From 1989 through 1995, the program has lost over $6.1 billion in debt forgiveness. Future Losses Could Be Significant

Although FSA has forgiven billions of dollars in emergency loans to borrowers who have had problems repaying their debt, the portfolio continues to present a high risk of substantial losses to the government. Furthermore, borrowers have already had difficulty repaying recent loans, which reflect the most current changes to the agency’s emergency lending policies and practices. When this principal is combined with the principal owed by delinquent borrowers, about $2.5 billion, or 80.4 percent, of the outstanding emergency loan principal is held by borrowers who are at risk. Weak Lending Policies and Practices Add to Inherent Risk of Emergency Loans

The likelihood that farmers will repay emergency loan debt is diminished by the nature of the loans. Few Borrowers Use Insurance to Protect Their Property

We have previously reported that subsidized crop insurance, compared to other forms of federal assistance such as loans and direct payments, is an efficient and equitable method of providing disaster assistance. 1. 3. 3. 2.
Why GAO Did This Study

GAO analyzed the financial condition of the Department of Agriculture's multi-billion dollar farm loan portfolio, focusing on: (1) the factors that contribute to the financial risk associated with these loans; and (2) the extent to which farmers attempted to minimize the need for farm loans by purchasing insurance to protect their farming operations.

What GAO Found

GAO found that: (1) since 1989, the Farm Service Agency (FSA) has forgiven over $6 billion in emergency disaster farm loans and interest; (2) additional losses should be expected because 80 percent of the $3 billion in loan debt is held by borrowers who are already delinquent or have had difficulty repaying their loans; (3) weak FSA lending policies and practices add to the inherent risk of emergency loans; (4) FSA does not consistently implement lending safeguards to protect federal financial interests; and (5) few borrowers purchase insurance to protect their property, preferring to rely on government assistance.