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091752 1 (1970-08-07)

handle is hein.gao/gaobacwdi0001 and id is 1 raw text is: UNITED STATES GENERAL ACCOUNTING OFFICE WASHINGTON, D.C. 20548 CIVIL DIVISION AUG 7 1970 Dear Mr. Smith: As you know, the General Accounting Office is reviewing the manner in which the Farmers Home Admiinistration is carrying out its policies and procedures for determining the financial feasibility of rural water --and -sewer-projets. W-plan- t ur-review- d-emment a draft report summarizing the results of our review at a later date. The purpose of this letter is to apprise you of the circumstances surrounding one instance noted during our review of a water and sewer project in the State of Washington. In this case, FHA provided loan and grant assistance to a borrower who had adequate resources to qualify for credit from a source other than FHA. Section 306 of the Consolidated Farmers Home Administration Act of 1961, as amended (7 U.S.C. 1921) authorized FHA, among other things, to make water and sewer loans to a public or nonprofit association only when FHA determines that the association is unable to obtain sufficient credit elsewhere to finance its actual needs at reasonable rates and terms. The 1961 act provides also that FHA require a public or nonprofit association to refinance its FHA indebtedness whenever it can obtain a loan for such purpose from a responsible private.or cooperative lender at reasonable rates and terms. To ensure that FHA credit programs do not supplant or compete with suitable credit available from other reliable credit sources, FHA has issued a series of instructions which require county supervisors to make determinations regarding (1) the inability of loan applicants to obtain credit elsewhere and (2) the ability of borrowers to refinance their FHA indebtedness by obtaining loans from other sources of credit. In February 1966, the town of Cathlamet, Washington, received FHA approval for a $150,200 insured loan and a $94,200 grant to finance the construction of new facilities and improvements to the town's existing water system. After the town had received the funds, FHA State and county officials learned that it had substantial timber assets which could have been sold or used as collateral to obtain private financing. On June 27, 1968, the timber was sold by the town for $446,000. FHA State and county officials advised us that the loan and grant assistance to the town would not have been approved had they known that the town owned the timber.

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