oversight

Farmers Home Administration's Implementation of the Agricultural Credit Act of 1987 and Sales of Farm Inventory Property

Published by the Government Accountability Office on 1990-03-05.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                   UNITED                                OFFICE
GAO                TESTIMONY

                                                II  140780
For Release on     Farmers Home Administration's
Delivery           Implementation of the Agricultural
Expected at        Credit Act of 1987 and Sales of
9:30 a.m. EST      Farm Inventory Property
March 5, 1990




                   Statement of
                   John W. Harman, Director
                   Food and Agriculture   Issues
                   Resources, Community, and Economic
                   Development Division
                   Before the
                   Subcommittee on Agricultural     Credit
                   Senate Committee on Agriculture,
                   Nutrition,  and Forestry




  *
GAO/T-RCED-90-38
Mr. Chairman and Members of the Subcommittee:

       We are pleased to discuss the preliminary           results  of our work
on the Farmers Home Administration's            (FmHA) implementation   of the
debt servicing     provisions     of the Agricultural     Credit Act of 1987
and the sales of farm inventory         properties.      Our study of FYnHA's
implementation     of the Agricultural       Credit Act, which is being
conducted at the request of the Chairman, Senate Committee on
Agriculture,    Nutrition,     and Forestry,     is nearing completion.    The
Chairman agreed that we could provide the Subcommittee with
preliminary    results     from this work.     Our study of farm inventory
properties,    which is being conducted at your request, was started
in January 1990.

        In summary, FmHA estimated in March 1988 that debt forgiveness
through implementation      of the Agricultural Credit Act would total
$9.4 billion.       As of November 30, 1989, approved debt forgiveness
totaled    $1.8 billion.

        Our preliminary   work on FmHAIs implementation  of the debt
servicing    provisions   of the Agricultural  Credit Act at 10 county
offices    showed that:

      --   slightly    over one-third     of the eligible   delinquent
           borrowers qualified      to   (1) have their debt restructured    or
            (2) pay FmHA an amount       equal to the adjusted value of the
           collateral    securing the     debt-- referred to as net recovery
           value buy-out.      Nearly    all of the remaining borrowers did
           not apply for servicing        or did not submit complete
           applications.

     -- about 35 percent of the borrowers who qualified       for
        servicing   were offered restructuring,  with and without
  i)    debt write-down,    and about 65 percent were offered net
        recovery value buy-out.     Borrowers' debt obligations   to
                                          1
           FmHA are ended if they pay the buy-out amount, which is
           usually much less than the amount of their outstanding
           debt.

      --   only 9 percent of the restructured       borrowers had favorable
           financial   potential   for future successful       farming
           operations.     The remaining 91 percent of the restructured
           borrowers had such high debt-to-asset        ratios     and/or low
           cash flow margins that their potential        appeared limited     for
           successful   farming operations    without continued FmHA
           financial   assistance.

      -- borrowers whose delinquency was due to circumstances        within
         their control  or who did not act in good faith in
         connection with the terms of their FmHA loans--referred         to
         as bad faith borrowers--have    been allowed to buy out their
         F'mHAdebt at the net recovery value of their collateral         and
         receive substantial  debt write-offs.     Also, bad faith
         borrowers will be eligible   to reacquire    their farmland, or
         farm homestead, if FmHA forecloses    on their properties.

      --   FmHA does not consider unsecured assets in computing the
           amount and type of debt relief  to offer borrowers.  The
           act does not require FmHA to consider unsecured assets, but
           not doing so reduces the debt recovery by the government.

     -- nondelinguent  borrowers may seek the act's benefits     by
        becoming delinquent   on their FmHA loans in the future.

      Our limited    work on FmHA sales of farm inventory     properties   at
two FmHA county offices      showed that the market value and
productivity    value differ   on the average by about two percent for
the FmHA properties     we reviewed.    Furthermore,  most properties    were
so$d to farmers to expand existing       farming operations.


                                       2
     In presenting     this testimony,      I will refer to several charts
with statistics    that we developed on both assignments.         Appendixes
I and II provide these detailed        statistics.

W'S     -ION               OF THE DEBT SERVIa
                                        IT ACT

       We initiated       a study in December 1988 evaluating      what actions
FmHA was taking to implement the debt servicing            provisions   of the
Agricultural      Credit Act of 1987 and the impact of implementation           on
the agency's farmer program delinquent          borrowers.     Our report on
this work will be issued to the Chairman, Senate Committee on
Agriculture,      Nutrition,     and Forestry in the spring of this year.

       Throughout 1989, we discussed debt servicing            activities     with
FmHA headquarters     and field officials      and reviewed the debt
servicing    actions of 10 FmHA county offices--one          in each of the 10
selected states.      We selected the 10 states with the largest number
of debt servicing     notification     packages sent by FmHA to delinquent
borrowers.     The 10 states,      in order of the number of notification
packages sent, .are:      Texas, Mississippi,     Louisiana,     Georgia,
Minnesota, Missouri,      Oklahoma, North Dakota, Tennessee, and South
Dakota.    We selected one county office with a high number of
delinquent    borrowers in each state.        The results    of our work apply
only to the offices     we reviewed and cannot be projected             to the 10
states or the nation overall.

Backaround on the Aaricultural
Credit Act

     In January 1988, when the Agricultural   Credit Act was enacted,
FmHA estimated that borrowers were delinquent   on $11.4 billion  of
its $26 billion  direct farm loan portfolio.   According to the
agepy , about 85,000 of its 242,000 farmer program borrowers were

                                       3
.




    delinquent    and another 33,000 were in bankruptcy,       foreclosure,   or
    some other    "i.nactiveIV status.

           The Agricultural      Credit Act allowed FmHA to use several loan
    servicing    options to restructure        or reduce debts of farmer program
    borrowers who were 180 days or more delinquent.               FmHA can .
    restructure     a delinquent    borrower's    debt, including   writing  down
    debt, to an adjusted value of the collateral            securing the debt (net
    recovery value).        Borrowers who are unable to develop a feasible
    plan of operations with restructuring           can pay FmHA the net
    recovery value buy-out amount and end their FmHA debt obligation.
    Furthermore,     borrowers can reacquire their farms or farm homesteads
    from FmHA in the event of foreclosure           under the act's preservation
    servicing    program.

           FmHA designed a computer program for county offices         to use in
    analyzing key information     to determine how borrowers'      loans could
    be serviced.     The program compared the present value of borrowers1
    restructured    loans with the net recovery value of the collateral
    securing the loans.      The act provided for restructuring      when the
    present value of a borrower's     restructured     debt equaled or exceeded
    the net recovery value the government would receive from
    foreclosure   and liquidation   of the collateral.      Conversely, the act
    provided for buy-out when the present value of the restructured
    loans was less than the net recovery value of collateral.

    Servicina    Notifications   and Annlications

           The preliminary  results  of our review showed that in November
    1988 F'm?iAmailed notices of the act's loan servicing      options to
    more than 66,400 borrowers who were 180 days or more delinquent.
    On a national    basis, about 50 percent of those notified     applied for
    servicing.     Chart 1 shows that at the 10 county offices     we
    reyiewed, 1,272 borrowers were initially      notified of the options.


                                          4
Of the 1,272    eligible   borrowers,       569, or 44 percent,   applied   for
servicing.

       Chart 2 shows that at the county offices      we reviewed,
borrowers did not apply for servicing      primarily   because they
(1) were inactive    borrowers who generally    were no longer farming,
(2) chose to negotiate     a settlement of their F%HA debt rather than
servicing   under the act, or (3) chose to pay their FmHA delinquent
debt current or in full.

Servicina   Decisions

       Nationally,       as of June 30, 1989, FmHA offered restructuring
with debt write-down and buy-out with debt write-off            to 7,509
borrowers.      At that time, FmHA had not compiled national          statistics
showing the number of borrowers who were restructured             without debt
write-down.        In January 1990, FmHA reported that, as of
November 30, 1989, the number of serviced borrowers had increased
to 9,637 borrowers-- 4,608 borrowers offered restructuring             with debt
write-down    and 5,029 borrowers offered buy-out with debt write-off.
An additional        9,599 borrowers were offered restructuring       without
debt write-down.

        At the county offices    we reviewed, chart 3 shows that, as of
June 30, 1989, 474 borrowers qualified         for servicing  and 8
borrowers had eligibility       decisions pending.     Chart 4 shows that
county staffs     denied servicing     for 87 of the 569 borrowers for a
variety    of reasons: the primary reason was that the borrowers
submitted incomplete applications.

       Of the 474 borrowers who qualified     for servicing, 166
borrowers were offered restructuring       and 308 borrowers were offered
buy-out.      However, 5 of the 166 borrowers who were offered'
restructuring     did not accept the offers and 35 of the 308 borrowers
ofiered buy-out did not accept the offers or were involved in
                                        5
mediation at the time of our review.        Of the 161 restructured
borrowers,   84 were restructured    without debt write-down and 77 were
restructured   with debt write-down.


for Se-iced    Rorrowers

       Borrowers with large, moderate, and small amounts of FmHA
debt, and with most types of FmHA farm program loans, were
serviced.     For example, chart 5 shows that while 19 borrowers at
the county offices    we reviewed had FmHA debt of $1 million    or more
before servicing,    243 borrowers had FmHA debt of less than
$250,000.    Also, chart 6 shows that 61 percent of the borrowers had
a combination of loan types which included an emergency loan
 (economic and/or disaster)    and at least one other loan type, such
as a farm ownership or a farm operating     loan.   While 15 percent of
the borrowers had only emergency loans, 24 percent did not have an
emergency loan.

Costs of Servlclnq
               .   l




      Implementation  of the Agricultural      Credit Act has been at a
substantial  cost to the government.        In March 1988, FmHA estimated
that debt forgiveness   through write-downs      and write-offs    would
total  $9.4 billion.   Nationally,    as of June 30, 1989, FmHA had
approved write-downs   and write-offs     that total almost $1.4 billion.
In January 1990, FmHA reported that, as of November 30, 1989,
approved debt forgiveness    had increased to a total       of $1.8 billion.

      Chart 7 shows that at the county offices        we reviewed,
$91 million,    or almost two-thirds     of the total  $139 million    debt
of delinquent    borrowers who were offered servicing,       was written
down or written     off.   The write-down offered 77 restructured
bo:rowers totaled      $13 million,   or about $169,000 on average, and
the write-off    offered 273 buy-out borrowers totaled       $78 million,   or
                                     6
about $286,000 on average.     The amount of debt that FM-IA offered to
write down or write off for the 350 borrowers in these county
offices   varies widely.   For example, chart 8 shows that while the
offers to 114 borrowers would result      in $250,000 or more forgiven--
including    10 borrowers with $1 million   or more forgiven--the   offers
to 236 borrowers would result    in less than $250,000 forgiven.

       The following case illustrates  the costs of debt servicing.    A
borrower, who is no longer farming, owed FmHA almost $805,000 on
10 natural disaster   emegency and three farm operating     loans.  He
had about $73,000 worth of equipment as collateral      for the 13
loans.    He had not made a payment to FmHA on the emergency loans
since 1983 and on the farm operating     loans since 1985. FmHA
offered to write off $738,928 of his debt.




       At the time of our field work, data was available                to analyze
the financial      condition      of 160 of the 161 restructured        borrowers.
Our analysis     indicates      that 9 percent of the 160 restructured
borrowers had favorable           financial    potential   for successful      farming
operations.      The remaining 91 percent had such high debt-to-asset
ratios and/or projected           low cash flow margins for the upcoming year
that their potential         for successful       farming operations    without
continued financLa1 assistance              appeared limited.     For example,
chart 9 shows that 77 percent of the restructured                 borrowers had
debt-to-asset     ratios of 71 percent or higher--nearly              one-half     of
the 160 borrowers were technically              insolvent   with debts exceeding
assets.     Chart 10 shows that 59 percent of the restructured
borrowers had cash flow margins of $100 or less.                  One restructured
borrower had a $2 cash flow, a 222 percent debt-to-asset                   ratio,     and
a $246,000 negative net worth after restructuring                 which included a
$50,000 debt write-down.
   *


                                          7
       FmHA stops analyzing a borrower's         restructuring   options as
soon as a positive       cash flow'is   reached.     This is the point at
which the present value of the restructured             loans equals or exceeds
the recovery the government would receive from an involuntary
liquidation    or foreclosure     on the security.       However, this
approach is a primary reason many borrowers remain financially              weak
following   restructuring.

       In addition,     F'mHAbased its restructuring         decisions   on
borrowers'    projections     of farm income and expenses which may not
accurately    reflect    borrowers'     financial   conditions.      FmHA state   and
county officials      we interviewed       in each selected state expressed
concern about the ability        of some restructured        borrowers to
continue farming operations          without continued FmHA financial
support.    Also, some restructured          borrowers expressed concern about
their ability      to repay their restructured        debt and to continue
farming without additional          FmHA financial    assistance.      Furthermore,
about 14 percent of the 569 borrowers who applied for servicing                   at
the 10 county offices        we reviewed requested additional          FmHA loans
at the time they applied for servicing.

Borrowers   who Act In Bad Faith


       FmHA borrowers who act in bad faith1 are not eligible       for
restructuring,     but they are eligible   for net recovery value buy-out
and for reacquiring      their farms through the leaseback/buyback
option or their     farm homesteads through the homestead protection
option.     As part of our work examining implementation     of the



lWe use the     phrases   Itborrowers who act in bad faith"    and 'Ibad faith
borrowers"    to refer    to those FmHA delinquent    borrowers whose
delinquency     was due   to circumstances   within their control    or who
did not act     in good   faith in connection with the terms of their
FmHA loans.
                                        8
Agricultural    Credit Act, we                             . istration:
                                   issued Farmers Home Admin
    n Sservic~a Renefits for       Bad Faith Borrowers (GAO/RCED-90-77FS;
Nov. 29, 1989).      This report    provides examples of F'mBAdelinquent
borrowers who have acted in        bad faith and who have received
benefits,    or will be eligible      to receive benefits, under the
provisions    of the act.

       FmHA determined that borrowers acted in bad faith because of
various actions,    such as (1) selling or otherwise disposing of
property that was securing loans without F'mHAapproval:      (2)
repaying other lenders more than required and, at the same time,
becoming delinquent    on FmHA loans: (3) abandoning the property that
was securing FmHA loans; and (4) having resources available      that
could have been, but were not, used to make FmBA loan payments.

       In January 1990, FmHA provided members of Congress with a list
of 218 bad faith borrowers throughout the country that it said had
committed fraud, waste, or conversion of security            property    and who
were involved in net recovery value buy-outs.            Forty-two    of those
borrowers had bought out their debt at a net recovery value and 58
other borrowers were in the process of buying out their debt.
These borrowers have bought out, or have the opportunity              to buy
out, their debt for much less than the amount of their outstanding
debt.     These 100 borrowers include 8 borrowers who bought out or
were in the process of buying out their debt that will result                   in a
write-off    of more than $1 million      each.   For example, one borrower
who FmHA said committed fraud owed $11.8 million           and was offered a
$1.1 million    net recovery value buy-out.        This borrower will
receive a $10.7 million     write-off     of his FmI-IAdebt if he pays the
buy-out amount.     In addition,      118 borrowers on the national        list
were offered net recovery value buy-out,          but they did not accept
the buy-out offer.      These borrowers will be eligible         to reacquire
their farmland,    or farm homestead, if FmHA forecloses           on their
properties.


                                        9
  sets Which Do Not Secure FmHA Debt


      The Agricultural    Credit Act does not provide FmBA specific
authority   to include unsecured assets in calculating      servicing  for
delinquent    borrowers.   As a result, FmHA does not consider
borrowers'    assets that are not pledged as security    for FmHA debts
when computing the type and amount of debt relief      to offer
delinquent    borrowers.   Excluding unsecured assets in servicing
computations    increases the amount of debt forgiveness     and reduces
the amount of recovery FmHA receives when borrowers buy out their
debt at the net recovery value of collateral.

       The following     case illustrates       borrowers who had unsecured
farm and nonfarm assets that were not considered in calculating                the
net recovery value buy-out amount.              In this example, the FmHA
county supervisor       did not consider a borrower's        unsecured assets of
$21,000 in cash and 19 acres of land that the borrower had reported
on his servicing       application.      In June 1989, the borrower paid FmHA
$72,405--the     net recovery value buy-out amount--to           settle his
outstanding     debt of $166,000.       The borrower received a $93,595 debt
write-off.      FmHA would have saved at least $21,000 if it had
applied this cash amount to reduce the borrower's               debt in
processing his restructuring          application.      The borrower would still
have qualified      for net recovery value buy-out,         but the government's
loss would have been less.          Also, FmHA might have realized
additional    savings by considering        the value of the borrower's     19
acres of unsecured land.

       .
EJondelum-n t Borrowers     Mav Seek
the Act's Benefits

        FmHA borrowers who are current on their loan payments are not
eli*gible  for the restructuring   with debt write-down or net recovery
value buy-out with debt write-off      options of the Agricultural
                                      10
Credit Act.      Some borrowers and FmHA officials           told us that since
the act ,provides benefits        only to delinquent       borrowers it has
created an incentive         for nondelinquent      borrowers to become
delinquent    on their FmHA debt to qualify           for loan servicing.       Some
nondelinguent     borrowers told us that they were looking for ways to
become delinquent      in order to have their FmHA debt reduced.
Borrowers who intentionally         become delinquent       may be disqualified
from restructuring       if county office      staff determine that they
caused their delinquency by not using available                resources to pay
their FmHA debt.       However, FmHA county supervisors            may be unable to
deny debt servicing        to such borrowers because of difficulties            in
concluding    that borrowers caused their own delinquencies.

      Nondelinguent   borrowers,   upon seeing that delinquent      borrowers
have their cost of farming reduced through the various servicing
options,   may also seek to qualify     for the act's benefits.      For
example, a borrower who was current on his $451,028 FmHA debt had
annual payments of $48,765.       A delinquent  borrower in the same
community, who had FmHA debt of $932,940, had an annual payment of
about $81,625.     The delinquent   borrower was about $163,250 behind
in payments.     FmHA forgave the delinquent    borrower's   entire debt
through a $0 net recovery value buy-out.        As a result,    the
delinquent   borrower has no FmHA loan payments, but the current
borrower must continue to pay his $48,765 annual payment.




        As you know, we initiated        a study in January 1990 to evaluate
the sale of farm inventory          property at a fair market or
capitalization       (productivity)     value and the impact of the sales
price on beginning farmers.            During January and February 1990, we
held discussions       with FmHA headquarters      officials    and state
officials      in Minnesota and Iowa, and reviewed farm inventory
pr;perty     sales at two F?nHAcounty offices--one           in Minnesota and one
                                       11
in Iowa.   The results   of this work to date are limited    and apply
only to the offices    we reviewed; they cannot be projected    to the
two states we visited    or the nation overall.

        The Food Security Act of 1985 and the Agricultural           Credit Act
provide FmHA with guidance on selling         farm inventory     property.      The
Food Security Act provides that FmHA sell farm inventory               property
to operators       of not larger than family-size     farms.    The
Agricultural       Credit Act provides FmHA with a ranking order for
selling    property to previous borrower-owners,          members of their
families,      previous operators,   or other family-size     farm operators.
Borrowers whose real property has. been taken into FmHA inventory
have the option of purchasing the entire farm property              (this is
referred     to as the buyback option) or the farm homestead,
including      farm buildings   and up to 10 acres of land (this is
referred     to as the homestead protection      option).

       Farm inventory       property is sold to FmHA-eligible    borrowers and
operators      of family-size     farms at the lesser of market value or
capitalization      value-- a price that reflects     the average annual
income that may reasonably be generated from farming the property.
Homestead property,         on the other hand, is sold at the market value
of the property.

      In pricing  farm property,   FmHA makes an appraisal which
consists  of three estimates of property value in determining     a
recommended market value.      The first estimate is based on
comparable property sales, the second on income generated from both
comparable properties   sold and the appraised ,property,  and the
third is a summation value of land by soil type' and buildings      on
the land.

      In calculating   the capitalization value, a capitalization            rate
is determined based on the income generated from comparable
properties   sold.   This rate is stated as a percent and is
                                      12
calculated by dividing     the net income from a comparable property by
the sales price.    To determine the capitalization    value for the
appraised property,    the expected net income from'the property    is
divided by the capitalization     rate.

       The three appraisal    values- the comparable market value,
capitalization     value, and summation value--are    then considered in
determining     a recommended market value.    The final property price
is then the lower of the capitalization       value or the recommended
market value.      If the recommended market value and the
capitalization     value vary as much as five percent,    FmHA regulations
require that the appraisal      will be reviewed by an appraiser
designated by the FmHA state director       to determine if the
appraisals     are supported by comparable sales data.

        We examined the selling        price of 15 properties     in two county
offices.       These properties     had an average 170 acres and were sold
at an average price of $66,172 during the period January 1989
through January 1990. Chart 11 shows that for 7 of the 15
properties,       the market value was less than the capitalization         value
by an average of $1,374 or about 2 percent of the $57,000 average
selling     price.    The difference      in values ranged from $100 to
$4,400.      For 5 of the properties         the capitalization   value was less
than the market value by an average of $1,247 or about 2 percent of
the $70,115 average selling           price.    The difference  in values ranged
from $162 to $2,884.         For the remaining 3 properties,        which had an
$81,000 average selling         price, the market and capitalization       values
were the same.

     Eight of the 15 properties     were purchased by farmers to
expand their existing    operations  and 7 were purchased by the former
owner and FmHA borrower.      Of the 8 purchased to expand operations,
2 were farmers who were leasing property       for existing    operations
and were purchasing land for the first      time.   County supervisors    at
both offices  we visited   stated that inventory    properties    are
                                      13
.



    generally     not appropriate   for beginning farmers because of the poor
    condition     of the property,   such as farm buildings   that had
    deteriorated     and land that had not been cultivated      in a number of
    years.     Also, the properties    may be better suited for other non-
    farming purposes as illustrated       by 7 of the properties    which had
    conservation     easements placed on them while in FmHA inventory.
    These 7 properties     had a total of 1,270 acres, but 354 acres, or 28
    percent, were placed under easement.         In one case, the entire
    property , consisting     of 80 acres, was placed under easement.




           In conclusion,    our preliminary    work on FmHAIs implementation
    of the debt servicing      provisions    of the Agricultural      Credit Act at
    10 county offices     showed that while many delinquent          borrowers have
    been offered restructuring        or net recovery value buy-out, most
    delinquent    borrowers did not apply for servicing          or did not submit
    complete applications.        Many of the borrowers who qualified          for
    servicing    were offered restructuring,       with and without debt write-
    down, however, most serviced borrowers were offered net recovery
    value buy-out.      Our work also showed that only a small percentage
    of the restructured      borrowers had favorable     financial     potential   for
    future successful     farming operations.       The vast majority      of
    restructured    borrowers do not have such potential          without
    continued FmHA financial       assistance.

          Furthermore, bad faith borrowers have been allowed to buy out
    their Fm?iAdebt at the net recovery value of their collateral,
    which is usually much less than their outstanding     debt. Bad faith
    borrowers will also be eligible   to reacquire their farmland, or
    farm homestead, if FmHA forecloses   on their properties.

         Mr. Chairman, this completes my prepared            statement.    I would
    be happy to respond to any questions.
      y1

                                           14
  APPENDIX I                                                                            APPENDIX I

                                 INFO-ION    ONmLINQUENT BORROWERS
                            10 FmHA COUNTYOFFICES REVIEWEDBY GAO



                                                                       %.rcent of
             Bo-                Bo-                                       eligible
              elicjible         initially           BorrakFers          bo-
            to mceive                             applied for         applied for
              lJ2sasm            z                                      -
Nl,lwa of
bo-              1,293               1,272a                  569                44
2LNotificatim packages w3Kesubsequlently sent to 14 of the 21 additional
eligiblebormmm.          Ouranalysiswasbasedon1,272bo?xww~whs>were
initiallysentmtificationpackages.



                      Borrowers Did Not Amlv for Servicing

                 Irmztive
                                  mb
                                     =@%z          Repaid
                                                    debtsc
                                                                   Reason
                                                                   -        Totald
Numberof
bo-                       309               155         67           172      703
Bi?xwnt of
l-4WYi-W
bo-                       44                22          10            24      100
aInc1udesthosebommers whoarenoloIqerfa.nningandthc6ein
St          fo=l-,    or collection-only status with little                    or no
          .
bAccordi..q to FhHAofficials,           borromzs who requesteddebtsettlelnent
usuallyarenolongerfarmbg.
?liEludes bor-roMem whopaidtheirdelinquentdebt
                           . debt.                                 currentandthosewho
repaidtheirtobl~
dwedidrratdeterminethereasonall~~didnatalq?lyforsewicing.
Howwer, 5 of the 35borrcmz-s weimterviewedtoldustheywerecmfusedby
m's    mtification   and application package.

     \u                                            15
AFPEXDIXI                                                               APPENDIX1




Numberof
bo-               166            96             308            95       474a        191
aIntotdl,  569bo-          applied for servicirqt Vs 474 t&al does nut
inclUaaserviciryoffersthatwerependingfor8bcxmwers            andservicing
thatwasddedfor87otherborrmers            as of June 30, 1989.




                                                            Bo-
                  ==4?1-                                      caused
                        cation        tiiizz&            *1il%auencyb   othc+   Total
Ni.mberof
bo-                         65                  8                   7       7         87
Fezcent of
bo-                         75                  9                   8       8       100
aDseased bmxwers' estates that aplied for semicirq are not eligible                        for
primarysemicingbutmayqualifyforp     reservation servicing.
bIhesebQrrtlwlers were not eligible for primary servicing and did not qualify
fornetrecoveryvaluebuy-out.
cIncluaesbo~         who did not met FhHAeligibility      rqhmmts               for
variousreasons,   suchasfailuretoreaffirmtheirdebtafterbmkuptq.




                                                    16
APPENDIX1                                                              APPENDIX1



                                           fD0~       in -1
             $1 to   $100 t0        $250 to          $500 to         $1,000 and
               s2-s24s!               is422            !ii2%!                     Tatala
Nl2lnbr of
bo-            106         137             127            45                19      434
Ewcent of
bo-             24         32               29            10                 4      10s
'"we did nut record debt prior to serviciq for 40 eligible bormwers in two
counbies whr, had declined FM-IA'sservicirq offer or were in mediation. We
alsodidmt     reaxd infommtion fortheeightbormwers       whoseservicing
offers bmre pending.
bIbtdldoesnotaddduetomunding.



        ..    icedBormwE%rsbYTvDeofLaans
               Bo-               Bo-                   Bo-
                with no          withonly                 with a
                                                     ccmbination
               -z                =-=?I!=                oflcans          Tatala
Nulnba of
bo-                  106                   64                   264        434
lmrcent of
bo-                   24                   15                   61         100
aWedidnotdetemheloanQpe          for4Oeligiblebormwers       intwoccunties
who had declined EmHA'ssemichq offer or were in mediation. We also did
not record information fortheeightbormwem        whoee servicing offers were
pendirrg.




                                                17
-IX1                                                          APPENDIX1




Dollars inlnilliarIs



Ni.mb.r of
                       write-dcrwn
                             writedcrwn
                                     bw-att
                                         IJb2taLa
born                            84               77          273         434
lbrcent        of
bo-                             19               18           63         100
Ebmdpbtbefore
StXKViCillCJ                   $13              $26          $100        $139
FwAdebtwritten
down or off                     -            $13             $78         $91
%e did not ampile semicirq infonnation for 40 eligible borrowers in two
axmties who had declined FmHA'sservicing offer or were in mdiation.  We
alsodidnotaxpile     infonnation fortheeightbormwerswhcse    semi&q
offers werx perKmg.


                                         .              .
                            bvRanueofWr~te+ownsandWrite-of   fs
                                      frnllars LnThoumr&\
                                        $250 to' $500 to  $1,000 and
                                $245!       $499    $999        CNer      Totala
Numberof
bo-                 121             115    75         29            10      350
Percent of
bo-                    35           33     21         8             3       100
%e did not cm&e semicirq information for 40 eligible bormwers in two
cumties who had declined FhHA's sewicing offer or wre in mediation. We
also did nut cmpile information for the eight kmmwers whoseservicing
offers kE?.reJ?mding.




                                                18
APPENDIX1                                                   -IX1




Numberof
bo-              6            3d)        45          79          160
-       of
                 4            19         28          49          100



hune0fthese30bo-             hadahighcashflowma&n,suggestinganmre
favorable putmtial for successful farmixqoperationsthan        indica~solely
bytheirdbt-to-assetrqtio.       Thesenimkmmwers whenccmbinedwiththe
sixbo~inthefavorablecategoryresultsinatatalofgpercentof
the160 Who-havwthemial                                  for sucoessfulfarming
aperations.




                     Positive Cash Flow Mmmn
             $0 to $11 to    $101 to  Sl,OOl'to        $10,000
               SLO   sloe     $1,000    $10,000       andover      Totala
Numberof
bo-            63        32         15          30          20         160
percent of
borruwers      39        20          9          19          13         100
aBcclUes five bormders whodidnotaccept    restructuringoffersandone
bormwerwho6e financial datawasnotavailableatthetime         ofourreview.




                                          19
APPENDIX II                                                            APPENDIX II




                           n of Market and Canitalization'        Values   for

                                                       Average                    Range
Valuation                          Number of             value                of value
    ationshix,                    aroaerties      different@               difference
Market value     less than
capitalization      value                    7         $l,374a       $100 to $4,400
Capitalization  value
less than market value                       5         $1,247a       $162 to $2,884
Market value     equals
capitalization     value                     3               --             --

aEquals    2 pe r c ent of the average selling     price.




                                        20