Rule2024-16828
Enhancing Program Access and Delivery for Farm Loans
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 8, 2024
Effective
September 25, 2024
Issuing agencies
Agriculture DepartmentFarm Service Agency
Abstract
The Farm Service Agency (FSA) is amending the Farm Loan Programs (FLP) regulations to implement the Distressed Borrower Set- Aside (DBSA) Program and other changes. DBSA will provide a new loan servicing program for financially distressed borrowers that will allow for the deferral of one annual loan installment at a reduced interest rate. DBSA will provide a simpler option to resolve financial distress than existing loan servicing programs. In addition to helping borrowers by adding DBSA as a new loan servicing program, FSA is amending the FLP regulations to revise loan making and servicing to improve program access and delivery. This rule is part of FSA's ongoing efforts for farm loans to remove barriers to capital access and increase opportunities for borrowers to be successful.
Full Text
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<title>Federal Register, Volume 89 Issue 153 (Thursday, August 8, 2024)</title>
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[Federal Register Volume 89, Number 153 (Thursday, August 8, 2024)]
[Rules and Regulations]
[Pages 65020-65063]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-16828]
[[Page 65019]]
Vol. 89
Thursday,
No. 153
August 8, 2024
Part II
Department of Agriculture
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Farm Service Agency
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7 CFR Parts 761, 762, et al.
Enhancing Program Access and Delivery for Farm Loans; Final Rule
Federal Register / Vol. 89, No. 153 / Thursday, August 8, 2024 /
Rules and Regulations
[[Page 65020]]
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DEPARTMENT OF AGRICULTURE
Farm Service Agency
7 CFR Parts 761, 762, 764, 765, 766, 768, 769, and 770
RIN 0560-AI61
[Docket No. FSA-2023-003]
Enhancing Program Access and Delivery for Farm Loans
AGENCY: Farm Service Agency, USDA.
ACTION: Final rule; with request for comment.
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SUMMARY: The Farm Service Agency (FSA) is amending the Farm Loan
Programs (FLP) regulations to implement the Distressed Borrower Set-
Aside (DBSA) Program and other changes. DBSA will provide a new loan
servicing program for financially distressed borrowers that will allow
for the deferral of one annual loan installment at a reduced interest
rate. DBSA will provide a simpler option to resolve financial distress
than existing loan servicing programs. In addition to helping borrowers
by adding DBSA as a new loan servicing program, FSA is amending the FLP
regulations to revise loan making and servicing to improve program
access and delivery. This rule is part of FSA's ongoing efforts for
farm loans to remove barriers to capital access and increase
opportunities for borrowers to be successful.
DATES:
Effective date: September 25, 2024.
Comment date: We will consider comments on the information
collection requirements under the Paperwork Reduction Act that we
receive by: October 7, 2024. We will also consider comments on the rule
and may conduct additional rulemaking in the future based on the
comments.
ADDRESSES: We invite you to submit comments on the information
collection requirements. You may submit comments by any of the
following methods:
<bullet> Federal eRulemaking Portal: Go to: <a href="http://www.regulations.gov">www.regulations.gov</a> and
search for docket ID FSA-2023-0003. Follow the instructions for
submitting comments.
Comments will be available for viewing online at
<a href="http://www.regulations.gov">www.regulations.gov</a>.
FOR FURTHER INFORMATION CONTACT: Houston Bruck; telephone: (202) 650-
7874; email: <a href="/cdn-cgi/l/email-protection#dbb3b4aea8afb4b5f5b9a9aeb8b09baea8bfbaf5bcb4ad"><span class="__cf_email__" data-cfemail="2a42455f595e45440448585f49416a5f594e4b044d455c">[email protected]</span></a>. Individuals who require
alternative means of communication for program should contact USDA
TARGET Center at (202) 720-2600 (voice and text telephone (TTY)) or
dial 711 for Telecommunications Relay Service (both voice and text
telephone users can initiate this call from any telephone).
SUPPLEMENTARY INFORMATION:
Background
FSA makes and services a variety of direct and guaranteed loans to
farmers who are unable to obtain commercial credit sufficient to meet
their needs at reasonable rates and terms. FSA also provides direct
loan borrowers with credit counseling and supervision, to increase the
borrowers' chance for success. FSA loan applicants are often:
<bullet> beginning farmers (BF) and socially disadvantaged (SDA)
farmers who do not meet the underwriting requirements of commercial
lenders because of insufficient net worth; or
<bullet> established farmers who have suffered financial setbacks
due to natural disasters or economic downturns.
FSA loan applicants are also often farmers whose short- and long-
term operational and personal goals are not well met by commercial
lending products. FSA loans are tailored to a farmer's needs and may be
used to buy farmland and to finance agricultural production.
The Consolidated Farm and Rural Development Act (CONACT, Pub. L.
87-128, as amended; 7 U.S.C. 1921-2009cc-18) provides the authority for
most FLP loans, including farm ownership, operating, and emergency
loans.
After FSA provides a loan to a farmer, FSA continues to work with
the borrower to monitor the progress of their operation, provide
guidance on budgetary issues, and ensure loan repayment. If FSA loan
borrowers become financially distressed and are unable to make loan
installments as scheduled, or if the borrowers' plans change requiring
reconsideration of original terms, FSA staff work with borrowers to
explore options to improve profitability. A common solution to
resolving financial distress is providing the distressed loan with more
flexible rates or terms to improve profitability. These loan servicing
options are commonly referred to as the Primary Loan Servicing Program
(PLS) and the Disaster Set-Aside Program (DSA).
Section 22006, Farm Loan Immediate Relief for Borrowers with At-
Risk Agricultural Operations, of the Inflation Reduction Act of 2022
(IRA, Pub. L. 117-169) authorized $3.1B in funds for FSA to create and
provide certain additional assistance opportunities for distressed farm
loan borrowers of FLP loans authorized under the CONACT. To date, FSA
has provided historic assistance under IRA Section 22006 to assist
distressed borrowers, including 6 different rounds of payments
addressing both long-term and immediate sources of distress. To
complement PLS, DSA, and previous IRA assistance, FSA is implementing a
new loan modification option, the DBSA Program. DBSA is similar to DSA
and will provide a new loan servicing option for financially distressed
borrowers that will allow for the deferral of one annual loan
installment per loan at a reduced interest rate under certain
conditions. DBSA has three important distinctions compared to DSA:
<bullet> the deferred payment will accrue at a reduced interest
rate,
<bullet> the loan must have been outstanding as of September 25,
2024, and
<bullet> the borrower does not have to suffer a loss from a
declared disaster to qualify for DBSA.
This rule implements DBSA and makes other changes as the next step
in FSA's ongoing effort to remove barriers to capital access and
increase opportunities for borrowers to be successful. The COVID-19
pandemic highlighted the need for FSA to undertake a culture shift in
its approach to farm loans to expand virtual opportunities and
implement loan processes to improve turnaround times on financial
assistance. For example, for loans overall, recent investments in
online education and application platforms are making the loan process
simpler to navigate virtually, and new underwriting techniques based on
financial benchmarking of FSA's portfolio are expediting the loan
process.
FSA is also clarifying and amending information throughout the FLP
regulations to make it easier for borrowers to understand program
requirements. These changes were developed with significant input from
employee associations and the gathering of important insights from
lending industry partners and agricultural advocacy groups. Advice and
recommendations from agricultural advocacy groups on potential program
improvements were carefully considered as FSA developed some of the
more substantial changes, including improvements to the direct loan
security requirements, cash flow budgeting process, and flexible
repayment terms offered on direct loans.
While most of the amendments are not substantially altering
existing policy, or are anticipated to impact a relatively small number
of farmers, some changes are substantial, impacting nearly all direct
loan customers, including changes that amend
[[Page 65021]]
requirements for farm assessments, budget development, and loan
security. These substantial changes will encourage borrower
profitability by expanding opportunities for borrowers to leverage
asset equity, and by establishing opportunities to budget for a
reasonable amount of cash flow margin to increase working capital
reserves and savings, including savings for retirement and education,
including the use of flexible repayment terms to achieve essential
short- and long-term operational growth goals. These program
enhancements reflect FSA's commitment to furthering strong partnerships
with commercial lenders, as the borrower growth opportunities from the
changes in this rule will result in more financially stable borrowers
that are better prepared to transition to commercial banking. The
enhancements will also be reflected in the subsidy rates for the
respective FLP loan types, per Federal Credit Reform Act (FCRA, 2
U.S.C. 661) and OMB Circular A-11 section 185.
The CONACT requires that all FLP applicants and loans meet certain
requirements related to eligibility, security, and feasibility. The
changes in this rule ensure FLP regulations continue to align with the
CONACT and better reflect the needs of farmers, industry trends,
historical data, and modernization of underwriting standards. Although
many of the amendments in this rule are technical corrections or
clarifications, there are several changes to FLP policy that better
reflect customer needs and modernized standards in the greater
agricultural lending industry.
This rule marks the most recent example of FSA's dedication to
increase equity, improve customer service, and provide opportunities
for customers to maximize their financial success.
Throughout this rule, any reference to ``farm'' or ``farmer'' also
includes ``ranch'' or ``rancher,'' respectively.
DBSA Program Implementation
This rule is implementing the DBSA Program to assist distressed
borrowers whose operations are at financial risk and face the
possibility of bankruptcy, liquidation, or foreclosure. Using available
funds under section 22006 of IRA, DBSA is a payment deferral program
for financially distressed or delinquent borrowers with outstanding
direct loans administered under subtitle A (Farm Ownership Loan (FO)
Program, Conservation Loan (CL) Program, and Soil and Water Loan (SW)
Program), subtitle B (Operating Loan (OL) Program), or subtitle C
(Emergency Loan (EM) Program) of the CONACT.
While the DBSA Program will operate similarly to the existing DSA
Program, there are important eligibility distinctions. Specifically,
deferral under DBSA is only available for eligible direct loans
outstanding as of September 25, 2024, and a borrower does not need to
have been affected by a declared disaster to qualify. Importantly, and
similar to both DSA and PLS eligibility requirements, borrowers
requesting DBSA assistance must demonstrate that a set-aside of their
current direct loan payment(s) would resolve their financial distress
and result in a feasible operating plan.
Payments deferred under DBSA will be repaid at the time of loan
maturity and will carry a reduced interest rate of 0.125 percent. This
is the lowest interest rate the CONACT authorizes to be applied to
loans. The CONACT authorizes the Secretary certain discretion in
determining interest rates for the FO, SW, CL, OL, and EM Programs. For
FO, CL, SW and OL Programs, the rate must not be in excess of the
average yield for Treasury notes with similar maturities to the FO or
OL Programs, plus an amount not to exceed 1 percent. The EM Program
interest rates determined by the Secretary must be below 8 percent.
This reduced interest rate on DBSA:
<bullet> is being used to mitigate the adverse impacts of
additional interest accrual on the deferred payment for borrowers, and
<bullet> increases the likelihood for the long-term success and
improves long-term repayment ability of the operation.
DBSA was created in part in response to input from borrowers, FSA
staff, and other stakeholders noting that DSA works well to help
resolve financial distress without requiring PLS, and that a similar
set-aside program would also help many borrowers in financial distress
who have not been affected by a natural disaster.
Before this rule, FSA could only offer a deferral on direct loans
through PLS or DSA. PLS is different from DBSA because PLS requires a
series of loan servicing options to be considered and typically results
in the loan being restructured; PLS can also be time consuming for the
borrower.
DBSA is expected to be selected by many customers as a viable
alternative to DSA and PLS. If a customer does not qualify for a DBSA,
for example, if their financial distress cannot be resolved by
deferring the current installment to the end of the loan, they may need
the more complex loan servicing solutions and formal loan restructuring
that is available through PLS.
As a result of the subsidy rate analysis, FSA determined that since
the loan modifications costs of DBSA are funded by section 22006 of
IRA, that only those loans that are outstanding as of September 25,
2024, which is the effective date of this rule, will be eligible. The
rationale for that is to comply with the statutory authority as FSA
paid for the loan modification costs up front based on the current loan
portfolio. Borrowers may request DBSA on those loans at any time over
the loan period, but may only have 1 DBSA outstanding per loan.
DBSA will provide existing FSA direct loan borrowers who are
financially distressed or delinquent with an option to request a one-
time deferral of a delinquent or upcoming annual installment instead of
using PLS or DSA to address loan repayment issues. A delinquent
borrower is defined in 7 CFR 761.2(b) as ``a borrower who has failed to
make all scheduled payments by the due date,'' and a financially
distressed borrower is defined as ``a borrower unable to develop a
feasible plan for the current or next production cycle.'' The amount of
the deferral will be limited to the lesser of the amount of the annual
installment or the unpaid balance remaining on the installment at the
time the DBSA is approved. The deferred amount will have a reduced
interest rate of 0.125 percent. The amount deferred, plus interest,
will be due at the end of the loan term.
To request DBSA, borrowers must submit a request for DBSA in
writing to FSA. The borrower will be required to submit actual
production, income, and expense records for the current production
cycle, and an operating plan for the upcoming production cycle, unless
FSA already has that information on file for the borrower. This
information will be analyzed by FSA to validate that a profitable cash
flow budget for the current production cycle cannot be developed
without deferring the next loan installment due on their outstanding
FLP loans. FSA will notify the borrower in writing within 30 days if
their request for DBSA is approved or denied, and the borrower must
provide required DBSA closing documents within 45 days of approval
notification.
DBSA will be implemented in a new subpart J of part 766, with
conforming changes in parts 761, 765, and 766.
FLP Regulatory Improvements
In addition to helping borrowers by adding DBSA as a new loan
servicing program, throughout the FLP regulations FSA is making
discretionary changes to clarify and amend existing delivery processes
and program requirements to increase access to FLP,
[[Page 65022]]
including making several technical corrections. The various regulatory
amendments are listed below, categorized by type as either a
clarification, technical correction, non-substantial change, or
substantial change.\1\ Changes are discussed based on what changes are
the most broadly applicable. For example, changes in the definition of
``Family Farm'' are discussed first along with changes in related
terms, followed by the remaining definitions in alphabetical order.
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\1\ To assist in navigating the various changes in this rule,
FSA categorized the amendments as either clarifications, technical
corrections, non-substantial changes, or substantial changes. A
substantial change is an amendment to FLP policy that is anticipated
to impact the majority of applicants or borrowers, while a non-
substantial change is a change that is anticipated to impact a
relatively small number of customers.
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The rule is making clarifications, which are in response to input
from borrowers, staff, and other stakeholders. FSA has determined that
clarifying the information in the regulation will make it easier for
borrowers to understand program requirements. These clarifying
amendments do not constitute a change in policy. The specific changes
are discussed later in this document. Specifically, this rule
clarifies:
<bullet> the definitions in 7 CFR 761.2 of Agricultural Commodity,
Family Farm, Feasible Plan, Good Faith, Non-Eligible Enterprise,
Participated in the Business Operations of a Farm, Related by Blood or
Marriage, Relative, and Youth Loan;
<bullet> the financial analysis and document submission
requirements for existing borrowers in 7 CFR 761.105 and 765.101;
<bullet> copies of real estate and equipment leases are required as
part of a complete direct loan making or servicing application upon
request in 7 CFR 764.51 and 766.102;
<bullet> the requirements in 7 CFR 764.51 and 764.101 to determine
reasonableness of available credit elsewhere;
<bullet> direct loan eligibility credit history requirements in 7
CFR 764.101 apply to all entity members;
<bullet> guaranteed loan eligibility credit history requirements in
7 CFR 762.120 when there is previous debt forgiveness;
<bullet> the general direct loan managerial eligibility requirement
in 7 CFR 764.101 and aligns it with the direct FO requirement;
<bullet> the EM requirements in 7 CFR 764.353 to ensure duplicate
benefits are not provided;
<bullet> the special interest rate for beginning and veteran
farmers obtaining a direct Microloan (ML)-OL in 7 CFR 764.254 and for
the Indian Tribal Land Acquisition Program (ITLAP) 7 CFR 770.6;
<bullet> the application, eligibility, and loan security
requirements for transfer and assumption requests in 7 CFR 765.402,
765.403 and 765.404; and
<bullet> equitable relief provisions in 7 CFR 768.1.
In addition to the clarifying amendments, FSA is making technical
corrections to existing regulatory requirements that do not constitute
a change in policy. Specifically, this rule corrects minor grammatical
or typographical errors throughout 7 CFR 761 to 769, including
correcting both ``writedown'' and ``write down'' to ``write-down.''
The majority of amendments in the rule are changes in policy, most
of which are non-substantial changes to existing regulatory
requirements. Those amendments that are policy changes, but considered
non-substantial in nature, include:
<bullet> in 7 CFR 761.2, revising the ``family farm'' definition to
include commercial foraging operations for the purposes of operating
loan assistance where commodities are foraged on Indian land, and
adding definitions for ``commercially foraged'', ``Indian land'' and
``Indian Tribe;''
<bullet> requiring all guaranteed lenders to receive FSA approval
of a transfer and assumption to ensure applicants satisfy eligibility
requirements in 7 CFR 762.142;
<bullet> authorizing subordinations of loan security for a
guaranteed lender to refinance its own debt in 7 CFR 762.142;
<bullet> removing borrower production training requirements
throughout 7 CFR part 764 that are often waived, but maintaining the
important borrower financial training requirements;
<bullet> authorizing direct OL security to be a junior lien on real
estate in 7 CFR 764.251 when the purpose of the loan is to finance
minor real estate repairs or improvements, and establishing lease terms
for those circumstances;
<bullet> increasing the direct youth operating loan limit in 7 CFR
764.303 from $5,000 to $10,000;
<bullet> the experience eligibility requirements for direct FOs in
7 CFR 764.152;
<bullet> changing the EM formula for production loss used for
determining the EM amount in 7 CFR 764.352;
<bullet> in 7 CFR 765.102, allowing direct loans that are only in
non-monetary default for failure of the borrower to comply with
graduation requirements to be converted to non-program loans instead of
FSA proceeding with foreclosure action;
<bullet> providing specific response timeframes and FSA
notification requirements for direct loan subordination requests in 7
CFR 765.205;
<bullet> changing the requirements in 7 CFR 765.252 for the lease
of FSA security to provide borrowers additional flexibility;
<bullet> in 7 CFR 765.352 authorizing a portion of the proceeds
from the sale of loan security to be retained by the borrower to pay
capital gains taxes;
<bullet> establishing a State Executive Director's authority to
extend PLS application deadlines in extraordinary circumstances in 7
CFR 766.101;
<bullet> expanding reasons that a delinquency may be due to
circumstances beyond the control of a borrower for the purposes of PLS
in 7 CFR 766.104 to include catastrophic medical expenses for the care
of family member of a borrower or entity member;
<bullet> establishing timeframes in 7 CFR 766.115 for a borrower to
obtain an independent appraisal if they dispute an FSA appraisal;
<bullet> making minor adjustments and edits to the form for the
Notice of Availability of Loan Servicing to Borrowers Who Are 90 Days
Past Due in 7 CFR 766, Subpart C, Appendix A (form FSA-2510) and the
related form for Iowa in Appendix B, to reflect the changes implemented
in this rule and make minor technical corrections (the changes are not
intended to change the information being collected); and
<bullet> making changes in 7 CFR 769 to the Heirs' Property
Relending Program (HPRP), including expanding the application period.
The most substantial changes to the Farm Loan Programs regulations
are those that apply to all borrowers and are intended to promote
profitable farming operations. These changes will be incorporated into
the subsidy rate for the relevant loan programs per FCRA. Specifically,
this rule:
<bullet> establishes requirements for the development of farm
operating plans and farm assessments in 7 CFR 761.103, 761.104, and
762.124, to ensure consideration of a reasonable amount of cash flow
margin to increase working capital reserves and savings, including
reasonable savings for retirement and education;
<bullet> provides all eligible applicants the option to receive
flexible repayment terms, including maximum direct loan repayment terms
and an option for interest-only payments during the first year for
certain types of direct loans in 7 CFR 764.154, 764.254, and 764.354;
<bullet> modifies direct FO, OL, and EM additional loan security
requirements in 7 CFR 764.103, 764.106, 766.56, and
[[Page 65023]]
766.112, specifically by reducing the additional security requirement
for all loan making and servicing requests, removing the additional
security requirement for all MLs and FOs with a down payment, removing
the requirement that non-real estate assets be used as additional
security for FOs, removing the requirement that a personal residence be
provided as additional security, and removing the requirement for a
lien on all assets to be provided to receive PLS assistance, DSA
assistance, or for guaranteed loans being restructured with a balloon
payment in 7 CFR 762.145;
<bullet> adds 7 CFR 766.120, which provides an alternative to PLS,
allowing for a simplified extension of repayment terms when a balloon
payment comes due; and
<bullet> expands opportunities in 7 CFR 765.305 and 765.351 for the
release of a limited amount of direct loan security without
compensation in certain circumstances.
Discussion of Substantial Changes
The following discussion provides additional detail on the
amendments identified as substantial changes. Below that, non-
substantial changes, clarifications, and technical corrections are
discussed, in that order.
Farm Operating Plan Development and Farm Assessments
Developing a reasonable farm operating plan is essential for a
farming operation to be successful. An important component of
developing a farm operating plan includes considering the amount of
reserves and cash flow margin necessary to support operational
stability and growth. This will benefit farmers by providing the
opportunity to create farm operating plans with budgets that include a
reasonable amount of cash flow margin to increase working capital
reserves and savings, including reasonable savings for retirement and
education. This rule amends 7 CFR 761.103 and 761.104(f) to provide
opportunity for FSA's farm assessments and borrowers' farm operating
plans to allow for savings to support long-term operational financial
stability and growth, including savings to ensure personal financial
stability. Amendments to 7 CFR 761.103 also build consideration of
borrowers' short- and long-term goals for their operation into annual
farm assessments, as required by the CONACT, including progress towards
graduation to commercial credit or eventual self-financing. This
encourages farmers to consider customized FSA loan repayment terms that
may better meet the goals of their proposed farming plan, including
equal, unequal, interest-only, and balloon payments, as part of
developing that plan. This rule amends 7 CFR 762.124 to clarify that
flexible repayment terms may also be necessary to support guaranteed
loan customers.
Farm operating plans that are unable to adequately fund working
capital reserves and savings often indicate financial distress, which
can lead to the need for additional loans or for FSA to provide loan
servicing options. Flexible repayment terms help to ensure that
adequate working capital reserves and savings are available for
investments as opportunities arise. Through the promotion of flexible
repayment terms, FSA is providing the best terms available to a
borrower up front that maximize the opportunity to achieve adequate
reserves and savings, as opposed to waiting for the operation to become
distressed under the weight of excessive debt service obligations
before a loan can be restructured with reduced payment requirements.
Rather than the traditional approach of equity growth through
accelerated debt repayment, flexible repayment terms support borrower
equity growth by allowing borrowers the freedom to accumulate working
capital reserves to make strategic investments in a timely manner,
resulting in substantially more equity growth than would otherwise be
realized through accelerated debt repayment.
Direct Loan Repayment Terms
The maximum repayment term for direct loans is 40 years for an FO
and 7 years for an OL. Determining the appropriate repayment term
within those limits has historically required FSA to apply its
discretion based on an individualized analysis of the applicant's
ability to repay and the useful life of the security, which can result
in inconsistency in the terms offered to applicants. This rule will
standardize all repayment schedules offered to applicants to provide a
greater opportunity to build operational stability and be successful.
Updates to 7 CFR 764.154(b)(1), 764.254(b)(2), 764.354(b)(4) and (5)
require all FOs, OLs, and EMs for purposes other than family living and
farm operating expenses, to be scheduled over a term equal to the
lesser of the useful life of security or the maximum term authorized by
law, unless the applicant otherwise requests a shorter term in writing.
This rule does not affect the repayment term provided on Down Payment
Loans, which is established by the CONACT to be 20 years or less. FSA
will continue to offer Down Payment Loans to customers with a repayment
term of 20 years unless the applicant desires a shorter term to be
considered.
Additionally, this rule amends the standard repayment term for the
ML-FO Program. FSA developed ML to better serve the unique financial
operating needs of new, niche, and small family farm operations. MLs
offer more relaxed application requirements and serve as an attractive
loan option, particularly for smaller and non-traditional farm
operations that often face limited financing options.
While there is no difference between the maximum repayment term for
an OL or an ML-OL (7 years), the ML-FO has been limited by regulation
to a 25-year maximum repayment term, substantially less than the 40-
year term of an FO. Since the ML-FO is targeted to small, start-up, and
niche farming operations, the more restricted repayment term may put
additional financial constraint on applicants who may already have
limited financial resources. This rule amends 7 CFR 764.154(b) to allow
for a maximum repayment term of 40 years for an ML-FO. Should a ML-FO
applicant determine it to be in their best interest to receive a loan
term less than 40 years, for example, to benefit from paying less total
interest over the life of their loan, the applicant may request a
shorter term in writing. Additionally, borrowers may reduce their
interest cost over the life of a loan by making additional payments if
they are able and desire to do so as FSA loans carry no pre-payment
penalty.
In addition, FSA emphasizes the use of flexible repayment terms to
ensure adequate working capital reserves and savings can be accumulated
by the borrower. As mentioned above, to ensure all borrowers have an
opportunity to grow adequate working capital reserves and savings, all
applicants will be offered an opportunity for a repayment plan on new
term loan requests that includes an interest-only installment during
the first year of the loan. An interest-only installment the first year
of a loan can result in a substantial boost to reserves and savings,
enabling the borrower to make strategic investments to grow their
operation without having to take on additional debt. For borrowers who
elect the first-year interest-only installment plan, principal
reduction will typically begin after the sale of crops or livestock
produced during the second year of the loan. This rule makes these
changes in 7 CFR 764.154(b)(2) and (3), 764.254(b)(3) and (4), and
764.354(b)(6) and (7).
Prior to this rule, FSA structured most loans using equally
amortized
[[Page 65024]]
installments to repay a loan, which can put undue stress on already
strained operating budgets. As a result, a borrower was more likely to
become distressed and request PLS, a time-consuming process for both
borrowers and FSA, which typically resulted in outcomes similar to
those available through flexible repayment terms. Under flexible
repayment terms for loans other than Down Payment FOs where the CONACT
requires equally amortized payments, scheduled loan installments can be
structured to reflect the expected cash flows used to analyze
repayment, providing borrowers with greater financial flexibility over
the life of the loan and enabling cash flow budgets to include
projections for reasonable working capital reserves and savings.
Flexible repayment terms for these loans can include interest-only
installments, partial principal payments, and balloon installments.
This rule clarifies that flexible repayment terms may include interest-
only installments for up to 3 years, which can be used if FSA
determines it necessary to reasonably increase cash flow margin to
increase working capital reserves and savings, including reasonable
savings for retirement and education. While principal reduction on
loans is important to begin to support borrower growth and ensure FSA
loans remain fully secured, interest-only payments beyond 3 years
remain an option only when FSA determines that interest-only payments
are necessary to establish a new enterprise, develop a farm, or recover
from a disaster or economic reversal.
Providing the option of flexible repayment terms at the time of
loan approval enables all borrowers to receive the benefits of a
deferral of principal without having to first become financially
distressed or defaulting on their loan in order to access the loan
servicing options of PLS, DBSA, or DSA. Providing more flexible
repayment terms allows borrowers to make timely and strategic
investments to grow their operations. As specified above, flexible
repayment terms have the potential to reduce program delinquency and
will provide borrowers with more options to meet the short- and long-
term goals of the farm business, and to generate reasonable working
capital reserves and savings, including savings for retirement and
education.
For loans with balloon installments scheduled, borrowers have been
required to go through the process of applying for PLS to extend the
repayment schedule of their loan. This process is not customer-friendly
and makes little sense for a borrower who has repaid as agreed
throughout the initial loan term. Accordingly, this rule adds 7 CFR
766.120 to enable a borrower to receive a simple extension of repayment
terms for up to an additional 8 years from the date the balloon payment
comes due. This will provide the borrower with repayment terms similar
to what they would receive through PLS, but without needing to go
through the PLS process. Under PLS, an operating loan can be
rescheduled for a term up to 15 years. Accordingly, this option aligns
with that PLS provision by permitting an extension of up to 8 years for
repayment of the ballooning loan where the original maturity date was
no more than 7 years from the date of loan closing.
To ensure this option is adequate to meet the borrower's needs, it
is available only to borrowers who have a history of successful
repayment of their loans, including making full installments for the
last 3 years on the ballooning loan. For other borrowers, PLS will
continue to be available. Additionally, this option is not available on
loans where repayment terms have already been altered by PLS, or that
have an outstanding DSA or DBSA, as the terms of those updated
repayment agreements cannot be accommodated with a basic extension of
the original loan terms.
Loan Security
This rule amends additional direct loan security and collateral
servicing requirements to better enable borrowers to leverage assets
and make strategic investments in their operations. This rule does not
amend guaranteed loan security requirements. Additional loan security
is collateral in excess of what is needed to fully secure the loan.
Specifically:
<bullet> Additional direct loan security requirements in 7 CFR
764.103(c) requires a 125 percent loan security margin when available
for direct loans, which is a change from the current requirement of 150
percent. The amendment also requires that real estate assets only be
provided as additional security for direct FOs. Consistent with the
current regulation and policy, if the borrower does not have the
additional security available to pledge, FSA may still be able to make
the direct loan if the loan is fully secured; additional security will
only be taken ``when available.''
<bullet> This rule also amends 7 CFR 764.103(c) to expand the
circumstances in which no additional security is required, to now
include all Microloans and FOs for which a cash down payment has been
provided (similar to the existing Down Payment Loan Program, which does
not require additional security).
<bullet> This rule removes direct loan making requirements for a
personal residence to be used as additional security for direct loans
in 7 CFR 764.106(d) under certain conditions.
<bullet> The reduced additional security requirement of 125 percent
security margin, where available, is also being applied to PLS in 7 CFR
766.112(a); however, a lien on the personal residence will still be
required during PLS if necessary to achieve a 125 percent security
margin.
<bullet> This rule also amends the DSA additional security
requirement by removing 7 CFR 766.56 so that additional security will
not be required to be pledged if a customer requires DSA Program
assistance, consistent with the new DBSA Program.
<bullet> This rule removes a requirement in 7 CFR 762.145(b)(7)
that required guaranteed lenders to take a lien on all assets when
restructuring a loan with a balloon installment.
<bullet> This rule provides processes for an expedited release of
certain direct loan security in 7 CFR 765.305(c) and 765.351(f) after a
period of successful loan repayment, further promoting borrower growth
and saving significant staff time monitoring loan security that is not
essential to loan repayment.
These fiscally responsible data-driven changes ensure that FSA is
not overcollateralized and allows borrowers to leverage the equity in
their assets to grow their operations. Since 1994, the regulation has
required direct loans to be secured by not only the assets purchased or
improved with loan funds, but also an additional amount of security
equal to 50 percent of the direct loan amount, if available. FSA
determined that this requirement created a significant cost in both
time and resources to perfect a lien on additional property, which has
been determined to not be necessary for FSA to be fully secured, and
also constrained borrowers from using equity to acquire capital needed
for expansion for other business purposes.
A lien on assets purchased or improved with direct loan funds will
still be required to provide adequate security for FSA farm loans.
However, FSA recognizes that excessive additional security requirements
that are unnecessary to significantly mitigate losses to the Government
can ultimately restrict a borrower's ability to grow their operation by
accessing asset equity. While this rule removes certain additional
security provisions where FSA has determined taxpayer resources
[[Page 65025]]
remain adequately protected (see following analysis), all loans will
continue to be sufficiently collateralized. The existing additional
security requirements also result in an ineffective use of FSA
resources, as staff are required to monitor and service the often-
unnecessary additional security liens. These changes are estimated to
reduce administrative time by over 8,000 hours annually as staff will
realize a reduced number of on-site inspections to evaluate collateral
and less time updating security documents, including renewals of
expiring liens.
Revising the direct loan security margin in 7 CFR 764.103(c) to 125
percent, reduces the amount of additional security required for a
direct loan by half, from 50 percent of the loan amount down to 25
percent. FSA has determined that security at least equal to 125 percent
of the loan amount, where available, will provide adequate assurance of
repayment. In fact, since fiscal year (FY) 2000, the average security
margin for loans that experienced a loss was 120 percent at the time
the loan was made, which is below the revised threshold. Accordingly,
this revised amount of additional security aligns not only with
historic portfolio performance data, but also with the loan security
expectations by other government lending regulators. Furthermore, in
the infrequent situation where FSA does liquidate security
(approximately 4.1 percent of all accounts since FY 2000), the average
administrative cost to FSA is less than 10 percent of the security
value. This is substantially below the 25 percent additional security
amount required in this rule, which provides an amount sufficient to
cover estimated FSA administrative costs in the majority of liquidation
circumstances. The requirement for additional security can be
particularly important to protect the government from program losses
for higher-risk direct OLs where primary security is often crops,
livestock, or equipment with security values that are more volatile
than real estate. However, for direct loans where real estate serves as
adequate security, such as FOs, the additional security provision can
result in FSA initially requiring more security than is necessary to
protect the government's interests.
Prior to this rule, FSA perfected additional security lien
interests on short-term non-real estate security items such as crops,
livestock, and equipment, even if the loan was secured by more robust
forms of collateral--such as real estate--as in the case of an FO.
Requiring a lien on short-term assets for long-term debt significantly
hinders a borrower's ability to leverage those assets to obtain
reasonable rates and terms through commercial lenders for operating
purposes, thereby delaying graduation to commercial credit or making
progress towards self-financing, which are primary FLP objectives.
For FSA direct loans, additional non-real estate security assets
are rarely relied upon for repayment of debt primarily secured by real
estate, even in cases of foreclosure. The FSA data show losses on
direct real estate loans are reduced when the loan-to-value at the time
of liquidation is below 95 percent, as demonstrated in the Down Payment
Loan Program. In the Down Payment Loan Program, applicants are required
to provide a 5 percent cash down payment, and additional security is
not required to be pledged. The FSA Down Payment Loan Program has an
average historical loss rate from 2000 through 2023 of less than 0.14
percent, which is significantly lower than the average FO Program loss
rate of 0.96 percent. This further demonstrates that additional
security is generally unnecessary for successful repayment of real
estate debts when even a small amount of equity exists in the real
property security.
Accordingly, this rule changes the additional security required for
direct FOs to only be other real property. As discussed, when a loan is
secured by real estate it is rare that FSA would rely on non-real
estate assets to avoid a loss. This change to 7 CFR 764.103(c) will
improve FSA internal processes by removing the need for FSA staff to
maintain security interests that are unnecessary to adequately
safeguard taxpayer resources, saving the time and cost of security
inspections, and allowing borrowers to leverage asset equity to improve
their operation.
This rule extends the list of existing exemptions from additional
security requirements in 7 CFR 764.103(c) to include any direct FO
where the applicant supplies a 5 percent cash down payment of the
purchase price. This exemption has historically been available only for
the Down Payment Loan Program, where the CONACT limits the security
required. As discussed, the Down Payment Loan Program was a significant
success, with the lowest delinquency and loss rate of any current FLP
loan. Where a similar down payment is provided by an applicant of a
regular FO, FSA expects similar low delinquency and loss rates. This
expanded exemption will provide increased incentive for applicants to
provide a cash down payment that improves the FSA security position
without additional security needing to be pledged by the applicant.
This rule further extends the list of existing exemptions from
additional security requirements in 7 CFR 764.103(c) to include any ML.
This exemption will improve access to MLs, which are predominantly made
to small and beginning farmers. Prior to this rule, only term MLs (such
as direct loans for equipment or real estate purchases) were exempt
from additional security requirements. This rule extends the exemption
to any ML, including those for annual operating expenses. The average
ML delinquency rates for 2017 through 2021 (13 percent for operating
ML-OL and 3.6 percent for ML-FO) are approximately half that of their
regular OL or FO counterparts. The annual ML-OL delinquency rate is
also approximately 5 percent lower than the regular annual OL
delinquency rate. Overall, the ML Program has a solid history of
stronger repayment performance compared to most other farm loan
programs. ML historical performance supports that program integrity can
be maintained while extending the additional security exemption to all
MLs.
This rule specifies in 7 CFR 764.106(d) that the personal residence
will not be required for direct loans provided that the loan is fully
secured by assets that have a value equal to the loan amount and the
residence is on no more than 10 acres or the minimum amount able to be
parceled into a separate legal lot. Reducing the frequency of personal
residences to serve as additional security improves a borrower's
ability to provide for basic housing needs in the event of financial
distress. FSA has rarely relied on equity in a borrower's home pledged
as additional security to ensure repayment, even in situations of
distress. However, a lien on the personal residence will be required
should the borrower ultimately require PLS.
Additionally, the rule applies the revised direct loan making
security levels to the servicing of the loan by requiring additional
security of up to 25 percent of the loan amount to be taken as a
requirement of PLS, which is a reduction from the existing requirement
for a lien on all assets. These changes in 7 CFR 766.112(a) will result
in improved program delivery by reducing the administrative burden of
maintaining and tracking unnecessary additional security as noted
above, while furthering program objectives by improving the prospects
of borrower graduation as borrowers are able to leverage asset equity
to accelerate financial growth. Historical portfolio performance data
reflect that the average security margin on accounts that
[[Page 65026]]
experience a loss is 120 percent, which is below the 125 percent
threshold provided by this change. In addition, less than a third of
any of the approximately 4.1 percent of farm loans with losses had a
security margin of greater than 125 percent. Therefore, there is only a
limited pool of loans in the portfolio (less than 1.5 percent) that are
estimated to be potentially vulnerable to increased losses when
requiring less security at the time of loan making.
This rule removes 7 CFR 766.56, which previously required that
borrowers provide a lien on all assets in order to receive DSA. All
loans are originally made with adequate security to fully secure the
FSA debt, so the requirement for a lien on all assets typically results
in the FSA debt being more than adequately secured, which may prohibit
the borrower from leveraging equity in assets, or preventing the sale
of assets, if necessary to fully recover from a disaster.
A similar requirement in 7 CFR 762.145(b)(7) is also being removed
that previously required a lien to be taken on all assets by a
guaranteed lender when restructuring a loan with a balloon installment.
Release of Security Interest and Partial Release of Real Estate
Security
The regulations in 7 CFR 765.305 specify the conditions that must
be met for FSA to release its security interest. The regulations in 7
CFR 765.351 specify that the borrower must obtain prior consent from
FSA for any transactions affecting the real estate security, including
when a borrower sells, exchanges, or requests a partial release of
security. FSA has historically authorized the release of a limited
amount of security without compensation in limited circumstances.
This rule is amending 7 CFR 765.305(c) and 765.351(f) to allow a
borrower to receive a lien release of certain security items if they
have a demonstrated history of making all payments as scheduled with
FSA for the previous 36 months and the loan will be adequately secured
after the release. Unencumbering security in excess of 125 percent of
the outstanding loan balance allows the borrower to sell the property
and improve the borrower's cash position, make the asset available to
pledge as collateral for other loans or purposes, or allow the borrower
to leverage equity attributed to the a rise in the appraised value of
the asset for other investments. In order to provide greater
flexibility to borrowers, FSA is removing the requirement that the
borrower retain the security and use it as collateral for other credit;
however, the transaction must still enhance the program objectives of
the FLP loan under 7 CFR 765.301(f) and 765.351(a)(1). A borrower who
has made timely payments over the most recent 36 months demonstrates a
likely ability to meet scheduled loan payments going forward. Data from
FY 2000 to 2023 reflect that accounts with a recorded loss were in
financial distress within the first 3 years of loan closing 76 percent
of the time. Accordingly, while this policy change may result in an
increase in losses, all FSA loans will remain fully secured even after
a partial release, and historical data reflect that the vast majority
of the time a customer who successfully repays for 3 consecutive years
does not incur a loss to the government. The release of security in
excess of 125 percent of the outstanding FSA loan balance, will support
a borrower's ability to grow their operation by accessing asset equity
and will also save significant staff time maintaining liens on assets
that are not needed to adequately safeguard taxpayer resources.
Discussion of Non-Substantial Changes
The following discussion provides additional detail on the
amendments identified as non-substantial changes.
Definition of Family Farm, Commercially Foraged, Indian Land, and
Indian Tribe
This rule revises the definition of ``Family farm'' in 7 CFR
761.2(b) to include commercial foraging operations as an eligible
family farm for the purposes of operating loans where commodities are
commercially foraged on Indian land. This rule adds corresponding
definitions for ``commercially foraged'', ``Indian land'' and ``Indian
Tribe.'' While the commercial foraging space has limited participation
nationwide, the industry has unique cultural relevance in certain
regions. For example, commercial foraging is an important aspect of
several Native American Tribal cultures, with a rich history stretching
back for generations. Foraging is often done on Indian land managed by
an Indian American Tribe. Opening FLP assistance to these operators is
a significant step in supporting USDA's commitment and trust
responsibility to federally recognized Tribes. While assistance is not
limited only to Native American producers, applicants that commercially
forage must comply with all local rules and regulations pertaining to
foraging on Indian land. The new definitions of ``Indian land'' and
``Indian Tribe'' are only used for the commercial foraging provisions
established in this rule, and are based on existing definitions of
``Indian land'' and ``Indian Tribe'' used in Federal programs to cover
commercial foraging on lands owned by an Indian Tribe, restricted fee
land owned by an Indian Tribe, and land held in trust for an Indian
Tribe. The definition of ``Indian land'' excludes land held in trust
for or owned by individuals.
Guaranteed Servicing Related to Collateral
FSA may subordinate its security interest on a direct loan for many
purposes, including when a new guaranteed loan is being considered to
refinance the debt of another lender. When the lender requesting the
guarantee is limited only to refinancing the debt of another lender,
and not its own non-guaranteed debt, the lender faces the risk of the
borrower going to a different lender to refinance the non-guaranteed
debt of the current guaranteed lender. The new lender could then apply
for an FSA guarantee and a subordination of the direct loan, while the
existing lender will lose its borrower. This amendment to 7 CFR
762.142(c) allows a subordination of direct loan debt when a lender
requests a guarantee on a loan to refinance any debt, including its
own.
Similarly, FSA may allow a lender to subordinate its interest in
basic security which secures a guaranteed loan in cases in which the
subordination is required to allow another lender to refinance an
existing prior lien. When the lender requesting the refinance is
limited only to refinancing the existing debt of another lender, and
not its own debt, the lender faces the risk of the borrower going to a
different lender to refinance the debt. The existing lender will lose
its borrower, while the new lender will be granted the subordination on
the guaranteed loan debt. This rule allows a subordination of
guaranteed loan debt when a lender requests to refinance any debt,
including its own.
Guaranteed Loan Transfer and Assumption Requirements
Standard Eligible Lender and Certified Lender Program lenders are
required to obtain FSA concurrence to process a transfer and assumption
of a guaranteed loan. This rule amends 7 CFR 762.142(d) to require
Preferred Lender Program lenders to also obtain FSA concurrence to
ensure transferee eligibility and ensure that FSA records accurately
reflect the transferee as operator and debtor.
[[Page 65027]]
Borrower Production Training
Section 359 of the CONACT requires the educational training needs
of each direct loan applicant to be evaluated, with training options
provided when needed. Under this authority, FSA evaluates the need of
each direct loan applicant to complete borrower training. The borrower
then contracts with an approved third-party vendor to provide the
training deemed necessary by FSA. This is an important component of
FSA's process for granting direct FLP assistance and is consistent with
FSA's focus on progression lending.
While borrower financial training has ample training vendors
available, and has been essential to the success of many producers,
borrower production training options are limited, and efforts to
improve borrower production knowledge via mandated training courses are
generally ineffective. While most financial training concepts are
applicable across all farm types and regions, applicable production
training material is specific to agricultural regions and enterprises.
There is a substantial lack of vendors providing production training
because most organizations that request FSA approval to be an
authorized training vendor lack the effective resources to provide
production training specific to the varied regions and enterprises. Due
to a lack of viable industry-specific production training vendors, FSA
provides nearly all direct loan customers a waiver of production
training requirements, with less than 5 percent of direct loan
customers required to complete borrower production training.
While borrower production training lacks authorized vendors and is
generally ineffective at improving borrower production knowledge,
private mentorships and relationships built by the borrower themselves
are typically the most beneficial production training a producer
receives. Therefore, this rule removes all references to borrower
production training in 7 CFR 764. However, borrower financial training
requirements remain unchanged.
FSA Lien Position on Real Estate Repaired or Improved With Direct OL
Funds
FSA uses direct OL funds to finance minor real estate repairs or
improvements, provided the loan can be repaid within 7 years.
Construction or improvements amortized over periods longer than 7 years
generally align better with direct FO purposes and are not financed
with direct OL funds.
While smaller repairs or improvements can be financed by either an
OL or FO, an applicant may find it beneficial to apply for an OL in
certain instances, such as when FO funds are limited, or when an
applicant has reached FO term limits. However, security requirements
vary slightly for an FO and OL.
For any OL, security must be a first lien on assets purchased or
improved with direct loan funds, while an FO may be secured by real
estate in a junior lien position. FSA is amending the OL security
requirements in 7 CFR 764.255 for loans where the purpose is to make
minor repairs or improvements to allow a lien in junior lien position
to serve as adequate security.
In 7 CFR 764.251(a)(11), FSA is requiring that for improvements on
leased property, the lease must allow the borrower full use of the
improvement over the life of the security or have a provision
compensating the borrower for any remaining economic life in the event
the lease is terminated.
Increase Loan Limit of the Youth Loan Program
This rule is amending 7 CFR 764.303(b) to allow FSA to double the
direct Youth Loan (YL) limit on the total principal balance owed by an
applicant on all YLs at any one time from $5,000 to $10,000. FSA makes
direct loans to applicants 10 through 20 years old to finance income-
producing projects of modest size in connection with their
participation in 4-H, Future Farmers of America (FFA), Tribal youth
groups, or similar agricultural youth organizations. The project being
financed with an FSA YL provides an opportunity for the young person to
acquire experience and education in agriculture-related skills.
YL application activity has steadily fallen in recent years, with
YL applications totaling 3,795 in FY 2017, 3,201 in FY 2018, 2,788 in
FY 2019, 2,451 in FY 2020, 1,568 in FY 2021, and 1,370 in FY 2022.
An important factor affecting decreased application activity for YL
is the relatively small maximum outstanding loan limit of $5,000 per
individual. The $5,000 limit has been unchanged since 1988, without
adjustment for the significant inflation since that time. The rate of
inflation of agricultural inputs is considered to be approximately
equal to the Consumer Price Index (CPI). CPI figures indicate that the
buying power of $5,000 in 1988 equals more than $10,000 today. The
$5,000 loan limit is often not adequate to provide the young person
enough to finance their intended projects. During FY 2017 through 2022,
the average amount requested per YL applicant was $4,578, which
supports the need for this increase above the previous $5,000
limitation.
Direct FO Eligibility--Farm Experience
As specified in the CONACT, one of the eligibility requirements for
direct FOs is that an applicant must have participated in the business
operations of a farm or ranch, or possess other adequate experience as
determined by the Secretary. In the rule published March 9, 2022, (87
FR 13117-13127) that implemented provisions of the 2018 Farm Bill, FSA
provided eight specific areas of experience that may be allowed as
substitutes for 2 of the 3 years of actual experience. In some
combinations, the experiences may meet the requirement for all 3 years.
FSA amends 7 CFR 764.152(d) to require that in the case of an
entity, at least one member who will be the operator of the farm must
meet these experience requirements. Prior to this rule, the majority of
entity members needed to meet the experience requirement, which can
limit participation for certain entities whose membership includes
individuals with minimal actual farming experience. This amendment
expands credit opportunities for applicants.
Emergency Loan Loss Calculations
The EM Program is triggered when a qualifying disaster or emergency
is designated by the Secretary of Agriculture or declared by the
President. These direct loans help producers recover from disaster-
related physical and production losses.
The maximum amount FSA is able to lend for a production loss EM is
determined according to 7 CFR 764.353(c); it is determined in part by
reducing the calculated production loss by any compensation or
insurance payments related to the disaster. This reduction is required
so that the applicant will not receive duplicate payments from both an
EM and Federal Crop Insurance indemnity payment, or other government
payment, as stated in 7 CFR 764.352(k).
In recent years, the USDA Risk Management Agency's Revenue
Protection policies have become more popular, and many Federal crop
insurance policies sold today provide some form of revenue protection.
Revenue Protection policies insure producers against certain yield
losses, as well as against revenue losses caused by a reduction in the
harvest price compared to a projected price.
[[Page 65028]]
Indemnity payments triggered by a Revenue Protection policy do not
differentiate between the amount of the payment generated from
production or price loss. Since FSA is unable to provide duplicate
Federal benefits due to crop losses under 7 CFR 764.352(k) and 42
U.S.C. 5155, this rule amends 7 CFR 764.353(c)(4) to clarify that any
compensation or insurance indemnities related to the loss will be
subtracted in the calculations to arrive at FSA's maximum EM production
loss loan amount.
Prior to this rule, producers who suffered a production loss but
were made whole by a Revenue Protection insurance policy could still
qualify for an EM since only specific disaster-related insurance
payments were reduced. Now, any insurance indemnity payments are
deducted from the formula to determine the EM amount, thereby better
protecting against duplicate payments.
This rule amends the production loss threshold necessary to qualify
for the EM Program in 7 CFR 764.352(h) to allow EM eligibility if a
producer sustains a disaster yield that is below the normal production
yield of the crop. By default, the CONACT provides eligibility for EMs
based on production losses if an applicant has sustained at least a 30
percent production loss. However, the CONACT provides the Secretary
discretion to set a lesser percent of production loss as the threshold
for eligibility. The production loss threshold has historically been
set at the maximum 30 percent threshold, which can prohibit producers
from accessing EM assistance necessary to adequately recover from a
disaster. FSA is removing the 30 percent threshold such that to qualify
for EM assistance the disaster yield must have simply been below the
normal production yield of the crop. This change will expand EM
opportunities for customers who have a demonstrated loss and are in a
financially vulnerable position. Establishing a specific threshold
restricts the opportunities for recovery aid, and thus it is reasonable
to expand potential program benefits to any eligible producer who has
suffered a demonstrated production loss as a result of the declared
disaster. FSA notes that the 7 CFR 764.353(b)(3) limitation remains in
place that ensures loan amounts do not exceed 100 percent of the total
actual production loss sustained by the applicant.
Borrower Graduation Requirements
An existing direct loan borrower must refinance their direct loans
with a commercial lender at reasonable rates and terms when they have
the financial ability to do so. Failure to graduate to commercial
credit is considered non-monetary default and the account is referred
for acceleration and foreclosure action. While these cases are not
frequent, with only 68 instances since FY 2010, final action on these
accelerated, non-monetary default loans to full foreclosure and loan
settlement is often delayed for years. In these cases, during that
delay, the farm loan borrower continues to receive the excess benefit
which they are no longer qualified for. For example, the borrower
continues to receive a reduced interest rate by not refinancing, even
though the financial review reflects that refinancing is an option. As
an alternative to non-monetary foreclosure on accounts that would
otherwise be in good standing, this rule amends 7 CFR 765.102 to
provide for accounts to be converted to non-program status if the
borrower fails to comply with graduation requirements or to submit
requested financial documents necessary to evaluate a borrower's
ability to graduate. Conversion of such loans to non-program status
with higher interest rates and restrictive loan terms ensures
appropriate use of taxpayer resources, with subsidized program loan
benefits being provided only to borrowers in compliance with program
requirements. This rule is applicable to all future accounts as it
requires a borrower to acknowledge this alternative as a condition of
the FSA direct loan. For existing customers to take advantage of this
provision, they must acknowledge and accept the conditions separately.
Subordination of Liens
FSA has a clearly defined process for direct loan making and
special servicing applications to provide an applicant written notice
if additional information is required to make an application complete.
A complete subordination application request also includes multiple
documents, and borrowers need to be afforded the same opportunity to be
notified of any outstanding information necessary to have a
subordination request processed. This rule amends 7 CFR 765.205(b) to
specify that FSA will process incomplete subordination requests in the
same manner as is required for incomplete direct loan making requests.
Lease of Security
The lease of non-real estate security can often be in the best
interest of FSA. For example, an apiary with beehives that serve as
security may desire to lease beehives to other farms for pollination
purposes, thereby generating income to ensure success of the operator
with minimal deterioration to the security. This rule amends 7 CFR
765.252(c) to allow the lease of non-real estate security in certain
situations that are in the best interest of FSA.
Additionally, the regulation in 7 CFR 765.252(a) requires borrowers
to obtain approval to lease the surface of real estate security. In
August 2021, this provision was amended to limit leases for nonfarm
enterprises. This rule amends the wording in 7 CFR 765.252(a)(4) to
correctly reference ``significant acreage of the security.'' Consent is
only required for surface leases on the portions of a farm operation
that serve as FSA security.
Use of Proceeds From Sale of Security
When borrowers sell basic security, they are often subject to
capital gains taxes. FSA does not allow proceeds from the sale of basic
security to be used for family living or farm operating expenses, which
leaves borrowers with limited options to pay capital gains taxes. While
historic exception requests for this purpose have been limited, with
less than three requests typically made each year, this can be a
significant hardship for borrowers with limited financial means to
cover the taxes. This rule adds 7 CFR 765.352(a)(4) to allow a borrower
to use a portion of proceeds from the sale of basic security to pay
capital gains taxes in limited circumstances. Specifically, retention
of a portion of proceeds necessary to pay capital gains taxes will only
be authorized if the FSA debt remains fully secured and the borrower is
not otherwise able to adequately cover the tax liability through
reasonable means or obtain non-FSA credit to cover the amount of the
taxes.
Borrower Loan Servicing Deadline Extension
The 2018 Farm Bill amended section 331D of the CONACT to permit
State Executive Directors to extend the 60-day PLS application deadline
in extraordinary circumstances. This flexibility is added to the
regulation in 7 CFR 766.101(e).
Borrower Eligibility Requirements for PLS
The rule amends 7 CFR 766.104(a)(1)(vi) to add catastrophic medical
expenses for a family member in the household of a borrower or entity
member, in the case of an entity borrower, as circumstances beyond the
control of the borrower leading to delinquency or financial distress
for the purposes of PLS eligibility.
[[Page 65029]]
Deadline for Disputing an Appraisal
Borrowers requesting PLS who do not agree with the FSA appraisal
are provided the opportunity to appeal the valuation by submitting
their own independent appraisal. This rule amends 7 CFR 766.115(a) to
establish a deadline of 90 days for the borrower to obtain and submit
an independent appraisal to FSA. FSA has extensive experience in
coordinating, contracting, and obtaining a completed agricultural real
estate appraisal, with the process traditionally taking anywhere from
30 to 60 days. Accordingly, 90 days is a reasonable amount of time for
a borrower to obtain a new valuation and this amount of time ensures
that all servicing appeal requests are processed timely.
Notification for PLS
FSA will provide, by certified mail, the PLS notice to borrowers
who are at least 90 days past due; this notice is included in the
regulation as required by the CONACT, section 331D (7 U.S.C. 1981d).
The FSA-2510 ``Notice of Availability of Loan Servicing to Borrowers
who are 90 days past due'' is included as Appendix A and B to Subpart C
of 7 CFR part 766.
FSA is amending FSA-2510 to incorporate the following changes:
1. Add copies of real estate leases (if applicable to the farm
operation) as items necessary for a complete application;
2. Remove references to ``good faith;''
3. Add ``catastrophic medical expenses for the care of a family
member of a borrower or entity member, in the case of an entity
borrower'' as a circumstance causing delinquency or financial distress
beyond the borrower's control for qualification for PLS;
4. Replace the reference to obsolete form SCS-CPA-026 with NRCS-
CPA-026e;
5. Remove reference to several forms for a complete loan servicing
application as the forms have been consolidated into a single form FSA-
2001;
6. Add verification of nonfarm income as a requirement for a
complete loan servicing application, which has always been a
requirement but was erroneously not included in this form previously;
7. Add a required statement to advise borrowers of the potential
tax liability after FSA cancels debt, which may be realized after a
write-down, current market value buyout, or debt settlement; and
8. Remove the words ``writedown'' and ``write down'' throughout the
document and add ``write-down'' in their places.
Heirs' Property Relending Program Technical Corrections
The initial regulation for HPRP was published on August 9, 2021 (86
FR 43381-43397), implementing HPRP, which was authorized in the 2018
Farm Bill. In processing the initial HPRP applications, FSA found
several areas in need of correction to address the intermediary's HPRP
cash accounts, remove barriers to program usage, and encourage
intermediary lender participation. FSA is making these changes in 7 CFR
part 769, including removing the previous deadline for an intermediary
lender to request a loan and to provide for the use of a deposit
agreement to securitize HPRP cash accounts in 7 CFR 769.162(a)(1).
Additionally, FSA is amending 7 CFR 769.164(d)(9)(ii) to clarify that
funds advanced to an intermediary lender that are unused for 6 months
must be returned to FSA unless FSA provides a written exception.
Discussion of Clarifications
The following discussion provides additional detail on the
amendments identified as clarifications.
Definition of Agricultural Commodity
This rule amends the ``Agricultural commodity'' definition in 7 CFR
761.2(b) to clarify that ornamental plants are an eligible commodity.
The definition of ``Agricultural commodity'' has included, and
continues to include, ``nursery crops.'' When ornamental plants are
produced commercially in a typical nursery setting, FSA considers
ornamental plants an eligible commodity. Ornamental plants are now
specifically named as a separate eligible commodity to clarify that
ornamental plants are an eligible commodity. To be considered an
ornamental plant, the plant must still be produced commercially in a
nursery setting that may include both covered and open-air growing
facilities.
Definition of Family Farm and Non-Eligible Enterprise
This rule revises the definition of ``Family farm'' in 7 CFR
761.2(b) to clarify that for FLP purposes, a farm must not be a non-
eligible enterprise, which includes those farms that do not produce
agricultural commodities for uses associated with human consumption,
fiber, or draft \2\ use. Some operations may be agricultural in nature,
but the intended use of the commodity is not for human consumption,
fiber, or draft use. Those operations are not eligible for FLP
assistance as they are considered a ``non-eligible enterprise'' as
defined in 7 CFR 761.2(b). For example, a rancher who raises primarily
rodeo livestock for sport purposes is not eligible for FLP assistance
as it is considered a non-eligible enterprise. This rule revises the
definitions of family farm and non-eligible enterprise to clarify that
the agricultural commodities must be produced for the use of food,
fiber, or draft.
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\2\ Draft use means domesticated animals used for working
purposes, most typically in drawing heavy loads and heavy labor.
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Definition of Feasible Plan
This rule amends the definition of ``Feasible plan'' in 7 CFR
761.2(b) to clarify that when unequal or interest-only installments are
scheduled during the initial year(s) of the farm operating plan, a cash
flow budget or farm operating plan must be prepared that reflect a
typical cycle. This change is consistent with the requirement for other
situations in which the planned cash flow budget or farm operating plan
is atypical, for example, due to cash or inventory on hand, new
enterprises, carryover debt, atypical planned purchases, or important
operating changes.
Definition of Good Faith
This rule amends the definition of ``Good faith'' in 7 CFR 761.2(b)
to clarify that instances of fraud, waste, or conversion, if
substantiated by a legal opinion from the Office of General Counsel
(OGC), are an additional independent basis when determining if an
applicant or borrower has acted in good faith. To demonstrate good
faith an applicant or borrower must adhere to all written agreements
with FSA, including any loan agreements, security instruments, farm
operating plans, and agreements for use of proceeds. Many actions that
qualify as fraud, waste, or conversion also constitute a clear
violation of FSA's loan agreement, security instruments, farm operation
plans, and agreements for use of proceeds, in which case substantiation
by a legal opinion from OGC will not be needed.
Definition of Participated in the Business Operations of a Farm
This rule amends the definition of ``Participated in the business
operations of a farm'' in 7 CFR 761.2(b) to clarify that owning a farm
does not necessarily mean an individual has participated in the
business operations of a farm. For example, an absentee landowner who
has not been involved in operating, producing, laboring, or making
decisions related to operating a farm
[[Page 65030]]
may not possess the necessary experience to ensure a reasonable
prospect of loan repayment. A landowner without experience related to
managerial or operational responsibilities of a farm or specific farm
training does not satisfy the definition. This definition applies only
to the direct loan eligibility, which requires certain managerial
experience and direct farm ownership experience from applicants in
order to ensure a reasonable prospect of success in the proposed
farming operations and, therefore, a reasonable prospect of loan
repayment.
Definitions of Related by Blood or Marriage and Relative
The CONACT requires that loans be provided to operators of family
farms, and allows for applications from entities, provided that the
majority interest is held by members that will operate the farm or are
related by blood or marriage, as defined by the Secretary. Family farms
often consist of familial relationships beyond traditional immediate
family members, for example, parent and child, and increasingly include
cousins, half-siblings, and in-laws. To clarify that farm loan
assistance is available to family farms comprised of a variety of
familial relations, this rule amends the definitions of ``Related by
Blood or Marriage'' and ``Relative'' in 7 CFR 761.2(b) to include
additional familial relationships. These expanded definitions will
allow FSA to expand program access and support generational transfers
and succession planning.
Definition of Youth Loan
The 2014 Farm Bill removed requirements that an individual must
reside in a rural location to be eligible for a ``Youth loan.'' While
FSA has administratively adopted this change since 2014, FSA will
formally recognize the updated definition in 7 CFR 761.2(b) with this
clarification. Furthermore, FSA removes the term ``Rural youth,'' as it
is no longer a requirement after the 2014 Farm Bill change.
Clarify Analysis Requirements
In the FSA final rule published on August 9, 2021, FSA amended
analysis requirements in 7 CFR 761.105(a). The process for completing
the analysis in 7 CFR 761.105(b) was not amended consistent with those
changes at that time so FSA is clarifying in this rule how the analysis
will be completed. A typical analysis includes a review of the prior
production cycle's actual income, expense, and production performance,
as well as a farm operating plan for the new operating cycle. These
financial documents should be prepared by the borrower, with FSA
assistance when necessary. Under the regulation, a financial analysis
is required if a new direct loan or subordination request is made, or
if the account is, or was recently, financially distressed or
delinquent. However, an analysis may also be required if FSA believes
it is necessary to assist with developing an operation or to address
concerns regarding borrower compliance with agreements. FSA also
removes references to ``year-end'' analysis in 7 CFR 761.105 to avoid
confusion regarding the potential timing of a required analysis.
The regulation in 7 CFR 765.101(c) requires a borrower to submit
all information that FSA requests in conjunction with the routine
review of the borrower's financial condition. A review of Federal
income tax returns is an important component to ensure that FSA can
complete an accurate analysis. This rule clarifies that, in alignment
with current practice, borrowers should expect and be prepared to
comply with a request for Federal income tax returns as part of the
review of the borrower's financial condition.
Credit Elsewhere Determinations
With the exception of conservation loans, direct farm loan
eligibility criteria require applicants to be unable to obtain
sufficient credit elsewhere to finance their actual needs at reasonable
rates and terms. FSA does not specifically require written denial
letters from area lenders for an applicant to qualify for assistance,
except in unique circumstances, such as to comply with statutory
requirements for EMs.
Some applicants are able to obtain credit from other sources, but
the rates and terms offered by those creditors may be at excessive
interest rates with unreasonable fees, terms, or collateral
requirements that are inconsistent with regional agricultural lending
standards and do not meet the needs of the applicant. To aid in
determining whether or not available credit elsewhere is reasonable,
this rule clarifies 7 CFR 764.51(b)(6) and 764.101(e)(1) to require FSA
approval officials to analyze the rates and terms of available credit
to ensure they support the generation of a reasonable amount of cash
flow margin to increase working capital reserves and savings necessary
for operational stability and growth, including reasonable savings for
retirement and education. This rule clarifies that for the rates and
terms of external credit to be reasonable it must provide a reasonable
opportunity for long-term growth. FSA approval officials will determine
a reasonable amount of cash flow margin to increase working capital
reserves and savings by referencing available resources, including
regional lending standards and farm financial and classification
ratios.
Direct Loan Making and Servicing Application Requirements
A complete analysis of a farming operation often requires a review
of existing and proposed real estate and equipment leases.
Additionally, FSA has regularly required submission of documents such
as contracts or purchase options, especially when the contract or
option is related to property for which the loan is requested. This
rule adds 7 CFR 766.102(a)(8) and revises 7 CFR 764.51(b)(10) to
clarify that an applicant must provide leases, contracts, options, or
other agreements to FSA, upon request, as part of a complete direct
loan making or servicing application. Additionally, this rule revises 7
CFR 764.51(b)(10) to clarify that the requested documents are those
that are associated with the borrower's ``operation.''
This rule also amends 7 CFR 766.102(a) to correct a reference to an
obsolete regulation, and to remove the requirement for borrowers to
sign an acknowledgement form to request direct loan servicing, as the
acknowledgement has been consolidated into the FSA-2001 application for
direct loan servicing, which is required for all such requests.
Direct Loan Eligibility--Entity Credit History
An applicant's credit history is considered in nearly every
lender's analysis of risk associated with the extension of credit. FSA
also considers credit history when determining an applicant's
eligibility for direct loans. To qualify for a direct loan from FSA an
applicant must demonstrate acceptable credit history. However, unlike
many commercial lenders, FSA does not base an ultimate eligibility
decision on the applicant's credit score. FSA does not find an
applicant's credit history to be unacceptable if the applicant has no
record of past credit, or if an applicant has a history of failure to
repay past debts due to circumstances outside of the applicant's
control.
Since family farms do not always obtain debt that demonstrates
relevant credit history in the name of the applicant entity, FSA must
assess the credit history of the underlying entity members in order to
adequately assess
[[Page 65031]]
credit worthiness requirements. FSA is amending 7 CFR 764.101(d) to
clarify the current and historic requirement that in the case of an
entity, all individual entity members must satisfy credit history
requirements. The clarification will more closely align the credit
history eligibility standard with other eligibility criteria that more
clearly specify the individual entity member requirements.
Guaranteed Loan Eligibility--Credit History
All guaranteed loan applicants must meet basic eligibility
criteria. Two of the existing criteria require that an applicant must
not have caused FSA a previous loss (except in limited circumstances),
and the applicant must meet creditworthiness requirements by
demonstrating a successful history of repaying debts as they come due.
Applicants sometimes repay previous losses to the government, but
creditworthiness requirements still must be assessed to ensure the
applicant represents a good prospect of loan repayment. This rule
amends 7 CFR 762.120 to clarify even if a previous loss is repaid, the
applicant must still satisfy creditworthiness requirements in order to
receive new guaranteed loan assistance.
Direct Loan Eligibility--Managerial Ability
Farmers experience significantly different challenges compared to
other business operators. To assist direct loan applicants to be
successful and to manage FSA's credit risk, eligible direct loan
applicants must demonstrate that they possess sufficient managerial
ability to ensure reasonable prospects of loan repayment. Applicants
may demonstrate the required managerial ability in a variety of ways,
including through education, on-the-job training, and actual farming
experience (7 CFR 764.101(i)).
Entity applicants are required to demonstrate managerial
experience. Entity structures cannot possess experience, but rather it
is the individual entity members who possess the managerial ability
necessary to satisfy the requirements. FSA is clarifying the CONACT
requirement that for an entity applicant to satisfy the managerial
ability eligibility requirement, the individuals holding a majority
interest in the entity must possess the required experience.
FSA is clarifying that a history of an entity applicant simply
owning a farm does not necessarily satisfy managerial ability
requirements. As discussed above, amendments to the definition of
``Participated in the Business Operations of a Farm'' clarify that
simply owning a farm does not necessarily mean an individual has
participated in the business operations. Consistent with this
definition change and the reasons discussed above, the word ``owner''
has been removed from 7 CFR 764.101(i)(3).
FSA is also clarifying the lookback period for FSA to consider
prior farming experience for an applicant to meet the eligibility
requirement based on farming experience prior to the date of the direct
loan application in 7 CFR 764.101(i)(3). There has been confusion among
applicants due to the use of two different lookback periods for similar
experience requirements in the regulations. For certain specific direct
FO experience requirements, the lookback period is 10 years, yet the
lookback period for farming experience to meet the general managerial
ability requirement has been 5 years. FSA is amending the lookback
period for farming experience to meet the general managerial ability
requirement from 5 years to 10 years to align more closely with the
farm experience eligibility requirement specific to direct FO
applicants, as provided in 7 CFR 764.152(d). FSA recognizes that
increasingly available online education resources and mentorship
opportunities can ensure applicants have a reasonable prospect for
success, even if their actual farming managerial experience was gained
more than 5, but less than 10, years ago. Accordingly, FSA is confident
that expanding the general managerial ability experience lookback
period to align with the FO lookback period will expand opportunity for
applicant access to credit.
Microloan (ML)-OL and Indian Tribal Land Acquisition Program (ITLAP)
Interest Rate Clarification
The CONACT provides a special interest rate for ML-OL in Section
316(a)(2). ITLAP is authorized outside of the CONACT, but loans made
under ITLAP are subject to the interest rate provisions under the
CONACT applicable to the low-income farm ownership loan program at
Section 307(a)(3)(B) that provides a reduced interest rate for limited
resource applicants. In both cases, the interest rate formula is
inherently ambiguous, making it difficult to determine the appropriate
interest rate for these direct loans. FSA is amending 7 CFR
764.254(a)(4) and 770.6(b) to clarify that the interest rate for ML-OLs
and ITLAP is equal to the existing OL rate and FO rate, respectively,
but not to exceed 5 percent. This change will resolve the existing
confusion about the requirements and benefit applicants by providing a
rate ceiling that is consistent with the reasonable historic
interpretation of the CONACT interest rate formula. The CONACT does not
provide for a special interest rate for ML-FOs. FSA will continue to
determine the ML-FO rate using the same methodology as a regular FO.
Transfer and Assumption Application Requirements
This rule adds 7 CFR 765.402(f) and (g), 765.403(f) and (g), and
765.404(g) to clarify that transfer and assumption requests require a
complete application from transferees to ensure borrower eligibility
and the feasibility of the operation, and to clarify that all direct
loan security must be transferred to the new borrower as a condition of
approval.
Equitable Relief Technical Corrections
The equitable relief provisions published in 7 CFR 768.1 on March
9, 2022 (87 FR 13117-13127) require minor technical correction to
clarify in 7 CFR 768.1(a) that equitable relief may be considered for
the borrower or borrower's loan due to noncompliance with either legal
or regulatory requirements.
Notice and Comment, Effective Date, and Exemptions
The Administrative Procedure Act (APA, 5 U.S.C. 553) provides that
the notice and comment and 30-day delay in the effective date
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. This rule involves a program for loans and thus
falls within the exemption for rules related to loans. FSA is
requesting comments on this rule to determine if additional
improvements need to be made in the future to the regulations.
This rule is 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.
Subtitle E of the Small Business Regulatory Enforcement Fairness
Act of 1996 (also known as the Congressional Review Act) requires a
delay in the effective date for 60 days from the date of publication to
allow for Congressional review of rules that meet the criteria
specified in 5 U.S.C. 804(2). The Office of Information and Regulatory
Affairs has determined that this rule does not meet the criteria in 5
U.S.C. 804(2).
[[Page 65032]]
Therefore, this rule is effective September 25, 2024.
Executive Orders 12866, 13563, and 14904
Executive Order 12866 (as amended by Executive Order 14904),
``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 Office of Management and Budget (OMB) designated this rule as
significant under Executive Order 12866, ``Regulatory Planning and
Review,'' 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
The cost benefit analysis covers implementation of an improved
approach to loan servicing for FSA farm loan programs that is designed
to remove barriers to capital access and increase flexibilities for
borrowers. This new approach includes a newly created DBSA Program that
can be used by both distressed and delinquent borrowers. In addition,
numerous modifications to existing programs are being made that offer
borrowers greater flexibility and improve their amount of working
capital--regardless of whether they are distressed or delinquent.
All changes to the loan programs that are anticipated to impact the
net present value of the cost of providing loans, loan guarantees, or
modification therefore, will be incorporated into subsidy cost for each
relevant risk category and cohort year of loans or loan guarantees.\3\
While the effective date for this final rule is September 25, 2024,
USDA's ability to modify outstanding loans and loan guarantees, and
enter into obligation for new loans and loan guarantees with the
revised provisions specified in this final rule are subject to 2 U.S.C.
661(D) and 661b(a), and OMB Circular A-11 section 185.3(s).
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\3\ The definition of subsidy cost and other relevant guidance
to Federal agencies regarding the calculation of subsidy rates,
modification costs estimates, and other aspects of FCRA
implementation are specified in OMB Circular A-11 section 185.
---------------------------------------------------------------------------
The changes in this final rule are consistent with numerous aspects
of FSA's ongoing efforts to remove barriers to capital access and
increase opportunities for FLP borrowers to be successful. The subsidy
rate and cost impact of the changes in this final rule vary across the
types of changes, including some increases and decreases. Specifically,
introducing more flexible repayment terms is expected to increase
income receipts and reduce program subsidy costs for several direct
loan programs. Several changes, such as reduced security requirements
and flexible repayment terms are also expected to increase subsidy
costs as a result of increased losses or decreased recoveries. FSA
anticipates administrative savings from reduced workload in processing
primary loan servicing and monitoring security instruments and an
overall reduction in burden. burden.
Prior to this rule, only PLS and the DSA Program were available to
help distressed borrowers on an ongoing basis. PLS involves
restructuring the loan, usually by deferring some or all of the
borrower's upcoming installment payments to the end of the loan term.
Alternatively, if the borrower is operating in a county that is
declared a major disaster, they can apply for loan servicing through
the DSA Program. If the borrower selects PLS, they must provide a
significant amount of financial information and develop a projection of
income and expenses for the next year.
With this rule, DBSA offers both distressed and delinquent direct
borrowers--along with FSA field staff--a more streamlined opportunity
to help navigate financial difficulties. DBSA allows financially
distressed or delinquent direct loan borrowers--with FOs, OLs, CLs,
SWs, or EMs--to request a one-time deferral of a delinquent or upcoming
annual installment. The amount of the deferral is limited to the lesser
of the amount of the annual installment or the unpaid balance remaining
on the installment at the time the DBSA is approved. The amount
deferred has a reduced interest rate of 0.125 percent, the lowest
interest rate authorized by the CONACT.
DBSA only applies to outstanding loans as of September 25, 2024,
the date the rule becomes effective, and as a result, the cost of
implementing the regulation (loan modification cost) reflects:
(1) the reduction in the present value of interest receipts (due to
the 0.125 percent noted above), and
(2) the reduction in the present value of principal installments
over the life of DBSA.
Consequently, FSA will pay the for the modification cost of DBSA
upfront using funds from section 22006 of the Inflation Reduction Act.
In addition to DBSA, the rule contains interrelated provisions that
provide borrowers with expanded opportunities to allocate working
capital toward long-term financial goals. For example, the rule
provides all direct loan applicants the option to receive flexible
repayment terms for most loan requests (including interest-only
payments during the first year, partial principal payments, and longer
loan maturity terms). These flexibilities free up some of the
borrowers' funds that would otherwise have been used to make larger
loan payments. Funds can be used to ensure that their farm operating
plan budgets have additional funding to increase working capital
reserves and savings, including reasonable savings for retirement and
education. These changes are expected to increase interest payments to
USDA, which would reduce program subsidy costs, but the changes are
also expected to result in an increase in defaults and would increase
subsidy costs. Implementation of the changes in this rule are subject
to FSA reflecting subsidy costs in accordance with 2 U.S.C. 661(D) and
661b(a), and OMB Circular A-11 section 185.3(s).
Further, the rule lowers the security margin required of the
borrower from 150 to 125 percent at the time of loan origination, while
still requiring all loans to be fully secured. If the applicant does
not have sufficient assets to achieve this security margin, FSA still
provides the loan as long as there is adequate security to ensure a 100
percent security margin. However, if additional security is available,
FSA currently requires a lien on additional security assets in order to
achieve a 150 percent security margin. A requirement this high,
however, can hinder the ability of customers to leverage assets into
additional growth opportunities. In addition, FSA will no longer take
the primary residence as additional security and will not require non-
real estate assets to be pledged as additional security for real estate
loans. The rule also expands the opportunity for a borrower to request
a partial release of certain security if they have a demonstrated
history of positive repayment with FSA for the previous 36 months
(including scheduled principal reductions) and the loan will still be
adequately secured after the release. FSA currently allows for the
release of unnecessary security in limited
[[Page 65033]]
circumstances, but this provision will facilitate the process for all
borrowers who have several years of successful loan repayment. While
these security changes can have significant benefit to borrowers, they
are expected to result in a reduction in recoveries, which would
increase subsidy costs. Implementation of the changes in this rule are
subject to FSA reflecting subsidy costs in accordance with 2 U.S.C.
661(D) and 661b(a), and OMB Circular A-11 section 185.3(s).
In addition to the more significant items above, the rule is making
changes to other direct and guaranteed loan provisions. For example,
the rule clarifies that catastrophic medical expenses for the care of a
family member of the borrower or entity member could be a justification
for financial distress and makes them eligible for PLS; the maximum
value of youth loans is increased from $5,000 to $10,000 to account for
inflation; and other minor changes. The cost impact from these smaller
changes is expected to be de minimus.
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 regulation for compliance with NEPA (7 CFR part 799). The DBSA
Program is being implemented as a servicing tool to help financially
distressed borrowers. In addition to adding DBSA, FSA is making
discretionary changes throughout the FLP regulations to clarify and
amend existing delivery processes, program requirements, and technical
corrections or clarifications.
The provisions of this rule regarding DBSA is covered by the
Categorical Exclusions, found in 7 CFR part 799.31(b)(1)(iii) for debt
set-asides when no Extraordinary Circumstances (Sec. 799.33) exist.
The discretionary changes to the regulations are covered by the
Categorical Exclusions, found in 7 CFR 799.31(b)(3)(i) for issuing
minor technical corrections to regulations, handbooks, and internal
guidance, as well as amendments to regulations when no Extraordinary
Circumstances (Sec. 799.33) exist.
Through this review, FSA has determined that neither the
implementation of the DBSA Program and the participation in the DBSA
Program, nor the discretionary changes to the regulations, constitutes
major Federal actions that would significantly affect the quality of
the human environment, individually or cumulatively. Therefore, FSA
will not prepare an environmental assessment or environmental impact
statement for this rule; this rule serves as documentation of the
programmatic environmental compliance decision for this Federal action.
Executive Order 12372
Executive Order 12372, ``Intergovernmental Review of Federal
Programs,'' requires consultation with State and local officials that
would be directly affected by proposed Federal financial assistance.
The objectives of the Executive Order are to foster an
intergovernmental partnership and a strengthened Federalism, by relying
on State and local processes for State and local government
coordination and review of proposed Federal Financial assistance and
direct Federal development. For reasons specified in the final rule
related notice regarding 7 CFR part 3015, subpart V (48 FR 29115, June
24, 1983), the programs and activities within this rule are excluded
from the scope of Executive Order 12372.
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. Before any judicial actions may
be brought regarding the provisions of this rule the administrative
appeal provisions of 7 CFR part 11 and 780 are to be exhausted.
Executive Order 13132
This rule has been reviewed under Executive Order 13132,
``Federalism.'' The policies contained in this rule do not have any
substantial direct effect on States, on the relationship between the
Federal government and the States, or the distribution of power and
responsibilities among the various levels of government, except as
required by law. Nor does this rule impose substantial direct
compliance costs on State and local governments. Therefore,
consultation with the States is not required.
Executive Order 13175
This rule has been reviewed for compliance 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.
FSA has assessed the impact of this rule on Indian Tribes and
determined that this rule does not, to our knowledge, have significant
Tribal implications that require ongoing adherence to Executive Order
13175 at this time. Tribal governments are not eligible for FSA direct
and guaranteed loans, so the reach of this rule and impact with Tribes
is somewhat limited. Tribes are eligible for FSA's Highly Fractionated
Indian Land Loan Program (HFIL) and ITLAP. USDA and FSA have conducted
a series of Tribal consultations to obtain input from Tribes and Native
producers on our FSA loan programs.
Specifically, we received considerable feedback in 2021, 2022, and
2023 on how USDA can better incorporate traditional foods into FPAC
programs as a whole. In fact, one of the top four tribal barriers in
2021 USDA Tribal Consultations was the need to improve and expand
support for traditional foods and food ways into FSA and FPAC programs.
In response, in 2022, Administrator Zach Ducheneaux formalized an
advisory group of the leadership team to address recommendations by
Tribal leadership in USDA Tribal Consultations, reduce barriers to
program participation and implement priorities for Indian Country. In
the 2022 and 2023 USDA Tribal Consultations, USDA requested more
specific input from Tribal leaders on traditional food ways and crops,
including wild rice, that Tribal Nations seek to be added into USDA
programs.
As a result, this rule includes wild rice and other Tribal foraging
practices in Indian Country where it was previously excluded. This is
one of the actions FSA has made to be more inclusive to Tribal
agricultural producers in indigenous ways in broadly applicable loan
programs by improving the interpretation of the authorizing law in the
regulation. If a Tribe requests further consultation, FSA will
coordinate with the USDA Office of Tribal Relations to ensure
meaningful consultation is provided where changes, additions, and
modifications are not expressly mandated by law.
[[Page 65034]]
The Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L.
104-4) requires Federal agencies to assess the effects of their
regulatory actions on State, local, and 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 alternatives and adopt the more cost effective or least
burdensome alternative that achieves the objectives of the rule. This
rule contains no Federal mandates, as defined in Title II of UMRA 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.
Federal Assistance Programs
The title and number of the Federal assistance programs, as found
in the Assistance Listing \4\ to which this rule applies are:
---------------------------------------------------------------------------
\4\ See <a href="https://sam.gov/content/assistance-listings">https://sam.gov/content/assistance-listings</a>.
---------------------------------------------------------------------------
10.099 Conservation Loans;
10.404 Emergency Loans;
10.406 Farm Operating Loans; and
10.407 Farm Ownership Loans.
Paperwork Reduction Act
For the various regulatory changes being made by this rule, FSA
will continue to use some forms that already are currently approved
under the OMB control number of 0560-0233, 0560-0237 and 0560-0238.
This rule does not change the following approved information
collection under OMB control numbers:
<bullet> 0560-0155, Guaranteed Farm Loan Programs, OMB Expiration
Date of November 2026;
<bullet> 0560-0233, Farm Loan Programs--Direct Loan Servicing, OMB
Expiration Date of October 2024;
<bullet> 0560-0237, Farm Loan Programs--Direct Loan Making, OMB
Expiration Date of January 2026;
<bullet> 0560-0238, Farm Loan Programs--General Program
Administration, OMB Expiration Date of October 2026; and
<bullet> 0560-0317, Online Loan Application, OMB Expiration Date of
November 2026.
For the information collection changes related to the existing
approvals under 0560-0155, Guaranteed Farm Loan Programs, and 0560-
0317, Online Loan Application, there are no new forms, no changes in
the per response time for the information collection activities, and
not changes in the number of respondents.
For the information collection changes related to the existing
approval under 0560-0233, operationally, there is a potential increase
of approximately 2,000 in the number of respondents, related to an
increase in the requests for DBSA and DSA. The approved burden
estimates for 0560-0233 includes 8,692 DSA applications annually.
Actual requests over the last 5 years have averaged 786 applications,
so the anticipated increase in requests is well within the existing
approved burden estimate.
For the information collection changes related to the existing
approval under 0560-0236, operationally, there is a potential increase
in requests for security releases and leasing of property. The approved
burden estimates for 0560-0236 includes 455 requests for lease security
annually. Actual lease security requests have averaged less than 100,
so the anticipated increase in requests is well within the existing
approved burden estimate. As explained below, the form used for
requesting security releases is expected to increase in the number of
respondents beyond what is currently approved for the form under 0560-
0236.
For the information collection changes related to the existing
approval under 0560-0237, operationally, FSA expects an increase in the
actual number of respondents due to increasing the youth loan limit.
This might increase the youth loan demand by a few hundred
applications. The approved burden estimates for 0560-0237 includes
4,410 applications annually. The 5-year average has only been 2,056
applications, so the anticipated increase in youth loans is well within
the existing approved burden estimate.
This rule does increase the expected number of respondents who will
request a release of security using form FSA-2061--Application for
partial release or consent. That form is approved under OMB 0560-0236,
Farm Loan Programs: Direct Loan Servicing, Regular. FSA requested an
emergency approval from OMB to cover the increase of the borrowers in
using a release of security (Form FSA-2061--Application for partial
release or consent). The rest of this section provides the information
related to the requests for comments for these changes.
Information Collection Request; Request for Comments
FSA is requesting comments from all interested individuals and
organizations on a new information collection associated with the
release of security (the form FSA-2061) for the Direct Loan Servicing--
Regular information collection activity. This rule expands
opportunities to release liens on additional collateral for borrowers
with a demonstrated history of successful direct loan repayment. After
3 years of successful loan repayment and principal reduction, a
borrower can request FSA to release liens on additional security items
provided the loan will continue to be fully secured. The borrower
formally requests to be considered for a release of security using form
FSA-2061--Application of Partial Release or Consent. FLP anticipates an
increase in the use of the FSA-2061 as more borrowers will be able to
qualify for a lien release than before.
OMB Control Number: 0560-New.
Type of Request: New Collection.
Abstract: This information collection is required to support Direct
Loan Servicing--Regular information collection activity to cover the
increase of the borrowers to qualify for a lien release.
For the following estimated total annual burden on respondents, the
formula used to calculate the total burden hour is the estimated
average time per response multiplied by the estimated total annual
responses.
Public reporting burden for this information collection is
estimated to average 0.50 hours per response.
Type of Respondents: Producers or farmers.
Estimated Annual Number of Respondents: 4,747.
Estimated Number of Reponses per Respondent: 1.
Estimated Total Annual Responses: 4,747.
Estimated Average Time per Response: 0.50 hours.
Estimated Total Annual Burden on Respondents: 2,374.
FSA is requesting comments on all aspects of this information
collection to help us to:
(1) Evaluate whether the collection of information is necessary for
the proper performance of the functions of the FSA, including whether
the information will have practical utility;
(2) Evaluate the accuracy of the FSA's estimate of burden including
the validity of the methodology and assumptions used;
(3) Enhance the quality, utility and clarity of the information to
be collected; and
[[Page 65035]]
(4) Minimize the burden of the collection of information on those
who are to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology. All comments received in
response to this notice, including names and addresses when provided,
will be a matter of public record. Comments will be summarized and
included in the submission for Office of Management and Budget
approval.
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.
Individuals who require alternative means of communication for
program information (for example, braille, large print, audiotape,
American Sign Language, etc.) should contact the responsible Agency or
the USDA TARGET Center at (202) 720-2600 (voice and text telephone
(TTY)) or dial 711 for Telecommunications Relay Service (both voice and
text telephone users can initiate this call from any telephone).
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: (1) mail to: U.S. Department of Agriculture,
Office of the Assistant Secretary for Civil Rights, 1400 Independence
Avenue SW, Washington, DC 20250-9410; (2) fax: (202) 690-7442; or (3)
email: <a href="/cdn-cgi/l/email-protection#c3b3b1aca4b1a2aeedaaadb7a2a8a683b6b0a7a2eda4acb5"><span class="__cf_email__" data-cfemail="1f6f6d70786d7e723176716b7e747a5f6a6c7b7e31787069">[email 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 Parts 764 Through 766 and 768 Through 770
Agriculture, Credit, Loan programs--agriculture.
For the reasons discussed above, FSA amends 7 CFR chapter VII as
follows:
PART 761--FARM LOAN PROGRAMS; GENERAL PROGRAM ADMINISTATION
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 as follows:
0
a. In the undesignated introductory paragraph, remove the words ``767
and'';
0
b. In paragraph (a) add the abbreviation for DBSA in alphabetical
order; and
0
c. In paragraph (b):
0
i. In the definition of ``Administrative appraisal review'',
redesignate paragraphs (1) and (2) as paragraphs (i) and (ii);
0
ii. In the definition of ``Agricultural commodity'', remove the words
``forage, nursery'' and add ``forage, ornamental plants, nursery'' in
their place;
0
iii. Revise the definition of ``Beginning farmer'';
0
iv. Add a definition of ``Commercially foraged'' in alphabetical order;
0
v. Revise the definition of ``Debt forgiveness'';
0
vi. Remove the definition of ``Debt writedown'';
0
vii. Add the definitions of ``Debt write-down'' and ``Distressed
Borrower Set-Aside'' in alphabetical order;
0
viii. Revise the definition of ``Equitable relief'';
0
ix. Revise the definition of ``Essential family living and farm
operating expenses'';
0
x. In the definition of ``Established farmer'', redesignate paragraphs
(1) through (6) as paragraphs (i) through (vi);
0
xi. Revise the definition of ``Family farm'';
0
xii. In the definition of ``Farm Ownership loan'', remove the word
``Downpayment'' and add ``Down Payment'' in its place;
0
xiii. Revise the definition of ``Feasible plan;
0
xiv. In the definition of ``Financially viable operation'', redesignate
paragraphs (1) through (4) as paragraphs (i) through (iv);
0
xv. Revise the definition of ``Good faith'';
0
xvi. Add definitions of ``Indian land'' and ``Indian Tribe'' in
alphabetical order;
0
xvii. In the definition of ``Limited resource interest rate'',
redesignate paragraphs (1) and (2) as paragraphs (i) and (ii);
0
xviii. Revise the definitions of ``Non-eligible enterprise'', ``Non-
essential assets'', ``Normal production yield'', ``Participated in the
business operations of a farm'', ``Primary loan servicing programs'',
``Related by blood or marriage'', and ``Relative'';
0
xix. Remove the definition of ``Rural youth'';
0
xx. In the definition of ``Restructuring'', remove the word
``writedown'' and add ``write-down'' in its place;
0
xxi. In the definition of ``Shared Appreciation Agreement'', remove the
word ``writedown'' and add ``write-down'' both places it occurs; and
0
xxii. In the definition of ``Youth loan'', remove the word ``rural''.
The additions and revisions read as follows.
Sec. 761.2 Abbreviations and definitions.
* * * * *
(a) * * *
DBSA Distressed Borrower Set-Aside.
* * * * *
(b) * * *
Beginning farmer is an individual or entity who:
(i) Meets the loan eligibility requirements for a direct or
guaranteed CL, FO, or OL, as applicable;
(ii) Has not operated a farm for more than 10 years. This
requirement applies to all members of an entity;
(iii) Will materially and substantially participate in the
operation of the farm:
(A) In the case of a loan made to an individual, individually or
with the family members, material and substantial participation
requires that the individual provide substantial day-to-day labor and
management of the farm, consistent with the practices in the county or
State where the farm is located; or
(B) In the case of a loan made to an entity, all members must
materially and substantially participate in the operation of the farm.
Material and substantial participation requires that the member provide
some amount of the management, or labor and management necessary for
day-to-day activities, such that if the individual did not provide
these inputs, operation of the farm would be seriously impaired;
[[Page 65036]]
(iv) Agrees to participate in any loan assessment and borrower
training required by Agency regulations;
(v) Except for an OL applicant, does not own real farm property or
who, directly or through interests in family farm entities owns real
farm property, the aggregate acreage of which does not exceed 30
percent of the average farm acreage of the farms in the county where
the property is located. If the farm is located in more than one
county, the average farm acreage of the county where the applicant's
residence is located will be used in the calculation. If the
applicant's residence is not located on the farm or if the applicant is
an entity, the average farm acreage of the county where the major
portion of the farm is located will be used. The average county farm
acreage will be determined from the most recent Census of Agriculture;
(vi) Demonstrates that the available resources of the applicant and
spouse (if any) are not sufficient to enable the applicant to enter or
continue farming on a viable scale; and
(vii) In the case of an entity:
(A) All the members are related by blood or marriage; and
(B) All the members are beginning farmers.
Commercially foraged means the harvesting of naturally occurring
plants, or plantlike material, including fungi, that develop with
limited management of the resource.
Debt forgiveness means the reduction or termination of a debt under
the Act in a manner that results in a loss to the Agency:
(i) Debt forgiveness includes:
(A) Writing down or writing off a debt pursuant to 7 U.S.C. 2001;
(B) Cancellation of remaining amounts owed after compromising,
adjusting, reducing, or charging off a debt or claim pursuant to 7
U.S.C. 1981;
(C) Paying a loss pursuant to 7 U.S.C. 2005 on a FLP loan
guaranteed by the Agency;
(D) Discharging a debt as a result of bankruptcy; or
(E) Releases of liability which result in a loss to the Agency.
(ii) Debt forgiveness does not include:
(A) Debt reduction through a conservation contract;
(B) Any write-down provided as part of the resolution of a
discrimination complaint against the Agency;
(C) Prior debt forgiveness that has been repaid in its entirety;
(D) Consolidation, rescheduling, reamortization, or deferral of a
loan; and
(E) Forgiveness of a YL debt due to circumstances beyond the
borrower's control.
Debt write-down means the reduction of the borrower's debt to that
amount the Agency determines to be collectible based on an analysis of
the security value and the borrower's ability to pay.
Distressed borrower set-aside means the deferral of payment of an
annual loan installment to the Agency to the end of the loan term in
accordance with part 766, subpart J, of this chapter.
Equitable relief means relief provided in accordance with part 7
CFR 768.1.
Essential family living and farm operating expenses means those
expenses that:
(i) Are those that are basic, crucial, or indispensable;
(ii) Are determined by the Agency based on the following
considerations:
(A) The specific borrower's operation;
(B) What is typical for that type of operation in the area; and
(C) What is an efficient method of production considering the
borrower's resources; and
(iii) Include, but are not limited to, essential: Household
operating expenses; food, including lunches; clothing and personal
care; health and medical expenses, including medical insurance; house
repair and sanitation; school and religious expenses; transportation;
hired labor; machinery repair; farm building and fence repair; interest
on loans and credit or purchase agreement; rent on equipment, land, and
buildings; feed for animals; seed, fertilizer, pesticides, herbicides,
spray materials and other necessary farm supplies; livestock expenses,
including medical supplies, artificial insemination, and veterinarian
bills; machinery hire; fuel and oil; taxes; water charges; personal,
property and crop insurance; auto and truck expenses; and utility
payments.
* * * * *
Family farm means a business operation that:
(i) Produces agricultural commodities, including agricultural
commodities commercially foraged on Indian land for the purposes of
OLs, for sale in sufficient quantities so that it is recognized as a
farm rather than a rural residence or non-eligible enterprise;
(ii) Has both physical labor and management provided as follows:
(A) The majority of day-to-day, operational decisions, and all
strategic management decisions are made by:
(1) The borrower, with input and assistance allowed from persons
who are either related by blood or marriage to an individual borrower;
or
(2) The members responsible for operating the farm, in the case of
an entity; and
(B) A substantial amount of labor to operate the farm is provided
by:
(1) The borrower, with input and assistance allowed from persons
who are either related by blood or marriage to an individual borrower;
or
(2) The members responsible for operating the farm, in the case of
an entity;
(iii) May use full-time hired labor in amounts only to supplement
family labor; and
(iv) May use reasonable amounts of temporary labor for seasonal
peak workload periods or intermittently for labor intensive activities.
* * * * *
Feasible plan means when an applicant or borrower's cash flow
budget or farm operating plan indicates that there is sufficient cash
inflow to pay all cash outflow. If a loan approval or servicing action
exceeds one production cycle and the planned cash flow budget or farm
operating plan is atypical due to an interest-only or otherwise unequal
installment, cash or inventory on hand, new enterprises, carryover
debt, atypical planned purchases, important operating changes, or other
reasons, a cash flow budget or farm operating plan must be prepared
that reflects a typical cycle. If the request is for only one cycle, a
feasible plan for only that production cycle is required for approval.
* * * * *
Good faith means when an applicant or borrower provides current,
complete, and truthful information when applying for assistance and in
all past dealings with the Agency and adheres to all written agreements
with the Agency including loan agreements, security instruments, farm
operating plans, and agreements for use of proceeds. If the borrower's
inability to adhere to all agreements is due to circumstances beyond
the borrower's control, the Agency will consider the borrower to have
acted in good faith. In addition, the Agency may also consider fraud,
waste, or conversion actions when determining if an applicant or
borrower has acted in good faith. Such determinations of fraud, waste,
or conversion that are substantiated by a legal opinion from OGC
constitute an independent basis for determinations of not having acted
in good faith.
* * * * *
Indian land, for the purposes of the definition of ``family farm''
in this section, means land, or an interest therein, that is:
(i) Owned by an Indian Tribe;
[[Page 65037]]
(ii) Owned by an Indian Tribe and is subject to restrictions
against alienation or encumbrance by the United States; or
(iii) Held in trust by the United States for an Indian Tribe.
* * * * *
Indian Tribe means any Indian Tribe, band, nation, pueblo, or other
organized group or community, including any Alaska Native village or
regional corporation as defined in or established pursuant to the
Alaska Native Claims Settlement Act (43 U.S.C. 1601-1629h), which is
recognized as eligible for the special programs and services provided
by the United States to Indians because of their status as Indians.
* * * * *
Non-eligible enterprise means a business that meets the criteria in
any one of the following categories:
(i) Produces exotic animals, birds, or aquatic organisms or their
products that may be agricultural in nature, but are not primarily
associated with agricultural production, for example, there is no
established or stable market for them, or production is speculative in
nature;
(ii) Produces animals, birds, or aquatic organisms ordinarily used
for pets, companionship, sport, or pleasure and not primarily
associated with human consumption, fiber, or draft use;
(iii) Primarily markets goods or provides services which might be
agriculturally related, but are not produced by the farming operation;
or
(iv) Processes or markets farm products when the majority of the
commodities processed or marketed are not produced by the farming
operation.
Non-essential assets mean assets in which the borrower has an
ownership interest, that:
(i) Do not contribute to:
(A) Income to pay essential family living expenses, or
(B) The farming operation; and
(ii) Are not exempt from judgment creditors or in a bankruptcy
action.
* * * * *
Normal production yield means, as used in 7 CFR part 764 for EMs:
(i) The per acre actual production history of the crops produced by
the farming operation used to determine Federal crop insurance payments
or payment under the Noninsured Crop Disaster Assistance Program for
the production year during which the disaster occurred;
(ii) The applicant's own production records, or the records of
production on which FSA Farm Program payments are made contained in the
applicant's Farm Program file, if available, for the previous 3 years,
when the actual production history in paragraph (i) of this definition
is not available;
(iii) The county average production yield, when the production
records outlined in paragraphs (i) and (ii) of this definition are not
available.
Participated in the business operations of a farm means that an
individual has:
(i) Been the manager or operator of a farming operation for the
year's complete production cycle as evidenced by tax returns, FSA farm
records or similar documentation;
(ii) Been employed as a farm manager or farm management consultant
for the year's complete production cycle; or
(iii) Participated in the operation of a farm by virtue of being
raised on a farm or having worked on a farm (which can include a farm-
related apprenticeship, internship, or similar educational program with
applied work experience) with significant responsibility for the day-
to-day decisions for the year's complete production cycle, which may
include selection of seed varieties, weed control programs, input
suppliers, livestock feeding programs, or decisions to replace or
repair equipment.
Primary loan servicing programs means:
(i) Loan consolidation and rescheduling, or reamortization;
(ii) Interest rate reduction, including use of the limited resource
rate program;
(iii) Deferral;
(iv) Write-down of the principal or accumulated interest; or
(v) Any combination of paragraphs (i) through (iv) of this
definition.
Related by blood or marriage is being connected to one another as
husband, wife, parent, child, brother, sister, uncle, aunt,
grandparent, son, daughter, sibling, stepparent, stepson, stepdaughter,
stepbrother, stepsister, half-brother, half-sister, son-in-law,
daughter-in-law, father-in-law, mother-in-law, nephew, niece, cousin,
grandson, granddaughter, or the spouses of any of those individuals.
``Related by blood or marriage'' is used for consistency with a
requirement in the CONACT. It has the same meaning as the word
``relative'' for the Farm Loan Programs regulations in this Chapter.
Relative means the spouse and anyone having one of the following
relationships to an applicant or borrower: parent, son, daughter,
sibling, stepparent, stepson, stepdaughter, stepbrother, stepsister,
half-brother, half-sister, son-in-law, daughter-in-law, father-in-law,
mother-in-law, uncle, aunt, nephew, niece, cousin, grandparent,
grandson, granddaughter, or the spouses of any of those individuals.
Relative has the same meaning as the term ``related by blood or
marriage'' for the Farm Loan Programs regulations in this Chapter.
* * * * *
Subpart C--Progression Lending
Sec. 761.102 [Amended]
0
3. In Sec. 761.102, amend paragraph (b)(1) by removing the word
``year-end analyses,''.
0
4. Amend Sec. 761.103 as follows:
0
a. In paragraph (a)(3), remove the word ``progressive'' and add
``progression'' in its place, and remove the words ``in the shortest
time practicable'' and add ``at reasonable rates and terms'' in their
place; and
0
b. Revise paragraphs (b)(3) and (c)(3) and (4).
The revisions read as follows:
Sec. 761.103 Farm assessment.
* * * * *
(b) * * *
(3) The short- and long-term goals of the operation, including
goals to reasonably increase working capital reserves and savings,
including reasonable savings for retirement and education, to support
operational stability and growth, and goals for progression towards
graduation to commercial credit or eventual self-financing;
* * * * *
(c) * * *
(3) The short- and long-term goals of the operation, including
goals to reasonably increase working capital reserves and savings,
including reasonable savings for retirement and education, to support
operational stability and growth, and goals for progression towards
graduation to commercial credit or eventual self-financing;
(4) The short- and long-term financial viability of the farming
operation, including a marketing plan, and available production
history, as applicable;
* * * * *
0
5. Amend Sec. 761.104 as follows.
0
a. Redesignate paragraphs (f) and (g) as paragraphs (g) and (h),
respectively;
0
b. Add new paragraph (f); and
0
c. In newly redesignated paragraph (g), remove ``paragraph (g)'' and
add in its place ``paragraph (h)'' in its place.
The addition reads as follow.
Sec. 761.104 Developing the farm operating plan.
* * * * *
(f) Development of farm operating plans and determination of
appropriate repayment terms must include
[[Page 65038]]
consideration of a reasonable amount of cash flow margin to increase
working capital reserves and savings, including reasonable savings for
retirement and education, to support operational stability and growth.
* * * * *
0
6. Amend Sec. 761.105 as follows:
0
a. Revise the section heading;
0
b. In paragraph (a), remove the words ``a year-end'' and add ``an'' in
its place; and
0
c. Revise paragraph (b).
The revisions read as follows:
Sec. 761.105 Analysis.
* * * * *
(b) The analysis must include a review of the previous production
cycle's actual income, expense, and production performance, as well as
a farm operating plan for the new operating cycle.
PART 762--GUARANTEED FARM LOANS
0
7. The authority citation for part 762 continues to read as follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
0
8. In Sec. 762.120, add paragraph (a)(3) to read as follows:
Sec. 762.120 Applicant eligibility.
(a) * * *
(3) If the debt forgiveness is resolved by repayment of the
Agency's loss, the Agency may still consider the debt forgiveness in
determining the applicant's creditworthiness.
* * * * *
0
9. In Sec. 762.124 revise paragraph (e)(1) to read as follows:
Sec. 762.124 Interest rates, terms, charges, and fees.
* * * * *
(e) * * *
(1) Extended repayment schedules may include equal, unequal, or
balloon installments if needed by a borrower on any guaranteed loan to
establish a new enterprise, develop a farm, recover from a disaster or
an economical reversal, or reasonably increase cash flow margin to
increase working capital reserves and savings, including reasonable
savings for retirement and education.
* * * * *
0
10. Amend Sec. 762.142 as follows:
0
a. In paragraph (c)(1)(iii), remove the words ``the debt of another
lender'' and add ``debt'' in their place;
0
b. In paragraph (c)(3)(ii), remove the words ``to allow another
lender'';
0
c. In paragraph (d)(1), remove the words ``For standard eligible and
CLP lenders, the'' and add ``The'' in their place;
0
d. Revise paragraph (d)(2);
0
e. Remove paragraph (d)(3);
0
f. Redesignate paragraphs (d)(4) through (10) as paragraphs (d)(3)
through (9), respectively; and
0
g. Revise newly redesignated paragraph (d)(5).
The revisions read as follows.
Sec. 762.142 Servicing related to collateral.
* * * * *
(d) * * *
(2) The transferee must apply for a loan in accordance with Sec.
762.110, and provide any other information requested by the Agency to
evaluate the transfer and assumption request. A current appraisal is
required unless the lien position of the guaranteed loan will not
change.
* * * * *
(5) The transferee must meet the eligibility requirements and loan
limitations for the loan being transferred, including all requirements
relating to loan rates and terms, loan security, feasibility, and
environmental and other laws applicable to an applicant under this
part, except for a current appraisal when permitted in paragraph (d)(2)
of this section.
* * * * *
0
11. Amend Sec. 762.145 as follows:
0
a. In paragraph (a)(3)(i), remove the words ``write down'' and add
``write-down'' in their place;
0
b. In paragraph (a)(3)(ii), remove the word ``writedown'' and add
``write-down'' in its place;
0
c. In paragraph (a)(3)(iii), remove the words ``write down'' and add
``write-down'' in its place;
0
d. Revise paragraph (b)(4);
0
e. In paragraph (b)(7), remove the words ``take a lien on all assets
and'';
0
f. In paragraph (e), remove the word ``writedown'' wherever it appears
and add ``write-down'' in its place;
0
g. In paragraph (e)(1), remove the words ``write down'' and add
``write-down'' in its place;
0
h. In paragraph (e)(2), remove the word ``writedown'' and add ``write-
down'' in its place;
0
i. In paragraph (e)(7), remove the word ``writedown'' and add ``write-
down'' in its place both times it appears;
0
j. In paragraph (e)(8), remove the word ``writedown'' and add ``write-
down'' in its place;
0
k. In paragraph (e)(9), remove the word ``writedown'' wherever it
appears and add ``write-down'' in its place;
0
l. In paragraph (e)(10), remove the word ``writedown'' and add ``write-
down'' in its place both times it appears;
0
m. In paragraph (e)(12)(ii), remove the word ``writedown'' and add
``write-down'' its place;
0
n. In paragraph (e)(12)(iii) introductory text, remove the word
``writedown'' and add ``write-down'' in its place and
0
o. In paragraph (e)(12)(iii)(C), remove the word ``writedown'' and add
``write-down'' in its place.
The revisions read as follows:
Sec. 762.145 Restructured guaranteed loans.
* * * * *
(b) * * *
(4) Loans can be restructured using a balloon payment, equal
installments, or unequal installments. Under no circumstances may crops
or livestock, other than breeding livestock, be the only security for a
loan to be rescheduled using a balloon payment. If a balloon payment is
used, the projected value of the security must indicate that the loan
will be fully secured when the balloon payment becomes due. The
projected value will be derived from a current appraisal adjusted for
depreciation of depreciable property, such as buildings and other
improvements, that occurs until the balloon payment is due. For other
security, a current appraisal is required. The lender is required to
project the security value at the time the balloon payment is due based
on the remaining life of the security, or the depreciation schedule on
the borrower's Federal income tax return. Loans restructured with a
balloon payment that are secured by real estate will have a minimum
term of 5 years, and other loans will have a minimum term of 3 years
before the scheduled balloon payment. If statutory limits on terms of
loans prevent the minimum terms, balloon payments may not be used. If
the loan is rescheduled with unequal installments, a feasible plan, as
defined in Sec. 762.2(b), must be projected for when installments are
scheduled to increase.
* * * * *
Sec. 762.147 [Amended]
0
12. In Sec. 762.147, amend paragraphs (b)(2)(i) and (iv) by removing
the word ``writedown'' and adding ``write-down'' in their places.
Sec. 762.150 [Amended]
0
13. In Sec. 762.150, amend paragraph (j) by removing the word
``writedown'' wherever it appears and adding ``write-down'' in its
place.
PART 764--DIRECT LOAN MAKING
0
14. The authority citation for part 764 continues to read as follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
[[Page 65039]]
Subpart B--Loan Application Process
0
15. In Sec. 764.51, revise paragraphs (b)(6) and (10) to read as
follows:
Sec. 764.51 Loan application.
* * * * *
(b) * * *
(6) Except for CL, documentation that the applicant and each member
of an entity applicant cannot obtain sufficient credit elsewhere on
reasonable rates and terms, including a loan guaranteed by the Agency.
The authorized Agency official will evaluate and document whether or
not rates and terms of available credit in the applicant's region will
result in a reasonable amount of cash flow margin to increase working
capital reserves and savings, including reasonable savings for
retirement and education, to support operational stability and growth;
* * * * *
(10) A legal description of the farm property owned or to be
acquired and, upon Agency request, any leases, contracts, options, and
other agreements related to the operation;
* * * * *
Subpart C--Requirements for All Direct Program Loans
0
16. Amend Sec. 764.101 as follows:
0
a. Revise paragraphs (d), (e)(1), and (i);
0
b. In paragraph (l), remove the word ``ownnership'' and add
``ownership'' in its place.
The revisions read as follows:
Sec. 764.101 General eligibility requirements.
* * * * *
(d) Credit history. The applicant, and all entity members in the
case of an entity, must have acceptable credit history demonstrated by
debt repayment.
(1) As part of the credit history, the Agency will determine
whether the applicant, and all entity members in the case of an entity,
will carry out the terms and conditions of the loan and deal with the
Agency in good faith. In making this determination, the Agency may
examine whether the applicant, and all entity members in the case of an
entity, has properly fulfilled its obligations to other parties,
including other agencies of the Federal Government.
(2) When the applicant, or an entity member in the case of an
entity, caused the Agency a loss by receiving debt forgiveness, the
applicant may be ineligible for assistance in accordance with
eligibility requirements for the specific loan type. If the debt
forgiveness is cured by repayment of the Agency's loss, the Agency may
still consider the debt forgiveness in determining the applicant's
credit worthiness.
(3) A history of failures to repay past debts as they came due will
demonstrate unacceptable credit history when the ability to repay was
within the control of the applicant, or entity member in the case of an
entity. The circumstances in paragraphs (d)(3)(i) through (iv) of this
section, for example, do not automatically indicate an unacceptable
credit history:
(i) Foreclosures, judgments, delinquent payments which occurred
more than 36 months before the application, if no recent similar
situations have occurred, or Agency delinquencies that have been
resolved through loan servicing programs available under 7 CFR part
766;
(ii) Isolated incidents of delinquent payments which do not
represent a general pattern of unsatisfactory or slow payment;
(iii) ``No history'' of credit transactions; and
(iv) Recent foreclosure, judgment, bankruptcy, or delinquent
payment of the applicant, or an entity member in the case of an entity,
when it can be satisfactorily demonstrated that the adverse action or
delinquency was caused by circumstances that were of a temporary nature
and beyond the individual's control; or the result of a refusal to make
full payment because of defective goods or services or other
justifiable dispute relating to the purchase or contract for goods or
services.
* * * * *
(e) * * *
(1) Loan amounts, rates, and terms available in the marketplace.
The authorized Agency official will evaluate and document whether rates
and terms of available credit will result in a reasonable amount of
cash flow margin to increase working capital reserves and savings,
including reasonable savings for retirement and education, to support
operational stability and growth; and
* * * * *
(i) Managerial ability. The applicant, and in the case of an
entity, the individuals holding a majority interest in the entity, must
have sufficient managerial ability to assure reasonable prospects of
loan repayment, as determined by the Agency. Managerial ability must be
demonstrated by:
(1) Education. For example, the applicant or entity member obtained
a 4-year college degree in agricultural business, horticulture, animal
science, agronomy, or other agricultural-related field;
(2) On-the-job training. For example, the applicant or entity
member is currently working on a farm as part of an apprenticeship
program;
(3) Farming experience. For example, the applicant or entity member
has been a manager or operator of a farm business for at least one
entire production cycle or for MLs, made for OL purposes, the applicant
may have obtained and successfully repaid one FSA Youth-OL. Farm
experience of the applicant, without regard to any lapse of time
between the farm experience and the new application, will be taken into
consideration in determining loan eligibility. If farm experience
occurred more than 10 years prior to the date of the new application,
the applicant must demonstrate sufficient on-the-job training or
education within the last 10 years to demonstrate managerial ability;
or
(4) Alternatives for MLs made for OL purposes. Applicants for MLs
made for OL purposes, also may demonstrate managerial ability by one of
the following:
(i) Certification of a past participation with an agriculture-
related organization, such as, but not limited to, 4-H Club, FFA,
beginning farmer and rancher development programs, or Community Based
Organizations, that demonstrates experience in a related agricultural
enterprise; or
(ii) A written description of a self-directed apprenticeship
combined with either prior sufficient experience working on a farm or
significant small business management experience. As a condition of
receiving the loan, the self-directed apprenticeship requires that the
applicant seek, receive, and apply guidance from a qualified person
during the first cycle of production and marketing typical for the
applicant's specific operation. The individual providing the guidance
must be knowledgeable in production, management, and marketing
practices that are pertinent to the applicant's operation, and agree to
form a developmental partnership with the applicant to share knowledge,
skills, information, and perspective of agriculture to foster the
applicant's development of technical skills and management ability.
* * * * *
0
17. In Sec. 764.103, revise paragraph (c) to read as follows:
Sec. 764.103 General security requirements.
* * * * *
(c) An additional amount of security will be required, if
available, to reach a 125 percent security margin. Total loan
[[Page 65040]]
security in excess of what is needed to achieve a security margin of
125 percent will only be taken when it is not practicable to separate
the security, or if necessary to satisfy the requirements of Sec.
764.254(b)(2)(i). Loans that do not require additional security are
down payment loans, MLs, youth loans, and FOs for the purchase of a
farm where the applicant provides a cash down payment equal to 5
percent or greater of the purchase price. Non-real estate assets will
not be taken as additional security for any loan where real estate
serves as adequate security.
0
18. Amend Sec. 764.106 as follows:
0
a. Revise paragraph (d); and
0
b. In paragraph (e), remove the words ``accounts, personal'' and add
``accounts, education savings accounts, personal'' in their place.
The revision reads as follows:
Sec. 764.106 General real estate security requirements.
* * * * *
(d) Unless the applicant provides a written request for an
exemption, when the property includes the primary personal residence
and appurtenances of the applicant or any entity member(s) and:
(1) They are located on a separate parcel of up to the greater of
10 acres or the minimum size that meets all State and local
requirements for a division into a separate legal lot; and
(2) The security requirements of Sec. 764.103(b) can be satisfied
without the use of the primary personal residence and appurtenances;
* * * * *
Subpart D--Farm Ownership Loan Program
Sec. 764.152 [Amended]
0
19. Amend Sec. 764.152 as follows:
0
a. In paragraph (d) introductory text, remove the words ``one or more
members constituting a majority interest'' and add ``at least one
member who will be the operator of the family farm'' in their place;
and
0
b. In paragraph (d)(2), remove the word ``applicant'' and add
``applicant, or in the case of an entity at least one member who will
be the operator of the family farm,'' in its place.
0
20. In Sec. 764.154, revise paragraph (b) to read as follows:
Sec. 764.154 Rates and terms.
* * * * *
(b) Terms. The repayment terms are:
(1) The standard repayment term of an FO will be equal to the
useful life of the security or 40 years, whichever is less. Repayment
terms less than the standard term must be requested by the applicant in
writing. In no event will the term be more than 40 years from the date
of the note. Repayment schedules may include equal installments, or
unequal installments if needed to establish a new enterprise, develop a
farm, recover from a disaster or economic reversal, or reasonably
increase cash flow margin to increase working capital reserves and
savings, including reasonable savings for retirement and education.
Notwithstanding any other provision of this section, repayment
schedules must be designed to ensure the loan is fully secured for the
life of the loan.
(2) The first installment of an FO will be an interest-only
installment scheduled 12 months from the date of loan closing. An
alternative repayment agreement that schedules the first installment
sooner than 12 months from the date of closing, or in an amount greater
than interest-only, may be provided upon written request from the
applicant, or if the Agency determines it necessary to ensure the loan
is fully secured for the life of the loan.
(3) The minimum scheduled installments for the first 3 years of an
FO must be the interest accrued on the principal balance. Interest-only
installments may be permitted for additional years, if determined
necessary by the Agency, to establish a new enterprise where production
income is delayed, to develop a farm, or to recover from a disaster or
economic reversal.
Subpart G--Operating Loan Program
0
21. In Sec. 764.251, revise paragraph (a)(11) to read as follows:
Sec. 764.251 Operating loan uses.
(a) * * *
(11) Costs for minor real estate repairs or improvements, provided
the loan is made primarily for agricultural purposes and can be repaid
within 7 years. In the case of leased property, the applicant must have
a lease to ensure use of the improvement over its useful life or to
ensure that the applicant receives compensation for any remaining
economic life upon termination of the lease.
0
22. Amend Sec. 764.254 as follows:
0
a. Revise paragraphs (a)(4), (b)(1) introductory text, (i), and (2);
and
0
b. Add paragraphs (b)(3) and (4).
The revisions and addition read as follows:
Sec. 764.254 Rates and terms.
(a) * * *
(4) The Agency's Direct ML-OL interest rate on an ML to a beginning
farmer or veteran farmer is available in each Agency office. The
interest rate will be the lower of the regular direct OL interest rate
in effect at the time of loan approval or loan closing, or 5 percent.
(b) * * *
(1) The Agency schedules repayment of OL loans made for annual farm
operating and family living expenses when planned income is projected
to be available.
(i) The term of the loan may not exceed 24 months from the date of
the note, except as provided in paragraph (b)(1)(ii) of this section.
* * * * *
(2) The standard repayment term of all other OLs must be equal to
the useful life of the security or 7 years, whichever is less.
Repayment terms less than the standard term must be requested by the
applicant in writing. In no event will the term of the loan exceed 7
years from the date of the note. Repayment schedules may include equal
installments, or unequal or balloon installments if needed to establish
a new enterprise, develop a farm, recover from a disaster or economic
reversal, or reasonably increase cash flow margin to increase working
capital reserves and savings, including reasonable savings for
retirement and education. Notwithstanding any other provision of this
section, repayment schedules must be designed to ensure the loan is
fully secured for the life of the loan. Loans with balloon
installments:
(i) Must be secured by an amount projected at the time of loan
closing to be at least equal to the direct loan balance outstanding at
the time the balloon installment comes due, which may exceed the
additional security requirements of Sec. 764.103(c) of this chapter.
Total loan security in excess of the requirements of this provision
(paragraph (b)(2)(i) of this section) will only be taken when it is not
practicable to separate the security. Crops, livestock other than
breeding stock, or livestock products produced are not adequate
collateral for such loans.
(ii) Are only authorized when the applicant can project the ability
to refinance or restructure the remaining debt at the time the balloon
payment comes due based on the expected financial condition of the
operation, the depreciated value of the collateral, and the principal
balance on the loan.
(iii) Are not authorized when loan funds are used for real estate
repairs or improvements.
(3) The first installment of an OL, for purposes other than annual
farm operating and family living expenses,
[[Page 65041]]
will be an interest-only installment scheduled 12 months from the date
of loan closing. An alternative repayment agreement that schedules the
first installment sooner than 12 months from the date of closing, or in
an amount greater than interest-only, may be provided upon written
request from the applicant, or if the Agency determines it necessary to
ensure the loan is fully secured for the life of the loan.
(4) The minimum scheduled installments for the first 3 years of an
OL, for purposes other than annual farm operating and family living
expenses, must be the interest accrued on the principal balance.
Interest-only installments may be permitted for additional years, if
determined necessary by the Agency, to establish a new enterprise where
production income is delayed, to develop a farm, or to recover from a
disaster or economic reversal.
0
23. Amend Sec. 764.255 as follows:
0
a. Revise paragraph (b) introductory text;
0
b. In paragraph (c)(1), remove ``amount, and up to 150 percent, when
available'' and add ``amount'' in its place.
0
c. Revise paragraph (c)(2); and
0
d. Add paragraph (d).
The revisions and addition read as follows:
Sec. 764.255 Security requirements.
* * * * *
(b) Except for MLs or OLs made for the purpose of minor real estate
repairs or improvements, by a:
* * * * *
(c) * * *
(2) For loans made for purposes other than annual operating
purposes or for the purpose of minor real estate repairs or
improvements, loans must be secured by a first lien on farm property or
products purchased with loan funds and having a security value of at
least 100 percent of the loan amount.
* * * * *
(d) For OLs made for the purpose of minor real estate repairs or
improvements, the Agency must obtain a lien on the real estate repaired
or improved in accordance with the requirements of Sec. 764.104, while
also ensuring the provisions of Sec. 764.103(b) requiring adequate
security are satisfied.
Subpart H--Youth Loan Program
Sec. 764.303 [Amended]
0
24. In Sec. 764.303, amend paragraph (b) by removing ``$5,000'' and
adding ``$10,000'' in its place.
Subpart I--Emergency Loan Program
Sec. 764.352 [Amended]
0
25. Amend Sec. 764.352 as follows:
0
a. In paragraph (f) remove the words ``write down'' and add ``write-
down'' their place; and
0
b. In paragraph (h) remove the words ``at least 30 percent''.
Sec. 764.353 [Amended]
0
26. In Sec. 764.353, amend paragraph (c)(4) by removing the words
``other disaster'' and removing the word ``production''.
0
27. Amend Sec. 764.354 as follows:
0
a. Revise paragraphs (b)(1), (3), (4), and (5); and
0
b. Add paragraphs (b)(6) and (7).
The revisions and addition read as follows.
Sec. 764.354 Rates and terms.
* * * * *
(b) * * *
(1) The Agency schedules repayment of EMs based on the useful life
of the security and the type of loss.
* * * * *
(3) EMs for annual farm operating and family living expenses,
except expenses associated with establishing a perennial crop that are
subject to paragraph (b)(4), must be repaid within 12 months. The
Agency may extend this term to not more than 24 months to accommodate
the production cycle of the agricultural commodities.
(4) The standard repayment term of an EM for production losses or
physical losses to chattel security (including assets with an expected
life between 1 and 7 years) will be equal to the useful life of the
security or 7 years, whichever is less. Repayment terms less than the
standard term must be requested by the applicant in writing. The Agency
may extend the repayment term up to a total length not to exceed 20
years, if adequate security is available, and repayment schedules may
include equal installments, or unequal installments, if needed to
establish a new enterprise, develop a farm, recover from a disaster or
economic reversal, or reasonably increase cash flow margin to increase
working capital reserves and savings, including reasonable savings for
retirement and education, and security is adequate to support the term
of the loan. Notwithstanding any other provision of this section,
repayment schedules must be designed to ensure the loan is fully
secured for the life of the loan.
(5) The standard repayment term of an EM for physical losses to
real estate will be equal to the useful life of the security or 40
years, whichever is less. Repayment terms less than the standard term
must be requested by the applicant in writing. In no event will the
term be more than 40 years from the date of the note, and repayment
schedules may include equal installments, or unequal installments, if
needed to establish a new enterprise, develop a farm, recover from a
disaster or economic reversal, or reasonably increase cash flow margin
to increase working capital reserves and savings, including reasonable
savings for retirement and education, and security is adequate to
support the term of the loan. Notwithstanding any other provision of
this section, repayment schedules must be designed to ensure the loan
is fully secured for the life of the loan.
(6) The first installment of an EM, for purposes other than annual
farm operating and family living expenses, will be an interest-only
installment scheduled 12 months from the date of loan closing. An
alternative repayment agreement that schedules the first installment
sooner than 12 months from the date of closing, or in an amount greater
than interest-only, may be provided upon written request from the
applicant, or if the Agency determines it necessary to ensure the loan
is fully secured for the life of the loan.
(7) The minimum scheduled installments for the first 3 years of an
EM, for purposes other than annual farm operating and family living
expenses, must be the interest accrued on the principal balance.
Interest-only installments may be permitted for additional years, if
determined necessary by Agency, to establish a new enterprise where
production income is delayed, to develop a farm, or to recover from a
disaster or economic reversal.
Subpart J--Loan Decision and Closing
Sec. 764.402 [Amended]
0
28. In Sec. 764.402, amend paragraph (d)(3)(vii) by removing the words
``related as a family member'' and adding ``a relative'' in their
place.
Subpart K--Borrower Training and Training Vendor Requirements
Sec. 764.451 [Amended]
0
29. In Sec. 764.451, amend the undesignated introductory paragraph by
removing the words ``production and financial management'' and adding
it with ``borrower'' in its place.
Sec. 764.452 [Amended]
0
30. Amend Sec. 764.452 as follows:
0
a. In paragraph (a), remove the words ``production and'';
[[Page 65042]]
0
b. In paragraph (a)(2), remove the words ``production or''
0
c. Remove paragraphs (b) and (d);
0
d. Redesignate paragraph (c) as paragraph (b); and
0
e. Redesignate paragraphs (e) through (g) as paragraphs (c) through
(e).
Sec. 764.453 [Amended]
0
31. Amend Sec. 764.453 as follows:
0
a. In paragraph (b), remove the words ``production, financial
management, or both,'' and add ``financial management'' in their place.
0
b. In paragraph (c), remove the words ``production and''.
Sec. 764.455 [Amended]
0
32. Amend Sec. 764.455 by removing the words ``production and''.
Sec. 764.457 [Amended]
0
33. Amend Sec. 764.457 as follows:
0
a. Remove paragraph (b)(6);
0
b. In paragraph (b)(4), add the word ``and'' at the end;
0
c. In paragraph (b)(5), remove the word ``; and'' and add a period in
its place;
0
d. Remove paragraph (c)(3); and
0
e. In paragraph (c)(1), remove the word ``planning.'' and adding
``planning; or'' in its place.
PART 765--DIRECT LOAN SERVICING--REGULAR
0
34. The authority citation for part 765 continues to read as follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Subpart C--Borrower Graduation
0
35. In Sec. 765.101, revise paragraph (c) to read as follows:
Sec. 765.101 Borrower graduation requirements.
* * * * *
(c) The borrower must submit all information that the Agency
requests in conjunction with the review of the borrower's financial
condition, including Federal income tax returns.
* * * * *
0
36. Revise Sec. 765.102 to read as follows:
Sec. 765.102 Borrower non-compliance with graduation requirements.
(a) Borrower failure to fulfill all graduation requirements,
including failure to submit information as specified in Sec.
765.101(c) of this chapter, within the time-period specified by the
Agency constitutes default on the loan. Except as provided in paragraph
(b) of this section, the Agency will accelerate the borrower's loan
without offering servicing options provided in 7 CFR part 766 if any
outstanding direct loan was closed prior to September 25, 2024.
(b) If all outstanding direct loans were closed after September 25,
2024, or when the borrower makes a written request in response to the
Agency's notification of intent to accelerate within provided
timeframes, the Agency will convert the debt to a non-program loan
under the following conditions:
(1) It is in the interest of the Agency;
(2) The debt will be subject to the interest rate for non-program
loans in effect at the time of default;
(3) The debt will be serviced as a non-program loan; and
(4) The term of the non-program loan will be:
(i) For FOs, the Agency will schedule repayment in equal
installments over the lesser of the remaining number of years on the
loan, the useful life of security, or 25 years.
(ii) For OLs, the Agency will schedule repayment in equal
installments over the lesser of the remaining number of years on the
loan, the useful life of security or 5 years.
Subpart E--Protecting the Agency's Security Interest
0
37. Amend Sec. 765.205 as follows:
0
a. Redesignate paragraphs (b) through (d) as paragraphs (c) through
(e), respectively; and
0
b. Add a new paragraph (b).
The addition reads as follows.
Sec. 765.205 Subordination of liens.
* * * * *
(b) Incomplete applications. Incomplete applications will be
processed in accordance with 7 CFR 764.52.
* * * * *
Subpart F--Required Use and Operation of Agency Security
0
38. Amend Sec. 765.252 as follows:
0
a. In paragraph (a)(3), remove the word ``and'';
0
b. In paragraph (a)(4), remove the words ``the operation'' and add
``the Agency's security'' in their place, and remove the period at the
end of the paragraph.
0
c. In paragraph (a)(5), remove the word ``Government'' and add
``Agency'' in its place; and
0
d. Revise paragraph (c).
The revision reads as follows.
Sec. 765.252 Lease of security.
* * * * *
(c) Lease of chattel security. The borrower must request prior
approval to lease chattel security. The Agency will approve requests
provided the following conditions are met:
(1) The term of lease does not exceed 12 months and does not
automatically renew;
(2) The lease does not contain an option to purchase;
(3) 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;
(4) The lease must be in the best interest of the Agency as
determined by the authorized Agency official;
(5) Leased security must be accessible and readily identifiable at
all times. Leased livestock must be branded, tagged, or be otherwise
specifically identifiable; and
(6) The lease and any contracts or agreements in connection with
the lease must be reviewed and approved by the Agency.
Sec. 765.303 [Amended]
0
39. Amend Sec. 765.303 as follows:
0
a. In paragraph (c)(2) remove the word ``needs'' and add ``farming
needs'' in its place; and
0
b. In paragraph (c)(3) remove the word ``needs'' and add ``farming
needs'' in its place.
0
40. In Sec. 765.305, revise paragraph (c) to read as follows:
Sec. 765.305 Release of security interest.
* * * * *
(c) The Agency will release its lien on chattel security without
compensation, after written request from the borrower, provided all the
following criteria are satisfied:
(1) The borrower is current on all loan accounts with FSA and has
not received PLS, DBSA, or DSA on any loan within the last 36 months;
(2) The borrower has paid in full scheduled direct term loan
installments that include principal reduction in each of the last 3
calendar years;
(3) After the release, the security margin on each Agency direct
loan will be 125 percent (or more, if it is not practicable to separate
the property, if necessary to ensure the loan is fully secured for the
life of the loan, or if the borrower requests only a portion of Agency
security to be released). The value of the retained and released
security will normally be based on appraisals obtained as specified in
Sec. 761.7 of this chapter; however, well-documented recent sales of
similar properties can be used if the Agency determines a supportable
decision can be made without current appraisals;
(4) Any asset requested for release must serve only as security for
term
[[Page 65043]]
loan(s) that have been outstanding for at least the prior 36 months and
cannot serve as adequate security for another existing Agency direct
loan; and
(5) Except for CL, the borrower is unable to fully graduate as
specified in Sec. 765.101.
Subpart H--Partial Release of Real Estate Security
0
41. Amend Sec. 765.351 as follows:
0
a. In paragraph (a)(3), remove the words ``received by the borrower''
and add ``paid'' in their place; and
0
b. Revise paragraph (f).
The revision reads as follows.
Sec. 765.351 Requirements to obtain Agency consent.
* * * * *
(f) Release without compensation. Real estate security may be
released by FSA without compensation upon written request from the
borrower when the requirements of paragraph (a) of this section, except
paragraph (a)(3) of this section, are met, and all the following
criteria are satisfied:
(1) The borrower is current on all loan accounts with FSA and has
not received PLS, DBSA, or DSA on any loan within the last 36 months;
(2) The borrower has paid in full direct term loan installments
that include principal reduction in each of the last 3 calendar years;
(3) The property released will not interfere with access to or
operation of the remaining farm;
(4) Essential buildings and facilities will not be released if they
reduce the utility or marketability of the remaining property;
(5) Any issues arising due to legal descriptions, surveys,
environmental concerns, utilities are the borrower's responsibility,
and no costs or fees will be paid by FSA;
(6) After the release, the security margin on each Agency direct
loan will be 125 percent (or more, if it is not practicable to separate
the property, if necessary to ensure the loan is fully secured for the
life of the loan, or if the borrower requests only a portion of Agency
security to be released). The value of the retained and released
security will normally be based on appraisals obtained as specified in
Sec. 761.7 of this chapter; however, well-documented recent sales of
similar properties can be used if the Agency determines a supportable
decision can be made without current appraisals;
(7) Any asset requested for release must serve only as security for
term loan(s) that have been outstanding for at least the prior 36
months and cannot serve as adequate security for another existing
Agency direct loan; and
(8) Except for CL, the borrower is unable to fully graduate as
specified in Sec. 765.101.
0
42. In Sec. 765.352, add paragraph (a)(4) to read as follows:
Sec. 765.352 Use of proceeds.
* * * * *
(4) To pay capital gains taxes on real estate transactions when the
following conditions are met:
(i) The borrower is unable to obtain commercial credit at
reasonable rates and terms to pay the capital gains taxes;
(ii) The Agency approves the amount to be retained to pay capital
gains taxes;
(iii) The remaining Agency debt is fully secured;
(iv) All other lienholders will:
(A) Be fully satisfied from the sale, or
(B) Consent to the use of proceeds to be used to pay capital gains
taxes;
(v) At the borrower's expense, funds will be held in escrow, or
deposited in a supervised bank account in accordance with subpart B of
part 761 of this chapter; and
(vi) Funds that are not used within 18 months towards the capital
gains taxes will be remitted to the Agency.
Subpart I--Transfer of Security and Assumption of Debt
0
43. Amend Sec. 765.402 as follows:
0
a. Revise paragraphs (b), (d), and (e)(1); and
0
b. Add paragraphs (f) and (g).
The revisions and additions read as follows.
Sec. 765.402 Transfer of security and loan assumption on same rates
and terms.
* * * * *
(b) A relative of the borrower or an entity comprised solely of
relatives of the borrower assumes the debt along with the original
borrower;
* * * * *
(d) A new entity consisting of the same members as the borrower
entity buys the borrower entity and continues to operate the farm in
accordance with loan requirements; or
(e) * * *
(1) An individual borrower, the transferee must be a relative of
the original borrower or an entity in which the entity members are
comprised solely of relatives of the original borrower.
* * * * *
(f) Application requirements. Transferees must submit a complete
application in accordance with Sec. 764.51 of this chapter.
(g) Security. All security must be transferred to the transferee
with possession taken in accordance with the requirements of part 764
of this chapter for the type of loan being assumed.
0
44. In Sec. 765.403, add paragraphs (f) and (g) to read as follows:
Sec. 765.403 Transfer of security to and assumption of debt by
eligible applicants.
* * * * *
(f) Application requirements. Transferees must submit a complete
application in accordance with 7 CFR 764.51.
(g) Security. All security must be transferred to the transferee
with possession taken in accordance with the requirements of part 764
of this chapter for the type of loan being assumed.
0
45. In Sec. 765.404 revise paragraph (d) and add paragraph (g) to read
as follows.
Sec. 765.404 Transfer of security to and assumption of debt by
ineligible applicants.
* * * * *
(d) Down payment. Non-program transferees must make a down payment
to the Agency of not less than 10 percent of the lesser of the market
value or unpaid debt.
* * * * *
(g) Security. All security must be transferred to the transferee
with possession taken in accordance with the requirements of part 764
of this chapter for the type of loan being assumed.
PART 766--DIRECT LOAN SERVICING--SPECIAL
0
46. The authority citation for part 766 continues to read as follows:
Authority: 5 U.S.C. 301, 7 U.S.C. 1989, and 7 U.S.C. 1981d(c).
Subpart A--Overview
0
47. In Sec. 766.1, revise paragraph (b)(1)(i) to read as follows.
Sec. 766.1 Introduction.
* * * * *
(b) * * *
(1) * * *
(i) May not receive DSA under subpart B of this part or DBSA under
subpart J of this part;
* * * * *
Subpart B--Disaster Set-Aside
Sec. 766.52 [Amended]
0
48. Amend Sec. 766.52 as follows:
0
a. In paragraph (b)(3) remove the number ``90'' and add ``150'' in its
place.
0
b. In paragraph (b)(6) remove the words ``a DSA'' and add ``a DBSA or
DSA'' in its place.
0
49. Revise Sec. 766.54(b)(2) to read as follows:
[[Page 65044]]
Sec. 766.54 Borrower application requirements.
* * * * *
(b) * * *
(2) The borrower must provide any additional information requested
by the Agency.
Sec. 766.56 [Removed]
0
50. Remove Sec. 766.56.
Subpart C--Loan Servicing Programs
0
51. Amend Sec. 766.101 by adding paragraph (e) to read as follows:
Sec. 766.101 Initial Agency notification to borrower of loan
servicing programs.
* * * * *
(e) SED extension authority. In extraordinary circumstances, after
the application period described in paragraphs (d)(2) and (3) of this
section has expired, the SED may extend the application deadline when
requested by the borrower in writing.
0
52. Amend Sec. 766.102(a) as follows:
0
a. Remove paragraph (a)(1);
0
b. Redesignate paragraphs (a)(2) through (8) as paragraphs (a)(1)
through (7), respectively;
0
c. In newly redesignated paragraph (a)(4) remove the words ``subpart G
of 7 CFR part 1940'' and add ``part 799 of this chapter'' in their
place;
0
d. In newly redesignated paragraph (a)(6), remove the words
``statements; and'' and add ``statements;'' in their place;
0
e. In newly redesignated paragraph (a)(7), remove the period at the end
and add ``; and'' in its place; and
0
f. Add new paragraph (a)(8).
The addition reads as follows:
Sec. 766.102 Borrower application requirements.
(a) * * *
(8) Upon Agency request, any leases, contracts, options, and other
agreements related to the operation.
0
53. In Sec. 766.104, amend paragraph (a)(1) as follows:
0
a. In paragraph (a)(1)(iv), remove the word ``or'' at the end;
0
b. In paragraph (a)(1)(v), remove the period at the end; and replace
with ``; or''; and
0
c. Add paragraph (a)(1)(vi).
The addition reads as follows.
Sec. 766.104 Borrower eligibility requirements.
(a) * * *
(1) * * *
(vi) Catastrophic medical expenses for the care of a family member
of the borrower or entity member, in the case of an entity borrower.
* * * * *
Sec. 766.105 [Amended]
0
54. Amend Sec. 766.105 as follows:
0
a. In paragraph (a)(4), remove the word ``Writedown'' and add ``Write-
down'' in its place; and
0
b. In paragraph (c)(1)(i), remove the word ``writedown'' and add
``write-down'' in its place.
Sec. 766.107 [Amended]
0
55. Amend Sec. 766.107 as follows:
0
a. In paragraph (a)(9), add ``or J'' after ``subpart B'', and remove
the words ``deferral or DSA'' and add ``deferral, DBSA, or DSA'' in
their place; and
0
b. In paragraph (b)(6), remove the words ``subpart B of'' and add
``subpart B or J of'' in their place, and remove the words ``deferral
or DSA'' and add ``deferral, DBSA, or DSA'' in their place.
0
56. Amend Sec. 766.111 as follows:
0
a. Revise the section heading;
0
b. In paragraph (a), introductory text, remove the word ``writedown''
and add ``write-down'' in its place;
0
c. In paragraph (b), introductory text, remove the word ``writedown''
and adding ``write-down'' in its place;
0
d. Revise paragraph (b)(1);
0
e. In paragraph (b)(3), remove the word ``writedown'' and add ``write-
down'' in its place.
The revisions read as follows:
Sec. 766.111 Write-down.
* * * * *
(b) * * *
(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-write-down
servicing offer and waive the right to a write-down offer when the
write-down offer will require additional time and appraisals to fully
develop. If after obtaining an appraisal a feasible plan is achieved
with and without a write-down and the borrower meets all the
eligibility requirements, both options will be offered, and the
borrower may choose one option.
* * * * *
0
57. Revise Sec. 766.112 to read as follows:
Sec. 766.112 Additional security for restructured loans.
(a) If the borrower is delinquent prior to restructuring, an
additional amount of security will be required, if available, to reach
a 125 percent security margin when the Agency is servicing a loan,
except as provided in paragraph (b) of this section. Total loan
security in excess of what is needed to achieve a security margin of
125 percent will only be taken when it is not practicable to separate
the security.
(b) The Agency will take the best lien obtainable on assets of the
borrower and co-borrowers to meet the 125 percent security margin
requirement, except that the following assets will not be considered
available to meet this requirement:
(1) When taking a lien on an asset will prevent the borrower from
obtaining credit from other sources;
(2) When an asset could have significant environmental problems or
costs as described in part 799 of this chapter;
(3) When the Agency cannot obtain a valid lien;
(4) When an asset is subsistence livestock, cash, special
collateral accounts the borrower uses for the farming operation,
retirement accounts, education savings accounts, personal vehicles
necessary for family living, household contents, or small equipment
such as hand tools and lawn mowers; or
(5) When a contractor holds title to a livestock or crop
enterprise, or the borrower manages the enterprise under a share lease
or share agreement.
0
58. In Sec. 766.115, revise paragraphs (a)(1), (2) introductory text,
(3) introductory text, and (3)(ii) to read as follows.
Sec. 766.115 Challenging the Agency appraisal.
(a) * * *
(1) Obtain a USPAP compliant technical appraisal review prepared by
a State Certified General Appraiser of the Agency's appraisal and
provide it to the Agency within 90 days of the request for
reconsideration or appeal and prior to reconsideration or the appeal
hearing;
(2) Obtain an independent appraisal within 90 days of the request
for reconsideration or appeal request and completed in accordance with
Sec. 761.7 as part of the request or reconsideration or appeals
process. The borrower must:
* * * * *
(3) Use the second appraisal completed under paragraph (a)(2) of
this section to negotiate the Agency's appraisal.
* * * * *
(ii) If the difference between the two appraisals is greater than
five percent, the borrower may request a third appraisal within 30 days
from the date the second appraisal is provided to the Agency. The
Agency and the borrower will share the cost of the third appraisal
[[Page 65045]]
equally. The average of the two appraisals closest in value will serve
as the final value.
* * * * *
0
59. Add Sec. 766.120 to read as follows:
Sec. 766.120 Extending maturity date and installment schedule for
direct loans with a balloon payment.
(a) At a borrower's written request, the maturity date and
installment schedule of a direct term loan with a balloon payment may
be extended for up to an additional 8 years from the original maturity
date using an addendum to the promissory note when the:
(1) Loan was originally amortized for no more than 15 years with a
balloon payment scheduled in the final year of the loan;
(2) Loan has not received PLS, DBSA, or DSA;
(3) Borrower has made all scheduled loan installments in the last
36 months;
(4) Balloon payment is due in less than 12 months;
(5) Borrower does not have an outstanding DBSA or DSA on any loan;
(6) Borrower has not received PLS on any loan in the last 36
months;
(7) Borrower has only had equal installments scheduled on any
direct term loan in the last 36 months;
(8) Borrower's direct loans are fully secured with each loan having
a security value of at least 100 percent of the remaining balance of
the loan;
(9) Borrower is unable to partially or fully graduate;
(10) Borrower has acted in good faith;
(11) Borrower is not otherwise financially distressed or
delinquent;
(12) Borrower must pay a portion of the interest due on the loan;
and
(13) Addendum is signed by the borrower before the original
maturity date.
(b) In no event may the loan exceed applicable term limits
described in this part.
Subpart E--Servicing Shared Appreciation Agreements and Net
Recovery Buyout Agreements
Sec. 766.201 [Amended]
0
60. In Sec. 766.201, amend paragraphs (a)(2) and (b) introductory text
by removing the word ``writedown'' and add ``write-down'' in its
places.
Sec. 766.203 [Amended]
0
61. In Sec. 766.203, amend paragraphs (a)(1), (2), and (c) by removing
the word ``writedown'' and adding ``write-down'' in its places.
Subpart H--Loan Liquidation
Sec. 766.351 [Amended]
0
62. In Sec. 766.351, amend paragraph (a)(3) by removing the words
``family member'' and adding ``relative'' in their place.
Sec. 766.356 [Amended]
0
63. In Sec. 766.356, amend paragraph (b)(1)(iii)(B) by removing the
word ``writedown'' and adding ``write-down'' in its place.
0
64. Add subpart J, consisting of Sec. Sec. 766.451 to 766.458, to read
as follows:
Subpart J--DBSA
Sec.
766.451 General.
766.452 Eligibility.
766.453 DBSA amount limitations.
766.454 Borrower application requirements.
766.455 Borrower acceptance of DBSA.
766.456 Payments toward DBSA installments.
766.457 Canceling a DBSA agreement.
766.458 Reversal of DBSA.
Sec. 766.451 General.
(a) DBSA is available to borrowers with at least one outstanding
program loan authorized in subtitle A, B, or C of the CONACT (the loan
must be an OL, FO, CL, SW, or EM), and who are a delinquent borrower or
financially distressed borrower.
(b) DBSA is not intended to circumvent other servicing available
under this part.
Sec. 766.452 Eligibility.
(a) Borrower eligibility. The borrower must meet all the following
requirements to be eligible for DBSA:
(1) The borrower must currently be operating the farm. Farmers who
have rented out their land base for cash are not considered to be
operating the farm.
(2) The borrower must have acted in good faith, and the borrower's
inability to make the current or upcoming scheduled loan payments must
be for reasons not within the borrower's control.
(3) The borrower cannot have more than one DBSA on each loan.
(4) The borrower does not have sufficient income available to pay
all family living and farm operating expenses, other creditors, and
debts to the Agency. This determination will be based on:
(i) The borrower's actual production, income and expense records;
and
(ii) Any other records required by the Agency;
(5) For the next production cycle, the borrower must develop a
feasible plan showing that the borrower will at least be able to pay
all operating expenses and taxes due during the year, essential family
living expenses, and meet scheduled payments on all debts, including
Agency debts. The borrower must provide documentation required to
support the farm operating plan.
(6) The borrower must not be in non-monetary default.
(7) The borrower must not be ineligible due to disqualification
resulting from Federal crop insurance violation according to 7 CFR part
718.
(8) The borrower must not become 165 days past due before the
appropriate Agency DBSA documents are executed.
(b) Loan eligibility. The loan must meet all the following
requirements to be eligible for DBSA:
(1) To be considered for DBSA the loan must have been either an OL,
FO, CL, SW or EM outstanding prior to September 25, 2024.
(2) All of the borrower's program and non-program loans must be
current after the Agency completes DBSA for the scheduled payment
installment.
(3) All FLP loans must either be current or less than 150 days past
due at the time the complete application for DBSA is received by the
Agency.
(4) The Agency has not accelerated the borrower's account.
(5) For any loan that will receive DBSA, the remaining term of the
loan must equal or exceed 2 years from the due date of the DBSA
agreement.
(6) The loan must not have an existing DBSA or DSA in place.
(7) The loan must not have been consolidated with any other loan
that would not be eligible for DBSA on its own merits.
Sec. 766.453 DBSA amount limitations.
(a) The DBSA amount is limited to the lesser of:
(1) The amount of the delinquent installment or upcoming scheduled
installment; or
(2) The amount the borrower is unable to pay the Agency. Borrowers
are required to pay any portion of an installment they are able to pay.
(b) The amount set aside will be the unpaid balance remaining on
the installment at the time DBSA is complete. The amount will include
the unpaid interest and any principal that would be credited to the
account as if the installment were paid on the due date, taking into
consideration any payments applied to principal and interest since the
due date.
(c) Recoverable cost items may not be set aside.
[[Page 65046]]
Sec. 766.454 Borrower application requirements.
(a) Requests for DBSA. To request DBSA:
(1) A borrower must submit a request for DBSA to the Agency in
writing.
(2) All borrowers liable for the loan must sign the DBSA request.
(b) Required financial information. When requesting DBSA:
(1) The borrower must submit actual production, income, and expense
records for the current and upcoming production cycle unless the Agency
already has that information for the borrower.
(2) The borrower must provide any additional information requested
by the Agency.
Sec. 766.455 Borrower acceptance of DBSA.
Subject to the 165-calendar day limitation in Sec. 766.452(a)(8),
the borrower must execute the appropriate Agency documents within 45
days after the borrower receives notification of Agency approval of
DBSA, which will be within 30 days of having submitted a complete
application.
Sec. 766.456 Payments toward DBSA installments.
(a) Interest accrual. Interest will accrue on any principal portion
of the DBSA installment at the rate of one eighth of a percent.
(b) Due date. The DBSA amount, including interest accrued on the
principal portion of the set-aside, is due on or before the final due
date of the loan.
(c) Applying payments. The Agency will apply borrower payments
toward DBSA installments first to interest and then to principal.
Sec. 766.457 Canceling a DBSA agreement.
(a) The Agency will cancel a DBSA agreement if the Agency takes any
PLS action on the loan.
(b) The Agency will cancel a DBSA agreement if the borrower pays
the:
(1) Current market value buyout in accordance with Sec. 766.113;
or
(2) The set-aside installment.
Sec. 766.458 Reversal of DBSA.
If the Agency determines that the borrower received an unauthorized
DBSA, the Agency will reverse the DBSA agreement after all appeals are
concluded.
0
65. Revise appendix A to subpart C to read as follows:
Appendix A to Subpart C of Part 766--FSA-2510, Notice of Availability
of Loan Servicing to Borrowers Who Are 90 Days Past Due
This appendix A contains the notification (form letter) that the
Farm Service Agency will send to borrowers who are at least 90 days
past due on their loan payments. It provides information about the
loan servicing that is available to the borrower. As stated below on
the notification, the borrower is to respond within 60 days from
receiving the notification (see Sec. 766.101(b)(2) and (d)(2) for
the requirements). The notification is provided here as required by
7 U.S.C. 1981d.
BILLING CODE 3410-E2-P
[[Page 65047]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.001
[[Page 65048]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.002
[[Page 65049]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.003
[[Page 65050]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.004
[[Page 65051]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.005
[[Page 65052]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.006
[[Page 65053]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.007
[[Page 65054]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.008
0
66. Revise appendix B to subpart C to read as follows:
Appendix B to Subpart C of Part 766--FSA-2510-IA, Notice of
Availability of Loan Servicing to Borrowers Who Are 90 Days Past Due
(for Use In Iowa Only)
This appendix contains the notification (form letter) that the
Farm Service Agency will send to borrowers with loans in Iowa who
are at least 90 days past due on their loan payments. It provides
information about the loan servicing that is available to the
borrower. As stated below on the notification, the borrower is to
respond within 60 days from receiving the notification (see Sec.
766.101(b)(2) and (d)(2) for the requirements). The notification is
provided here as required by 7 U.S.C. 1981d.
BILLING CODE 3410-E2-P
[[Page 65055]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.009
[[Page 65056]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.010
[[Page 65057]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.011
[[Page 65058]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.012
[[Page 65059]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.013
[[Page 65060]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.014
[[Page 65061]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.015
[[Page 65062]]
[GRAPHIC] [TIFF OMITTED] TR08AU24.016
BILLING CODE 3410-E2-C
PA768--EQUITABLE RELIEF
0
67. The authority citation for part 768 continues to read as follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Sec. 768.1 [Amended]
0
68. Amend Sec. 768.1 as follows:
0
a. In paragraph (a) introductory text remove the words ``Agency loan
requirements in this chapter'' and add ``direct FO, OL, or EM
requirements'' in its places;
0
b. In paragraph (a)(1) and (a)(1)(ii), remove the words ``in this
chapter''.
0
c. In paragraph (a)(3)(ii), remove the words ``for the loan''.
PART 769--FARM LOAN PROGRAMS RELENDING PROGRAMS
0
69. 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.
Subpart B--Heirs' Property Relending Program
0
70. Amend Sec. 769.157 as follows:
0
a. In paragraph (b) introductory text, remove the words ``instrument,
and'' and add ``instruments, if available,''; and
0
b. Revise paragraph (b)(15).
The revision reads as follow.
Sec. 769.157 Intermediary's relending plan.
* * * * *
(b) * * *
(15) A description of the requirements for maintaining adequate
hazard insurance, workmen's compensation insurance on ultimate
recipients, and flood insurance.
0
71. Revise Sec. 769.159 to read as follows:
Sec. 769.159 Processing loan applications.
(a) Intermediary loan application review. The Agency will review
submitted applications from intermediaries for compliance with the
provisions of this subpart.
(b) 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.
(c) Preferences for loan funding. When necessary to address funding
constraints, the Agency will fund eligible applications from
intermediaries in the order specified in paragraphs (c)(1) through (4)
of this section:
(1) First, to those with not less than 10 years of 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
[[Page 65063]]
already in process, or that have a history of successfully relending
previous HPRP funds;
(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
been funded as specified in paragraphs (c)(1) and (2) of this section,
will be funded in order of the date the application was received.
(d) 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.
0
72. In Sec. 769.162, revise paragraph (a)(1) to read as follows:
Sec. 769.162 Security.
(a) * * *
(1) Primary security for HPRP loan will consist of a pledge by the
intermediary of all assets now or hereafter placed in the HPRP
revolving loan fund, including cash and investments, notes receivable
from ultimate recipients, and the intermediary's security interest in
collateral pledged by ultimate recipients. A first lien in the
intermediary's HPRP revolving loan fund account(s) will be accomplished
by a deposit agreement. The deposit agreement with the depository bank
will perfect the Agency's security interest in the intermediary's
depository accounts. The deposit agreement must be approved by the
Agency. The deposit agreement will not require the Agency's signature
for withdrawals. 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;
* * * * *
0
73. Amend Sec. 769.164 as follows:
0
a. Revise the sectionheading;
0
b. In paragraph (d)(8) remove the word ``and'' at the end of the
paragraph;
0
c. In paragraph (d)(9) introductory text, remove the period at the end
and add a colon it its place;
0
d. In paragraph (d)(9)(i) remove the period at the end and add a
semicolon and the word ``and'' it its place; and
0
e. Revise paragraphs (d)(9)(ii) and (10).
The revisions read as follows:
Sec. 769.164 Post-award requirements.
* * * * *
(d) * * *
(9) * * *
(ii) Any funds that have not been used within 6 months to make
loans to an ultimate recipient must be returned to the Agency unless
the Agency provides a written exception based on evidence satisfactory
to the Agency that funds will be used within an additional 6 months;
(10) All reserves and other cash in the HPRP revolving loan fund
must be deposited in accounts in banks or other financial institutions.
Such accounts must be fully covered by Federal deposit insurance or the
HPRP revolving loan fund must be protected by alternative measures
approved by the Agency. The account must be interest-bearing, if
feasible, and any interest earned on the account remains a part of the
HPRP revolving loan fund; and
* * * * *
PART 770--INDIAN TRIBAL LANDS ACQUISITION LOANS
0
74. The authority citation for part 770 is revised to read as follows:
Authority: 5 U.S.C. 301 and 25 U.S.C. 5136.
0
75. In Sec. 770.6, revise paragraph (b) to read as follows:
Sec. 770.6 Rates and terms.
* * * * *
(b) Interest rate. The interest rate charged by the Agency will be
the lower of the interest rate in effect at the time of the loan
approval or loan closing, which is the current rate available in any
FSA office. The rate will be equal to the interest rate for direct farm
ownership loans not to exceed 5 percent. Except as provided in Sec.
770.10(b) of this chapter, the interest rate will be fixed for the life
of the loan.
Sec. 770.10 [Amended]
0
76. Amend Sec. 770.10(e)(4)(i) to remove the word ``writedown'' and
add ``write-down'' in its place.
Zach Ducheneaux,
Administrator, Farm Service Agency.
[FR Doc. 2024-16828 Filed 8-7-24; 8:45 am]
BILLING CODE 3410-E2-P
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</html>Indexed from Federal Register on August 8, 2024.
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.