ExpectMore.gov


Detailed Information on the
Agricultural Credit Insurance Fund - Guaranteed Loans Assessment

Program Code 10001009
Program Title Agricultural Credit Insurance Fund - Guaranteed Loans
Department Name Department of Agriculture
Agency/Bureau Name Farm Service Agency
Program Type(s) Credit Program
Assessment Year 2008
Assessment Rating Moderately Effective
Assessment Section Scores
Section Score
Program Purpose & Design 80%
Strategic Planning 50%
Program Management 100%
Program Results/Accountability 60%
Program Funding Level
(in millions)
FY2007 $2,796
FY2008 $2,475
FY2009 $2,497

Ongoing Program Improvement Plans

Year Began Improvement Plan Status Comments
2008

Developing an independent evaluation process (within existing funding availability).

No action taken
2008

Improving integration between budget requests and program performance goals.

No action taken
2008

Identifying additional outcome measures and reevaluating existing performance measures.

No action taken
2008

Development of a graduation plan for moving borrowers to private credit (including goals and milestones).

No action taken

Completed Program Improvement Plans

Year Began Improvement Plan Status Comments

Program Performance Measures

Term Type  
Long-term Outcome

Measure: Maintain FSA guaranteed loan losses compared to commercial bank farm debt net charge offs.


Explanation:This measure is a comparison of losses in the Guaranteed Loan Program to net charge-offs of commercial bank farm debt. The FSA loss rate is calculated by dividing the total amount of write-offs during the year by the principal balance of the guaranteed loan portfolio at the beginning of the fiscal year. The net charge-off of commercial bank farm debt is calculated by dividing net charge-offs (gross charge-offs minus recoveries) during a year by the amount of outstanding farm loan volume at the beginning of the year. The goal to maintain the FSA loss rate within 75 basis points of net charge-offs of commercial bank farm debt will be a significant accomplishment given that FSA loans are issued to higher risk borrowers.

Year Target Actual
2008 N/A
2009 <75
2010 <75
2011 <75
2012 <75
2013 <75
Long-term Outcome

Measure: Maintain a low loss rate on guaranteed loans.


Explanation:Reduced losses in the program indicate that borrowers are experiencing greater success in meeting their financial obligations, which is an indicator of financial strength and viability.

Year Target Actual
2002 2.0% 0.60%
2003 2.0% 0.70%
2004 2.0% 0.60%
2005 2.0% 0.40%
2006 2.0% 0.40%
2007 1.0% 0.30%
2008 1.0%
2009 1.0%
2010 1.0%
2011 1.0%
2012 1.0%
2013 1.0%
Long-term Output

Measure: Maintain a low delinquency rate on guaranteed loans


Explanation:A low delinquency rate indicates that borrowers are experiencing greater success in meeting their financial obligations, which is an indicator of greater financial strength and viability. The loan delinquency rate performance measure is calculated by taking the total amount past due, as reported by lenders nationwide on form FSA-2248, "Guaranteed Farm Loan Default Status Report", divided by the total amount outstanding on all guaranteed loans nationwide. It is a snapshot in time, taken on September 30 of each year, and is based on the latest FSA-2248 the lender has submitted for each loan.

Year Target Actual
2000 N/A 2.07%
2001 N/A 2.10%
2002 N/A 2.25%
2003 N/A 2.43%
2004 N/A 1.87%
2005 N/A 1.67%
2006 N/A 1.45%
2007 1.99% 1.32%
2008 1.99%
2009 1.99%
2010 1.99%
2011 1.99%
2012 1.99%
2013 1.99%
Long-term Outcome

Measure: Increase percentage of women, racial and ethnic minority farmers, and beginning farmers financed by FSA.


Explanation:This measure is designed to be an indicator of FSA success in providing agricultural credit to these historically underserved farmers, which represent an important component of the FSA target audience. The measure is calculated as follows. The denominator is the total number of all principal farm operators identified as a minority, woman, or beginning farmer in the 2002 Census of Agriculture having $10,000 or more in gross sales. This sales level was selected to exclude hobby farms, since this group is not the intended market for the FSA farm loan programs and is consistent with criteria used in previous studies of the FSA farm loan programs. The numerator is the total number of beginning farmers, racial and ethnic minorities, and women currently in the FSA portfolio and includes both guaranteed and direct borrowers.

Year Target Actual
2000 N/A 12.3%
2001 N/A 13.0%
2002 N/A 13.6%
2003 N/A 14.2%
2004 N/A 14.5%
2005 N/A 15.0%
2006 N/A 15.5%
2007 16.0% 15.9%
2008 16.5%
2009 17.0%
2010 17.5%
2011 18.0%
2012 18.5%
2013 19.0%
Annual Output

Measure: Increase lending to minorities, women, and beginning farmers.


Explanation:FSA establishes annual performance goals to increase its lending to beginning and socially disadvantaged farmers. Performance is measured by calculating the percentage of total loan obligations in a given fiscal year that are issued to farmers in the targeted groups. Note: The data reported include FSA guaranteed and direct loans. *FSA revised the methodology used for calculating this measure in FY 2006 to eliminate double counting of loans obligated to borrowers that are categorized as beginning farmers, minorities, and women. The revised methodology was implemented in FY 2007. Results for FY 2005-2007 shown below are based on the new measurement methodology.

Year Target Actual
2002 N/A 33%
2003 34% 34%
2004 35% 40%
2005 35% 39.3%
2006 36% 39.8%
2007 36.5% 40.7%
2008 37.5%
2009 37.9%
2010 38.3%
2011 38.7%
2012 39.1%
Annual Efficiency

Measure: Loan average processing time (days).


Explanation:A core component of the FSA mission is to provide an economic safety net for America's farmers and ranchers. Therefore, it is important that financial assistance is provided timely when the need arises. The average processing time is calculated from the date of application receipt until the data a loan decision is made.

Year Target Actual
2004 15 14
2005 14.5 14.5
2006 14.25 12.63
2007 14.0 12.6
2008 13.75
2009 13.5
2010 13.25
2011 13.0
2012 12.75

Questions/Answers (Detailed Assessment)

Section 1 - Program Purpose & Design
Number Question Answer Score
1.1

Is the program purpose clear?

Explanation: The Guaranteed Loan Program provides access to agricultural credit for those farmers who are temporarily unable to obtain credit from private sector lenders at reasonable rates and terms.

Evidence: The Consolidated Farm and Rural Development Act (CONACT), as amended, clearly defines the program's purpose.

YES 20%
1.2

Does the program address a specific and existing problem, interest, or need?

Explanation: The Farm Service Agency (FSA) Guaranteed Loan Program provides access to capital for farmers temporarily unable to meet commercial lending standards. Farmers may have trouble demonstrating their credit worthiness to lenders because of the economic uncertainties of production agriculture. This can be particularly true for beginning farmers, women, and minorities, as they typically operate smaller farms, have less equity, or lack sufficient credit or production histories. To address these issues, FSA annually targets a specific portion of its guaranteed lending resources toward these groups. Another factor limiting access to capital is that some farm production occurs in geographically isolated areas that tend to have fewer lenders specializing in agricultural lending. As a result, farmers may face limited competition for loans in these areas, which can result in higher interest rates, unfavorable loan terms, and/or a shortage of loan funds. By reducing the lenders' exposure to risk, the 90 to 95 percent guarantee provided lenders on eligible farm loans allows farmers to obtain loans to finance annual operating expenses, equipment, livestock, and farmland purchases and improvements. There are numerous studies of credit market imperfections in the economic and business literature. Many economic studies, which are referenced in a 2007 U.S. Government Accountability Office (GAO) study, have found evidence consistent with credit rationing among small businesses. Past studies by GAO and USDA have also reported such evidence in rural and agricultural credit markets. Studies have also reported that high-debt, and young-operator farms were likely to face credit constraints. More recently, studies have indicated that FSA farm loan program use is greater in counties with lower incomes, in regions experiencing greater farm financial stress and in counties where no agricultural lenders are present. Other studies of FSA Farm Loan Programs have also indicated that the majority of guaranteed borrowers appeared unable to meet commercial lending standards without a Federal loan guarantee.

Evidence: U.S. General Accountability Office, Small Business Administration: Additional Measures Needed to Assess 7(a) Loan Program's Performance, GAO-07-769, July 13, 2007; U.S General Accounting Office, Rural Development: Availability of Capital for Agriculture, Business, and Infrastructure, (1997); RUPRI Rural Finance Task Force, Seven Policy Issues on Financial Markets and Rural Economic Development, Columbia, MO: Univ. of Missouri, Rural Policy Research Institute (1996); U.S. Department of Agriculture, Credit in Rural America, AER No. 749, Economic Research Service (1997); Petrick, Martin (2005), Empirical Measurement of Credit Rationing in Agriculture: A Methodological Survey, Agricultural Economics, 33 (2), 191 203; Bierlen, Ralph and Allen Featherstone; Fundamental Q, Cash Flow, and Investment, Evidence from Farm Panel Data, The Review of Economics and Statistics, 1998, vol. 80, issue 3, pages 427-445; Lee, H. and R. Chambers, Expenditure Constraints and Profit Maximization in U. S. Agriculture, American Journal of Agricultural Economics, 68 (1986), pp. 857-865; Tauer, Loren W. and Harry M. Kaiser, Negative Milk Supply Response Under Constrained Profit Maximizing Behavior, Northeastern Journal of Agricultural and Resource Economics, 17(1988): 111-117; Rolf Fare, Shawna Grosskopf, Hyunok Lee, American Journal of Agricultural Economics, Vol. 72, No. 3 (Aug., 1990), pp. 574-581; Whittaker, G. and M. Morehart, Measuring the Effect of Farm Financial Structure on Cost, Agricultural Finance Review, Cornell Univ. (1991), Vol. 15; Dodson, Charles B. and Steven R. Koenig, Explaining County-Level Variability in Farm Service Agency Farm Loan Programs, Agricultural Finance Review, Cornell University (Fall 2003), available at: http://afr.aem.cornell.edu/63/pdf%20fl2003/AFRF0306.pdf; Dodson, Charles B. and Steven R. Koenig, Evaluating the Relative Cost Effectiveness of the Farm Service Agency's Farm Loan Programs, USDA/FSA Report to Congress, August, 2006, available at: http://www.fsa.usda.gov/Internet/FSA_File/farm_loan_study_august_06.pdf

YES 20%
1.3

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: The Guaranteed Loan Program provides access to agricultural credit for those farmers who are temporarily unable to obtain credit from private sector lenders at reasonable rates and terms and to assist beginning farmers and ranchers. Because of historic economic uncertainties of production agriculture credit may have been hard to achieve, but with low loss rates and low delinquency rates over the last several years it is feasible that private lenders would be willing to take on more of these loans. In addition, The Farm Credit System (FCS) is a Government-sponsored enterprise that provides privately financed credit to agricultural and rural communities. The entities of the FCS are regulated and examined by the Farm Credit Administration, an independent Federal agency. Also, other Federal credit programs are available to family farm businesses, such as the Small Business Administration, and USDA's Rural Business Service. Although these programs focus on narrow market segments and are not specifically designed to serve high-risk farm businesses there is some duplication. Also, some State governments provide farm loan guarantees, even though funding and geographic coverage is limited. The National Council of State Agricultural Finance Programs indicates that 18 States have an established loan guarantee program. However, only four States have programs that are actively providing loan guarantees to their respective farmers. The remaining States do have the program in place therefore it is reasonable to expect these States to help their farmers.

Evidence: Farm Credit System, available at: http://www.farmcredit.com/; Farm Credit Administration, available at: http://www.fca.gov/index.html; Ag First available at: http://www.agfirst.com/System.htm; Measures 1, 2, and 3, of this PART; Small Business Act of 1953, Section 7(a), as amended, Public Laws 97-35, 85-536, Section 2 (b) (7a Loans); Small Business Investment Act of 1958, as amended, Title V, Section 504 and 505, Public Law 85-699, 15 U.S.C. 696; Public Law 100-590 (504 Loans); National Council of State Agricultural Finance Programs, available at: http://www.stateagfinance.org/; Table 1-3 A, Guaranteed Lending Programs Administered by State Agencies, January 2008; Table I-3 B, Federally Guaranteed Loans to Farm Businesses Made in fiscal 2007 by Federal Agency; Table 1-3 C, Small Business Administration Loans Made Under the 7(a) program in fiscal 2007 by NAICS Description; Table 1-3 D, Small Business Administration Loans Made Under the 504 program in fiscal 2007, by NAICS description.

NO 0%
1.4

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: The Guaranteed Loan Program is delivered through partnerships between FSA and more than 3,000 experienced agricultural lenders, each with a formal Lenders Agreement defining the manner in which loans will be originated and serviced. Only regulated lenders that are subject to both examination and supervision may participate in the Guaranteed Loan Program. Guaranteed loans are originated and serviced by lenders and, in most cases, utilize the lender's existing policies and procedures. The program is designed so that lenders share some of the risk associated with the loans. Most loans are guaranteed for 90 percent of the amount of any loss and the FSA guarantee requires diligent servicing by the lender. Guarantees will not be honored if lenders do not follow the terms and conditions established in the Lenders Agreement. Therefore, lenders have a vested interest in making quality loans and adhering to program requirements. FSA has established three lender classifications: Preferred Lenders (PLP), Certified Lenders (CLP), and Standard Eligible Lenders (SEL). The PLP program rewards the most experienced and best performing lenders. PLP lenders have broad authority in making and servicing FSA guaranteed loans and can utilize their own underwriting and servicing policies. The CLP program permits lenders with a proven record in making and servicing guaranteed loans to operate under streamlined procedures. Agricultural lenders who have little or no experience with FSA guaranteed loans may qualify as Standard Eligible Lenders (SEL). Both the PLP and CLP programs result in more efficient and effective program operations. As mentioned previously, guaranteed loans are originated and serviced by lenders. This results in more efficient operations with lower subsidy costs. The FY 2008 subsidy rates for the Guaranteed Loan Program are .40 percent for farm ownership loans, 2.42 percent for unsubsidized operating loans, and 13.34 percent for subsidized operating loans. By comparison, subsidy and administrative costs for direct loan programs are significantly higher, since loan origination and servicing are performed by government employees. Therefore, a direct loan program would be a less effective mechanism for providing credit assistance to farmers eligible to participate in the Guaranteed Loan Program. Another alternative to the Guaranteed Loan Program would be to provide assistance through a grant program. However, the effectiveness of such a program would be quite limited if the grant program were funded at the current subsidy cost of the Guaranteed Loan Program. With such funding, the number of farmers receiving assistance through a grant program would be significantly fewer or the size of each grant would be so small as to provide almost no benefit to the producer.

Evidence: FSA Handbook 2-FLP, "Guaranteed Loan Making and Servicing," is available at: http://www.fsa.usda.gov/Internet/FSA_File/2-flp-r1.pdf; FSA Subsidy Rates: 1992-2008; Dodson, C. and S. Koenig, "Report to Congress: Evaluating the Relative Cost Effectiveness of the Farm Service Agency's Farm Loan Programs," Farm Service Agency (August 2006); Consolidated Farm and Rural Development Act (CONACT).

YES 20%
1.5

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: The FSA Guaranteed Loan Program targets family-sized farm businesses that need financial assistance and cannot obtain credit at reasonable rates and terms from other sources without a loan guarantee. The "credit gaps" which farm loan guarantees are designed to fill are associated with farm businesses that usually have debt burdens and/or repayment capacities that do not meet private sector lending standards. These high-risk farms might fail to meet industry standards due to a lack of production or credit history, limited equity, being a start-up business, defined as ten or less years of farming experience, or by being able to offer only single purpose collateral. Each year, as mandated by statute, FSA allocates a share of loan funding for use by beginning farmers and socially disadvantaged farmers, which include racial and, ethnic minorities and women, who are deemed more likely to have problems accessing needed credit than other high-risk family-sized farm borrowers. Lenders requesting an FSA loan guarantee certify that the loan cannot be made without a guarantee and all loans are reviewed for eligibility by FSA staff. USDA Agricultural Resource Management Study (ARMS) data show FSA guaranteed borrowers to be more creditworthy than FSA direct borrowers, but less creditworthy than comparable farmers receiving non-guaranteed loans from commercial lenders. In general, ARMS data show that guaranteed borrowers tend to operate larger farms, have lower net worth, and higher debt-to-asset ratios than other farms with debt. In addition, guaranteed borrowers tend to be more reliant on farm income, of lower land tenure, younger, and more likely to be involved in highly specialized livestock enterprises such as poultry, dairy, and hogs. All of these factors could adversely affect their ability to obtain commercial credit without a guarantee. FSA lending data on borrowers receiving loans from FY 2003 through FY 2007 indicate that 24 percent of all FSA guaranteed loans made during this period went to beginning farmers. This targeting result compares with 20 percent of total farm loans made by the Farm Credit System going to beginning farmers from calendar year 2003 to 2006. The Farm Credit Act of 1971, as amended, requires Farm Credit System lenders to operate programs to serve young, beginning, and small farmers and report annually on these programs. The Farm Credit Administration has adopted a somewhat broader definition of a beginning farmer and so the Farm Credit System targeting percentage would be expected to be even lower if the FSA methodology was used on the Farm Credit System data. With respect to lending to racial and ethnic minorities and women farmers, FSA provides a higher percentage of lending to these groups than does the commercial sector. In FY 2007, 7.6 percent of the borrowers in the FSA Guaranteed Loan Program portfolio were minorities and women. This compares with 6.1 percent of commercial lender borrowers. Note that the most recent commercial lender data available is for 2004. Minorities and women comprised 7.2 percent of FSA's borrowers in FY 2004.

Evidence: Farm Credit Act of 1971; U.S. Department of Agriculture, "Report to Congress: Evaluating the Relative Cost Effectiveness of the Farm Service Agency's Farm Loan Programs," Farm Service Agency (August, 2006); Farm Credit Administration, 2006 Annual Report on the Farm Credit System, available at: http://www.fca.gov/Download/2006annualreport.pdf

YES 20%
Section 1 - Program Purpose & Design Score 80%
Section 2 - Strategic Planning
Number Question Answer Score
2.1

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: The program has long-term performance measures that support accomplishment of the program's primary purpose-providing credit to family farmers temporarily unable to obtain credit from commercial lenders at reasonable rates and term. The FSA FY 2005-2011 Strategic Plan includes strategic goals, objectives, key performance measures, and additional information as required by the Government Performance and Results Act of 1993. The Guaranteed Loan program is specifically aligned with FSA Strategic Goal 1 supporting productive farms and ranches, Objective 1.1, improving access to capital. Two program long term performance measures that are included in the FSA Strategic Plan are "increase the percentage of beginning farmers, racial and ethnic minority farmers, and women farmers financed by FSA," and "maintain or reduce loss rates for guaranteed loans." A third long term performance measure is to "maintain a low delinquency rate for the Guaranteed Loan Program." In FY 2008, FSA developed an additional long-term outcome measure for the Guaranteed Loan Program that benchmarks FSA loss rates with net charge offs of commercial lenders. The measure will be implemented in FY 2009. Measures for losses and delinquency rates are valuable in two respects. First, they are indicators of the financial well being of borrowers. Secondly, they are indicators of the overall quality of the FSA underwriting standards and loan servicing. FSA must strike a balance between efficient use of budgetary resources and program effectiveness. The final long-term measure, "increase the percentage of beginning farmers, minorities, and women financed by FSA," was developed in FY 2006. It is an outcome measure intended to be an indicator of FSA's success in providing credit assistance to these historically underserved groups. Using data from the 2002 Census of Agriculture, FSA established an estimate of the total number of U.S. farmers in the targeted groups. By comparing this data to the total number of borrowers in the FSA portfolio classified as beginning farmers, racial and ethnic minorities, and women, FSA is able to estimate its market share for lending to these groups. An external factor that could impact progress and accomplishment of these measures includes widespread or prolonged natural disasters that can significantly reduce farm production and, therefore, reduce net income. Substantial inflation in farm expenses or depressed commodity prices could have a similar effect.

Evidence: The Farm Service Agency FY 2005-2011 Strategic Plan is available at: http://www.fsa.usda.gov/Internet/FSA_File/fsa-strategicplanfy2005-2011.pdf; USDA FY 2005-2010 Strategic Plan, available at: http://www.ocfo.usda.gov/usdasp/usdasp.htm; Farm Loan Program Goals, FY 2007-2011.

YES 12%
2.2

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: FSA has established baselines and clear time frames, and while the targets support long-term measures for this program the targets are not ambitious. For example, the loss rate on guaranteed loans has been less than 1% since 2002 and recently even less than .5%, but the targets are set at 1%. In addition, the delinquency rate targets are set at 1.99% while the average rate over the last eight years was less. However, the long-term goals to increase the percentage of women, racial and ethnic minority farmers and beginning farmers financed by FSA are ambitious. Especially considering how limited this target group is. However, it must be understood that the program was designed to provide access to capital for those farmers who cannot obtain credit without a guarantee and to specifically provide a source of credit for lenders' highest risk customers. Guaranteed loans are typically provided to lenders' customers with debt restructuring needs as well as new customers such as beginning farmers who have limited experience in running agricultural operations. These factors result in FSA loans having a higher probability of loss in comparison to non-guaranteed loans. While these long-term measures focus on the outcome of keeping loss and delinquency rates low, FSA must also ensure that the program continues to reach its intended audience.

Evidence: Long-term guaranteed loan program performance measures and targets are as follows: ; (1) FSA guaranteed loan losses compared to commercial bank farm debt net charge offs, FY 2009-FY 2013 <75 basis points of net charge-offs of commercial bank farm debt; (2) maintain or reduce loss rates for guaranteed loans, FY 2008 = 1%, FY 2009 = 1%, and FY 2010 = 1%; (3) maintain a low delinquency rate for guaranteed loans, FY 2008 = 1.99%, FY 2009 = 1.99%, FY 2010 = 1.99%, FY 2011 = 1.99%; (4) increase the percentage of beginning farmers, racial and ethnic minority farmers, and women farmers financed by FSA, FY 2008 = 16.5%, FY 2009 = 17%, FY 2010 = 17.5%, and FY 2011 = 18%

NO 0%
2.3

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: The Guaranteed Loan Program has annual performance measures that contribute to accomplishment of its long-term goals. Annual targets are established at the national level as well as for each State office. Targets are reevaluated by senior management each year and performance levels are revised as necessary. Annual performance targets are established for: 1) loss rates; 2) delinquency rates; 3) loan processing timeliness; and 4) lending to minorities, women, and beginning farmers. With regard to the 4th annual goal, it is important to point out how it differs from the related long-term goal discussed in Question 2.1. On an annual basis, the FSA goal is to increase the percentage of its total loan obligations that go to farmers in these groups. This contrasts with the first long-term measure, which measures the percent of U.S. farmers identified as women, minorities, and beginning farmers that receive FSA loan assistance. The loss and delinquency rate measures consider how economic conditions and interest rates affect borrowers' ability to meet financial obligations. They are also used as a measure of the risk to the government.

Evidence: Annual performance measures for the Guaranteed Loan Program are as follows: increase lending to minorities, women, and beginning farmers; maintain or reduce loss rates for guaranteed loans; maintain a low delinquency rate for guaranteed loans; reduce average processing times for guaranteed loans. FSA FY 2005-2011 Strategic Plan; Farm Loan Program Goals FY 2007-2011.

YES 12%
2.4

Does the program have baselines and ambitious targets for its annual measures?

Explanation: While FSA has established baselines the targets are not ambitious enough. An efficiency measure for decreasing the loan average processing time is an acceptable measure but the targets are set higher than what was achieved in 2006. Another example, is the loss rate on guaranteed loans which has been less than 1% since 2002 and recently even less than .5%, but the targets are set at 1%. In addition, the delinquency rate targets are set at 1.99% while the average rate over the last eight years was less.

Evidence: Performance targets for the annual performance measures are as follows: increase lending to minorities, women, and beginning farmers, FY 2008 = 37.5%, FY 2009 = 37.9%, FY 2010 = 38.3%, FY 2011 = 38.7%; maintain or reduce loss rates for guaranteed loans, FY 2008 = 1%, FY 2009 = 1%, FY 2010 = 1%, FY 2011 = 1%; maintain a low delinquency rate for guaranteed loans, FY 2008 = 1.99%, FY 2009 = 1.99%, FY 2010 = 1.99%, FY 2011 = 1.99%.; decrease loan average processing times in days, FY 2008 = 13.75, FY 2009 = 13.5, FY 2010 = 13.25, FY 2011 = 13.00

NO 0%
2.5

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: Participating lenders share FSA's common goal of improving the financial viability of farmers and ranchers. For lenders to operate a successful business, they strive to assist farmers to make financial progress in order to maintain a portfolio of profitable loans. Bank regulators, bank management and owners emphasize low default and charge off rates, which tie directly to the Agency's annual and long term measures of low delinquencies and losses. State finance authorities, which may participate in providing credit with a guaranteed loan customer, also have incentives to keep delinquencies and losses low in order to continue to receive funding. To ensure that credit is provided to targeted groups, FSA reserves loan funds and establishes field office goals to measure performance. Some lender partners, such as the Farm Credit System have specific policies to increase assistance to beginning and small farmers. The FSA guaranteed loan is particularly effective in helping Farm Credit to accomplish these policy objectives. This practice is in the lender's best interest as it develops the agricultural base and establishes the basis for future lending relationships. Other lenders also receive incentives from their regulatory agencies to make loans to targeted groups, including those who have difficulty obtaining credit elsewhere. The Community Reinvestment Act (CRA) provides incentives for commercial banks to lend to underserved regions and groups. FSA monitors lender performance through regular review of data received from the lenders and credit agencies. Non-performance by lenders results in loss of status and/or increased oversight. It can also lead to a determination by the Agency that the lender is no longer eligible to participate in the Guaranteed Loan Program. FSA outreach efforts include meetings with lenders and lending associations to discuss the importance of policy goals and developing new tools and strategies to meet them. FSA Handbook 2-FLP contains information regarding lender standards for participation in the Guaranteed Loan Program.

Evidence: Community Reinvestment Act: http://www.ffiec.gov/CRA/default.htm; FSA Handbook 2-FLP: Guaranteed Loan Making and Servicing, available at: http://www.fsa.usda.gov/Internet/FSA_File/2-flp-r1.pdf; Federal Deposit Insurance Corporation http://www.fdic.gov/bank/individual/enforcement/index.html; Office of the Comptroller of the Treasury www.occ.treas.gov/enforme/enf_search.htm, or http://www.occ.treas.gov/index.htm; Federal Reserve http://www.federalreserve.gov/bankinforeg/default.htm; Farm Credit Administration's Young, Beginning, and Small Farmer Program, available at: http://www.fca.gov/info/ybs.htm

YES 12%
2.6

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: There have been numerous evaluations based on an issue or process, but since there are no regular independent evaluations that examine performance the program must receive a 'no' to this question. For example, in 2004 and 2005 the University of Arkansas did conduct limited evaluations focusing on the use of interest rate assistance among commercial banks and a study that examined factors affecting usage of the Guaranteed Loan Program by commercial banks. However, FSA is currently evaluating the feasibility of undertaking a study to evaluate the performance of the Guaranteed Loan Program. And researchers at the University of Tennessee-Knoxville and at Oklahoma State University have developed separate research proposals to examine various issues regarding FSA lending programs. At the Agency level,the National Internal Review and County Office Reviews are completed on a regular schedule. Ad-hoc evaluations are completed by Agency Management,Office of Inspector General, and the General Accounting Office.

Evidence: Dodson, Charles B. and Steven R. Koenig Explaining County-Level Variability in Farm Service Agency Farm Loan Programs. Agricultural Finance Review, Cornell University (Fall 2003), available at: http://afr.aem.cornell.edu/63/pdf%20fl2003/AFRF0306.pdf; Dixon, B. and B. Ahrendsen. Analysis of Borrower and Lender Use of Interest Assistance On FSA Guaranteed Farm Loans University of Arkansas December 22, 2004. Final Report on USDA/ERS Cooperative Agreement #43-3AEL-2-80068; Ahrendsen, B., C. Dodson, B. Dixon and S. Koenig. Research on USDA Credit Programs: Past, Present, and Future, in Agricultural Finance Review, Cornell University (Fall 2005); Settlage, L. Examining the Use of Farm Service Agency Guaranteed Loans by Commercial Banks, Ph.D. Dissertation, Purdue University (December 2005); Settlage, L., B. Dixon, B. Ahrendsen, and S. Koenig. Factors Determining the Use of Guaranteed Loans by Commercial Banks, Selected paper presented at the American Agricultural Economics Association annual meeting, Long Beach CA (July 23-26, 2006); Koenig, S. and C. Dodson, Comparing the Loan Performance of Direct and Guaranteed Farm Service Agency Loans, Agricultural and Rural Finance Markets in Transition, Proceedings of the Regional Research Committee, NC-1014, C. Wilson Editor, Dept. Agri. Econ., Purdue University (March 2006); Dodson, C. and S. Koenig. Report to Congress: Evaluating the Relative Cost Effectiveness of the Farm Service Agency's Farm Loan Programs, Farm Service Agency (August 2006); Settlage, L., B. Dixon, B. Ahrendsen, B. Dixon, C. Bacchus, A Detailed Look at Lender Participation in the Farm Service Agency Guaranteed Loan Program, in Agricultural and Rural Finance Markets in Transition, Proceedings of the Regional Research Committee, NC-1014 A. Katchova, Editor, Department of Agricultural Economics, University of Illinois (December 2006); County Operations Review Program (CORP) Fiscal Year 2005 Report, Farm Service Agency, Operations Review and Analysis Staff, (February 2006).

NO 0%
2.7

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: FSA submits an integrated budget request and performance plan each year, which includes a full-cost exhibit and a summary of key outcomes and performance measures for each program. In accordance with the Federal Credit Reform Act, the request represents the total resources needed for the program, including administrative expenses. The budget request for the Guaranteed Loan Program is linked to the following annual and long-term program goals: increase the percentage of women, racial and ethnic minority farmers, and beginning farmers financed by FSA; and to maintain a low loss rate on guaranteed loans. These goals support accomplishment of the FSA strategic goal of supporting productive farms and ranches and the USDA objective to provide risk management and financial tools to farmers and ranchers. Despite the linkages established, at this time, the primary driver of budget requests for the Guaranteed Loan Program continues to be program demand, not performance. However, this will change once FSA's Budget and Performance Management System (BPMS) is fully implemented. BPMS is a series of integrated components that will connect program data, payroll data, financial data, activity time, and unit counts. These new components include an Activity Reporting System, Unit Reporting, Program and Financial Data, and the Enterprise Performance Management (EPM) software. EPM will access data from each of the other BPMS components through the FSA data warehouse to produce reports, management tools, and scorecards. BPMS will provide FSA with the tools necessary to understand the costs and performance of programs, activities, and offices. BPMS will link budget, cost, and performance data. This integrated data will allow FSA to better formulate and justify budgets, produce more accurate forecasts, and identify efficiencies. FSA is currently piloting BPMS in five States.

Evidence: USDA Annual Budget Requests

NO 0%
2.8

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: FSA has developed a comprehensive FY 2005-2011 Strategic Plan that aligns with the USDA FY 2005-2010 Strategic Plan. The FSA Strategic Plan guides the way FSA carries out its mission, and is used to identify and justify the financial, personnel, and other resources necessary to best deliver its programs and measure results. FSA conducted extensive strategic planning stakeholder sessions to develop a clear mission, vision, and goals. In-house personnel have communicated with headquarters and field offices, and conducted strategy sessions and planning meetings throughout each year. FSA re-engineered key goals to improve Agency mission effectiveness, identified workable strategies for accomplishing the goals across program areas, and established measures to help managers gauge progress. Farm Loan Program (FLP) management was actively engaged in the development of the FSA Strategic Plan. During the strategic plan development, FLP implemented a new, more outcome oriented performance measure to gauge the success in meeting the credit needs of racial and ethnic minorities, women, and beginning farmers. The percentage of the targeted groups provided FLP assistance is estimated using data derived from the 2002 Census of Agriculture. In addition, FLP management established the Farm Loan Program Goal Working Group in FY 2006. The purpose of the Group, comprised of FLP management from Washington headquarters, State and local offices, as well as stakeholders, was to reevaluate existing FLP goals and to establish national and State level goals for FY 2007-2011. Annual targets are reevaluated each year and adjusted as necessary to help ensure they remain realistic and ambitious given the current operating environment. In FY 2008, FLP developed an additional performance measure for loan losses. This measure benchmarks against net charge-offs of commercial agricultural lenders and will be implemented in FY 2009.

Evidence: FSA FY 2005-2011 Strategic Plan is available at: http://www.fsa.usda.gov/Internet/FSA_File/fsa-strategicplanfy2005-2011.pdf; Farm Loan Programs FY 2007-2011 Goals; Goal Working Group documentation.

YES 12%
Section 2 - Strategic Planning Score 50%
Section 3 - Program Management
Number Question Answer Score
3.1

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: The Agency collects individual loan data on an ongoing basis. This information populates a database from which performance information is extracted. FSA reviews performance measures monthly to monitor progress towards achieving program goals and management initiatives. This allows the Agency to identify where to place additional emphasis or make improvements as appropriate. FSA also closely monitors loan obligations and prepares detailed obligation reports each month. The FSA Guaranteed Loan System captures comprehensive performance data on the Guaranteed Loan Program and has extensive reporting capabilities. Lender and loan delinquency rates, loss rates, loan restructures, loan volume, size of loans, and loan types are examples of the information contained in the system. This information is accessed daily by Agency management at the National, State, and local level, to monitor and evaluate the performance of the guaranteed portfolio. In addition, comprehensive data on the Guaranteed Loan Program are generated each month in the Monthly Management Summary Report, which is provided to all program managers. Management reviews program performance on an ongoing basis, identifies anomalies, and requests explanations or corrective actions as appropriate. For example, Preferred Lender and Certified Lender loss reports are analyzed to identify lenders that have exceeded the maximum acceptable loss rate of three percent for Preferred Lenders and seven percent for Certified Lenders. If a lender is not meeting its performance standards, FSA may remove the lender's preferred or certified status. FSA Handbook 2-FLP provides detailed information on lender eligibility requirements. FSA also relies upon the Thompson Prospector lender rating service to monitor the strength of lenders participating in the program and to evaluate lenders who wish to participate. Program information is also obtained by meeting with representatives from lending groups, such as the American Bankers Association, the Independent Community Bankers Association, and the Farm Credit Council. FSA regularly holds formal stakeholder meetings to obtain input on program issues in order to improve the overall effectiveness of the Guaranteed Loan Program. The most recent stakeholder meeting was held in March 2007. Other forums through which FSA obtains feedback from partner lenders is through participation in the annual FSA ad hoc lending group meeting, comprised of participating lenders from all over the country, and the American Bankers Association annual agricultural banker's conference.

Evidence: Guaranteed Loan System Reports; Monthly Management Summary Report; Monthly Obligation Reports; Stakeholder Reports; FSA Handbook 2-FLP, Guaranteed Loan Making and Servicing, is available at: http://www.fsa.usda.gov/Internet/FSA_File/2-flp-r1.pdf.

YES 11%
3.2

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: Agency managers are responsible for implementing, improving, and monitoring program activities. Lenders participating in the Guaranteed Loan Program are responsible for demonstrating expertise in such key areas as originating and servicing agricultural loans, maintaining adequate internal controls, and minimizing risk of loss to the Government. Individual performance plans of all managers and employees are tied to the Agency mission and goals contained in the FSA Strategic Plan. FSA Notice PM-2606, "FSA Performance Management Program," contains detailed guidance on development of employee performance plans, including the requirement that performance be linked to the Agency's strategic goals and objectives. Guaranteed Loan Program targets are established at the national level, within each State Office, and for many individual offices. The ability to meet or not meet goals is reflected in individual performance evaluations. To assist in monitoring program performance, status reports and the Monthly Management Summary Report are sent to managers in the field, for review and action on a monthly basis. FSA conducts lender file reviews at the local, State, and National Office levels, and reports generated from the Guaranteed Loan System are reviewed on a continuing basis to ensure that lenders meet Agency requirements regarding loan making, loan servicing, and loan performance standards. Lender performance is considered when determining what lender status the lender will have. For example, Preferred Lenders (PLP) and Certified Lenders (CLP) have to meet and maintain defined loan origination and loss criteria in order to obtain and maintain PLP or CLP status. Any lender that no longer meets the eligibility criteria for Standard Eligible Lenders is denied participation in the Guaranteed Loan Program.

Evidence: FSA Notice PM-2606, "FSA Performance Management Program" is available at: http://www.fsa.usda.gov/Internet/FSA_Notice/pm_2606.pdf; Eligibility standards for guaranteed lenders are found in part 4 of Handbook 2-FLP in paragraphs 46 through 53. Paragraph 54 contains information regarding revocation of PLP status if a lender fails to remain eligible for PLP status. FSA Handbook 2-FLP, "Guaranteed Loan Making and Servicing," is available at: http://www.fsa.usda.gov/Internet/FSA_File/2-flp-r1.pdf; Guaranteed Loan System Reports; Deputy Administrator's Performance Plan.

YES 11%
3.3

Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?

Explanation: FSA has loan application processing goals at the national, State, and local level to help ensure timely loan decisions. FSA has made significant progress in improving the timeliness of credit decisions, as evidenced in its efficiency measure as the average processing time for guaranteed loans has declined by nearly 30 percent in the past seven years, from 18 days in FY 2001 to less than 13 days by the end of FY 2007. The use of funds is monitored through internal reviews and management oversight. Funding is allocated and activity monitored to ensure optimum utilization of available funds. Lender loan file reviews are conducted to ensure loan funds are utilized for authorized purposes, and loss claims are reviewed extensively prior to payment. Extensive automated internal controls, program controls, and procedures are in place to mitigate the risk of improper payments being issued and to ensure that eligibility criteria are followed. Anticipated borrower income from both farm and non-farm sources is verified by lenders to ensure the borrower has repayment ability. Lenders verify applicant information through appraisals and inspections to assure the loans are adequately secured. FSA verifies that lenders only request payment for authorized items when a loss claim is submitted. This includes a thorough review process that verifies that the amount requested is correct and requires the State Office staff to review the loan file, the lender's loan ledgers, lender's collateral accounting, lender's collateral inspections, lender's loan advances, loan purposes, appraisals and timeliness of collection and servicing actions before a loss claim is paid. If, for example, a lender failed to account for some of the collateral, the loss claim would be reduced. If the lender is negligent in its servicing, a claim may be completely denied. Information on requirements prior to obligating funds for a new application and what is reviewed prior to loss claim payment are found in FSA Handbook 2-FLP. Safeguards are in place to prevent unauthorized disbursements and are at various levels so that no one individual or office has complete control of the obligation and disbursement process. For example, to mitigate the risk of improper payments for guaranteed loss claims, the Guaranteed Loan System contains significant system edits to confirm and calculate the amount of allowable claim when the Finance Office enters the claim. FSA Finance Office staff performs a manual audit on 100 percent of the claims prior to payment. In addition, FSA internal controls for financial reporting are documented and tested each year in compliance with OMB Circular A-123 requirements.

Evidence: Handbook 2-FLP, 'Guaranteed Loan Making and Servicing" is available at: www.fsa.usda.gov/Internet/FSA_File/2-flp-r1.pdf; Guaranteed Loan Program A-123 Risk and Control Matrix; Improper Payment documentation.

YES 11%
3.4

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: FSA continues to undertake initiatives to improve efficiencies and effectiveness of program execution. Since the last PART evaluation in FY 2003, the Agency has implemented multiple enhancements to the Guaranteed Loan System, including Web-based loan status reporting, Web-based application processing, Web-based loan closing, and most recently the first phase of Web-based loss claim processing. Phase II of the loss claim process will be completed in FY 2008. Upon completion of Phase II, the loss claim process will have the capability to report all information and cost associated with lender loss claims. These system enhancements allow managers at all levels of the Agency to manage their portfolios and workload more efficiently, since they allow for quicker access to all loan information. In addition, the Guaranteed Loan System continues to be improved with maintenance alterations occurring daily, which improve the Agency's ability to track and report on all guaranteed loan program performance. The system allows Agency managers to set and track performance goals and follow up on a regular basis, allowing for more effective and efficient program management. The Guaranteed Loan System also provides all managers with loan delinquency, loan loss, loan restructuring, loan offset, loan application, loan closing, lender volume, lender loss and lender restructuring information. These system enhancements contributed to increasing efficiency of loan processing, which has dropped from 18 days in FY 2001 to less than 13 days in FY 2007. Program design enhancements such as the Preferred Lender Program (PLP) also result in improved program efficiencies. PLP is the top status that a lender can hold in the FSA Guaranteed Loan Program. PLP rewards experienced lenders by (1) streamlining and adding flexibility to the loan application and servicing requirements; (2) expediting loan approval and other FSA decisions; and (3) allowing lenders to originate and service guaranteed loans the way they do other loans in their portfolio. Lenders with "Preferred" status have broader authority in making and servicing FSA guaranteed loans and can utilize their own underwriting and servicing policies. An indicator of the program's cost effectiveness is the low subsidy rate. The FY 2008 subsidy rates for the Guaranteed Loan Program are .40 percent for farm ownership loans, 2.42 percent for unsubsidized operating loans, and 13.34 percent for subsidized operating loans. FSA is currently piloting a Budget and Performance Management System (BPMS) that will link budget, cost, and performance data, and make that data available to FSA managers at all levels. BPMS is not a single system, but a series of integrated components that will connect program data, payroll data, financial data, activity time, and unit counts. System components include an Activity Reporting System, Unit Reporting, Program and Financial Data, and the Enterprise Performance Management (EPM) software. EPM will access data from each of the other BPMS components through the FSA data warehouse to produce reports, management tools, and scorecards. BPMS will provide FSA with the tools necessary to understand the costs and performance of programs (including the Guaranteed Loan Program), activities, and offices. This integrated data will help FSA to better formulate and justify budgets, produce more accurate forecasts, and identify efficiencies. Work is well underway on implementation of each of the system components.

Evidence: Information on recent Guaranteed Loan System enhancements, available at: http://www.fsa.usda.gov/FSA/webapp area=home&subject=fmlp&topic=glf; BPMS information is available at: http://www.fsa.usda.gov/FSA/webapp area=home&subject=empl&topic=bap; FSA Handbook 2-FLP, "Guaranteed Loan Making and Servicing" is available at: http://www.fsa.usda.gov/Internet/FSA_File/2-flp-r1.pdf; The efficiency measure, guaranteed loan average processing time, for the period FY 2001-2007 is as follows: FY 2001=18 days, 2002=15 days, 2003=15.2 days, 2004=14 days, 2005=14.5 days, 2006=12.63 days, FY 2007=12.6 days; performance targets for reducing the processing time for guaranteed loans, are as follows: FY 2008: 13.75 days, FY 2009 =13.5 days, FY 2010 = 13.25 days; ABC/ARS FLP documentation.

YES 11%
3.5

Does the program collaborate and coordinate effectively with related programs?

Explanation: At the Federal level, there are no other agencies that have the same goals and objectives as the FSA Guaranteed Loan Program. There is slight overlap with loan programs provided by SBA. However, much of SBA's loans to farmers are to provide capital for farm-related businesses for which FSA cannot provide assistance. There are several state governments that have established State finance programs. FSA actively collaborates and coordinates activities with these programs and has memorandums of understanding (MOU) with those States with active farm loan programs. The MOUs are authorized by P.L. 102-554, Section 5. These MOUs facilitate the establishment of joint financing arrangements between State Ag Finance programs and the FSA Guaranteed Loan Program when providing credit to beginning farmers and ranchers. The Guaranteed Loan Program plays an important role in facilitating the extension of credit to farmers, not only through collaboration with partner lenders but also with FSA's Direct Loan Program. Often times a borrower's credit needs are met through a combination of a guaranteed loan and an FSA direct loan. For example, a Farm Ownership loan will be made by a commercial lender with an FSA guarantee to purchase farmland and the borrower will also obtain a direct Operating Loan from FSA to cover annual operating expenses. Approximately 35 percent of guaranteed loans are issued to current or former FSA direct loan borrowers. Similarly, an application package prepared by a partner lender may contain multiple loan requests, which are met through a combination of FSA guaranteed loans and non-guaranteed loans issued directly by the lender. In addition, FSA operates a special Down Payment Farm Ownership loan program to assist beginning farmers and ranchers to purchase a farm or ranch. Applicants must make a cash down payment of at least 10 percent of the purchase price. FSA provides a direct loan for up to 40 percent of the purchase price or appraised value, whichever is less, and the remaining balance may be obtained from a commercial lender or private party. FSA can provide up to a 95 percent guarantee if financing is obtained from a commercial lender. Another way in which the Guaranteed Loan Program facilitates the extension of credit is that guaranteed loans may be sold on the secondary market. Lenders may sell the guaranteed portion of loans to interested third parties, typically through Farmer Mac. The interested party then becomes the holder of the loan, but the original lender must retain the loan servicing responsibilities. Investors looking for safe investments with a reasonable return are attracted to these loans because of the Government's full Faith and Credit guarantee. The existence of the secondary market increases the liquidity of guaranteed loan notes. By reselling the guaranteed portions, lenders reduce interest rate exposure, increase their lending capabilities, and generate fees. To help ensure the program operates as effectively as possible, FSA works closely with key program partners and stakeholders. FSA meets regularly with representatives from the Farm Credit Council, the American Bankers Association, the Independent Community Bankers Association, and others, to discuss program issues and address any problems program partners may be encountering. Additionally, FSA periodically holds formal stakeholder meetings to address specific concerns and to develop ways to improve program effectiveness.

Evidence: Memorandums of Understanding between FSA and States with active farm loan programs; P.L. 102-554, Section 5.

YES 11%
3.6

Does the program use strong financial management practices?

Explanation: FSA financial systems are fully compliant with statutory requirements and provide timely, accurate, and useful information necessary for the day-to-day management of the Guaranteed Loan Program. FSA is also in compliance with the Debt Collection Improvement Act requirements. No material weaknesses were cited by auditors in the 2007 USDA Consolidated Financial Statements for the FSA Guaranteed Loan Program. In addition, per FMFIA reports, there have been no material internal control weaknesses reported in regard to the FSA Guaranteed Loan Program since 1998. In accordance with the requirements of the Federal Managers' Financial Integrity Act (FMFIA) and the Office of Management and Budget (OMB), Circular A-123, Appendix A, Internal Control over Financial Reporting, FSA evaluated, assessed, and tested management controls during FY 2007 for the guaranteed loan program. As of September 30, 2007, all process and application controls were assessed and documented, and the FSA in collaboration with the USDA Office of the Chief Financial Officer (OCFO), and PricewaterhouseCoopers, concluded that no significant deficiency or material weakness exist, which would compromise the effectiveness of the Guaranteed Loan Program.

Evidence: USDA FY 2007 Performance and Accountability Report; OIG Audit Report No. 50401-62-FM, "U.S. Department of Agriculture's Consolidated Financial Statements for Fiscal Years 2007 and 2006."

YES 11%
3.7

Has the program taken meaningful steps to address its management deficiencies?

Explanation: Program management effectiveness is regularly reviewed through the Farm Loan Program Risk Assessment (FLPRA), the County Operations Review (COR) program, OMB Circular A-123, Appendix A Risk Assessments, National Office Loan Origination File Reviews, Improper Payment reviews, Office of Inspector General Audits, and National Credit Quality and Loss Claim Reviews. FSA consistently makes adjustments in those areas where weaknesses are identified. Numerous continuing eLoans initiatives and regulation changes continue to be made to address these concerns. Deficiencies are also identified during the annual review of performance and development of annual goals. Numerous adjustments have been made to improve program management and oversight deficiencies. For example, program managers evaluated the National Internal Review (NIR) process (a component of the internal control program within Farm Loan Programs) and determined that it was no longer providing meaningful results. In response, FSA developed the Farm Loan Program Risk Assessment (FLPRA) to replace the NIR process. FLPRA is a risk-based assessment that focuses resources on high-risk areas rather than assessing broad areas superficially. In FY 2007, FSA changed its Interest Assistance program to limit its use and focus more on beginning farmers. These changes were implemented after an analysis of the program revealed that it was being over utilized in some States and underutilized in others. FSA FY 2007 implementation of Web-based loan closing and lender status reporting within the Guaranteed Loan System has helped FSA to meet eLoan initiatives and provides more timely and improved lender performance information. FSA has just implemented phase one of a Web-based loss claim that provides the Agency substantial information concerning losses and provides a more uniform loss claim process. The Guaranteed Loan Program Website provides detailed information on enhancements to electronic reporting capabilities for lenders as well as the recently enacted changes to improve the effectiveness of the Interest Assistance Program.

Evidence: Farm Loan Program Risk Assessment Guidance and Summary Reports; County Operations Review Program reports; OMB Circular A-123 Appendix A Guaranteed Loan Program Risk and Control Matrix; National Office Loan Origination File Review documentation; Improper Payment documentation; Information on recent Guaranteed Loan System enhancements and Interest Assistance Program changes are available at: http://www.fsa.usda.gov/FSA/webapparea=home&subject=fmlp&topic=gfl

YES 11%
3.CR1

Is the program managed on an ongoing basis to assure credit quality remains sound, collections and disbursements are timely, and reporting requirements are fulfilled?

Explanation: The Agency utilizes several different methods to ensure maintenance of credit standards. Every loan receives an underwriting review by Agency staff before the guarantee is issued. In addition, 20 to 40 percent of the lender files are reviewed annually. Also, several internal review processes evaluate the credit process. Lenders submit semiannual status reports on each loan and default status reports are submitted every 60 days, if applicable. Lenders also must maintain loss and performance standards in order to maintain lender eligibility status. The Agency monitors lender performance through reports of field reviews, as well as loss and delinquency data. FSA monitors lender strength through Thompson Prospector, a bank rating service. In 1999, the Electronic Funds Transfer System (EFT) was implemented to help eliminate the mailing time for sending disbursements to the lenders. In FY 2007, 96 percent of the system generated guaranteed loan disbursements were made electronically. By sending the payments electronically, disbursements are now in the customers account within two business days of the request instead of the standard three to five days from the paper based check system. In September 2003, FSA started referring guaranteed debt for offset through internal Administrative Offset and the Treasury Offset Program. Since 2003, FSA has collected over $1.3M through the offset process and an additional $10M through lender recoveries. Additionally, the Agency provides comprehensive training for its loan officers through the Farm Loan Officer Training program. The program provides in depth instruction and testing on topics such as financial management, financial analysis, appraising and appraisal techniques, environmental and cultural resource analysis/reviews, security inspections, and business management. This knowledge is essential for effectively working with farmers and in carrying out the goals of the Agency's farm loan programs. Credit employees must demonstrate expertise in program requirements, credit and financial analysis through testing, and file reviews to obtain and maintain loan approval authority.

Evidence: Monthly Management Summary Reports; Lender File Reviews; TOP data/documentation; Farm Loan Officer Training materials; FSA Handbook 1-FLP, "General Program Administration."

YES 11%
3.CR2

Do the program's credit models adequately provide reliable, consistent, accurate and transparent estimates of costs and the risk to the Government?

Explanation: The credit subsidy models for the Guaranteed Loan Program have provided reliable, consistent, accurate and transparent estimates of costs and the risk to the Government using historical data. Subsidy rates are stable from year to year (1992 to 2007) and between budget formulation and reestimate. Subsidy rates are reflective of default and delinquency rates for these programs, which are low, but which have also consistently declined over the last several years. Subsidy rates generally reflect the same trends as the default and delinquency rates. FSA continues to analyze guaranteed loan performance and to improve the predictive nature of the estimates. The model is continuously reviewed for accuracy and updated as appropriate. Updates to the model are first approved by a configuration control board and once made are reviewed as necessary through an independent validation and verification process. Any changes to the model are accompanied by documentation, test and sensitivity analysis, and are audited by the Office of Inspector General financial statement auditors. The low default and delinquency rate as evidenced by the performance of the loan portfolio indicates that the credit subsidy model has adequately estimated the subsidy. In the most recent reestimate, the change in subsidy rates between formulation and reestimated rates ranged from a low of 0.01 percent to a high of 4.45 percent. The difference between the FY 2006 reestimate and the FY 2007 reestimate is even lower, ranging from 0.00 percent to 0.96 percent. Further, the reestimates for guaranteed loans have passed OIG audits since FY 2001.

Evidence: Subsidy rates and reestimate data are published annually in the Federal Credit Supplement.

YES 11%
Section 3 - Program Management Score 100%
Section 4 - Program Results/Accountability
Number Question Answer Score
4.1

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: FSA has been successful in accomplishing its long-term performance goals for the Guaranteed Loan Program. Loss rates, delinquency rates, and lending to beginning farmers, minorities, and women have all shown long-term progress. The program loss rate is at a historically low level of 0.30 percent at the end of FY 2007. This can be attributed to multiple factors, including a strong agricultural economy and numerous program improvements such as implementation of the Preferred Lender Program, Debt Collection Improvement Act offsetting provisions, and Guaranteed Loan System enhancements previously discussed in this document that allow managers at all levels of the Agency to closely monitor lenders and their caseloads. These improvements have also allowed for loan officers and lenders to be more efficient and effective in loan making, loan servicing, and loan loss processing capabilities. As with the loss rate, the long-term trend for the delinquency rate shows improvement as it has declined steadily from a rate of 2.48 percent at the end of FY 1999 to 1.32 percent at the end of FY 2007. The long-term performance goal for improving access to capital among underserved groups is to increase the percentage of beginning farmers, racial and ethnic minority farmers, and women farmers financed by FSA. This measure was developed as part of the FSA strategic planning process and was implemented in FY 2007. In developing this measure, data were established back to FY 2000. In FY 2000, FSA provided credit assistance to just over 12 percent of these groups; by FY 2007 the percentage had increased to nearly 16 percent. FSA is establishing a new long-term performance goal for loan losses that benchmarks against the performance of commercial agricultural lenders. The goal will be to maintain the guaranteed loss rate within 75 basis points of the net charge-offs of commercial farm debt from the latest available data. This goal will go into effect in FY 2009.

Evidence: Recent performance targets and results for long-term Guaranteed Loan Program performance measures are as follows: Increase the percentage of beginning farmers, racial and ethnic minority farmers, and women farmers financed by FSA; Performance Targets: FY 2007 = 16.0%. Actual Performance: FY 2007=15.9%; Maintain or reduce loss rates for guaranteed loans; Performance Targets: FY 2005 = .7%; FY 2006 = .7%; FY 2007 = 1%. Actual Performance: FY 2005=.40%; FY 2006=.40%; FY 2007=.30%; Maintain a low delinquency rate for guaranteed loans; Performance Targets: FY 2007 = 1.99%. Actual Performance: FY 2007=1.32%. Guaranteed Loan Program Performance Trend Table

SMALL EXTENT 7%
4.2

Does the program (including program partners) achieve its annual performance goals?

Explanation: Annual performance goals for the Guaranteed Loan Program have been consistently met. However, since these measures do not have amibitous targets and received a "No" for question 2.4, only a small extent can be given. As with the long-term goals, there is an established trend of improved program performance. The Guaranteed Loan Program has annual performance goals for lending to beginning farmers, minorities, and women (measured as a percent of total obligations). In FY 2007, the average time to process a guaranteed loan was less than 13 days, a nearly 30 percent reduction from the 18 day average achieved in FY 2001. Regarding lending to beginning farmers, minorities, and women, slightly more than 40 percent of total farm loan obligations were issued to these groups in FY 2007, continuing the long running trend of providing increased assistance to these groups. In addition, FSA establishes annual performance goals for the long-term loss rate and delinquency rate performance measures, as discussed in Question 4.1. These annual goals have been met as well. As discussed in Question 3.4, once activity based costing data are available through the Budget and Performance Management System, FSA will establish annual performance goals for improving the cost efficiency of loan origination and servicing.

Evidence: Recent performance targets and results for the annual performance goals are as follows: (1) increase lending to minorities, women, and beginning farmers, performance targets: FY 2005 = 35%, FY 2006= 36%, FY 2007= 36.5%, actual performance: FY 2005 = 39.3%, FY 2006= 39.8%, FY 2007= 40.7%; (2) maintain or reduce loss rates for guaranteed loans, performance targets: FY 2005 = .7%, FY 2006 = .7%, FY 2007 = 1%, actual performance: FY 2005=.40%, FY 2006=.40%, FY 2007=.30%; (3) maintain a low delinquency rate for guaranteed loans, performance targets: FY 2007 = 1.99%, actual performance: FY 2007=1.32%; (4) reduce average processing time for guaranteed loans, performance targets: FY 2005 = 14.5 days, FY 2006 = 14.25 days, FY 207 = 14.0 days, actual performance: FY 2005= 14.5 days, FY 2006=12.63 days, FY 2007=12.6 days; Guaranteed Loan Program Performance Trend Table.

SMALL EXTENT 7%
4.3

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: FSA continues to improve the overall efficiency and effectiveness of the Guaranteed Loan Program. In FY 2007, FSA revised the Interest Assistance component of the Guaranteed Loan Program, resulting in a more effectively targeted program. Also in FY 2007, the Agency implemented several Guaranteed Loan System enhancements, including Web-based loan status reporting, Web-based application processing, and Web-based loan closing. These enhancements allow lenders to submit data electronically through the USDA Lender Interface Network Connection (LINC) web site connected to the Guaranteed Loan System. Lenders now have the capability of updating borrowers accounts through web access to the status and default status reports. The data are submitted in real time, which saves time, eliminates the possibility of lost documents, and reduces paper generation. These system enhancements allow managers at all levels of the Agency to manage their portfolios and workload more effectively and efficiently. The Guaranteed Loan Program website provides detailed information on enhancements to electronic reporting capabilities for lenders as well as the recently enacted changes to improve the effectiveness of the Interest Assistance Program. Program improvements such as these contribute to the overall reductions in loan processing timeliness that have been achieved the past several years. An indicator of the program cost effectiveness is its low subsidy rate. The FY 2008 subsidy rates for the Guaranteed Loan Program are 0.40 percent for farm ownership loans, 2.42 percent for unsubsidized operating loans, and 13.34 percent for subsidized operating loans. Subsidy costs for the Direct Loan Programs are significantly higher.

Evidence: Information on recent Guaranteed Loan System enhancements and changes to the Interest Assistance program are available at: http://www.fsa.usda.gov/FSA/webapparea=home&subject=fmlp&topic=gfl; Farm Loan Program Subsidy Rate Trend Table; Average time to process guaranteed loans: FY 2005=14.5 days, FY 2006=12.63 days, FY 2007=12.6 days.

YES 20%
4.4

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: The FSA Guaranteed Loan Program is fairly unique with few public or private programs having similar purposes and goals. The most direct comparison is in the States of Georgia and Illinois, both of which have sizable farm loan guarantee programs operated by State agencies. The loan delinquency rate in Georgia in January of 2008 was 1.5 percent for State programs, compared to 2.27 percent for FSA guarantees in Georgia. The loan delinquency rate in Illinois was 0.79 percent, compared to 0.72 percent for FSA guarantees in Illinois. While the loan delinquency rates compare favorably between these State programs and the FSA program, it is important to note that FSA's portfolio is significantly larger in both Illinois and Georgia than the State run programs. The Georgia program has a $72 million loan volume, while FSA has $270 million in guaranteed loans in Georgia. The difference is even greater in Illinois, the State program's loan volume is $82 million, whereas FSA's Illinois portfolio is $380 million. In addition, State programs are typically targeted for specific loan purposes, such as value added or single purpose livestock facilities. In addition, eligibility criteria for these programs can differ significantly from the FSA Guaranteed Loan Program. For instance, in the State programs farmers may qualify for private loans in addition to the State guaranteed loan, whereas only farmers not qualified for private financing are eligible for the FSA Guaranteed Loan Program. The Guaranteed Loan Program outperforms other Federal guaranteed loan programs when comparing delinquency and loss rates. Measuring delinquencies as a percentage of total loan volume outstanding, the FY 2007 delinquency rates for FSA guaranteed operating loans and guaranteed farm ownership loans were 4.47 percent and 3.07 percent respectively. These results compare favorably with USDA Rural Development's Business and Industry and Rural Housing Service guarantee programs, which posted FY 2007 delinquency rates of 8.18 percent and 12.71 percent. Results in FY 2007 continue the trend of the past several years, where FSA's delinquency rates have been lower than those achieved by Rural Development. With respect to loan losses, FSA's loss rates are lower relative to other Federal guarantee programs. In FY 2007, FSA guaranteed loan terminations for default, as reported in OMB's Federal Credit Supplement, was 0.06 percent. The average loss rate reported for all Federal guarantee programs was 1.03 percent and the rate for SBA was 1.56 percent. FY 2007 marks the fourth consecutive year in which FSA's Guaranteed Loan Program has posted significantly lower rates than the Federal average.

Evidence: Table I-3 A; Information on Guaranteed Lending Programs Administered by State Agencies, January 2008; Figure 4-4.

YES 20%
4.5

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: Federal loan guarantees attempt to address credit market failures by lowering lending risks and information costs which effectively lowers a lender's costs and encourages lenders to increase the supply of credit. The FSA Guaranteed Loan Program is designed to provide credit access to farmers temporarily unable to meet commercial lending standards and hence unable to obtain necessary credit at reasonable rates and terms. A 2006 Congressional study concluded that the financial condition of guaranteed borrowers was such that the majority would have failed to meet commercial lending standards without the Federal loan guarantee. Consistent with its mission of serving higher-risk borrowers, performance measures on guaranteed loans were found to be somewhat higher than similar measures of non-guaranteed farm loans. Yet, the analysis also showed those performance measures were significantly better than performance measures of borrowers in the direct lending farm loan programs. Hence, in general, use of the FSA farm loan guarantees appeared to be consistent with the higher risk nature of the lending programs' objectives. Other independent studies are regularly conducted in support of improving program performance and effectiveness. In late 2004, the University of Arkansas released a comprehensive analysis of the use of interest rate assistance among commercial banks, which are the primary program delivery agents, within the Guaranteed Operating Loan Program. An extensive 2005-2006 study by the University of Arkansas examined factors affecting usage of FSA loan guarantees by commercial banks. After these independent university studies were completed, FSA regulations governing the operation of the interest rate assistance program were finalized in 2007. However, since there are not regular independant evalutions conducted question 2.6 received a "no" resulting in a rating of "small extent" for this question.

Evidence: Dodson, C. and S. Koenig, Report to Congress: Evaluating the Relative Cost Effectiveness of the Farm Service Agency s Farm Loan Programs, Farm Service Agency, August 2006; Dixon, B. and B. Ahrendsen. Analysis of Borrower and Lender Use of Interest Assistance On FSA Guaranteed Farm Loans University of Arkansas December 22, 2004; Final Report on USDA/ERS Cooperative Agreement #43-3AEL-2-80068; Ahrendsen, B., C. Dodson, B. Dixon and S. Koenig. Research on USDA Credit Programs: Past, Present, and Future, in Agricultural Finance Review, Cornell University (Fall 2005); Settlage, L. Examining the Use of Farm Service Agency Guaranteed Loans by Commercial Banks, Ph.D. Dissertation, Purdue University (December 2005); Settlage, L., B. Dixon, B. Ahrendsen, B. Dixon, C. Bacchus, A Detailed Look at Lender Participation in the Farm Service Agency Guaranteed Loan Program, in Agricultural and Rural Finance Markets in Transition, Proceedings of the Regional Research Committee, NC-1014 A. Katchova, Editor, Department of Agricultural Economics, University of Illinois

SMALL EXTENT 7%
Section 4 - Program Results/Accountability Score 60%


Last updated: 09062008.2008SPR