What Is the Farmers Home Administration?

FmHA Loans

In 1946, Congress authorized the Farmers Home Administration to provide families with financing tools such as loans and grants aimed at helping them re-establish self-sufficient farming efforts, following the Great Depression. In 1961, Congress authorized the FmHA to broaden its bandwidth and finance general water projects and housing for non-farmers in rural municipalities.

FmHA has since been renamed multiple times and is currently known as USDA Rural Development.

Historical Problems With FmHA

By the 1990s, some members of Congress were becoming increasingly concerned with the large number of defaults on FmHA loans and the substantial losses the agency was accruing as a result of weak lending practices. In 1992, Congress directed the U.S. Government Accountability Office (GAO) to conduct a study, which uncovered numerous problems with the FmHA.

Most notably, the report found that nearly $14 billion (70%) of the FmHA direct loan portfolio was at risk of default because the loans were held by delinquent borrowers or by individuals whose debts were rescheduled in the wake of repayment difficulties. In that year, FmHA estimated potential losses of $1.2 billion, or about 28% of its guaranteed loan program.

The GAO also discovered that many field lending officials failed to comply with the loan-making and loan-servicing standards that the FmHA established to safeguard federal financial interests.

Furthermore, the GAO found that by Sept. 30, 1991, the FmHA acquired an estimated 3,100 farms from borrowers who had not repaid their loans. Overall, the GAO concluded that FmHA management weaknesses contributed to the long-standing loan management problems, including inferior information systems and weak financial controls.

Termination of the Farmers Home Administration

Under the Agriculture Reorganization Act of 1994, in October 1995, the FmHA was abolished. Its functions were transferred to the Farm Service Agency at the USDA. In later years, following other reorganizations, these functions were ultimately transferred to USDA Rural Development, as it is known today.