Summary: Pursuant to a congressional request, GAO submitted information on borrowers' use of Farmers Home Administration (FmHA) loan funds, focusing on: (1) four major types of farmer program loans during fiscal year 1988; (2) the extent to which farmers used loan funds to refinance existing debts; and (3) lenders' views on using FmHA loan guarantees.
GAO found that farmers mainly used: (1) direct farm ownership loans for purchasing property and refinancing; (2) direct farm operating loans for farm operating expenses, refinancing, and livestock and machinery purchases; (3) guaranteed farm ownership loans for refinancing purchases and farm property, special equipment, or facilities purchases; and (4) guaranteed farm operating loans for farm operating expenses and refinancing. GAO also found that: (1) some commercial lenders used an FmHA guarantee to refinance existing debts; (2) guarantees improved lenders' security and portfolio quality; (3) lenders generally initiated the process of obtaining loan guarantees for borrowers; and (4) refinancing indicated that lenders were using guaranteed loans to enhance their loan security on existing debts.
