Summary: During the past seven years, the Farm Service Agency, under its emergency disaster farm loan program, has forgiven more than $6 billion in unpaid principal and interest. More losses can be expected because 80 percent of the $3 billion in outstanding loan principal is held by borrowers who are delinquent or have had difficulty repaying emergency or other farm program loans. Although emergency loans are inherently risky, several lending policies have added to the risk. For example, borrowers who have received debt forgiveness on past loans are not prohibited from obtaining new emergency loans. In addition, borrowers with minimal projected cash flows are eligible to obtain loans--as long as their expected incomes equal their expected expenses, they qualify, and no cushion is required for unforeseen problems. Besides having weak lending policies, the agency does not consistently implement lending policies designed to safeguard federal financial interests. For example, the agency does not always verify the accuracy of information in loan applications. Although crop insurance was generally available, few recipients of emergency loans took out coverage to protect their crops against the risk of natural disaster. Instead, they relied on the federal government for assistance.
