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

Tie program performance to budget requests in the 2005 President's Budget.

Assess performance targets to ensure they are ambitious.

Conduct a performance-focused review that will include, but is not limited to: analysis of program participants; length of time borrowers remain in program; number of borrowers who 'graduate' and return to the program; effectiveness of targeted assistance; and the potential to reduce subsidy rates.

Develop an efficiency measure such as 'cost per loan processed' to track administrative expenses and allow comparison among loan programs.

Revise long-term performance measure to better assess progress toward meeting the goal of improving economic viability of farmers/ranchers.

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.

Measure: Increase the percent of loans to beginning and socially disadvantaged farmers/ranchers

Explanation:FSA continues to provide assistance to beginning and socially disadvantage farmers. FSA provides assistance to these groups in greater amounts than commercial lenders. Note: The results of this measure include the effect of direct loans made. Although both the direct and guaranteed loan programs have targeting requirements, beginning and socially disadvantaged farmers make more use of direct loans.

Measure: Decrease in loan average processing times (days)

Explanation:Since FSA's mission involves providing a safety net for America's farmers and ranchers, it is important that financial resources and other assistance are provided timely when the need arises.

Measure: Maintain the percentage of guaranteed loans made to direct borrowers

Explanation:Graduating farmers from direct loans to guarantee loans is an indicator of their progress towards ultimately moving to commercial credit.

Is the program purpose clear?

Explanation: The program allows family farmers who could not otherwise obtain agricultural credit to obtain needed credit from private sector lenders.

Evidence: Consolidated Farm and Rural Development Act, as amended (CONACT) clearly outlines the program.

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

Explanation: FSA's guaranteed farm loans help to resolve imperfections in credit markets as well as help address concerns regarding social equity. Due to the economic uncertainty concerning the production of agricultural commodities, farmers may have difficulty demonstrating their creditworthiness to lenders. This problem is likely to be more serious for young/beginning farmers due to lack of credit history or limited income. Much farm production occurs in geographically isolated areas that have few lenders. Consequently, farmers may face a competitively limited market for their loans that can result in higher rates, unfavorable terms, and a shortage of loan funds. By limiting the lenders' risk, FSA guarantees enable lenders to become more comfortable lending to farmers, facilitating the provision of credit, which can help support low farm family incomes, assist beginning farmers, or help farmers adopt new technology that will make their farming operations more economical.

Evidence: FSA's overall market share for guaranteed loans is about 4 percent nationwide, but this fails to recognize their importance among special interest groups such as beginning and socially disadvantaged farmers. Data from USDA's Agricultural Resource Management Survey indicates recipients of FSA guaranteed loans between 1998 and 2000 were more financially stressed than farmers receiving non-guaranteed loans. FSA guaranteed borrowers were less solvent and had less cash flow coverage than farmers receiving non-guaranteed loans. Among young and beginning farmers, 10% of their debt is from FSA guaranteed loans. Among farms with less than $250,000 of net worth, their market share was 10%. Last fiscal year, over 13,000 guarantees for nearly $2.7 billion were obligated. Without these guarantees, these borrowers would not have been able to obtain credit to begin or maintain their farming or ranching operations.

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

Explanation: At the Federal level there are no other agencies that have the same specific goals and objectives as FSA guaranteed loan programs. While the Small Business Administration (SBA) also has a loan program for the farm sector, much of SBA's loans to farmers are to provide capital for farm-related businesses which FSA cannot finance. Although there are several State Governments that have established programs with goals and objectives similar to the FSA guaranteed loan program, there is no such program that is national in scope.

Evidence: FSA accounted for 93 percent of all Federally guaranteed farm loan volume in 2000, compared to only 7 percent for SBA. Six states currently provide guaranteed loans to farmers with a total outstanding volume of less then $500 million compared to FSA's outstanding Farm Ownership (FO) volume of $4.3 billion. There are 16 States that utilize tax-exempt bonds to fund loans to farmers. In 2001 these State programs provided $60 million dollar in real estate loans to farmers compared to $852 million provided through FSA guaranteed loan program.

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

Explanation: The program is comparatively very cost-effective with low subsidy costs and the delivery mechanism is consistent with program objectives. Due to the economic uncertainty with production agriculture, many farmers suffering financial difficulty would be unable to obtain necessary credit without a guarantee. We have no evidence of any other approach or mechanism that would be more effective. The program is designed to partner with the private sector to use existing lender procedures to reduce costs and minimize administrative burden.

Evidence: The FY 2003 subsidy rates for guaranteed loans are 0.75 percent for real estate loans, 3.17 percent for unsubsidized operating, and 11.84 percent for subsidized operating loans. Direct loan subsidy costs are significantly higher. Program eligibility requirements prohibit loan guarantees to farmers otherwise able to obtain credit and ERS data indicates the program plays a significant role in assisting this target group. In 2002, over 13,000 guarantees for over $2.7 billion was provided to this group of farmers. For the most part, the program utilizes existing lender credit standards and staff to assemble data and underwrite loans. Existing lender oversight Agencies (such as the FDIC and FCA) are used, in part, to monitor lender strength and management, as well as to review and control underwriting and servicing policies.

Is the program effectively targeted, so program resources reach intended beneficiaries and/or otherwise address the program's purpose directly?

Explanation: Each year FSA allocates a share of loan funding for use by beginning and socially disadvantaged (SDA) groups. State's lending allocation for beginning farmers (those who have less than 10 years of farming history) are reserved until April 1 each year. Annual targeting levels are 40 percent for guaranteed operating loans and 25 percent for guaranteed farm ownership loans. FSA targets SDA groups (including racial and ethnic minorities, and women) by setting aside a share of funding for these applicants. Since 1993, 17 percent of guaranteed farm ownership loans and 10 percent of guaranteed operating loans have gone to either beginning or SDA farmers. In comparison, racial and ethnic minorities make up less four percent of total U.S. farms, with beginning farmers constituting less than one percent (1997 Census of Agriculture). However, while time and eligibility caps deny borrowers access after a certain time, there is effectively no means by which FSA can force those who no longer necessitate federal credit assistance out of the program.

Evidence: Repeated studies conducted by USDA Economic Research Service show the program serves clientele who are more creditworthy than those receiving FSA direct loans and less creditworthy than those with non-guaranteed loans from commercial lenders. Other economic studies have shown that FSA guaranteed loan programs have a greater presence in regions experiencing greater financial stress, lower per capita incomes, and a greater presence of young or beginning farmers. Broyles, M. & S. Koenig. 'Minority Farmers and Their Finances.' Journal of Agricultural Lending (Fall 2002). Dodson, C. & S. Koenig. 'The Targeting of FSA's Guaranteed Farm Loan Program.' Journal of Agricultural Lending (Spring 2000).

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: FSA has adequate measures for all long-term goals except the goal of 'improving the economic viability of farmers and ranchers.' As this is one of the key purposes of the program, FSA must establish a measure to track agency progress towards this goal. Current measures focus on maintaining a low loss rate of guaranteed loans (which is integral to the cost of providing credit to those who need it) and increasing the percentage of loan funds going to targeted groups. Although current long-term measures are adequate, improvements are still warranted. While a low loss rate on loans is used as a proxy indicator for the financial viability of borrowers, there is no measure that indicates the program is providing adequate coverage of their intended market or whether or not there are any unmet needs. Furthermore, the percent of funding going to targeted groups does not always provide an accurate picture (e.g., increased loan levels likely result in a lower percentage of program dollars being utilized by these groups). A measure tracking agency progress on meeting the financial needs of certain targeted groups could be one way to address both issues. Such a measure would also inform program managers of actions needed to address underserved areas/groups and of the success of outreach efforts.

Evidence: The Farm Service Agency (FSA) has several long-term goals: (1) improve the economic viability of farmers and ranchers, (2) reduce losses in farm loan programs, (3) respond timely to loan making and servicing requests, and (4) provide maximum financial and technical assistance to underserved groups. Long-term performance measures include maintaining a low loss rate on guaranteed loans, reducing servicing/loan making time, and increasing the percent of loans to beginning and socially disadvantaged farmers/ranchers. FSA is currently evaluating a performance measure that would indicate whether the program is improving the economic viability of borrowers. Performance measures being considered are related to changes in the financial strength of borrowers, assessing the extent to which the program is reaching targeted groups, and the added value to communities as a result of the loan programs.

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

Explanation: Established baselines and clear timeframes and targets support FSA's long-term measures for this program. However, while the targets for funding directed to underserved groups is increasing, it is not clear that they are ambitious. For example, targets are based on past program demand from underserved groups, not on an analysis of eligible borrowers. Thus, self-selection could be a problem--although borrowers from these groups are eligible, they are not participating for one reason or another. By basing targets on an analysis of those eligible for the program, the agency can determine if outreach efforts are effective or changes are warranted. In addition, FSA's targets regarding loan losses are not as strong. Out-year targets remain at 2%, although actual experience has shown losses less than 1%.

Evidence: The FY 2004 FSA Annual Performance Plan describes the targets and timeframes for the performance measures established for the guaranteed loan program. The plan shows four year trends for the period of FY 1999 through 2002 and projected targets for fiscal years 2003 and 2004. FSA re-evaluated the long-term measures for the guaranteed loan program for the FY 2004 annual performance plan and for the FY 2005 budget.

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

Explanation: FSA's annual performance measures are designed to monitor the program's progress towards achieving its long-term goals. Annual performance measures include: (1) maintain a low loss rate on guaranteed loans, (2) decreased average loan processing times and (3) maintaining the percentage of guaranteed loans made to direct borrowers. While the loss rate indicator is also used to assess financial performance of the loan portfolio over time, FSA also tracks loss rates on its guaranteed portfolio on an annual basis.

Evidence: The first measure helps FSA assess the "economic viability of farmers and ranchers" by looking at how economic conditions and interest rates are affecting the extent that borrowers are able to meet their financial obligations. It is also used to measure the risk of this program to the government. The second measure supports the overall goal of improving the efficiency of loan making and servicing and quality of customer service and is directly linked to a number of initiatives FSA has undertaken to improve program management. The third measure, which focuses on graduation rates out of the direct lending program, supports the long-term goals of improving the economic viability of farmers and ranchers and providing the right level of financial assistance to farmers and ranchers to help them maintain profitable farming operations. This directly measures the extent to which FSA is able to help farmers and ranchers improve their financial management practices in order move out of direct credit assistance and towards obtaining private sector credit.

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

Explanation: Established baselines and clear timeframes and targets support FSA's annual measures for this program. FSA is currently using the annual measure: "maintain the percentage of guaranteed loans made to direct borrowers." As indicated by this measure, targets have remained at the same level over the last couple of years. This is a reflection of past performance, anticipated program demand, and borrower creditworthiness. However, this target should continue to be reevaluated to assess whether it should be increased.

Evidence: The FY 2004 FSA Annual Performance Plan describes the targets and timeframes for the performance measures established for the guaranteed loan program. The plan shows four year trends for the period of FY 1999 through 2002. It also shows projected targets for fiscal years 2003 and 2004.

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

Explanation: While the lenders are not asked to specifically commit to meeting Agency goals, they do share the Agency mission of providing credit and improving the financial viability of farmers and ranchers. They also receive incentives from their regulatory agencies to make loans to our targeted farmers. Rather than have lenders report goal activity, the Agency 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. To insure credit is provided to targeted groups, the Agency reserves loan funds and includes field office goals to measure performance. In addition, outreach efforts include meetings with lenders and lending associations to discuss the importance of this policy.

Evidence: In order for lenders to stay in business, they strive to assist farmers to make financial progress in order to maintain a portfolio of profitable loans. Some lender partners, such as the Farm Credit System have specific policies to increase assistance to beginning and small farmers. In addition, lenders interested in expanding their territory must also consider the Community Reinvestment Act requirements which credits lenders for making loans to our target group.

Are independent and quality 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: As there are no independent evaluations that examine how well the program is accomplishing its mission and meeting its long-term goals, the program must receive a 'no' to this question. However, numerous reviews are conducted to evaluate program integrity and management. 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. In addition, more comprehensive studies are undertaken by USDA's Economic Research Service as warranted by Congressional mandates or Agency management. These reviews largely focus on loan portfolio performance and lender servicing.

Evidence: The National Internal Review completes an annual review of each County Office that processes guarantees. Biennially, the National Office completes a quality assurance review of every State Office. Every County Office has a County Office Review, on average, once every 4 years. These reviews are managed by independent offices with no credit responsibilities. In addition, management reviews are conducted as needed. On an ongoing basis, at least 20 percent of partners (lenders) files are reviewed annually to evaluate effectiveness and compliance with program requirements. As the agency has improved its strategic planning efforts, the program would benefit from a performance-focused review.

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: Long term goals include improved economic viability of farmers and ranchers, reduced loan losses, and targeted assistance to beginning and socially disadvantaged farmers. Demand for guaranteed loans is the major driver in the budget request, and increased loan levels would tend to improve economic viability of farmers. Reduced loan losses can be somewhat attributed to the requirements imposed on private lenders who participate in the guaranteed program, but not tied to funding levels. Guaranteed lenders are not required to meet the legislative targets to beginning and socially disadvantaged farmers as FSA is for direct loans. As required by FCRA and A-11, all administrative expenses associated with carrying out the government's portion of this program are budgeted within this program, then transferred to FSA's administrative expenses account.

Evidence: With respect to administrative expenses and budgeting for the entire cost of the program, there are supplemental back-up budget materials, as well as transfer documents issued each year for the transfer of funds from ACIF to the S&E account. Individual lenders are not required to meet specific targets for lending to beginning and Socially Disadvantaged (SDA) farmers, but FSA monitors statistics on a national basis.

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

Explanation: Annually, the strategic plan is reviewed and goals are modified, as necessary, to develop the most meaningful, realistic, and ambitious long-term performance goals. The Agency is currently evaluating an alternative outcome measure through the BPI process to more closely determine the guaranteed programs' impact on the economic viability of farmers.

Evidence: Deficiencies are identified during the annual review of performance and development of coming annual goals. Adjustments are made to improve strategic planning deficiencies. For example, the performance goal of "Reduce average processing time" has been modified to measure the time from receipt of an application until decision on the application. Previously, the measurement was from receipt of a "complete" application until decision on the application. This change increased accountability and should improve overall service.

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, on an ongoing basis, individual loan data that populates a database from which performance information is extracted. This database identifies loans to targeted individuals, to permit extracting data for this measure. Annual goals are reviewed monthly to measure progress towards achieving strategic goals and management initiatives. Monitoring this performance helps the Agency identify where to place additional emphasis or make improvements, as appropriate.

Evidence: Management reviews reports on an ongoing basis and identifies anomalies, then requests explanation or corrective action 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 3% for preferred lenders and 7% for certified lenders. If it is determined that a lender is not meeting its performance standards, the preferred or certified status is removed.

Are Federal managers and program partners (grantees, subgrantees, contractors, cost-sharing partners, etc.) held accountable for cost, schedule and performance results?

Explanation: Agency managers are responsible for implementing, improving, and monitoring program activities. Lender partners 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.

Evidence: Goals and performance reports are sent periodically to the management officials in the field, for review and action. Each State has performance goals to meet. These goals are passed to field office levels, by goal setting for individual offices. The ability to meet or not meet goals is often reflected in individual performance evaluations. Lender performance is considered when determining what lender status the lender will have. For example, lenders that operate as either preferred or certified lenders have to meet minimum loan origination and loss criteria in order to maintain their status, which provides added flexibility to originate and service loans.

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

Explanation: Agency monitors the timeliness of loan approval as a performance measure. The use of funds are monitored through internal reviews and management oversight. Funding is allocated and activity monitored constantly to insure optimum utilization of available funds.

Evidence: Accounting records which reflect loan purposes are maintained and audited. All funds are obligated prior to disbursement and validated to confirm compliance with the program's purpose. Obligation records indicate that less than 4 percent of the available funds remained unobligated at the end of FY 2002. The emphasis on rapid loan processing reduced time frames to less than 5 days, well below the 14 or 30 day statutory requirements. Because of this excellent performance, the goal was expanded in 2001 to include the time it takes for the lender to complete the application package. This measure is showing significant progress. There were no audit findings on erroneous payments, loss claims, or anti-deficiency violations in the last two audits.

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

Explanation: The agency has undertaken a number of initiatives to improve efficiencies and effectiveness of program execution. In FY 2004 FSA will begin centralizing a number of loan servicing functions to improve servicing efficiencies. The loan operations division is currently undergoing a competitive sourcing study to determine the most efficient organization. The results of the study will be available in October 2003. In addition, procedures are in place to measure and track specific program performance information. Goals are developed such as application processing and loss claims. The Guaranteed Loan System (GLS) was implemented in 2001 in partnership with Rural Development (RD) and provides many other measures of tracking performance such as defaults, loan restructuring, lender loss rates and loans to Socially Disadvantaged Applicants. Significant program changes implemented in February 1999 allowed front line managers and lenders to more efficiently process applications.

Evidence: Applications are processed more efficiently and in a shorter period of time through programs such as low-doc (small loans) and Preferred Lender Program (PLP), as evidenced through the Agency's loan processing timeliness measure. The time it takes to process guaranteed loans decreased from an average of 20 days to 16 days. GLS provides on line real time processing of transactions, online customized reports and reduced mailing costs. These reports are readily available at all times and can be customized according to needs.

Does the program collaborate and coordinate effectively with related programs?

Explanation: At the Federal level there are no other agencies that have the same specific goal and objective as FSA guaranteed loan programs. There is slight overlap with loan programs provided by the Small Business Administration (SBA). However, much of SBA's loans to farmers are to provide capital for farm-related businesses for which FSA cannot provide guaranteed loans. There are several State Governments that have established programs with goals and objectives similar to FSA's guaranteed loan program. While the dollar volume of farm loans provided through these State finance programs is relatively small, State farm loan programs may provide a significant amount credit to farmers in those states with active programs.

Evidence: FSA actively collaborates and coordinates activities with states and has memorandums of understanding with those states with an active farm loan program. ( MOU is authorized by Public Law 102-554 Section 5). These MOUs facilitate the establishment of joint financing arrangements between Sate Ag Finance Programs and FSA (guarantee) loan programs when providing credit to beginning farmers and ranchers.

Does the program use strong financial management practices?

Explanation: The farm loan program is executed in compliance with legislative, regulatory and authoritative administrative guidelines. Procedures are in place to safeguard payments through an automated appropriation accounting/fund control system.

Evidence: No material weaknesses were cited by auditors in the FSA Farm Loan Program 2002 financial statement audit. As of April 2003, the program has implemented software that will allow for final guaranteed loan loss claims to be reported directly to Treasury for offset. In addition, per FMFIA reports, there have been no material weaknesses reported in regard to FSA's guaranteed loans since 1998.

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

Explanation: Program management effectiveness is regularly reviewed through the National Internal Review (NIR) and the County Operations Review (COR) process and adjustments are made as needed. FSA has made progress with its eLoans initiative within USDA and in coordination with the other 4 major credit Agencies.

Evidence: Deficiencies are identified during the annual review of performance and development of coming annual goals. Adjustments are made to improve strategic planning deficiencies--for example, the performance goal of "reduce average processing time" was modified to measure the time from receipt of an application until decision on the application. Previously, the measure was from receipt of a "complete" application until decision on the application. This change increased accountability and should improve overall service. Comprehensive changes were implemented when the program was substantially revised in February 1999. Numerous program changes have been made as a result of identified deficiencies--for example, the program handbook is currently being revised to provide more specific criteria concerning what a lender review will consist of and what information must be provided to the Agency State Office program staff in order to maintain lender performance information. The eLoans initiative resulted in sound business cases for the major credit agencies.

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 credit standards are maintained. Every loan receives an underwriting review by Agency staff before the guarantee is issued, plus 20 to 40 percent of the lender's files are reviewed annually. Additionally, several internal review processes evaluate the credit process. Lenders submit semiannual status reports on each borrower and default reports if applicable. Lenders also must maintain loss and performance standards in order to maintain eligibility status. In 1999 the Electronic Funds Transfer System (EFT) was implemented to help eliminate the mailing time for sending disbursements to the lenders.

Evidence: Losses are relatively low. The Agency monitors lender performance through reports of field reviews, as well as loss and delinquency data. Lender strength is monitored through Thompson Prospector, a bank rating service. Seventy-nine percent of Guaranteed Loan disbursements are being made electronically. In addition, disbursements are now in the customer's account within 2 business days of the request instead of the standard 3-5 days from the paper-based check system.

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

Explanation: FSA changed the credit model used to calculate subsidy for guaranteed loans during FY 2001, which was applicable for reestimates of 2001 and 2002 actuals and for 2003 and 2004 budget formulation. Even taking into consideration the use of two different models, subsidy rates have been fairly consistent both across the years 1992 to 2002 and between formulation and reestimated rates for guaranteed loans within the same category.

Evidence: In the most recent reestimate, the change in subsidy rates between formulation and reestimated rates ranged from a low of 0.09 percentage points (operating unsubsidized, 2002) to a high of 5.04% points (operating subsidized 2001). While these numbers may sometimes result in considerable increases in the percent of change (not the number of percentage points), given the low subsidy rates, the differences are not that significant. Further, the reestimates for guaranteed loans passed OIG's audits in both 2001and 2002, the two years for which we have used the current model.

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

Explanation: FSA has made notable progress in achieving its long-term performance goals for this program. However, as stated in question 2.1, the program must develop an adequate measure to assess the long-term goal of "improving the financial viability of eligible farmers and ranchers." As this goal reflects the primary purpose of the program, the agency has received a "small extent" regarding its long-term progress, although in other areas the program has performed well.

Evidence: Reduced losses in the program indicate borrowers are experiencing greater success in meeting their financial obligations. The loss rate has been consistently declining for the last four years going from 1.0% in FY 1999 to 0.6% in FY 2002. FSA has also demonstrated progress in providing maximum financial and technical assistance to underserved groups, providing assistance in greater amounts than commercial lenders. FSA has been successful in consistently increasing the amount of loans to these groups, due in part to improved outreach and targeting efforts. In FY 1999, FSA loans to beginning and SDA farmers totaled $984.9 million or 24.8% of total obligations ($482.5 million guaranteed). This increased to $1.16 billion ($654.6 million guaranteed) (31.8%) in FY 2002.

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

Explanation: FSA has met its annual performance goals for this program: 1) maintain a low loss rate, 2) decrease average loan processing time and 3) maintain the percentage of guaranteed loans made to direct borrowers. While loss rates are used to measure progress over the longer-term, the agency also tracks loan loss rates on an annual basis. As stated in question 4.1, loss rates have declined.

Evidence: Annual Goal, 'Decrease the guaranteed loan program processing time': Since FSA's mission involves providing a safety net for America's farmers and ranchers, it is important that financial resources and other assistance are provided timely when the need arises. Target for 2002: 18 days The average processing time for guaranteed loans has decreased from 20 days in FY 2000 to 16.1 days in FY 2002. Resulting in a total decrease of 3.9 days. Annual Goal, 'Maintain the percentage of guaranteed loans made to direct borrowers': Graduating farmers from direct loans to guarantee loans is an indicator of their progress towards ultimately moving to commercial credit. Target: 33.0%. The percentage of guaranteed loans made to direct borrowers has been approximately 33% for the period of FY 1999 through FY 2002, which is consistent with the targets established for the program.

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

Explanation: A comprehensive streamlining effort in 1999 and since, which included programs such as low-doc (small loans) and Preferred Lender Program, has allowed front line managers and lenders to achieve steady improvement in loan processing efficiencies. Loss claims rates have declined significantly since FY 1999. The eLoans initiative identified several value-added and cost-cutting opportunities to improve program access and efficiencies. The Guaranteed Loan System, containing comprehensive improvements over the existing system, was implemented in 2001 in partnership with Rural Development. The Loan Operation Division, which is responsible for a large part of the guaranteed loan servicing, is currently undergoing a competitive sourcing study to determine the most efficient organization. The results of this study will be available in October 2003.

Evidence: Several joint Agency initiatives which were outlined in the USDA business case, including online loan application capability and online inventory property listing, have been implemented. Applications are processed in a shorter period of time as evidenced through the Agency's loan processing timeliness measure (decrease of 4 days). Loss claims, as a percentage of guarantee portfolio, have declined from 1.0 percent in FY 1999 to 0.6 percent in FY 2002. GLS provides on-line, real-time processing of transactions, on-line customized reports and reduced mailing costs. The Loan Operation Division is currently undergoing a competitive sourcing study.

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

Explanation: By and large program performance compares favorably with similar programs. However, without a long-term measure regarding the "economic viability" of the farm sector, it is difficult to assess whether the program is meeting this long-term goal. The program compares favorably with similar state and federal programs--although due to a number of distinctions make a direct comparison difficult. Most state programs provide lower guarantee levels, lower loan limits, and less stringent eligibility requirements. Many of the guaranteed loan programs administered by states have been in existence less than 5 years (Ohio, Missouri, and Texas). A meaningful comparison of performance between FSA and SBA agricultural loans is also difficult. Studies conducted by USDA's Economic Research Service have shown that SBA's focus is on borrowers which are more "commercially viable" than FSA borrowers. Also, SBA's agricultural loan data includes a broader category of loans than FSA. In recent years, over half of SBA's agricultural loan portfolio is for the financing of farm-related businesses, which FSA can not finance.

Evidence: Comparisons of Illinois data shows a similar level of losses for State and FSA loan programs. The historical loss rate on real estate loans to farmers made by commercial lenders and guaranteed by the Illinois Farm Development Authority has been 1.19 percent. Over the same time period, the loss rate for FSA guaranteed real estate loans was 0.81 percent. Reference material available. No evaluations have been conducted to evaluate performance on meeting the program's long-term goal of 'improving the economic viability of eligible farmers and ranchers.' Evaluations to date have largely focused on financial performance and portfolio management.

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

Explanation: As there have not been any recent nationwide audits by OIG or GAO and no evaluations have specifically looked at how well the program is accomplishing its mission and meeting its long-term goals it is difficult to assess whether the program is achieving results. However, other studies that are much smaller in scope, have found that in a number of areas the program is performing quite well. ERS has undertaken research studies showing that the FSA guaranteed loan program serves family-size farms that are more financially stressed and operated by younger and less wealthy farmers. Reviews have also assessed financial management and loan making/servicing activities, which greatly influence program effectiveness. These reviews are managed by independent offices within the agency with no credit responsibilities and focus on both county and state offices. The national compliance summary for FY 2002 indicates substantial compliance with achieving program objectives.

Evidence: Broyles, M. & S. Koenig. 'Minority Farmers and Their Finances.' Journal of Agricultural Lending (Fall 2002). Dodson, C. & S. Koenig. 'The Targeting of FSA's Guaranteed Farm Loan Program.' Journal of Agricultural Lending (Spring 2000). Settlage, L. et al. 'What is the Loss Experience for FSA's Guaranteed Farm Loans?' Journal of Agricultural Lending (Fall 2000).