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Rule2021-16459

Heirs' Property Relending Program (HPRP), Improving Farm Loan Program Delivery, and Streamlining Oversight Activities

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Published

August 9, 2021

Effective

August 9, 2021

Issuing agencies

Agriculture DepartmentFarm Service Agency

Abstract

The Farm Service Agency (FSA) is implementing a new Heirs' Property Relending Program (HPRP) authorized in the Agricultural Improvement Act of 2018 (the 2018 Farm Bill). HPRP provides loans to eligible entities to relend with the purpose of assisting heirs with undivided ownership interests resolve ownership and succession issues on farms that are owned in common by multiple heirs. The loan funds may be used by an ultimate recipient to purchase and consolidate fractional interests held by other heirs in jointly-owned property to pay for costs and fees associated with developing and implementing a succession plan, and to pay for costs associated with buying out fractional interests held in tenancy in common by other heirs in jointly-owned property to clear the title (for example closing costs, appraisals, title searches, surveys, preparing documents, mediation, and legal services). FSA is also amending the Farm Loan Programs (FLP) regulations to revise its rules related to loan making and servicing to improve program delivery and consolidate value-added oversight activities.

Full Text

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<title>Federal Register, Volume 86 Issue 150 (Monday, August 9, 2021)</title>
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[Federal Register Volume 86, Number 150 (Monday, August 9, 2021)]
[Rules and Regulations]
[Pages 43381-43397]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-16459]

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Rules and Regulations
Federal Register
________________________________________________________________________

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having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents.

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Federal Register / Vol. 86, No. 150 / Monday, August 9, 2021 / Rules
and Regulations

[[Page 43381]]

DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Parts 761, 762, 764, 765, 766, and 769

[Docket ID FSA-2021-0002]
RIN 0560-AI44

Heirs' Property Relending Program (HPRP), Improving Farm Loan
Program Delivery, and Streamlining Oversight Activities

AGENCY: Farm Service Agency, USDA.

ACTION: Final rule.

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SUMMARY: The Farm Service Agency (FSA) is implementing a new Heirs'
Property Relending Program (HPRP) authorized in the Agricultural
Improvement Act of 2018 (the 2018 Farm Bill). HPRP provides loans to
eligible entities to relend with the purpose of assisting heirs with
undivided ownership interests resolve ownership and succession issues
on farms that are owned in common by multiple heirs. The loan funds may
be used by an ultimate recipient to purchase and consolidate fractional
interests held by other heirs in jointly-owned property to pay for
costs and fees associated with developing and implementing a succession
plan, and to pay for costs associated with buying out fractional
interests held in tenancy in common by other heirs in jointly-owned
property to clear the title (for example closing costs, appraisals,
title searches, surveys, preparing documents, mediation, and legal
services). FSA is also amending the Farm Loan Programs (FLP)
regulations to revise its rules related to loan making and servicing to
improve program delivery and consolidate value-added oversight
activities.

DATES:
Effective date: August 9, 2021.
Comment due date: We will consider comments that we receive by
October 8, 2021.

ADDRESSES: We invite you to submit comments on the rule. You may submit
comments by either of the following methods, although FSA prefers that
you submit comments electronically through the Federal eRulemaking
Portal:
<bullet> Federal Rulemaking Portal: <a href="http://www.regulations.gov">http://www.regulations.gov</a> and
search for Docket ID FSA-2021-0002. Follow the instructions for
submitting comments.
<bullet> Mail: Md Mutaleb, Senior Loan Officer, Loan Making
Division, Deputy Administrator for Farm Loan Programs, FSA, U.S.
Department of Agriculture, 1400 Independence Avenue SW, Stop 0522,
Washington, DC 20250-0522. In your comment, specify Docket ID FSA-2021-
0002.
Comments will be available online at <a href="http://www.regulations.gov">http://www.regulations.gov</a>. A
copy of this rule is available through the FSA home page at <a href="http://www.fsa.usda.gov/">http://www.fsa.usda.gov/</a>.

FOR FURTHER INFORMATION CONTACT: Md Mutaleb; Telephone; telephone:
(202) 720-3168; email: <a href="/cdn-cgi/l/email-protection#2c4148024159584d40494e6c595f484d024b435a"><span class="__cf_email__" data-cfemail="1479703a7961607578717654616770753a737b62">[email&#160;protected]</span></a>. Persons with disabilities
or who require alternative means for communication should contact the
USDA Target Center at (202) 720-2600 (voice).

SUPPLEMENTARY INFORMATION:

Background of HPRP

FSA is implementing HPRP as authorized in section 5104 of the 2018
Farm Bill (Pub. L. 115-334), codified in 7 U.S.C. 1936c. FSA will loan
funds to eligible entities, including cooperatives, credit unions, and
nonprofit organizations certified to operate as a lender, to serve as
intermediaries that will relend the funds to individuals and entities
for purposes that assist heirs with undivided ownership interests to
resolve ownership and succession issues on a farm that has multiple
owners (commonly referred to as ``Heirs' Property'').
In developing HPRP, FSA relied heavily on the design of Rural
Development's (RD) relending programs, which have a long history of
success, including the Intermediary Relending Program (IRP) found in 7
CFR part 4274. FSA considers the IRP to be a successful relending
program and a good model for achieving the goals of HPRP. In developing
HPRP, FSA relied on RD's rules, forms, and framework as a model for
establishing a relending program, while adapting provisions to ensure
they were workable for HPRP's intermediaries and ultimate recipients.
FSA considers heirs' property to be land that has been passed down
to subsequent generations via intestate succession (that is, without a
will) or via a will that divides real estate assets equally among all
heirs. When a landowner dies without a last will and testament or
estate plan, state law determines which heirs or classes of family
members inherit the land of the deceased, and the ownership share for
each heir.
This form of property ownership results in the land being owned in
common by all heirs-at-law, each of which owns a fractional interest in
the land. As a result, the absence of clear title prevents the owners
who farm the land and pay real estate taxes from gaining access to the
legal, financial, and managerial transactions needed to effectively
manage the land.
FSA is amending 7 CFR part 769 to designate the regulations for the
Highly Fractionated Indian Land Loan Program as subpart A, and to add
subpart B to specify the requirements for HPRP.
FSA is adding definitions for the terms ``Heirs' Property,'' ``HPRP
Loan Agreement,'' ``HPRP Loan Funds,'' ``HPRP Revolving Loan Fund,''
``Intermediary,'' ``Revolved Funds,'' ``Succession Plan,'' ``Ultimate
Recipient,'' and ``Undivided Ownership Interest'' relating to HPRP to 7
CFR 761.2.
This rule implements HPRP in order to provide a way for heirs to
obtain assistance resolving property issues through intermediaries.

Administrative and National Policy Requirements

Intermediaries will request demographics data from ultimate
recipients on race, sex (gender), and ethnicity (national origin). The
response to the data request will be voluntary. Intermediaries will
maintain the data when voluntarily submitted to them by the ultimate
recipients. Race and ethnicity data will be collected in accordance
with the OMB notice published in the Federal Register on October 30,
1997 (62 FR 58782-58790), ``Revisions to the Standards for the
Classification of Federal Data on Race and Ethnicity'' and Title VI of
the Civil Rights Act of 1964 (42 U.S.C. 2000d-1-

[[Page 43382]]

2000d-7). Sex (gender) data will be collected in accordance with Title
IX of the Education Amendments of 1972 (20 U.S.C. 1681-1688). The
intermediary does not need to submit these documents with the
application, but will need to make these documents available when
requested by FSA. See the Paperwork Reduction Act section below for
more information.
HPRP is subject to environmental compliance provisions, which are
specified in 7 CFR part 799. Therefore, each intermediary is required
to provide FSA with documentation of its process to address
environmental issues.

Ultimate Recipient

An ultimate recipient is an individual or entity that receives a
loan from an intermediary's HPRP revolving loan fund. The eligibility
requirements of an ultimate recipient are specified in 7 CFR part 769
and mirror the requirements that are specified in 7 U.S.C. 1936c. As
authorized by 7 U.S.C. 1936c(e)(3), individual heirs and entities who
have an undivided ownership interest in a farm that are willing to
complete a succession plan as a condition of the loan are eligible to
be an ultimate recipient of HPRP loan funds. The intent of HPRP is to
help families resolve titles issues on heirs' property. To ensure the
HPRP loans are used for this purpose rather than by investors to
acquire land, FSA has specified the requirement that an ultimate
recipient must be a family member or heir-at-law related by blood or
marriage to the previous owner of the real property.

Intermediaries

As specified in 7 U.S.C. 1936c(c), HPRP provides loan funds to
intermediaries who will re-lend loan funds to individuals and entities
with undivided ownership interests in order to resolve ownership and
succession issues relating to a farm owned in common by multiple
owners. To address these issues, FSA has determined that HPRP loan
funds may be used for the following:
<bullet> To buy out fractional interests held in tenancy in common
by other heirs in jointly-owned property, and
<bullet> To pay for costs associated with developing and
implementing a succession plan (such as closing costs, appraisals,
title searches, surveys, preparing documents, mediation, and legal
services).
After researching the heirs' property issue, FSA believes these
loan purposes will help ultimate recipients resolve title issues by
financing the purchase of property interests and paying to finance the
many related costs associated with implementing a succession plan.
In 7 CFR part 769, and as specified in 7 U.S.C. 1936c(b), FSA
requires that the intermediary have experience working with socially
disadvantaged or beginning farmers. As 7 U.S.C. 1936c(d) requires,
preference is given to intermediaries with not less than 10 years'
experience serving socially disadvantaged farmers and ranchers and is
also given to intermediaries located in states that have adopted a
statute consisting of an enactment or adoption of the Uniform Partition
of Heirs Property Act.
Under 7 CFR 769.156, intermediaries are required to determine the
rates, terms, and payment structure for loans to ultimate recipients in
an amount sufficient to cover the cost of operating and sustaining the
revolving loan fund; and must clearly and publicly disclose the loan
terms and conditions to qualified ultimate recipients. FSA will review
the annual monitoring reports of intermediaries, as well as provide
oversight of the intermediary's loan processes and procedures.

Use of HPRP Loan Funds

The HPRP funds can only be used for the purposes specified in 7 CFR
769.154 and as explained above.
Loan limitations are specified in 7 CFR 769.155. FSA is
establishing maximum limits for loans to intermediaries and ultimate
recipients to help manage risk and ensure funds are available for
multiple intermediaries. For ultimate recipients, FSA is establishing
maximum limits to help ensure that loans are used by family farms
rather than larger entities. For each application period, loans to
intermediaries will not exceed $5 million for each intermediary, and
loans to ultimate recipients will not exceed the loan limit for a
Direct Farm Ownership loan as specified in 7 CFR 761.8(a)(1)(i) (which
is currently $600,000).
In 7 CFR 769.156, the rates and terms for HPRP loans are specified.
For loans to intermediaries, the FSA Administrator will set the
interest rate as a fixed rate over the term of the loan of 1 percent or
less; the repayment term for HPRP loans will not exceed 30 years; and
annual payments will be established. For loans to ultimate recipients,
the interest rate will be set by the intermediary within the limits
established by the intermediary's relending plan approved by FSA; and
the repayment period may not exceed 30 years.

Intermediary's Relending Plan

FSA will provide flexibility to the intermediary to develop a
relending plan to be approved by FSA that governs the use of the HPRP
revolving loan fund. The relending plan must be approved by FSA prior
to closing the initial HPRP loan to the intermediary and must include a
detailed explanation of the intermediary's fund administration policies
and procedures, and planned use of the HPRP revolving loan fund after
the funds in the revolving loan fund have revolved. The required
elements of the relending plan are specified in 7 CFR 769.157; and the
relending plan must contain, in detail, the policies and procedures
that the intermediary must follow with respect to the HPRP loan.
The rates, terms, and payment structure for loans approved by an
intermediary to an ultimate recipient must be an amount sufficient to
cover the cost of operating and sustaining the revolving loan fund; and
must be clearly and publicly disclosed to qualified ultimate
recipients. In addition, the proposed rates, terms, and payment
structure of any loan made by the intermediary to an ultimate recipient
must be reasonable and prudent considering the purpose of the loan,
expected repayment ability of the ultimate recipient, the useful life
of the collateral, and must adhere to the terms of the approved HPRP
loan agreement.

Processing HPRP Loan Applications

The opening and closing date for the HPRP application submission
will be announced in a notice in the Federal Register. The initial
application period will open August 30, 2021 and will close on October
29, 2021. If funds are not sufficient to fully fund all approved
applications from intermediaries, 7 CFR 769.159 specifies the
priorities used to allocate loan funds to intermediaries. In 7 U.S.C.
1936c(e), it specifies that intermediaries with not less than 10 years'
experience serving socially disadvantaged farmers and ranchers, and
that are located in states that have adopted a statute consisting of an
enactment or adoption of the Uniform Partition of Heirs Property Act
will receive first priority. After funding has been provided to those
listed in 7 U.S.C. 1936c(e), FSA will then give priority to
intermediaries that have applications from ultimate recipients already
in process, or intermediaries that have a history of fully relending
previous HPRP funds. Multiple applications in the same priority tier
will be processed based on the date received. Finally, any

[[Page 43383]]

remaining eligible applications will be funded based on the date
received.

HPRP Loan Agreement

An HPRP loan agreement must be executed by the intermediary and FSA
at loan closing for each loan. The HPRP loan agreement will specify the
terms of each loan (such as the loan amount, interest rate, term and
repayment schedule, disbursement procedure, provisions for late
charges, provisions regarding default, and insurance requirements). As
a condition of receiving HPRP funds, the intermediary agrees to seek
prior written approval from FSA before making changes to its articles
of incorporation, charter, by laws, draft loan documents, security
policy, or relending policies when any of these are related to HPRP
loans. In addition, 7 CFR 769.165 states that the intermediary must
agree to maintain a separate ledger and segregated account for the HPRP
revolving loan fund; comply with FSA's annual monitoring reporting
requirements on HPRP activities; and pledge the HPRP revolving loan
fund and any other form of security that FSA may require.

HPRP Revolving Loan Fund

Primary security for HPRP will be in the form of a first lien on
the intermediary's HPRP revolving loan fund. Additional security will
be required if needed to fully secure the loan.
The intermediary will be required to establish a revolving loan
fund that must be maintained for as long as an HPRP loan to an
intermediary remains unpaid. All HPRP loan funds received by an
intermediary must be deposited into an HPRP revolving loan fund account
to be used by the intermediary to provide direct loans to eligible
ultimate recipients. Such accounts must be fully covered by Federal
deposit insurance or fully collateralized with other securities in
accordance with normal banking practices and all applicable State laws.
Maintenance requirements of the revolving loan fund are specified in 7
CFR 769.164.

Post Award Requirements

FSA determined that annual monitoring reports would be both
necessary for the success of HPRP and to ensure intermediaries'
compliance with HPRP rules; therefore, FSA will require the
intermediary to provide reports that include a description of the use
of loan funds, information regarding the acreage, the number of heirs
both before and after loan was made, audit findings, disbursement
transactions, and any other information required by FSA.

Transfer and Assumption of HPRP Loans

As specified in 7 CFR 769.166, FSA will allow for transfer and
assumptions of the HPRP loans if an intermediary must discontinue
participation in HPRP.

Background of Improving Farm Loan Program Delivery and Streamlining
Oversight Activities

The Consolidated Farm and Rural Development Act (CONACT) (7 U.S.C.
1921-2009cc-18) authorizes FSA's Direct and Guaranteed Farm Loan
Programs. FSA makes and services a variety of direct and guaranteed
loans to farmers who are unable to obtain private commercial credit
with reasonable rates and terms. FSA also provides direct loan
borrowers with credit counseling and oversight. FSA loan applicants are
often Beginning Farmers (BF) and Socially Disadvantaged (SDA) farmers
who do not qualify for conventional loans because of insufficient net
worth, or established farmers who have suffered financial setbacks due
to natural disasters or economic downturns.
This rule streamlines and consolidates to improve program delivery,
to improve the oversight of direct loan servicing activities, and to
eliminate requirements that are costly, repetitive, or do not further
the program's goals. These changes will reduce burden on farmers,
ranchers, and FSA staff.
The loan making and servicing revisions included in this rule are
intended to improve delivery of farm loans. More specifically, as
explained in further detail below, this rule:
<bullet> Corrects the spelling of ``down payment'' throughout the
regulations;
<bullet> Revises the family farm definition to ensure applicants
are the operator of a farm;
<bullet> Adds a definition of non-monetary default.
<bullet> Authorizes the use of appraisals completed within the
previous 18 months for loan making and servicing actions;
<bullet> Provides additional guidance on the use of supervised bank
accounts;
<bullet> Modifies operating plan development rules to authorize
realistic county or state average yields to be used in place of actual
producer yields during disaster years;
<bullet> Modifies the requirement to verify applicant debts for
loan program participants;
<bullet> Clarifies that entity members holding at least 50 percent
interest in the entity must be the owners and operators of the farm;
<bullet> Clarifies that costs associated with compliance of the
Occupational Safety and Health Act of 1970 are an eligible use of
guaranteed Operating Loan (OL) funds;
<bullet> Corrects an existing cross reference to crop insurance
regulations;
<bullet> Revises direct loan application review and response
timeframes;
<bullet> Exempts non-essential assets valued up to $15,000 from
being pledged as security for direct loan applicants;
<bullet> Authorizes fixtures as an authorized use of funds for
direct operating loans;
<bullet> Authorizes an annual OL and Emergency Loan (EM) to carry a
repayment term of 24 months;
<bullet> Authorizes a waiver of previously required borrower
training requirements;
<bullet> Eliminates obsolete supervisory language and replaces it
with language to better reflect FSA's current resources and mission;
<bullet> Ties the assessment to the frequency of required
classification or graduation reviews;
<bullet> Eliminates year end analysis requirement for borrowers who
received a direct loan, chattel subordination, or primary loan
servicing action during the previous year;
<bullet> Changes the limited resource review requirement from
annually to every 2 years;
<bullet> Adds sole member LLCs to the protections for borrowers
entering the armed forces;
<bullet> Prohibits large-scale surface leases for non-agricultural
purposes;
<bullet> Eliminates appraisal requirement on release of property
without monetary consideration where FSA is well secured;
<bullet> Raises the estimated value for the appraisal requirement
from $25,000 to $50,000;
<bullet> Increases the processing time for Primary Loan Servicing
applications from 60 days to 90 days when a real estate appraisal is
required; and
<bullet> Allows a borrower to accept a non-writedown offer and
waive the need for a writedown offer when an appraisal would be
required for the writedown offer.

Spelling of ``Down Payment''

Currently, the regulations use the term ``downpayment'' as one word
in twelve locations. As ``downpayment'' is a misspelling, this rule
corrects the term to ``down payment'' as two separate words.

Family Farm Definition

Eligibility criteria for most direct and guaranteed farm loans
requires an applicant to operate a ``family farm.''

[[Page 43384]]

The definition of a ``family farm'' is provided in 7 CFR 761.2(b).
It is commonly understood that the borrower themselves will provide
substantial labor and make the majority of daily operating decisions
and all strategic business decisions associated with the operation.
However, the existing definition allows operational inputs to be
provided by the borrower and relatives, with no delineation as to how
much management or labor is specifically expected of the borrower or
the relative. This can result in an individual obtaining a farm loan
with the intention of having a relative operate the farm for all
practical purposes, essentially relegating the borrower to a minor
role.
This rule amends the definition of ``family farm'' to close the
unintended loophole that would create a scenario where the borrower has
only a minor role in actually operating the farm, while maintaining the
ability of a borrower to rely on management and labor input from
relatives. Specifically, this rule amends the definition of ``family
farm'' to require the borrower to be the one to provide the required
substantial labor, and make the majority of daily operating decisions,
and all strategic management decisions; while the relatives can provide
input and assistance with both the labor to operate the farm and daily
operating and strategic management decisions.

Addition of Non-Monetary Default Definition

FSA is adding the definition of ``non-monetary default'' to the
general program definitions in 7 CFR 761.2. Previously, certain FSA
documents contained this definition, and FSA is incorporating it into
its regulations. No change is being made to the definition.

Use of Appraisals Issued Within 18 Months

Appraisals of proposed real estate loan security are necessary to
ensure farm loans are adequately collateralized. Currently in 7 CFR
761.7, an appraisal can be relied upon to determine security values if
it was completed within the previous 12 months and if market values
have remained stable since the original appraisal was completed.
Many applicants apply for additional loan making or servicing
benefits at the end of a crop year, typically within 12 to 18 months of
when initial loan benefits were obtained. If subsequent loan making or
servicing benefits require appraised values of real estate collateral,
an updated appraisal typically needs to be obtained as the original
appraisal was completed more than 12 months prior. This results in
significant additional time and cost to obtain an updated appraisal
that often results in only minor changes in value.
This rule amends 7 CFR 761.7(c) and 766.202(a) to allow the use of
real estate appraisals completed within the previous 18 months if FSA
determines market values have remained stable.

Supervised Bank Account Guidance

Supervised bank accounts are accounts with financial institutions
established through a deposit agreement entered into between the
borrower, FSA, and the financial institution. To ensure direct loan
funds are used for authorized purposes, 7 CFR 761.51(a) describes the
various uses of a supervised bank account.
This rule amends 7 CFR 761.51(a) to memorialize the current
practice in the regulation and specify additional common uses of
supervised bank accounts that are currently described in administrative
handbook guidance including construction and site development work, and
sale of basic security.

Substituting Realistic County or State Yields To Develop Operating
Plans

Projected yields used to develop farm operating plans for direct
loans are typically calculated using the applicant or borrower's own
production history for the previous 3 years. Currently, if an applicant
for a direct loan has historical yields in the previous 3 years that
are substantially affected by a qualifying declared disaster, 7 CFR
761.104(c)(4)(i) allows the applicant or borrower to choose to use
county or state average yields in place of their actual disaster year
yields when developing a farm operating plan.
While the existing rule often ensures reasonable and accurate yield
projections, substituting disaster year yields with county or state
average yields does not always result in the development of realistic
operating plans. While it is particularly rare, it can occur when
county or state average yields are higher than an applicant's yields in
non-disaster years.
Section 331E(a) of the CONACT (7 U.S.C. 1981e(a)), requires farm
operating plans be based on accurate projections. To ensure accurate
plans are developed, this rule amends 7 CFR 761.104(c)(4)(i) to allow
for the use of county or state yields only when those yields are
realistic and reasonable compared to an applicant's actual non-disaster
year yields.
If the agency approval official determines the county or state
yields are not realistic and reasonable compared to an applicant's
actual non-disaster year yields, the applicant or borrower may no
longer exercise the provision in 7 CFR 761.104(c)(4)(i), but may
continue to exercise the provision in 7 CFR 761.104(c)(4)(ii),
authorizing the exclusion of the production year with the lowest actual
or county average yield if their yields are affected by disasters in at
least 2 of the 3 years.
This amendment will help ensure the success of an applicant or
borrower by ensuring the development of farm operating plans based only
on realistic and reasonable yield projections.

Loan Debt Verification

Guarantee loan applications and direct loan debt settlement
applications require verification of all applicant debts over $1,000.
However, direct loan making applications require verification of all
applicant debts over $5,000. The direct loan making program increased
this threshold from $1,000 to $5,000 administratively in November 2020
as regulations governing the direct loan program do not identify the
dollar threshold for requiring debt verifications.
To ensure consistency among loan programs, this rule amends 7 CFR
761.405(a)(6), 762.110(d) and 762.145(b) to allow FSA to
administratively establish the minimum threshold for debt verification
on guaranteed loans. FSA is setting the threshold at $5,000 initially
to be consistent with the direct loan making program. This change will
improve program delivery by reducing the time required for an applicant
to complete an application and reducing the time required by FSA to
analyze an application. Program integrity will not be compromised as
all significant debts will continue to be verified, and credit reports
will continue to be obtained to verify debts of all sizes from lenders
reporting to credit bureaus.

Entity Owner and Operator Requirements

The entity owner-operator rules for direct and guaranteed farm
ownership loans are stated similarly and both have the same minor
inconsistency. The rules initially state that when entity members are
not related, the members holding a majority interest must own and
operate the farm. However, the rule subsequently states that members of
the farm entity (real estate) must own at least 50 percent of the
family farm (operating entity). As 50 percent ownership does not
constitute a majority, this minor inconsistency can cause confusion for
applicants who are unsure if they can own the farm

[[Page 43385]]

themselves if they only own 50 percent of the operating entity.
This rule amends 7 CFR 762.120(i)(2) and (j)(2), 764.101(k), and
764.152(c) to ensure the rules consistently state that members owning
at least 50 percent of the entity must own the farm.

Guaranteed Operating Loan Use of Funds

Direct and guaranteed operating loan funds may be used to cover the
costs associated with compliance with the standards established by the
Occupational Safety and Health Act of 1970 (OSHA). Under 7 CFR
764.251(a)(8), direct operating loan funds can be used for expenses
involving OSHA compliance if the applicant demonstrates that compliance
or non-compliance with the standards will cause substantial economic
injury.
This rule amends the guarantee operating loan use of funds
regulation in 7 CFR 762.121(a)(1)(ix) to match the regulation covering
direct operating loan use of funds in 7 CFR 764.251(a)(8).
Specifically, this rule adds the term ``or non-compliance'' to 7 CFR
764.121(a)(1)(ix) to clarify that the applicant may receive assistance
if they demonstrate that the cost of compliance or resolving ``non-
compliance'' with standards will cause substantial economic injury.
This provides applicants additional flexibility to demonstrate the need
for this assistance and encourages applicants to bring their operations
into compliance with OSHA standards.

Reference to Crop Insurance

This rule amends 7 CFR 762.123(2)(i) to correct a cross reference
to crop insurance requirements. The correct reference is 7 CFR 400.651.

Timeframes for Direct Loan Application Processing

Per 7 CFR 764.52(a), applicants for direct loan program benefits
currently wait up to 10 calendar days from the date of application
before they are notified whether their application for loan benefits is
complete, or what additional information is required in order to
complete the application. If additional information is required of the
applicant, FSA provides written notice to the applicants that they must
submit the information within 20 calendar days (see 7 CFR 764.52(a)).
Should outstanding items still remain at the end of that 20-day period,
7 CFR 764.52(b) requires that FSA provides the applicant with an
additional notification letter allowing for 10 additional days before
the application would be withdrawn due to a lack of information.
To improve customer service and reduce application processing
times, this rule amends 7 CFR 764.52(a) and (b) to reduce application
processing time from within 10 days to 7 days. FSA will review an
initial application for completeness, and provide an applicant two 15-
day opportunities to provide outstanding application items required to
make an application complete.
Applicants will still be provided a total of 30 days to submit
outstanding items for a complete application. However, modifying the
initial incomplete letter response date from 20 to 15 days, and
expanding the response timeframe of the second incomplete letter from
10 to 15 days, will result in improved processing timeframes as
applicants will often make concerted efforts to ensure an application
is completed within the timeframes provided in the initial response
letter.

Non-Essential Asset Security Requirements

To reduce FSA credit needs or other outstanding obligations, direct
loan applicants are required to liquidate or pledge non-essential
assets with an aggregate value of over $5,000. An applicant may choose
to not liquidate assets, and instead pledge the assets as security for
the loan. The intent behind this rule is that FSA is assisting only
those customers who truly require assistance.
This rule amends 7 CFR 764.103(e) to increase the allowable
aggregate value of non-essential assets to be maintained by the
borrower up to $15,000 without having to pledge those assets as
security. This adjustment is necessary to account for inflationary
increases value of goods and allow a reasonable amount of non-essential
assets to be retained.

Direct Operating Loan Use of Funds

Direct and guaranteed operating loan funds may be used to cover the
purchase of equipment, which sometimes can be construed as minor
fixtures to real property, including but not limited to, irrigation
equipment or small wind machines. While it is commonly understood that
mechanical equipment that are fixtures are eligible for both direct and
guaranteed operating loan purposes, currently only the guaranteed
operating loan rules specifically state fixtures are an authorized use
of funds.
This rule amends the direct operating loan use of funds regulation
in 7 CFR 764.251(a)(2) to memorialize the current practice in the
regulation by matching the rule covering guaranteed operating loan use
of funds in 7 CFR 762.121(a). Specifically, this rule adds the term
``or fixtures'' to 7 CFR 764.251(a)(2) to specify that farm equipment
or fixtures are an authorized use of direct operating loan funds.

Annual OL and EM Repayment Terms

Working capital requirements for farms have become increasingly
complex with the advent of new commodities, production techniques,
commodity storage technologies, and marketing systems. This has
resulted in earlier preparation and plantings and extended marketing
periods for a single crop. Currently, the repayment term of an annual
direct OL and annual EM loan may not exceed 18 months, unless there are
specific unusual circumstances and security other than the commodity
available to fully secure the loan. As a result, loans to producers who
would typically require an annual operating loan term of up to 24
months are limited to a term of just 18 months. This will sometimes
result in the producer being unable to repay a loan at maturity,
thereby requiring a restructure of their account to provide additional
time to repay the loan. This is an unnecessary administrative burden
for both the borrower and Agency.
This rule amends 7 CFR 764.254(b)(1) and 764.354(b)(3) to allow the
standard repayment term of an annual direct OL and annual EM to be up
to 24 months. This will ensure producers whose industry includes unique
commodities, technologies or marketing systems are not disenfranchised
from farm loan program benefits.

Borrower Training Waivers

Currently, unless previously completed, an applicant must agree to
financial and production training at the time of application. As
specified in 7 CFR 764.453, FSA may choose to waive training
requirements should the applicant's history suggest they have undergone
similar training, if training would not be beneficial to the applicant,
or if training is not available. Borrowers are required to complete
assigned financial or production training within 2 years from the date
of loan closing, with the possibility of a 1-year extension in certain
circumstances. However, a borrower cannot have previously required
training requirements waived.
There are numerous circumstances that might justify a waiver of
previously required borrower training. For example, a borrower may have
voluntarily completed training from a non-approved vendor that results
in demonstratable increased knowledge of and proficiency in financial
or production concepts. However, even if

[[Page 43386]]

it is clear the borrower will not benefit from an approved vendor's
training, there is no mechanism for FSA to provide a waiver of the
previously required training.
This rule amends 7 CFR 764.453 by adding a new provision to allow
FSA to waive previously required borrower training, if warranted, by
reviewing evidence already obtained from an applicant that demonstrates
the applicant now possesses experience and training necessary for a
successful and efficient operation.

Progression Lending

FSA is revising outdated provisions in the regulations.
Historically, FSA and its predecessor Agency, the Farmers Home
Administration, has used the term ``supervised credit'' to describe its
role as serving as a temporary source of credit for farmers and
ranchers unable to secure commercial credit, often beginning or
underserved famers, or those who suffered financial setbacks due to
adverse weather or economic conditions. FSA is seeking to modify this
long-term description of its role with more customer friendly language
that is reflective of our mission to serve as a temporary source of
credit and assist the borrower in graduating to commercial credit.
Therefore, FSA is replacing references to ``supervision''
throughout 7 CFR part 761 with the term ``progression lending'' or
similar pro-graduation terminology.

Assessment

Regulations at 761.103 provide FSA, in collaboration with the loan
applicant, will assess the farming operation to determine the
applicant's financial condition organizational structure, and
management strengths and weaknesses; identify and prioritize training
needs; and develop a plan to assist the applicant in transitioning to
commercial credit. As provided in 7 CFR 761.103(e), FSA reviews the
assesment annually to determine the borrower's progress. Additionally,
FSA classifies accounts as required by the Consolidated Farm and Rural
Development Act and reviews accounts classified as ``commercial'' or
``standard'' for graduation to commercial credit. The regulation in 7
CFR 761.103(e) is being revised to clarify that the assessment review
will be completed simultaneously with the classification or graduation
review every other year to improve the efficiency of interactions
between FSA and borrowers by minimizing the number of meetings required
to fulfill loan servicing requirements.

Year-End Analyses

The regulations in 7 CFR 761.105 require FSA to conduct a year-end
analysis (YEAs) if the borrower has received any direct loan (except
for streamlined Conservation loans), chattel subordination, or primary
loan servicing action within the last year. In order to better manage
the limited time resources of FSA staff, FSA is revising 7 CFR 761.105
to eliminate the requirement to complete YEAs on chattel subordinations
that are current or paid in full and Primary Loan Servicing actions
successfully completed in the last year. FSA would continue to complete
YEAs on financially distressed or delinquent borrowers and on borrowers
with deferred loan payments. YEAs would also be required for existing
borrowers receiving new direct loans or new subordinations.

Limited Resource Reviews

The regulations in 7 CFR 761.51 require FSA to conduct a review of
each borrower receiving limited resource interest rates each year. Due
to low interest rates, limited resource interest rates have been higher
than the regular program interest rates, and have significantly reduced
the demand for limited resource rates over the last decade. Also, cash
flows for farming operations do not typically change significantly from
year to year. Therefore, FSA is amending 7 CFR 761.51 to require a
limited resource review every 2 years. This will reduce the workload
for the FSA field staff when interest rates rise again. Reviewing the
rates every 2 years will also tie in with the current classification
and graduation review requirements and permit FSA loan officials to
continue to monitor the borrower's progress, while reducing the number
of appeals.

Borrower Entering the Armed Forces

Section 332 of the CONACT states that a mobilized military
reservist is an ``individual;'' but FSA's regulations do not address
whether FSA considers sole member operating entities to be individuals
for the purposes of section 332 of the CONACT. FSA is amending the
regulations by adding a new 7 CFR 765.161 to specify that a sole member
operating entity falls under the protections provided by section 332 of
the CONACT.

Surface Leases

The regulations in 7 CFR 765.252 address surface and mineral
leases, but do not specifically address large scale surface leases for
non-agricultural purposes, such as solar farms, that take many acres
out of agriculture production. FSA is experiencing increased demand for
these types of leases from borrowers, which remove large tracts of land
from agricultural production. This can significantly impact the market
value of FSA loan security, including the value of non-farm tracts and
can potentially place the borrower in non-monetary default for not
farming the loan security. FSA is amending 7 CFR 765.252 to prohibit
leases for purposes such as developing a solar farm. Leases for nonfarm
purposes which do not require acreage to be taken out of agricultural
production or on non-productive land may be considered.

Release Without Compensation

The regulations in 7 CFR 765.351 allow FSA to release collateral
without monetary consideration in cases where the agency is well-
secured, and the borrower has not had a disaster set-aside or primary
loan servicing in the previous 3 years. The regulation states that the
value of retained and released security will be evaluated. FSA is
amending 7 CFR 765.351 to eliminate the appraisal requirement on the
property being released. This will reduce workload on field offices,
improve customer service by reducing the time it takes to process
releases, and result in cost savings to the Government since FSA pays
for these appraisals.

Appraisal Waiver

The regulations in 7 CFR 765.353 permits FSA to waive an appraisal
requirement when the estimated value is less than $25,000. This waiver
has been in place since 2004. With inflation, the value of the $25,000
is now $34,000. In addition, there is a considerable amount of
comparable sale information available to allow loan officials to obtain
an accurate estimate of property value. FSA is amending 7 CFR 765.353
to increase the limit to $50,000. The amendment will improve customer
service by reducing the time it takes to process releases. More
importantly, it will provide significant cost savings to the Government
since FSA pays for these appraisals.

PLS Notification Timeframe

CONACT section 353(c)(4) provides FSA with 90 days to process
primary loan servicing (PLS) and to notify borrower of its decision.
Primary loan servicing includes debt consolidation, restructuring,
reamortization, deferral, and debt writedown. The regulations in 7 CFR
766.106 reduced the PLS processing timeframe to 60 days. Increasing the
timeframe to 90 days for cases where a real estate appraisal is

[[Page 43387]]

required (typically for debt writedown or conservation contract) will
permit the local FSA agency official an additional 30 days to complete
PLS processing. Real estate appraisals often take weeks to obtain,
which causes delay to the final PLS decision. Therefore, FSA is
amending 7 CFR 766.106 to increase this timeframe to 90 days when a
real estate appraisal is required.

Writedown and Non-Writedown Offers

The regulations in 7 CFR 766.111 require that a borrower be offered
both a writedown and non-writedown restructuring offer when both result
in a feasible plan, even though the writedown offer can take longer to
develop and requires additional appraisals. Often, the borrower does
not request the writedown consideration since it results in debt
forgiveness and can negatively impact eligibility for future loan
assistance. Because FSA is required to complete the appraisals to
determine a writedown amount, in many cases unnecessary time and
expense is incurred for this process to be completed. As a result, FSA
is amending 7 CFR 766.111 to allow the borrower to waive the writedown
offer when the non-writedown offer results in a feasible plan. The
change will result in a significant savings of FSA time and cost of
obtaining appraisals in instances where the borrower does not request a
writedown. FSA will discuss the alternatives with the borrower and will
consider a writedown if desired. This modification will allow borrowers
to make an informed decision regarding a writeddown and limitations
established by Section 355 of the CONACT which only allows a borrower
one writedown, not to exceed $300,000.

Notice, Comment, and Effective Date

The Administrative Procedure Act (5 U.S.C. 553) provides that the
notice and comment and 30-day delay in the effective date of the
provisions do not apply when the rule involves a matter relating to
agency management or personnel or to public property, loans, grants,
benefits, or contracts (5 U.S.C. 553(a)(2)). This rule involves loans
and therefore falls within that exemption. In addition, because this
rule is exempt from the requirements in 5 U.S.C. 553, is it also exempt
from the regulatory analysis requirements of the Regulatory Flexibility
Act (5 U.S.C. 601-612), as amended by the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA). The requirements for the
regulatory flexibility analysis in 5 U.S.C. 603 and 604 are
specifically tied to the agency being required to issue a proposed rule
by section 553 or any other law, further, the definition of rule in 5
U.S.C. 601 is tied to the publication of a proposed rule.
This rule is not a major rule for purposes of the Congressional
Review Act; therefore, FSA is not required to delay the effective date
for 60 days from the date of publication to allow for Congressional
review. Consequently, this rule is effective upon publication in the
Federal Register.

Executive Orders 12866 and 13563

Executive Order 12866, ``Regulatory Planning and Review,'' and
Executive Order 13563, ``Improving Regulation and Regulatory Review,''
direct agencies to assess all costs and benefits of available
regulatory alternatives and, if regulation is necessary, to select
regulatory approaches that maximize net benefits (including potential
economic, environmental, public health and safety effects, distributive
impacts, and equity). Executive Order 13563 emphasized the importance
of quantifying both costs and benefits, of reducing costs, of
harmonizing rules, and of promoting flexibility. The requirements in
Executive Orders 12866 and 13573 for the analysis of costs and benefits
to loans apply to rules that are determined to be significant.
The Office of Management and Budget (OMB) designated this rule as
significant under Executive Order 12866, and therefore, OMB has
reviewed this rule. The costs and benefits of this rule are summarized
below. The full cost benefit analysis is available on <a href="http://regulations.gov">regulations.gov</a>.

Cost Benefit Analysis Summary

HPRP assists in the resolution of heirs' property issues through
intermediary lenders (experienced non-governmental non-profit
organizations). HPRP assists intermediary lenders in the establishment
of revolving funds for the purpose of financing owners of heirs'
property seeking to resolve land titles.
The benefits are derived from clearly identifying the titles or
deeds \1\ to agricultural land by assisting with legal services and
providing funding for heirs to buy out other heirs' interest in jointly
held land, resulting in improved participants' financial standing.
Landowners with a clear title will have greater access to credit and
will be able to more easily participate in Federal and State farm and
conservation programs, leading to increased land values. The net
benefit of HPRP is estimated using a present value analysis of the
beneficial cash flows for an average program participant. This estimate
is then summed over the total number of heirs' properties traditionally
used for agriculture in Uniform Partition of Heirs Property Act states.
---------------------------------------------------------------------------

\1\ ``In real property law: Title is the means whereby the owner
of lands has the just possession of his property. Co. Litt 345; 2
Bl. Comm. 195. Title is the mean whereby a person's right to
property is established. Code Ga. 1S82.'' (Black's Law Dictionary).
Proof of title to land is usually shown by a deed filed in real
estate records in the county where the land is located. ``Clear
title'' means that there is no competing claim of ownership or
interest in the property--that is, no other person or entity can
claim a superior right of ownership or financial interest in the
property.
---------------------------------------------------------------------------

Over the course of a 20-year period, when all the estimated impacts
of HPRP are summed up, there are a little over $1.109 billion in
benefits compared to total costs of $869 million for a total net
benefit of $239.7 million.

Economic Benefit and Cost of HPRP to USDA
[In millions]
------------------------------------------------------------------------

------------------------------------------------------------------------
Total Benefits.......................................... $1,108.7
Total Costs............................................. (869.0)
Net Benefit of HPRP..................................... 239.7
------------------------------------------------------------------------

Heirs' property values are expected to be restored to fair market
value resulting in a benefit of $365 million that includes a $209
million effect to access to direct government payments that accrue
primarily to socially disadvantaged landowners (see table below). The
increase in credit made available from the ability to collateralize the
market value of heirs' property is estimated to lead to incremental
cash flows in farm income worth a little over $122 million. In
addition, clear title allows increased opportunity for enrollment in
farm programs, which has

[[Page 43388]]

a direct value of almost $299 million. The legal costs and interest
charges on the loans used to pay them reduce this amount by almost $295
million. Additionally, untitled co-tenants, who are typically family
members of the heir gaining title, gain $171 million when they are
bought out. However, this is also a cost to the titled heir and so has
a neutral effect on the participants' costs and benefits. Therefore,
net expected benefits to HPRP participants are estimated at $654
million.
Net benefits of nearly $133 million also accrue to the intermediary
lenders. This results from $158 million in returns to lending minus $25
million in servicing and marketing costs.
Costs to the Federal Government are estimated to be $547 million,
but $508 million are direct Farm Program payments and their impact on
the sales value of properties that are transfers from a society-wide
perspective (included in the table below as both a benefit and a cost
of HPRP, so they become a net cost of zero). Actual program costs to
the Federal Government are estimated to be only $39 million over 20
years. This includes the 20 years of appropriations and administrative
costs of HPRP. When all costs are considered, the net benefit of HPRP
is estimated to be $240 million.

Economic Benefit and Cost of HPRP Life of Program (20 Years) by
Stakeholder
[$ millions]
------------------------------------------------------------------------

------------------------------------------------------------------------
HPRP Participants
------------------------------------------------------------------------
Benefits:
Restoration of Sales Value (without USDA payments).. $147.3
Net Increase in Sales Value of Properties due to 209.1
USDA payments......................................
Increase in Net Farm Income (without USDA payments). 122.4
Benefit to Untitled Co-tenants from Buy-outs........ 170.9
Direct Government Payments.......................... 298.6
---------------
Total Benefits.................................. 948.3
Costs:
Legal Services...................................... (117.9)
Purchasing Interests of Co-tenants.................. (170.9)
Loan Application Paperwork.......................... (5.7)
---------------
Total Costs..................................... (294.5)
Net Expected Benefit............................ 653.8
------------------------------------------------------------------------
Intermediary Lenders
------------------------------------------------------------------------
Benefit--Returns to Loans............................... 157.6
Cost--Non-interest Expense.............................. (12.0)
Cost--Communication Expense............................. (12.6)
---------------
Net Expected Benefit................................ 133.0
------------------------------------------------------------------------
FSA
------------------------------------------------------------------------
Cost--Budget and Subsidy Costs.......................... (41.4)
Cost--Administrative Costs.............................. (0.8)
Benefit--Offset Returns to Loans........................ $2.8
Total--Administrative and Budget Costs.................. (39.4)
Transfer--Direct USDA Payments.......................... (298.6)
Transfer--Impact to Sales Value due to USDA payments.... (209.1)
---------------
Net Expected Cost................................... (547.1)
Net Benefit of HPRP............................. 239.7
------------------------------------------------------------------------

Separate from heirs' property considerations, the final rule also
streamlines and consolidates various loan-making processes, thereby
reducing unnecessary burdens on customers and FSA personnel. These
changes are minor and are not expected to affect budget considerations
associated with farm loan program lending authorities. As a result, no
further analysis of these changes is provided in the cost benefit
analysis for this rule.

Environmental Review

The environmental impacts of this final rule have been considered
in a manner consistent with the provisions of the National
Environmental Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations
of the Council on Environmental Quality (40 CFR parts 1500-1508), and
the FSA regulations for compliance with NEPA (7 CFR part 799). This
rule implements the new HPRP, as authorized by the 2018 Farm Bill.
The discretionary provisions needed to implement HPRP, specifically
those relating to FSA loans to the intermediaries include the loan
making and servicing rules. One discretionary provision that will not
mirror current FSA direct and guaranteed loan programs rules is that
implementation will be through an intermediary that will relend the
HPRP funds. HPRP funds may not be used for new development or change in
land use. All discretionary aspects of these loan actions are covered
by the Categorical Exclusions in 7 CFR 799.31(b).
FSA will continue to require site-specific reviews for each loan
application, as defined in Sec. Sec. 799.31, 799.32, and 799.33. As
such, FSA will not prepare an environmental assessment or environmental
impact statement for this regulatory action.

[[Page 43389]]

Executive Order 12988

This rule has been reviewed in accordance with Executive Order
12988, ``Civil Justice Reform.'' This rule will not preempt State or
local laws, regulations, or policies unless they represent an
irreconcilable conflict with this rule. The rule does not have
retroactive effect. The administrative appeal provisions of 7 CFR parts
11 and 780 are to be exhausted before any judicial action may be
brought regarding the provisions of this rule.

Executive Order 13175

This rule has been reviewed in accordance with the requirements of
Executive Order 13175, ``Consultation and Coordination with Indian
Tribal Governments.'' Executive Order 13175 requires Federal agencies
to consult and coordinate with Tribes on a Government-to-Government
basis on policies that have Tribal implications, including regulations,
legislative comments or proposed legislation, and other policy
statements or actions that have substantial direct effects on one or
more Indian Tribes, on the relationship between the Federal Government
and Indian Tribes or on the distribution of power and responsibilities
between the Federal Government and Indian Tribes.
The USDA's Office of Tribal Relations (OTR) has assessed the impact
of this rule on Indian Tribes and determined that this rule does have
Tribal implications. OTR has determined that Tribal consultation under
Executive Order 13175 is not required at this time and two different
opportunities were afforded to consult on this topic. If a tribe
requests consultation, FSA will work with OTR to ensure meaningful
consultation is provided where changes, additions, and modifications
identified in this rule are not expressly mandated by law. OTR strongly
suggests that the FSA Outreach plan be implemented as soon as possible
for our tribal stakeholders.
Tribal consultation for this rule was included in the 2018 Farm
Bill consultation held on May 1, 2019, at the National Museum of the
American Indian, in Washington, DC. The portion of the Tribal
consultation relative to this rule was conducted by Bill Northey, as
the USDA Under Secretary for the Farm Production and Conservation
mission area at that time, as part of the Title I session. There were
no specific comments from Tribes on this rule during Tribal
consultation.
There was a second Tribal Consultation on the Implementation of the
2018 Farm Bill held at the National Congress for the American Indian
conference on June 26, 2019, in Sparks, Nevada. This rule was not
raised as an issue by the Tribal leaders. Tribes can request
consultation at any time. FSA will work with OTR to ensure meaningful
consultation is provided where changes, additions, and modifications
identified in this rule are not expressly mandated by law.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandate Reform Act of 1995 (UMRA, Pub. L.
104-4) requires Federal agencies to assess the effects of their
regulatory actions on State, local, or Tribal governments or the
private sector. Agencies generally must prepare a written statement,
including a cost benefit analysis, for proposed and final rules with
Federal mandates that may result in expenditures of $100 million or
more in any 1 year for State, local, or Tribal governments, in the
aggregate, or to the private sector. UMRA generally requires agencies
to consider alternative methods and adopt the more cost effective or
least burdensome alternative that achieves the objectives of the rule.
This rule contains no Federal mandates under the regulatory provisions
of Title II of the Unfunded Mandates Reform Act of 1995 for State,
local, or Tribal governments, or the private sector. Therefore, this
rule is not subject to the requirements of sections 202 and 205 of
UMRA.

Paperwork Reduction Act

FSA expects to have fewer than 10 intermediary lenders eligible to
participate in HPRP annually. There are limited entities that will
qualify to be intermediary lenders for HPRP. Current appropriations
will not fund a significant number of intermediary lenders. Therefore,
HPRP would not require OMB approval under the Paperwork Reduction Act
of 1995 (44 U.S.C. 3501-3520). The annual monitoring reports and the
agreements approved by FSA that were discussed above will be provided
by the intermediary lenders. We will provide the USDA form for the
voluntary collection of race, ethnicity, and gender from the ultimate
recipients (form AD-2106, Form to Assist in Assessment of USDA
Compliance with Civil Rights Laws). As noted above, the intermediaries
will request the information and maintain it. The public burden for the
use of the form is covered under OMB control number 0503-0019.
The program delivery and oversight changes will not impact the
burden estimate for the information collection for FSA's farm loans.
Additionally, FSA will not be collecting any information from the
ultimate recipients who receive funds pursuant to Heirs' Property
Relending. There are application and reporting requirements on HPRP
activities from intermediaries to FSA. The intermediaries must allow
FSA to review the ultimate recipients' records; the intermediary's
records are expected to be a part of customary and usual business
practices for processing loans. Therefore, the burden associated with
recordkeeping is excluded. FSA will lend funds to an eligible entity,
which will then relend directly to an individual or an entity. The
intermediary lender will be an entity that meets certain criteria to be
established by FSA. Examples of such criteria include requirements that
the intermediary lender:
(1) Is certified as a community development financial institution
under 12 CFR 1805.201 (or successor regulations) to operate as a
lender; and
(2) Has the requisite experience and capability to make and service
agricultural and commercial loans that are similar in nature to HPRP.

Federal Assistance Programs

The title and number of each Federal Assistance Program found in
the Catalog of Federal Domestic Assistance, to which this rule applies,
are:
10.099 Conservation Loans;
10.404 Emergency Loans;
10.406 Farm Operating Loans;
10.407 Farm Ownership Loans; and
10.128 Heirs' Property Relending Program.

USDA Non-Discrimination Policy

In accordance with Federal civil rights law and U.S. Department of
Agriculture (USDA) civil rights regulations and policies, USDA, its
Agencies, offices, and employees, and institutions participating in or
administering USDA programs are prohibited from discriminating based on
race, color, national origin, religion, sex, gender identity (including
gender expression), sexual orientation, disability, age, marital
status, family or parental status, income derived from a public
assistance program, political beliefs, or reprisal or retaliation for
prior civil rights activity, in any program or activity conducted or
funded by USDA (not all bases apply to all programs). Remedies and
complaint filing deadlines vary by program or incident.
Persons with disabilities who require alternative means of
communication for program information (for example, braille, large
print, audiotape, American Sign Language, etc.) should contact the

[[Page 43390]]

responsible Agency or USDA TARGET Center at (202) 720-2600 (voice and
TTY) or contact USDA through the Federal Relay Service at (800) 877-
8339. Additionally, program information may be made available in
languages other than English.
To file a program discrimination complaint, complete the USDA
Program Discrimination Complaint Form, AD-3027, found online at <a href="https://www.usda.gov/oascr/how-to-file-a-program-discrimination-complaint">https://www.usda.gov/oascr/how-to-file-a-program-discrimination-complaint</a> and
at any USDA office or write a letter addressed to USDA and provide in
the letter all the information requested in the form. To request a copy
of the complaint form, call (866) 632-9992. Submit your completed form
or letter to USDA by mail to: U.S. Department of Agriculture, Office of
the Assistant Secretary for Civil Rights, 1400 Independence Avenue SW,
Washington, DC 20250-9410 or email: <a href="/cdn-cgi/l/email-protection#67282624271214030649000811"><span class="__cf_email__" data-cfemail="bef1fffdfecbcddadf90d9d1c8">[email&#160;protected]</span></a>.
USDA is an equal opportunity provider, employer, and lender.

List of Subjects

7 CFR Part 761

Accounting, Loan Programs--Agriculture, Rural areas.

7 CFR Part 762

Agriculture, Banks, Banking, Credit, Loan Programs--Agriculture.

7 CFR Part 764

Agriculture, Credit, Loan programs--Agriculture.

7 CFR Part 765

Agriculture, Agricultural commodities, Credit, Livestock, Loan
Programs--Agriculture.

7 CFR Part 766

Agriculture, Agricultural commodities, Credit, Livestock, Loan
Programs--Agriculture.

7 CFR Part 769

Loan program--Agriculture, Land.

For the reasons discussed above, FSA amends 7 CFR chapter VII as
follows:

PART 761--FARM LOAN PROGRAMS; GENERAL PROGRAM ADMINISTRATION

0
1. The authority citation for part 761 continues to read as follows:

Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.

Subpart A--General Provisions

0
2. Amend Sec. 761.2:
0
a. In paragraph (a), by adding an entry for the acronym ``HPRP'' in
alphabetical order; and
0
b. In paragraph (b):
0
i. By removing the definition of ``Downpayment loan'';
0
ii. By adding in alphabetical order a definition for ``Down payment
loan'';
0
iii. In the definition of ``Family farm'', in paragraphs (2)(i)(A) and
(2)(ii)(A), by removing the words ``borrower and'' and adding
``borrower, with input and assistance allowed from'' in their place;
and
0
iv. By adding in alphabetical order definitions for ``Heirs'
property''; ``HPRP loan agreement'', ``HPRP loan funds''; ``HPRP
revolving loan fund''; ``Intermediary''; ``Non-monetary default'';
``Revolved funds''; ``Succession plan''; ``Ultimate recipient''; and
``Undivided ownership interest''.
The additions read as follows:

Sec. 761.2 Abbreviations and definitions.

* * * * *
(a) * * *
HPRP The Heirs' Property Relending Program.
* * * * *
(b) * * *
Down payment loan is a type of FO loan made to beginning farmers
and socially disadvantaged farmers to finance a portion of a real
estate purchase under part 764, subpart E of this chapter.
* * * * *
Heirs' property means a farm that is jointly held by multiple heirs
as tenants in common as a result of inheriting title from a relative.
* * * * *
HPRP loan agreement means the signed agreement between FSA and the
intermediary that specifies the terms and conditions of the HPRP loan.
HPRP loan funds means cash proceeds of a loan obtained through
HPRP, including the portion of an HPRP revolving loan fund directly
provided by the HPRP loan as well as the proceeds advanced to an
ultimate recipient. HPRP loan funds are Federal funds.
HPRP revolving loan fund means a group of assets, obtained through
or related to an HPRP loan and recorded by the intermediary in a
bookkeeping account or set of accounts and accounted for, along with
related liabilities, revenues, and expenses, as an entity or enterprise
separate from the intermediary's other assets and financial activities.
* * * * *
Intermediary means the entity requesting or receiving HPRP loan
funds for establishing a revolving loan fund and relending to ultimate
recipients.
* * * * *
Non-monetary default means a situation where a borrower is not in
compliance with the covenants or requirements of the loan documents,
program requirements, or loan.
* * * * *
Revolved funds means the cash portion of an HPRP revolving loan
fund that is not composed of HPRP loan funds, including funds that are
repayments of HPRP loans and including fees and interest collected on
such loans.
* * * * *
Succession plan means a general plan to address the continuation of
the farm, which may include specific intra-family succession agreements
or strategies to address business asset transfer planning to create
opportunities for farmers and ranchers.
* * * * *
Ultimate recipient means an entity or individual that receives a
loan from an intermediaries' HPRP revolving loan fund.
* * * * *
Undivided ownership interest means a common interest in the whole
parcel of land that is owned by two or more people. Undivided ownership
interest does not include those who own a specific piece of a parcel of
land; rather they own a percentage interest in a parcel of land as a
whole.
* * * * *

Sec. 761.7 [Amended]

0
3. Amend Sec. 761.7 in paragraphs (c)(1) introductory text and (c)(2)
by removing the number ``12'' and adding the number ``18'' in its
place.

Sec. 761.8 [Amended]

0
4. Amend Sec. 761.8 in paragraph (a)(1) introductory text by removing
the word ``Downpayment'' and adding the words ``Down payment'' in its
place.

Subpart B--Supervised Bank Accounts

0
5. Amend Sec. 761.51 by revising paragraph (a)(1) to read as follows:

Sec. 761.51 Establishing a supervised bank account.

(a) * * *
(1) Assure correct use of funds are planned and released for
capital purchases, construction projects, site development work, debt
refinancing, or proceeds from the sale of basic security, and
perfection of the Agency's security interest in assets purchased or
refinanced when electronic funds transfer or treasury check processes
are not practicable;
* * * * *

[[Page 43391]]

Subpart C--Progression Lending

0
6. Revise the subpart C heading to read as set forth above.

0
7. Amend Sec. 761.103:
0
a. In paragraph (a)(3), by removing the words ``plan of supervision''
and adding the words ``progressive lending plan'' in their place;
0
b. In paragraphs (b)(8) and (c)(5), by removing the word
``Supervisory'' and adding the words ``Progression lending'' in its
place; and
0
c. By revising paragraph (e).
The revision reads as follows:

Sec. 761.103 Farm assessment.

* * * * *
(e) The Agency reviews the assessment to determine a borrower's
progress at least annually, combining any required classification and
graduation reviews as part of the review. For streamlined CLs, the
borrower must provide a current balance sheet and income tax records.
Any negative trends noted between the previous years' and the current
years' information must be evaluated and addressed in the assessment of
the streamlined CL borrower.
* * * * *

0
8. Amend Sec. 761.104 by revising paragraph (c)(4)(i) to read as
follows:

Sec. 761.104 Developing the farm operating plan.

* * * * *
(c) * * *
(4) * * *
(i) Use county average yields, or state average yields if county
average yields are not available, in place of the disaster year yields
when the county or state average yields are realistic and reasonable
compared to the applicant's actual non-disaster year yields, as
determined by the agency approval official; or
* * * * *

0
9. Amend Sec. 761.105 by revising paragraphs (a)(1) and (4) to read as
follows:

Sec. 761.105 Year-end analysis.

(a) * * *
(1) Is being considered for a new direct loan or subordination;
* * * * *
(4) Is receiving a limited resource interest rate on any loan, in
which case the review will be completed at least every 2 years.
* * * * *

Subpart D--Allocation of Farm Loan Programs Funds to State Offices

Sec. 761.211 [Amended]

0
10. Amend Sec. 761.211 in paragraph (a) by removing the word
``Downpayment'' and adding the words ``Down payment'' in its place.

Subpart F--Farm Loan Programs Debt Settlement

Sec. 761.405 [Amended]

0
11. Amend Sec. 761.405 in paragraph (a)(6) by removing the words
``greater than $1,000'' and adding the words ``exceeding an amount
determined by the Agency'' in their place.

PART 762--GUARANTEED FARM LOANS

0
12. The authority citation for part 762 continues to read as follows:

Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.

Sec. 762.110 [Amended]

0
13. Amend Sec. 762.110 in paragraph (d)(2) by removing ``over $1,000''
and adding ``exceeding an amount determined by the Agency'' in its
place.

Sec. 762.120 [Amended]

0
14. Amend Sec. 762.120:
0
a. In paragraph (i)(2)(iii), by removing the words ``a majority
interest must'' and adding ``at least 50 percent interest must'' in
their place; and
0
b. In paragraph (j)(2)(iii), by removing the words ``a majority
interest must operate the family farm and the entity members holding a
majority interest'' and adding ``at least 50 percent interest must
operate the family farm and the entity members holding at least 50
percent'' in their place.

Sec. 762.121 [Amended]

0
15. Amend Sec. 762.121:
0
a. In paragraph (a)(1)(ix), by adding the words ``or non-compliance''
after the word ``compliance'' in the second sentence; and
0
b. In paragraph (b)(1), by removing the word ``downpayment'' and adding
the words ``down payment'' in its place.

Sec. 762.123 [Amended]

0
16. Amend Sec. 762.123 in paragraph (a)(2)(i) by removing ``part 402''
and adding ``Sec. 400.651'' in its place.

Sec. 762.127 [Amended]

0
17. Amend Sec. 762.127 in paragraphs (c)(2) introductory text and
(c)(3) by removing the number ``12'' and adding the number ``18'' in
its place each time it appears.

Sec. 762.129 [Amended]

0
18. Amend Sec. 762.129 in paragraph (b)(1)(ii) by removing the word
``downpayment'' and adding ``down payment'' in its place.

Sec. 762.130 [Amended]

0
19. Amend Sec. 762.130 in paragraph (d)(4)(iii)(C) by removing the
word ``Downpayment'' and adding the words ``Down Payment'' in its
place.

Sec. 762.145 [Amended]

0
20. Amend Sec. 762.145 in paragraph (b)(2)(iv) by removing the words
``of $1000 or more'' and adding the words ``exceeding an amount
determined by the Agency.'' in their place.

PART 764--DIRECT LOAN MAKING

0
21. The authority citation for part 764 continues to read as follows:

Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.

Subpart B--Loan Application Process

Sec. 764.52 [Amended]

0
22. Amend Sec. 764.52:
0
a. In paragraph (a), by removing the number ``10'' and adding ``7
calendar'' in its place and by removing the number ``20'' and adding
the number ``15'' in its place; and
0
b. In paragraph (b), by removing the number ``10'' and add the number
``15'' in its place.

Sec. 764.54 [Amended]

0
23. Amend Sec. 764.54 in paragraph (b)(2)(ii) by removing the word
``downpayment'' and adding the words ``down payment'' in its place.

Subpart C--Requirements for All Direct Program Loans

Sec. 764.101 [Amended]

0
24. Amend Sec. 764.101 in paragraph (k)(2)(ii) by removing the words
``a majority'' and adding ``at least 50 percent'' in their place.

Sec. 764.103 [Amended]

0
25. Amend Sec. 764.103 in paragraph (e) by removing ``$5,000'' and
adding ``$15,000'' in its place.

Subpart D--Farm Ownership Loan Program

Sec. 764.152 [Amended]

0
26. Amend Sec. 764.152 in paragraph (c)(3)(ii) by removing the words
``a majority'' and adding ``at least 50 percent'' in their place each
time they appear.

[[Page 43392]]

Subpart E--Downpayment Loan Program

0
27. Amend Sec. 764.201 by revising the section heading and removing
the word ``Downpayment'' and adding the words ``Down payment'' in its
place.
The revision reads as follows:

Sec. 764.201 Down payment loan uses.

* * * * *

Sec. 764.203 [Amended]

0
28. Amend Sec. 764.203:
0
a. In paragraph (a)(2), by removing the word ``downpayment'' and adding
the words ``down payment'' in its place; and
0
b. In paragraphs (b) introductory text and (c), by removing
``Downpayment'' and adding ``Down payment'' in its place.

Sec. 764.204 [Amended]

0
29. Amend Sec. 764.204 in paragraphs (a) and (b)(1) by removing the
word ``Downpayment'' and adding the words ``Down payment'' in its
place.

Sec. 764.205 [Amended]

0
30. Amend Sec. 764.205 in the introductory text by removing the word
``Downpayment'' and adding the words ``Down payment'' in its place.

Subpart G--Operating Loan Program

Sec. 764.251 [Amended]

0
31. Amend Sec. 764.251 in paragraph (a)(2) by adding the words ``or
fixtures'' after the word ``equipment''.

Sec. 764.254 [Amended]

0
32. Amend Sec. 764.254 in paragraphs (b)(1)(i) and (ii) by removing
the number ``18'' and adding ``24'' in its place.

Subpart I--Emergency Loan Program

Sec. 764.354 [Amended]

0
33. Amend Sec. 764.354 in paragraph (b)(3) by removing the number
``18'' and adding ``24'' in its place.

Subpart K--Borrower Training and Training Vendor Requirements

0
34. Amend Sec. 764.453 by adding paragraph (d) to read as follows.

Sec. 764.453 Agency waiver of training requirements.

* * * * *
(d) When considering subsequent loan actions, previous training
requirements that have not yet been satisfied may be waived by the
Agency should the borrower submit satisfactory evidence in accordance
with paragraph (b) of this section.

PART 765--DIRECT LOAN SERVICING--REGULAR

0
35. The authority citation for part 765 continues to read as follows:

Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.

Subpart B--Borrowers with Limited Resource Interest Rate Loans

0
36. Amend Sec. 765.51 by revising the section heading and paragraph
(a) to read as set forth below.

Sec. 765.51 Required review.

(a) At least every 2 years, a borrower with limited resource
interest rate loans is required to provide the operation's financial
information to the Agency; for the Agency to determine if the borrower
can afford to pay a higher interest rate on the loan. The Agency will
review the information provided in accordance with Sec. 761.105 of
this chapter.
* * * * *

Subpart D--Borrower Payments

0
37. Add Sec. 765.161 to read as follows:

Sec. 765.161 Borrowers entering the Armed Forces.

(a) Protections for borrowers on active duty. The Servicemembers
Civil Relief Act (Pub. L. 108-189) and the Ronald W. Reagan National
Defense Authorization Act for Fiscal Year (FY) 2005 (Pub. L. 108-375)
provide certain loan servicing protections for military borrowers. The
Agency will apply those loan servicing protections to applicable Farm
Loan borrowers.
(1) The benefits and protections of the Servicemembers Civil Relief
Act apply to borrowers on active duty at all times.
(2) The requirements of the Ronald W. Reagan National Defense
Authorization Act for Fiscal Year (FY) 2005 apply during a time of a
war or national emergency as declared by the President or Congress.
(b) Eligibility for National Guard members and military reservists.
Borrowers who are National Guard members or military reservists will be
eligible for the protections covered by this section, as specified in
paragraphs (b)(1) and (2) of this section:
(1) National Guard members must be on duty for at least 30
consecutive calendar days.
(2) Military reservists are eligible from the date orders are
received to report for active duty.
(c) Entity eligibility. National Guard members and military
reservists on active duty and any operating entity owned solely by the
active duty borrower may be considered for protections specified in
paragraph (a) of this section.

Subpart F--Required Use and Operation of Agency Security

0
38. Amend Sec. 765.252 by revising paragraph (a)(4) to read as
follows:

Sec. 765.252 Lease of security.

(a) * * *
(4) The lease does not hinder the future operation or success of
the farm, or, if the borrower has ceased to operate the farm, the
requirements specified in Sec. 765.253 are met. Leases for nonfarm
enterprises, such as solar farms, which take significant acreage of the
operation out of agriculture production are not authorized. Non-
productive land may be considered for this type of lease; and.
* * * * *

Subpart H--Partial Release of Real Estate Security

Sec. 765.351 [Amended]

0
39. Amend Sec. 765.351 in the second sentence of paragraph (f)(6) by
removing the words ``and released''.

Sec. 765.353 [Amended]

0
40. Amend Sec. 765.353 in paragraph (a)(2) by removing ``$25,000'' and
adding ``$50,000'' in its place.

PART 766--DIRECT LOAN SERVICING--SPECIAL

0
41. The authority citation for part 766 continues to read as follows:

Authority: 5 U.S.C. 301, 7 U.S.C. 1989, and 1981d(c).

Subpart C--Loan Servicing Programs

0
42. In Sec. 766.106 amend the introductory text by adding a second
sentence to read as follows:

Sec. 766.106 Agency notification of decision regarding a complete
application.

* * * Except that when a real estate appraisal is involved, the
Agency will send the borrower notification of the Agency's decision
within 90 calendar days after receiving a complete application.
* * * * *

0
43. Amend Sec. 766.111 by:
0
a. Revising the paragraph (a) subject heading;
0
b. Adding introductory text to paragraph (b); and
0
c. Revising paragraph (b)(1).
The revisions and addition read as follows:

Sec. 766.111 Writedown.

(a) Borrower eligibility. * * *
* * * * *

[[Page 43393]]

(b) Conditions. The conditions required for approval of writedown
are:
(1) Rescheduling, consolidation, reamortization, deferral or some
combination of these options on all of the borrower's loans would not
result in a feasible plan with a 110 percent debt service margin. If a
feasible plan is achieved with a debt service margin of 101 percent or
more, the Agency will permit a borrower to accept a non-writedown
servicing offer and waive the right to a writedown offer when the
writedown offer will require additional time and appraisals to fully
develop. If after obtaining an appraisal a feasible plan is achieved
with and without a writedown and the borrower meets all the eligibility
requirements, both options will be offered and the borrower may choose
one option.
* * * * *

Sec. 766.202 [Amended]

0
44. Amend Sec. 766.202 in paragraph (a) introductory text by removing
the number ``12'' and adding the number ``18'' in its place.

PART 769--FARM LOAN PROGRAMS RELENDING PROGRAMS

0
45. The authority citation for part 769 continues to read as follows:

Authority: 5 U.S.C. 301, 7 U.S.C. 1989, and 25 U.S.C. 488.

0
46. Revise the heading for part 769 to read as set forth above.

Sec. Sec. 769.101 through 769.125 [Redesignated as Subpart A]

0
47. Redesignate Sec. Sec. 769.101 through 769.125 as subpart A under
the following heading:

Subpart A--Highly Fractionated Indian Land Loan Program

0
48. Add subpart B, consisting of Sec. Sec. 769.150 through 769.168, to
read as follows:
Subpart B--Heirs' Property Relending Program
Sec.
769.150 Purpose.
769.151 Abbreviations and definitions.
769.152 Eligibility requirements of the intermediary.
769.153 Eligibility requirements of the ultimate recipient.
769.154 Authorized loan purposes.
769.155 Loan limitations.
769.156 Rates and terms.
769.157 Intermediary's relending plan.
769.158 Intermediary's loan application.
769.159 Processing loan applications.
769.160 Letter of conditions.
769.161 Loan agreements.
769.162 Security.
769.163 Loan closing.
769.164 Post award requirements.
769.165 Loan servicing.
769.166 Transfers and assumptions.
769.167 Appeals.
769.168 Exceptions.

Subpart B--Heirs' Property Relending Program

Sec. 769.150 Purpose.

(a) This subpart contains regulations for loans made by the Agency
to eligible intermediaries that will make and service loans to ultimate
recipients pursuant to requirements in this subpart. This subpart
applies to intermediaries, ultimate recipients, and other parties
involved in making such loans.
(b) The purpose of HPRP is to assist heirs with undivided ownership
interests resolve ownership and succession issues on a farm that is
owned by multiple owners. This purpose is achieved by providing loan
funds to eligible intermediaries who will re-lend to individuals and
entities for the purpose of developing and implementing a succession
plan and to resolve title issues.
(c) Intermediaries receiving HPRP loans must comply with this
subpart, the HPRP loan agreement, the intermediary's relending plan
approved by the Agency, the HPRP loan documents and security
instruments and any other conditions that the Agency may impose in
making a loan.

Sec. 769.151 Abbreviations and definitions.

Abbreviations and definitions used in this subpart are found in
Sec. 761.2 of this chapter.

Sec. 769.152 Eligibility requirements of the intermediary.

(a) Eligible entity types. Cooperatives, credit unions, and
nonprofit organizations are eligible to participate as intermediaries.
(b) Certification. The intermediary must be certified as a
community development financial institution under 12 CFR 1805.201 to
operate as a lender.
(c) Citizenship. The applicant and the members of the intermediary
must be a U.S. citizen or qualified alien (see 8 U.S.C. 1641). Each
intermediary must certify to the citizenship requirement in the HPRP
loan application.
(d) Experience. The intermediary must have:
(1) The requisite experience and capability in making and servicing
agricultural and commercial loans that are similar in nature to HPRP.
If consultants will be used in the making and servicing of HPRP loans,
the Agency will assess the intermediary's experience in choosing and
supervising consultants based on information intermediaries include in
their application describing the particular lending functions they
typically rely on agents to fulfill and also describe their policies
and procedures for monitoring these agents;
(2) The legal authority necessary to carry out the proposed loan
purposes and to obtain, provide security for, and repay the proposed
loan; and
(3) Demonstrated ability and willingness to repay the loan based on
the intermediary's financial condition, managerial capabilities, and
other resources.

Sec. 769.153 Eligibility requirements of the ultimate recipient.

(a) The eligibility requirements for the ultimate recipient are:
(1) Ultimate recipients must be individuals or legal entities, with
authority to incur the debt and to resolve ownership and succession of
a farm owned by multiple owners;
(2) Individual ultimate recipients or members of entity ultimate
recipients must be a family member or heir-at-law related by blood or
marriage to the previous owner of the real property; and
(3) The ultimate recipient must agree to complete a succession
plan.
(b) The intermediary will determine the eligibility of the
applicant to become the ultimate recipient in accordance with the rules
provided in this subpart and in accordance with the intermediary's
relending plan as approved by the Agency in the HPRP loan agreement.

Sec. 769.154 Authorized loan purposes.

(a) Loans to the intermediary. HPRP loan funds must be used by the
intermediary to provide direct loans to eligible ultimate recipients
according to the rules provided in this subpart and pursuant to the
HPRP loan agreement approved by the Agency.
(b) Loans to the ultimate recipients. HPRP loan funds:
(1) Must be used to assist heirs with undivided ownership interests
to resolve ownership and succession of a farm owned by multiple owners;
(2) Must be sufficient to cover costs and fees associated with
development and implementation of the succession plan, including
closing costs (such as costs for preparing documents, appraisals,
surveys, and title reports) and other associated legal services (such
as fees incurred for mediation); and
(3) May be used to purchase and consolidate fractional interests
held by other heirs in jointly-owned property, and to purchase rights-
of-way, water rights, easements, and other

[[Page 43394]]

appurtenances that would normally pass with the property and are
necessary for the proposed operation of the farm.

Sec. 769.155 Loan limitations.

(a) For each application period:
(1) Loans to intermediaries will not exceed $5,000,000 to any
intermediary;
(2) Loans to ultimate recipients will not exceed the loan limit for
a Direct Farm Ownership loan as specified in Sec. 761.8(a)(1)(i) of
this chapter to any ultimate recipient.
(b) Loans to the ultimate recipient may not be used:
(1) For any land improvement, development purpose, acquisition or
repair of buildings, acquisition of personal property, payment of
operating costs, payment of finders' fees, or similar costs;
(2) For any purpose that will contribute to excessive erosion of
highly erodible land or for the conversion of wetlands to produce an
agricultural commodity as specified in 7 CFR part 12; or
(3) To resolve heirs' property issues on property that will not be
used, or has traditionally not been used, for production agricultural
purposes.
(c) The HPRP loan amount may not exceed the current market value of
the land determined by an appraisal that meets the requirements
specified in Sec. 761.7(b)(1) of this chapter; and
(d) Intermediaries who receive HPRP funding are not permitted to
charge the ultimate recipients for mediation services provided through
grants received under the Agency's State Agriculture Mediation Program
(part 785 of this chapter).

Sec. 769.156 Rates and terms.

(a) For loans to intermediaries:
(1) The rate of interest for an HPRP loan will bear a fixed rate
over the term of the loan of 1 percent or less as determined by the
Administrator;
(2) The repayment term for an HPRP loan will not exceed 30 years;
and
(3) Annual payments will be established. Interest will be due
annually; however, principal payments may be deferred by the Agency.
(b) Loans to the ultimate recipient from the HPRP revolving loan
fund are required to have rates and terms clearly and publicly
disclosed to qualified ultimate recipients.
(1) The interest rate for loans to ultimate recipients will be set
by the intermediary within the limits established by the intermediary's
relending plan approved by the Agency. The rate should normally be the
lowest rate sufficient to cover the loan's proportional share of the
HPRP revolving loan fund's debt service costs, reserve for bad debts,
and administrative costs.
(2) Loans made by an intermediary to an ultimate recipient will be
scheduled for repayment over a term negotiated by the intermediary and
ultimate recipient; but in no case will the loan term exceed 30 years,
unless otherwise specified by the Agency.

Sec. 769.157 Intermediary's relending plan.

(a) The intermediary must submit a proposed relending plan which,
once approved by the Agency, will be incorporated by reference as an
attachment to the HPRP loan agreement. The relending plan will explain
in sufficient detail the mechanics of how the funds will be distributed
from the intermediary to the ultimate recipient.
(b) The intermediary's relending plan must include copies of the
intermediary's proposed application forms, loan documents and security
instruments, and should include information regarding:
(1) The service area;
(2) The proposed fees and other charges the intermediary will
assess the ultimate recipients;
(3) Eligibility criteria for the ultimate recipient;
(4) Authorized loan purposes;
(5) Loan limitations;
(6) Loan underwriting methods and criteria;
(7) Loan rates and terms;
(8) Security requirements;
(9) The method of disbursement of the funds to the ultimate
recipient;
(10) The process for addressing environmental issues on property to
be purchased;
(11) The proposed process for reviewing loan requests from ultimate
recipients and making eligibility determinations;
(12) A description of the established internal credit review
process;
(13) The monitoring and servicing of loans distributed to the
ultimate recipients;
(14) The amount that will be set aside to maintain a reserve for
bad debts; and
(15) A description of the requirements for maintaining adequate
hazard insurance, life insurance (for principals and key employees of
the ultimate recipient), workmen's compensation insurance on ultimate
recipients, flood insurance, and fidelity bond coverage.

Sec. 769.158 Intermediary's loan application.

(a) The intermediary's loan application will consist of:
(1) An application form provided by the Agency;
(2) A relending plan addressing the items in Sec. 769.157;
(3) A copy of the intermediary's certification as a community
development financial institution;
(4) A signed form, to be provided by the Agency, assuring the
intermediary's compliance and continued compliance with Title IX of the
Education Amendments of 1972 (20 U.S.C. 1681-1688) and Title VI of the
Civil Rights Act of 1964 (42 U.S.C. 2000d-1- 2000d-7);
(5) Other evidence the Agency requires to determine that the
intermediary satisfies the eligibility requirements in Sec. 769.152,
and that the intermediary's proposed relending plan is feasible and
meets the objectives of HPRP;
(6) Documentation of the intermediary's ability to administer the
HPRP loan funds in accordance with this subpart; and
(7) The name(s) of attorneys or any third parties involved with the
application process.
(b) Prior to loan approval and advancing funds, the intermediary
must certify that:
(1) The intermediary and its officers, or agents are not delinquent
on any Federal debt, including, but not limited to, federal income tax
obligations, federal loan or loan guarantee, or obligation from another
Federal agency. If delinquent, the intermediary must provide in writing
the reasons for the delinquency, and the Agency will take this into
consideration in deciding whether to approve the loan or advance of
funds;
(2) The intermediary and its officers have not been convicted of a
felony criminal violation under Federal law in the 24 months preceding
the date of the loan application;
(3) The intermediary is in compliance with the restrictions and
requirements in 31 U.S.C. 1352, limitation on use of appropriated funds
to influence certain Federal contracting and financial transactions;
(4) The intermediary has been informed of the options by the
Federal Government to collect delinquent debt; and
(5) The intermediary, its officers, or agents are not debarred or
suspended from participation in Government contracts or programs.
(c) An intermediary that has received one or more HPRP loans may
apply for and be considered for subsequent HPRP loans provided:
(1) The intermediary is relending all collections from loans made
from its revolving fund in excess of what is needed for the required
debt service

[[Page 43395]]

reserve and approved administrative costs;
(2) The outstanding loans of the intermediary's HPRP revolving loan
fund are performing; and
(3) The intermediary is following all regulatory requirements and
is complying with the terms and conditions of its HPRP loan
agreement(s) and the intermediary's relending plan(s) approved by the
Agency.
(d) The Agency may require the intermediary to provide information
relating to applications from ultimate recipients the intermediary has
in process.

Sec. 769.159 Processing loan applications.

(a) Application dates. The opening and closing dates for the HPRP
applications submission will be announced in Federal Register.
(b) Intermediary loan application review. After the closing date,
the Agency will review applications from intermediaries for compliance
with the provisions of this subpart.
(c) Loan approval. Loan approval is subject to the availability of
funds. The loan will be considered approved for the intermediary on the
date the Agency signs the obligation of funds confirmation.
(d) Preferences for loan funding. The Agency will fund eligible
applications from intermediaries:
(1) First, to those with not less than 10 years' experience serving
socially disadvantaged farmers and ranchers that are located in states
that have adopted a statute consisting of an enactment or adoption of
the Uniform Partition of Heirs Property Act, as approved and
recommended for enactment in all States by the National Conference of
Commissioners on Uniform State Laws in 2010, that relend to owners of
heirs property (as defined by the Uniform Partition of Heirs Property
Act);
(2) Second, to those that have applications from ultimate
recipients already in process, or that have a history of successfully
relending previous HPRP funds; and
(3) Multiple applications in the same priority tier, will be
processed based by date of application received; and
(4) Any remaining applications, after priority tiers 1 and 2 have
be funded, will be funded in order of the date the application was
received.
(e) Current information required. Information supplied by the
intermediary in the loan application must be updated by the
intermediary if the information is more than 90 days old at the time of
loan closing.

Sec. 769.160 Letter of conditions.

(a) If the Agency approves a loan application, the Agency will
provide the intermediary with a letter of conditions listing all
requirements for the loan.
(b) Immediately after reviewing the conditions and requirements in
the letter of conditions, the intermediary should complete, sign, and
return the form provided by the Agency indicating the intermediary's
intent to meet the conditions.
(1) If certain conditions cannot be met, the intermediary may
propose alternative conditions to the Agency.
(2) The Agency loan approval official must concur with any changes
made to the initially issued or proposed letter of conditions prior to
loan approval.
(c) The loan request will be considered withdrawn if the
intermediary does not respond within 15 calendar days from the date the
letter of conditions was sent.

Sec. 769.161 Loan agreements.

(a) The HPRP loan agreement will specify the terms of each loan,
such as:
(1) The amount of the loan;
(2) The interest rate;
(3) The term and repayment schedule;
(4) Any provisions for late charges;
(5) The disbursement procedure;
(6) Provisions regarding default; and
(7) Fidelity insurance.
(b) As a condition of receiving HPRP loan funds, the intermediary
will agree:
(1) To obtain written approval from the Agency prior to making any
changes in the intermediary's articles of incorporation, charter, or
by-laws;
(2) To maintain a separate ledger and segregated account for the
HPRP revolving loan fund;
(3) To comply with the Agency's annual reporting requirements in
Sec. 769.164(g);
(4) To obtain prior written approval from the Agency regarding all
forms to be used for relending purposes, as well as the intermediary's
policy with regard to the amount and security to be required;
(5) To obtain written approval from the Agency prior to making any
significant changes in the proposed forms, security policy, or the
intermediary's relending plan;
(6) To maintain the collateral pledged as security for the HPRP
loan; and
(7) To request demographics data from ultimate recipients on race,
ethnicity, and gender. The response to the data request will be
voluntary. The intermediary will maintain the information when
voluntarily submitted by the ultimate recipient. The intermediary
agrees to make this information available when requested by FSA.

Sec. 769.162 Security.

(a) Loans to intermediaries. Security pledged to the Agency by
intermediaries must be sufficient to reasonably assure repayment of the
loan, while taking into consideration the intermediary's financial
condition, the intermediary's relending plan, and the intermediary's
management ability. The Agency will require adequate security, as
determined by the Agency, to fully secure the loan:
(1) Primary security for HPRP loan will be in the form of a first
lien upon the intermediary's revolving loan fund and such accounts must
be fully covered by Federal deposit insurance or fully collateralized
with other securities in accordance with normal banking practices and
all applicable State laws. The form of the control agreement with the
depository bank that will be used to perfect the Agency's security
interest in the depository accounts used by the intermediary to
maintain HPRP funds must be approved by the Agency. The control
agreement will not require the Agency's signature for withdrawals.
Among other things, the intermediary must use a depository bank that
agrees to waive its offset and recoupment rights against the depository
account and subordinate any liens it may have against the HPRP
depository account in favor of the Agency;
(2) Additional security as needed, which includes, but is not
limited to:
(i) Assignments of assessments, taxes, levies, or other sources of
revenue as authorized by law;
(ii) Financial assets of the intermediary and its members; and
(ii) Capital assets or other property of the intermediary and its
members.
(b) Loans to the ultimate recipient. The intermediary is
responsible for obtaining adequate security for all loans made to
ultimate recipients from the HPRP revolving loan funds as specified in
the HPRP loan agreement and intermediary's relending plan. The Agency
will only require concurrence with the intermediary's proposed security
for a loan to an ultimate recipient from the HPRP revolving loan fund
if the proposed security will also serve as security for an unrelated
Agency loan.

Sec. 769.163 Loan closing.

(a) HPRP loan documents and security instruments. At loan closing,
the intermediary will execute the HPRP loan agreement or supplemental
loan agreement, HPRP promissory note, the HPRP security agreement, the
control agreement, and any other security instruments required by the
Agency.

[[Page 43396]]

(b) Intermediary certification. At loan closing, the intermediary
must certify that:
(1) No changes have been made in the intermediary's relending plan
except those approved in the interim by the Agency;
(2) All requirements in the letter of conditions have been met; and
(3) There has been no material change in the intermediary or its
financial condition since the issuance of the letter of conditions. If
there have been changes, the intermediary must explain the changes to
the Agency. The Agency will review the changes and respond in writing
prior to loan closing.

Sec. 769.164 Post award requirements.

(a) Applicability. Whenever this subpart imposes a requirement on
loan funds from the HPRP revolving loan fund, the requirement will
apply to all loans made by an intermediary to an ultimate recipient
from the intermediary's HPRP revolving loan fund for as long as any
portion of the intermediary's HPRP loan remains unpaid.
(b) Applicability for HPRP loan funds. Whenever this subpart
imposes a requirement on loans made by intermediaries from HPRP loan
funds, without specific reference to the HPRP revolving loan fund, such
requirement only applies to loans made by an intermediary using HPRP
loan funds, and will not apply to loans made from revolved funds.
(c) File maintenance. In addition to information normally
maintained by lenders in each loan file associated with a relending
loan to an ultimate recipient, the intermediary must include a
certification and supporting documentation in its file demonstrating
that:
(1) The ultimate recipient is eligible for the loan;
(2) The loan is for eligible purposes; and
(3) The loan complies with all applicable laws, regulations, and
the intermediary's HPRP loan agreement.
(d) Maintenance of HPRP revolving loan fund. For as long as any
part of an HPRP loan remains unpaid, the intermediary must maintain the
HPRP revolving loan fund in accordance with the requirements in
paragraphs (d)(1) through (11) of this section:
(1) All HPRP loan funds received by an intermediary must be
deposited into the HPRP revolving loan fund. The intermediary may
transfer additional assets into the HPRP revolving loan fund;
(2) All cash of the HPRP revolving loan fund must be deposited in a
separate bank account or accounts;
(3) The HPRP revolving loan fund must be segregated from other
financial assets of the intermediary, and no other funds of the
intermediary will be commingled with the HPRP revolving loan fund;
(4) All moneys deposited in the HPRP revolving loan fund account or
accounts will be money from the HPRP revolving loan fund;
(5) Loans to ultimate recipients are advanced from the HPRP
revolving loan fund;
(6) The receivables created by making loans to ultimate recipients,
the intermediary's security interest in collateral pledged by ultimate
recipients, collections on the receivables, interest, fees, and any
other income or assets derived from the operation of the HPRP revolving
loan fund are a part of the HPRP revolving loan fund;
(7) The portion of the HPRP revolving loan fund consisting of HPRP
loan funds may only be used for making loans in accordance with Sec.
769.154. The portion of the HPRP revolving loan fund that consists of
revolved funds may be used for debt service reserve, approved
administrative costs, or for making additional loans;
(8) A reasonable amount of revolved funds must be maintained as a
reserve for bad debts. The total amount should not exceed maximum
expected losses, considering the credit quality of the intermediary's
portfolio of loans. The amount of reserved funds proposed by the
intermediary requires written concurrence from the Agency. Unless the
intermediary provides loss and delinquency records that, in the opinion
of the Agency, justifies different amounts, a reserve for bad debts of
6 percent of outstanding loans must be accumulated over 5 years and
then maintained; and
(9) Any funds in the HPRP revolving loan fund from any source that
is not needed for debt service reserve, approved administrative costs,
or reasonable reserves must be available for additional loans to
ultimate recipients.
(i) Funds may not be used for any investments in securities or
certificates of deposit of over 30-day duration without the Agency's
concurrence.
(ii) The intermediary must make one or more loans to ultimate
recipients within 6 months of any disbursement it receives from the
Agency. If funds have been unused to make loans to ultimate recipients
for 6 months or more, those funds will be returned to the agency unless
the Agency provides a written exception based on evidence satisfactory
to the Agency that every effort is being made by the intermediary to
utilize the HPRP funding in conformance with HPRP objectives;
(10) All reserves and other cash in the HPRP revolving loan fund
that are not immediately needed for loans to ultimate recipients or
other authorized uses must be deposited in accounts in banks or other
financial institutions. Such accounts must be fully covered by Federal
deposit insurance or fully collateralized with other securities in
accordance with normal banking practices and all applicable State laws.
Any interest earned on the account remains a part of the HPRP revolving
loan fund; and
(11) If an intermediary receives more than one HPRP loan, it does
not need to establish and maintain a separate HPRP revolving loan fund
for each loan; it may combine them and maintain only one HPRP revolving
loan fund.
(e) Budgets and administrative costs. The intermediary must submit
an annual budget of proposed administrative costs for Agency approval.
The annual budget should itemize cash income and cash out-flow.
Projected cash income should consist of, but is not limited to,
collection of principal repayment, interest repayment, interest
earnings on deposits, fees, and other income. Projected cash out-flow
should consist of, but is not limited to, principal and interest
payments, reserve for bad debt, and an itemization of administrative
costs to operate the HPRP revolving loan fund.
(1) Proceeds received from the collection of principal repayment
cannot be used for administrative expenses.
(2) The amount removed from the HPRP revolving loan fund for
administrative costs in any year must be reasonable, must not exceed
the actual cost of operating the HPRP revolving loan fund, including
loan servicing and providing technical assistance, and must not exceed
the amount approved by the Agency in the intermediary's annual budget.
(f) Loan monitoring reviews. The Agency may conduct loan monitoring
reviews, including annual and periodic reviews, and performance
monitoring.
(1) At least annually, the intermediary must provide the Agency
documents for reviewing the financial status of the intermediary,
assessing the progress of using loan funds, and identifying any
potential problems or concerns. Non-regulated intermediaries must
furnish

[[Page 43397]]

audited financial statements at least annually.
(2) The intermediary must allow the Agency or its representative to
review the operations and financial condition of the intermediary upon
the Agency's request. The intermediary and its agents must provide
access to all pertinent information to allow the Agency, or any party
authorized by the Agency, to conduct such reviews. The intermediary
must submit financial or other information within 14 calendar days upon
receipt of the Agency's request, unless the data requested is not
available within that time frame. Failure to supply the requested
information to the satisfaction of the Agency will constitute non-
monetary default. The Agency may conduct reviews, including on-site
reviews, of the intermediary's operations and the operations of any
agent of the intermediary, for the purpose of verifying compliance with
Agency regulations and guidelines. These reviews may include, but are
not limited to, audits of case files; interviews with owners, managers,
and staff; audits of collateral; and inspections of the intermediary's
and its agents underwriting, servicing, and liquidation guidelines.
(g) Annual monitoring reports. Each intermediary will be monitored
by the Agency through annual monitoring reports submitted by the
intermediary. Annual monitoring reports must include a description of
the use of loan funds, information regarding the acreage, the number of
heirs both before and after loan was made, audit findings, disbursement
transactions, and any other information required by the Agency, as
necessary.
(h) Unused loan funds. If any part of the HPRP loan has not been
used in accordance with the intermediary's relending plan within 3
years from the date of the HPRP loan agreement, the Agency may cancel
the approval of any funds not delivered to the intermediary. The Agency
may also direct the intermediary to return any funds delivered to the
intermediary that have not been used by that intermediary in accordance
with the intermediary's relending plan. The Agency may, at its sole
discretion, allow the intermediary additional time to use the HPRP loan
funds.

Sec. 769.165 Loan servicing.

(a) Payments. The intermediary will make payments to the Agency as
specified in the HPRP loan documents. All payments will be applied to
interest first, any additional amount will be applied to principal.
(b) Restructuring. The Agency may restructure the intermediary's
loan debt, if:
(1) The loan objectives cannot be met unless the HPRP loan is
restructured;
(2) The Agency's interest will be protected; and
(3) The restructuring will be within the Agency's budget authority.
(c) Default. The Agency will work with the intermediary to correct
any default, subject to the requirements of paragraph (b) of this
section. In the event of monetary or non-monetary default, the Agency
will take all appropriate actions to protect its interest, including,
but not limited to, declaring the debt fully due and payable and may
proceed to enforce its rights under the HPRP loan agreement, and any
other loan instruments relating to the loan under applicable law and
regulations, and commencement of legal action to protect the Agency's
interest. Violation of any agreement with the Agency or failure to
comply with reporting or other HPRP requirements will be considered
non-monetary default.

Sec. 769.166 Transfers and assumptions.

(a) All transfers and assumptions must be approved in advance by
the Agency. The assuming entity must meet all eligibility criteria for
HPRP.
(b) Available transfer and assumption options to eligible
intermediaries include:
(1) The total indebtedness may be transferred to another eligible
intermediary on the same rates and terms; or
(2) The total indebtedness may be transferred to another eligible
intermediary on different terms not to exceed the term for which an
initial loan can be made.
(c) The transferor must prepare the transfer document for the
Agency's review prior to the transfer and assumption.
(d) The transferee must provide the Agency with information
required in the application as specified in Sec. 769.158.
(e) The Agency's approved form of the assumption agreement will
formally authorize the transfer and assumption and will contain the
Agency case number of the transferor and transferee.
(f) When the transferee makes a cash down-payment in connection
with the transfer and assumption, any proceeds received by the
transferor will be credited on the transferor's loan debt in order of
maturity date.

Sec. 769.167 Appeals.

Any appealable adverse decision made by the Agency may be appealed
upon written request of the intermediary as specified in 7 CFR part 11.

Sec. 769.168 Exceptions.

The Agency may grant an exception to any of the requirements of
this subpart if the proposed change is in the best financial interest
of the Government and not inconsistent with the authorizing law or any
other applicable law.

Zach Ducheneaux,
Administrator, Farm Service Agency.
[FR Doc. 2021-16459 Filed 8-5-21; 8:45 am]
BILLING CODE 3410-05-P

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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.