Congressional investigators told the Senate Agriculture Committee yesterday that about half of the Farmers Home Administration's $28 billion farm-loan portfolio is in jeopardy of default, held by farmers with little chance of repaying debts.
Brian P. Crowley of the General Accounting Office said the "rather gloomy picture" resulted from low prices received by farmers and from FmHA lending to farmers "whose ability to repay was questionable." He said, "FmHA's growing farm-loan portfolio is increasingly at risk because delinquencies are on the rise and loan losses are mounting."
Committee members expressed alarm but urged the FmHA to move cautiously against bad debts to avoid wider repercussions in farm communities.
"Any precipitous action by the FmHA to close down these farmers would have grave consequences," said Sen. Edward Zorinsky (D-Neb.). Other members agreed.
But Sen. Mark Andrews (R-N.D.) said the GAO statistics "ought not be surprising because under the law, the FmHA is the lender of last resort . . . . With less than a 2 percent return on agriculture, this ought not to be surprising. There is no way farmers can make good on those loans."
The FmHA, an arm of the Agriculture Department, holds slightly more than 10 percent of the nation's approximately $214 billion agricultural debt. Most of its loans go to low-income farmers who cannot get credit elsewhere or have suffered losses from natural disasters.
Frank W. Naylor Jr., undersecretary of agriculture for small community and rural development, and FmHA administrator Vance Clark, agreeing with the GAO findings, promised that the agency would continue forbearance in dealing with delinquent borrowers.
But Naylor and Clark criticized statements by farm leaders and recent news reports suggesting that the FmHA was about to crack down on the most heavily indebted farmers.
Naylor said farmers who had made no loan payments in three years and others who may have defrauded the government soon will receive notices about steps they can take to make good on their debts. But, he contended, the FmHA will continue to take "a very generous and very compassionate approach."
The GAO's Crowley said the FmHA's loan losses nearly doubled between 1984 and last year because it continued to provide money to many farmers who could not demonstrate ability to repay loans.
For example, Crowley said, GAO found that the FmHA in the first six months of 1985 had made new loans of about $763 million to 7,000 farmers technically insolvent. Another $1.2 billion was loaned to 12,000 more farmers in extreme financial distress.
Crowley also reported that a sampling of FmHA records found about 20 percent of its borrowers "technically insolvent," with more debts than assets. Another 31 percent, he said, were only a little better off, with debt-to-asset ratios between 70 and 99 percent.
He said $4.8 billion -- nearly three-fourths of $6.4 billion in loan delinquencies as of last June -- was owed by about 37,000 farmers who had not made a loan payment in three or more years. But Clark said recent publicity about an FmHA crackdown led to a rash of payments -- a sudden influx of what he called "mystery cash" -- from about 10,000 of those borrowers.