s analysis of information in FSA’s farm loan automated databases and reports.

State

Total loss amount

(dollars in millions) Number of borrowers Average loss amounta

Texas $10.6 90 $117,569

Louisiana 6.5 78 82,779

Oklahoma 5.4 38 143,238

Mississippi 3.9 33 117,473

Georgia 3.5 36 96,866

Tennessee 3.2 33 96,721

North Dakota 3.1 35 89,514

Arkansas 1.9 25 76,439

Minnesota 1.4 20 67,874

Indiana 1.3 9 145,297

10-state total $40.7 397 $102,634

National total $57.8 595 $97,216

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