Her monthly mortgage payments were up to date, but Elizabeth Churchfull, a 75-year-old black widow who cannot read or write, believed the government agent who told her she'd be better off giving her home back to the Farmers Home Administration (FmHA).

The agent said the monthly payments would be lower, she could get federal rent subsidies and remain in her Cheriton, Va., home the rest of her life. It sounded like a good deal for an elderly woman on a meager fixed income.

"I said that's good for me," Churchfull recalled the other day. She quickly signed the conveyance to FmHA. But the agency then charged her $60 a month rent--the same as her mortgage payment--and later put the property on the market. Only help from a Legal Services lawyer kept her in the home.

Elizabeth Churchfull's story is not unique among Farmers Home borrowers on the Eastern Shore of Virginia. After Michael T. Robinson, an aggressive legal-aid attorney from Belle Haven, got involved last year and began chasing leads, he found dozens of similar cases.

Robinson told a House banking subcommittee this week that at least 153 low-income borrowers on the Eastern Shore gave up their homes in 1979 and 1980 under similar advice from FmHA employes in Accomack and Northampton counties.

In some cases, borrowers' accounts were current. In other cases, they were only a few dollars in arrears. Yet, Robinson said, FmHA took a hard line because it feared potential losses from these clients at a time when social spending was being cut.

Beyond that, however, the agency's tough policy resulted in windfalls for well-heeled private interests when FmHA put its reconveyed properties up for sale, Robinson told Rep. Henry B. Gonzalez (D-Tex.), chairman of the housing and community development panel that is reviewing FmHA lending practices.

"More than 100 of these 153 homes have been sold by FmHA. . . . Of the 100 sales I am familiar with, more than half have gone to high-income investors and rents charged to the tenants have doubled and tripled over their previous mortgage payments," Robinson said.

"In the late 1970s," he continued, "there was a rise in delinquencies . . . and this was a cloaked attempt by FmHA to reduce delinquencies. They decided to reduce them any way they could . . . , found they could avoid expense and time if they got people to reconvey their properties."

The Gonzalez panel has begun investigating allegations by rural-housing advocates that the FmHA, an arm of the Department of Agriculture, is systematically pushing low-income borrowers out of home ownership and putting unnecessary muscle on borrowers who are, in some cases, only marginally delinquent.

Gonzalez, angry because Secretary John R. Block has treated his panel "with contempt" by refusing to testify on FmHA matters, charged that "all information tends to indicate that the focus of the agency has been on foreclosing in an arbitrary way on poor rural homeowners without employing the remedies in law under the existing refinancing and moratorium provisions."

Michael E. Brunner, an associate administrator of FmHA sent to Capitol Hill as a stand-in for FmHA chief Charles W. Shuman, repeated the agency's standard response to these and other allegations. FmHA is doing all it can to help financially troubled borrowers and it adheres to a policy of reselling abandoned properties to other low-income clients, he said.

Brunner did not comment on the situation outlined by Robinson. FmHA's Accomack County office in Onancock could not be reached for comment.

But Brunner's testimony varied sharply with that of other witnesses before the subcommittee. Robinson, for example, said that FmHA policies on the Eastern Shore actually were putting the reconveyed properties in the hands of real-estate interests--not other poor borrowers.

The legal services attorney said the policy in Virginia began under the Carter administration and then was followed by Reagan administration appointees who put reconveyed properties on the open market. "The problems arose when new officials ignored previous promises that were not authorized under FmHA regulations," Robinson said.

One result is that subsidized mortgage housing units reconveyed by poor buyers to the FmHA have created a windfall for some private investors, while removing those properties from the inventory available for resale to qualified potential FmHA borrowers.

"The inventory homes have been an attractive investment opportunity to speculators," Robinson said. "On the Eastern Shore of Virginia, because of a depressed housing market, the resale prices average well below $10,000. Investors are especially interested in homes in which the occupants continue to receive Section 8 rental subsidies, since the owner receives direct payment monthly. If the owner receives a $200 monthly check, or $2,400 annually, it will not take long to recapture his relatively small investment, financed by FmHA at 12.5 percent with a 10 percent downpayment."

Another critic, Robert Rapoza of the National Rural Housing Coalition, told the panel that while FmHA has cracked down harshly on delinquent borrowers and not provided the forebearance required by law, its policy of selling off recaptured properties has cost the government millions of dollars.

"An almost unmanageable inventory burgeoned to 14,452 units," he said, "and losses from inventory sales are at $50.8 million for the first eight months of 1983. . . . FmHA is finding inventory units hard to move in some areas and has even utilized auction sales. Aside from cash losses to the government, this moves units out of the subsidized low-income housing stock."

Said Brunner: "When a suitable property is returned to the agency, our policy is to resell it to another low-income borrower who is in need of decent housing and can afford to repay the loan. We implement that policy whenever possible. . . . Public sales are reserved for those situations where the property is unsuitable for the . . . program or where there is no ready market."

Through August, FmHA in Virginia had more reconveyed or repossessed low-income loan properties in its inventory than any other state. Of the 14,452 nationally, 888 were in Virginia. The next closest state was Indiana, with 767.

More evidence of FmHA's hardline approach, Rapoza charged, was that while about 200,000 FmHA borrowers--that is, about 1.5 percent of the national total--are delinquent on payments, the agency had approved only 12,400 moratoriums during the first 11 months of fiscal 1983. "It is hard to imagine that approximately 20 percent of FmHA borrowers simply refuse to pay their loans," he said.

Although Brunner offered no response to witnesses' specific charges, Gonzalez didn't press him. "We've never been able to get the secretary here and in 50 percent of our requests, Mr. Shuman himself. You don't have policy responsibilities. So we are here again with no accountability."

Gonzalez acknowledged that the Virginia problems began in the Carter years, but he said, "This administration has concentrated on foreclosing or otherwise dispossessing poor rural homeowners. . . . I am hard-pressed to understand the agency's wholesale crackdown on delinquent borrowers.

"I am convinced that it is widespread. Foreclosures are at a 4,235 level, up from 3,850 last year as officially defined. And, foreclosures tell only one part of the story because the larger bulk of dispossessions take place through so-called voluntary conveyance of the property."

The other part of the story came out poignantly and clearly as one Virginia client of FmHA after another told the subcommittee stories of woe, confusion and dismay over the agency's policies.

Widow Lola Evans, 63, of Cheriton, for example, told how she and her late husband agreed to pay an $18 delinquency in 1979 at $1 per month. Then FmHA people proposed the reconveyance scheme and even guided her blind husband's hand as he signed the agreement. "We didn't know what we were signing," she said. Evans is still in the house, paying $61 rent--the amount of the mortgage.

Louise Rose Downes of Cheriton was actually ahead in payments when FmHA persuaded her to reconvey the home she purchased in 1973. Although not told of her rights to repurchase the home, it was sold this year to her nephew and she continues to live there. "I didn't have no choice. I shouldn't have signed, but I did," she said.

Dorothy Snead James and Carolyn Stevens of Eastville told how they gave up their FmHA homes under threat of eviction for lack of water--even though it was the FmHA's local water system that had failed. They reconveyed after FmHA promised to install wells for them. Two days after reconveying, they had water.

"What a Catch 22," said Rep. Stewart B. McKinney (R-Conn.). "They throw you out because you have no water and then they give you water two days later. C'mon . . . ."

The bottom line was the same for them as it was for Elizabeth Churchfull. Their equity was lost, their homes were gone and alternate, low-cost housing was virtually nonexistent on the Eastern Shore.

"I knew they had took the home away from me when they put the for-sale sign in the window," Churchfull said. "I said, Lord, I ain't got nowhere to go--there's no place to rent around here. I took the for-sale sign down."