Farm Service Agency: Updated Status of the Multibillion-Dollar Farm Loan
Portfolio (Letter Report, 01/10/2001, GAO/GAO-01-202).

The Farm Service Agency (FSA), a leading agency within the Department of
Agriculture, provides financial assistance to farmers and ranchers who
are unable to obtain commercial credit at reasonable rates and terms.
This is done by providing direct government-funded loans and repayment
guarantees on farm loans made by commercial lenders. During the 1990s,
GAO issued a series of reports highlighting the substantial financial
risk associated with FSA's farm loan programs and multibillion-dollar
portfolio. GAO recently reviewed FSA's farm loan programs to determine
the outstanding principal owed on direct and guaranteed farm loans at
the end of fiscal year 2000 and the losses incurred by FSA on direct and
guaranteed farm loans in the same year. GAO found that FSA had more than
$16.6 billion in outstanding farm loans as of September 2000. Farm loan
losses incurred by FSA during fiscal year 2000 totalled about $486
million. Both figures represent a significant decrease when compared to
figures for previous fiscal years.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GAO-01-202
     TITLE:  Farm Service Agency: Updated Status of the
	     Multibillion-Dollar Farm Loan Portfolio
      DATE:  01/10/2001
   SUBJECT:  Farm credit
	     Agricultural programs
	     Direct loans
	     Government guaranteed loans
	     Delinquent loans
	     Losses
	     Loan defaults
IDENTIFIER:  FSA Direct Farm Loan Program

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GAO-01-202

Report to Congressional Committees

January 2001 FARM SERVICE AGENCY

Updated Status of the Multibillion- Dollar Farm Loan Portfolio

GAO- 01- 202

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).

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.

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

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.

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

Portfolio Has Generally 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
Improved in Recent

accounted for almost $8 billion. Borrowers who were delinquent owed Years,
but Many

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
Delinquent Loans

guaranteed loan debt. 5 (See table 1.) Remain

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.

Table 1: Outstanding Principal and Amount Owed by Delinquent Borrowers,
Direct and Guaranteed Farm Loans, September 30, 2000

Dollars in millions

Percentage owed by delinquent Outstanding principal Owed by delinquent
borrowers borrowers a

Number of Number of

Percentage Percentage Loan program Amount borrowers Amount borrowers of debt
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 To t a l b $16,626.1 137, 566
$2, 094. 2 15, 793 12.6 11. 5

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.

Figure 1: Outstanding Principal and Amount Owed by Borrowers Who Were
Delinquent on Direct Farm Loans, End of Fiscal Years 1995 Through 2000

Dollars in billions 12

10 8 6 4

2 0

1995 1996 1997 1998 1999 2000 End of fiscal year

Outstanding principal Owed by delinquent borrowers

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.)

Figure 2: Outstanding Principal and Amount Owed by Borrowers Who Were
Delinquent on Guaranteed Farm Loans, End of Fiscal Years 1995 Through 2000

Dollars in billions 10

8 6 4 2 0

1995 1996 1997 1998 1999 2000 End of fiscal year

Outstanding principal Owed by delinquent borrowers

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.

Information on Farm Loans Although all types of direct and guaranteed farm
loans had outstanding

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

Borrowers at the End of types accounted for much more problem debt than
others. On direct loans,

Fiscal Year 2000, by Type of for example, natural disaster emergency loans
accounted for the highest

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

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

Dollars in millions

Outstanding principal Owed by delinquent borrowers Percentage

Percentage Percentage owed by Loan type Amount of total Amount of total
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 Other a 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 Other b 4.5 0. 1 1. 5 0. 5 34. 2

Total $7, 967.1 100. 0 $281. 9 100.0 3.5

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.

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 Borrowers in a relatively small number of states
accounted for a

Owed by Delinquent disproportionate share of the total delinquent debt in
FSA's direct and

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

Fiscal Year 2000, by State 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.

Loan Losses Declining, FSA's losses on direct and guaranteed farm loan
totaled about $486 million

but Still Substantial 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 Total loss
amount

Number of Average loss Loan program (dollars in millions) borrowers amount a

Direct loans $428. 0 2, 307 $185, 503 Guaranteed loans 57. 8 595 97, 216

Total $485. 8 2, 902 $167, 401

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.)

Figure 3: Losses on FSA's Direct and Guaranteed Farm Loans, Fiscal Years
1995 Through 2000

Dollars in millions 1400

1200 1000

800 600 400 200

0 1995 1996 1997 1998 1999 2000 Fiscal year

Direct loans Guaranteed loans

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

Losses in Fiscal Year 2000, than others during fiscal year 2000. On direct
loans, for example, natural

by Type of Loan 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.)

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

Dollars in millions

Loan type Amount Percentage of total a Direct loans

Ownership $44. 3 10. 3 Operating 108. 3 25. 3 Natural disaster 223. 8 52. 3
Other b 51. 6 12. 1

Total $428.0 100. 0 Guaranteed loans

Ownership $8.2 14.2 Operating 49.5 85.6 Other c 0.1 0. 2

Total $57. 8 100.0

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

Loan Losses in Fiscal Year (2) who did not qualify for restructuring and
were allowed to make a

2000, by Type of Servicing buyout payment to FSA, which was based on the
value of their loansecurity

Action 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.)

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.

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

(dollars in Number of

Average loss Loan servicing

millions) borrowers amount a

Restructured with $7. 5 56 $133, 946 write- down Recovery value

2.6 26 99,035 buyout with write- off Debt settled with

417. 9 2, 225 187, 811 write- off Total $428. 0 2, 307 $185, 503

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 Borrowers in a small number of states also
accounted for a

Losses in Fiscal Year 2000, disproportionate share of the total losses that
FSA experienced on its

by State 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.

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

direct and guaranteed farm loan computerized databases, which included
Methodology

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.

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

Appendi xes Information on Farm Loans in the States With the Highest Amounts
of Delinquencies and

Appendi xI

Losses This appendix provides information on the Farm Service Agency's (FSA)
direct and guaranteed farm loans in the states 1 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 Nationally, FSA had about $8. 7 billion in outstanding
direct farm loans as of

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

September 30, 2000 $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

Dollars in millions

Percentage owed by delinquent Outstanding principal Owed by delinquent
borrowers borrowers a

Number of Number of

Percentage of Percentage of State Amount borrowers Amount borrowers debt
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

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.

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

Dollars in millions

Percentage owed by delinquent Outstanding principal Owed by delinquent
borrowers borrowers a

Number of Number of

Percentage of Percentage of State Amount borrowers Amount borrowers debt
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 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.

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

Farm Loan Losses in Fiscal fiscal year 2000. Borrowers in all states and in
Puerto Rico caused these

Year 2000 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 Total loss amount State (dollars in millions) Number of
borrowers Average loss amount a

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 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.)

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

(dollars in millions) Number of borrowers Average loss amount a

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

a Average losses are based on whole numbers.

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

(360022) Lett er

GAO United States General Accounting Office

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Appendix I

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

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

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

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